National Electronics Holdings Limited — Proxy Solicitation & Information Statement 2007

Oct 30, 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities of Chi Cheung and/or Chinese Estates, you should at once hand this circular, together with the enclosed form of proxy (as the case may be), 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 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.

This joint circular is for information only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of Chinese Estates and/or Chi Cheung.

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CHI CHEUNG INVESTMENT COMPANY, LIMITED 至祥置業有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 127)

(Incorporated in Hong Kong with limited liability)

(Stock Code: 112)

PROPOSED ASSET TRANSACTION

MAJOR TRANSACTION VERY SUBSTANTIAL ACQUISITION, VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

AND

PROPOSED CHANGE OF THE COMPANY NAME OF CHI CHEUNG INVESTMENT COMPANY, LIMITED

Financial Adviser to Chi Cheung

Independent Financial Adviser to the Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders

A letter from the Chi Cheung Independent Board Committee is set out on pages 47 to 48 of this circular. A letter from Evolution Watterson containing its advice to the Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders is set out on pages 49 to 58 of this circular.

A notice convening an extraordinary general meeting of Chi Cheung to be held at Salon I and II, Mezzanine Floor, Grand Hyatt Hong Kong, One Harbour Road, Hong Kong on Wednesday, 28 November 2007 at 10:00 a.m. is set out on pages 465 to 467 of this circular. Whether or not you are able to attend the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time appointed for the holding of such meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

31 October 2007

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Joint Letter	from Chinese Estates Board and Chi Cheung Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
A.	Details of the Asset Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
B.	Reasons for the Asset Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
C.	Listing Rules Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
D.	Financial Impact of the Asset Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
E.	Business Review and Future Prospect of the Chinese Estates Group . . . . . . . . .	43
F.	Business Review and Future Prospect of the Chi Cheung Group . . . . . . . . . . . .	43
G.	Proposed Change of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
H.	EGM of Chi Cheung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
I.	Closure of Register of Members of Chi Cheung . . . . . . . . . . . . . . . . . . . . . . . . . .	46
J.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
K.	Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
Letter from	Chi Cheung Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
Letter from	Evolution Watterson to Chi Cheung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	49
Appendix I	– General Information of Chinese Estates . . . . . . . . . . . . . . . . . . . . . . .	59
Appendix II	– General Information of Chi Cheung. . . . . . . . . . . . . . . . . . . . . . . . . . .	67
Appendix III – Financial Information of the Chinese Estates Group . . . . . . . . . . . .		76
Appendix IV – Accountants’ Report of the Evergo China Group . . . . . . . . . . . . . . .		189
Appendix V	– Accountants’ Report of Honest Right. . . . . . . . . . . . . . . . . . . . . . . . . .	248
Appendix VI – Accountants’ Report of the Chi Cheung Group. . . . . . . . . . . . . . . . .		274
Appendix VII – Pro Forma Financial Information on
	the Enlarged Chi Cheung Group. . . . . . . . . . . . . . . . . . . . . . . . . . . .	363
Appendix VIII – Additional Financial Information on
	the Chi Cheung Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	379
Appendix IX – Management’s Discussion and Analysis
	of the Evergo China Group and Honest Right . . . . . . . . . . . . . . . .	380
Appendix X	– Management’s Discussion and Analysis
	of the Chi Cheung Group
	and the Remaining Chi Cheung Group . . . . . . . . . . . . . . . . . . . . . .	397
Appendix XI – Property Valuation of the Chinese Estates Properties . . . . . . . . . . .		405
Appendix XII – Property Valuation of the Chi Cheung Properties. . . . . . . . . . . . . . .		442
Notice of EGM of Chi Cheung. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		465

– i –

DEFINITIONS

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

• “Asset Transaction”

the transaction in relation to the transfer of the issued share capital of each of Evergo China and Honest Right and each of the CC Sale Companies, the CE Sale Loan, the Permitted Additional CE Sale Loan, the CC Sale Loan, the Permitted Additional CC Sale Loan, and the assumption and novation of the CE Assumed Debt and the CC Assumed Debt as contemplated under the S&P Agreement

• “Bondholder(s)” holder(s) of the CE Bonds

• “Business Day” a day (except Saturday) on which banks are open for business in Hong Kong

• “Canaria” Canaria Holding Limited, being one of the Chi Cheung Companies in which Chi Cheung currently has an indirect 50% attributable equity interest. Canaria, through its wholly-owned subsidiary, is the owner of the Tuen Mun property identified as numbered 6 in the paragraph headed “The Chi Cheung Properties” in the section headed “Information on the Chi Cheung Properties and the Chinese Estates Properties” under the Joint Letter from Chinese Estates Board and Chi Cheung Board of this circular

“Canaria Agreement” the conditional sale and purchase agreement dated 23 March 2007 entered into between Farnell Venture Inc. and Wing Lee Development Limited (as purchasers), both being members of the Chi Cheung Companies, and Fung Ming Venture Limited (the “share vendor”) and Star East Management Limited (the “debt vendor”) (as vendors), both being independent third parties, for the acquisition of (a) 50% of the entire issued share capital of Canaria and (b) certain debts owed by Canaria to the share vendor and by Earn Elite Development Limited to the debt vendor

“Canaria Acquisition” the acquisition of the remaining 50% interest in Canaria by the member of the Chi Cheung Companies under the Canaria Agreement

– 1 –

DEFINITIONS

• “CC Assumed Debt” all sums due and owing to any of the Chinese Estates Companies by any member of the Chinese Estates Group (excluding the Chinese Estates Companies) as at completion of the Asset Transaction, which amount shall not exceed the amount as stated in the CE Completion Accounts

• “CC Completion Accounts” the unaudited combined income statement of each of the Chi Cheung Companies (other than the Excluded CC Companies) for the period from 1 January 2007 and ending on the Completion Date and the unaudited combined balance sheet of each of the Chi Cheung Companies (other than the Excluded CC Companies) as at the Completion Date

• “CC Consideration” the consideration payable by the CC Purchaser for the purchase of the entire issued share capital of each of Evergo China and Honest Right, the CE Sale Loan and the Permitted Additional CE Sale Loan under the S&P Agreement

• “CC Purchaser” Shing Ping Development Ltd., a company incorporated in the British Virgin Islands, a wholly-owned subsidiary of Chi Cheung

• “CC Received Sale Proceeds” the CC Relevant Proportion of the net sale proceeds (being the sale price less all stamp duties, tax, legal and other fees and expenses borne or to be borne by the relevant Chi Cheung Companies in relation to such sales) or such part payment thereof (including any deposits) received or to be received by the relevant Chi Cheung Companies (other than the Excluded CC Companies) under the agreements or preliminary agreements (as the case may be) for the sale and purchase of the Excluded CC Properties

• “CC Relevant Proportion” the percentage of attributable interest of the CC Sale Companies in the relevant Chi Cheung Properties from time to time. For the purpose of ascertaining such percentage in respect of a particular Chi Cheung Property at a particular time, such percentage shall be equal to the percentage of effective equity interest attributable to the relevant CC Sale Company in the relevant Chi Cheung Company which holds such property at that time

– 2 –

DEFINITIONS

• “CC Sale Companies” Jumbo Legend Limited, Moregift Investments Limited, New Hong Kong Inc., Paperkit International Limited, Pinball International Limited and Star Glory Limited

• “CC Sale Loan” all sums due by the Chi Cheung Companies (excluding the Excluded CC Companies) to the other members of the Chi Cheung Group (excluding the Chi Cheung Companies but including the Excluded CC Companies) as at the date of the S&P Agreement or, where the context otherwise indicates, from time to time on or before the date of the S&P Agreement

• “CE Assumed Debt” all sums due and owing to any of the Chi Cheung Companies (other than the Excluded CC Companies) by any member of the Chi Cheung Group (excluding the Chi Cheung Companies but including the Excluded CC Companies) as at completion of the Asset Transaction, which amount shall not exceed the amount as stated in the CC Completion Accounts

• “CE Bond(s)” the convertible bonds to be issued by Chi Cheung to Chinese Estates or its nominee(s) pursuant to the S&P Agreement

• “CE Completion Accounts” the unaudited combined income statement of Evergo China Group and Honest Right for the period from 1 January 2007 and ending on the Completion Date and the unaudited combined balance sheet of Evergo China and Honest Right as at the Completion Date

• “CE Consideration” the consideration payable by the CE Subsidiary for the purchase of the entire issued share capital of each of the CC Sale Companies, the CC Sale Loan and the Permitted Additional CC Sale Loan under the S&P Agreement

• “CE Received Sale Proceeds” the CE Relevant Proportion of the net sale proceeds (being the sale price less all stamp duties, tax, legal and other fees and expenses borne or to be borne by the relevant Chinese Estates Companies in relation to such sales) or such part payment thereof (including any deposits) received or to be received by the relevant Chinese Estates Companies under the agreements or preliminary agreements (as the case may be) for the sale and purchase of the Excluded CE Properties

– 3 –

DEFINITIONS

“CE Relevant Proportion”	the percentage of attributable interest of Evergo China, Honest
	Right or the SPV in the relevant Chinese Estates Properties from
	time to time. For the purpose of ascertaining such percentage in
	respect of a particular Chinese Estates Property at a particular
	time, such percentage shall be equal to the percentage of effective
	equity interest attributable to Evergo China or Honest Right in
	the relevant Chinese Estates Company which holds such property
	at that time
“CE Sale Loan”	all sums due by the Chinese Estates Companies to the other
	members of the Chinese Estates Group (excluding the Chinese
	Estates Companies) as at the date of S&P Agreement or, where
	the context otherwise indicates, from time to time on or before
	the date of the S&P Agreement
“CE Subsidiary”	Victory Gain Holdings Limited, a company incorporated in the
	British Virgin Islands, an indirect wholly-owned subsidiary of
	Chinese Estates
“Chi Cheung”	Chi Cheung Investment Company, Limited, a company
	incorporated in Hong Kong with limited liability, the securities of
	which are listed on the main board of the Stock Exchange
“Chi Cheung Board”	the board of directors of Chi Cheung
“Chi Cheung Companies”	the CC Sale Companies and their respective subsidiaries and
	associated companies and “Chi Cheung Company” means any one
	of them as the context indicates
“Chi Cheung Group”	Chi Cheung and its subsidiaries
“Chi Cheung Independent	the independent committee of the Chi Cheung Board comprising
Board Committee”	Chi Cheung’s independent non-executive directors, Mr. Lai, Yun-
	hung, Mr. Mok, Hon-sang and Mr. Wong, Tik-tung, which has
	been established to advise the Chi Cheung Independent
	Shareholders in respect of the Asset Transaction
“Chi Cheung Independent	shareholders of Chi Cheung other than Chinese Estates and its
Shareholders”	associates

– 4 –

DEFINITIONS

• “Chi Cheung Properties” the property interests held (directly or indirectly) by the Chi Cheung Companies, as set out under the paragraph headed “The Chi Cheung Properties” in the section headed “Information on the Chi Cheung Properties and the Chinese Estates Properties” under the Joint Letter from Chinese Estates Board and Chi Cheung Board of this circular

• “Chi Cheung Share(s)” ordinary share(s) of HK$0.01 each in the share capital of Chi Cheung

• “Chinese Estates” Chinese Estates Holdings Limited, a company incorporated in Bermuda with limited liability, the securities of which are listed on the main board of the Stock Exchange

• “Chinese Estates Board” the board of directors of Chinese Estates

• “Chinese Estates (i) the SPV; and (ii) Evergo China and Honest Right, and their Companies” respective subsidiaries and associated companies and “Chinese Estates Company” means any one of them as the context indicates

• “Chinese Estates Group” Chinese Estates and its subsidiaries, excluding the Chi Cheung Group (but including the Chi Cheung Group in Appendices I and III of this circular)

“Chinese Estates Properties” the property interests held (directly or indirectly) by the Chinese Estates Companies (including the Chongqing Property which will be held by the SPV), as set out under the paragraph headed “The Chinese Estates Properties” in the section headed “Information on the Chi Cheung Properties and the Chinese Estates Properties” under the Joint Letter from Chinese Estates Board and Chi Cheung Board of this circular

“Chongqing JV the memorandum of agreement dated 17 August 2007 entered Memorandum” into between Chinese Estates, the other two joint venture parties and a subsidiary of one of the joint venture parties who had submitted an application for the bid of the Chongqing Property, in relation to the holding, investment and development of the Chongqing Property through the SPV

• “Chongqing Property”

the property identified as numbered 8 in the paragraph headed “The Chinese Estates Properties” in the section headed “Information on the Chi Cheung Properties and the Chinese Estates Properties” under the Joint Letter from Chinese Estates Board and Chi Cheung Board of this circular

– 5 –

DEFINITIONS

“Completion Date”	the date on which completion of the Asset Transaction takes place
	pursuant to the S&P Agreement
“Connected Person(s)”	the meaning ascribed to it under the Listing Rules
“Consideration Share(s)”	the Chi Cheung Share(s) to be issued as partial payment of the
	CC Consideration under the S&P Agreement. Under the S&P
	Agreement, the maximum amount out of the CC Consideration to
	be satisfied by the issue of the Consideration Shares is
	approximately HK$469.7 million
“Conversion Price”	HK$2.66, being the price payable by a Bondholder for the
	subscription of one Conversion Share upon the exercise of the
	Conversion Rights attaching to the CE Bonds, subject to
	adjustments under the terms and conditions of the CE Bonds
“Conversion Right(s)”	the right(s) of the Bondholder(s) to convert the principal amount
	of the CE Bonds into Conversion Shares subject to the terms and
	conditions of the CE Bonds
“Conversion Share(s)”	the Chi Cheung Share(s) to be allotted and issued to the
	Bondholder(s) upon the exercise of the Conversion Rights attaching
	to the CE Bonds
“Deferred Shareholder”	Best Express Holdings Limited, an independent third party who
	owns all the issued non-voting deferred shares of Moon Ocean
“Enlarged Chi Cheung	the Chi Cheung Group (following completion of the Asset
Group”	Transaction)
“EGM”	extraordinary general meeting of Chi Cheung to be convened to
	consider and approve the Asset Transaction and the proposed
	change of the company name of Chi Cheung
“Evergo China”	Evergo China Holdings Limited, a company incorporated in
	Bermuda with limited liability
“Evergo China Group”	Evergo China and its subsidiaries and associated companies

– 6 –

DEFINITIONS

• “Evolution Watterson” Evolution Watterson Securities Limited, a licensed corporation under the SFO permitted to carry out type 1, type 4 and type 6 regulated activities (as defined in the SFO) which has been appointed as the independent financial adviser to the Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders

• “Excluded CC Companies” (i) any of the CC Sale Companies, the shares of which shall not be sold to the CE Subsidiary at completion of the Asset Transaction for failure to obtain all necessary approvals or consents from third parties for the sale of either the shares of such CC Sale Companies or the CC Sale Loan; and (ii) the subsidiaries and associated companies of the CC Sale Companies mentioned in (i)

• “Excluded CC Properties” any of the Chi Cheung Properties of which an agreement or a preliminary agreement for sale and purchase has been entered into prior to completion of the Asset Transaction but in respect of which the sale and purchase has not yet been completed upon completion of the Asset Transaction

• “Excluded CE Properties” any of the Chinese Estates Properties of which an agreement or a preliminary agreement for sale and purchase has been entered into prior to completion of the Asset Transaction but in respect of which the sale and purchase has not yet been completed upon completion of the Asset Transaction

• “Fair Value” the fair value of such assets and liabilities as determined in accordance with the HKFRS

• “Financial Assistance” the transaction in relation to Chinese Estates’ continuous provision of financial guarantee to certain Chinese Estates Companies after the completion of the Asset Transaction

• “HKFRS” Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants from time to time

• “Honest Right” Honest Right Investment Limited, a limited liability company incorporated in Hong Kong

• “Hong Kong” Hong Kong Special Administrative Region of the PRC

“Latest Practicable Date” 25 October 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular

– 7 –

DEFINITIONS

“Listing Rules” Rules Governing the Listing of Securities on the Stock Exchange “Macao” the Macao Special Administrative Region of the PRC “Macao Property” the property identified as numbered 9 in the paragraph headed “The Chinese Estates Properties” in the section headed “Information on the Chi Cheung Properties and the Chinese Estates Properties” under the joint letter from Chinese Estates Board and Chi Cheung Board of this circular “Macao Property First the valuation of the Macao Property as at 31 July 2007 which has Valuation” been carried out by BMI Appraisals Limited. This valuation is based on the MP GFA of 4,230,306 square feet as at 31 July 2007 “Macao Property Second the valuation of the Macao Property as at 31 July 2007 which has Valuation” been carried out by BMI Appraisals Limited, on the assumption that the MP GFA as at 31 July 2007 is 6,160,603 square feet (being the proposed enlarged MP GFA for the Macao Property for which Chinese Estates, through its subsidiary, is currently applying to the relevant authorities in Macao for obtaining approval) “Moon Ocean” Moon Ocean Ltd., being one of the Chinese Estates Companies and the owner of the Macao Property. Moon Ocean has issued two classes of shares, namely ordinary shares and non-voting deferred shares. All the issued ordinary shares in Moon Ocean are indirectly owned by Evergo China whilst all the issued non-voting deferred shares are owned by the Deferred Shareholder. The aforesaid issued ordinary shares and deferred shares represent 70.01% and 29.99% of the entire issued share capital of Moon Ocean respectively “Moon Ocean Group” Moon Ocean, together with its subsidiaries and associated companies

“MP GFA” the maximum gross floor area (the official description in Portuguese “area bruta de construcão”) of the building(s) permitted to be constructed on the site area of the Macao Property as specified in the relevant land grant contracts and/or other approval documents obtained from the relevant authorities in Macao from time to time relating to the development of the Macao Property. On the basis of documents or approvals obtained up to 31 July 2007, the MP GFA as at 31 July 2007 was 4,230,306 square feet

– 8 –

DEFINITIONS

“Permitted Additional all those additional loans (if any) which may have been provided CC Sale Loan” by members of the Chi Cheung Group (other than the Chi Cheung Companies but including the Excluded CC Companies) to the Chi Cheung Companies (excluding the Excluded CC Companies) after the date of the S&P Agreement but prior to completion of the Asset Transaction and with prior written consent of Chinese Estates

“Permitted Additional all those additional loans (if any) which may have been provided CE Sale Loan” by members of the Chinese Estates Group (other than the Chinese Estates Companies) to the Chinese Estates Companies after the date of the S&P Agreement but prior to completion of the Asset Transaction and with prior written consent of Chi Cheung

“PRC” the People’s Republic of China

“Provisional CC the provisional consideration payable by the CC Purchaser for the Consideration” purchase of the entire issued share capital of each of Evergo China and Honest Right, the CE Sale Loan and the Permitted Additional CE Sale Loan upon completion of the S&P Agreement. The mechanism for determining the Provisional CC Consideration is substantially the same as that for determining the CC Consideration with a major exception that the reference accounts for determining the combined net tangible asset value of Evergo China Group and Honest Right are the unaudited combined accounts of Evergo China Group and Honest Right as at 30 June 2007

“Provisional CE the provisional consideration payable by CE Subsidiary for the Consideration” purchase of the entire issued share capital of each of the CC Sale Companies, the CC Sale Loan and the Permitted Additional CC Sale Loan upon completion of the S&P Agreement. The mechanism for determining the Provisional CE Consideration is substantially the same as that for determining the CE Consideration with a major exception that the reference accounts for determining the combined net tangible asset value of the Chi Cheung Companies (excluding the Excluded CC Companies) are the unaudited combined accounts of the Chi Cheung Companies as at 30 June 2007

– 9 –

DEFINITIONS

“Related Party”

• “Remaining Chi Cheung Group”

• “S&P Agreement”

• “SFO”

• “Specified Transaction”

means, for the purpose of the Undertaking, in relation to Chinese Estates, a director, substantial shareholder, a subsidiary or associated company of any Evergo Group Company (other than a wholly-owned subsidiary of Chinese Estates) or an associate of any such person; the term Evergo Group Company means Evergo International Holdings Company Limited, Chinese Estates Holdings Limited, China Entertainment and Land Investments Holdings Limited and Paul Y. International Group Limited, save that any associated company of Chinese Estates which was formed with other independent third parties who is/are not connected person(s) (as defined in the Listing Rules) of Chinese Estates as a joint venture consortium to engage in real property development projects will not be regarded as a Related Party pursuant to the Undertakings

the Chi Cheung Group other than the Chi Cheung Companies

the sale and purchase agreement dated 11 September 2007 entered into among Chinese Estates, the CE Subsidiary, the CC Purchaser and Chi Cheung relating to (i) the sale and purchase of the entire issued share capital of each of the CC Sale Companies, the benefits of the CC Sale Loan, the Permitted Additional CC Sale Loan and the assumption of the CE Assumed Debt; and (ii) the sale and purchase of the entire issued share capital of each of Evergo China and Honest Right, the benefits of the CE Sale Loan, the Permitted Additional CE Sale Loan and the assumption of the CC Assumed Debt

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

means, for the purpose of the Undertaking, a transaction between Chinese Estates or any of its subsidiaries and a Related Party being

• (a) any acquisition or disposal of assets by Chinese Estates or any of its subsidiaries whether in the ordinary and usual course of business of such company and/or on normal commercial terms or not;

– 10 –

DEFINITIONS

• (b) an arrangement or agreement whereby Chinese Estates or any of its subsidiaries directly or indirectly grants a loan or gives other financial assistance to a Related Party; or

• (c) an arrangement or agreement whereby Chinese Estates or any of its subsidiaries provides security, whether by guarantee or otherwise, for the due discharge of any obligation of a Related Party

which, in any such case, is for a consideration or in respect of a principal amount which, when aggregated with the consideration or principal amount of any other Specified Transaction(s) between Chinese Estates or any of its subsidiaries and any Related Party carried into effect during the previous twelve months, exceeds HK$200 million

“SPV”

all those special purpose companies or vehicles established or to be established by Chinese Estates and the other two joint venture parties for directly or indirectly acquiring, holding and developing the Chongqing Property pursuant to the Chongqing JV Memorandum. Evergo China have/will have 25% direct or indirect equity interest in all the SPV

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Undertaking”

the undertaking provided by Chinese Estates to the Stock Exchange dated 20 September 1990 (as supplemented on 8 January 1991 and amended by letter dated 24 September 1996 from the Stock Exchange)

“HK$” Hong Kong dollar(s), the lawful currency in Hong Kong

“RMB” Renminbi, the lawful currency of the PRC

“%”

per cent.

– 11 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

==> picture [66 x 37] intentionally omitted <==

CHI CHEUNG INVESTMENT COMPANY, LIMITED 至祥置業有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 127)

Executive directors: Mr. Joseph Lau, Luen-hung (Chairman and Chief Executive Officer) Mr. Lau, Ming-wai

Non-executive director: Ms. Amy Lau, Yuk-wai

Independent non-executive directors: Mr. Chan, Kwok-wai Mr. Cheng, Kwee Ms. Phillis Loh, Lai-ping

Registered office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

(Incorporated in Hong Kong with limited liability)

(Stock Code: 112)

Executive directors: Mr. Matthew Cheong, Veng-va (Chairman) Ms. Teresa Poon, Mun-chie (Chief Executive Officer)

Independent non-executive directors: Mr. Lai, Yun-hung Mr. Mok, Hon-sang Mr. Wong, Tik-tung

Registered office: 26th Floor MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Principal office in Hong Kong: 26th Floor MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

31 October 2007

To the shareholders of Chinese Estates and the shareholders of Chi Cheung

Dear Sirs,

PROPOSED ASSET TRANSACTION (VERY SUBSTANTIAL ACQUISITION, VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION OF CHI CHEUNG AND MAJOR TRANSACTION OF CHINESE ESTATES) AND PROPOSED CHANGE OF THE COMPANY NAME OF CHI CHEUNG INVESTMENT COMPANY, LIMITED

INTRODUCTION

It was announced on 11 September 2007 that Chinese Estates had on 11 September 2007 entered into the S&P Agreement with the CC Purchaser, Chi Cheung and the CE Subsidiary in relation to the Asset Transaction. Upon completion of the Asset Transaction, Chi Cheung will beneficially own all the issued share capital in each of Evergo China and Honest Right, the CE Sale Loan and the Permitted Additional CE Sale Loan; and Chinese Estates will beneficially own all the issued share capital of each of the CC Sale Companies (other than the Excluded CC Companies), the CC Sale Loan and the Permitted Additional CC Sale Loan.

– 12 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

The Asset Transaction constitutes a very substantial acquisition and a very substantial disposal transaction for Chi Cheung and a major transaction for Chinese Estates under the Listing Rules. As Chinese Estates is the controlling shareholder of Chi Cheung, the Asset Transaction also constitutes a connected transaction for Chi Cheung under the Listing Rules. The Asset Transaction is subject to the approval of the Chi Cheung Independent Shareholders.

As at the Latest Practicable Date, Chinese Estates is interested in 209,931,186 Chi Cheung Shares, representing approximately 61.96% of the existing issued share capital of Chi Cheung. In view of Chinese Estates’ interest in the Asset Transaction, Chinese Estates will abstain from voting on the resolution in respect of the Asset Transaction to be proposed at the EGM.

The Chi Cheung Board proposes that subject to completion of the Asset Transaction, the name of Chi Cheung be changed from “Chi Cheung Investment Company, Limited（至祥置業有 限公司）” to “Evergo China Holdings Limited（愛美高中國控股有限公司）”.

The purpose of this circular is (i) to provide you with information regarding the Asset Transaction and the proposed change of the company name of Chi Cheung, (ii) to set out the advice from Evolution Watterson to the Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders and the recommendation and opinion of the Chi Cheung Independent Board Committee in respect of the Asset Transaction, and (iii) to give notice of the EGM to the shareholders of Chi Cheung.

A. DETAILS OF THE ASSET TRANSACTION

THE S&P AGREEMENT

Date

11 September 2007

Parties involved

In respect of Evergo China and Honest Right

Vendor: Chinese Estates Purchaser: CC Purchaser

In respect of the CC Sale Companies

Vendor: Chi Cheung Purchaser: CE Subsidiary

Subject matter

Chinese Estates has agreed to procure the sale of, and the CC Purchaser has agreed to purchase or procure the purchase of the entire issued share capital in each of Evergo China and Honest Right and the benefits of the CE Sale Loan and the Permitted Additional CE Sale Loan. The entire issued shares in each of Evergo China and Honest Right to be

– 13 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

acquired by the CC Purchaser shall be free from any mortgages, charges, liens, pledges, options and third party claims or other encumbrances (if any) at completion of the Asset Transaction and with all rights attached thereto as from completion of the Asset Transaction including all rights to dividends and other distributions declared, paid or made in respect thereof after completion of the Asset Transaction. The CC Purchaser further agreed to assume the CC Assumed Debt by way of novation upon completion of the Asset Transaction.

Chi Cheung has agreed to sell or procure the sale of, and the CE Subsidiary has agreed to purchase or procure the purchase of the entire issued share capital of each of the CC Sale Companies and the benefits of the CC Sale Loan and the Permitted Additional CC Sale Loan. The entire issued shares in each of the CC Sale Companies to be acquired by the CE Subsidiary shall be free from any mortgages, charges, liens, pledges, options and third party claims or other encumbrances (if any) at completion of the Asset Transaction and with all rights attached thereto as from completion of the Asset Transaction including all rights to dividends and other distributions declared, paid or made in respect thereof after completion of the Asset Transaction. The CE Subsidiary further agreed to assume the CE Assumed Debt by way of novation upon completion of the Asset Transaction.

Chinese Estates has agreed to guarantee the performance of CE Subsidiary and Chi Cheung has agreed to guarantee the performance of CC Purchaser under the S&P Agreement.

Structure before/after the Asset Transaction

The following diagrams illustrate the group structure of each of Chinese Estates and Chi Cheung before and after the Asset Transaction:

(a) Before the Asset Transaction

==> picture [395 x 204] intentionally omitted <==

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

Chi Cheung
Other assets
Chinese
Estates
100% 100% 100%
Pinball
Jumbo Legend New Hong International
Limited Kong Inc. Limited
100% 100% 100% 100% 100%
Moregift Paperkit
Other assets Evergo China Honest Right Investments International Star Glory
Limited
Limited Limited
Chinese
Estates Chi Cheung Properties
Properties
Asset Transaction
----- End of picture text -----

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

(b) Immediately after completion of the Asset Transaction

==> picture [397 x 175] intentionally omitted <==

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

Chinese
Estates Chi Cheung
Other assets
100% 100% 100%
Pinball
Other assets Jumbo Legend New Hong International
Limited Kong Inc. Limited
100% 100% 100% 100% 100%
Moregift Paperkit
Investments International Star Glory Evergo China Honest Right
Limited
Limited Limited
Chinese
Chi Cheung Properties Estates
Properties
----- End of picture text -----

The consideration

The CE Consideration has been determined after arm’s length negotiations among Chinese Estates and Chi Cheung and shall equal to the aggregate of:–

• (a) the total combined net tangible asset value (excluding the book value attributable to the Excluded CC Properties) of each of the Chi Cheung Companies (excluding the Excluded CC Companies) as set out in the CC Completion Accounts and adjusted for the CC Relevant Proportion of the revaluation surplus or deficit (net of tax effects) of the Chi Cheung Properties (excluding the Excluded CC Properties), which is determined by reference to a valuation of such properties at its open market value as at 31 July 2007 valued by Norton Appraisals Limited, an independent professional property valuer, and the book value of such properties as at 31 July 2007; and

• (b) the Fair Value of the CC Sale Loan, the Fair Value of the Permitted Additional CC Sale Loan (less the Fair Value of the CE Assumed Debt) and the CC Received Sale Proceeds.

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

The Provisional CE Consideration is estimated to be approximately HK$689.5 million (assuming Canaria Acquisition does not take place before completion of the Asset Transaction). Such estimated Provisional CE Consideration is calculated on the basis of the unaudited combined net tangible asset value of the Chi Cheung Companies as at 30 June 2007 of approximately HK$168.0 million, the Fair Value of the CC Sale Loan as at 30 June 2007 of approximately HK$422.6 million, the estimated net adjustment to the unaudited combined net tangible asset value of the Chi Cheung Companies of approximately of HK$98.9 million (assuming that the Canaria Acquisition is not completed before completion of the Asset Transaction), and the CC Relevant Proportion of the valuation on the Chi Cheung Properties of approximately HK$759.4 million as at 31 July 2007 valued by Norton Appraisals Limited, an independent professional property valuer. The Provisional CE Consideration is estimated to be approximately HK$706.1 million (assuming Canaria Acquisition takes place before completion of the Asset Transaction).

The CC Consideration has been determined after arm’s length negotiations among Chinese Estates and Chi Cheung and shall be calculated after 15% discount on the aggregate of:–

• (a) the total combined net tangible asset value of each of Evergo China Group and Honest Right (but excluding the book value attributable to the Excluded CE Properties) as set out in the CE Completion Accounts and adjusted for the CE Relevant Proportion of the revaluation surplus or deficit (net of tax effects) of the Chinese Estates Properties (excluding the Chongqing Property and the Excluded CE Properties), which is determined by reference to a revaluation of such properties at its open market value as at 31 July 2007 valued by BMI Appraisals Limited, an independent professional property valuer, and the book value of such properties as at 31 July 2007; and

• (b) the Fair Value of the CE Sale Loan, the Fair Value of the Permitted Additional CE Sale Loan (less the Fair Value of the CC Assumed Debt), the CE Received Sale Proceeds and less (if applicable) all outstanding land premiums or fees payable for the approved increase of the MP GFA unless such land premiums or fees have already been recognized as liabilities in the CE Completion Accounts.

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

For the purpose of deriving the above revaluation surplus or deficit (net of tax effects) for the Chinese Estates Properties (excluding the Chongqing Property and the Excluded CE Properties) under the S&P Agreement, the following should be noted:–

• (i) Chinese Estates, through its subsidiary, is currently applying to the relevant authorities in Macao for an increase of the gross floor area of the development of the Macao Property from 4,230,306 square feet to 6,160,603 square feet. Therefore, for the purpose of valuing the Macao Property as at 31 July 2007 to take into account the potential increase of the MP GFA, two valuations have been made by BMI Appraisals Limited, namely the Macao Property First Valuation and the Macao Property Second Valuation. The valuation of the Macao Property shall then be decided by reference to the approvals obtained so far in relation to the MP GFA by the time of completion of the Asset Transaction. If the MP GFA by the time of completion of the Asset Transaction is:–

• (a) 4,230,306 square feet, the valuation of the Macao Property will be the Macao Property First Valuation ;

• (b) 6,160,603 square feet, the valuation of the Macao Property will be the Macao Property Second Valuation; and

• (c) not the one specified in either (a) or (b) above, the valuation of the Macao Property will be equal to (aa) the Macao Property Second Valuation minus (bb) HK$3,201 times the amount of square feet by which 6,160,603 square feet exceeds the MP GFA prevailing at the time of completion of the Asset Transaction; and

• (ii) as the Deferred Shareholder has agreed to defer its rights to share in the accumulated distributable profits of Moon Ocean up to the sum of HK$1,000,333,445 (the “EC Preference Entitlement”) and to receive a return of assets on winding-up of Moon Ocean in the first part of the assets amounting to the EC Preference Entitlement or such lesser amount after deduction of any accumulated distributable profits of Moon Ocean which have already been distributed to holders of the ordinary shares of Moon Ocean, 100% of the revaluation adjustment (net of tax effects) arising from the revaluation of the Macao Property will be attributable to Evergo China for determining the CC

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

Consideration, unless the aggregate of (aa) the consolidated accumulated distributable profits or accumulated deficits of the Moon Ocean Group as at 31 July 2007 (the “Moon Ocean Distributable Profits”) and (bb) the entire amount of the revaluation adjustment (net of tax effects) arising from the revaluation of the Macao Property (such aggregate figure referred to as the “Adjusted Moon Ocean Distributable Profits”) exceeds the EC Preference Entitlement. In this case, the revaluation adjustment (net of tax effects) arising from the revaluation of the Macao Property attributable to Evergo China to derive the CC Consideration will comprise of two components:–

• (a) 100% of a sum equal to the excess of the EC Preference Entitlement over the Moon Ocean Distributable Profits; and

• (b) 70.01% of a sum equal to the excess of the Adjusted Moon Ocean Distributable Profits over the EC Preference Entitlement.

In relation to the preparation of the CE Completion Accounts, for the same reason that the Deferred Shareholder has agreed to defer its rights to share in the accumulated distributable profits of Moon Ocean and to receive a return of assets on winding up of Moon Ocean as described above, only the share of the equity interest of the Deferred Shareholder (i.e. 29.99%) in the share capital of Moon Ocean will be recognized as minority interest of Moon Ocean in the CE Completion Accounts unless the consolidated accumulated distributable profits of the Moon Ocean Group on the Completion Date exceeds the EC Preference Entitlement. In such case, the minority interest of Moon Ocean in the CE Completion Accounts will be the aggregate of the share portion of the equity interest of the Deferred Shareholder (i.e. 29.99%) in the share capital of Moon Ocean and its share of the excess of the consolidated accumulated distributable profits of the Moon Ocean Group over the EC Preference Entitlement.

The Provisional CC Consideration is estimated to be approximately HK$10,450.2 million (on the basis of the Macao Property First Valuation). Such estimated Provisional CC Consideration is calculated after 15% discount on the aggregate of the unaudited combined net tangible asset value of Evergo China Group and Honest Right as at 30 June 2007 of approximately HK$1,893.7 million, the Fair Value of the CE Sale Loan as at 30 June 2007 of approximately HK$2,485.6 million, the estimated net adjustment to the unaudited combined net tangible asset value of Evergo China Group and Honest Right of approximately HK$7,915.0 million, and the CE Relevant Proportion of the valuation on the Chinese Estates Properties (excluding the Chongqing Property) of approximately HK$14,006.7 million (with the Macao Property First Valuation) as at 31 July 2007 valued by BMI Appraisals Limited, an independent professional property valuer.

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

Under the S&P Agreement, which was entered into on normal commercial terms, the parties thereto have agreed that upon completion of the Asset Transaction, the Provisional CE Consideration payable by the CE Subsidiary to Chi Cheung and the cash portion of the Provisional CC Consideration payable by the CC Purchaser to Chinese Estates (such cash portion being equal to the amount of the Provisional CE Consideration which is estimated to be approximately HK$689.5 million as mentioned above) shall set-off each other and the CC Purchaser will pay the balance of approximately HK$9,760.7 million (which balance is equal to the Provisional CC Consideration of approximately HK$10,450.2 million (on the basis of the Macao Property First Valuation) less the Provisional CE Consideration of approximately HK$689.5 million (assuming Canaria Acquisition does not take place before completion of the Asset Transaction)), by way of:–

• (i) the issue and allotment by Chi Cheung of the Consideration Shares at an issue price of HK$2.66 per Chi Cheung Share to Chinese Estates or its nominee(s) for the amount of approximately HK$469.7 million;

• (ii) the issue of the CE Bonds in the estimated principal amount of approximately HK$9,291.0 million, being an amount equivalent to the nearest rounded-down multiple of HK$500,000 of a sum equal to the Provisional CC Consideration of approximately HK$10,450.2 million less the aggregate of (aa) the Provisional CE Consideration of approximately HK$689.5 million and (bb) the amount satisfied by the issue and allotment of the Consideration Shares under (i) above to Chinese Estates or its nominee(s); and

• (iii) as to the remaining balance of approximately HK$1,097, by cash.

Under the Asset Transaction, the maximum number of the Consideration Shares to be issued shall not exceed 176,573,217 Consideration Shares. Chi Cheung will issue an estimated number of 176,573,217 Consideration Shares and thereby its public float will decrease from approximately 38.03% to 25.00%. Chinese Estates will procure and ensure that the public float of Chi Cheung will be at least 25% at all times.

Based on the CE Completion Accounts and the CC Completion Accounts, the difference between the Provisional CE Consideration and the CE Consideration and the difference between the Provisional CC Consideration and the CC Consideration will be settled by the CC Purchaser and the CE Subsidiary in accordance with the terms of the S&P Agreement. Such differences will be settled principally by further issue or cancellation of the CE Bonds (subject to the maximum principal amount of all the CE Bonds issued under the Asset Transaction being not more than HK$18.5 billion) with the remaining balance being settled by cash.

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

Under the S&P Agreement, Chinese Estates and the CE Subsidiary acknowledge that the transfer of the issued shares in respect of some of the CC Sale Companies, and the benefits of certain portion of the CC Sale Loan and the Permitted Additional CC Sale Loan due from Chi Cheung Companies may require consents or approvals from certain third parties.

If Chi Cheung fails to obtain all the necessary approvals or consents on or before 31 March 2008, the parties will proceed to completion of the Asset Transaction for the remaining CC Sale Companies and the assignment of the benefits of the related CC Sale Loan and the Permitted Additional CC Sale Loan in respect of which necessary consents have been obtained and/or are not required, and a further announcement will be made by Chi Cheung and Chinese Estates. In that event, the calculation of the CE Consideration will exclude the combined net tangible asset value of the relevant Chi Cheung Companies which would not be transferred to Chinese Estates, the Fair Value of the related CC Sale Loan, the Fair Value of the related Permitted Additional CC Sale Loan, the related CC Received Sale Proceeds and the Fair Value of the related CE Assumed Debt.

The approvals required to be obtained by Chi Cheung as mentioned above may include bank consents or approvals and approvals from other joint venture parties in relation to the replacement of Chi Cheung by Chinese Estates as the guarantor or party to certain shareholders’ agreements entered into by Chi Cheung in relation to certain Chi Cheung Companies.

It is the intention of the parties to the S&P Agreement that if Chinese Estates fails to obtain all the necessary approvals or consents from banks or joint venture parties in relation to the replacement of Chinese Estates by Chi Cheung as the guarantor or party to certain agreements in relation to the Chinese Estates Companies on or before 31 March 2008, the parties will proceed to completion of the Asset Transaction and the guarantees or securities provided by Chinese Estates to third parties in respect of certain of the Chinese Estates Companies for construction projects and operations in the PRC and Macao will continue after completion of the Asset Transaction. The guarantees or securities so provided will constitute Financial Assistance and pursuant to the Undertaking will constitute a Specified Transaction. Assuming that the guarantees and funding undertaking provided by Chinese Estates for the bank loans of Honest Right, Loyal Power Investments Limited and Moon Ocean, and the guarantee for capital contribution to a PRC joint venture cannot be released, the Financial Assistance is expected to be in the sum of approximately HK$3,255.4 million. Pursuant to the Undertaking, the Asset Transaction and the Financial Assistance are required to be approved by the shareholders of Chinese Estates where any Related Party which is interested in the transactions would need to abstain from voting. As Chi Cheung is not a

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

connected person of Chinese Estates for the purposes of the Listing Rules and that the applicable ratios under Chapter 14 of the Listing Rules for the Financial Assistance are over 5% but less than 25%, the Financial Assistance would not require approvals from the shareholders of Chinese Estates under the Listing Rules but would be required for the Undertaking. As no shareholder of Chinese Estates is interested in the Financial Assistance, an application has been made to the Stock Exchange by Chinese Estates for a waiver from strict compliance with the requirement of approval by its shareholders pursuant to the Undertaking in respect of the Financial Assistance and the Stock Exchange has granted a waiver from strict compliance with the requirement of approval by the shareholders of Chinese Estates pursuant to the Undertaking in respect of the Financial Assistance.

The issue price per Consideration Share of HK$2.66 and the Conversion Price of HK$2.66 of the CE Bonds have been determined on the basis of the adjusted unaudited consolidated net asset value per Chi Cheung Share of approximately HK$2.66 as at 30 June 2007. The issue price and Conversion Price of HK$2.66 per Consideration Share or Conversion Share, as the case may be, represents a discount of approximately 10.1% to the closing price of HK$2.96 per Chi Cheung Share as quoted on the Stock Exchange on 29 August 2007 (the last trading day prior to suspension of trading in the Chi Cheung Shares pending the issue of the joint announcement dated 11 September 2007), a discount of approximately 12.8% to the average closing price of approximately HK$3.05 per Chi Cheung Share for the 5 trading days up to and including 29 August 2007, a discount of approximately 9.5% to the average closing price of approximately HK$2.94 per Chi Cheung Share for the 10 trading days up to and including 29 August 2007, and a premium of approximately 0.4% over the average closing price of approximately HK$2.65 per Chi Cheung Share over the 60 trading days up to and including 29 August 2007. In considering the issue price of the Consideration Shares and the Conversion Price of the CE Bonds, the directors of Chinese Estates and the directors of Chi Cheung have taken into account, inter alia, the following matters:

• the adjusted unaudited consolidated net asset value per Chi Cheung Share, which is estimated to amount to approximately HK$2.66 as at 30 June 2007 after having adjusted for the CC Relevant Proportion of the revaluation surplus (net of tax effects) of the Chi Cheung Properties which is determined by reference to a valuation of such properties at its open market value as at 31 July 2007. The CC Relevant Proportion of the valuation of such properties was approximately HK$759.4 million;

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

• the fact that the CE Consideration should be an amount equal to the combined net tangible asset value (excluding the book value attributable to the Excluded CC Properties) of the Chi Cheung Companies (excluding the Excluded CC Companies) plus the Fair Value of the CC Sale Loan, the Fair Value of the Permitted Additional CC Sale Loan (less the Fair Value of the CE Assumed Debt), the CC Received Sale Proceeds and the CC Relevant Proportion of the revaluation surplus/deficit (net of tax effects) of the Chi Cheung Properties (excluding the Excluded CC Properties) whereas the CC Consideration should be calculated after 15% discount on the aggregate of (aa) the combined net tangible asset value (excluding the book value attributable to the Excluded CE Properties) of Evergo China Group and Honest Right and (bb) the Fair Value of the CE Sale Loan, the Fair Value of the Permitted Additional CE Sale Loan (less the Fair Value of the CC Assumed Debt), the CE Received Sale Proceeds, the CE Relevant Proportion of the revaluation surplus/deficit (net of tax effects) of the Chinese Estates Properties (excluding the Chongqing Property and the Excluded CE Properties) and less (if applicable) all outstanding land premiums or fees payable for the increase of the MP GFA approved by the relevant authorities in Macao; and

• the prevailing market price of Chi Cheung Shares.

Both the directors of Chinese Estates and the directors of Chi Cheung consider that the terms of the S&P Agreement are fair and reasonable and in the interests of the shareholders of Chinese Estates and the shareholders of Chi Cheung.

Principal terms of the CE Bonds

The principal terms of the CE Bonds were determined after arm’s length negotiations between Chi Cheung and Chinese Estates and are summarised below:

• (1) Principal amount : Up to the maximum amount of HK$18,500,000,000 with each CE Bond being issued in the denomination of HK$500,000 each. The final principal amount of the CE Bonds to be issued depends on the finally determined amounts of the CC Consideration and the CE Consideration.

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

(2) Interest : 0.5% per annum payable quarterly in arrears on 31 March, 30 June, 30 September, 31 December each year. (3) Maturity date : The 3rd anniversary of the date of completion of the Asset Transaction. (4) Conversion period : The CE Bonds are convertible into the Conversion Shares by the Bondholders at any time from the issue date of the CE Bonds up to 4:00 p.m. on the maturity date at the Conversion Price. Chinese Estates has agreed in the S&P Agreement that it will procure no Conversion Rights attaching to the CE Bonds issued to it or its nominees will be exercised until after the difference between the Provisional CE Consideration and the CE Consideration and the difference between the Provisional CC Consideration and the CC Consideration have been settled between the parties in accordance with the provisions of the S&P Agreement. Any conversion shall be made in amounts of not less than a whole multiple of HK$500,000 and no fraction of a Conversion Share shall be issued on conversion.

Notwithstanding any conditions attaching to the CE Bonds, each Bondholder shall only exercise the Conversion Rights attaching to the CE Bonds if it is confirmed by Chi Cheung in writing that the allotment and issue of the Conversion Shares to such Bondholder pursuant to an exercise of the Conversion Rights attaching to the CE Bonds will not cause Chi Cheung to be in breach of the minimum public float requirement stipulated under Rule 8.08 of the Listing Rules.

(5) Conversion Price : HK$2.66 per Conversion Share, subject to adjustment for subdivision or consolidation of Chi Cheung Shares, bonus issues, capital reduction, rights issue and other events which have dilution effects on the issued share capital of Chi Cheung.

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

• (6) Conversion Shares : The Conversion Shares will be issued free from any encumbrances or third party rights of any kind and will rank pari passu in all respects with the existing issued Chi Cheung Shares together with all rights to dividends and other distributions declared, made or paid on or after the date on which the name of the Bondholder is entered into Chi Cheung’s register of shareholders as holders of the relevant Conversion Shares.

• (7) Redemption : Chi Cheung has no rights to redeem the CE Bonds prior to the maturity date.

• (8) Final redemption : Unless the Conversion Rights attaching to the CE and mandatory Bonds have been exercised in full during the redemption by conversion period in accordance with the terms of Chi Cheung the CE Bonds, Chi Cheung is obliged to redeem any CE Bonds which remains outstanding on the maturity date.

Upon the occurrence of an event of default, the Bondholder may, unless such event of default has been waived in writing by it, by notice in writing require Chi Cheung to redeem the whole (but not part) of the outstanding principal amount of the CE Bonds.

• (9) Voting rights at : The Bondholder shall not be entitled to attend or general meeting vote at any general meeting of Chi Cheung by reason only of it being a Bondholder.

• (10) Transferability : The CE Bonds may be assigned or transferred in whole multiples of HK$500,000 to any third party provided that any transfer of the CE Bonds to any Connected Persons of Chi Cheung shall be subject to the requirements (if any) that the Stock Exchange may impose from time to time.

Chi Cheung has undertaken to the Stock Exchange that it will disclose to the Stock Exchange any dealings in the CE Bonds by any Connected Persons or their associates (as defined in the Listing Rules).

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

Conditions

Completion of the Asset Transaction is conditional on the following conditions precedent being fulfilled (or waived) on or before 31 March 2008, or such later date as may be agreed by Chinese Estates and Chi Cheung:

• (i) all necessary approvals from regulatory authorities including approvals from the Stock Exchange, having been obtained in respect of the Asset Transaction;

• (ii) all necessary approvals in respect of the Asset Transaction as may be necessary or desirable under any contractual arrangements relating to any of the Chinese Estates Companies having been obtained;

• (iii) all necessary approvals in respect of the Asset Transaction as may be necessary or desirable under any contractual arrangements relating to any of the Chi Cheung Companies having been obtained;

• (iv) all necessary approvals by the shareholders of Chi Cheung in general meeting in respect of the Asset Transaction (including approvals for issue and allotment of Consideration Shares and CE Bonds) in a manner as required by the Stock Exchange or under the Listing Rules, its articles of association and the applicable legislation having been obtained;

• (v) all necessary approvals by the shareholders of Chinese Estates in general meeting or written approval from the controlling shareholders of Chinese Estates who together hold more than 50% of voting rights at general meetings of Chinese Estates in respect of the Asset Transaction in a manner as required by the Stock Exchange or under the Listing Rules, its bye-laws and the applicable legislation having been obtained;

• (vi) listing of and permission to deal in the Consideration Shares and the Conversion Shares having been granted (either unconditionally or subject only to conditions acceptable to Chinese Estates) by the Listing Committee of the Stock Exchange (and such listing and permission not subsequently being revoked prior to completion of the Asset Transaction);

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

• (vii) CC Purchaser and Chi Cheung being satisfied with the results of a financial, legal and operational due diligence review of the Chinese Estates Companies, the CE Sale Loan and the Permitted Additional CE Sale Loan to be carried out on the CC Purchaser’s and Chi Cheung’s behalf and the contents of the disclosure letter to be given by Chinese Estates and the CE Subsidiary in relation to warranties given by Chinese Estates and the CE Subsidiary under the S&P Agreement;

• (viii) Chinese Estates and the CE Subsidiary being satisfied with the results of a financial, legal and operational due diligence review of the Chi Cheung Companies, the CC Sale Loan and the Permitted Additional CC Sale Loan to be carried out on Chinese Estates’ and the CE Subsidiary’s behalf and the contents of the disclosure letter to be given by Chi Cheung and the CC Purchaser in relation to warranties given by Chi Cheung and the CC Purchaser under the S&P Agreement;

• (ix) the delivery by Chi Cheung to Chinese Estates of the unaudited combined income statement of each of the Chi Cheung Companies (other than the Excluded CC Companies) for the 6 months ended 30 June 2007 and the unaudited combined balance sheet of each of the Chi Cheung Companies (other than the Excluded CC Companies) as at 30 June 2007;

• (x) the delivery by Chinese Estates to Chi Cheung of the unaudited combined income statement of Evergo China Group and Honest Right for the 6 months ended 30 June 2007 and the unaudited combined balance sheet of Evergo China Group and Honest Right as at 30 June 2007;

• (xi) the obtaining of written confirmation to (aa) release and discharge all guarantees, securities and indemnities given by the members of the Chinese Estates Group (other than the Chinese Estates Companies) in respect of the obligations or liabilities of the Chinese Estates Companies (including without limitation any guarantees or indemnities given under any shareholders agreement relating to any of the Chinese Estates Companies) and (bb) accept Chi Cheung’s guarantees or indemnities in their place from such party or parties in whose favour such guarantees and indemnities have been given;

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

• (xii) the obtaining of written confirmation to (aa) release and discharge all guarantees, securities and indemnities given by the members of the Chi Cheung Group (other than the Chi Cheung Companies but including the Excluded CC Companies) in respect of the obligations or liabilities of the Chi Cheung Companies (other than the Excluded CC Companies) (including without limitation any guarantees or indemnities given under any shareholders agreement relating to any of the Chi Cheung Companies (other than the Excluded CC Companies)) and (bb) accept Chinese Estates’ guarantees or indemnities in their place from such party or parties in whose favour such guarantees and indemnities have been given;

• (xiii) the obtaining of written confirmation to release and discharge all guarantees, securities and indemnities given by Chinese Estates Companies in respect of the obligations or liabilities of members of the Chinese Estates Group (other than the Chinese Estates Companies); and

• (xiv) the obtaining of written confirmation to release and discharge all guarantees, securities and indemnities given by Chi Cheung Companies (excluding the Excluded CC Companies) in respect of the obligations or liabilities of members of the Chi Cheung Group (other than the Chi Cheung Companies but including the Excluded CC Companies).

The sale of the entire issued share capital of each of Evergo China and Honest Right and the benefits of the CE Sale Loan and the Permitted Additional CE Sale Loan by Chinese Estates and the sale of the entire issued share capital of each of the CC Sale Companies (other than the Excluded CC Companies) and the benefits of the CC Sale Loan and the Permitted Additional CC Sale Loan by Chi Cheung are inter-conditional and all such sales shall be completed simultaneously upon completion of the S&P Agreement.

A further announcement will be made by Chi Cheung and Chinese Estates upon completion of the Asset Transaction.

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

INFORMATION ON THE CHI CHEUNG PROPERTIES AND THE CHINESE ESTATES PROPERTIES

The Chi Cheung Properties

The CC Sale Companies are wholly-owned subsidiaries of Chi Cheung, the principal assets of which are their direct or indirect interests in the Chi Cheung Properties. Save as stated in the S&P Agreement, the Chi Cheung Properties are free from any mortgages, charges, liens, pledges, options and third party claims or other encumbrances. Particulars of the Chi Cheung Properties are as follows:

			Attributable
Property		Usage	interests
In	Hong Kong
Property interests held for investment
1.	Unit C (including the store room thereof) on 13th Floor and	Godown and	100%
	the Roof together with 50 Car Parking Spaces on 1st, 2nd and	Carparking
	lower part of 3rd Floors, Gemstar Tower, No. 23 Man
	Lok Street, Hung Hom, Kowloon, Hong Kong
2.	Unit 301 on 3rd Floor, Sim City of Chung Kiu Commercial	Shop and non-	100%
	Building, Nos. 47-51 Shantung Street, Mongkok, Kowloon,	domestic
	Hong Kong
3.	Unit B on 3rd Floor, No. 1 South Lane,	Residential	51%
	Western District, Hong Kong
4.	Various Portions of No. 1 Hung To Road, Kwun Tong,	Industrial	33.33%
	Kowloon, Hong Kong
5.	The whole of 3rd Floor and the adjacent Flat Roof and	Commercial	50%
	the whole of 8th Floor, Inter-Continental Plaza, No. 94
	Granville Road, Tsim Sha Tsui, Kowloon, Hong Kong

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JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

			Attributable
Property		Usage	interests
6.	Shop Nos. 14 and 16 on Ground Floor and Cinema (including	Cinema	50%
	all that portion of the flat roof over the Cinema and all those	and non-	(Note 1)
	the external walls above the canopy level of the Cinema	domestic
	portion and all those external walls beneath the canopy
	level of the Cinema portion not being the external walls of
	any shop or transformer room of the Tuen Mun Centre and all
	those three water tanks), Tuen Mun Centre, Nos. 2-8
	Wo Ping Path, Nos. 7-35 Yan Ching Street, Tuen Mun,
	New Territories, Hong Kong
7.	9/24 parts or shares of and in Lot Nos. 2, 4, 7, 8 and 9 in	Agricultural	100%
	Demarcation District No. 464, So Shi Tau, Clear Water Bay,
	New Territories, Hong Kong
8.	The Remaining Portion of Lot No. 453 in Demarcation	Agricultural	100%
	District No. 401, Po Lam Road, Ma Yau Tong, Sai Kung,
	New Territories, Hong Kong
Property interests held for owner occupancy
9.	Unit 5, 10/F, Hing Wai Centre, No. 7 Tin Wan Praya Road,	Non-domestic	100%
	Aberdeen, Hong Kong
Property interests held for sale
10.	The whole of 16th Floor (including the store room thereof),	Godown	100%
	17th Floor (including the roof terrace thereof) and 18th
	Floor, Gemstar Tower, No. 23 Man Lok Street, Hung Hom,
	Kowloon (excluding units A and B of 16th Floor).
Property interests held for future development
11.	No. 34 Hill Road, Western District, Hong Kong	Non-domestic	51%
		(G/F) Domestic
		(upper floors)

Note 1: If the Canaria Acquisition takes place before completion of the Asset Transaction, the Chi Cheung Companies will have an attributable 100% interest in this property. The Provisional CE Consideration is estimated to be approximately HK$706.1 million (assuming completion of the Canaria Acquisition before completion of the Asset Transaction) and approximately HK$689.5 million (assuming Canaria Acquisition is not completed before completion of the Asset Transaction).

– 29 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

A summary of the unaudited combined results of the Chi Cheung Companies for each of the three years ended 31 December 2004, 2005 and 2006 and for the six months ended 30 June 2007 is set out below.

		For the year ended	For the year ended	Six months ended
		31 December		30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	18,870	3,370	2,916	13,720
Profit/(loss) before taxation	(10,394)	101,839	81,368	40,982
Profit/(loss) after taxation	(10,938)	101,441	79,339	39,734
Profit/(loss) attributable to
equity holders	(10,886)	101,496	79,397	39,765

As at 30 June 2007, the unaudited combined net assets attributable to equity holders of the Chi Cheung Companies were approximately HK$168.0 million.

– 30 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

The Chinese Estates Properties

Evergo China and Honest Right are indirect wholly-owned subsidiaries of Chinese Estates. The principal assets of Evergo China are its indirect interests in the Chinese Estates Properties (excluding the Chongqing Property), through its shareholdings in its subsidiaries and associated companies. Honest Right is a loan financier of its fellow subsidiaries. Pursuant to the Chongqing JV Memorandum, the SPV have been/will be established for holding the Chongqing Property. Chinese Estates, through a wholly-owned subsidiary of Evergo China, have/will have a 25% equity interest in all the SPV. Save as stated in the S&P Agreement, the Chinese Estates Properties (excluding the Chongqing Property) are free from any mortgages, charges, liens, pledges, options and third party claims or other encumbrances. Particulars of the Chinese Estates Properties are as follows:

				Attributable
Property			Usage	interests
In the PRC
Property interests held for investment
1.	•	Main Tower of Hilton Beijing,	Hotel/	50%
		No. 1 Dongfang Road, North Dongsanhuan Road,	Commercial
		Chaoyang District, Beijing City
	•	Oriental Place, No. 9 East Dongfang Road, North
		Dongsanhuan Road, Chaoyang District, Beijing City
2.	79 retail shops on 1st Floor of Lowu Commercial Plaza,		Commercial	100%
	Jianshe Road, Luohu District, Shenzhen City, Guangdong
	Province
3.	Unsold	portions of Evergo Tower, No. 1325 Central Huaihai	Commercial	100%
	Road and No. 1 Baoqing Road, Xuhui District, Shanghai City

– 31 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

			Attributable
Property		Usage	interests
Property interests held for development
4.	Executive Tower of Hilton Beijing,	Hotel/	50%
	No. 1 Dongfang Road, North Dongsanhuan Road,	Commercial
	Chaoyang District, Beijing City
5.	Dongda Street Development, East of Yixue Lane, South	Residential/	100%
	of Hongbu Main Street and North of Tangba Street, Jinjiang	Commercial
	District, Chengdu City, Sichuan Province
6.	Yingbin Road Development, Group 1, 2, 6 Langjia	Residential/	100%
	Village and Group 1, 2, 3, 4, 7 Yuejin Village, Jinniu	Commercial
	District, Chengdu City, Sichuan Province
7.	South Taisheng Road Development, east of Sanguiqian	Residential/	100%
	Street, south of East Daqiang Street, west of South	Commercial
	Taisheng Road and north of Tidu Street, Qingyang
	District, Chengdu City, Sichuan Province
8.	Huaxinjie Street Development, No.1 Zhongxin Section	Residential/	25%
	and Qiaobei Village, Huaxinjie Street, Jiangbei	School
	District, Chongqing City
In	Macao
Property interest held for development
9.	Avenida Wai Long Development, Lote 1c, Lote 2, Lote 3,	Residential/	70.01%
	Lote 4 and Lote 5, Estrada da Ponta da Cabrita,	Commercial
	Taipa, Macao_(Note 2)_

• Note 2: The Provisional CC Consideration is estimated to be approximately HK$10,450.2 million (on the basis of the Macao Property First Valuation) or approximately HK$14,240.5 million (on the basis of the Macao Property Second Valuation)

The total original purchase costs of Evergo China’s interests in the Chinese Estates Properties was approximately HK$4,256 million.

– 32 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

A summary of the unaudited combined results of Evergo China Group and Honest Right for each of the three years ended 31 December 2004, 2005 and 2006 and for the six months ended 30 June 2007 is set out below.

		For the year ended	For the year ended	For the year ended	Six months ended	Six months ended
		31 December				30 June
	2004		2005	2006		2007
	HK$’000	HK$’000		HK$’000		HK$’000
Turnover	31,336		32,082	57,926		33,719
Operating profit	37,417		38,694	99,635		89,470
Profit before taxation	418,238		83,203	196,674		109,413
Net profit attributable to
equity holders	414,494		79,526	78,268		95,799

As at 30 June 2007, the unaudited combined net assets attributable to equity holders of the Evergo China Group and Honest Right were approximately HK$1,893.7 million.

SHAREHOLDING STRUCTURE OF CHI CHEUNG

Set out below is a table showing the shareholding structure of Chi Cheung (i) before the issue of the estimated number of 176,573,217 Consideration Shares; and (ii) after the issue of the estimated number of 176,573,217 Consideration Shares.

Existing shareholding structure of Name of Chi Cheung before the issue of Shareholders the Consideration Shares Number of shares % Chinese Estates 209,931,186 61.969 Public shareholders of Chi Cheung 128,834,801 38.031 338,765,987 100.000	Shareholding structure of Chi Cheung after the issue of the Consideration Shares Number of shares % 386,504,403 75.000 128,834,801 25.000 515,339,204 100.000	Shareholding structure of Chi Cheung after the issue of the Consideration Shares Number of shares % 386,504,403 75.000 128,834,801 25.000 515,339,204 100.000
		100.000

– 33 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

The directors of Chinese Estates and the directors of Chi Cheung note that after taking into account of the issue of the Consideration Shares but before any conversion of the CE Bonds, Chinese Estates would be interested in 386,504,403 Chi Cheung Shares, representing 75% of the issued share capital of Chi Cheung as enlarged by the issue of the Consideration Shares. Chinese Estates will procure to maintain the listing of Chi Cheung on the Stock Exchange and ensure that the public float of Chi Cheung will be at least 25% at all times.

INFORMATION ON CHINESE ESTATES

Chinese Estates is an investment holding company incorporated in Bermuda with limited liability and its securities are listed on the main board of the Stock Exchange. The Chinese Estates Group is principally engaged in the property investment and development in Hong Kong, the PRC and Macao, brokerage, securities investments, money lending and cosmetics businesses.

A summary of the audited consolidated results of the Chinese Estates and its subsidiaries for each of the three years ended 31 December 2004, 2005 and 2006 and the unaudited consolidated results for the six months ended 30 June 2007 is set out below.

		For the year ended	For the year ended	Six months ended	Six months ended
		31 December			30 June
	2004	2005	2006		2007
	HK$’000	HK$’000	HK$’000		HK$’000
Turnover	5,257,357	2,274,988	4,763,789		2,534,962
Profit before taxation	1,704,516	7,383,690	9,063,011		2,407,851
Profit for the year/period	1,658,412	6,454,667	7,557,087		2,123,785
Profit attributable to
equity holders	1,619,085	6,154,572	7,477,345		2,052,396

As at 30 June 2007, the unaudited consolidated net assets attributable to equity holders of Chinese Estates were approximately HK$38,226.4 million, or approximately HK$16.74 per share (based on 2,284,213,312 shares of Chinese Estates in issue as at 30 June 2007).

INFORMATION ON CHI CHEUNG

Chi Cheung is an investment holding company incorporated in Hong Kong with limited liability and its securities are listed on the main board of the Stock Exchange. The Chi Cheung Group is principally engaged in the property investment and development in Hong Kong.

– 34 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

A summary of the audited consolidated results of the Chi Cheung Group for each of the three years ended 31 December 2004, 2005 and 2006 and the unaudited consolidated results for the six months ended 30 June 2007 is set out below.

		For the year ended	For the year ended	Six months ended
		31 December		30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	18,870	3,370	2,916	13,720
Profit/(loss) before taxation	(168,416)	119,816	96,320	48,581
Profit/(loss) after taxation	(169,396)	119,418	94,291	47,333
Profit/(loss) attributable to
equity holders	(169,396)	121,518	94,349	47,364

As at 30 June 2007, the unaudited consolidated net assets attributable to equity holders of Chi Cheung were approximately HK$808.8 million, or approximately HK$2.39 per share (based on 338,765,987 Chi Cheung Shares in issue as at 30 June 2007).

B. REASONS FOR THE ASSET TRANSACTION

The Chinese Estates Group is principally engaged in property investment and development in Hong Kong, the PRC and Macao. Its property portfolio comprises properties held for investment, properties under development, properties interests held for future development, properties held for sale, properties contracted to be sold and properties contracted to be acquired.

It is the intention of Chinese Estates to develop Chi Cheung into its mainland China and Macao property development arm upon completion of the Asset Transaction. In this regard, all properties held and located in the PRC and Macao would be transferred to the Chi Cheung Group under the Asset Transaction. Over the past few years, the property market in the PRC and Macao is prospering. Property prices and demand in Macao and the major cities of the PRC have experienced significant growth in recent years and it is expected that this trend will continue in the coming years. All the Chinese Estates Properties are located at convenient transport accessibility district in major cities of the PRC and Macao and all these Chinese Estates Properties are at prime location. It is believed that the Chinese Estates Properties would have significant potential and would enjoy the benefit from the upwards trend of the market. The directors of Chinese Estates consider that it would be beneficial to the Chi Cheung Group and the Chinese Estates Group taken as a whole. It would be in the interest of the Chinese Estates Group to undergo a group reorganisation with an aim to enrich the property business of the Chi Cheung Group, and reform the PRC and Macao property business of the Chinese Estates Group.

– 35 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

The Chinese Estates Properties to be transferred from the Chinese Estates Group to the Chi Cheung Group comprise interests in 9 properties. The CE Relevant Proportion of the valuation of such Chinese Estates Properties (excluding the Chongqing Property) as at 31 July 2007 valued by BMI Appraisals Limited, an independent professional property valuer, is approximately HK$14,006.7 million (with the Macao Property First Valuation).

The Chi Cheung Properties to be transferred from the Chi Cheung Group to the Chinese Estates Group comprise interests in 11 properties. The CC Relevant Proportion of the valuation of such Chi Cheung Properties as at 31 July 2007 valued by Norton Appraisals Limited, an independent professional property valuer, was approximately HK$759.4 million.

The Chinese Estates Properties have generated an attributable rental income recognized as turnover amounting to approximately HK$6.1 million in July 2007. The Chi Cheung Properties have generated an attributable rental income recognized as turnover amounting to approximately HK$0.2 million in July 2007.

The directors of Chi Cheung consider that the Asset Transaction is beneficial to the shareholders of Chi Cheung. The reasons are summarized as follows:

• (i) through the acquisition and subsequent development of the Chinese Estates Properties after completion of the Asset Transaction, as and when opportunities arise, the Chi Cheung Group may be able to capture opportunities to establish its foothold in the growing PRC and Macao property markets that were not made available to it before the Asset Transaction;

• (ii) the Asset Transaction provides an opportunity for the Chi Cheung Group to strengthen not only its capital base, but also the income base; and

• (iii) it is believed that the Chinese Estates Properties would have significant potential and would enjoy the benefit from the upwards trend of the PRC and Macao property markets.

As such, the directors of Chi Cheung have decided to put forward the Asset Transaction to the Chi Cheung Independent Shareholders for their consideration.

– 36 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

C. LISTING RULES IMPLICATIONS

No application will be made for the listing of, or permission to deal in, the CE Bonds on the Stock Exchange or any other stock exchange. Chi Cheung will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares and the Conversion Shares which may fall to be issued upon the exercise of the Conversion Rights attaching to the CE Bonds.

The Asset Transaction constitutes a very substantial acquisition and a very substantial disposal transaction for Chi Cheung under the Listing Rules. The Asset Transaction constitutes a major transaction for Chinese Estates under the Listing Rules. As Chinese Estates is the controlling shareholder of Chi Cheung, the Asset Transaction also constitutes a connected transaction for Chi Cheung under the Listing Rules and is therefore subject to the approval of the Chi Cheung Independent Shareholders. No change in board composition for Chinese Estates is expected after completion of the Asset Transaction whilst an additional executive director is proposed to be appointed for Chi Cheung.

As at the Latest Practicable Date, Chinese Estates is interested in 209,931,186 Chi Cheung Shares, representing approximately 61.96% of the existing issued share capital of Chi Cheung. In view of Chinese Estates’ interests in the Asset Transaction, Chinese Estates will abstain from voting on the ordinary resolution in respect of the Asset Transaction to be proposed at the EGM.

Chi Cheung Independent Board Committee has been established to consider the Asset Transaction. Evolution Watterson has been appointed to advise Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders regarding the Asset Transaction.

Pursuant to the Undertaking, Chinese Estates has undertaken to the Stock Exchange that it will not enter into a Specified Transaction with a Related Party which is for a consideration or in respect of a principal amount which, when aggregated with the consideration or principal amount of any Specified Transaction(s) between Chinese Estates or any of its subsidiaries and any Related Party carried into effect during the previous twelve months, exceeds HK$200 million, unless the approval of the shareholders of Chinese Estates at a general meeting at which the Related Party will abstain from voting is obtained. As Chi Cheung is owned as to approximately 61.96% by Chinese Estates and is hence a Related Party for the purpose of the Undertaking, the Asset Transaction and the Financial Assistance will therefore constitute Specified Transactions for Chinese Estates and will be subject to the approval by the shareholders of Chinese Estates at which any shareholder of Chinese Estates who is a Related Party will abstain from voting.

– 37 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

Mr. Joseph Lau, Luen-hung, who is interested in 1,158,283,850 shares in Chinese Estates, representing approximately 50.35% of the issued share capital of Chinese Estates, and his brother, Mr. Thomas Lau, Luen-hung, who is interested in 150,036,697 shares in Chinese Estates, representing approximately 6.52% of the issued share capital of Chinese Estates, are a closely allied group of shareholders of Chinese Estates who hold in aggregate approximately 56.87% of the voting rights of Chinese Estates as at the Latest Practicable Date. Mr. Joseph Lau, Luen-hung and Mr. Thomas Lau, Luen-hung are not interested in any Chi Cheung Shares and are not interested in the Asset Transaction except for their equity interests in the Chinese Estates, and to the best knowledge of the directors of Chinese Estates, having made all reasonable enquiry, no other shareholder is a Related Party or is interested in the Asset Transaction or the Financial Assistance save for his equity interest in Chinese Estates. Since no Chinese Estates shareholders will, as a result of the Asset transaction and the Financial Assistance, gain a benefit which is otherwise not available to the other Chinese Estates shareholders and no Chinese Estates shareholder is materially interested in the Asset Transaction and the Financial Assistance, no shareholders of Chinese Estates would be required to abstain from voting if Chinese Estates were to convene a general meeting for the approval of the Asset Transaction and the Finance Assistance.

Pursuant to the Undertaking, the Asset Transaction and the Financial Assistance are required to be approved by the shareholders of Chinese Estates where any Related Party which is interested in the transactions would need to abstain from voting. Given that Mr. Joseph Lau, Luen-hung and his associates have already confirmed that they will provide a written approval for the Asset Transaction and the Financial Assistance pursuant to Rule 14.44 of the Listing Rules in lieu of a resolution to be passed at a general meeting and the Stock Exchange has granted a waiver from strict compliance with the requirement of approval by the shareholders of Chinese Estates pursuant to the Undertaking in respect of the Asset Transaction and the Financial Assistance, Chinese Estates considers that it may rely on the written approval from Mr. Joseph Lau, Luen-hung and his associates to approve the transactions rather than convening a general meeting to approve the transactions.

The directors (including the independent non-executive directors) of Chinese Estates consider that the terms and conditions of the Asset Transaction are on normal commercial terms and are fair and reasonable and are in the interest of Chinese Estates and the shareholders of Chinese Estates as a whole. The Financial Assistance will be made on normal commercial terms and the directors (including the independent non-executive directors) of Chinese Estates confirmed that the Financial Assistance is fair and reasonable and is in the interest of Chinese Estates and the shareholders as a whole.

Mr. Lai, Yun-hung, Mr. Mok, Hon-sang and Mr. Wong, Tik-tung, being all the independent non-executive directors of Chi Cheung, have been appointed by the Chi Cheung Board to serve as members of the Chi Cheung Independent Board Committee to advise and make recommendation to the Chi Cheung Independent Shareholders as to how to vote on the ordinary resolution regarding the Asset Transaction to be proposed at the EGM.

– 38 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

Evolution Watterson has been appointed as the independent financial adviser to advise the Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders on whether the Asset Transaction is on normal commercial terms, in the ordinary and usual course of business of Chi Cheung and in the interests of Chi Cheung and the shareholders of Chi Cheung as a whole.

D. FINANCIAL IMPACT OF THE ASSET TRANSACTION

Since the carrying amounts of identifiable assets and liabilities of the Chinese Estates Companies and the Chi Cheung Companies at the Completion Date may be substantially different from their carrying amounts as at 30 June 2007, the actual financial impact of the Asset Transaction may be different from the illustration shown below.

Chinese Estates Group

Upon Completion

Upon completion of the Asset Transaction, Chinese Estates’ equity interest in Chi Cheung will be increased from 61.96% to 75%.

A goodwill of approximately HK$12.3 million arising from the additional equity interest of 13.04% in Chi Cheung (from 61.96% to 75%) will be recognized in the consolidated balance sheet of Chinese Estates as non-current asset. According to the requirements of the HKFRS, such goodwill is subject to an impairment test annually at the forthcoming year end date. The recognition of the goodwill at completion of the Asset Transaction will increase the non-current assets, total assets and total equity of the Chinese Estates Group respectively for the same amount. Accordingly, the gearing ratio of the Chinese Estates Group is expected to have a slight decrease of 0.01%.

Besides, minority interest in the consolidated statement of changes in equity and the consolidated balance sheet of Chinese Estates will be increased by approximately HK$12.3 million due to an increase in total equity of the Enlarged Chi Cheung Group upon completion of the Asset Transaction.

– 39 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

After Completion

After completion of the Asset Transaction, Chinese Estates will consolidate the profit attributable to equity holders of Evergo China and Honest Right with 25% as minority interest. Further the profit attributable to equity holders of the CC Sale Companies will be consolidated without minority interest. For illustration purpose, the Chinese Estates Group recorded a profit attributable to equity holders of Chinese Estates of approximately HK$7,477.3 million for the year ended 31 December 2006. Based on the profit attributable to equity holders of Evergo China, Honest Right and the CC Sale Companies for the year ended 31 December 2006, the minority interest in the consolidated income statement is expected to be decreased by approximately HK$12.6 million to HK$67.1 million and the minority interest in the consolidated balance sheet will be decreased by HK$12.6 million to HK$417.3 million. The decrease in minority interest in the consolidated income statement represents the (a) increase of profit attributable to equity holders of Evergo China and Honest Right of HK$19.6 million; and (b) decrease of profit attributable to equity holders of the CC Sale Companies of HK$32.2 million.

Further Chinese Estates will hold the CE Bonds issued by Chi Cheung in the principal amount of HK$9,291.0 million exercisable at Conversion Price of HK$2.66 per Conversion Share. Before conversion of the CE Bonds, the net asset value per share to equity holders of Chi Cheung is approximately HK$9.08. If the CE Bonds has been fully converted into 3,492,857,142 Conversion Shares, the net asset value per share to equity holders of Chi Cheung would be approximately HK$3.12. On consolidation, the CE Bonds would be eliminated in the consolidated balance sheet.

There is no financial effect to the consolidated cash flow statement from the Asset Transaction. Save for the abovementioned, there is no other expected significant financial effect to the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity from the Asset Transaction.

Chi Cheung Group

Immediately after the completion of the Asset Transaction, the Chi Cheung Companies will cease to be subsidiaries and associated companies of Chi Cheung and their financial results will not be consolidated in the financial statement of Chi Cheung whereas the Evergo China Group and Honest Right will become subsidiaries and associated companies of Chi Cheung and their financial results will be consolidated in the financial statement of Chi Cheung.

– 40 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

Earnings

Upon completion of the Asset Transaction, Chi Cheung Group expects to recognize an unaudited gain of approximately HK$98.9 million on disposal of the Chi Cheung Companies. The gain represents the difference between the Provisional CE Consideration and the aggregated unaudited combined net tangible asset value of the Chi Cheung Companies as at 30 June 2007, the Fair Value of the CC Sale loan as at 30 June 2007, the estimated net adjustment to the unaudited combined net tangible asset value of the Chi Cheung Companies (assuming Canaria Acquisition does not take place before completion of the Asset Transaction) arising from the CC Relevant Proportion of the valuation on the Chi Cheung Properties as at 31 July 2007. In addition, the Chi Cheung Group also expects to recognize an unaudited discount on acquisition of Evergo China and Honest Right of approximately HK$1.8 billion. The discount represents the difference between the Provisional CC Consideration and 85% on the aggregated unaudited combined net tangible asset value of the Evergo China Group and Honest Right as at 30 June 2007, the Fair Value of the CE Sale loan as at 30 June 2007, the estimated net adjustment to the unaudited combined net tangible asset value of the Evergo China Group and Honest Right arising from the CE Relevant Proportion of the valuation on the Chinese Estates Properties (on the basis of the Macao Property First Valuation and excluding the Chongqing Property) as at 31 July 2007. However, the exact amount of the gain and discount shall be determined based on the figures to be set out in the CC Completion Accounts and the CE Completion Accounts.

Chi Cheung Group recorded consolidated profit attributable to equity holders of Chi Cheung of approximately HK$94.3 million for the year ended 31 December 2006. The profit attributable to equity holders of Evergo China and Honest Right for the year ended 31 December 2006 amounted to approximately HK$60.1 million and HK$18.2 million respectively whereas the profit attributable to equity holders of Chi Cheung Companies for the year ended 31 December 2006 amounted to approximately HK$79.4 million. Taking into account the rental income source of Evergo China Group, the acquisition is expected to enlarge the revenue base of the Enlarged Chi Cheung Group.

The Provisional CC Consideration of approximately HK$10,450.2 million (on the basis of the Macao Property First Valuation) shall be offset against the Provisional CE Consideration of approximately HK$689.5 million (assuming Canaria Acquisition does not take place before completion of the Asset Transaction), the balance of which shall be satisfied by (i) the issue and allotment of the Consideration Shares; (ii) the issue of the CE Bonds; and (iii) as the remaining balance, by cash. It is expected that the interest expenses of the Enlarged Chi Cheung Group will increase significantly as a result of the interest expenses (including imputed interest) on the CE Bonds and the interest expenses on the acquired bank loan.

– 41 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

Assets and liabilities

The consolidated total assets and liabilities of the Chi Cheung Group, as at 30 June 2007 were approximately HK$818.1 million and HK$10.3 million respectively. Had the Asset Transaction been completed on 30 June 2007, the consolidated total assets and liabilities of the Enlarged Chi Cheung Group would increase to approximately HK$17,825.4 million and HK$10,590.0 million respectively. The increase in assets was mainly attributable to increase in investment properties by approximately HK$877.8 million, properties under development by approximately HK$1,879.0 million and properties under development held for sale by approximately HK$14,310.0 million.

Under the S&P Agreement, the CE Consideration shall set-off against the CC Consideration, as such there is no material outflow of cash to the Chi Cheung Group. Immediately following completion of the Asset Transaction, liabilities of the Enlarged Chi Cheung Group would increase which was due to the issuance of the CE Bonds in the amount of approximately HK$7,503.3 million (based on the Fair Value of the liability portion of the CE Bonds) and the deferred tax of approximately HK$2,873.1 million.

The net asset value attributable to equity holders of Chi Cheung would increase to approximately HK$4,680.6 million had the Asset Transaction been completed on 30 June 2007. Net asset value per share to equity holders of Chi Cheung was approximately HK$9.08 (based on issued share capital of Chi Cheung before any conversion of the CE Bonds of 515,339,204 Chi Cheung Shares). Had full conversion of CE Bonds been effected as at 30 June 2007, the net asset value attributable to equity holders of Chi Cheung would be approximately HK$12,496.7 million and net asset value per share to equity holders of Chi Cheung would be approximately HK$3.12 (based on issued share capital of Chi Cheung as enlarged by the conversion of the CE Bonds of 4,008,196,346 Chi Cheung Shares).

Gearing

The gearing of Enlarged Chi Cheung Group would increase from zero had the Asset Transaction been completed on 30 June 2007, which would comprise of bank borrowings of Honest Right and the CE Bonds of approximately HK$15.0 million and HK$7,503.3 million respectively.

– 42 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

E. BUSINESS REVIEW AND FUTURE PROSPECT OF THE CHINESE ESTATES GROUP

The Chinese Estates Group is principally engaged in property investment and development in Hong Kong, the PRC and Macao. Its property portfolio comprises properties held for investment, properties under development, properties interests held for future development, properties held for sale, properties contracted to be sold and properties contracted to be acquired. The Chinese Estates Group is also engaged in brokerage, securities investments, money lending and cosmetics businesses.

After completion of the Asset Transaction, the property business of Chinese Estates Group will concentrate on the Hong Kong market. Most of the investment properties of Chinese Estates Group are highly accessible and strategically located in prime commercial areas in Hong Kong such as Causeway Bay, Tsim Sha Tsui and Wanchai.

F. BUSINESS REVIEW AND FUTURE PROSPECT OF THE CHI CHEUNG GROUP

The Chi Cheung Group is principally engaged in the property investment and development in Hong Kong.

After completion of the Asset Transaction, the Chi Cheung Group will focus on property investment and development in the PRC and Macao and become a property development arm of Chinese Estates in mainland China and Macao.

Over the past few years, the property market in the PRC and Macao is prospering. Property prices and demand in Macao and the major cities of the PRC have experienced significant growth in recent years and it is expected that this trend will continue in the coming years. All the Chinese Estates Properties are located at convenient transport accessibility district in major cities of the PRC and Macao and all these Chinese Estates Properties are at prime location. It is believed that the Chinese Estates Properties would have significant potential and would enjoy the benefit from the upward trend of the PRC and Macao property markets. Therefore, through the acquisition and subsequent development of the Chinese Estates Properties after completion of the Asset Transaction, the Chi Cheung Group will have opportunities to establish its foothold in the growing PRC and Macao property markets. The Asset Transaction provides an opportunity for the Chi Cheung Group to strengthen not only its capital base, but also the income base.

In addition, the Chi Cheung Group will continue to capture opportunities for replenishing its land bank for development projects in the mainland China.

– 43 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

G. PROPOSED CHANGE OF NAME

Reason for the change of name

The Chi Cheung Board proposed to change the name of Chi Cheung from “Chi Cheung Investment Company, Limited（至祥置業有限公司）” to “Evergo China Holdings Limited（愛美高中國控股有限公司）”.

The proposed change of name of Chi Cheung is to reflect Chi Cheung’s change of focus on the development and investments of the properties from Hong Kong to the PRC and Macao after completion of the Asset Transaction.

Conditions

The proposed change of name is subject to the following conditions:–

1. completion of the Asset Transaction;

2. the passing of a special resolution by the shareholders of Chi Cheung at the EGM; and

3. approval from the Registrar of Companies in Hong Kong granting approval of the change of name.

Existing Share Certificates

All existing share certificates bearing the existing name of Chi Cheung will continue to be evidence of title to the Chi Cheung Shares and valid for trading, settlement and registration purposes. There will not be any arrangements for free exchange of existing share certificates for new share certificates under the new name of Chi Cheung. Upon the change of name becoming effective, any issue of share certificates thereafter will be in the new name of Chi Cheung. A further announcement will be made by Chi Cheung when the proposed change of name becomes effective.

– 44 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

H. EGM OF CHI CHEUNG

Set out on pages 465 to 467 of this circular is a notice convening the EGM to be held at Salon I and II, Mezzanine Floor, Grand Hyatt Hong Kong, One Harbour Road, Hong Kong on Wednesday, 28 November 2007 at 10:00 a.m. at which relevant resolutions will be proposed to the shareholders of Chi Cheung to approve the Asset Transaction and the proposed change of the company name of Chi Cheung. As at the Latest Practicable Date, Chinese Estates was interested in 209,931,186 Chi Cheung Shares, representing approximately 61.96% of the existing issued share capital of Chi Cheung. In view of Chinese Estates’ interest in the Asset Transaction, Chinese Estates and its associates will abstain from voting on the ordinary resolution in respect of the Asset Transaction to be proposed at the EGM. Save for Chinese Estates and its associates, having made all reasonable enquiries, Chi Cheung Board is not aware of any other shareholder of Chi Cheung who is required to abstain from voting on the Asset Transaction under the Listing Rules.

A form of proxy for use at the EGM is enclosed and such form of proxy is also published on the website of the Stock Exchange. Whether or not you are able to attend the EGM, you are requested to complete and return the form of proxy to the Chi Cheung’s registrar and transfer office, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible, but in any event not later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending the EGM and voting in person should you so wish.

Pursuant to Article 73 of the Articles of Association of Chi Cheung, every resolution submitted to a general meeting of Chi Cheung shall be decided on a show of hands, unless a poll is demanded (before or on the declaration of the result of the show of hands) by the chairman or by:

• (a) at least 3 shareholders of Chi Cheung present in person or by proxy for the time being entitled to vote at the meeting; or

• (b) any shareholder or shareholders of Chi Cheung present in person or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders of Chi Cheung having the right to vote at the meeting; or

• (c) any shareholder or shareholders of Chi Cheung present in person or by proxy and holding Chi Cheung Shares conferring a right to vote at the meeting being Chi Cheung Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Chi Cheung Shares conferring that right.

– 45 –

JOINT LETTER FROM CHINESE ESTATES BOARD AND CHI CHEUNG BOARD

I. CLOSURE OF REGISTER OF MEMBERS OF CHI CHEUNG

The register of members of Chi Cheung will be closed from 26 November 2007 to 28 November 2007, both days inclusive. For the purpose of ascertaining the entitlement of shareholders of Chi Cheung to the attendance of the EGM, all share transfers accompanied by the relevant share certificates must be lodged with the Chi Cheung’s registrar and transfer office, Tricor Secretaries Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on 23 November 2007.

J. RECOMMENDATION

The Chi Cheung Board considers that though the Asset Transaction is not in the ordinary and usual course of business of Chi Cheung, it is on normal commercial terms, fair and reasonable and, together with the proposed change of the company name of Chi Cheung, are in the interests of Chi Cheung and its shareholders as a whole. Accordingly, the Chi Cheung Board recommends the Chi Cheung Independent Shareholders to vote in favor of the Asset Transaction and the shareholders of Chi Cheung to vote in favour of the proposed change of the company name of Chi Cheung at the EGM.

Your attention is also drawn to the letter of advice from the Chi Cheung Independent Board Committee set out on pages 47 to 48 of this circular containing its advice to the Chi Cheung Independent Shareholders, and the letter from Evolution Watterson set out on pages 49 to 58 of this circular containing its advice to the Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders, in relation to the Asset Transaction.

The Chi Cheung Independent Board Committee, having taken into account the opinion of Evolution Watterson, considers that though the Asset Transaction is not in the ordinary and usual course of business of Chi Cheung, it is on normal commercial terms, fair and reasonable so far as the Chi Cheung Independent Shareholders are concerned and in the interest of Chi Cheung and the shareholders of Chi Cheung as a whole and accordingly, recommends the Chi Cheung Independent Shareholders to vote in favour of the relevant ordinary resolution for approving the Asset Transaction to be proposed at the EGM.

K. FURTHER INFORMATION

Your attention is drawn to the information set out in the appendices of this circular.

Yours faithfully,	Yours faithfully,
By order of the board	By order of the board
Chinese Estates Holdings Limited	Chi Cheung Investment Company, Limited
Lam, Kwong-wai	Lam, Kwong-wai
Company Secretary	Company Secretary

– 46 –

LETTER FROM CHI CHEUNG INDEPENDENT BOARD COMMITTEE

==> picture [87 x 49] intentionally omitted <==

CHI CHEUNG INVESTMENT COMPANY, LIMITED 至祥置業有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 112)

31 October 2007

To the Chi Cheung Independent Shareholders

Dear Sirs,

PROPOSED ASSET TRANSACTION

VERY SUBSTANTIAL ACQUISITION, VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

We refer to the circular dated 31 October 2007 issued to the shareholders of Chi Cheung (the “Circular”) of which this letter forms part. Capitalized terms used herein shall have the same meanings as defined in the Circular unless the context otherwise requires.

As independent non-executive directors of Chi Cheung who are independent of the parties to the Asset Transaction and not having any interest in the Asset Transaction, we have been appointed by the Chi Cheung Board to advise you as to whether, in our opinion, the terms of the Asset Transaction are fair and reasonable so far as the Chi Cheung Independent Shareholders as a whole are concerned.

Evolution Watterson has been appointed by Chi Cheung as the independent financial adviser to advise us on whether the Asset Transaction is on normal commercial terms, in the ordinary and usual course of business of Chi Cheung and in the interests of Chi Cheung and the shareholders of Chi Cheung as a whole. Details of its advice, together with the principal factors and reasons taken into consideration in arriving at such opinion, are set out on pages 49 to 58 of the Circular. Your attention is also drawn to the joint letter from Chinese Estates Board and Chi Cheung Board set out on pages 12 to 46 of the Circular and the additional information set out in the appendices to the Circular.

– 47 –

LETTER FROM CHI CHEUNG INDEPENDENT BOARD COMMITTEE

Having taken into account the opinion of and the principal factors and reasons considered by Evolution Watterson as stated in its letter of advice, we consider that although the Asset Transaction is not in the ordinary and usual course of business of Chi Cheung, the terms of the Asset Transaction are on normal commercial terms, and are fair and reasonable so far as the Chi Cheung Independent Shareholders are concerned and are in the interests of Chi Cheung and its shareholders as a whole. We therefore recommend the Chi Cheung Independent Shareholders to vote in favour of the relevant ordinary resolution in relation to the Asset Transaction to be proposed at the EGM.

Yours faithfully, For and on behalf of

the Chi Cheung Independent Board Committee

Lai, Yun-hung Mok, Hon-sang Independent Non-executive Director Independent Non-executive Director

Wong, Tik-tung

Independent Non-executive Director

– 48 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

31 October 2007

The Chi Cheung Independent Board Committee and

the Chi Cheung Independent Shareholders Chi Cheung Investment Company, Limited 26th Floor, MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Sir/Madam,

PROPOSED ASSET TRANSACTION INVOLVING VERY SUBSTANTIAL ACQUISITION, VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

We refer to our appointment as independent financial adviser to the Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders in relation to the Asset Transaction. Details of the Asset Transaction are set out in the joint letter from the Chinese Estates Board and the Chi Cheung Board contained in the joint circular issued by Chinese Estates and Chi Cheung to their respective shareholders dated 31 October 2007 (the “Joint Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Joint Circular unless the context otherwise requires.

Following this reorganisation, Chi Cheung will re-focus its property business from Hong Kong to the PRC and Macao. Under the S&P Agreement, the parties thereto have agreed that upon completion of the Asset Transaction, the Provisional CE Consideration payable by Chinese Estates to Chi Cheung and the cash portion of the Provisional CC Consideration payable by Chi Cheung to Chinese Estates shall set-off against each other and Chi Cheung will settle the balance by way of (1) the issue by Chi Cheung of a maximum of 176,573,217 Consideration Shares at an issue price of HK$2.66 per Chi Cheung Share to Chinese Estates or its nominee(s); (2) the issue of the CE Bonds with principal amount not exceeding HK$18.5 billion to Chinese Estates or its nominee(s) and (3) as to the remaining balance, in cash.

The Asset Transaction constitutes a very substantial acquisition and a very substantial disposal transaction for Chi Cheung under the Listing Rules. As Chinese Estates is the controlling shareholder of Chi Cheung with 61.96% interest, the Asset Transaction also constitutes a connected transaction for Chi Cheung and is subject to the approval of the Chi Cheung Independent Shareholders.

– 49 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

Our role as independent financial adviser is to give our opinion as to whether the above connected transaction and the terms thereof are in the interest of Chi Cheung and whether they are fair and reasonable so far as the Chi Cheung Independent Shareholders are concerned.

In putting forth our recommendation in respect of the Asset Transaction, we have relied on Chi Cheung to provide us with all relevant information relating to the Chi Cheung Properties to be sold by Chi Cheung to Chinese Estates and the Chinese Estates Properties to be sold by Chinese Estates to Chi Cheung. In addition, we have relied on the independent property valuation report of the Chinese Estates Properties by BMI Appraisals Limited and the independent property valuation report of the Chi Cheung Properties by Norton Appraisals Limited. In assessing the financial impact of the Asset Transaction on Chi Cheung, we have considered the pro forma financial information on the Enlarged Chi Cheung Group prepared by HLB Hodgson Impey Cheng, Certified Public Accountants. The Chi Cheung Board has confirmed to us that no material facts have been omitted from the information supplied and we have no reason to suspect that any material information has been withheld by Chi Cheung or are misleading. On that basis, we consider that we have sufficient information to reach an informed view and to provide a reasonable basis for our recommendation. We have not, however, for the purpose of this exercise, conducted any form of detailed investigation or audit of the businesses or affairs of the Chi Cheung Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED IN RELATION TO THE ASSET TRANSACTION

In arriving at our opinion on the terms of the Asset Transaction, we have taken into consideration the following factors and reasons:

Reasons for the Asset Transaction

Chinese Estates Group is principally engaged in property investment and development in Hong Kong, the PRC and Macao. Chi Cheung is a 61.96% subsidiary of Chinese Estates and is engaged in property investment and development activities in Hong Kong. Under the Asset Transaction, all properties located in the PRC and Macao held by the Chinese Estates Group would be transferred to Chi Cheung whereas all properties located in Hong Kong held by Chi Cheung Group would be transferred to Chinese Estates. Following such restructuring, Chi Cheung will become a property investment and development arm of the Chinese Estates Group that focuses on PRC and Macao markets.

– 50 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

In recent years, property prices and demand in Macao and the major cities of the PRC have experienced significant growth and it is expected that this trend will continue in the coming years. All the Chinese Estates Properties are located at prime location with convenient transport access in major cities of the PRC and Macao. On that basis, we are of the view that the Chinese Estates Properties would have good potential and would enjoy the benefit from the upwards trend of the property market in the PRC and Macao. Consequently, the Asset Transaction is in the interest of Chi Cheung.

Terms of the Asset Transaction

Basis for determining the CC Consideration and the CE Consideration

The Chi Cheung Properties involves 11 properties in Hong Kong. The CE Consideration payable by Chinese Estates is determined by reference to the aggregate of:

• (a) the total combined net tangible asset value (excluding the book value attributable to the Excluded CC Properties) of each of the Chi Cheung Companies (excluding the Excluded CC Companies) as set out in the CC Completion Accounts and adjusted for the CC Relevant Proportion of the revaluation surplus or deficit (net of tax effects) of the Chi Cheung Properties (excluding the Excluded CC Properties), which is determined by reference to the market valuation of such properties as at 31 July 2007 by Norton Appraisals Limited, an independent property valuer, and the book value of such properties as at 31 July 2007; and

• (b) the Fair Value of the CC Sale Loan, the Fair Value of the Permitted Additional CC Sale Loan (less the Fair Value of the CE Assumed Debt) and the CC Received Sale Proceeds.

The Provisional CE Consideration is estimated to be approximately HK$689.5 million (assuming Canaria Acquisition does not take place before completion of the Asset Transaction). Such estimated Provisional CE Consideration is calculated on the basis of the unaudited combined net tangible asset value of the Chi Cheung Companies at 30 June 2007 of approximately HK$168.0 million, the Fair Value of the CC Sale Loan as at 30 June 2007 of approximately HK$422.6 million, the estimated net adjustment to the unaudited combined net tangible asset value of the Chi Cheung Companies of approximately of HK$98.9 million (assuming that the Canaria Acquisition is not completed before completion of the Asset Transaction), and the CC Relevant Proportion of the valuation on the Chi Cheung Properties of approximately HK$759.4 million as at 31 July 2007 valued by Norton Appraisals Limited. If the Canaria Acquisition takes place before completion of the Asset Transaction, the Provisional CE Consideration is estimated to be approximately HK$706.1 million.

– 51 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

As the CE Consideration is arrived at by reference to the latest independent valuation of the Chi Cheung Properties, we are of the view that the CE Consideration so determined is in the interest of Chi Cheung and is fair and reasonable so far as the Chi Cheung Independent Shareholders are concerned.

The Chinese Estates Properties involves eight properties in the PRC and the Macao Property. The CC Consideration payable by Chi Cheung is calculated after taking a 15% discount on the aggregate of:–

• (a) the total combined net tangible asset value of each of Evergo China and Honest Right (excluding the book value attributable to the Excluded CE Properties) as set out in the CE Completion Accounts and adjusted for the CE Relevant Proportion of the revaluation surplus or deficit (net of tax effects) of the Chinese Estates Properties (excluding the Chongqing Property and the Excluded CE Properties), which is determined by reference to the market valuation of such properties as at 31 July 2007 by BMI Appraisals Limited, an independent property valuer, and the book value of such properties as at 31 July 2007; and

• (b) the Fair Value of the CE Sale Loan, the Fair Value of the Permitted Additional CE Sale Loan (less the Fair Value of the CC Assumed Debt) and the CE Received Sale Proceeds and less (if applicable) all outstanding land premiums or fees payable for the approved increase of the MP GFA unless such land premiums or fees have already been recognized as liabilities in the CE Completion Accounts.

The Provisional CC Consideration is estimated to be approximately HK$10,450.2 million (on the basis of the Macao Property First Valuation). Such estimated Provisional CC Consideration is calculated after applying a 15% discount to the aggregate of the unaudited combined net tangible asset value of Evergo China Group and Honest Right as at 30 June 2007 of approximately HK$1,893.7 million, the Fair Value of the CE Sale Loan as at 30 June 2007 of approximately HK$2,485.6 million, the estimated net adjustment to the unaudited combined net tangible asset value of Evergo China and Honest Right of approximately HK$7,915.0 million, and the CE Relevant Proportion of the valuation on the Chinese Estates Properties (excluding the Chongqing Property) of approximately HK$14,006.7 million (with the Macao Property First Valuation) as at 31 July 2007 valued by BMI Appraisals Limited, an independent property valuer.

– 52 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

As the CC Consideration is arrived at after taking a 15% discount to the combined net tangible assets of Evergo China and Honest Right, calculated by reference to the latest independent valuation of the Chinese Estates Properties, we are of the opinion that the CC Consideration so derived is in the interest of Chi Cheung and is fair and reasonable so far as the Chi Cheung Independent Shareholders are concerned.

Payment for the net consideration

Under the S&P Agreement, upon completion of the Asset Transaction, the Provisional CE Consideration payable by Chinese Estates to Chi Cheung and the cash portion of the Provisional CC Consideration payable by Chi Cheung to Chinese Estates (such cash portion being equal to the amount of the Provisional CE Consideration which is estimated to be approximately HK$689.5 million) shall be set-off against each other and Chi Cheung will pay the balance of approximately HK$9,760.7 million, calculated based on the Provisional CC Consideration of approximately HK$10,450.2 million (on the basis of the Macao Property First Valuation) less the Provisional CE Consideration of approximately HK$689.5 million (assuming Canaria Acquisition does not take place before completion of the Asset Transaction).

The above net consideration of HK$9,760.7 million shall be satisfied by:

• (i) the issue by Chi Cheung of the Consideration Shares at an issue price of HK$2.66 per Chi Cheung Share to Chinese Estates or its nominee(s) for the amount of approximately HK$469.7 million;

• (ii) the issue of the CE Bonds in the estimated principal amount of approximately HK$9,291.0 million to Chinese Estates or its nominee(s); and

• (iii) the remaining balance of approximately HK$1,097 in cash.

The estimated transaction costs of HK$20 million will be settled by Chi Cheung in cash.

Terms of the Consideration Shares

As part of the consideration payable by Chi Cheung under the S&P Agreement, approximately 176.57 million Consideration Shares at an issue price of HK$2.66 (“Issue Price”) will be issued to Chinese Estates or its nominee(s) for the amount of approximately HK$469.7 million.

– 53 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

The Issue Price and the Conversion Price of HK$2.66 of the CE Bonds represent:

• (a) a discount of approximately 10.1% to the closing price of HK$2.96 per Chi Cheung Share on 29 August 2007 (the last trading day prior to suspension of trading in the Chi Cheung Shares pending the issue of the announcement of the Asset Transaction);

• (b) a discount of approximately 12.8% to the average closing price of approximately HK$3.05 per Chi Cheung Share for the 5 trading days up to and including 29 August 2007;

• (c) a discount of approximately 9.5% to the average closing price of approximately HK$2.94 per Chi Cheung Share for the 10 trading days up to and including 29 August 2007;

• (d) a premium of approximately 0.4% over the average closing price of approximately HK$2.65 per Chi Cheung Share over the 60 trading days up to and including 29 August 2007 and

• (e) the audited consolidated net assets of HK$2.66 per Chi Cheung Share as at 30 June 2007 after adjusting for the CC Relevant Proportion of the revaluation surplus (net of tax effects) of the Chi Cheung Properties which is determined by reference to an independent market valuation of such properties as at 31 July 2007.

As the Issue Price approximates the average closing price of approximately HK$2.65 per Chi Cheung Share over the 60 trading days up to and including 29 August 2007 (the last trading day prior to trading suspension pending the announcement) and the adjusted unaudited consolidated net assets of HK$2.66 per Chi Cheung Share as at 30 June 2007, we are of the opinion that the Issue Price is fair and reasonable so far as the Chi Cheung Independent Shareholders are concerned.

– 54 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

Terms of the CE Bonds

Under the S&P Agreement, a maximum of HK$18,500 million of the 0.5% 3-year CE Bonds would be issued to Chinese Estates or its nominee(s). The final principal amount of the CE Bonds to be issued depends on the final net consideration (CC Consideration less CE Consideration) payable by Chi Cheung. Currently, an estimated principal amount of approximately HK$9,291.0 million of the CE Bonds will be issued. To assess the fairness and reasonableness of the CE Bonds issue, we have compared the terms of the CE Bonds with other 3 to 5-year convertible issues of listed companies in Hong Kong in 2007 as set out below. For the purpose of comparison, we have included only those listed companies having convertible issues with issue size of more than HK$1,000 million:

								Price as a
		Principal						premium/
		amount of			Redemption	Yield to		(discount)
Date of		Convertible	Maturity		Price at	Maturity	Conversion	to market
announcement	Name of issuer	Bonds	(years)	Coupon	Maturity	(p.a.)	Price	price*
		(HK$)		(%)			(HK$)
30 Aug 2007	China Strategic	1,320m	3	0.0	100.0%	0.0%	0.33	(11.5%)
	Holdings Limited
11 Jul 2007	Freeman Corporation	1,500m	3.5	0.0	100.0%	0.0%	0.15	(28.6%)
	Limited
28 Jun 2007	Matsunichi	2,490m	5	7.5	115.0%	10.0%	6.00	22.4%
	Communication
	Holdings Limited
21 May 2007	TCL Multimedia	1,095m	5	4.5	137.5%	10.6%	0.40	(30.3%)
	Technology
	Holdings Limited
17 May 2007	Chia Tai Enterprises	1,676m	3	1.0	107.7%	3.5%	0.39	73.3%
	International Limited
10 May 2007	Greentown China	2,347m	5	0.0	105.6%	1.1%	22.14	40.0%
	Holdings Limited
4 May 2007	New World China	2,600m	5	0.0	103.8%	0.8%	8.04	42.7%
	Land Limited
20 Apr 2007	SPG Land	1,204m	5	0.0	111.8%	2.3%	8.12	37.1%
	(Holdings) Limited
23 Jan 2007	Kerry Properties Limited	2,350m	5	0.0	117.2%	3.2%	52.65	39.2%
19 Jan 2007	Hopson Development	1,617m	3	0.0	104.6%	1.5%	30.08	49.2%
	Holdings Limited
	Average **					3.3%		23.4%

* Based on 5 days’ average of closing price as quoted on the Stock Exchange prior to the date of announcement of the convertible bonds/note issues

** Excluding Chi Cheung

– 55 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

The CE Bonds carry a coupon of 0.5% p.a. and is redeemable at maturity to give bondholders a yield to maturity (“YTM”) of 0.5% p.a. The bonds may be converted into Chi Cheung Shares at an initial Conversion Price of HK$2.66 per Chi Cheung Share, subject to adjustment for dilutive events relating to the share capital of Chi Cheung such as subdivision or consolidation, bonus issues, capital reduction and rights issue.

The Conversion Price represents a discount of approximately 12.8% to the 5 days’ average closing price of HK$3.05 per Chi Cheung Share as at 29 August 2007 (the last trading date prior to trading suspension pending announcement of the Asset Transaction). We note from the table above that the average conversion price for convertible bond issues under survey carries a premium of 23.4% over their respective market prices at the time of such issues. As the Conversion Price approximates the average closing price of approximately HK$2.65 per Chi Cheung Share over the 60 trading days up to and including 29 August 2007 (the last trading day prior to trading suspension pending the announcement) and the adjusted audited consolidated net assets of HK$2.66 per Chi Cheung Share as at 30 June 2007, we are of the opinion that the Conversion Price is fair and reasonable so far as the Chi Cheung Independent Shareholders are concerned.

We are of the view that, despite the Conversion Price represents a discount to, instead of a premium over, the market price at the time of the issue when compared to other convertible issues, the lower YTM of 0.5% compared to the average of 3.3% for other convertible issues under survey is in the interest to Chi Cheung and is thus fair and reasonable to Chi Cheung Independent Shareholders.

Financial effects of the Asset Transaction

Chi Cheung Group’s audited net assets as at 30 June 2007 were HK$808.8 million. Had the Asset Transaction been completed on 30 June 2007, the unaudited pro forma consolidated net assets of the Enlarged Chi Cheung Group would have been approximately HK$4,680.6 million, representing an increase of approximately 5.8 times.

As a consequence of the issue of the CE Bonds, the unaudited pro forma balance sheet of the Enlarged Chi Cheung Group as at 30 June 2007 recorded a liability of HK$7,503.3 million, being the present value of the 3-year HK$9,291 million CE Bonds, calculated using the discount cash flow method with an effective interest rate of approximately 8% p.a., or 50 basis point over current Hong Kong prime lending rate of 7.5% p.a. as quoted by The Hongkong and Shanghai Banking Corporation Limited. In accordance with the Hong Kong Accounting Standards, the bond would attract a notional interest expense of approximately HK$597.3 million, calculated based on an effective interest rate of 8% p.a. on HK$7,503.3 million, during the first year of completion of the Asset Transaction.

For the year ended 31 December 2006, Chi Cheung Group’s after-tax profit was HK$94.3 million. Had the Asset Transaction been taken place on 1 January 2006, the unaudited pro forma consolidated profit of the Enlarged Chi Cheung Group for the year ended 31 December 2006 would have been approximately HK$1,517.9 million, after taking into consideration the gain of HK$1,828.3 million arising from the discount on acquisition of the Chinese Estates Properties and notional finance cost of HK$597.3 million as a result of the issue of the CE Bonds.

– 56 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

Other financing alternatives

Apart from the issue of the CE Bonds, we have considered whether there are other financing alternatives available to Chi Cheung to satisfy the net consideration payable to Chinese Estates for the Asset Transaction. These alternatives include the issue of new Chi Cheung Shares and bank borrowings.

For the purpose of the Asset Transaction and if, instead of the issue of the CE Bonds, Chi Cheung resorted to the issue of new Chi Cheung Shares to finance the total net consideration payable to Chinese Estates, Chi Cheung would have to issue an additional 3,492.86 million new Chi Cheung Shares at HK$2.66 per Chi Cheung Share, on top of the 176.57 million Consideration Shares to be issued to partially satisfy the net consideration payable. The above additional new issue of 3,492.86 million Chi Cheung Shares would represent 10.3 times Chi Cheung’s current share capital of 338.76 million shares. Such immediate shareholding dilution would have been significant to Chi Cheung Shareholders and is therefore not advisable.

On the other hand, if Chi Cheung considered bank borrowings instead of an issue of CE Bonds, Chi Cheung would have to face an annual interest expense of approximately HK$743.3 million for its HK$9,291 million borrowing, assuming banks are willing to lend such amounts and at an interest rate of 8.0% p.a. (the same as the notional interest rate applied to CE Bonds). The above interest expense payable to banks would have been much higher than the notional interest of HK$597.3 million applicable to the CE Bonds for the year ended 31 December 2006. It is also important to note that bank interest payments are cash outlay whereas the interest expense applicable to the CE Bonds, apart from the 0.5% p.a. coupon payable under the principal amount of HK$9,291 million for the CE Bonds (amounting to approximately HK$46.4 million a year) is notional only and does not involve cash outlay.

On that basis, we are of the opinion that the CE Bonds issue is a sensible and an appropriate method to finance the Asset Transaction and is in the interest of Chi Cheung and its shareholders.

– 57 –

LETTER FROM EVOLUTION WATTERSON TO CHI CHEUNG

ADVICE

Having considered the above principal factors and reasons, we are of the opinion that, the Asset Transaction, though not in the ordinary and usual course of business of Chi Cheung, is fair and reasonable and that the terms thereof, particularly with regard to the issue of the Consideration Shares and the CE Bonds, are on normal commercial terms and in the interests of Chi Cheung and the Chi Cheung Independent Shareholders as a whole.

Accordingly, we would recommend the Chi Cheung Independent Board Committee to advise the Chi Cheung Independent Shareholders to vote in favour of the ordinary resolution to approve the Asset Transaction to be proposed at the upcoming EGM.

Yours faithfully, For and on behalf of

Evolution Watterson Securities Limited

David Tsang

Managing Director

– 58 –

APPENDIX I GENERAL INFORMATION OF CHINESE ESTATES

1. RESPONSIBILITY

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Chinese Estates Group. The directors of Chinese Estates 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 contained herein misleading.

2. INTERESTS OF DIRECTORS

As at the Latest Practicable Date, the interests and short positions of the directors and chief executives of Chinese Estates in the shares, underlying shares and debentures of Chinese Estates or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to Chinese Estates and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the directors of Chinese Estates and chief executives of Chinese Estates were taken or deemed to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules to be notified to Chinese Estates and the Stock Exchange were as follows:

Long Positions

(a) Chinese Estates

Name of Directors Capacity Joseph Lau, Luen-hung Founder of trust (“Mr. Joseph Lau”) Founder of trust Lau, Ming-wai Beneficiary of trust (“Mr. MW Lau”) Beneficiary of trust Other interests	Number of Shares 230,984,820 (Note 1) 927,299,030 (Note 2) 1,158,283,850 230,984,820 (Note 1) 927,299,030 (Note 2) 4,000 (Note 3) 1,158,287,850	Percentage of Issued Share Capital
		50.35%
		50.35%

– 59 –

GENERAL INFORMATION OF CHINESE ESTATES

APPENDIX I

Notes:

1. These shares were indirectly owned by a discretionary trust of which Mr. Joseph Lau was the founder. Mr. Joseph Lau, Mr. MW Lau and certain other family members of Mr. Joseph Lau were eligible beneficiaries of that trust.

2. These shares were held by a unit trust of which Mr. Joseph Lau was one of the unit holders. The rest of the units in the unit trust were held by a discretionary trust of which Mr. Joseph Lau was the founder. Mr. MW Lau and certain other family members of Mr. Joseph Lau were eligible beneficiaries of the discretionary trust.

3. These shares were held under the estate of Ms. Theresa Po, Wing-kam, the late mother of Mr. MW Lau, of which Mr. MW Lau is the executor.

(b) Associated Company

				Percentage of
			Number of	Issued Share
Name of Company	Name of Director	Capacity	Shares	Capital
Chi Cheung	Mr. Joseph Lau	Interest in controlled	209,931,186	61.96%
		corporation	(Note)

Note:

Mr. Joseph Lau by virtue of his 50.35% interests in the issued share capital of Chinese Estates as disclosed in paragraph (a) above, was deemed to be interested in 209,931,186 of Chi Cheung Shares held directly by Billion Up Limited, a wholly-owned subsidiary of Lucky Years Ltd. which in turn was the wholly-owned subsidiary of Chinese Estates.

Save as disclosed above, as at the Latest Practicable Date, none of the directors and chief executives of Chinese Estates had any interest or short position in the shares, underlying shares or debentures of Chinese Estates or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to Chinese Estates and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including any interests and short positions which he/she was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules, to be notified to Chinese Estates and the Stock Exchange.

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APPENDIX I GENERAL INFORMATION OF CHINESE ESTATES

3. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to any director or chief executive of Chinese Estates, the following parties (other than a director or the chief executive of Chinese Estates) had an interest or short position in the shares and underlying shares of Chinese Estates which would fall to be disclosed to Chinese Estates under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who 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 other member of the Chinese Estates Group:

• (a) Long Positions in Chinese Estates:–

Name of		Number of	Percentage of
Substantial		Shares in	Issued
Shareholders	Capacity	Chinese Estates	Share Capital
GZ Trust Corporation	Trustee, beneficiary of	1,158,283,850	50.35%
	a trust and interest in	(Notes 1 and 2)
	controlled corporation
Global King Ltd.	Trustee	927,299,030	40.30%
		(Note 1)
Joseph Lau Luen Hung	Beneficial owner	230,984,820	10.04%
Investments Limited		(Note 2)
The Children’s Investment	Investment manager	200,377,418	8.71%
Fund Management (UK) LLP		(Note 3)
The Children’s Investment	Beneficial owner	200,377,418	8.71%
Master Fund		(Note 3)
Favor Gain Limited	Beneficial owner	150,036,697	6.52%
(“Favor Gain”)		(Note 4)
Thomas Lau, Luen-hung	Interest in controlled	150,036,697	6.52%
(“Mr. Thomas Lau”)	corporation	(Note 4)
UBS AG	Beneficial owner, person	212,086,076	9.21%
	having a security interest
	and interest in controlled
	corporation

– 61 –

APPENDIX I

GENERAL INFORMATION OF CHINESE ESTATES

Notes:

1. GZ Trust Corporation as trustee of a discretionary trust held units in a unit trust of which Global King Ltd. was the trustee and therefore was regarded as interested in the same parcel of shares held by Global King Ltd. These shares were the same parcel of 927,299,030 shares of Chinese Estates referred to in “Founder of trust” and “Beneficiary of trust” of Mr. Joseph Lau and Mr. MW Lau under “Interests of Directors” as disclosed in paragraph 2.(a) above.

2. GZ Trust Corporation as trustee of another discretionary trust held the entire issued share capital of Joseph Lau Luen Hung Investments Limited and therefore was regarded as interested in the same parcel of shares held by Joseph Lau Luen Hung Investments Limited. These shares were the same parcel of 230,984,820 shares of Chinese Estates referred to in “Founder of trust” and “Beneficiary of trust” of Mr. Joseph Lau and Mr. MW Lau under “Interests of Directors” as disclosed in paragraph 2.(a) above.

3. The Children’s Investment Fund Management (UK) LLP as investment manager of The Children’s Investment Master Fund (“TCI”) held the 200,377,418 shares of Chinese Estates for the benefit of TCI.

4. Mr. Thomas Lau was deemed to be interested in the 150,036,697 shares of Chinese Estates by virtue of the SFO as he owned the entire issued share capital of Favor Gain.

5. (b) Parties having direct or indirect interests in 10% or more of the voting rights in the members of the Chinese Estates Group (excluding the associated companies within the Chinese Estates Group):–

		Percentage of
		Issued Share
Name of Subsidiaries	Name of Shareholders	Capital
Dollar Union Limited	Steamroller Limited	25%
Modern City Investment Limited	Rothschild Investments Limited	25%
Conduit Road Development Limited	Rush Will Limited	30%
Konshing Enterprises Limited	Earlway International &	49%
	Development Limited

Save as disclosed above, as at the Latest Practicable Date, so far as was known to any director or chief executive of Chinese Estates, no persons (other than a director or the chief executive of Chinese Estates) had an interest or short position in the shares and underlying shares of Chinese Estates which would fall to be disclosed to Chinese Estates under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who 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 other member of the Chinese Estates Group (excluding the associated companies within the Chinese Estates Group).

– 62 –

APPENDIX I GENERAL INFORMATION OF CHINESE ESTATES

4. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

Both executive directors of Chinese Estates have personal interests in private companies engaged in property development and investment in Hong Kong as well as securities investment businesses. Mr. Joseph Lau has personal interests in private companies engaged in money lending business. As such, they were regarded as being interested in such businesses, which compete or may compete with the Chinese Estates Group. Nevertheless, given the size of such investments when compared with the size of operations and the investment portfolio of the Chinese Estates Group, investments in such ventures were considered immaterial as compared with the business interests of Chinese Estates. Given that the businesses of the Chinese Estates Group and the private companies are independently operated by different management teams, the directors of Chinese Estates consider that Chinese Estates is capable of carrying on its business independently of and at arm’s length from these competing businesses. Both of the executive directors of Chinese Estates do not currently have any intention to inject such interests into the Chinese Estates Group.

5. OTHER DIRECTORS’ INTERESTS

Save as disclosed herein, as at the Latest Practicable Date:

• (i) none of the directors of Chinese Estates had any direct or indirect interest in any assets which have been, since the date to which the latest published audited financial statements of the Chinese Estates Group were made up, acquired or disposed of by, or leased to Chinese Estates or any of its subsidiaries, or are proposed to be acquired or disposed of by, or leased to, Chinese Estates or any of its subsidiaries; and

• (ii) none of the directors of Chinese Estates is materially interested in any contract or arrangement entered into by Chinese Estates or any of its subsidiaries which contract or arrangement is subsisting at the date of this circular and which is significant in relation to the business of the Chinese Estates Group.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the directors of Chinese Estates had a service contract or a proposed service contract with any member of the Chinese Estates Group which is not determinable by the Chinese Estates Group within one year without payment of compensation, other than statutory compensation.

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APPENDIX I GENERAL INFORMATION OF CHINESE ESTATES

7. MATERIAL CONTRACTS

Save for the S&P Agreement, no contracts (not being contracts entered into in the ordinary course of business carried on by the Chinese Estates Group) have been entered into by any member of the Chinese Estates Group within the two years preceding the Latest Practicable Date and are or may be material.

8. LITIGATION

So far as is known to the directors of Chinese Estates having made all reasonable enquiry, as at the Latest Practicable Date, there was no litigation or claims of material importance pending or threatened against any member of the Chinese Estates Group.

9. MATERIAL ADVERSE CHANGE

The directors of Chinese Estates confirmed that there was no material adverse change in the financial or trading positions of the Chinese Estates Group since 31 December 2006, being the date to which the latest published audited financial statements of the Chinese Estates Group were made up.

– 64 –

APPENDIX I GENERAL INFORMATION OF CHINESE ESTATES

10. EXPERTS AND CONSENTS

The following is the qualification of the experts who have given their opinions or advice which are contained in this circular.

Qualification

Name Qualification HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Norton Appraisals Limited An independent professional property valuer BMI Appraisals Limited An independent professional property valuer

As at the Latest Practicable Date, each of the above experts:–

• (a) did not have any shareholding in any member of the Chinese Estates Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Chinese Estates Group;

• (b) did not have any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Chinese Estates Group or were proposed to be acquired or disposed of by or leased to any member of the Chinese Estates Group since 31 December 2006, being the date up to which the latest published audited financial statements of the Chinese Estates Group were made; and

• (c) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name, letter and/or report in the form and context in which they respectively appear.

11. MISCELLANEOUS

• (a) Mr. Lam, Kwong-wai, a fellow member of The Association of Chartered Certified Accountants (FCCA), is the company secretary and qualified accountant of Chinese Estates.

• (b) The registered office of Chinese Estates is at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda and the principal office of Chinese Estates is at 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

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APPENDIX I GENERAL INFORMATION OF CHINESE ESTATES

• (c) The branch share registrar and the transfer office of Chinese Estates is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (d) The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal office of Chinese Estates in Hong Kong at 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong during normal business hours on any Business Day up to and including 28 November 2007:–

• (a) the bye-laws of Chinese Estates;

• (b) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;

• (c) the accountants’ report from HLB Hodgson Impey Cheng on the Evergo China Group, Honest Right and the Chi Cheung Group, the respective texts of which are set out in Appendices IV, V and VI to this circular;

• (d) the accountants’ report from HLB Hodgson Impey Cheng on unaudited pro forma financial information of the Enlarged Chi Cheung Group, the text of which is set out in Appendix VII to this circular;

• (e) the letter and valuation certificate from BMI Appraisals Limited in respect of the valuation of the Chinese Estates Properties, the texts of which are set out in Appendix XI to this circular;

• (f) the letter and valuation certificate from Norton Appraisals Limited in respect of the valuation of the Chi Cheung Properties, the texts of which are set out in Appendix XII to this circular;

• (g) the letters of consent from the experts referred to in the paragraph headed “Experts and Consents” in this Appendix;

• (h) the annual reports of Chinese Estates for each of the two financial years ended 31 December 2005 and 2006;

• (i) the interim report of Chinese Estates for the six months ended 30 June 2007; and

• (j) this circular.

– 66 –

GENERAL INFORMATION OF CHI CHEUNG

APPENDIX II

1. RESPONSIBILITY

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Chi Cheung Group. The directors of Chi Cheung 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 contained herein misleading.

2. SHARE CAPITAL OF CHI CHEUNG

The authorized and issued share capital of Chi Cheung as at the Latest Practicable Date were as follows:

Authorised:

Issued and fully paid:

Number of Chi Cheung Shares HK$ 50,000,000,000 500,000,000 Chi Cheung Shares 338,765,987 3,387,659.87 Chi Cheung Shares

All the Chi Cheung Shares currently in issue rank pari passu in all respects with each other, including dividends, voting rights and capital. No Chi Cheung Shares have been issued since 31 December 2006 (being the date to which the latest published audited financial statements of the Chi Cheung Group were made up).

The Chi Cheung Shares are listed on the Stock Exchange and none of the securities of Chi Cheung are listed or dealt in on any other stock exchange and no such listing or permission to deal is being or is proposed to be sought.

As at the Latest Practicable Date, save for the Consideration Shares and the CE Bonds contemplated to be issued under the S&P Agreement, Chi Cheung had no options, warrants, derivatives or other securities that are convertible into Chi Cheung Shares.

– 67 –

GENERAL INFORMATION OF CHI CHEUNG

APPENDIX II

3. INTERESTS OF DIRECTORS

As at the Latest Practicable Date,

• (a) none of the directors or chief executive of Chi Cheung had any interest or short position in the shares, underlying shares or debentures of Chi Cheung or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to Chi Cheung and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including any interests and short positions which he was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules, to be notified to Chi Cheung and the Stock Exchange;

• (b) none of the directors of Chi Cheung had any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Chi Cheung Group or the Enlarged Chi Cheung Group or were proposed to be acquired or disposed of by or leased to any member of the Chi Cheung Group or the Enlarged Chi Cheung Group since 31 December 2006, being the date up to which the latest published financial statements of the Chi Cheung Group were made;

• (c) none of the directors of Chi Cheung was materially interested in any contract or arrangement entered into by any member of the Chi Cheung Group or the Enlarged Chi Cheung Group subsisting at the date of this circular which was significant in relation to the business of the Chi Cheung Group or the Enlarged Chi Cheung Group; and

• (d) none of the directors of Chi Cheung 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 Chi Cheung Group or the Enlarged Chi Cheung Group.

– 68 –

GENERAL INFORMATION OF CHI CHEUNG

APPENDIX II

4. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to any director or chief executive of Chi Cheung, the following parties (other than a director or the chief executive of Chi Cheung) had an interest or short position in the Chi Cheung Shares and underlying shares of Chi Cheung which would fall to be disclosed to Chi Cheung under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who 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 other member of the Chi Cheung Group or the Enlarged Chi Cheung Group:

• (a) Long Positions in Chi Cheung:–

Number of issued/	Number of issued/
Name of	unissued
Substantial	Chi Cheung			Percentage of
Shareholders	Shares	Capacity	Note	shareholding
				%
Billion Up Limited	209,931,186	Beneficial owner	1	61.96
	issued shares
Lucky Years Ltd.	209,931,186	Interests in controlled	1	61.96
	issued shares	corporation
Chinese Estates	209,931,186	Interests in controlled	1	61.96
	issued shares	corporation
Mr. Joseph Lau	209,931,186	Interests in controlled	2	61.96
	issued shares	corporation
Global King Ltd.	209,931,186	Trustee	3	61.96
	issued shares
GZ Trust Corporation	209,931,186	Trustee and beneficiary	3	61.96
	issued shares	of a trust
Victory Gain Holdings	3,669,430,359	Beneficial owner	4	1,083.17
Limited	unissued shares
Bonson Wan Investment	3,669,430,359	Interests in controlled	4	1,083.17
Limited	unissued shares	corporation
Chinese Estates	3,669,430,359	Interests in controlled	4	1,083.17
	unissued shares	corporation
Mr. Joseph Lau	3,669,430,359	Interests in controlled	4	1,083.17
	unissued shares	corporation
Global King Ltd.	3,669,430,359	Trustee	4	1,083.17
	unissued shares

– 69 –

APPENDIX II

GENERAL INFORMATION OF CHI CHEUNG

Number of issued/	Number of issued/
Name of	unissued
Substantial	Chi Cheung			Percentage of
Shareholders	Shares	Capacity	Note	shareholding
				%
GZ Trust Corporation	3,669,430,359	Trustee and beneficiary	4	1,083.17
	unissued shares	of a trust
Primetek Holdings	20,833,142	Beneficial owner	5	6.15
Limited	issued shares
Hutchison	20,833,142	Interests of a controlled	5	6.15
International Limited	issued shares	corporation
Hutchison	20,833,142	Interests of controlled	5	6.15
Whampoa Limited	issued shares	corporations
Cheung Kong	20,833,142	Interests of controlled	5, 6	6.15
(Holdings) Limited	issued shares	corporations
Li Ka-Shing Unity	20,833,142	Trustee	5, 6	6.15
Trustee Company	issued shares
Limited
Li Ka-Shing Unity	20,833,142	Trustee and beneficiary	5, 6	6.15
Trustee Corporation	issued shares	of a trust
Limited
Li Ka-Shing Unity	20,833,142	Trustee and beneficiary	5, 6	6.15
Trustcorp Limited	issued shares	of a trust
Mr. Li Ka-shing	20,833,142	Founder of discretionary	5, 6	6.15
	issued shares	trusts and interests of
		controlled corporations

Notes:

1. Billion Up Limited is a wholly-owned subsidiary of Lucky Years Ltd., which in turn is a whollyowned subsidiary of Chinese Estates. By virtue of the SFO, Lucky Years Ltd. and Chinese Estates were deemed to be interested in the 209,931,186 Chi Cheung Shares held by Billion Up Limited out of the existing 338,765,987 issued shares in the capital of Chi Cheung.

2. Mr. Joseph Lau, by virtue of his 50.35% interests in the issued share capital of Chinese Estates, was deemed to be interested in the same interests stated against Chinese Estates under the SFO.

3. GZ Trust Corporation as trustee of a discretionary trust held units in a unit trust of which Global King Ltd. is the trustee. Global King Ltd. is entitled to exercise more than one-third of the voting power at the general meetings of Chinese Estates. Accordingly, Global King Ltd. and GZ Trust Corporation were deemed to be interested in the same interests stated against Chinese Estates by virtue of the SFO.

– 70 –

GENERAL INFORMATION OF CHI CHEUNG

APPENDIX II

1. Victory Gain Holdings Limited is a wholly-owned subsidiary of Bonson Wan Investment Limited, which in turn is a wholly-owned subsidiary of Chinese Estates. By virtue of the SFO, each of Mr. Joseph Lau, GZ Trust Corporation, Global King Ltd., Chinese Estates and Bonson Wan Investment Limited is deemed to have interests in 3,669,430,359 unissued Chi Cheung Shares (comprising 176,573,217 Consideration Shares and 3,492,857,142 Conversion Shares) in which Victory Gain Holdings Limited has potential interest as a result of the Asset Transaction. Such unissued shares represent 1,083.17% of the existing 338,765,987 issued shares in the capital of Chi Cheung. The number of unissued shares shall be subject to the fulfillment of 25% public float requirements when the unissued shares are allotted and issued.

2. Primetek Holdings Limited (“ Primetek ”) is a wholly-owned subsidiary of Hutchison International Limited (“ HIL ”), which in turn is a wholly-owned subsidiary of Hutchison Whampoa Limited (“ HWL ”). By virtue of the SFO, HWL and HIL were deemed to be interested in the 20,833,142 Chi Cheung Shares held by Primetek.

3. Li Ka-Shing Unity Holdings Limited, of which each of Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor and Mr. Li Tzar Kai, Richard is interested in one-third of the entire issued share capital, owns the entire issued share capital of Li Ka-Shing Unity Trustee Company Limited (“ TUT1 ”). TUT1 as trustee of The Li Ka-Shing Unity Trust (“ UT1 ”), together with certain companies which TUT1 as trustee of UT1 is entitled to exercise or control the exercise of more than one-third of the voting power at their general meetings, hold more than one-third of the issued share capital of Cheung Kong (Holdings) Limited (“ CKH ”). Subsidiaries of CKH are entitled to exercise or control the exercise of more than one-third of the voting power at the general meetings of HWL.

In addition, Li Ka-Shing Unity Holdings Limited also owns the entire issued share capital of Li Ka-Shing Unity Trustee Corporation Limited (“ TDT1 ”) as trustee of The Li Ka-Shing Unity Discretionary Trust (“ DT1 ”) and Li Ka-Shing Unity Trustcorp Limited (“ TDT2 ”) as trustee of another discretionary trust (“ DT2 ”). Each of TDT1 and TDT2 holds units in the UT1.

By virtue of the SFO, Mr. Li Ka-shing, being the settlor of DT1 and DT2, may be regarded as a founder of DT1 and DT2 and for the purpose of the SFO, each of Mr. Li Ka-shing, TDT1, TDT2, TUT1 and CKH was deemed to be interested in the 20,833,142 Chi Cheung Shares held by Primetek.

All the interests stated above represent long positions. As at the Latest Practicable Date, no short positions were recorded in the register kept by Chi Cheung under section 336 of the SFO.

– 71 –

GENERAL INFORMATION OF CHI CHEUNG

APPENDIX II

• (b) Parties having direct or indirect interests in 10% or more of the voting rights in the members of the Chi Cheung Group or the Enlarged Chi Cheung Group:–

		Percentage of
Name of subsidiary	Name of shareholder	shareholdings
		%
Konshing Enterprises Limited	Earlway International &	49
	Development Limited

Save as disclosed above, as at the Latest Practicable Date, so far as was known to any director or chief executive of Chi Cheung, no persons had an interest or short position in the shares and underlying shares of Chi Cheung which would fall to be disclosed to Chi Cheung under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who 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 other member of the Chi Cheung Group or the Enlarged Chi Cheung Group.

As at the Latest Practicable Date, Mr. Matthew Cheong, Veng-va and Ms. Teresa Poon, Mun-chie, directors of Chi Cheung, were also employees of subsidiaries of Chinese Estates. These subsidiaries were not themselves substantial shareholders of Chi Cheung.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the directors of Chi Cheung had a service contract or a proposed service contract with any member of the Chi Cheung Group or the Enlarged Chi Cheung Group which is not determinable by the Chi Cheung Group or the Enlarged Chi Cheung Group within one year without payment of compensation, other than statutory compensation.

6. MATERIAL CONTRACTS

Save for the S&P Agreement and the Canaria Agreement, no member of the Chi Cheung Group or the Enlarged Chi Cheung Group had, during the period of two years preceding the Latest Practicable Date, entered into any material contracts (not being contracts entered into in the ordinary course of business of the Chi Cheung Group or the Enlarged Chi Cheung Group).

– 72 –

APPENDIX II

GENERAL INFORMATION OF CHI CHEUNG

7. MATERIAL LITIGATION

A civil claim was raised by a wholly-owned subsidiary of Chi Cheung against Shantou City Chenghai District Planning and State-owned Land Resources Bureau in respect of a dispute on the Contract for Pre-registration of Grant of State-owned Land Use Rights dated 5 August 1992 concerning the land requisition for the development of Chenghai Royal Garden in Shantou, Guangdong Province, the PRC. The details of the case are disclosed in note 19 to the accountants’ report of the Chi Cheung Group as set out on pages 274 to 362 in Appendix VI of this circular. The case has been ordered by the High People’s Court of Guangdong Province for re-trial by the Shantou City Intermediate People’s Court as a result of legal procedural defects and re-trial is pending proceeding.

Save as mentioned in the above, as at the Latest Practicable Date, no member of the Chi Cheung Group or the Enlarged Chi Cheung Group is engaged in any litigation or claim of material importance and there is no litigation or claims of material importance known to the directors of Chi Cheung to be pending or threatened against any member of the Chi Cheung Group or the Enlarged Chi Cheung Group.

8. MATERIAL ADVERSE CHANGE

The directors of Chi Cheung confirmed that there was no material adverse change in the financial or trading positions of the Chi Cheung Group since 31 December 2006, being the date to which the latest published audited financial statements of the Chi Cheung Group were made up.

9. EXPERTS AND CONSENTS

The following is the qualification of the experts who have given their opinions or advice which are contained in this circular.

Name Qualification Evolution Watterson a corporation licensed to carry out type 1 (dealing in Securities Limited securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO

HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Norton Appraisals Limited An independent professional property valuer BMI Appraisals Limited An independent professional property valuer

– 73 –

APPENDIX II

GENERAL INFORMATION OF CHI CHEUNG

As at the Latest Practicable Date, each of the above experts:–

• (a) did not have any shareholding in any member of the Chi Cheung Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Chi Cheung Group;

• (b) did not have any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Chi Cheung Group or the Enlarged Chi Cheung Group or were proposed to be acquired or disposed of by or leased to any member of the Chi Cheung Group or the Enlarged Chi Cheung Group since 31 December 2006, being the date up to which the latest published financial statements of the Chi Cheung Group were made; and

• (c) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name, letter and/or report in the form and context in which they respectively appear.

10. MISCELLANEOUS

• (a) Mr. Lam, Kwong-wai, a fellow member of The Association of Chartered Certified Accountants (FCCA), is the company secretary and qualified accountant of Chi Cheung.

• (b) The registered office of Chi Cheung is at 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong. The share registrar and the transfer office of Chi Cheung is Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.

• (c) The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

– 74 –

APPENDIX II

GENERAL INFORMATION OF CHI CHEUNG

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the registered office of Chi Cheung at 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong during normal business hours on any Business Day up to and including 28 November 2007:–

• (a) the memorandum and articles of association of Chi Cheung;

• (b) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;

• (c) the letter of recommendation from the Chi Cheung Independent Board Committee to the Chi Cheung Independent Shareholders, the text of which is set out on pages 47 to 48 of this circular;

• (d) the letter of advice received from Evolution Watterson Securities Limited to the Chi Cheung Independent Board Committee and the Chi Cheung Independent Shareholders, the text of which is set out on pages 49 to 58 of this circular;

• (e) the accountants’ reports from HLB Hodgson Impey Cheng on the Evergo China Group, Honest Right and the Chi Cheung Group, the respective texts of which are set out in Appendices IV, V and VI to this circular;

• (f) the accountants’ report from HLB Hodgson Impey Cheng in respect of the Pro Forma Financial Information on the Enlarged Chi Cheung Group, the text of which is set out in Appendix VII to this circular;

• (g) the letter and valuation certificate from BMI Appraisals Limited in respect of the valuation of the Chinese Estates Properties, the texts of which are set out in Appendix XI to this circular;

• (h) the letter and valuation certificate from Norton Appraisals Limited in respect of the valuation of the Chi Cheung Properties, the texts of which are set out in Appendix XII to this circular;

• (i) letters of consent from the experts referred to in the paragraph headed “Experts and Consents” in this Appendix;

• (j) the annual reports of Chi Cheung for each of the two financial years ended 31 December 2005 and 2006 and the interim report of Chi Cheung for the six months ended 30 June 2007;

• (k) the major transaction circular of Chi Cheung dated 7 May 2007 in respect of the acquisition of 50% shareholding in and shareholder’s loan due from Canaria and the loan due from Earn Elite Development Limited; and

• (l) this circular.

– 75 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

1. SUMMARY OF FINANCIAL INFORMATION

A summary of the published results, assets and liabilities of the Chinese Estates Group as extracted from the audited financial statements is set out below:

CONSOLIDATED INCOME STATEMENT

Turnover Cost of sales Gross profit Other income Investment income, net Administrative expenses Other expenses Gain on disposals of property and other fixed assets (Loss) Gain on disposals of investment properties Fair value changes on investment properties Impairment loss (recognised) reversed in respect of stock of properties Impairment loss recognised in respect of property interests held for future development Finance costs Other gains and losses, net Share of results of jointly controlled entities Share of results of associates Profit before tax Income tax expense Profit for the year Attributable to: Equity holders of the parent Minority interests Dividends Earnings per share (HK cents) Basic Diluted

For the year ended 31 December 2006 2005 2004 HK$’000 HK$’000 HK$’000 (as restated) 4,763,789 2,274,988 5,257,357 (3,840,040) (1,490,240) (4,297,871) 923,749 784,748 959,486 30,742 100,164 140,902 833,235 461,356 425,815 (186,599) (128,533) (121,163) (252) (16,213) (6,292) 1,352 88,498 11,923 (722) 33,495 10,631 6,921,971 4,976,713 – (200,000) 977,054 187,000 – – (71,118) (453,519) (314,992) (55,703) 57,887 (8,640) 15,615 – – (768) 1,135,167 430,040 208,188 9,063,011 7,383,690 1,704,516 (1,505,924) (929,023) (46,104) 7,557,087 6,454,667 1,658,412 7,477,345 6,154,572 1,619,085 79,742 300,095 39,327 7,557,087 6,454,667 1,658,412 535,637 410,251 426,058 339.2 300.0 78.1 333.2 276.2 N/A

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

CONSOLIDATED BALANCE SHEET

Non-current assets Investment properties Property and other fixed assets Properties under development Prepaid lease payments Property interests held for future development Intangible assets Goodwill Negative goodwill Interests in associates Advances to associates Investments in securities Available-for-sale investments Equity-linked notes Advance to an investee company Loans receivable, due after one year Deferred tax assets Advance to a minority shareholder Pledged deposits Current assets Stock of properties Investments held-for-trading Investments in securities Equity-linked notes Derivative financial instruments Loans receivable, due within one year Debtors, deposits and prepayments Securities trading receivable and deposits United States currency treasury bills Tax recoverable Pledged deposits Time deposits, bank balances and cash Presale proceeds held by stakeholders Asset classified as held for sale

As at 31 December 2006 2005 2004 HK$’000 HK$’000 HK$’000 (as restated) (as restated) 31,771,870 24,062,965 19,343,480 81,357 68,889 84,738 – 23,902 750 249,497 250,106 250,715 – – – – 15,951 17,082 – – 7,702 – – (191,028) 1,396,351 693,325 631,671 931,661 1,681,975 944,132 – – 317,270 8,532,632 3,405,181 – 147,827 2,799,507 – 1,518 1,950 6,086 63,079 84,344 11,143 73,647 66,586 84,881 9,436 – – 71,606 121,069 67,001 43,330,481 33,275,750 21,575,623 4,851,504 2,485,777 913,537 142,218 1,239,426 – – – 1,622,839 75,725 628,983 – – 59,940 1,018 224 6,698 2,821 364,749 183,247 76,459 276,829 354,287 24,994 – 493,870 526,613 4,083 7,475 2,590 1,014,351 3,463 62,459 7,034,820 1,136,267 1,196,018 530,005 – – 14,294,508 6,599,433 4,429,348 9,338 566,109 – 14,303,846 7,165,542 4,429,348

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Current liabilities Derivative financial instruments Creditors and accruals Securities trading and margin payable Deposits and receipts in advance Tax liabilities Borrowings – due within one year Provisions Financial guarantee liabilities Net current assets Total assets less current liabilities Non-current liabilities Borrowings – due after one year Convertible bonds Amounts due to associates Amounts due to minority shareholders Deferred tax liabilities Financial guarantee liabilities Total assets and liabilities Capital and reserves Share capital Reserves Equity attributable to equity holders of the parent Minority interests Total equity

168,644 152,089 2,028 452,544 118,735 60,909 191,206 11,320 15,347 761,900 224,243 225,161 88,662 71,684 57,858 11,004,204 6,090,610 2,283,161 16,017 24,444 24,444 – 455 – 12,683,177 6,693,580 2,668,908 1,620,669 471,962 1,760,440 44,951,150 33,747,712 23,336,063 3,709,340 5,663,442 4,769,648 279,689 1,135,302 – 13,732 14,879 26,646 523,489 310,814 373,878 4,461,938 2,920,578 2,043,612 328 – – 8,988,516 10,045,015 7,213,784 35,962,634 23,702,697 16,122,279 225,981 209,151 203,021 35,306,717 23,092,369 16,008,773 35,532,698 23,301,520 16,211,794 429,936 401,177 (89,515) 35,962,634 23,702,697 16,122,279 As at 31 December 2006 2005 2004 HK$’000 HK$’000 HK$’000 (as restated) (as restated)

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

2. AUDITED FINANCIAL STATEMENTS

Set out below are the audited consolidated financial statements of the Chinese Estates Group together with accompanying notes as extracted from the annual report of Chinese Estates for the year ended 31 December 2006:

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2006

Notes Turnover 6 Cost of sales Gross profit Other income 8 Investment income, net 9 Administrative expenses Other expenses 10 Gain on disposals of property and other fixed assets (Loss) Gain on disposals of investment properties Fair value changes on investment properties 20 Impairment loss (recognised) reversed in respect of stock of properties 35 Finance costs 13 Other gains and losses, net 14 Share of results of associates Profit before tax Income tax expense 17 Profit for the year 12 Attributable to: Equity holders of the parent Minority interests Dividends 18 Earnings per share (HK cents) 19 Basic Diluted	2006 HK$’000 4,763,789 (3,840,040) 923,749 30,742 833,235 (186,599) (252) 1,352 (722) 6,921,971 (200,000) (453,519) 57,887 1,135,167 9,063,011 (1,505,924) 7,557,087 7,477,345 79,742 7,557,087 535,637 339.2 333.2	2005 HK$’000 2,274,988 (1,490,240) 784,748 100,164 461,356 (128,533) (16,213) 88,498 33,495 4,976,713 977,054 (314,992) (8,640) 430,040 7,383,690 (929,023) 6,454,667 6,154,572 300,095 6,454,667 410,251 300.0 276.2

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

CONSOLIDATED BALANCE SHEET

At 31 December 2006

Notes Non-current assets Investment properties 20 Property and other fixed assets 21 Properties under development 22 Prepaid lease payments 23 Property interests held for future development 24 Intangible assets 25 Goodwill 26 Interests in associates 27 Advances to associates 28 Available-for-sale investments 29 Equity-linked notes 32 Advance to an investee company 31(a) Loans receivable, due after one year 33 Deferred tax assets 44 Advance to a minority shareholder 31(b) Pledged deposits 34(a) Current assets Stock of properties 35 Investments held-for-trading 30 Equity-linked notes 32 Derivative financial instruments 36 Loans receivable, due within one year 33 Debtors, deposits and prepayments 37 Securities trading receivable and deposits 34(b) United States currency treasury bills 38 Tax recoverable Pledged deposits 34(a) & 48 Time deposits, bank balances and cash 34(c) Presale proceeds held by stakeholders Asset classified as held for sale 11	2006 HK$’000 31,771,870 81,357 – 249,497 – – – 1,396,351 931,661 8,532,632 147,827 1,518 63,079 73,647 9,436 71,606 43,330,481 4,851,504 142,218 75,725 – 224 364,749 276,829 – 4,083 1,014,351 7,034,820 530,005 14,294,508 9,338 14,303,846	2005 HK$’000 (restated) 24,062,965 68,889 23,902 250,106 – 15,951 – 693,325 1,681,975 3,405,181 2,799,507 1,950 84,344 66,586 – 121,069
		33,275,750
		2,485,777 1,239,426 628,983 59,940 6,698 183,247 354,287 493,870 7, 475 3,463 1,136,267 –
		6,599,433 566,109
		7,165,542

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Current liabilities Derivative financial instruments 36 Creditors and accruals 39 Securities trading and margin payable Deposits and receipts in advance Tax liabilities Borrowings – due within one year 40 Provisions 41 Financial guarantee liabilities Net current assets Total assets less current liabilities Non-current liabilities Borrowings – due after one year 40 Convertible bonds 42 Amounts due to associates 43 Amounts due to minority shareholders 43 Deferred tax liabilities 44 Financial guarantee liabilities Total assets and liabilities Capital and reserves Share capital 45 Reserves Equity attributable to equity holders of the parent Minority interests Total equity Notes	168,644 452,544 191,206 761,900 88,662 11,004,204 16,017 – 12,683,177 1,620,669 44,951,150 3,709,340 279,689 13,732 523,489 4,461,938 328 8,988,516 35,962,634 225,981 35,306,717 35,532,698 429,936 35,962,634 2006 HK$’000	152,089 118,735 11,320 224,243 71,684 6,090,610 24,444 455 2005 HK$’000 (restated)
		6,693,580
		471,962
		33,747,712
		5,663,442 1,135,302 14,879 310,814 2,920,578 –
		10,045,015
		23,702,697
		209,151 23,092,369
		23,301,520 401,177
		23,702,697

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2006

At 1 January 2005 Share of associates’ reserve movements during the year Gains on fair value changes of available-for-sale investments Exchange adjustments Net income (expense) recognised directly in equity Profit for the year Total recognised income (expense) for the year Effect on deemed disposal of subsidiaries Equity component of convertible bonds Issue of ordinary shares from conversion of convertible bonds Final dividend paid Interim dividend paid At 31 December 2005 Share of associates’ reserve movements during the year Realisation of associates’ reserve Gains on fair value changes of available-for-sale investments_(Note 2)_ PRC statutory reserve Exchange adjustments Net income (expense) recognised directly in equity Profit for the year Total recognised income for the year				Attributa	ble to equity	holders of t	he parent			Total HK$’000 16,689,639	Minority interests HK$’000 6,024	Total equity HK$’000 16,695,663
	Share capital HK$’000 203,021	Share premium HK$’000 1,575,192	Convertible bonds- equity reserve HK$’000 –	Securities investments reserve HK$’000 317,326	Statutory reserve HK$’000 –	Other reserve HK$’000 –	Special reserve HK$’000 2,499,685	Capital redemption reserve HK$’000 96,597	Retained profits HK$’000 11,997,818
	– – –	– – –	– – –	7,355 255,977 –	– – –	(78,375 ) – –	– – –	– – –	– – 9,057	(71,020 ) 255,977 9,057	– – –	(71,020 ) 255,977 9,057
	– – – – – 6,130 – – 209,151	– – – – – 432,475 – – 2,007,667	– – – – 311,125 (76,184 ) – – 234,941	263,332 – 263,332 – – – – – 580,658	– – – – – – – – –	(78,375 ) – (78,375 ) – – – – – (78,375 )	– – – – – – – – 2,499,685	– – – – – – – – 96,597	9,057 6,154,572 6,163,629 – – – (223,324 ) (186,927 ) 17,751,196	194,014 6,154,572 6,348,586 – 311,125 362,421 (223,324 ) (186,927 ) 23,301,520	– 300,095 300,095 95,058 – – – – 401,177	194,014 6,454,667 6,648,681 95,058 311,125 362,421 (223,324 ) (186,927 ) 23,702,697
	– – – – –	– – – – –	– – – – –	10,110 – 4,170,862 – –	– – – 728 –	38,500 (Note 1) 4,673 – – –	– – – – –	– – – – –	– (4,673 ) – – 1,510	48,610 – 4,170,862 728 1,510	– – – – –	48,610 – 4,170,862 728 1,510
	– – –	– – –	– – –	4,180,972 – 4,180,972	728 – 728	43,173 – 43,173	– – –	– – –	(3,163 ) 7,477,345 7,474,182	4,221,710 7,477,345 11,699,055	– 79,742 79,742	4,221,710 7,557,087 11,778,797

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Acquisition of additional interests in subsidiaries Acquisition of subsidiaries Deemed contribution from minority interests Issue of ordinary shares from conversion of convertible bonds Cancellation on repurchase of own shares Issue of shares in lieu of 2005 final cash dividend Premium on issue of shares upon 2005 final scrip dividend Issue of shares in lieu of 2006 interim cash divide Premium on issue of shares upon 2006 interim scrip dividend Dividend paid to minority shareholders Final dividend paid Interim dividend paid At 31 December 2006				Attributa	ble to equity	holders of t	he parent				Minority interests HK$’000 (265) 23 (46,779) – – – – – – (3,962 ) – –	Total equity HK$’000 (265 ) 23 (46,779 ) 876,799 (163,627 ) 1,753 156,886 2,247 193,702 (3,962 ) (266,767 ) (268,870 ) 35,962,634
	Share capital HK$’000 – – – 14,595 (1,765 ) 1,753 – nd 2,247 – – – –	Share premium HK$’000 – – – 1,041,710 (163,627 ) – 156,886 – 193,702 – – –	Convertible bonds- equity reserve HK$’000 – – – (179,506 ) – – – – – – – –	Securities investments reserve HK$’000 – – – – – – – – – – – –	Statutory reserve HK$’000 – – – – – – – – – – – –	Other reserve HK$’000 – – – – – – – – – – – – (35,202 )	Special reserve HK$’000 – – – – – – – – – – – –	Capital redemption reserve HK$’000 – – – – 1,765 – – – – – – –	Retained profits HK$’000 – – – – – – – – – – (266,767 ) (268,870 )	Total HK$’000 – – – 876,799 (163,627 ) 1,753 156,886 2,247 193,702 – (266,767 ) (268,870 )
	225,981	3,236,338	55,435	4,761,630	728		2,499,685	98,362	24,689,741	35,532,698	429,936

Notes:

• (1) The other reserve represented the share of an associate’s reserve of the Chinese Estates Group, which included the release of the negative reserve upon the disposals of the relevant properties in amount of HK$43,175,000 and the accumulated negative effect of imputed interest reserve on amount due to the Chinese Estates Group in amount of HK$4,675,000.

• (2) The gains on fair value changes of available-for-sale investments included the gains on fair value changes of listed securities investment of approximately HK$4,211,606,000.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2006

	2006	2005
	HK$’000	HK$’000
Operating activities
Profit before tax	9,063,011	7,383,690
Adjustments for:
Depreciation of property and other fixed assets	14,235	10,398
Release of prepaid lease payments	609	609
Interest expenses	388,695	274,263
Imputed interest expenses	38,898	53,453
Interest income	(461,315)	(260,831)
Imputed interest income	(60,284)	(48,042)
Realised loss (gain) on derivative
financial instruments	59,940	(67,658)
Gain on disposals of United States currency
treasury bills	(11,968)	(12,760)
Impairment loss recognised in respect of
accounts receivable	38	5,231
Dividend income from listed and
unlisted investments	(153,343)	(117,259)
Impairment loss recognised (reversed) in respect
of stock of properties	200,000	(977,054)
Impairment loss recognised in respect of
available-for-sale investments	–	1,580
Increase in fair value changes on
equity-linked notes	(2,366)	(6,153)
Realised gain on available-for-sale investments	(233,012)	(86,252)
Fair value changes on investments held-for-trading	(5,066)	8,069
Fair value changes on derivative
financial instruments	16,555	136,082
Income from providing financial guarantee	(455)	–
Impairment loss reversed in respect of
advances to associates	(897)	(9,740)
Impairment loss recognised in respect of
advance to an associate	13,474	4,398
Loss (gain) on disposals of investment properties	722	(33,495)
Gain on disposals of property and other fixed assets	(1,352)	(88,498)
Realised loss on United States currency
forward contracts	–	(1,010)
Gain on disposal of an associate	(70,366)	–
Share of results of associates	(1,135,167)	(430,040)
Increase in fair value changes on investment properties	(6,921,971)	(4,976,713)
Impairment loss recognised in respect of goodwill	–	7,702
Impairment loss recognised in respect of
intangible assets	–	1,131
Net loss on deemed disposals of subsidiaries	–	16,459
Discount on acquisition of an associate	–	(2,530)

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Notes Operating cash flows before movements in working capital Decrease in stock of properties Decrease (increase) in loans receivable Increase in debtors, deposits and prepayments Decrease (increase) in investments held-for-trading Decrease (increase) in equity-linked notes Decrease in derivative financial instruments Decrease (increase) in securities trading receivable and deposits Increase in presale proceeds held by stakeholders (Decrease) increase in creditors and accruals Increase (decrease) in securities trading and margin payable Increase (decrease) in deposits and receipts in advance Decrease in provisions Cash generated from (used in) operating activities Net Hong Kong profits tax paid Net cash generated from (used in) operating activities Investing activities Dividend received from listed and unlisted investments Dividend received from associates Interest received Purchases of investment properties Purchase of property and other fixed assets Payments for properties under development Payments for stock of properties Proceeds on disposals of investment properties Proceeds on disposals of property and other fixed assets Realised gain on United States currency treasury bills Proceeds from disposals of available-for-sale investments Purchases of available-for-sale investments Proceeds on disposal of an associate Acquisition of subsidiaries (net cash and cash equivalents acquired) 46(a) & (b) Acquisition of additional interest in a subsidiary Advances to associates Repayment from an investee company Decrease in United States currency treasury bills (Increase) decrease in pledged deposits Net cash used in investing activities	2006 HK$’000 738,615 5,345 27,739 (181,215) 1,102,274 3,207,304 – 77,458 (530,005) (1,061,131) 179,886 526,717 (8,427) 4,084,560 (31,063) 4,053,497 153,343 566,329 461,315 (417,206) (26,795) (26,384) (1,124,173) 72,802 1,963 11,968 1,522,571 (2,230,197) 636,475 (383,243) (4,227) – 432 493,870 (961,425) (1,252,582)	2005 HK$’000 785,030 2,268 (77,078) (112,019) (764,778) (3,422,337) 23,725 (329,293) – 57,826 (4,027) (918) – (3,841,601) (21,991) (3,863,592) 117,259 – 260,831 (73,611) (4,793) (23,152) (597,454) 374,724 96,738 12,760 354,931 (1,757,814) – – – (877,760) 4,136 32,743 4,928 (2,075,534)

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Financing activities Dividends paid Interest paid Advances from associates New bank loans and other loans raised Repayments of bank loans and other loans Repurchase of own shares Advances from minority shareholders Proceeds from share placing Proceeds on issuance of convertible bonds Net cash generated from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rate changes Cash and cash equivalents at 31 December Analysis of the balances of cash and cash equivalents Time deposits, bank balances and cash	2006 HK$’000 (181,093) (388,695) 730,838 7,470,308 (4,510,817) (163,627) 139,734 44 – 3,096,692 5,897,607 1,136,267 946 7,034,820 7,034,820	2005 HK$’000 (410,251) (274,263) – 11,461,102 (6,759,859) – 12,098 78,599 1,771,916
		5,879,342
		(59,784) 1,196,018 33
		1,136,267
		1,136,267

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2006

1. General information

Chinese Estates is a public listed company incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The addresses of the registered office and principal place of business of Chinese Estates are disclosed in the corporate information to the annual report.

The consolidated financial statements are presented in Hong Kong dollars, which is the same as the functional currency of Chinese Estates.

The principal activity of Chinese Estates is investment holding and the principal activities of its principal subsidiaries, associates and jointly controlled entities are set out in Notes 53, 54 and 55 respectively.

2. Application of new and revised Hong Kong Financial Reporting Standards (the “HKFRSs”)

In the current year, the Chinese Estates Group has applied, for the first time, a number of new standards, amendments and interpretations (the “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new HKFRSs has resulted in changes to the Chinese Estates Group’s accounting policies in the following areas that affected the amounts reported for the current or prior accounting periods:

Financial guarantee contracts

In the current year, the Chinese Estates Group has applied Hong Kong Accounting Standard 39 (“HKAS 39”) and HKFRS 4 (Amendments) Financial Guarantee Contracts which is effective for annual periods beginning on or after 1 January 2006.

A financial guarantee contract is defined by HKAS 39 Financial Instruments: Recognition and Measurement as “a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument”.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Prior to 1 January 2006, financial guarantee contracts were not accounted for in accordance with HKFRS 4 Insurance Contract and those contracts were disclosed as contingent liabilities. A provision for financial guarantee was only recognised when it was probable that an outflow of resources would be required to settle the financial guarantee obligation and the amount can be estimated reliably.

Upon the application of these amendments, financial guarantee contracts issued by the Chinese Estates Group and not designated as at fair value through profit or loss are recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Chinese Estates Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets ; and (ii) the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue .

In relation to a financial guarantee granted by the Chinese Estates Group to an associate over a bank loan, the fair value of the financial guarantee contract at 31 December 2005 of HK$455,000 has been adjusted to financial guarantee liability. This change in accounting policy has resulted in an increase in profit for the year ended 31 December 2006 amounted to HK$455,000 (2005: nil) as the financial guarantee contract had expired during the year. These changes affect the “other income” in the consolidated income statement.

There were two other new financial guarantee contracts granted by the Chinese Estates Group to its associates over certain bank borrowings. The fair values of these financial guarantees of HK$328,000 have been adjusted to financial guarantee liability during the year.

The Chinese Estates Group has not early applied the following new standard, amendment or interpretations that have been issued but are not yet effective. The directors of Chinese Estates anticipate that the application of these new standard, amendment or interpretations will have no material impact on the results and the financial position of the Chinese Estates Group.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

HKAS 1 (Amendment) Capital Disclosures [1] HKFRS 7 Financial Instruments: Disclosures [1] HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies [2] HK(IFRIC)-Int 8 Scope of HKFRS 2 [3] HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives [4] HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment [5]

1 Effective for annual periods beginning on or after 1 January 2007

2 Effective for annual periods beginning on or after 1 March 2006

3 Effective for annual periods beginning on or after 1 May 2006

4 Effective for annual periods beginning on or after 1 June 2006

5 Effective for annual periods beginning on or after 1 November 2006

3. Significant accounting policies

The consolidated financial statements have been prepared under the historical cost basis except for certain properties and financial instruments, which are measured at fair values, as explained in the accounting policies set out below.

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Chinese Estates and its subsidiaries.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

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FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

APPENDIX III

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Chinese Estates Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Chinese Estates Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

(b) Goodwill

Goodwill arising on an acquisition of a subsidiary or an associate represents the excess of the cost of acquisition over the Chinese Estates Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary or associate at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the balance sheet. Capitalised goodwill arising on an acquisition of an associate is included in the cost of the investment of the relevant associate.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cashgenerating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of a subsidiary or an associate, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

• (c) Excess of the Chinese Estates Group’s interest in the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over cost (“discount on acquisitions”)

A discount on acquisition arising on an acquisition of a subsidiary or an associate represents the excess of the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination. Discount on acquisition is recognised immediately in income statement. A discount on acquisition arising on an acquisition of an associate is included as income in the determination of the Chinese Estates Group’s share of results of the associate in which the investment is acquired.

(d) Investments in associates

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Chinese Estates Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the Chinese Estates Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Chinese Estates Group’s net investment in the associate), the Chinese Estates Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Chinese Estates Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Where a group entity transacts with an associate of the Chinese Estates Group, profits and losses are eliminated to the extent of the Chinese Estates Group’s interest in the relevant associate.

(e) Jointly controlled entities

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

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FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

APPENDIX III

The results and assets and liabilities of jointly controlled entities are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Chinese Estates Group’s share of the profit or loss and of changes in equity of the jointly controlled entities, less any identified impairment loss. When the Chinese Estates Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Chinese Estates Group’s net investment in the jointly controlled entity), the Chinese Estates Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Chinese Estates Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

(f) Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. The condition is regarded as met only when the sale is higher probable and the asset is available for immediate sale in its present condition.

Non-current assets classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell.

• (g) Impairment losses (other than goodwill, intangible assets with indefinite lives)

At each balance sheet date, the Chinese Estates Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

(h) Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using fair value. Gains or losses arising from changes in the fair value of investment property are included in income statement for the period in which they arise.

Leasehold land held for undetermined future use

Leasehold land held for undetermined future use is regarded as held for capital appreciation purpose and classified as an investment property, and carried at fair value. Changes in fair value of the leasehold land are recognised directly in income statement for the period in which changes take place.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in income statement for the period in which the item is derecognised.

(i) Property and other fixed assets

Property and other fixed assets (other than properties under development) are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Depreciation is provided to write off the cost of property and other fixed assets (other than properties under development) over their estimated useful lives and after taking into account their estimated residual value, using the straight line method, at the following rates per annum:

Type	Basis
Buildings	Over the shorter of the unexpired period of
	the lease and 40 years
Furniture, fixtures	3 to 10 years
and equipment
Yacht and motor vehicles	3 to 10 years

(j) Properties held for development

When the leasehold land and buildings are in the course of development for production, rental, for administrative purposes or for sale, the leasehold land component is classified as a prepaid lease payment and amortised over a straight-line basis over the lease term. During the construction period, the amortisation charge provided for the leasehold land is included as part of costs of buildings under construction. Buildings under construction are carried at cost, less any identified impairment losses. Depreciation of buildings commences when they are available for use.

(k) Property interests held for future development

Property interests held for future development represents a right to develop properties on a piece of land upon payment of a final amount, and are carried at cost less any identified impairment loss.

(l) Stock of properties

Stock of properties, which are held for trading, is stated at the lower of cost and net realisable value. Net realisable value is determined by reference to sale proceeds received after the balance sheet date less selling expenses, or by management estimates based on the prevailing market conditions.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

(m) Intangible assets

Trading and exchange rights

Trading rights and gold and silver exchange rights are stated at cost less accumulated amortisation and less any identified impairment loss. The amortisation period adopted for intangible assets is 5 years.

(n) Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in income statement.

Financial assets

The Chinese Estates Group’s financial assets are classified into one of the three categories, including financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchase or sale are purchases or sales of financial assets that requires delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in income statement in the period in which they arise.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Loans and receivables

Loans and receivables (including advance to associates, advance to an investee company, loan receivables, pledged deposits, securities trading receivable and deposits, time deposits, bank balances and cash) are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in income statement when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories (set out above). At each balance sheet date subsequent to initial recognition, availablefor-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in income statement. Any impairment losses on available-for-sale financial assets are recognised in income statement. Impairment losses on availablefor-sale equity investments will not reverse in subsequent periods. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. They are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in income statement when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the asset of the Chinese Estates Group after deducting all of its liabilities. The Chinese Estates Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss has two subcategories, including financial liabilities held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in income statement in the period in which they arises.

Other financial liabilities

Other financial liabilities including creditors and accruals, securities trading and margin payable, deposits and receipts in advance, bank and other borrowings, amounts due to associates and amounts due to minority shareholders are subsequently measured at amortised cost, using the effective interest rate method.

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APPENDIX III

FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Convertible bonds

Convertible bonds issued by Chinese Estates that contain both financial liability and equity components are classified separately into respective liability and equity components on initial recognition. On initial recognition, the fair value of the liability component is determined using the prevailing market interest of similar non-convertible debts. The difference between the proceeds of the issue of the convertible bonds and the fair value assigned to the liability component, representing the embedded call option for the holder to convert the bonds into equity, is included in equity (convertible bonds – equity reserve).

In subsequent periods, the liability component of the convertible bonds is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of Chinese Estates, will remain in convertible bonds – equity reserve until the embedded option is exercised (in which case the balance stated in convertible bonds – equity reserve will be transferred to share capital and share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible bonds – equity reserve will be released to the retained profits. No gain or loss is recognised in income statement upon conversion or expiration of the option.

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of the proceeds. Transaction costs relating to the equity component are charged directly to convertible bonds – equity reserve. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible bonds using the effective interest method.

Equity instruments

Equity instruments issued by Chinese Estates are recorded at the proceeds received, net of direct issue costs.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of debt instrument. A financial guarantee contract issued by the Chinese Estates Group and not designed as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Chinese Estates Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets ; and (ii) the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue .

Derivative financial instruments that do not qualify for hedge accounting

Derivatives that do not qualify for hedge accounting are deemed as financial assets held for trading or financial liabilities held for trading. Changes in fair values of such derivatives are recognised directly in income statement.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Chinese Estates Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in income statement.

For financial liabilities, they are removed from the Chinese Estates Group’s balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expires). The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in income statement.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

(o) Revenue recognition

Revenue from properties developed for sale is recognised on the execution of a binding sales agreement or when the relevant occupation permit or certificate of compliance is issued by the building authority, whichever is the later.

Revenue from properties held for sale is recognised on the execution of a binding sales agreement. Payments received from the purchasers prior to this stage are recorded as deposits received on sales of properties and are grouped under current liabilities.

Rental income, including rental invoiced in advance from properties under operating leases, is recognised in income statement on a straight-line basis over the term of the relevant lease.

Sale of securities investments are recognised on a trade date basis.

Brokerage income on dealings in securities and futures contracts and the profit and loss on trade in securities and futures contracts are recognised on the transaction dates when the relevant contract notes are executed.

Management fee income is recognised in accordance with terms of respective agreements over the relevant period in which the services are rendered.

Dividend income from investments is recognised when the Chinese Estates Group’s rights to receive payment have been established.

Interest income from a financial asset is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

(p) Taxation

Income tax expense represents the sum of the tax currently payable and deferred

tax.

The tax currently payable is based on taxable profit for the year. Taxation profit differs from as reported in income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that are never taxable and deductible. The Chinese Estates Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to income statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the entity intends to settle its current tax assets and liabilities on a net basis.

(q) Leasing

Leases are classified as finance whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

The Chinese Estates Group as lessor

Rental income from operating leases is recognised in income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

The Chinese Estates Group as lessee

Rentals payable under operating leases are charged to income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

(r) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in income statement in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

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FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

APPENDIX III

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Chinese Estates Group’s foreign operations are translated into presentation currency of Chinese Estates (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in income statement in the period in which the foreign operation is disposed of.

(s) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those asset. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in income statement in the period in which they are incurred.

(t) Retirement benefits costs

Payment to defined contribution retirement benefit schemes are charged in income statement as they fall due.

(u) Provisions

Provisions are recognised when the Chinese Estates Group has a present obligation as a result of a past event, and it is probable that the Chinese Estates Group will be required to settle that obligations. Provisions are measured at the best estimate of directors of Chinese Estates of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

(v) Prepaid lease payments

Payment for obtaining land use rights accounted for as prepaid lease payments and are charged to income statement on a straight-line basis over the lease terms.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

(w) Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being member of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Chinese Estates Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Chinese Estates Group or of any entity that is a related party of the Chinese Estates Group.

A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

(x) Segment reporting

A segment is a distinguishable component of the Chinese Estates Group that is engaged in providing products or services (business segment), or in providing products, or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Chinese Estates Group’s internal financial reporting, the Chinese Estates Group has determined that business segment be presented as the primary reporting format and geographical segment as the secondary reporting format.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions which are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group companies within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period on additions of segment assets (both tangible and intangible) that are expected to be used for more than one period.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

4. Key sources of estimation uncertainty

In the process of applying the Chinese Estates Group’s accounting policies which are described in note 3, management has made certain key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Impairment loss in respect of accounts receivable

The policy for impairment loss in respect of accounts receivable of the Chinese Estates Group is based on the evaluation of collectability and aging analysis of accounts and on management’s judgment. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each debtor. If the financial conditions of debtors of the Chinese Estates Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Investment properties

As described in note 20, investment properties are stated at fair value based on the valuation performed by independent professional valuers. In determining the fair value, the valuers have based on method of valuation which involves certain estimates. In relying on the valuation report, the management has exercised their judgement and are satisfied that the method of valuation is reflective of the current market conditions. Should there are changes in assumptions due to change of market conditions, the fair value of the investment properties will change in future.

Income taxes

As at 31 December 2006, a deferred tax asset of approximately HK$86,049,000 (2005: HK$96,250,000) in relation to unused tax losses has been recognised in the Chinese Estates Group’s consolidated balance sheet. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognised in income statement for the period in which such a reversal takes place.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

5. Financial risk management objectives and policies

The Chinese Estates Group’s major financial instruments include equity investments, borrowings, loan receivables, trade receivables, trade payables and convertible bonds, equitylinked notes, time deposits and bank balances. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

(i) Currency risk

The majority of the Chinese Estates Group’s assets by value and the rental income are denominated in Hong Kong dollars, except certain equity investments and equity-linked notes are denominated in foreign currencies. The currency exposure arising from the equity investments and equity-linked notes is mitigated primarily through borrowings denominated in the relevant foreign currencies.

(ii) Interest rate risk

The Chinese Estates Group has variable-rate borrowings and is therefore exposed to cash flow interest rate risk (see note 40 for details of these borrowings). The Chinese Estates Group currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

(iii) Price risk

The Chinese Estates Group’s equity investments classified as available-for-sale investments and investments held-for-trading are measured at fair value at each balance sheet date. Therefore, the Chinese Estates Group is exposed to equity security price risk. The management manages this exposure by maintaining a portfolio of investments with different risk profiles.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Credit risk

The Chinese Estates Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 December 2006 in relation to each class of recognised financial assets is the carrying amount of those asset as stated in the consolidated balance sheet. In order to minimise the credit risk, the management has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Chinese Estates Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of Chinese Estates consider that the Chinese Estates Group’s credit risk is significantly reduced.

The Chinese Estates Group’s concentration of credit risk by geographical locations is mainly in Hong Kong.

6. Turnover

Turnover represents the aggregate of amounts received and receivable from the sales of investments held-for-trading, sales of properties held for sale, property rental income, commission from brokerage, settlement charges from brokerage and interest income from loan financing.

7. Business and geographical segments

Business segments

For management purposes, the Chinese Estates Group is currently organised into five operating divisions – property development and trading, property leasing, money lending, listed securities investments and treasury products and unlisted securities investment, investment holding and brokerage. These divisions are the basis on which the Chinese Estates Group reports its primary segments information.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Principal activities are as follows:

– Property development Property development and sales of and trading properties – Property leasing Property rental – Money lending Loan financing Listed securities – Listed securities investments and trading, investments over-the-counter trading and and treasury products structured products Unlisted securities – Unlisted securities investments, trading investments, investment and brokerage holding and brokerage

Segment information about these businesses is presented below:

Income statement

For the year ended 31 December 2006

Property development and trading HK$’000 Turnover Turnover from external customers 10,700 Result Segment result (194,762) Unallocated corporate expenses, net Finance costs on listed securities investments and treasury products – Other finance costs Other gains and losses, net – Share of results of associates 1,010,296 Profit before tax Income tax expense Profit for the year	Property leasing HK$’000 667,913 7,528,646 – 56,892 111,622	Money lending HK$’000 9,976 9,976 – – 58	Listed Unlisted securities securities investments investments, and investment treasury holding and products brokerage HK$’000 HK$’000 4,040,018 35,182 868,217 266,156 (178,995) – – – – 7,618	Other operations/ unallocated Consolidated HK$’000 HK$’000 – 4,763,789 – 8,478,233 (154,757) – (178,995) (274,524) 995 57,887 5,573 1,135,167 9,063,011 (1,505,924) 7,557,087

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APPENDIX III

FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Balance sheet

At 31 December 2006

				Listed	Unlisted
				securities	securities
				**investments **	investments,
	Property			and	investment	Other
	development	Property	Money	treasury	holding and	operations/
	and trading	leasing	lending	products	brokerage	**unallocated **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Assets
Segment assets	5,614,067	38,172,801	66,008	10,663,250	664,772	38,251	55,219,149
Interests in associates	816,713	513,885	43	–	–	65,710	1,396,351
Advances to associates	753,511	169,054	9,096	–	–	–	931,661
Unallocated
corporate assets							87,166
							57,634,327
Liabilities
Segment liabilities	872,095	316,260	99	4,067,818	218,327	40,731	5,515,330
Unallocated
corporate liabilities							16,156,363
							21,671,693

Other information

For the year ended 31 December 2006

			Unlisted
			securities
			investments,
	Property		investment
	development	Property	holding and
	and trading	leasing	brokerage	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Capital additions	2,547,170	897,110	–	3,444,280
Depreciation	–	14,235	–	14,235
Amortisation	–	609	–	609
Impairment losses recognised
in the income statement	200,000	–	–	200,000
Other non-cash expenses	–	13,474	–	13,474

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Income statement

For the year ended 31 December 2005

Property development and trading HK$’000 Turnover Turnover from external customers 3,900 Result Segment result 978,658 Unallocated corporate income, net Finance costs on listed securities investments and treasury products – Other finance costs Other gains and losses, net Share of results of associates 231,810 Profit before tax Income tax expense Profit for the year	Property leasing HK$’000 715,606 5,697,834 – 174,743	Money lending HK$’000 31,158 31,158 – 428	Listed Unlisted securities securities investments investments, and investment treasury holding and products brokerage HK$’000 HK$’000 1,515,655 8,669 279,936 243,070 (36,676) – – 17,547	Other operations/ unallocated Consolidated HK$’000 HK$’000 – 2,274,988 – 7,230,656 46,626 – (36,676) (278,316) (8,640) 5,512 430,040 7,383,690 (929,023) 6,454,667

– 110 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Balance sheet

At 31 December 2005

				Listed	Unlisted
				securities	securities
				**investments **	investments,
	Property			and	investment	Other
	development	Property	Money	treasury	holding and	operations/
	and trading	leasing	lending	products	brokerage	**unallocated **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Restated)						(Restated)
Assets
Segment assets	2,531,246	25,707,560	531,008	8,706,533	487,125	28,459	37,991,931
Interests in associates	280,839	358,991	3,776	–	–	49,719	693,325
Advances to associates	571,799	957,880	22,107	–	–	130,189	1,681,975
Unallocated
corporate assets							74,061
							40,441,292
Liabilities
Segment liabilities	14,137	309,123	133	4,332,830	164,035	29,162	4,849,420
Unallocated corporate
liabilities							11,889,175
							16,738,595

Other information

For the year ended 31 December 2005

			Unlisted
			securities
			investments,
	Property		investment
	development	Property	holding and
	and trading	leasing	brokerage	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Capital additions	620,606	78,404	78,882	777,892
Depreciation	–	10,398	–	10,398
Amortisation	–	609	–	609
Impairment losses reversed in
the income statement	(977,054)	–	–	(977,054)
Other non-cash expenses	4,398	29,392	2,711	36,501

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Geographical segments

No further geographical segment information is presented as the activities of the Chinese Estates Group carried out in Hong Kong and the assets of the Chinese Estates Group located in Hong Kong is the only major geographical segment of the Chinese Estates Group.

8. Other income

	2006	2005
	HK$’000	HK$’000
Included in other income are:
Building management fee income, net	21,399	22,376
Exchange gain, net	–	9,757
Forfeiture of deposit received on sale of properties	–	2,403
Share of resale profit arising from properties resale
by a related party in respect of properties previously
acquired from the Chinese Estates Group_(Note)_	–	50,160
Management fee income	1,159	3,146
Write off of retention money	–	3,727

Note: Pursuant to a sale and purchase agreement dated 27 August 2004 in relation to the disposal of several properties (“Properties”) to a company wholly-owned by a discretionary trust set up by Mr. Joseph Lau, Luen-hung, an executive director and a substantial shareholder of Chinese Estates, the Chinese Estates Group is entitled to 80% profit sharing when the Properties are subsequently sold by the discretionary trust. For the year ended 31 December 2005, certain properties had been sold and HK$50,160,000 representing 80% of the total profit arising from the sale of the Properties was recognised in the income statement.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

9. Investment income, net

Fair value changes on investments held-for-trading Fair value changes on equity-linked notes & bonds Fair value changes on derivative financial instruments Realised gain on available-for-sale investments Realised (loss) gain on equity-linked notes & bonds Realised (loss) gain on derivative financial instruments Other investment income Dividend income on: Listed investments Unlisted investments Interest income Imputed interest on: Advances to associates Loans receivable	2006 HK$’000 5,066 2,366 (16,555) 233,012 (17,624) (59,940) 11,968 69,597 83,746 461,315 60,284 – 833,235	2005 HK$’000 (8,069) 6,153 (136,082) 86,252 6,552 67,658 12,760 10,122 107,137 260,831 47,747 295
		461,356

Included in interest income are interest from equity-linked notes & bonds and derivative financial instruments amounted to approximately HK$245 million (2005: HK$137 million) and approximately HK$137 million (2005: HK$52 million) respectively.

10. Other expenses

	2006	2005
	HK$’000	HK$’000
Included in other expenses are:
Impairment loss recognised in respect of
accounts receivable	38	5,231
Impairment loss recognised in respect of goodwill	–	7,702
Impairment loss recognised in respect of
intangible assets	–	1,131
Impairment loss recognised in respect of
available-for-sale investments	–	1,580

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

11. Asset classified as held for sale

On 2 December 2005, a wholly-owned subsidiary of Chinese Estates entered into a sale and purchase agreement with an independent third party of Chinese Estates, relating to the disposal of one of the Chinese Estates Group’s associate, Grand Make International Limited (“Grand Make”), which holds 99% indirect interest in Hong Kong New World Tower located in Shanghai. The 35% equity interest of Grand Make was expected to be sold within twelve months from 31 December 2005, had been classified as a disposal asset held for sale and was presented separately in the balance sheet. The net proceeds of disposal was expected to exceed the net carrying amount of the relevant assets and accordingly, no impairment loss had been recognised. This disposal was completed in March 2006.

On 27 December 2006 and 8 December 2006, Superkey Development Limited and Boria Enterprises Limited, indirect wholly owned subsidiaries of G-Prop (Holdings) Limited, which is a 50.1% interest subsidiary of the Chinese Estates Group, entered into sale and purchase agreements with two independent third parties (“the Purchasers”) in relation to the disposals of a car park located at No. 4106, 4/F., Bank of America Tower, 12 Harcourt Road, Hong Kong (the “Car Park”) and property located at 3rd Floor, Chung Kiu Godown Building, 63-71 Lei Muk Road, Kwai Chung, New Territories, Hong Kong (the “Property”) at considerations of HK$538,000 and HK$8,800,000 respectively. The Car Park was satisfied by the Purchaser in cash and completed on 19 January 2007 and the Property shall be satisfied in cash and completed on or before 31 May 2007. In accordance with HKFRS 5, the above investment properties have been presented as assets classified as held for sale in the balance sheet as at 31 December 2006.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

12. Profit for the year

	2006		2005
	HK$’000		HK$’000
Profit for the year has been arrived at
after (charging) crediting:
Auditors’ remuneration	(3,505)		(3,974)
Depreciation	(14,235)		(10,398)
Amortisation	(609)		(609)
Staff costs, including directors’ emoluments
of Chinese Estates	(86,432)		(75,221)
Retirement benefits scheme contributions,
net of forfeited contributions of HK$473,000
(2005: HK$374,000)	(3,517)		(3,881)
Total staff costs	(89,949)		(79,102)
Gain on disposals of investments held-for-trading
included in gross profit:
Increase in market value of investments
held-for-trading	256,613		69,427
Realised exchange gain (loss) on translation of
investments held-for-trading	14,255		(10,349)
	270,868		59,078
Gross rental income from investment properties	667,913		715,606
_Less:_Direct operating expenses from investment
properties that generated rental income
during the year	(48,864)		(21,731)
Direct operating expenses from investment
properties that did not generate rental
income during the year	(11,652)		(6,249)
	607,397		687,626
Share of tax of associates
(included in share of results of associates)	(227,267)		(60,685)

– 115 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

13. Finance costs

Interest on: Bank loans wholly repayable within five years Bank loans wholly repayable over five years Other loans wholly repayable within five years Amounts due to minority shareholders Imputed interest on: Amounts due to associates Amounts due to minority shareholders Convertible bonds Total interest Exchange loss (gain) on translation of foreign currency loans Other finance costs _Less:_Interest capitalised to stock of properties under development _Less:_Interest capitalised to investment properties under development	2006 HK$’000 345,606 1,760 156,393 33,278 537,037 985 16,726 21,187 38,898 575,935 22,602 3,324 601,861 (92,979) (55,363) 453,519	2005 HK$’000 235,645 1,380 61,038 – 298,063 414 16,107 36,932 53,453 351,516 (24,362) 11,638 338,792 (23,800) – 314,992

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

14.	Other gains and losses, net
		2006	2005
		HK$’000	HK$’000
	Included in other gains and losses, net are:
	Impairment loss reversed in respect of advances
	to associates	897	9,740
	Discount on acquisition of an associate	–	2,530
	Impairment loss recognised in respect of advance
	to an associate	(13,474)	(4,398)
	Net loss on deemed disposals of subsidiaries_(Note)_	–	(16,459)
	Gain on disposal of an associate	70,366	–

Note: Net loss on deemed disposals of subsidiaries was arising from Chi Cheung Investment Company, Limited and G-Prop (Holdings) Limited issue shares to independent investors pursuant to the respective placing agreements in February 2005.

15. Directors’ emoluments

Fees and other emoluments paid or payable to each of the 7 (2005: 5) directors of Chinese Estates for the year ended 31 December 2006 and 2005 were as follows:

Mr. Joseph Lau, Luen-hung Mr. Thomas Lau, Luen-hung Mr. Lau, Ming-wai Mr. Koon, Wing-yee Mr. Chan, Kwok-wai Mr. Cheng, Kwee Ms. Phillis Loh, Lai-ping	2006	Total HK$’000 3,600 2,290 55 6 150 150 140 6,391	2005
	Salaries and other Fee emolument HK$’000 HK$’000 – 3,600 – 2,290 – 55 6 – 150 – 150 – 140 – 446 5,945		Salaries and other Fee emolument HK$’000 HK$’000 – 3,600 – 2,400 – – 100 – 100 – 100 – – – 300 6,000	Total HK$’000 3,600 2,400 – 100 100 100 –
				6,300

No directors of Chinese Estates waived any emoluments for the years ended 31 December 2006 and 2005.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

16. Employees’ emoluments

Of the five individuals with the highest emoluments in the Chinese Estates Group, two (2005: two) were executive directors of Chinese Estates whose emoluments are included in the disclosures in Note 15 above. The emoluments of the remaining three (2005: three) individuals disclosed pursuant to the Rules Governing the Listing of Securities on the Stock Exchange were as follows:

Salaries and other benefits Retirement benefit scheme contributions	2006 HK$’000 3,296 166 3,462	2005 HK$’000 3,128 139
		3,267

Their emoluments were within the following bands:

	Number of	employees
	2006	2005
Nil – HK$1,000,000	2	2
HK$1,000,001 – HK$1,500,000	0	1
HK$1,500,001 – HK$2,000,000	1	0

During the years ended 31 December 2006 and 2005, no emoluments were paid by the Chinese Estates Group to the five highest paid individuals or directors, as an inducement to join or upon joining the Chinese Estates Group as compensation for loss of office.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

17. Income tax expense

The charge (credit) comprises: Current tax: Hong Kong Profits Tax Other than Hong Kong Underprovision (overprovision) in prior years: Hong Kong Profits Tax Other than Hong Kong Deferred tax_(Note 44)_: Current year Overprovision in prior years	2006 HK$’000 42,038 5,852 47,890 2,960 – 2,960 1,455,288 (214) 1,455,074 1,505,924	2005 HK$’000 27,994 2,777 30,771 (200) – (200) 899,631 (1,179) 898,452 929,023

Hong Kong Profits Tax is calculated at 17.5% on the estimated assessable profits for the both years. Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

The major deferred tax liabilities recognised by the Chinese Estates Group is deferred tax on fair value changes on investment properties of HK$1,431,805,000 (2005: HK$875,490,000) for the year.

– 119 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

The tax charge for the year can be reconciled to the profit before tax as follows:

Profit before tax Tax at Hong Kong Profits Tax rate of 17.5% Tax effect of share of results of associates Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Underprovision (Overprovision) in respect of prior years Tax effect of tax losses not recognised Utilisation of tax losses previously not recognised Tax effect on accelerated accounting depreciation over tax depreciation not provided in prior years Effect of different tax rates of subsidiaries operating in other jurisdictions Others Tax charge for the year	2006 HK$’000 9,063,011 1,586,026 (89,638) 513,203 (471,619) 2,746 178 (33,154) (6,404) 4,628 (42) 1,505,924	% 17. 5 (1.0) 5.7 (5.2) – – (0.4) (0.1) 0.1 – 16.6	2005 HK$’000 7,383,690 1,292,146 (75,257) 28,440 (104,016) (1,379) 2,585 (210,449) (32) (3,015) – 929,023	% 17.5 (1.0) 0.4 (1.4) – – (2.9) – – – 12.6

– 120 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

18. Dividends

(a) Final dividend for 2005 paid on 30 June 2006 of HK12 cents (2004: HK11 cents) per share Cash Share alternative under scrip dividend scheme (b) Interim dividend for 2006 paid on 4 October 2006 of HK12 cents (2005: HK9 cents) per share Cash Share alternative under scrip dividend scheme Total dividends paid	2006 HK$’000 108,128 158,639 266,767 72,965 195,905 268,870 535,637	2005 HK$’000 223,324 N/A
		223,324
		186,927 N/A
		186,927
		410,251

The final dividend of HK18 cents (2005: HK12 cents) per share has been proposed by the directors of Chinese Estates and is subject to approval by the shareholders in general meeting.

– 121 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

19. Earnings per share

The calculation of the basic and diluted earnings per share attributable to equity holders of the parent is based on the following data:

Earnings: Earnings for the purposes of basic earnings per share (profit for the year attributable to equity holders of the parent) Effect of dilutive potential ordinary shares: Imputed interest on convertible bonds Earnings for the purposes of diluted earnings per share Number of shares: Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: Convertible bonds Weighted average number of ordinary shares for the purposes of diluted earnings per share	2006 2005 HK$’000 HK$’000 7,477,345 6,154,572 21,187 36,932 7,498,532 6,191,504 Number of shares 2006 2005 2,204,297,086 2,051,367,232 46,269,727 190,626,220 2,250,566,813 2,241,993,452	2005 HK$’000 6,154,572 36,932
		6,191,504
		2,241,993,452

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

20. Investment properties

Fair value At 1 January 2005 Additions Increase in fair value recognised in the income statement Disposals At 31 December 2005 Acquisition of subsidiaries Additions Increase in fair value recognised in the income statement Reclassification to non-current assets held for sale Disposals At 31 December 2006	HK$’000 19,359,080 73,611 4,976,713 (346,439) 24,062,965 393,000 476,796 6,921,971 (9,338) (73,524) 31,771,870

The fair value of the Chinese Estates Group’s investment properties at 31 December 2006 has been arrived at on the basis of valuation carried out on that date by Messrs. Norton Appraisals Limited (“Norton Appraisals”), independent qualified professional valuers not connected with the Chinese Estates Group. Norton Appraisals has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation, which conforms to The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors, was based on open market value basis.

All of the Chinese Estates Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes, are measured using the fair value model and are classified and accounted for as investment properties.

– 123 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

The carrying value of investment properties shown above comprises:

Properties in Hong Kong held under: Long lease Medium-term lease Properties outside Hong Kong held under: Long lease Medium-term lease	2006 HK$’000 26,684,270 3,967,400 30,651,670 304,000 816,200 1,120,200 31,771,870	2005 HK$’000 20,181,670 3,433,700
		23,615,370
		169,595 278,000
		447,595
		24,062,965

– 124 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

21. Property and other fixed assets

Cost At 1 January 2005 Additions Disposals At 31 December 2005 Acquisition of subsidiaries Additions Disposals At 31 December 2006 Depreciation At 1 January 2005 Charge for the year Elimination upon disposals At 31 December 2005 Charge for the year Elimination upon disposals At 31 December 2006 Carrying amounts At 31 December 2006 At 31 December 2005	Buildings HK$’000 59,679 – – 59,679 – – – 59,679 7,330 1,502 – 8,832 1,501 – 10,333 49,346 50,847	Furniture, fixtures and equipment HK$’000 169,595 1,696 (86,113) 85,178 24 5,248 (4,614) 85,836 151,531 3,896 (78,220) 77,207 3,616 (4,614) 76,209 9,627 7,971	Yachts and motor vehicles HK$’000 39,469 3,097 (2,442) 40,124 495 21,547 (5,713) 56,453 27,148 5,000 (2,095) 30,053 9,118 (5,102) 34,069 22,384 10,071	Total HK$’000 268,743 4,793 (88,555) 184,981 519 26,795 (10,327) 201,968 186,009 10,398 (80,315) 116,092 14,235 (9,716) 120,611 81,357 68,889

The Chinese Estates Group’s buildings are situated in Hong Kong and held under medium-term leases.

– 125 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

22. Properties under development Cost At 1 January 2005 Additions At 31 December 2005 Additions Transfer to stock of properties At 31 December 2006 Carrying amounts At 31 December 2006 At 31 December 2005 23. Prepaid lease payments The Chinese Estates Group’s prepaid lease payments comprise: Leasehold land in Hong Kong: Long lease Medium-term lease	Properties held under medium-term lease in Hong Kong HK$’000 750 23,152 23,902 26,384 (50,286) – – 23,902 2006 2005 HK$’000 HK$’000 249,250 249,839 247 267 249,497 250,106

Amortisation expense on prepaid lease payments of HK$609,000 (2005: HK$609,000) has been charged to income statement for the year.

– 126 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

24. Property interests held for future development

Cost At 1 January and 31 December Impairment loss At 1 January and 31 December Carrying amounts At 1 January and 31 December	2006 HK$’000 71,118 (71,118) –	2005 HK$’000 71,118 (71,118) –

The property interests held for development project in Chenghai Royal Garden, Shantou, PRC is held by a wholly owned subsidiary of Chi Cheung Investment Company, Limited, which is a 61.96% interest subsidiary of Chinese Estates. Under a Contract for Pre-registration of Grant of State-owned Land Use Right (the “Contract”) with the district bureau of Chenghai dated 5 August 1992, the Chinese Estates Group had made certain downpayment. However, the Chinese Estates Group subsequently determined not to proceed with the land requisition and requested for refund.

In April 2005, the Chinese Estates Group commenced legal proceedings to terminate the Contract against the Shantou City Chenghai District Planning and State-owned Land Resources Bureau (“Chenghai Bureau”). In view of the uncertainty in the recoverability of the amount claimed and any other entitlements under the Contract, the Chinese Estates Group had made a full provision for an impairment loss of HK$71,118,000.

On 28 December 2006, the judgments were ruled in favour of the Chinese Estates Group. However, Chenghai Bureau has submitted a application of appeal in January 2007. Up to the date of approval of these financial statements, the application of appeal is pending for hearing.

– 127 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

25. Intangible assets

Cost At 1 January 2005 and 31 December 2005 Reclassification to available-for-sale investments At 31 December 2006 Amortisation and impairment At 1 January 2005 Impairment recognised for the year At 31 December 2005 Reclassification to available-for-sale investments At 31 December 2006 Carrying amounts At 31 December 2006 At 31 December 2005	Trading and Club exchange debentures rights HK$’000 HK$’000 24,307 2,705 (24,307) – – 2,705 8,356 1,574 – 1,131 8,356 2,705 (8,356) – – 2,705 – – 15,951 –	Total HK$’000 27,012 (24,307) 2,705 9,930 1,131 11,061 (8,356) 2,705 – 15,951

For the year ended 31 December 2005, the directors of Chinese Estates reviewed the recoverable amount of the trading rights and the gold and silver exchange rights. The directors of Chinese Estates were of the opinion that there were no expected net cash inflow from the continuous use of the trading rights and the gold and silver exchange rights. An impairment loss of approximately HK$1,131,000 was recognised in the income statement for the year ended 31 December 2005.

– 128 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

26. Goodwill Cost At 1 January 2005 Elimination of amortisation accumulated prior to adoption of HKFRS 3 At 31 December 2005 and 31 December 2006 Amortisation At 1 January 2005 Elimination of amortisation accumulated prior to adoption of HKFRS 3 At 31 December 2005 and 31 December 2006 Impairment At 1 January 2005 Impairment loss recognised for the year At 31 December 2005 and 31 December 2006 Carrying amounts At 31 December 2006 At 31 December 2005 27. Interests in associates Cost of investment in associates, unlisted Share of post-acquisition profits, net of dividend received	2006 HK$’000 307,926 1,088,425 1,396,351	HK$’000 61,862 (14,114) 47,748 14,114 (14,114) – 40,046 7,702 47,748 – – 2005 HK$’000 (Restated) 307,926 385,399 693,325

– 129 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Chinese Estates provided corporate guarantee to secure bank loans granted to its associates. The fair value of the financial guarantee contract was determined by CB Richard Ellis Limited, an independent valuer, and it was recognised as interest in associates and financial guarantee liabilities in the Chinese Estates Group’s consolidated balance sheet.

Particulars of the Chinese Estates Group’s principal associates at 31 December 2006 are set out in Note 54.

The investment properties of the Chinese Estates Group’s principal associates were revalued at 31 December 2006 by Norton Appraisals. The valuation, which conforms to The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors, was based on open market value basis.

The summarised financial information in respect of the Chinese Estates Group’s associates is set out below:

Total assets Total liabilities Net assets Minority interest Chinese Estates Group’s share of net assets of associates Turnover Profit for the year Chinese Estates Group’s share of result of associates for the year	2006 HK$’000 11,568,969 (8,197,694) 3,371,275 22,031 3,393,306 1,396,351 6,131,011 2,924,850 1,135,167	2005 HK$’000 10,669,585 (8,867,442) 1,802,143 (72,150) 1,729,993 693,325 565,879 927,142 430,040

A legal action against an 50% associate of the Chinese Estates Group, The Kwong Sang Hong International Limited (“Kwong Sang Hong”), was taken by a Chinese joint venture partner of Kwong Sang Hong in respect of a development project in the PRC. Pending the result of retrial, provision of HK$19.7 million (2005: HK$19.7 million) against damages, legal costs and interest was made by Kwong Sang Hong.

– 130 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

28. Advances to associates

Interest bearing advances to associates Interest-free advances to associates	2006 HK$’000 166,056 765,605 931,661	2005 HK$’000 199,299 1,482,676
		1,681,975

The advances to associates are unsecured. An approximately HK$766,669,000 was expected to be repayable in 2010 and the amount is therefore shown as non-current. For the remaining HK$164,992,000, the Chinese Estates Group will not demand repayment within one year from the balance sheet date and the amounts are therefore shown as non-current. The interest bearing advances to associates bear interest at the prevailing market rate. The directors of Chinese Estates consider that the fair value of the interest-free advances as at the balance sheet date, determined based on the present values of the estimated future cash flows discounted using the prevailing market rates at the balance sheet date approximate their carrying amounts.

29. Available-for-sale investments

Available-for-sale investments comprise:

Listed investments: – Equity securities listed in Hong Kong – Equity securities listed elsewhere Unlisted securities: – Equity securities incorporated in Hong Kong – Equity securities incorporated elsewhere Club debentures Total	2006 HK$’000 8,179,251 – 8,179,251 258,549 78,881 8,516,681 15,951 8,532,632	2005 HK$’000 1,871,937 1,155,070
		3,027,007 299,293 78,881
		3,405,181 –
		3,405,181

– 131 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

As at the balance sheet date, all available-for-sale investments are stated at fair value, except for those unlisted equity investments of which their fair values cannot be measured reliably. Fair values of those listed investments have been determined based on the quoted market bid prices available on the relevant stock exchanges.

Included in the carrying amount of unlisted securities are approximately HK$258,549,000 (2005: HK$299,293,000) unlisted investments which are stated at fair values determined by using discounted cash flow valuation techniques. The remaining approximately HK$78,881,000 (2005: HK$78,881,000) represents an investment in unlisted equity securities issued by private entities incorporated in United States of America. Both these equity securities and club debentures are measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of Chinese Estates are of the opinion that their fair values cannot be measured reliably.

30. Investments held-for-trading

Investments held-for-trading comprise:

Listed investments: – Equity securities listed in Hong Kong – Equity securities listed elsewhere	2006 HK$’000 24,692 117,526 142,218	2005 HK$’000 596,925 642,501
		1,239,426

The fair values of the investments held-for-trading are determined based on the quoted market bid prices available on the relevant stock exchanges.

31. Advance to an investee company and a minority shareholder

• (a) The advance made to an investee company, of which the principal purpose is for providing second mortgage for a property development project, is unsecured and interest-bearing at prevailing market rate. The advance is not repayable within one year and is therefore shown as non-current.

The directors of Chinese Estates consider that the fair value of the advance to an investee company at the balance sheet date approximates to its carrying amount.

– 132 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

• (b) The advance made to a minority shareholder is unsecured and interest-free. The advance is not repayable within one year and is therefore shown as noncurrent.

The directors of Chinese Estates consider that the fair value of the advance to a minority shareholder at the balance sheet date, determined based on the present value of the estimated future cash flows discounted using the prevailing market rate at the balance sheet date, approximates to its carrying amount.

32. Equity-linked notes

Equity-linked notes are designated as financial assets at fair value through profit or loss.

Carrying amount analysed for reporting purposes as:

Current Non-current	2006 HK$’000 75,725 147,827 223,552	2005 HK$’000 628,983 2,799,507
		3,428,490

Major terms of the equity-linked notes are as follows:

Notional amount	Maturity
US$10,000,000	2007
US$20,000,000	2008

The equity-linked notes are callable, interest bearing which range from 18% to 20.2% per annum with guaranteed coupon for the 1st quarter. The equity-linked notes are linked with various overseas listed securities at various strike prices.

The equity-linked notes are measured at fair value at balance sheet date. Their fair values are determined based on the quoted prices provided by the securities’ brokers for equivalent instruments at the balance sheet date.

– 133 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

33. Loans receivable

2006 HK$’000 Long term loans receivable, secured Non-current 63,058 Current 223 63,281 Other loans and advances, unsecured 22 63,303 Less:_Amount due within one year shown under current assets (224) Amount due after one year 63,079 Loans receivable comprise: Effective Carrying interest 2006 Maturity date Collateral rate _HK$’000 Loans receivable 4 years – 17 years Properties Prime rate 3,490 Loans receivable 1 year–2 years Nil Fixed rate 22 Loans receivable 19 January 2010 Unlisted Prime – 1% 59,791 (Note) equity share 63,303		2005 HK$’000 84,344 6,676 91,020 22 91,042 (6,698) 84,344 amounts 2005 HK$’000 5,629 – 85,413 91,042

The directors of Chinese Estates consider that the fair value of the Chinese Estates Group’s loans receivable approximate to their carrying amounts.

Note:

The principal will be receivable through five annual instalments with 7.5% on principal for first 4 instalments and 70% on principal in the final instalment in January 2010.

– 134 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

34. Other financial assets

(a) Pledged deposits

The amount represents deposits pledged to banks and other financial institutions to secure credit facilities granted to the Chinese Estates Group. Deposits amounting to HK$1,014,351,000 (2005: HK$3,463,000) have been pledged to secure short-term borrowing and are therefore classified as current assets. The remaining deposits amounting to HK$71,606,000 (2005: HK$121,069,000) have been pledged to secure long-term borrowings and are therefore classified as non-current assets.

The deposits carry interest rate at prevailing market rate. The pledged deposits will be released upon the settlement of relevant borrowings. The fair value of the deposits at the balance sheet date approximates to the corresponding carrying amount.

(b) Securities trading receivable and deposits

Securities trading receivables and deposits are mainly amounts due from clearing house, brokers and clients. The fair value of the securities trading receivable and deposits at the balance sheet date approximates to the corresponding carrying amount.

(c) Time deposits, bank balances and cash

The deposits carry interest rate at prevailing bank savings deposits rate and mature within 1 month. The directors of Chinese Estates consider that the fair value of the time deposits, bank balances and cash at the balance sheet date approximates to the corresponding carrying amount.

35. Stock of properties

Completed properties Properties under development held for sales _Less:_Impairment loss recognised	2006 HK$’000 79,198 5,251,773 5,330,971 (479,467) 4,851,504	2005 HK$’000 34,257 2,730,987 2,765,244 (279,467) 2,485,777

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Included in the cost of properties under development held for sales is net interest capitalised of approximately HK$140,799,000 (2005: HK$47,820,000).

At 31 December 2006, the directors of Chinese Estates reviewed the carrying value of the properties under development held for sales with reference to current market situation and the estimated selling price of the properties under development held for sales provided by Norton Appraisals. An impairment loss recognised of approximately HK$200,000,000 (2005: reverse of HK$977,054,000) was made by reference to the recoverable amount of the properties under development held for sales.

36. Derivative financial instruments

Assets Financial assets, held for trading Stock option Liabilities Financial liabilities, held for trading Interest rate swap Equity-linked swaps Total	2006 HK$’000 – 102,776 65,868 168,644	2005 HK$’000 59,940
		86,364 65,725
		152,089

At 31 December 2005, major terms of the stock option are as follows:

Notional Amount	Maturity	Underlying Stock
JPY11,922,000,000	25 November 2006	Japanese listed securities

The stock option was matured during the year ended 31 December 2006.

– 136 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Major terms of the interest rate swap are as follows:

Notional Amount Maturity US$100,000,000 13 January 2017

Under the interest rate swap agreement, the Chinese Estates Group is receiving a fixed rate of 12% in the first year and floating rate for the remaining life of the interest rate swap period. The Chinese Estates Group is paying for 3-month United States Dollars LIBOR floating rate throughout the interest rate swap period to the counterparty.

Major terms of the equity-linked swaps are as follows:

Notional Amount	Maturity
US$50,000,000	28 June 2015
US$50,000,000	29 June 2015
US$50,000,000	21 July 2015

Under the equity-linked swaps arrangement, the Chinese Estates Group is paying a 12-month United States Dollars LIBOR floating rate and receiving a fixed rate coupon which is guaranteed in the first year and determined by the financial performance or stock price of the underlying linked Hong Kong listed securities for the remaining life of the swaps to the counterparties.

The above derivatives are measured at fair value at balance sheet date. Their fair values are determined based on the quoted prices provided by the securities’ brokers for equivalent instruments at the balance sheet date.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

37. Debtors, deposits and prepayments

Included in debtors, deposits and prepayments are trade receivables of approximately HK$22,138,000 (2005: HK$21,990,000) comprising mainly rental receivables which are billed in advance and settlements are expected upon receipts of billings.

The following is an aged analysis of trade receivables at the balance sheet date:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	2006 HK$’000 7,923 1,464 660 12,091 22,138	2005 HK$’000 5,768 2,185 866 13,171
		21,990

The directors of Chinese Estates consider that the fair value of the Chinese Estates Group’s debtors at the balance sheet date was approximately their carrying amounts.

38. United States currency treasury bills

The United States currency treasury bills are measured at fair value at balance sheet date. Their fair values are determined based on the quoted prices provided by the securities’ brokers for equivalent instruments at the balance sheet date.

At 31 December 2005, major terms of the United States currency treasury bills are as follows:

Notional Amount	Maturity
US$36,300,000	12 January 2006
US$27,700,000	23 March 2006

All United States currency treasury bills were matured during the year ended 31 December 2006.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

39. Creditors and accruals

Included in creditors and accruals are trade payables of approximately HK$13,599,000 (2005: HK$7,337,000).

The following is an aged analysis of trade payables at the balance sheet date:

0 – 90 days Over 90 days	2006 HK$’000 11,605 1,994 13,599	2005 HK$’000 3,766 3,571
		7,337

The directors of Chinese Estates consider that the fair value of the Chinese Estates Group’s creditors at the balance sheet date was approximately their carrying amounts.

40. Borrowings

Secured bank loans repayable within a period of: Less than 1 year More than 1 year but within 2 years More than 2 years but within 5 years Over 5 years Secured other loans repayable within 1 year _Less:_Amount due within one year Amount due after one year	2006 HK$’000 7,079,513 491,283 3,205,369 12,688 10,788,853 3,924,691 14,713,544 (11,004,204) 3,709,340	2005 HK$’000 1,772,476 2,942,313 2,703,604 17,525
		7,435,918 4,318,134
		11,754,052 (6,090,610)
		5,663,442

The bank loans are variable-rate borrowings which carry interest ranging from HIBOR+0.4% to HIBOR+0.8% (2005: HIBOR+0.47% to HIBOR+0.8%) per annum.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

The other loans are variable-rate borrowings which carry interest ranging from Interbank Rate+0.25% to Inter-bank Rate+0.5% (2005: Inter-bank Rate+0.25% to Inter-bank Rate+0.5%) per annum.

The directors of Chinese Estates consider that the fair value of the Chinese Estates Group’s borrowings approximates to their carrying amounts.

The Chinese Estates Group’s borrowings that are denominated in currencies other than Hong Kong dollars are set out below:

Japanese Yen JPY’000 As at 31 December 2006 Nil As at 31 December 2005 11,197,355 41. Provisions Contingency provision HK$’000 (Note) At 1 January 2005 and 31 December 2005 16,017 Provision written off for the year – At 31 December 2006 16,017	US Dollar US$’000 Nil 437,865 Litigation claim HK$’000 8,427 (8,427) –	Australian Dollar AUD’000 Nil 26,910 Total HK$’000 24,444 (8,427) 16,017

Note: The provision represents construction cost determined by the management’s best estimate of the Chinese Estates Group’s liability on contingency claims by a third party to whom a property under development project was previously disposed of.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

42. Convertible bonds

In April and May 2005, Chinese Estates has issued zero coupon Convertible Bonds (the “Bonds”) with a maturity date on 2010 in an principal amount of HK$1,750,000,000 and a further principal amount of HK$60,000,000.

The Bonds are convertible on or after 20 May 2005 up to and including 20 March 2010 into fully paid ordinary shares with a par value of HK$0.10 each of Chinese Estates at an initial price of HK$7.37 per share, subject to adjustment. Unless previously redeemed, converted or purchased and cancelled, the Bonds will be redeemed at 100 per cent of their principal amount on 20 April 2010.

The Bonds contain two components, liability and equity elements. Upon the application of HKAS 32, the Bonds were split between the liability and equity elements. The equity element is presented in equity heading “Convertible bonds – equity reserve”. The effective interest rate of the liability component is 4.38%.

The movement of the liability component of the Bonds for the year is set out below:

Liability component at date of issue Converted to ordinary share Imputed interest expense for the year Liability component at 31 December 2005 Converted to ordinary share Imputed interest expense for the year Liability component at 31 December 2006	HK$’000 1,460,790 (362,420) 36,932 1,135,302 (876,800) 21,187 279,689

43. Amounts due to associates and minority shareholders

Both the amounts due to associates and minority shareholders are unsecured. Except for the amount due to one minority shareholder which is interest bearing at prevailing market rate, the amounts due to associates and other minority shareholders are interest-free. The associates and minority shareholders will not demand for repayment within one year from the balance sheet date and are therefore shown as non-current. The directors of Chinese Estates consider that the fair value of the amounts as at the balance sheet date, determined based on the present values of the estimated future cash flows discounted using the prevailing market rates at the balance sheet date, approximate their carrying amounts.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

44. Deferred taxation

The followings are the major deferred tax liabilities (assets) recognised by the Chinese Estates Group and movements thereon during the year and prior years:

Revaluation Accelerated of tax investment depreciation properties HK$’000 HK$’000 At 1 January 2005 4,216 2,069,932 Charge to the income statement for the year 483 881,581 Realised on disposal of investment properties (1,527) (4,443) At 31 December 2005 3,172 2,947,070 Charge to the income statement for the year 8,363 1,436,510 Fair value adjustments arising from acquisition – 79,225 At 31 December 2006 11,535 4,462,805	Tax losses HK$’000 (113,038) 16,388 400 (96,250) 10,201 – (86,049)	Total HK$’000 1,961,110 898,452 (5,570) 2,853,992 1,455,074 79,225 4,388,291

For the purposes of balance sheet presentation, certain deferred tax liabilities (assets) have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax liabilities Deferred tax assets	2006 HK$’000 4,461,938 (73,647) 4,388,291	2005 HK$’000 2,920,578 (66,586) 2,853,992

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

At the balance sheet date, the Chinese Estates Group has the following major unrecognised deferred tax assets due to the unpredictability of the future profit streams.

Accelerated tax depreciation Tax losses	2006 HK$’000 (332) (324,770) (325,102)	2005 HK$’000 (216) (419,534)
		(419,750)

The unrecognised tax losses may be carried forward indefinitely.

45. Share capital

Movements in the share capital of Chinese Estates during the year were as follows:

Ordinary shares of HK$0.10 each Authorised: At 1 January and 31 December Issued and fully paid: At 1 January Repurchased and cancelled_(Note)_ Issue of ordinary shares in lieu of cash dividend Issue of ordinary shares from conversion of convertible bonds At 31 December	Number of shares 2006 2005 5,000,000,000 5,000,000,000 2,091,506,780 2,030,214,000 (17,648,000) – 39,995,429 – 145,955,274 61,292,780 2,259,809,483 2,091,506,780	Share capital 2006 2005 HK$’000 HK$’000 500,000 500,000 209,151 203,021 (1,765) – 4,000 – 14,595 6,130 225,981 209,151	Share capital 2006 2005 HK$’000 HK$’000 500,000 500,000 209,151 203,021 (1,765) – 4,000 – 14,595 6,130 225,981 209,151
			203,021 – – 6,130
			209,151

Note: During the year, Chinese Estates repurchased on the Stock Exchange a total of 17,648,000 (2005: Nil) shares of HK$0.10 each of Chinese Estates, at an aggregate consideration after expenses of approximately HK$163,627,000 (2005: Nil), which were subsequently cancelled during the year. The nominal value of the cancelled shares was credited to capital redemption reserve and the aggregate consideration paid was debited to the share premium of the Chinese Estates Group.

– 143 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

46. Acquisition of subsidiaries

• (a) On the 13 March 2006, the Chinese Estates Group acquired 100% equity interest of JadeField Limited from an 50% associate for consideration of approximately HK$388,591,000.

The net assets acquired in the transaction are as follows:

Net assets acquired: Investment properties Properties and other fixed assets Debtors, deposits and prepayments Bank balances and cash Deposits and receipts in advance Tax liabilities Total consideration satisfied by: Cash Net cash outflow arising on acquisition: Cash consideration paid Bank balances and cash acquired	HK$’000 393,000 519 325 6,270 (10,940) (583) 388,591 388,591 (388,591) 6,270 (382,321)

Details of the acquisition were disclosed in Chinese Estates’ announcement dated 25 November 2005.

JadeField Limited contributed approximately HK$16,371,000 to the Chinese Estates Group’s profit for the period from the date of acquisition to the balance sheet date.

– 144 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

If the acquisition had been completed on 1 January 2006, total group revenue for the year would have been HK$4,768 million, and profit for the year would have been HK$7,560 million. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of the Chinese Estates Group that actually would have been achieved had the acquisition been completed on 1 January 2006, nor is it intended to be a projection of future results.

• (b) On 5 January 2006, the Chinese Estates Group acquired 70.01% equity interest of Moon Ocean Ltd. for consideration of HK$1,000,000.

The net assets acquired in the transaction are as follows:

Net assets acquired: Properties under development Bank balances and cash Creditor and accruals Payable for properties under development Minority interest Total consideration satisfied by: Cash Net cash outflow arising on acquisition: Cash consideration paid Bank balances and cash acquired	HK$’000 1,396,613 78 (1,063,356) (332,312) (23) 1,000 1,000 (1,000) 78 (922)

Details of the acquisition were disclosed in Chinese Estates’ announcement dated 30 December 2005 and Chinese Estates’ circular dated 20 January 2006.

Moon Ocean Ltd. recorded loss of approximately HK$1,198,000 for the period from the date of acquisition to the balance sheet date.

– 145 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

If the acquisition had been completed on 1 January 2006, total group revenue for the year would have been HK$4,764 million, and profit for the year would have been HK$7,556 million. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of the Chinese Estates Group that actually would have been achieved had the acquisition been completed on 1 January 2006, nor is it intended to be a projection of future results.

47. Major non-cash transactions

During the year ended 31 December 2006, the Chinese Estates Group had the following major non-cash transactions:

• (a) During the current year, Chinese Estates issued and allotted a total of 17,529,207 ordinary shares and 22,466,222 ordinary shares of HK$0.10 each at HK$9.05 and HK$8.72 each respectively in lieu of cash for the 2005 final and 2006 interim dividends totaling HK$354,544,000 (as referred to note 45).

• (b) During the current year, the Bonds with an aggregate principal amount of HK$1,044,290,000 were converted into 145,955,274 ordinary shares of HK$0.10 each of Chinese Estates.

During the year ended 31 December 2005, the Chinese Estates Group had the following major non-cash transaction:

For the year ended 31 December 2005, the Chinese Estates Group disposed of a 33.466% shareholding in Primasia Securities Company Limited, a brokerage company in Taiwan, at a consideration of approximately HK$135.6 million, which was satisfied by: (i) 100% interest in a property in Shanghai for US$2 million with a call and a put option. On 30 June 2005, the property was sold back to the vendor upon receiving the call option notice of 27 June 2005 from the vendor; (ii) a 5-year term loan of HK$85,415,000; and (iii) the cash consideration of approximately HK$34.48 million.

– 146 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

48. Pledge of assets

At the balance sheet date, the carrying amount of the assets pledged by the Chinese Estates Group to secure general banking and other loan facilities granted to the Chinese Estates Group are analysed as follows:

Investment properties Land and building Prepaid lease payments Available-for-sale investments Stock of properties Equity-linked notes Investments held-for-trading United States currency treasury bills Non-current pledged deposits Current pledged deposits	2006 HK$’000 30,062,603 49,119 239,804 7,034,970 2,829,483 223,552 – – 71,606 1,014,351 41,525,488	2005 HK$’000 23,263,248 50,602 240,380 2,857,245 2,137,977 3,428,490 1,080,266 493,870 121,069 3,463
		33,676,610

In addition, the Chinese Estates Group has subordinated and assigned its advance to associates of approximately HK$802.1 million (31 December 2005: HK$858.8 million) to financial institutions to secure banking general credit facilities granted to associates and interests in certain subsidiaries of Chinese Estates have been pledged as part of the security to secure certain bank borrowings granted to the Chinese Estates Group.

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

49. Capital commitments and contingent liabilities

(a) Capital commitments:

Authorised and contracted for: In connection with the acquisition of a company_(note i) Development expenditure of properties in Hong Kong Development expenditure of properties in Macao Acquisition of land(note ii) Acquisition of an investment property (note iii)_ Renovation of properties Acquisition of other fixed assets Authorised but not contracted for: Development expenditure of properties in Hong Kong Renovation of properties	2006 HK$’000 – 513,922 36,802 510,270 – 282,467 – 1,343,461 164,814 1,200 166,014	2005 HK$’000 1,596,349 431,176 – 296,800 388,591 67,622 13,544
		2,794,082
		234,690 526
		235,216

Notes:

• (i) As at 31 December 2005, the Chinese Estates Group committed to pay approximately HK$664,000,000 for the balance of a land cost, HK$732,000,000 for settling the debt and HK$199,000,000 for the success fee in relation to the acquisition of a company. Details of the acquisition are set out in Chinese Estates’ circular dated 20 January 2006.

• (ii) As at 31 December 2006, the Chinese Estates Group committed to pay approximately HK$510,270,000 for balance of land costs in respect of an acquisition of two pieces of land in Chengdu of the Mainland China.

• (iii) As at 31 December 2005, the Chinese Estates Group committed to acquire a remaining of 50% interest in an investment property. Details of the acquisition are set out in Chinese Estates’ announcement dated 25 November 2005.

– 148 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

(b) Contingent liabilities:

Guarantees given to bank, in respect of banking facilities utilised by associates Guarantee given to third parties in respect of those rent of disposed properties previously held by a subsidiary Guarantee given to a bank in respect of banking facilities in lieu of the cash public utility deposit jointly utilised by subsidiaries	2006 HK$’000 740,500 7,204 10,000 757,704	2005 HK$’000 1,365,175 19,467 10,000
		1,394,642

(c) Risk management

The Chinese Estates Group has established adequate risk management procedures that enable it to identify, measure, monitor and control the various types of risk it faces. This is supplemented by active management involvement, effective internal controls and adequate internal audits in the best interests of the Chinese Estates Group.

50. Operating leases

The Chinese Estates Group as lessee

	2006	2005
	HK$’000	HK$’000
Minimum lease payments paid under
operating leases in respect of
premises during the year	222	230

– 149 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

At the balance sheet date, the Chinese Estates Group had commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Within one year In the second to fifth year inclusive	2006 HK$’000 241 – 241	2005 HK$’000 283 101
		384

Operating lease payments represent rentals payable by the Chinese Estates Group for certain of its office properties. Leases are negotiated for an average term of 1 to 2 years.

The Chinese Estates Group as lessor

Property rental income earned during the year was approximately HK$667,913,000 (2005: HK$715,606,000) less outgoings of approximately HK$60,516,000 (2005: HK$27,980,000).

The investment properties of the Chinese Estates Group are expected to generate annual rental yields of 3.3% to 10.7% (2005: 2.7% to 10.3%) on an ongoing basis. All of the properties held have committed tenants not exceeding five years.

At the balance sheet date, the Chinese Estates Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	2006 HK$’000 591,204 344,896 936,100	2005 HK$’000 493,057 368,157
		861,214

– 150 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

51. Retirement benefit schemes

The Chinese Estates Group participates in both a defined contribution scheme which is registered under the Occupational Retirement Scheme Ordinance (the “ORSO Scheme”) and a Mandatory Provident Fund Scheme (the “MPF Scheme”) established under the Mandatory Provident Fund Ordinance in December 2000. The assets of the schemes are held separately from those of the Chinese Estates Group, in funds under the control of trustees. Employees who were members of the ORSO Scheme prior to the establishment of the MPF Scheme were offered a choice of staying with in the ORSO Scheme or switching to MPF Scheme, whereas all new employees joining the Chinese Estates Group on or after 1 December 2000 are required to join the MPF Scheme. For members of the MPF Scheme, the Chinese Estates Group contributes 5% of relevant payroll costs to the MPF Scheme, which contribution is matched by the employees and the Chinese Estates Group. The Chinese Estates Group contributes 5% to 10% of relevant payroll costs to the ORSO Scheme and the contribution by employees is at 5%.

The total costs charged to the income statement of approximately HK$3,990,000 (2005: HK$4,255,000) represent contributions payable to these schemes by the Chinese Estates Group for the year.

– 151 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

52. Related party transactions

During the year, the Chinese Estates Group entered into the following transactions with related parties:

	2006	2005
	HK$’000	HK$’000
Income received from associates:
Secretarial fee	7	7
Office and retail rental	1,150	556
Building management fee	113	169
Management fee	1,207	3,194
Interest income	8,389	9,628
Administration fee	–	100
Accountancy fee	120	120
Income received from a private company
partially owned by two directors of Chinese Estates:
Retail rental	–	33,363
Building management fee	–	2,979
Rent and rates paid to associates	425	466
Share of profit arising from the sale
by a related party of certain properties
acquired from the Chinese Estates Group	–	50,160
Proceed from disposals of properties
and assets to private companies owned
by a discretionary trust set up by
a director of Chinese Estates and a substantial
shareholder	–	261,026
Consideration paid to an associate for acquisition
of a subsidiary	388,591	–

Details of the balances with related parties as at the balance sheet date are set out in Notes 28 and 43 above.

– 152 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

53. Particulars of principal subsidiaries

The directors of Chinese Estates are of the opinion that a complete list of the particulars of all subsidiaries would be of excessive length and therefore the following list contains only the subsidiaries as at 31 December 2006 which principally affected the results or assets of the Chinese Estates Group.

				Proportion of	Proportion of
		Class of	Fully paid	nominal value
	Place of	share/	share capital/	of paid-up capital/
	incorporation	registered	registered	registered	capital held
Name of subsidiary	or operation	capital held	capital	by Chinese Estates		Principal activity
				Directly	Indirectly
Alpha Team Limited	British Virgin	Ordinary	US$1	–	100%	Investment holding
	Islands
Baharica Limited	Hong Kong	Ordinary	HK$20	–	100%	Property investment
Billion Up Limited	British Virgin	Ordinary	US$1	–	100%	Investment holding
	Islands
Boria Enterprises	Hong Kong	Ordinary	HK$20	–	50.1%	Property investment
Limited
Cardin Factory	Hong Kong	Ordinary	HK$2	–	100%	Property development
Limited						and trading
Chi Cheung Investment	Hong Kong	Ordinary	HK$3,387,659.87	–	61.96%	Investment holding
Company, Limited#
Chinese Estates	Hong Kong	Ordinary	HK$200	–	100%	Property investment
(Harcourt House)
Limited
Chinese Estates,	Hong Kong	Ordinary	HK$1,000	100%	–	Investment holding
Limited						and provision of
						management services
Chinese Estates	Hong Kong	Ordinary	HK$2	–	100%	Property investment
(Tung Ying
Building) Limited

– 153 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

				Proportion of	Proportion of
		Class of	Fully paid	nominal value
	Place of	share/	share capital/	of paid-up capital/
	incorporation	registered	registered	registered	capital held
Name of subsidiary	or operation	capital held	capital	by Chinese Estates		Principal activity
				Directly	Indirectly
Chinese Estates	Hong Kong	Ordinary	HK$100	–	100%	Property investment
(Windsor House)		Non-voting	HK$2
Limited		deferred
Conduit Road	Hong Kong	Ordinary	HK$10,000	–	70%	Property development
Development
Limited
Dollar Union Limited	Hong Kong	Ordinary	HK$100	–	87.5%##	Property development
						and trading
Everbright Pacific Ltd.	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
Evergo China Holdings	Bermuda/	Ordinary	HK$100,775,869.10	–	100%	Investment holding
Limited	Hong Kong
Evergo Holdings	Hong Kong	Ordinary	HK$1,000	–	100%	Investment holding
Company Limited
Evergo Real Estate	PRC	Registered	US$69,172,390.33	–	100%	Property development
(chengdu) Company
Limited
Fair City Limited	Hong Kong	Ordinary	HK$2	–	100%	Property investment
Fair Eagle Finance	Hong Kong	Ordinary	HK$10,000,000	–	100%	Securities margin
Credit Limited						financier
Fair Eagle Futures	Hong Kong	Ordinary	HK$5,000,000	–	100%	Broking and dealing
Company Limited						in trade futures
						contracts
Fair Eagle Securities	Hong Kong	Ordinary	HK$8,000,000	–	100%	Broking and dealing
Company Limited						in listed Securities

– 154 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

				Proportion of	Proportion of
		Class of	Fully paid	nominal value
	Place of	share/	share capital/	of paid-up capital/
	incorporation	registered	registered	registered	capital held
Name of subsidiary	or operation	capital held	capital	by Chinese Estates		Principal activity
				Directly	Indirectly
G-Prop (Holdings)	Bermuda/	Ordinary	HK$7,940,578	–	50.1%	Investment holding
Limited#	Hong Kong
Geneva Developments	Hong Kong	Ordinary	HK$2	–	100%	Property investment
Limited
Good Eagle Investments	British Virgin	Ordinary	US$1	–	100%	Securities investment
Limited	Islands
Good Silver Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands/
	Hong Kong
Global Young Holdings	British Virgin	Ordinary	US$1	–	100%	Property investment
Ltd.	Islands
Grand Silver Capital	British Virgin	Ordinary	US$1	–	70.01%	Property development
Limited (Corporate	Islands/
name: Grand Silver	Hong Kong
Limited)
Grandhall Secretarial	Hong Kong	Ordinary	HK$10,000	–	100%	Secretarial services
Services Limited
Great Empire	British Virgin	Ordinary	US$1	–	100%	Investment holding
International Ltd.	Islands					and securities
						investment
Great King Limited	Hong Kong	Ordinary	HK$2	–	50.1%	Property investment
Great Will Limited	British Virgin	Ordinary	US$1	–	100%	Property investment
	Islands

– 155 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

				Proportion of	Proportion of
		Class of	Fully paid	nominal value
	Place of	share/	share capital/	of paid-up capital/
	incorporation	registered	registered	registered	capital held
Name of subsidiary	or operation	capital held	capital	by Chinese Estates		Principal activity
				Directly	Indirectly
Groupluck Company	Hong Kong	Ordinary	HK$2	–	100%	Money lending
Limited
Grow Wealth Property	Republic of	Registered	US$1	–	100%	Property investment
Investment Limited	Liberia/
(Corporate name:	Hong Kong
Grow Wealth
Company Ltd)
Hillsborough Holdings	British Virgin	Ordinary	US$1	–	100%	Property investment
Limited	Islands/
	Hong Kong
Honest Good Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
Luckpoint Investment	Hong Kong	Ordinary	HK$2	–	100%	Investment holding
Limited
Lucky Well Investments	British Virgin	Ordinary	US$1	–	100%	Securities investment
Limited	Islands
Million Point Limited	British Virgin	Ordinary	US$1	–	100%	Investment holding
	Islands
Modern City Investment	Hong Kong	Ordinary	HK$4	–	75%	Property investment
Limited
Moon Ocean Ltd.	British Virgin	Ordinary and	US$10,000	–	70.01%	Property development
	Islands	non-voting
		deferred
Oriental Ford Finance	Hong Kong	Ordinary	HK$2	–	100%	Money lending
Limited
Paul Y. Holdings	Cayman Islands/	Ordinary	HK$70,715,005.70	100%	–	Investment holding
Company Limited	Hong Kong
Paul Y. (New Tunnel)	Hong Kong	Ordinary	HK$2	–	100%	Investment holding
Limited

– 156 –

APPENDIX III

FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

				Proportion of	Proportion of
		Class of	Fully paid	nominal value
	Place of	share/	share capital/	of paid-up capital/
	incorporation	registered	registered	registered	capital held
Name of subsidiary	or operation	capital held	capital	by Chinese Estates		Principal activity
				Directly	Indirectly
Perfect World Company	Hong Kong	Ordinary	HK$10,000	–	100%	Estate management
Limited
Pinecrest International	British Virgin	Ordinary	US$1	–	100%	Investment holding
Limited	Islands
Pioneer Time	British Virgin	Ordinary	US$1	–	100%	Property investment
Investment Limited	Islands/
	Hong Kong
Real Castle Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
Real Power Pacific	British Virgin	Ordinary	US$1	–	100%	Securities investment
Limited	Islands
Rich Zone Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
Shanghai Golden	PRC	Registered	US$10,500,000	–	100%	Property investment
Sea Building Ltd.
Silver Step Limited	Hong Kong	Ordinary	HK$2	–	100%	Property development
						and trading
Silvercord Limited	Hong Kong	Ordinary	HK$14,600	–	100%	Property investment
Sino Silver Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
Sky Rainbow Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
Sky Silver Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
Smart Ocean Limited	British Virgin	Ordinary	US$1	–	100%	Investment holding
	Islands
Speed Win Limited	Hong Kong	Ordinary	HK$2	–	100%	Property development
						and trading

– 157 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

				Proportion of	Proportion of
		Class of	Fully paid	nominal value
	Place of	share/	share capital/	of paid-up capital/
	incorporation	registered	registered	registered	capital held
Name of subsidiary	or operation	capital held	capital	by Chinese Estates		Principal activity
				Directly	Indirectly
Stable Castle Limited	Hong Kong	Ordinary	HK$1	–	100%	Property investment
Sun Power Investments	British Virgin	Ordinary	US$1	–	100%	Securities investment
Ltd.	Islands/
	Hong Kong
Sunny Ocean	British Virgin	Ordinary	US$1	–	100%	Property investment
Investments Limited	Islands/
(Corporate name:	Hong Kong
Sunny Ocean Limited)
Sunny Smart Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
Super Full Investments	Hong Kong	Ordinary	HK$1	–	100%	Securities investment
Limited
Topwood Limited	British Virgin	Ordinary	US$1	–	100%	Securities investment
	Islands
View Success	Hong Kong	Ordinary	HK$2	–	61.96%	Property investment
Investments Limited						and trading
Viewide Properties	British Virgin	Ordinary	US$1	–	100%	Property investment
Limited	Islands/
	Hong Kong
Worldwide Kingdom	British Virgin	Ordinary	US$1	–	100%	Securities investment
Limited	Islands

None of the subsidiaries had any debt securities subsisting at the end of the year or at any time during the year.

# Listed company in Hong Kong

## 75% owned by the Chinese Estates Group and 25% owned by Kwong Sang Hong

– 158 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

54. Particulars of principal associates

The directors of Chinese Estates are of the opinion that a complete list of the particulars of all associates would be of excessive length and therefore the following list contains only the associates as at 31 December 2006 which principally affected the results or assets of the Chinese Estates Group.

				Percentage
				of equity
				attributable
	Place of	Class of share/	Fully paid	indirectly
	incorporation	registered	share capital/	to the Chinese
Name of associate	or operation	capital held	registered capital	Estates Group	Principal activity
Best Profit Limited	Hong Kong	Ordinary	HK$1	25%	Property development
Direct Win Development	Hong Kong	Ordinary	HK$900	33.33%	Property development
Limited					and trading
Earn Elite Development	Hong Kong	Ordinary	HK$2	30.98%	Property investment
Limited
Ever Sure Investments	Hong Kong	Ordinary	HK$2	50%	Property development
Limited					and trading
Finedale Industries	Hong Kong	Ordinary	HK$9,999	20.65%	Property investment
Limited
Healthy Point Limited	Hong Kong	Ordinary	HK$2	30.98%	Property investment
		Non-voting	HK$1
		preferred
Oriental Arts Building	PRC	Registered	US$24,920,000	50%	Property investment
Co. Ltd.					and hotel operation
Power Jade Capital	British Virgin	Ordinary	US$20	50%	Investment holding
Limited	Islands/
(Corporate name:	Hong Kong
Power Jade Limited)
Strongplus Limited	British Virgin	Ordinary	US$2	50%	Investment holding
	Islands
The Kwong Sang Hong	Bermuda	Ordinary	HK$100,000	50%	Investment holding
International Limited
Union Empire Limited	Hong Kong	Ordinary	HK$1	25%	Property development

– 159 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

55. Particulars of principal jointly controlled entity

The directors of Chinese Estates are of the opinion that a complete list of the particulars of all jointly controlled entities would be of excessive length and therefore the following list contains only the jointly controlled entities as at 31 December 2006 which principally affected the results or assets of the Chinese Estates Group.

			Proportion of
	Form of		nominal value of
Name of jointly	business	Place of	issued share
controlled entity	structure	incorporation	capital held	Principal activities
Top Grade Assets Limited	Incorporated	British Virgin Islands	25.05%	Property investment

The above jointly controlled entity operates in the PRC.

56. Balance sheet information of Chinese Estates

Investments in subsidiaries Amounts due from subsidiaries Other current assets Amounts due to subsidiaries Convertible bonds Other current liabilities Financial guarantee liabilities Net assets Share capital_(Note 45)_ Reserves Total equity	2006 HK$’000 5,140,304 1,717,950 4,695,758 (3,437,090) (279,689) (547) (6,145) 7,830,541 225,981 7,604,560 7,830,541	2005 HK$’000 (Restated) 5,136,870 1,625,840 28,010 (921,396) (1,135,302) (322) (4,756)
		4,728,944
		209,151 4,519,793
		4,728,944

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APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

• (a) In the current year, Chinese Estates has applied, for the first time, a number of the new HKFRSs, issued by the HKICPA, which are effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new HKFRSs has no material change to Chinese Estates except for the adoption of HKAS 39 and HKFRS 4 (Amendments): Financial Guarantee Contracts.

In relation to financial guarantees granted by Chinese Estates to its subsidiaries over bank loans and overdraft facilities, the fair value of the financial guarantee contract at 31 December 2006 of HK$6,145,000 has been adjusted to financial guarantee liabilities (2005: HK$4,756,000).

Chinese Estates has undertaken to provide necessary financial resources to support the Chinese Estates future operations of the subsidiaries. The directors of Chinese Estates are of the opinion that the subsidiaries are financially resourceful in settling obligations.

• (b) The carrying amount of the investments in subsidiaries is reduced to their recoverable amounts which are determined by reference to the estimation of future cash flows expected to be generated from the respective subsidiaries.

• (c) The amounts due from (to) subsidiaries are unsecured, interest-free and have no fixed repayment terms. In the opinion of the directors of Chinese Estates, the fair values of the amounts due from subsidiaries at 31 December 2006 approximate their corresponding carrying amounts.

• (d) Profit of Chinese Estates for 2006 amounted to approximately HK$2,570 million (2005 restated: Loss of HK$2,045 million).

– 161 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

57. Post balance sheet events

• (a) On 27 December 2006 and 8 December 2006, Superkey Development Limited and Boria Enterprises Limited (“Boria”), two indirect wholly owned subsidiaries of G-Prop (Holdings) Limited (“G-Prop”), which is a 50.1% interest subsidiary of the Chinese Estates Group, entered into two sale and purchase agreements with separately Purchasers in relation to the disposals of the Car Park and the Property at considerations of HK$538,000 and HK$8,800,000 respectively. The Car Park was satisfied by the Purchaser in cash and completed on 19 January 2007 and the Property shall be satisfied by the Purchaser in cash and completed on or before 31 May 2007. Details of the disposal of the Property was disclosed in the G-Prop’s announcement dated 12 December 2006.

• (b) On 4 January 2007 and 16 January 2007, Boria further entered into two preliminary sale and purchase agreements with another two separately independent third parties in relation to the disposals of 11th Floor and 7th Floor to 10th Floor, Chung Kiu Godown Building, 63-71 Lei Muk Road, Kwai Chung, New Territories, Hong Kong at consideration of approximately HK$5.18 million and HK$20.66 million respectively, which shall be satisfied by the two purchasers in cash and completed on or before 25 July 2007 and on 6 August 2007 respectively. Details of the two disposals were disclosed in the G-Prop’s announcement dated 8 January 2007 and 13 February 2007.

• (c) In January 2007, the Chinese Estates Group acquired a commercial and residential land in Chengdu of the PRC at consideration of approximately HK$1,061.9 million to be settled by instalments. The last instalment will be settled in May 2007.

58. Authorisation for issue of financial statements

The financial statements were approved and authorised for issue by the board of directors of Chinese Estates on 14 March 2007.

– 162 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

3. UNAUDITED CONSOLIDATED INTERIM RESULTS

Set out below are the unaudited consolidated financial statement of the Chinese Estates Group together with accompanying notes as extracted from the interim report of Chinese Estates for the six months ended 30 June 2007.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2007

Notes Turnover 3 Cost of sales Gross profit Other income 5 Investment income, net 6 Administrative expenses Other expenses 7 Gain on disposals of property and other fixed assets Gain on disposals of investment properties Fair value changes on investment properties Finance costs 9 Other gains and losses, net 10 Share of results of associates Profit before tax Income tax expense 11 Profit for the period 8 Attributable to: Equity holders of the parent Minority interests Dividends 12 Earnings per share_(HK cents) _13 Basic Diluted

Six months ended 30 June 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,534,962 2,226,166 (1,646,723) (1,799,254) 888,239 426,912 17,604 15,831 264,210 364,377 (124,597) (94,875) – (287) 3,084 567 7 – 1,332,437 5,079,574 (253,033) (261,171) (77,724) 71,362 357,624 345,301 2,407,851 5,947,591 (284,066) (951,983) 2,123,785 4,995,608 2,052,396 4,997,641 71,389 (2,033) 2,123,785 4,995,608 406,869 266,767 90.7 231.6 N/A 226.4

– 163 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

CONDENSED CONSOLIDATED BALANCE SHEET

At 30 June 2007

Notes Non-current assets Investment properties 14 Property and other fixed assets Prepaid lease payments Property interests held for future development Intangible assets Goodwill Interests in associates 15 Advances to associates 16 Available-for-sale investments 17 Equity-linked notes Advances to investee companies Loans receivable, due after one year Deferred tax assets Advance to a minority shareholder Pledged deposits Current assets Stock of properties Investments held-for-trading Equity-linked notes Derivative financial instruments 18 Loans receivable, due within one year Inventories for cosmetic Debtors, deposits and prepayments 19 Securities trading receivable and deposits Application proceeds for Initial Public Offering shares for brokerage clients 21 Tax recoverable Pledged deposits Time deposits, bank balances and cash Presale proceeds held by stakeholders Asset classified as held for sale	30 June 2007 HK$’000 (Unaudited) 33,223,880 76,266 249,193 – 14,300 – 1,449,943 977,220 9,683,819 – 301,956 62,202 75,019 9,672 75,953 46,199,423 6,016,186 1,886,459 197,483 10,849 557 1,544 605,441 160,472 4,386,726 634 348,388 1,798,673 239,231 15,652,643 – 15,652,643	31 December 2006 HK$’000 (Audited) 31,771,870 81,357 249,497 – – – 1,396,351 931,661 8,532,632 147,827 1,518 63,079 73,647 9,436 71,606
		43,330,481
		4,851,504 142,218 75,725 – 224 – 364,749 276,829 – 4,083 1,014,351 7,034,820 530,005
		14,294,508 9,338
		14,303,846

– 164 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Current liabilities Derivative financial instruments 18 Creditors and accruals 20 Securities trading and margin payable Deposits and receipts in advance Tax liabilities Borrowings for application proceeds for Initial Public Offering shares for brokerage clients – due within one year 21 Borrowings – due within one year 21 Provisions Net current assets Total assets less current liabilities Non-current liabilities Financial guarantee liabilities Borrowings – due after one year 21 Convertible bonds 22 Amounts due to associates 23 Amounts due to minority shareholders 23 Deferred tax liabilities Total assets and liabilities Capital and reserves Share capital 24 Reserves Equity attributable to equity holders of the parent Minority interests Total equity Notes	104,919 414,754 138,550 270,724 107,403 4,100,000 9,161,756 16,017 14,314,123 1,338,520 47,537,943 618 3,594,770 – 14,235 553,319 4,711,059 8,874,001 38,663,942 228,421 37,998,003 38,226,424 437,518 38,663,942 30 June 2007 HK$’000 (Unaudited)	168,644 452,544 191,206 761,900 88,662 – 11,004,204 16,017 31 December 2006 HK$’000 (Audited)
		12,683,177
		1,620,669
		44,951,150
		328 3,709,340 279,689 13,732 523,489 4,461,938
		8,988,516
		35,962,634
		225,981 35,306,717
		35,532,698 429,936
		35,962,634

– 165 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2007

Share capital HK$’000 At 1 January 2006 209,151 Share of associates’ reserve movements during the period – Gains on fair value changes of available-for-sale investments – Exchange adjustments – Net income recognised directly in equity – Profit for the period – Total recognised income (expense) for the period – Acquisition of additional interests in subsidiaries – Acquisition of subsidiaries – Deemed contribution from minority interests – Issue of ordinary shares from conversion of convertible bonds 13,490 Cancellation on repurchase of own shares (336 ) Issue of shares in lieu of 2005 final cash dividend 1,753 Premium on issue of shares upon 2005 final scrip dividend – Final dividend paid – Dividend paid to minority shareholders – At 30 June 2006 224,058 Share of associates’ reserve movements during the period – Realisation of associates’ reserve – Gains on fair value changes of available-for-sale investments – PRC statutory reserve – Exchange adjustments – Net income (expense) recognised directly in equity – Profit for the period –				Attributa	ble to equity	holders of t	he parent	he parent		Total HK$’000 23,301,520	Minority interest HK$’000 401,177	Total HK$’000 23,702,697
	Share capital HK$’000 209,151	Share premium HK$’000 2,007,667	Convertible bonds- equity reserve HK$’000 234,941	Securities investments reserve HK$’000 580,658	Statutory reserve HK$’000 –	Other reserve HK$’000 (78,375 )	Capital Special redemption reserve reserve HK$’000 HK$’000 2,499,685 96,597		Retained profits HK$’000 17,751,196
	– – –	– – –	– – –	5,640 940,096 –	– – –	52,879 – –	– – –	– – –	– – 1,413	58,519 940,096 1,413	– – –	58,519 940,096 1,413
	– – – – – – 13,490 (336 ) 1,753 – – – 224,058	– – – – – – 963,597 (26,268 ) – 156,886 – – 3,101,882	– – – – – – (166,270 ) – – – – – 68,671	945,736 – 945,736 – – – – – – – – – 1,526,394	– – – – – – – – – – – – –	52,879 – 52,879 – – – – – – – – – (25,496 )	– – – – – – – – – – – – 2,499,685	– – – – – – – 336 – – – – 96,933	1,413 4,997,641 4,999,054 – – – – – – – (266,767 ) – 22,483,483	1,000,028 4,997,641 5,997,669 – – – 810,817 (26,268 ) 1,753 156,886 (266,767 ) – 29,975,610	– (2,033 ) (2,033 ) (265) 23 11,033 – – – – – (3,962 ) 405,973	1,000,028 4,995,608 5,995,636 (265 ) 23 11,033 810,817 (26,268 ) 1,753 156,886 (266,767 ) (3,962 ) 30,381,583
	– – – – –	– – – – –	– – – – –	4,470 – 3,230,766 – –	– – – 728 –	(14,379 ) 4,673 – – –	– – – – –	– – – – –	– (4,673 ) – – 97	(9,909 ) – 3,230,766 728 97	– – – – –	(9,909 ) – 3,230,766 728 97
		– –	– –	3,235,236 –	728 –	(9,706 ) –	– –	– –	(4,576 ) 2,479,704	3,221,682 2,479,704	– 81,775	3,221,682 2,561,479

– 166 –

APPENDIX III

FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Total recognised income (expense) for the period – Deemed contribution from minority interests – Issue of ordinary shares from conversion of convertible bonds 1,105 Cancellation on repurchase of own shares (1,429 ) Issue of shares in lieu of 2006 interim cash dividend 2,247 Premium on issue of shares upon 2006 interim scrip dividend – Interim dividend paid – At 31 December 2006 225,981 Share of associates’ reserve movements during the period – Gains on fair value changes of available-for-sale investments_(Note 2_) – PRC statutory reserve – Exchange adjustments – Net income recognised directly in equity – Profit for the period – Total recognised income for the period – Deemed contribution from minority interests – Disposal of a subsidiary – Issue of ordinary shares from conversion of convertible bonds 57 Conversion of convertible bonds by cash settlement – Issue of shares in lieu of 2006 final cash dividend 2,383 Premium on issue of shares upon 2006 final scrip dividend – Final dividend paid – At 30 June 2007 228,421 Share capital HK$’000				Attributa	ble to equity	holders of t	he parent			5,701,386 – 65,982 (137,359 ) 2,247 193,702 (268,870 ) 35,532,698 Total HK$’000	81,775 (57,812) – – – – – 429,936 Minority interest HK$’000	5,783,161 (57,812 ) 65,982 (137,359 ) 2,247 193,702 (268,870 ) 35,962,634 Total HK$’000
	– – 1,105 (1,429 ) 2,247 – – 225,981 Share capital HK$’000	– – 78,113 (137,359 ) – 193,702 – 3,236,338 Share premium HK$’000	– – (13,236 ) – – – – 55,435 Convertible bonds- equity reserve HK$’000	3,235,236 – – – – – – 4,761,630 Securities investments reserve HK$’000	728 – – – – – – 728 Statutory reserve HK$’000	(9,706 ) – – – – – – (35,202 ) Other reserve HK$’000	– – – – – – – 2,499,685 Special reserve HK$’000	– – – 1,429 – – – 98,362 Capital redemption reserve HK$’000	2,475,128 – – – – – (268,870 ) 24,689,741 Retained profits HK$’000
	– – – –	– – – –	– – – –	(17,445 ) 784,261 – –	– – 36 –	12,113 – – –	– – – –	– – – –	– – – 43,412	(5,332 ) 784,261 36 43,412	– – – –	(5,332 ) 784,261 36 43,412
		– – – – – 4,106 – – 274,711 – 3,515,155	– – – – – (687 ) (54,748 ) – – – –	766,816 – 766,816 – – – – – – – 5,528,446	36 – 36 – – – – – – – 764	12,113 – 12,113 – – – – – – – (23,089 )	– – – – – – – – – – 2,499,685	– – – – – – – – – – 98,362	43,412 2,052,396 2,095,808 – – – – – – (406,869 ) 26,378,680	822,377 2,052,396 2,874,773 – – 3,476 (54,748 ) 2,383 274,711 (406,869 ) 38,226,424	– 71,389 71,389 962 (64,769 ) – – – – – 437,518	822,377 2,123,785 2,946,162 962 (64,769 ) 3,476 (54,748 ) 2,383 274,711 (406,869 ) 38,663,942

Notes:

• (1) The other reserve represented the share of an associate’s reserve of the Chinese Estates Group, which was the release of the negative reserve upon the disposals of the relevant properties during the period.

• (2) The gains on fair value changes of available-for-sale investments included the gain on fair value changes of listed securities investment of approximately HK$821,063,000.

– 167 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2007

Net cash (used in) generated from operating activities Net cash used in investing activities Net cash used in financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rate changes Cash and cash equivalents at 30 June Analysis of cash and cash equivalents Time deposits, bank balances and cash	Six months ended 30 June 2007 2006 HK$’000 HK$’000 (Unaudited) (Unaudited) (592,179) 3,703,219 (1,772,579) (2,055,078) (2,874,884) (1,003,512) (5,239,642) 644,629 7,034,820 1,136,267 3,495 (1) 1,798,673 1,780,895 1,798,673 1,780,895

– 168 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2007

1. Basis of Preparation

The unaudited condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with Hong Kong Accounting Standard (the “HKAS”) 34 “Interim Financial Reporting”, issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

2. Principal Accounting Policies

The unaudited condensed consolidated financial statements have been prepared under the historical cost basis except for certain properties and financial instruments, which are measured at fair values, as appropriate.

The accounting policies adopted in the unaudited condensed consolidated financial statements are consistent with those followed in the preparation of the Chinese Estates Group’s annual financial statements for the year ended 31 December 2006 except as described below.

In the current interim period, the Chinese Estates Group has applied, for the first time, the following new standard, amendment and interpretations (the “new HKFRSs”) issued by the HKICPA, which are effective for the Chinese Estates Group’s financial year beginning 1 January 2007.

HKAS 1 (Amendment)	Capital Disclosures_1_
HKFRS 7	Financial Instruments: Disclosures_1_
HK(IFRIC)-Int 7	Applying the Restatement Approach under
	HKAS 29 Financial Reporting in
	Hyperinflationary Economies_2_
HK(IFRIC)-Int 8	Scope of HKFRS 2_3_
HK(IFRIC)-Int 9	Reassessment of Embedded Derivatives_4_
HK(IFRIC)-Int 10	Interim Financial Reporting and Impairment_5_

1 Effective for annual periods beginning on or after 1 January 2007

2 Effective for annual periods beginning on or after 1 March 2006

3 Effective for annual periods beginning on or after 1 May 2006

4 Effective for annual periods beginning on or after 1 June 2006

5 Effective for annual periods beginning on or after 1 November 2006

– 169 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

The adoption of these new HKFRSs had no material effect on the results of operations and financial position of the Chinese Estates Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been recognised.

The Chinese Estates Group has not early applied the following new standards or interpretations that have been issued but are not yet effective.

HKAS 23 (Revised) Borrowing Costs [1] HKFRS 8 Operating Segments [1] HK(IFRIC) – Int 11 HKFRS 2: Group and Treasury Share Transactions [2] HK(IFRIC) – Int 12 Service Concession Arrangements [3]

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods beginning on or after 1 March 2007

3 Effective for annual periods beginning on or after 1 January 2008

The Chinese Estates Group is in the process of assessing the potential impact of these standards or interpretations but not yet in a position to determine whether these standards or interpretations will have a significant impact on how its results of operations and financial position are prepared and presented. These standards or interpretations may result in changes in the future as to how the results and financial position are prepared and presented.

3. Turnover

Turnover represents the aggregate of amounts received and receivable from the sales of investments held-for-trading, sales of properties held for sale, property rental income, commission from brokerage, settlement charges from brokerage, interest income from loan financing and cosmetics goods sold less returns.

4. Business and Geographical Segments

Business segments

For management purposes, the Chinese Estates Group is currently organised into five operating divisions – property development and trading, property leasing, money lending, listed securities investments and treasury products and unlisted securities investments, investment holding and brokerage. These divisions are the basis on which the Chinese Estates Group reports its primary segments information.

– 170 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Principal activities are as follows:

– Property development Property development and and trading sales of properties – Property leasing Property rental – Money lending Loan financing Listed securities investments – Listed securities investments and and treasury products trading, over-the-counter trading and structured products – Unlisted securities investments, Unlisted securities investments, investment holding and trading and brokerage brokerage

Segment information about these businesses is presented below.

For the six months ended 30 June 2007

Property development and trading HK$’000 Turnover Turnover from external customers 1,506,756 Result Segment result 440,401 Unallocated corporate expenses, net Finance costs on listed securities investments and treasury products – Other finance costs – Other gains and losses, net – Share of results of associates 244,652 Profit before tax Income tax expense Profit for the period	Property leasing HK$’000 361,033 1,664,942 – – (860) 41,968	Money lending HK$’000 4,792 4,792 – – – 138	Listed Unlisted securities securities investments investments, and investment treasury holding and products brokerage HK$’000 HK$’000 619,392 42,965 196,349 178,400 (45,994) – – – – – – 66,328	Other operations/ unallocated Consolidated HK$’000 HK$’000 24 2,534,962 9 2,484,893 (103,909) – (45,994) – (207,039) (76,864) (77,724) 4,538 357,624 2,407,851 (284,066) 2,123,785

– 171 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

For the six months ended 30 June 2006

Property development and trading HK$’000 Turnover Turnover from external customers 10,700 Result Segment result 5,238 Unallocated corporate expenses, net Finance costs on listed securities investments and treasury products – Other finance costs – Other gains and losses, net – Share of results of associates 299,146 Profit before tax Income tax expense Profit for the period	Property leasing HK$’000 330,356 5,384,649 – – 70,366 45,221	Money lending HK$’000 3,850 3,850 – – – 257	Listed Unlisted securities securities investments investments, and investment treasury holding and products brokerage HK$’000 HK$’000 1,870,187 11,073 345,165 131,961 (96,685) – – – – – – –	Other operations/ unallocated Consolidated HK$’000 HK$’000 – 2,226,166 – 5,870,863 (78,764) – (96,685) – (164,486) 996 71,362 677 345,301 5,947,591 (951,983) 4,995,608	Other operations/ unallocated Consolidated HK$’000 HK$’000 – 2,226,166 – 5,870,863 (78,764) – (96,685) – (164,486) 996 71,362 677 345,301 5,947,591 (951,983) 4,995,608
					5,870,863 (78,764) (96,685) (164,486) 71,362 345,301
					5,947,591 (951,983)
					4,995,608

Geographical segments

No further geographical segment information is presented as the activities of the Chinese Estates Group carried out in Hong Kong is the only major geographical segment of the Chinese Estates Group.

5. Other Income

	Six months ended	Six months ended
	30 June
	2007	2006
	HK$’000	HK$’000
Included in other income are:
Building management fee income, net	8,402	9,355
Exchange gain, net	5,055	–

– 172 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

6. Investment Income, Net

Fair value changes on investments held-for-trading Fair value changes on equity-linked notes & bonds Fair value changes on derivative financial instruments Realised gain on available-for-sale investments Realised loss on equity-linked notes Realised gain on derivative financial instruments Other investment income Dividend income on: Listed investments Unlisted investments Interest income Imputed interest on: Advances to associates Advances to minority shareholders	Six months ended 30 June 2007 2006 HK$’000 HK$’000 5,463 (2,628) (26,069) (88,105) 18,152 (101,283) – 194,634 – (20,366) 56,422 – – 9,246 26,109 34,323 41,513 48,100 125,848 254,814 16,536 35,642 236 – 264,210 364,377	Six months ended 30 June 2007 2006 HK$’000 HK$’000 5,463 (2,628) (26,069) (88,105) 18,152 (101,283) – 194,634 – (20,366) 56,422 – – 9,246 26,109 34,323 41,513 48,100 125,848 254,814 16,536 35,642 236 – 264,210 364,377
		364,377

Included in interest income are interest from equity-linked notes & bonds and derivative financial instruments amounted to approximately HK$11 million (2006: HK$150 million) and approximately HK$34 million (2006: HK$75 million) respectively.

7. Other Expenses

	Six months ended	Six months ended
	30 June
	2007	2006
	HK$’000	HK$’000
Included in other expenses is:
Impairment loss recognised in respect of
account receivable	–	287

– 173 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

8. Profit for the Period

Profit for the period has been arrived at after (charging) crediting: Total staff costs: Staff costs, including directors’ emoluments of Chinese Estates Retirement benefits scheme contributions, net of forfeited contributions of HK$152,000 (2006: HK$304,000) Auditors’ remuneration Depreciation and amortisation Gain on disposals of investments held-for-trading included in gross profit: Increase in market value of investments held-for-trading Realised exchange (loss) gain on translation of investments held-for-trading Gross rental income from investment properties _Less:_Direct operating expenses from investment properties that generated rental income during the period Direct operating expenses from investment properties that did not generate rental income during the period Share of tax of associates (included in share of results of associates)

Six months ended 30 June 2007 2006 HK$’000 HK$’000 (42,205) (40,775) (1,839) (1,582) (44,044) (42,357) (1,075) (2,075) (7,543) (7,135) 72,913 93,675 (1,404) 10,456 71,509 104,131 361,033 330,356 (21,539) (19,885) (6,996) (5,396) 332,498 305,075 (49,642) (61,474)

– 174 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

9. Finance Costs

Interest on: Bank loans wholly repayable within five years Bank loans wholly repayable over five years Other loans wholly repayable within five years Imputed interest on: Amounts due to associates Amounts due to minority shareholders Convertible bonds Total interest Exchange loss on translation of foreign currency loans Other finance costs _Less:_Interest capitalised to stock of properties under development _Less:_Interest capitalised to investment properties under development

Six months ended 30 June 2007 2006 HK$’000 HK$’000 252,370 172,922 822 903 45,994 75,276 299,186 249,101 503 482 96 22,718 4,050 14,519 4,649 37,719 303,835 286,820 – 21,409 1,409 228 305,244 308,457 (23,166) (19,326) (29,045) (27,960) 253,033 261,171

– 175 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

10. Other Gains and Losses, Net

	Six months ended	Six months ended
	30 June
	2007	2006
	HK$’000	HK$’000
Included in other gains and losses, net are:
Impairment loss reversed in respect of
advances to associates	975	897
Impairment loss recognised in respect of
advance to an associate	(860)	–
Gain on disposal of a subsidiary_(Note)_	158,212	–
Gain on disposal of an associate	–	70,366
Loss on conversion of convertible bonds by
cash settlement	(236,705)	–

Note: Gain on disposal of a subsidiary was arising from disposal of 15.11% interest in G-Prop (Holdings) Limited (“G-Prop”) by placing on 7 June 2007.

11. Income Tax Expense

The charge comprises: Current tax: Hong Kong Profits Tax Other than Hong Kong Deferred tax	Six months ended 30 June 2007 2006 HK$’000 HK$’000 29,705 47,826 4,363 1,697 34,068 49,523 249,998 902,460 284,066 951,983	Six months ended 30 June 2007 2006 HK$’000 HK$’000 29,705 47,826 4,363 1,697 34,068 49,523 249,998 902,460 284,066 951,983
		49,523 902,460
		951,983

– 176 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Hong Kong Profits Tax is calculated at 17.5% on the estimated assessable profits for the both periods. Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

On 16 March 2007, the People’s Republic of China promulgated the Law of the People’s Republic of China on Enterprise Income Tax by Order No. 63 of the President of the People’s Republic of China, which will change the tax rate from 33% to 25% for certain subsidiaries from 1 January 2008. The deferred tax balance has been adjusted to reflect the tax rates that are expected to apply to the respective periods when the asset is realised or the liability is settled.

The major deferred tax liabilities recognised by the Chinese Estates Group is deferred tax on fair value changes on investment properties of HK$246,644,000 (2006: HK$894,381,000) for the period.

12. Dividends

(a) Interim dividend for 2007 declared after interim period end Interim dividend declared of HK13.5 cents (2006: HK12 cents) per share with scrip dividend option (b) Final dividend for 2006 paid on 15 June 2007 of HK18 cents (2005: HK12 cents) per share Cash Share alternative under scrip dividend scheme Total dividends paid	Six months ended 30 June 2007 2006 HK$’000 HK$’000 308,369 268,870 129,774 108,128 277,095 158,639 406,869 266,767	Six months ended 30 June 2007 2006 HK$’000 HK$’000 308,369 268,870 129,774 108,128 277,095 158,639 406,869 266,767
		108,128 158,639
		266,767

– 177 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

13. Earnings Per Share

The calculation of the basic and diluted earnings per share attributable to equity holders of the parent is based on the following data:

	Six months ended	Six months ended
	30 June
	2007	2006
	HK$’000	HK$’000
Earnings:
Earnings for the purposes of basic earnings per share
(profit for the period attributable to
equity holders of the parent)	2,052,396	4,997,641
Effect of dilutive potential ordinary shares:
Imputed interest on convertible bonds		14,519
Earnings for the purposes of diluted earnings per share		5,012,160
Number of shares:	Number	of shares
Weighted average number of ordinary shares for the
purposes of basic earnings per share	2,262,396,351	2,157,486,459
Effect of dilutive potential ordinary shares:
Convertible bonds		56,506,365
Weighted average number of ordinary shares for the
purposes of diluted earnings per share		2,213,992,824

Diluted earnings per share for the six months ended 30 June 2007 is not presented as there was no potential dilution of earnings per share.

– 178 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

14. Investment Properties

At 1 January 2007 Additions Disposals Disposal of a subsidiary Increase in fair value recognised in the income statement At 30 June 2007	HK$’000 31,771,870 166,184 (11,011) (35,600) 1,332,437
	33,223,880

The fair value of the Chinese Estates Group’s investment properties at 30 June 2007 has been arrived at on the basis of valuation carried out on that date by Messrs. Norton Appraisals Limited (“Norton Appraisals”), independent qualified professional valuers not connected with the Chinese Estates Group. Norton Appraisals has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation, which conforms to The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors, was based on open market value basis.

15. Interests in Associates

Cost of investment in an associate, listed Cost of investment in associates, unlisted Share of post-acquisition profits, net of dividend received	30 June 2007 HK$’000 42,665 308,254 1,099,024 1,449,943	31 December 2006 HK$’000 – 307,926 1,088,425
		1,396,351

Chinese Estates provided corporate guarantee to secure bank loans granted to its associates. The fair value of the financial guarantee contract was determined by Norton Appraisals, and it was recognised as interests in associates and financial guarantee liabilities in the Chinese Estates Group’s consolidated balance sheet.

– 179 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

The investment properties of the Chinese Estates Group’s principal associates were revalued at 30 June 2007 by Norton Appraisals. The valuation, which conforms to The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors, was based on open market value basis.

16. Advances to Associates

Interest bearing advances to associates Interest-free advances to associates	30 June 2007 HK$’000 173,139 804,081 977,220	31 December 2006 HK$’000 166,056 765,605
		931,661

The advances to associates are unsecured. An approximately HK$793,541,000 was expected to be repayable in 2010 and the amount is therefore shown as non-current. For the remaining HK$183,679,000, the Chinese Estates Group will not demand repayment within one year from the balance sheet date and the amounts are therefore shown as non-current. The interest bearing advances to associates bear interest at the prevailing market rate. The directors of Chinese Estates consider that the fair value of the interest-free advances as at the balance sheet date, determined based on the present values of the estimated future cash flows discounted using the prevailing market rates at the balance sheet date approximate their carrying amounts.

17. Available-for-sale Investments

Listed investments: Equity securities listed in Hong Kong Unlisted investments: Equity securities incorporated in Hong Kong Equity securities incorporated elsewhere Club debentures Total	30 June 2007 HK$’000 9,367,169 222,038 78,881 9,668,088 15,731 9,683,819	31 December 2006 HK$’000 8,179,251 258,549 78,881
		8,516,681 15,951
		8,532,632

– 180 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

18. Derivative Financial Instruments

ASSETS Financial assets, held for trading Equity-linked swap LIABILITIES Financial liabilities, held for trading Interest rate swap Equity-linked swaps	30 June 2007 HK$’000 10,849 104,919 – 104,919	31 December 2006 HK$’000 –
		102,776 65,868
		168,644

19. Debtors, Deposits and Prepayments

Included in debtors, deposits and prepayments are trade receivables of approximately HK$483,576,000 (31 December 2006: HK$22,138,000) comprising mainly rental receivables which are billed in advance and settlements are expected upon receipts of billings and properties sales proceeds receivable.

The following is an aged analysis of trade receivables at the balance sheet date:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	30 June 2007 HK$’000 464,488 1,268 941 16,879 483,576	31 December 2006 HK$’000 7,923 1,464 660 12,091
		22,138

The directors of Chinese Estates consider that the fair value of the Chinese Estates Group’s debtors at the balance sheet date was approximately their carrying amounts.

– 181 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

20. Creditors and Accruals

Included in creditors and accruals are trade payables of approximately HK$46,879,000 (31 December 2006: HK$13,599,000).

The following is an aged analysis of trade payables at the balance sheet date:

0 – 90 days Over 90 days	30 June 2007 HK$’000 39,497 7,382 46,879	31 December 2006 HK$’000 11,605 1,994
		13,599

The directors of Chinese Estates consider that the fair value of the Chinese Estates Group’s creditors at the balance sheet date was approximately their carrying amounts.

21. Borrowings

Bank loans, secured Other loans, secured _Less:_Amounts due within one year and shown under current liabilities: Borrowings for application proceeds for initial public offering shares for brokerage clients Other borrowings Amount due after one year	30 June 2007 HK$’000 13,877,581 2,978,945 16,856,526 4,100,000 9,161,756 3,594,770	31 December 2006 HK$’000 10,788,853 3,924,691
		14,713,544 – 11,004,204
		3,709,340

At 30 June 2007, the Chinese Estates Group has applied the subscription of initial public offering shares on behalf of its brokerage clients through its brokerage vehicle, Fair Eagle Securities Company Limited, in amount of HK$4,386,726,000 presented in “Current Assets”, of which HK$4,100,000,000 were financed by short term bank loans.

– 182 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

22. Convertible Bonds

In April and May 2005, Chinese Estates has issued zero coupon Convertible Bonds (the “Bonds”) with a maturity date on 2010 in an principal amount of HK$1,750,000,000 and a further principal amount of HK$60,000,000.

The Bonds are convertible on or after 20 May 2005 up to and including 20 March 2010 into fully paid ordinary shares with a par value of HK$0.10 each of Chinese Estates at an initial price of HK$7.37 per share, subject to adjustment. Unless previously redeemed, converted or purchased and cancelled, the Bonds will be redeemed at 100 per cent of their principal amount on 20 April 2010.

The Bonds contain two components, liability and equity elements. Upon the application of HKAS 32, the Bonds were split between liability and equity elements. The equity element is presented in equity heading “Convertible bonds – equity reserve”. The effective interest rate of the liability component is 4.38%.

The movement of the liabilities component of the Bonds for the period is set out below:

Liability component at 1 January 2007 Converted to ordinary shares Imputed interest expense for the period Conversion of convertible bonds by cash settlement	HK$’000 279,689 (3,475) 4,050 (280,264) –

During the period, HK$4.0 million in principal of the Bonds has been converted into 573,888 ordinary shares and HK$318.5 million in principal of the remaining Bonds had executed the right to convert the Bonds into shares of Chinese Estates (the “Conversion Right”). Chinese Estates took the option by cash settlement to satisfy the Conversion Right in HK dollars in full. Accordingly, the remaining outstanding Bonds were settled by cash of approximately HK$571.7 million in May and June 2007. As at 30 June 2007, there is no outstanding Bonds.

– 183 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

23. Amounts due to Associates and Minority Shareholders

Both the amounts due to associates and minority shareholders are unsecured. Except for the amount due to one minority shareholder which is interest bearing at prevailing market rate, the amounts due to associates and other minority shareholders are interest-free. The associates and minority shareholders will not demand for repayment within one year from the balance sheet date and are therefore shown as non-current. The directors of Chinese Estates consider that the fair value of the amounts as at the balance sheet date, determined based on the present values of the estimated future cash flows discounted using the prevailing market rates at the balance sheet date, approximate their carrying amounts.

24. Share Capital

Ordinary shares of HK$0.10 each Authorised: At 1 January 2006, 31 December 2006 and 30 June 2007 Issued and fully paid: At 1 January 2006 Repurchased and cancelled Issue of ordinary shares from conversion of convertible bonds Issue of ordinary shares in lieu of cash dividend At 31 December 2006 Issue of ordinary shares from conversion of convertible bonds Issue of ordinary shares in lieu of cash dividend At 30 June 2007	Number of shares 5,000,000,000 2,091,506,780 (17,648,000) 145,955,274 39,995,429 2,259,809,483 573,888 23,829,941 2,284,213,312	Share Capital HK$’000 500,000 209,151 (1,765) 14,595 4,000 225,981 57 2,383 228,421

– 184 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

25. Capital Commitments and Contingent Liabilities

• (a) Capital commitments:

Authorised and contracted for: Development expenditure of properties in Hong Kong Development expenditure of properties in Macao Development expenditure of properties in Mainland China Acquisition of land_(Note i) Acquisition of an investment property(Note ii)_ Renovation of properties Authorised but not contracted for: Development expenditure of properties in Hong Kong Development expenditure of properties in Macao Renovation of properties	30 June 2007 HK$’000 668,330 32,742 53,587 – 10,300 184,904 949,863 161,110 360 257 161,727	31 December 2006 HK$’000 513,922 36,802 – 510,270 – 282,467
		1,343,461
		164,814 – 1,200
		166,014

Notes:

• (i) As at 31 December 2006, the Chinese Estates Group committed to pay approximately HK$510,270,000 for balance of land costs in respect of an acquisition of two pieces of land in Chengdu of the Mainland China.

• (ii) As at 30 June 2007, the Chinese Estates Group, through a 61.96% indirect subsidiary, committed to acquire the remaining of 50% interest in an investment property. Details of the acquisition are set out in the announcement of Chi Cheung Investment Company, Limited dated 23 March 2007.

– 185 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

(b) Contingent liabilities: Guarantees given to bank, in respect of banking facilities utilised by associates Guarantee given to third parties in respect of those rent of disposed properties previously held by a subsidiary Guarantee given to a bank in respect of banking facilities in lieu of the cash public utility deposit jointly utilised by subsidiaries	30 June 2007 HK$’000 1,068,400 2,031 10,000 1,080,431	31 December 2006 HK$’000 740,500 7,204 10,000
		757,704

26. Related Party Transactions

During the period, the Chinese Estates Group entered into the following transactions with related parties:

	Six months ended	Six months ended
	30 June
	2007	2006
	HK$’000	HK$’000
Income received from associates:
Office and retail rental	550	479
Building management fee	36	65
Interest income	4,001	3,468
Management fee	36	1,104
Accountancy fee	60	60
Rent and rates paid to associates	406	259
Consideration paid to an associate for
acquisition of a subsidiary	–	388,591
Consideration paid to an associate for acquisition
of cosmetic business	20,000	–

– 186 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

Office and retail rental and building management fee were determined on terms similar to those applicable to transactions with unrelated parties. Management fee and accountancy fee were charged at the terms agreed by both parties. Interest income was charged at prevailing market rate based on outstanding balance during the period. Consideration paid to associates for acquisitions of a subsidiary and cosmetic business were reference to open market value.

Details of the balances with related parties as at the balance sheet date are set out in notes 16 and 23 above.

27. Post Balance Sheet Events

• (a) On 26 June 2007, three wholly-owned subsidiaries of Chinese Estates, entered into a sale and purchase agreement with G-Prop, a 34.99% associate of Chinese Estates, relating to the disposals of two lots of carparks, including 25 carparking spaces at Bank of East Asia Harbour View Centre and 6 carparking spaces and carport basement at No. 9 Queen’s Road Central. The disposal was completed on 31 July 2007. Details of the disposal was disclosed in the G-Prop’s announcement dated 26 June 2007.

• (b) The Chinese Estates Group, through its proposal of joint venture with Sino Group and CC Land Holdings Limited, has acquired one piece of land for residential and school purposes at Huaxinjie Street of Jiangbei District in Chongqing City in July 2007 for a consideration of RMB4.18 billion. A formal joint venture agreement for the development project will be executed among the parties in due course.

– 187 –

APPENDIX III FINANCIAL INFORMATION OF THE CHINESE ESTATES GROUP

4. STATEMENT OF INDEBTEDNESS

At the close of business on 31 August 2007, being the latest practicable date for the purpose of this indebtedness prior to the printing of this circular, the Chinese Estates Group had outstanding borrowings as follow:–

Secured bank loans Secured other loans Amount due to associates Amount due to minority shareholders of subsidiaries	HK$’000 10,271,384 2,207,790 23,746 397,822
	12,900,742

The bank loans and the other loans were secured by the Chinese Estates Group’s investment properties, land and building, properties under development held for sale, listed securities investments and cash and bank deposit.

At 31 August 2007, the Chinese Estates Group continued to provide (i) financial guarantees on banking facilities granted to the Chinese Estates Group’s subsidiaries and associates and (ii) rent guarantee on disposed properties to purchasers.

Save as aforesaid and apart from intra-group liabilities at the close of business on 31 August 2007, the Chinese Estates Group did not have any outstanding loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, hire purchases commitments, guarantees or other material contingent liabilities.

5. MATERIAL ADVERSE CHANGES

The directors of Chinese Estates are not aware of any material adverse change in the financial or trading position of the Chinese Estates Group since 31 December 2006, being the latest published audited financial statements of the Chinese Estates Group were made up.

6. WORKING CAPITAL

The directors of Chinese Estates have taken into account the presently available banking facilities and in the absence of unforeseen circumstances, the directors of Chinese Estates are of the opinion that the Chinese Estates Group will have sufficient working capital to meet its present requirements for the next twelve months from the date of this circular.

– 188 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

The following is the text of an accountants’ report on the Evergo China Group received from HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, the reporting accountants, for inclusion in this joint circular.

==> picture [215 x 81] intentionally omitted <==

31/F Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

31 October 2007

The Directors

Chi Cheung Investment Company, Limited 26th Floor, MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Sirs,

We set out below our report on the financial information (“Financial Information”) regarding Evergo China Holdings Limited (“Evergo China”) and its subsidiaries (hereinafter collectively referred to as the “Evergo China Group”) including the consolidated income statements, the consolidated statements of changes in equity and the consolidated cash flow statements for each of the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007 (hereinafter collectively referred to as the “Relevant Periods”) and the consolidated balance sheet of the Evergo China Group and the balance sheet of Evergo China as at 31 December 2004, 2005, 2006 and 30 June 2007 for inclusion in the joint circular of Chinese Estates Holdings Limited and Chi Cheung Investment Company, Limited dated 31 October 2007 (the “Joint Circular”).

Evergo China was incorporated in Bermuda on 6 January 1994 with limited liability under the laws of Bermuda. Evergo China is principally engaged in investment holding.

– 189 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

At the date of this report, Evergo China has the following major subsidiaries:

		Issued and	Attributable
		fully paid up/	equity interest
	Place and date of	registered	held by
Name of subsidiaries	establishment	capital	Evergo China	Principal activities
Evergo Holdings (China)	British Virgin Islands	US$2,509,454	100%	Investment holding
Company Limited	(the “BVI”)
	29 October 1993
Evergo Real Estate	The People’s Republic	US$100,000,000	100%	Property development
(chengdu) Company	of China (the “PRC”)
Limited	28 September 2006
愛美高房地產（上海）	The PRC	US$10,500,000	100%	Property investment
有限公司(Evergo Real	14 January 1993
Estate (Shanghai)
Company Limited)
愛美高實業（成都）	The PRC	US$150,000,000	100%	Property development
有限公司(Evergo Enterprises	1 February 2007
(Chengdu) Company Limited)
Moon Ocean Ltd.	The BVI	US$10,000	70.01%	Property development
	25 May 2005
Asia Empire Limited	Hong Kong	HK$2	100%	Property leasing
	26 July 1994
Best Field Limited	Hong Kong	HK$2	100%	Property leasing
	19 May 1994
Best Universal Development	Hong Kong	HK$2	100%	Property leasing
Limited	28 April 1994
Beverly Investments Limited	Hong Kong	HK$2	100%	Property leasing
	29 March 1994
Brilliant Jade Development	Hong Kong	HK$2	100%	Property leasing
Limited	3 May 1994
Champion Element	Hong Kong	HK$2	100%	Property leasing
Investment Limited	22 July 1993
Charter Bright Development	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Cheery Target Limited	Hong Kong	HK$2	100%	Property leasing
	29 March 1994

– 190 –

APPENDIX IV

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

		Issued and	Attributable
		fully paid up/	equity interest
	Place and date of	registered	held by
Name of subsidiaries	establishment	capital	Evergo China	Principal activities
Cheeryork Development	Hong Kong	HK$2	100%	Property leasing
Limited	21 June 1994
City Treasure Investments	Hong Kong	HK$2	100%	Property leasing
Limited	17 March 1994
Country Charm Investment	Hong Kong	HK$2	100%	Property leasing
Limited	9 June 1994
Crown Rise Development	Hong Kong	HK$2	100%	Property leasing
Limited	1 February 1994
Crystal Choice Investments	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Double Classic Investment	Hong Kong	HK$2	100%	Property leasing
Limited	3 August 1993
Double Dollars Investments	Hong Kong	HK$2	100%	Property leasing
Limited	2 November 1993
Dynamic South Development	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Excellent Dragon	Hong Kong	HK$2	100%	Property leasing
Investment Limited	5 May 1994
Express Profit Investment	Hong Kong	HK$2	100%	Property leasing
Limited	17 May 1994
Fairank Development	Hong Kong	HK$2	100%	Property leasing
Limited	21 June 1994
Gafield Limited	Hong Kong	HK$2	100%	Property leasing
	3 May 1994
Giant Wing Investments	Hong Kong	HK$2	100%	Property leasing
Limited	15 February 1994
Grand Long Investment	Hong Kong	HK$2	100%	Property leasing
Limited	9 December 1993
Great Fame Investment	Hong Kong	HK$2	100%	Property leasing
Limited	5 August 1993
Group Power Limited	Hong Kong	HK$2	100%	Property leasing
	29 March 1994

– 191 –

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

		Issued and	Attributable
		fully paid up/	equity interest
	Place and date of	registered	held by
Name of subsidiaries	establishment	capital	Evergo China	Principal activities
Happy King Limited	Hong Kong	HK$2	100%	Property leasing
	30 November 1993
Harbour Earth	Hong Kong	HK$2	100%	Property leasing
Investment Limited	19 August 1993
Heson Development	Hong Kong	HK$2	100%	Property leasing
Limited	23 December 1993
Hogo Development	Hong Kong	HK$2	100%	Property leasing
Limited	4 January 1994
Honour Asset	Hong Kong	HK$2	100%	Property leasing
Development Limited	10 March 1994
Hotlink Development	Hong Kong	HK$2	100%	Property leasing
Limited	22 March 1994
Jade Ocean Investment	Hong Kong	HK$2	100%	Property leasing
Limited	19 July 1994
Joyful Key Investments	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
King Eagle Development	Hong Kong	HK$2	100%	Property leasing
Limited	29 December 1992
Kingdom Glory Investments	Hong Kong	HK$2	100%	Property leasing
Limited	22 March 1994
Kinrich Investment	Hong Kong	HK$2	100%	Property leasing
Limited	19 May 1994
Leading Edge	Hong Kong	HK$2	100%	Property leasing
Development Limited	29 March 1994
Magic Point Investments	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Magic Time Investment	Hong Kong	HK$2	100%	Property leasing
Limited	31 March 1994
Mass Champion	Hong Kong	HK$2	100%	Property leasing
Development Limited	15 March 1994
Mega World Development	Hong Kong	HK$2	100%	Property leasing
Limited	5 May 1994

– 192 –

APPENDIX IV

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

		Issued and	Attributable
		fully paid up/	equity interest
	Place and date of	registered	held by
Name of subsidiaries	establishment	capital	Evergo China	Principal activities
Million Pacific	Hong Kong	HK$2	100%	Property leasing
Development Limited	13 January 1994
Million Spectrum	Hong Kong	HK$2	100%	Property leasing
Investment Limited	13 July 1993
Mutual Link Investments	Hong Kong	HK$2	100%	Property leasing
Limited	14 October 1993
Mutual Sun Development	Hong Kong	HK$2	100%	Property leasing
Limited	10 March 1994
Ocean Charm Development	Hong Kong	HK$2	100%	Property leasing
Limited	18 November 1993
Oriental Win Investment	Hong Kong	HK$2	100%	Property leasing
Limited	17 February 1994
Penton Development	Hong Kong	HK$2	100%	Property leasing
Limited	21 June 1994
Power Group Limited	Hong Kong	HK$2	100%	Property leasing
	21 April 1994
Power Zone Investments	Hong Kong	HK$2	100%	Property leasing
Limited	1 March 1994
Profit Island International	Hong Kong	HK$2	100%	Property leasing
Limited	19 July 1994
Queen Eagle Development	Hong Kong	HK$2	100%	Property leasing
Limited	2 September 1993
Regent Victory	Hong Kong	HK$2	100%	Property leasing
Development Limited	19 May 1994
Rich Dynasty Investments	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Rock Top Limited	Hong Kong	HK$2	100%	Property leasing
	17 March 1994
Royway Investment	Hong Kong	HK$2	100%	Property leasing
Limited	3 March 1994
Sea Mind Investments	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994

– 193 –

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

		Issued and	Attributable
		fully paid up/	equity interest
	Place and date of	registered	held by
Name of subsidiaries	establishment	capital	Evergo China	Principal activities
Silver Legend	Hong Kong	HK$2	100%	Property leasing
Investment Limited	29 March 1994
Silvereed Limited	Hong Kong	HK$2	100%	Property leasing
	21 June 1994
Sky Hall Investment	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Strong Earth Limited	Hong Kong	HK$2	100%	Property leasing
	24 March 1994
Success Century	Hong Kong	HK$2	100%	Property leasing
Investment Limited	26 May 1994
Summer Breeze Limited	Hong Kong	HK$2	100%	Property leasing
	3 May 1994
Target Sky Development	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Topspeed Development	Hong Kong	HK$2	100%	Property leasing
Limited	24 August 1993
Union South Development	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
United Dragon Investments	Hong Kong	HK$2	100%	Property leasing
Limited	1 March 1994
Universal Crown Investment	Hong Kong	HK$2	100%	Property leasing
Limited	9 June 1994
Up Build Investments	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Uptop Development	Hong Kong	HK$2	100%	Property leasing
Limited	5 August 1993
Victory Wise Development	Hong Kong	HK$2	100%	Property leasing
Limited	29 March 1994
Wanton Development	Hong Kong	HK$2	100%	Property leasing
Limited	22 March 1994
West Score Investment	Hong Kong	HK$2	100%	Property leasing
Limited	1 March 1994

– 194 –

APPENDIX IV

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

		Issued and	Attributable	Attributable
		fully paid up/	equity interest
	Place and date of	registered	held by
Name of subsidiaries	establishment	capital	Evergo	China	Principal activities
Wifa Development	Hong Kong	HK$2		100%	Property leasing
Limited	27 July 1993
Win All Investments	Hong Kong	HK$2		100%	Property leasing
Limited	22 March 1994
Win Dynasty Limited	Hong Kong	HK$2		100%	Property leasing
	15 February 1994
Win Mass Development	Hong Kong	HK$2		100%	Property leasing
Limited	10 March 1994
Win Victory Development	Hong Kong	HK$2		100%	Property leasing
Limited	10 March 1994
Winsilver Development	Hong Kong	HK$2		100%	Property leasing
Limited	13 July 1993
Wintrade Investment	Hong Kong	HK$2		100%	Property leasing
Limited	3 March 1994

At the date of this report, Evergo China has the following major associate:

		Issued and	Attributable
		fully paid up/	equity interest
	Place and date of	registered	held by
Name of associate	establishment	capital	Evergo China	Principal activities
Oriental Arts Building	The PRC	US$24,920,000	50%	Property investment
Co. Ltd.	1 October 1993			and hotel operation

Notes:

1. Evergo China directly holds the equity interest in Evergo Holdings (China) Company Limited. All other equity interests shown above were indirectly held by Evergo China.

2. All subsidiaries established in the PRC are wholly foreign-owned enterprises.

We have acted as auditors of Evergo China and its subsidiaries for the year ended 31 December 2006 and the six months ended 30 June 2007. Deloitte Touche Tohmatsu have acted as auditors of Evergo China and its subsidiaries for the years ended 31 December 2004 and 2005.

– 195 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

The statutory financial statements for the subsidiaries of Evergo China established in the PRC were prepared in accordance with the relevant accounting rules and regulations applicable to enterprises in the PRC, which were audited during the years ended 31 December 2004, 2005 and 2006 by the respective statutory auditors as indicated below:–

Name of subsidiaries	Financial period	Auditors
Evergo Real Estate (chengdu)	Period from 28 September 2006	四川萬方會計師事務所
Company Limited	(date of incorporation)	有限公司
	to 31 December 2006	(Sichuan Wanfang Accountant
		Service Co., Ltd)
愛美高房地產（上海）有限公司	Year ended 31 December 2004	上海滬中會計師事務所
(Evergo Real Estate (Shanghai)		(Shanghai Huzhong Certified
Company Limited)		Public Accountants
		Co., Ltd.)
	Year ended 31 December 2005	上海滬中會計師事務所
		(Shanghai Huzhong Certified
		Public Accountants
		Co., Ltd.)
	Year ended 31 December 2006	上海滬中會計師事務所
		(Shanghai Huzhong Certified
		Public Accountants
		Co., Ltd.)

No statutory financial statements have been prepared for 愛美高實業（成都）有限公司 (Evergo Enterprises (Chengdu) Company Limited) as it has not yet commenced business since incorporation.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION

The directors of Chi Cheung and Evergo China are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and the true and fair presentation of the Financial Information that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The directors of Chinese Estates and Chi Cheung are responsible for the contents of the Joint Circular in which this report is included.

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ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Financial Information based on our audit. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out additional procedures as we considered necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Financial Information is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of the risks of material misstatement of the Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation and true and fair presentation of the Financial Information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of Evergo China, as well as evaluating the overall presentation of the Financial Information.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the Financial Information for the years ended 31 December 2004, 2005, 2006 and for the six months ended 30 June 2007, for the purpose of this report, gives a true and fair view of the state of affairs of Evergo China and the Evergo China Group and of the results and cash flows of the Evergo China Group for the years and period then ended.

– 197 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

COMPARATIVE FINANCIAL INFORMATION

Respective responsibilities of directors and reporting accountants

The directors of Chi Cheung and Evergo China are responsible for the preparation of the unaudited financial information of the Evergo China Group including the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the six months ended 30 June 2006 (the “Comparative Financial Information”), together with the notes thereto.

It is our responsibility to form an independent conclusion, based on our review, on the Comparative Financial Information.

Review work performed

For the purpose of this report, we have also reviewed the unaudited financial information of the Evergo China Group including the Comparative Financial Information, together with the notes thereto, for which the directors of Evergo China are responsible, in accordance with Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquiries of company management and applying analytical procedures to the Comparative Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the Comparative Financial Information.

Review conclusion

On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the Comparative Financial Information for the six months ended 30 June 2006.

– 198 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

A. FINANCIAL INFORMATION OF THE EVERGO CHINA GROUP

I. CONSOLIDATED INCOME STATEMENTS

Notes Turnover 6 Cost of sales Gross profit Other revenue 7 Fair value changes on investment properties 14 Administrative expenses Profit from operations Finance costs 10 Share of results of associates Gain on disposal of an associate Gain on disposal of subsidiaries Impairment loss reversed in respect of interest in an associate Profit before tax Income tax expense 11 Profit for the year/period 8 Dividends Attributable to: Equity holders of Evergo China Minority interests	Year ended 31 December 2004 2005 HK$’000 HK$’000 28,877 29,251 (3,544) (3,780) 25,333 25,471 5,508 9,004 10,000 9,000 (4,826) (5,720) 36,015 37,755 (683) (189) 5,479 29,481 – – 8 – 354,031 – 394,850 67,047 (3,744) (3,677) 391,106 63,370 – – 391,106 63,370 – – 391,106 63,370	2006 HK$’000 55,432 (8,018) 47,414 3,982 56,806 (9,239) 98,963 – 9,167 70,366 – – 178,496 (118,406) 60,090 – 60,090 – 60,090	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 24,168 33,002 (3,748) (4,796) 20,420 28,206 1,220 6,143 (5,194) 62,000 (3,375) (7,079) 13,071 89,270 – – 1,456 10,660 70,366 – – – – – 84,893 99,930 (5,995) (13,614) 78,898 86,316 – – 78,898 86,316 – – 78,898 86,316

– 199 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

II. CONSOLIDATED BALANCE SHEET

Notes Non-current assets Investment properties 14 Furniture, fixtures and other fixed assets 15 Properties under development 16 Interests in associates 17 Available-for-sale investments 19 Current assets Properties under development held for sale 16 Debtors, deposits and prepayments 20 Amounts due from fellow subsidiaries 21 Time deposits, bank balances and cash 22 Assets classified as held for sale 23 Current liabilities Accruals and other payables Deposits and receipts in advance Amounts due to fellow subsidiaries 21 Tax liabilities Net current assets (liabilities) Total assets less current liabilities	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 269,000 278,000 810,000 219 133 1,175 – – – 681,539 161,067 193,708 3,981 3,981 3,981 954,739 443,181 1,008,864 – – 1,617,820 1,800 4,739 255,878 738,147 770,284 – 9,865 13,070 432,514 749,812 788,093 2,306,212 – 566,109 – 749,812 1,354,202 2,306,212 1,318 3,775 334,605 8,180 8,422 20,964 24,355 39,885 955,010 239 245 1,644 34,092 52,327 1,312,223 715,720 1,301,875 993,989 1,670,459 1,745,056 2,002,853	As at 30 June 2007 HK$’000 872,000 1,882 1,150,735 228,472 3,981 2,257,070 2,431,110 24,859 – 93,191 2,549,160 – 2,549,160 170,752 24,502 2,467,128 1,850 2,664,232 (115,072) 2,141,998

– 200 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

Non-current liabilities Deferred tax liabilities 24 Total assets and liabilities Capital and reserves Share capital 25 Reserves Equity attributable to equity holders of Evergo China Minority interests Total equity Notes	12,473 13,373 205,322 1,657,986 1,731,683 1,797,531 100,776 100,776 100,776 1,557,210 1,630,907 1,696,732 1,657,986 1,731,683 1,797,508 – – 23 1,657,986 1,731,683 1,797,531 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000	214,703 As at 30 June 2007 HK$’000
		1,927,295
		100,776 1,826,496
		1,927,272 23
		1,927,295

– 201 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

III. BALANCE SHEETS

Notes Non-current assets Interest in subsidiaries 18 Current assets Bank balances and cash 22 Current liabilities Accruals and other payables Amount due to ultimate holding company 21 Amounts due to a fellow subsidiary 21 Net current assets (liabilities) Total assets and liabilities Capital and reserves Share capital 25 Reserves 26 Equity attributable to equity holders of Evergo China	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 821,573 813,728 823,032 423 425 428 102 165 110 24,248 – – 5,000 – – 29,350 165 110 (28,927) 260 318 792,646 813,988 823,350 100,776 100,776 100,776 691,870 713,212 722,574 792,646 813,988 823,350	As at 30 June 2007 HK$’000 823,002
		425
		110 – –
		110
		315
		823,317
		100,776 722,541
		823,317

– 202 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

IV. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

At 1 January 2004 Exchange adjustments Share of reserve changes in associates Net income recognised directly in equity Profit for the year Total recognised income for the year At 31 December 2004 At 1 January 2005 Exchange adjustments Share of reserve changes in associates Net income recognised directly in equity Profit for the year Total recognised income for the year At 31 December 2005 At 1 January 2006 Exchange adjustments Share of reserve changes in associates The PRC statutory reserve Net income recognised directly in equity Acquisition of subsidiaries Profit for the year Total recognised income for the year At 31 December 2006 At 1 January 2007 Exchange adjustments Share of reserve changes in associates The PRC statutory reserve Net income recognised directly in equity Profit for the period Total recognised income for the period At 30 June 2007 At 1 January 2006 Exchange adjustments Share of reserve changes in associates The PRC statutory reserve Net income recognised directly in equity Acquisition of subsidiaries Profit for the period Total recognised income for the period At 30 June 2006 (unaudited)	Share capital HK$’000 100,776 – – – – – 100,776 100,776 – – – – – 100,776 100,776 – – – – – – – 100,776 100,776 – – – – – – 100,776 100,776 – – – – – – – 100,776	Share C premium HK$’000 244,839 – – – – – 244,839 244,839 – – – – – 244,839 244,839 – – – – – – – 244,839 244,839 – – – – – – 244,839 244,839 – – – – – – – 244,839	ontributed surplus HK$’000 1,393,986 – – – – – 1,393,986 1,393,986 – – – – – 1,393,986 1,393,986 – – – – – – – 1,393,986 1,393,986 – – – – – – 1,393,986 1,393,986 – – – – – – – 1,393,986	Translation reserve HK$’000 5,423 (29 ) 1,940 1,911 – 1,911 7,334 7,334 36 10,291 10,327 – 10,327 17,661 17,661 948 4,059 – 5,007 – – 5,007 22,668 22,668 38,826 4,586 – 43,412 – 43,412 66,080 17,661 (293 ) 1,220 – 927 – – 927 18,588	(Accumulated losses)/ Statutory Retained reserve profit HK$’000 HK$’000 – (480,055 ) – – – – – – – 391,106 – 391,106 – (88,949 ) – (88,949 ) – – – – – – – 63,370 – 63,370 – (25,579 ) – (25,579 ) – – – – 728 – 728 – – – – 60,090 728 60,090 728 34,511 728 34,511 – – – – 36 – 36 – – 86,316 36 86,316 764 120,827 – (25,579 ) – – – – 2 – 2 – – – – 78,898 2 78,898 2 53,319	Total HK$’000 1,264,969 (29) 1,940 1,911 391,106 393,017 1,657,986 1,657,986 36 10,291 10,327 63,370 73,697 1,731,683 1,731,683 948 4,059 728 5,735 – 60,090 65,825 1,797,508 1,797,508 38,826 4,586 36 43,448 86,316 129,764 1,927,272 1,731,683 (293) 1,220 2 929 – 78,898 79,827 1,811,510	Minority interests HK$’000 – – – – – – – – – – – – – – – – – – – 23 – 23 23 23 – – – – – – 23 – – – – – 23 – 23 23	Total equity HK$’000 1,264,969 (29) 1,940 1,911 391,106 393,017 1,657,986 1,657,986 36 10,291 10,327 63,370 73,697 1,731,683 1,731,683 948 4,059 728 5,735 23 60,090 65,848 1,797,531 1,797,531 38,826 4,586 36 43,448 86,316 129,764 1,927,295 1,731,683 (293) 1,220 2 929 23 78,898 79,850 1,811,533

– 203 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

V. CONSOLIDATED CASH FLOW STATEMENTS

OPERATING ACTIVITIES Profit from operations Adjustment for: Depreciation of furniture, fixtures and other fixed assets Interest income Loss on disposals of other fixed assets Gain on disposal of associates Share of results of associates Impairment loss reversed in respect of interest in associates Fair value changes on investment properties Operating profit before working capital changes (Increase) in properties under development Decrease (increase) in debtors, deposits and prepayments (Increase) decrease in amounts due from fellow subsidiaries Increase (decrease) in creditors and accruals Increase in deposits and receipts in advance Increase in amounts due to fellow subsidiaries Cash generated from (used in) operation Net tax paid NET CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES	Year ended 31 December 2004 2005 HK$’000 HK$’000 394,850 67,047 143 129 (5,394) (8,025) 2 3 – – (5,479) (29,481) (354,031) – (10,000) (9,000) 20,091 20,673 – – 244 (2,939) (12,950) (32,137) 372 2,457 63 242 – 15,530 7,820 3,826 (2,739) (2,771) 5,081 1,055	2006 HK$’000 178,496 304 (3,766) – (70,366) (9,167) – (56,806) 38,695 (221,207) (250,814) 770,276 (1,064,838) 1,603 915,133 188,848 (4,867) 183,981	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 84,893 99,930 133 229 (1,122) (6,016) – – (70,366) – (1,456) (10,660) – – 5,194 (62,000) 17,276 21,483 (212,331) (1,931,182) (1,567) 231,019 (220,529) – (898,148) (163,853) 81 3,538 1,074,245 1,512,118 (240,973) (326,877) (1,373) (4,027) (242,346) (330,904)

– 204 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

INVESTING ACTIVITIES Interest received 5,394 2,160 Purchase of available-for-sale investments (3,899) – Purchase of investment property – – Purchase of furniture, fixtures and other fixed assets – (46) Acquisition of subsidiaries – – Proceeds from disposal of associates – – NET CASH GENERATED FROM INVESTING ACTIVITIES 1,495 2,114 FINANCING ACTIVITIES Advance to an associate – – NET CASH USED IN FINANCING ACTIVITIES – – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,576 3,169 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD 3,320 9,865 Effect of foreign exchange rate changes (31) 36 CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD 9,865 13,070 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Time deposits, bank balances and cash 9,865 13,070 Year ended 31 December 2004 2005 HK$’000 HK$’000	3,766 – (2,969) (814) (383,243) 636,475 253,215 (19,415) (19,415) 417,781 13,070 1,663 432,514 432,514 2006 HK$’000	1,122 6,016 – – (2,969) – (357) (900) (383,243) – 636,475 – 251,028 5,116 – (19,518) – (19,518) 8,682 (345,306) 13,070 432,514 (293) 5,983 21,459 93,191 21,459 93,191 Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited)

– 205 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

VI. NOTES TO THE FINANCIAL INFORMATION OF THE EVERGO CHINA GROUP

1. General information

Evergo China was incorporated in Bermuda as an exempted company with limited liability. Its ultimate holding company is Chinese Estates Holdings Limited (“Chinese Estates”), a company incorporated in Bermuda and whose shares are listed on The Stock Exchange of Hong Kong Limited. The address of the registered office and principal place of business of Evergo China is Clarendon House, Church Street, Hamilton HM 11, Bermuda and 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong respectively.

Evergo China is an investment holding company. The principal activities of its subsidiaries and associate are investment holding, property investment and leasing, property development, property management and hotel operation.

All significant intra-group transactions, cash flows and balances have been eliminated on consolidation.

The Financial Information is presented in Hong Kong dollars, which is the functional currency of the Evergo China Group.

2. Adoption of new and revised Hong Kong Accounting Standards

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) which also include Hong Kong Accounting Standards (“HKASs”) and interpretations issued by the HKICPA.

During the Relevant Periods, the HKICPA issued a number of new and revised HKFRSs (herein collectively referred to as “new HKFRSs”). For the purpose of preparing and presenting the Financial Information of the Relevant Periods, the Evergo China Group has consistently applied all these new HKFRSs over the Relevant Periods.

At the date of this report, the following new and revised HKFRSs have been issued but are not yet effective. The Evergo China Group has not early adopted these new and revised HKFRSs. The directors of Evergo China anticipate that the application of these new and revised HKFRSs will not have material impact on the results and financial position of the Evergo China Group.

– 206 –

APPENDIX IV

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

HKFRS 8 (Note a) Operating Segments HKAS 23 (Revised) (Note a) Borrowing Costs HK(IFRIC) – INT 11 (Note b) HKFRS 2 – Group and Treasury Share Transactions HK(IFRIC) – INT 12 (Note c) Service Concession Arrangements HK(IFRIC) – INT 13 (Note d) Customer Loyalty Programmes HK(IFRIC) – INT 14 (Note c) HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Notes:

• a. Effective for accounting periods beginning on or after 1 January 2009. b. Effective for accounting periods beginning on or after 1 March 2007. c. Effective for accounting periods beginning on or after 1 January 2008. d. Effective for accounting periods beginning on or after 1 July 2008.

3. Summary of significant accounting policies

(a) Basis of Preparation

The Financial Information has been prepared under historical cost basis, except for certain properties and financial instruments which are measured at fair value in accordance with the following accounting policies which conform with HKFRSs issued by the HKICPA. In addition, the Financial Information also includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

The preparation of the Financial Information in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Evergo China Group’s accounting policies.

As at 30 June 2007, the Evergo China Group’s current liabilities exceeded its current assets by approximately HK$115,072,000. Notwithstanding the above results, the Financial Information has been prepared on a going concern basis, the validity of which is dependent upon the success of the Evergo China Group’s future operations, its ability to generate adequate cash flows in order to meet its obligations as and when fall due and its ability to refinance or restructure its borrowings such that the Evergo China Group can meet its future working capital and financing requirements. The Financial Information has been prepared on a going concern basis as the ultimate holding company, Chinese Estates, has agreed to provide adequate funds to enable the Evergo China Group to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly the directors of Evergo China are satisfied that it is appropriate to prepare the Financial Information on a going concern basis.

– 207 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

(b) Basis of Consolidation

The Financial Information incorporates the financial statements of Evergo China and its subsidiaries.

The results of subsidiaries acquired or disposed of during the Relevant Periods are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions and balances within the Evergo China Group are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Evergo China Group’s equity therein. Minority interests in the net assets consisted of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Evergo China Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

(c) Investments in associates

The results and assets and liabilities of associates are incorporated in these Financial Information using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Evergo China Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the Evergo China Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Evergo China Group’s net investment in the associate), the Evergo China Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Evergo China Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Where a group entity transacts with an associate of the Evergo China Group, profits and losses are eliminated to the extent of the Evergo China Group’s interest in the relevant associate.

– 208 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

(d) Impairment losses (other than goodwill, intangible assets with indefinite lives)

At each balance sheet date, the Evergo China Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

(e) Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using fair value. Gains or losses arising from changes in the fair value of investment property are included in income statement for the period in which they arise.

Leasehold land held for undetermined future use is regarded as held for capital appreciation purpose and classified as an investment property, and carried at fair value. Changes in fair value of the investment properties are recognised directly in income statement for the period in which changes take place.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in income statement for the period in which the item is derecognised.

– 209 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

(f) Furniture, fixtures and other fixed assets

Furniture, fixtures and other fixed assets (other than properties under development) are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of property and other fixed assets (other than properties under development) over their estimated useful lives and after taking into account their estimated residual value, using the straight line method, at the following rates per annum:

Type	Basis
Furniture, fixtures and equipment	3 to 10 years
Motor vehicles	3 to 10 years

(g) Properties under development

When the leasehold land and buildings are in the course of development for production, rental for administrative purposes or for sale, the leasehold land component is classified as a prepaid lease payment and amortised over a straight-line basis over the lease term. During the construction period, the amortisation charge provided for the leasehold land is included as parts of costs of building under construction. Buildings under construction are carried at cost, less any identified impairment losses. Depreciation of buildings commences when they are available for use.

(h) Properties under development held for sale

Properties under development held for sale, which are held for trading, is stated at the lower of cost or net realisable value. Net realisable value is determined by reference to sale proceeds received after the balance sheet date less selling expenses, or by management estimates based on the prevailing market conditions.

(i) Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when an entity of the Evergo China Group becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in income statement.

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ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

Financial assets

The Evergo China Group’s financial assets are classified into loans and receivables and available-for-sale investments. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted are set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including debtors, deposits and prepayments, amounts due from fellow subsidiaries, time deposits, bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale investments

Available-for-sale investments are stated at cost, less any identified impairment losses. Available-for-sale investments with indefinite useful lives are tested for impairment annually by comparing their carrying amounts with their recoverable amounts, irrespective of whether there is any indication that they may be impaired. If the carrying amount of an asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

When an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had impairment loss been recognised for the asset in prior years.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

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ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

An equity instrument is any contract that evidences a residual interest in the asset of the Evergo China Group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

Financial liabilities including creditors and accruals, deposits and receipts in advance, amounts due to fellow subsidiaries and amounts due to minority shareholders are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by the Evergo China Group are recorded at the proceeds received, net of direct issue costs.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of debt instrument. A financial guarantee contract issued by the Evergo China Group and not designed as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Evergo China Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Evergo China Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in income statement.

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ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

Financial liability is derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in income statement.

(j) Assets held for sale

Assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.

Assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ (disposal groups’) previous carrying amount and fair value less costs to sell.

(k) Revenue recognition

Rental income, including rental invoiced in advance from properties under operating leases, is recognised in the income statement on a straight-line basis over the term of the relevant lease.

Management fee income is recognised in accordance with terms of respective agreements over the relevant periods in which the services are rendered.

Interest income from a financial asset is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

(l) Taxation

Income tax expense represents the sum of the tax currently payable and deferred

tax.

The tax currently payable is based on taxable profit for the year. Taxation profit differs from reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that are never taxable and deductible. The Evergo China Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

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ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

Deferred tax is recognised on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to income statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the entity intends to settle its current tax assets and liabilities on a net basis.

(m) Leasing

Leases are classified as finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Evergo China Group as lessor

Rental income from operating leases is recognised in the income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

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ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

The Evergo China Group as lessee

Rentals payable under operating leases are charged to income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

(n) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in income statement in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Evergo China Group’s foreign operations are translated into presentation currency of Evergo China (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the Relevant Periods, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in income statement in the period in which the foreign operation is disposed of.

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APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

(o) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those asset. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in income statement in the period in which they are incurred.

(p) Retirement benefits costs

The employees of Evergo China’s PRC subsidiaries are members of the statemanaged retirement benefits scheme operated by the PRC government. Evergo China’s PRC subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefits scheme to fund the benefits. The only obligation of the Evergo China Group with respect to the retirement benefits scheme is to make the required contributions under the scheme.

Payment to defined contribution retirement benefits scheme is charged in the income statement as they fall due.

(q) Provisions

Provisions are recognised when the Evergo China Group has a present obligation as a result of a past event, and it is probable that the Evergo China Group will be required to settle that obligations. Provisions are measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

(r) Prepaid lease payments

Payment for obtaining land use rights accounted for as prepaid lease payments and is charged to the income statement on a straight-line basis over the lease terms.

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APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

(s) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Evergo China Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to Financial Information. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Evergo China Group. A contingent asset is not recognised but is disclosed in the notes to the Financial Information when an inflow of economics benefits is probable. When inflow is virtually certain, an asset is recognised.

(t) Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operation decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being member of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Evergo China Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Evergo China Group or of any entity that is a related party of the Evergo China Group.

A transaction is considered to be a related party transaction where there is a transfer of resources or obligations between related parties.

– 217 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

(u) Segment reporting

A segment is a distinguishable component of the Evergo China Group that is engaged in providing products or services (business segment), or in providing products, or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Evergo China Group’s internal financial reporting, the Evergo China Group has determined that business segment be presented as the primary reporting format and geographical segment as the secondary reporting format.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets, and liabilities are determined before intra-group balances and intra-group transactions which are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group companies within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period on additions of segment assets (both tangible and intangible) that are expected to be used for more than one period.

4. Key sources of estimation uncertainty

In the process of applying the Evergo China Group’s accounting policies which are described in note 3, management has made certain key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Investment properties

As described in note 14, investment properties are stated at fair value based on the valuation performed by independent professional valuers. In determining the fair value, the valuers have based on method of valuation which involves certain estimates. In relying on the valuation report, the management has exercised their judgement and is satisfied that the method of valuation is reflective of the current market conditions. Should there are changes in assumptions due to change of market conditions, the fair value of the investment properties will change in future.

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APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

Impairment of furniture, fixtures, other fixed assets and properties under development

Furniture, fixtures, other fixed assets and properties under development are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amounts have been determined based on value-in-use calculations or market valuations. These calculations require the use of judgements and estimates.

Management judgement is required in the area of asset impairment particularly in assessing: (i) whether an event has occurred that may indicate that the related asset values may not be recoverable; (ii) whether the carrying value of an asset can be supported by the recoverable amount, being the higher of fair value less costs to sell or net present value of future cash flows which are estimated based upon the continued use of the asset in the business; and (iii) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management in assessing impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test and as a result affect the Evergo China Group’s financial condition and results of operations. If there is a significant adverse change in the projected performance and resulting future cash flow projections, it may be necessary to take an impairment charge to the income statement.

Taxation

The Evergo China Group is subject to income taxes in several jurisdictions and provinces. There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Evergo China Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers it is likely that future taxable profits will be available against which the temporary differences or tax losses can be utilised. When the expectations are different from the original estimates, such differences will impact the recognition of deferred tax assets and income tax charges in the period in which such estimates have been changed.

– 219 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

5. Financial risk management

a. Financial risk management objectives and policies

The Evergo China Group’s major financial instruments include debtors, deposits and prepayments, amount due from/to fellow subsidiaries, time deposits, bank balances and cash, accruals and other payables, deposits and receipts in advance. The details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Credit risk

Evergo China and the Evergo China Group’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the balance sheets and consolidated balance sheets respectively. In order to minimise the credit risk, the Evergo China Group reviews the recoverable amount of each individual debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of Evergo China consider that the Evergo China Group’s credit risk is significantly reduced.

The Evergo China Group has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers.

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency.

The main operations of the Evergo China Group were in the PRC and most of the transactions were denominated in Renminbi. The Evergo China Group did not use any derivative financial instruments to hedge for its foreign exchange risk exposure during the Relevant Periods.

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ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

The Renminbi has appreciated against Hong Kong dollar by approximately 6%. The sensitivity analysis includes only outstanding foreign currency denominated monetary item and adjust their translation at the year/ period end for a 6% change in foreign currency rates. If Renminbi had strengthened by 6% against Hong Kong dollar, the effect of the change in foreign exchange rate was set out as follow:–

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2004	2005	2006	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Profit or (loss)	(345)	(91)	31,448	(621)	(315)

Liquidity risk

Liquidity risk is the risk that funds will not be available to meet liabilities as they fall due, and it results from amount and maturity mismatches of assets and liabilities. The Evergo China Group has net current liabilities of approximately HK$115,072,000 as at 30 June 2007. The Evergo China Group is exposed to liquidity risk if it is not able to raise sufficient funds to meet its financial obligations. The Evergo China Group relies on the support by its ultimate holding company which has agreed to provide adequate funds to enable the Evergo China Group to meet in full its financial obligations as they fall due from the foreseeable future.

Interest rate risk

The Evergo China Group’s fair value interest rate risk exposed to cash flow interest rate risk due to fluctuation of the prevailing market interest rate on bank balances. The directors of Evergo China consider the Evergo China Group’s exposure to interest rate risk is not significant as interest bearing bank balances are with short maturity periods.

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APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

b. Fair value

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions.

The directors of Evergo China consider that the carrying amounts of financial assets and financial liabilities at amortised cost in the Financial Information are approximate to their fair values.

c. Capital risk management

The Evergo China Group manages its capital to ensure that entities in the Evergo China Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the Evergo China Group consists of debts, which include the amounts due to fellow subsidiaries, time deposits, bank balances and cash and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained profits respectively.

The directors of Evergo China review the capital structure on an annual basis. As a part of this review, the directors of Evergo China consider the cost of capital and other sources of funds other than issuance of shares, including borrowings from related parties. Based on the recommendation of the directors of Evergo China, the Evergo China Group will balance its overall capital structure through raising or repayment of borrowings.

The Evergo China Group’s overall strategy remains unchanged during the Relevant Periods.

d. Fair value

The carrying amounts of significant financial assets and liabilities are approximate to their respective fair values as at 31 December 2004, 2005, 2006 and 30 June 2007 because of the short maturities of these instruments.

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APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

6. Turnover and segment information

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2004	2005	2006	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Property leasing	28,877	29,251	55,432	24,168	33,002

No segment information analysis of the Evergo China Group by business or geographical segments is presented as the Evergo China Group is solely attributable to the property investment and leasing in the PRC during the Relevant Periods.

7. Other revenue

Bank interest income Interest income Management fee income Others	Year ended 31 December 2004 2005 HK$’000 HK$’000 24 165 5,370 7,860 80 67 34 912 5,508 9,004	2006 HK$’000 1,159 2,607 – 216 3,982	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 135 4,209 987 1,807 – – 98 127 1,220 6,143	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 135 4,209 987 1,807 – – 98 127 1,220 6,143
				6,143

– 223 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

8. Profit for the year/period

			Year ended				Six months ended	Six months ended	Six months ended
	31 December						30 June
	2004		2005		2006		2006		2007
	HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
							(Unaudited)
Profit for the year/period has been
arrived at after (charging)
crediting:
Auditors’ remuneration	(208)		(627)		(353)		(183)		(202)
Depreciation	(143)		(129)		(304)		(133)		(229)
Staff costs (including directors’
remuneration):
– Salaries and other allowances	(686)		(828)		(1,086)		(415)		(1,159)
– Retirement benefits scheme
contributions	(313)		(298)		(1,191)		(189)		(385)
Total staff cost	(999)		(1,126)		(2,277)		(604)		(1,544)
Gross rental income from
investment properties	28,877		29,251		55,432		24,168		33,002
_Less:_Direct operating expenses
from investment
properties that generated
rental income during
the Relevant Periods	(3,544)		(3,779)		(7,819)		(3,673)		(4,725)
Direct operating expenses
from investment
properties that did not
generate rental income
during the Relevant
Periods	–		(1)		(199)		(75)		(71)

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APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

9. Directors’ and employees’ remuneration

(a) Directors’ remuneration

Fees and other emoluments paid or payable to each of the three directors of Evergo China during the Relevant Periods were as follows:

Mr. Thomas Lau, Luen-hung Mr. Joseph Lau, Luen-hung Mr. Lau, Ming-wai	Year ended 31 December 2004 2005 HK$’000 HK$’000 – – – – – – – –	2006 HK$’000 – – – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – – – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – – – –
				–

Mr. Thomas Lau, Luen-hung resigned as the director of Evergo China on 15 December 2006.

Mr. Lau, Ming-wai was appointed as the director of Evergo China on 15 December 2006.

None of the directors of Evergo China have waived any emoluments during the Relevant Periods.

(b) Employees’ emoluments

Of the five individuals with the highest emoluments in the Evergo China Group, no executive directors of Evergo China whose emoluments are included in the disclosures as shown in Note 9(a) above. The emoluments of the five highest individuals disclosed pursuant to the Rules Governing the Listing of Securities on the Stock Exchange were as follows:

Salaries and other benefits Retirement benefits scheme contributions	Year ended 31 December 2004 2005 HK$’000 HK$’000 174 253 15 22 189 275	2006 HK$’000 315 76 391	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 124 138 30 25 154 163	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 124 138 30 25 154 163
				163

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ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

Their emoluments were within the following bands:

Number of employees

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2004	2005	2006	2006	2007
				(Unaudited)
Nil – HK$1,000,000	5	5	5	5	5
HK$1,000,001
– HK$1,500,000	–	–	–	–	–

During the Relevant Periods, no emoluments were paid by the Evergo China Group to the five highest paid individuals, or directors of Evergo China, as an inducement to join or upon joining the Evergo China Group as compensation for loss of office.

10. Finance costs

Interest on bank loans wholly repayable within five years Other finance costs	Year ended 31 December 2004 2005 HK$’000 HK$’000 169 – 514 189 683 189	2006 HK$’000 – – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – –
				–

– 226 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

11. Income tax expense

The charge comprises: Current tax: Hong Kong Profits Tax Other than Hong Kong Deferred tax_(note 24)_:	Year ended 31 December 2004 2005 HK$’000 HK$’000 – – 2,744 2,777 2,744 2,777 1,000 900 3,744 3,677	2006 HK$’000 – 5,682 5,682 112,724 118,406	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – 1,690 4,233 1,690 4,233 4,305 9,381 5,995 13,614	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – 1,690 4,233 1,690 4,233 4,305 9,381 5,995 13,614
				4,233
				9,381
				13,614

No provision has been made for Hong Kong Profits Tax as the Evergo China Group has no assessable profit arising in Hong Kong during the Relevant Periods.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the PRC (the “New CIT Law”). The New CIT Law introduces a wide range of changes which standardises the corporate income tax rate to 25% with effect from 1 January 2008. The New CIT Law also provides that further detailed measures and regulations on the determination of taxable profit, tax incentives and grandfathering provisions will be issued by the State Council in due course. As and when the State Council announces the additional regulations, the Evergo China Group will assess their impact, if any, and account for any change in accounting estimates.

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APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

The taxation for the Relevant Periods can be reconciled to the profit for the year/ period per the consolidated income statements as follows:–

Profit before tax Tax at the domestic rates applicable to profits in the provinces concerned Tax effect of share of results of associates Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of tax loss not recognised Tax charge for the year/period	Year ended 31 December 2004 2005 HK$’000 HK$’000 394,850 67,047 66,530 9,377 (4,171) (5,159) 4,078 1,129 (62,950) (1,954) 257 284 3,744 3,677	2006 HK$’000 178,496 29,466 (1,604) 107,091 (17,058) 511 118,406	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 84,893 99,930 12,037 20,186 (255) (1,865) 8,947 2,412 (14,825) (7,312) 91 193 5,995 13,614

– 228 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

12. Earnings per share

Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Evergo China Group by the weighted average number of ordinary shares in issue during the Relevant Periods.

There was no dilutive effect on earnings per share since there was no potential dilutive ordinary share in existence during the Relevant Periods.

13. Profit (loss) attributable to equity holders of Evergo China

The consolidated profit attributable to the equity holders of Evergo China was approximately HK$391,106,000, HK$63,370,000, HK$60,090,000 and HK$86,316,000 for the years ended 31 December 2004, 2005, 2006 and for the six months ended 30 June 2007 respectively (six months ended 30 June 2006: profit of approximately HK$78,898,000).

Loss of approximately HK$489,292,000, profit of approximately HK$21,342,000, profit of approximately HK$9,362,000 and loss of approximately HK$33,000 have been dealt with in the financial statements of Evergo China for the years ended 31 December 2004, 2005, 2006 and for the six months ended 30 June 2007 (six months ended 30 June 2006: loss of approximately HK$35,000).

14. Investment properties

Fair value At 1 January 2004 Increase in fair value recognised in the consolidated income statement At 31 December 2004 Increase in fair value recognised in the consolidated income statement At 31 December 2005 Acquisition of subsidiaries Additions Increase in fair value recognised in the consolidated income statement At 31 December 2006 Increase in fair value recognised in the consolidated income statement At 30 June 2007	HK$’000 259,000 10,000
	269,000 9,000
	278,000 472,225 2,969 56,806
	810,000 62,000
	872,000

– 229 –

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

The fair values of the Evergo China Group’s investment properties at 31 December 2004, 2005, 2006 and 30 June 2007 have been arrived at on the basis of valuations carried out on the respective date by Messrs. Norton Appraisals Limited (“Norton Appraisals”), independent qualified professional valuers not connected with the Evergo China Group. Norton Appraisals have appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuations, which conform to The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition) published by the Hong Kong Institute of Surveyors, were based on open market values.

All of the Evergo China Group’s property interests held under operating leases to earn rentals for capital appreciation purposes, are measured using the fair value model and are classified and accounted for as investment properties.

The carrying values of investment properties shown above comprised:

Properties outside Hong Kong held under: Medium-term lease Short-term lease	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 – – 480,000 269,000 278,000 330,000 269,000 278,000 810,000	As at 30 June 2007 HK$’000 520,000 352,000
		872,000

– 230 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

15. Furniture, fixtures and other fixed assets

The Evergo China Group Cost At 1 January 2004 Disposals At 31 December 2004 and 1 January 2005 Additions Disposals At 31 December 2005 and 1 January 2006 Acquisition of subsidiaries Additions Exchange rate adjustment Disposals At 31 December 2006 and 1 January 2007 Additions Exchange rate adjustment At 30 June 2007 Depreciation At 1 January 2004 Charge for the year At 31 December 2004 and 1 January 2005 Charge for the year Eliminated on disposals At 31 December 2005 and 1 January 2006 Charge for the year Exchange rate adjustment Eliminated on disposals At 31 December 2006 and 1 January 2007 Charge for the period Exchange rate adjustment At 30 June 2007	Furniture, fixtures and equipment HK$’000 1,167 (2) 1,165 46 (22) 1,189 24 192 2 (1,037) 370 641 16 1,027 1,025 51 1,076 38 (19) 1,095 41 1 (1,037) 100 41 3 144	Motor vehicles HK$’000 366 – 366 – – 366 495 622 28 – 1,511 259 48 1,818 144 92 236 91 – 327 263 16 – 606 188 25 819	Total HK$’000 1,533 (2) 1,531 46 (22) 1,555 519 814 30 (1,037) 1,881 900 64 2,845 1,169 143 1,312 129 (19) 1,422 304 17 (1,037) 706 229 28 963

– 231 –

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

Carrying values At 31 December 2004 At 31 December 2005 At 31 December 2006 At 30 June 2007	89 94 270 883 Furniture, fixtures and equipment HK$’000	130 39 905 999 Motor vehicles HK$’000	219 Total HK$’000
			133
			1,175
			1,882

16. Properties under development / Properties under development held for sale

The Evergo China Group Properties under development Properties under development held for sale Interests in associates The Evergo China Group Share of net assets Advances to associates	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 – – – – – 1,617,820 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 186,085 114,265 127,491 495,454 46,802 66,217 681,539 161,067 193,708	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 – – – – – 1,617,820 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 186,085 114,265 127,491 495,454 46,802 66,217 681,539 161,067 193,708	As at 30 June 2007 HK$’000 1,150,735 2,431,110 As at 30 June 2007 HK$’000 142,737 85,735 228,472
		193,708

17. Interests in associates

– 232 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

Particulars of the Evergo China Group’s principal associates at the report date are set out on page 195. The investment properties of the Evergo China Group’s principal associates were revalued at 30 June 2007 by Norton Appraisals. The valuation, which conforms to The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors, was based on open market values.

The movement of share of net assets of associates is as follow:

At beginning of year/period Deemed contribution-imputed interest Decrease in investment and share of net assets upon transfer of interests in associates to assets held for sale Share of results Share of translation reserve of an associate At end of year/period	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 178,666 186,085 114,265 – 5,865 – – (117,457) – 5,479 29,481 9,167 1,940 10,291 4,059 186,085 114,265 127,491	As at 30 June 2007 HK$’000 127,491 – – 10,660 4,586
		142,737

The summarised financial information in respect of the Evergo China Group’s associates is set out below:–

Total assets Total liabilities Net assets The Evergo China Group’s share of net assets of associates	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 3,626,301 483,361 555,263 (3,185,467) (254,831) (300,281) 440,834 228,530 254,982 186,085 114,265 127,491	As at 30 June 2007 HK$’000 607,870 (322,396)
		285,474
		142,737

– 233 –

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

Turnover Profit for the year/period The Evergo China Group’s share of result of associates for the year/period	Year ended ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 279,365 267,643 173,491 11,019 79,119 18,334 5,479 29,481 9,167	Six months ended 30 June 2007 HK$’000 108,984
		21,320
		10,660

The advance to associates is unsecured, interest bearing at prevailing market rate and has no fixed repayment terms. In the opinion of the directors of Evergo China, the Evergo China Group will not demand for repayment within twelve months from the balance sheet dates and the advance is therefore shown as non-current.

The carrying amount of the amounts due from associates approximate to their fair values.

18. Interest in subsidiaries

Unlisted shares, at cost Deemed contribution – imputed interest _Less:_Impairment loss recognised Amount due from a subsidiary	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,395,387 1,395,387 1,413,908 – 18,521 – 1,395,387 1,413,908 1,413,908 (1,060,786) (1,048,795) (1,048,795) 334,601 365,113 365,113 486,972 448,615 457,919 821,573 813,728 823,032	As at 30 June 2007 HK$’000 1,413,908 –
		1,413,908 (1,048,795)
		365,113 457,889
		823,002

Details of subsidiaries of Evergo China as at the report date were set out on page 190 to page 195.

– 234 –

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

The carrying amounts of investment in subsidiaries are reduced to their recoverable amounts which are determined with reference to the estimation of future cash flows expected to be generated from the respective subsidiaries.

The amount due from a subsidiary is unsecured, non-interest bearing and has no fixed repayment terms. In the opinion of the directors of Evergo China, Evergo China will not demand for repayment within twelve months from the balance sheet dates and the amount is therefore shown as non-current.

In the opinion of the directors of Evergo China, the carrying amount of the amount due from a subsidiary as at the balance sheet dates approximates to its fair value.

19. Available-for-sale investments

Unlisted equity securities Club debentures	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 3,899 3,899 3,899 82 82 82 3,981 3,981 3,981	As at 30 June 2007 HK$’000 3,899 82
		3,981

As at the balance sheet dates, all available-for-sale investments are unlisted investments and club debenture which their fair values cannot be measured reliably. Both these equity securities and club debentures are measured at cost less impairment at each balance sheet dates because the range of reasonable fair value estimates is so significant that the directors of Evergo China are of the opinion that their fair values cannot be measured reliably.

– 235 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

20. Debtors, deposits and prepayments

Included in debtors, deposits and prepayments of the Evergo China Group are trade receivables of approximately HK$136,000, HK$2,275,000, HK$2,458,000 and HK$2,611,000 as at 31 December 2004, 2005, 2006 and 30 June 2007 respectively. It comprised mainly rental receivables which are billed in advance and settlements are expected upon receipts of billings.

The following is an aged analysis of trade receivables of the Evergo China Group at the balance sheet dates:

0-30 days 31-60 days 61-90 days Over 90 days	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 81 809 95 53 714 103 – 333 142 2 419 2,118 136 2,275 2,458	As at 30 June 2007 HK$’000 190 150 150 2,121
		2,611

The directors of Evergo China consider that the carrying amounts of the Evergo China Group’s debtors, deposits and prepayments at the balance sheet dates approximate to their fair values.

21. Amounts due from (to) fellow subsidiaries / ultimate holding company

The amounts due from (to) fellow subsidiaries / ultimate holding company are unsecured, interest-free and recoverable on demand.

The directors of Evergo China consider that the carrying amounts of the amounts due from (to) fellow subsidiaries / ultimate holding company approximate to their fair values.

– 236 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

22. Time deposits, bank balances and cash

The Evergo China Group Time deposits with bank Cash at bank and in hand Evergo China Cash at bank and in hand	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 2,878 3,279 109,119 6,987 9,791 323,395 9,865 13,070 432,514 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 423 425 428	As at 30 June 2007 HK$’000 5,682 87,509
		93,191
		As at 30 June 2007 HK$’000 425

As at 31 December 2004, 2005, 2006 and 30 June 2007, time deposits, bank balances and cash placed with banks in the PRC amounted to HK$1,777,000, HK$3,968,000, HK$312,634,000 and HK$83,613,000 respectively.

Included in time deposits, bank balances and cash are the following amounts denominated in a currency other than the functional currency of Evergo China to which they relate:

				As at
	As at	31 December		30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Renminbi	1,777	3,968	307,754	18,943
USD	2,174	4,568	104,639	18,343

The conversion of Renminbi denominated balances into foreign currencies and the remittance of such foreign currencies denominated bank balances and cash out of the PRC are subject to relevant rules and regulations of foreign exchange control promulgated by the PRC government.

Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents approximate to their fair values.

– 237 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

23. Assets classified as held for sale / Disposal of an associate

On 2 December 2005, a wholly-owned subsidiary of Evergo China entered into a sale and purchase agreement with an independent third party of Evergo China relating to the disposal of one of the Evergo China Group’s associates, Grand Make International Limited (“Grand Make”), which holds 99% indirect interest in Hong Kong New World Tower located in Shanghai, the PRC. The 35% equity interest of Grand Make which was held by Evergo China was expected to be sold within twelve months from 31 December 2005 had been classified as a disposal asset held for sale and was presented separately in the balance sheet. The net proceeds of disposal were expected to exceed the net carrying amount of the relevant assets and accordingly, no impairment loss had been recognised.

In March 2006, the Evergo China Group disposed of its 35% equity interest in Grand Make of carrying value of net asset amounted to approximately HK$566,109,000 at consideration of approximately HK$636,475,000 and a gain on disposal of an associate of approximately HK$70,366,000 was recognised in the consolidated income statement for the year ended 31 December 2006.

24. Deferred taxation

The following are the major deferred taxation liabilities (assets) recognised by the Evergo China Group and movements thereon during the years / period:

At 1 January 2004 Charge to the consolidated income statement for the year At 31 December 2004 Charge to the consolidated income statement for the year At 31 December 2005 Fair value adjustment arising from acquisition of subsidiaries Charge to the consolidated income statement for the year At 31 December 2006 Charge to the consolidated income statement for the period At 30 June 2007	Accelerated tax depreciation HK$’000 – 27 27 (15) 12 – 30 42 (14) 28	Revaluation of investment properties HK$’000 11,473 1,000 12,473 900 13,373 79,225 112,724 205,322 9,381 214,703	Tax losses HK$’000 – (27) (27) 15 (12) – (30) (42) 14 (28)	Total HK$’000 11,473 1,000
				12,473 900
				13,373 79,225 112,724
				205,322 9,381
				214,703

– 238 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

At the balance sheet dates, the Evergo China Group has the following major unrecognised deferred tax assets due to unpredictability of the future profit stream.

Tax losses Share capital Ordinary shares of HK$0.1 each Authorised Issued and fully paid	As at 31 December 2004 2005 HK$’000 HK$’000 1,132 1,340 Number of shares As at As at 31 December 30 June As 2004 2005 2006 2007 2004 ’000 ’000 ’000 ’000 HK$’000 3,600,000 3,600,000 3,600,000 3,600,000 360,000 1,007,759 1,007,759 1,007,759 1,007,759 100,776	As at 30 June 2006 2007 HK$’000 HK$’000 1,514 1,624 Share capital As at at 31 December 30 June 2005 2006 2007 HK$’000 HK$’000 HK$’000 360,000 360,000 360,000 100,776 100,776 100,776	As at 30 June 2007 HK$’000 1,624	As at 30 June 2007 HK$’000 1,624
				As at 30 June 2007 HK$’000 360,000
				100,776

25. Share capital

– 239 –

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

26. Reserves

Evergo China At 1 January 2004 Loss for the year At 31 December 2004 At 1 January 2005 Profit for the year At 31 December 2005 At 1 January 2006 Profit for the year At 31 December 2006 At 1 January 2007 Loss for the period At 30 June 2007 At 1 January 2006 Loss for the period At 30 June 2006 (unaudited)	Share premium HK$’000 244,839 – 244,839 244,839 – 244,839 244,839 – 244,839 244,839 – 244,839 244,839 – 244,839	Contributed surplus HK$’000 1,393,986 – 1,393,986 1,393,986 – 1,393,986 1,393,986 – 1,393,986 1,393,986 – 1,393,986 1,393,986 – 1,393,986	Accumulated losses HK$’000 (457,663) (489,292) (946,955) (946,955) 21,342 (925,613) (925,613) 9,362 (916,251) (916,251) (33) (916,284) (925,613) (35) (925,648)	Total HK$’000 1,181,162 (489,292) 691,870 691,870 21,342 713,212 713,212 9,362 722,574 722,574 (33) 722,541 713,212 (35) 713,177

– 240 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

27. Acquisition of subsidiaries

During the Relevant Periods, the Evergo China Group entered into the following transactions:–

• (a) On 5 January 2006, the Evergo China Group acquired 70.01% equity interest of Moon Ocean Ltd. (“Moon Ocean”) for consideration of HK$1,000,000.

The fair value of the identifiable assets and liabilities of Moon Ocean at the date of acquisition was as follows:

Properties under development Bank balances and cash Creditors and accruals Payables for properties under development Minority interest Total consideration satisfied by: Cash Net cash outflow arising on acquisition Cash consideration paid Bank balances and cash acquired	HK$’000 1,396,613 78 (1,063,356) (332,312) (23) 1,000 1,000 (1,000) 78 (922)

Moon Ocean recorded loss of approximately HK$280,000 and HK$58,000 for the period from the date of acquisition to 31 December 2006 and for the six months ended 30 June 2007 respectively.

Had the acquisition completed on 1 January 2006, the revenue and profit of the Evergo China Group for the year ended 31 December 2006 would have been approximately HK$55 million and HK$59 million respectively.

– 241 –

ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

APPENDIX IV

• (b) On 13 March 2006, the Evergo China Group acquired 100% equity interest of JadeField Limited (“JadeField”) from a related company for consideration of approximately HK$388,591,000.

The fair value of identifiable assets and liabilities of JadeField at the date of acquisition was as follows:

Investment properties Properties and other fixed assets Debtors, deposits and prepayments Bank balances and cash Deposits and receipts in advance Tax liabilities Deferred tax liabilities Total consideration satisfied by: Cash Net cash outflow arising on acquisition: Cash consideration paid Bank balances and cash acquired	HK$’000 472,225 519 325 6,270 (10,940) (583) (79,225) 388,591 388,591 (388,591) 6,270 (382,321)

JadeField contributed approximately HK$16,371,000 and HK$11,550,000 to the Evergo China Group’s profit for the period from the date of acquisition to 31 December 2006 and for the six months ended 30 June 2007 respectively.

Had the acquisition completed on 1 January 2006, the revenue and profit of the Evergo China Group for the year ended 31 December 2006 would have been approximately HK$60 million and HK$63 million respectively.

– 242 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

28. Pledge of assets

At the balance sheet dates, the carrying amounts of the assets pledged by the Evergo China Group to secure a general banking facility granted to a subsidiary company of Chinese Estates are analysed as follows:

Investment properties Capital commitments Authorised and contracted for: In connection with the acquisition of a company_(note i) Development expenditure of properties in Macau Development expenditure of properties in the PRC Acquisition of land(note iii) Acquisition of an investment property(note ii)_	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 269,000 278,000 330,000 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 – 1,596,349 – – – 36,802 – – – – – 510,270 – 388,591 –	As at 30 June 2007 HK$’000 352,000
		As at 30 June 2007 HK$’000 – 32,742 53,588 – –

29. Capital commitments

Notes:

• i. As at 31 December 2005, the Evergo China Group was committed to pay approximately HK$664,000,000 for the balance of a land cost, HK$732,000,000 for settling the debt and HK$199,000,000 for the success fee in relation to the acquisition of a company.

• ii. As at 31 December 2005, the Evergo China Group was also committed to acquire an investment property in Shanghai, the PRC.

• iii. As at 31 December 2006, the Evergo China Group was committed to pay approximately HK$510,270,000 for balance of land costs in respect of an acquisition of two pieces of land in Chengdu, the PRC.

– 243 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

30. Operating leases

The Evergo China Group as leasee

				As at
	As at 31 December			30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Minimum lease payments paid under
operating leases during
the years / period
Premises	110	230	222	381

At the balance sheet dates, the Evergo China Group had commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Within one year In the second to fifth years inclusive	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 157 283 241 – 101 – 157 384 241	As at 30 June 2007 HK$’000 1,042 2,546
		3,588

Operating lease payments represent rentals payable by the Evergo China Group for certain of its office properties. Leases are negotiated for an average term of 1 to 2 years.

– 244 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

The Evergo China Group as lessor

Property rental income earned was approximately HK$28,877,000, HK$29,251,000, HK$55,432,000 and HK$33,002,000 for the years ended 31 December 2004, 2005, 2006 and the six months ended 30 June 2007 respectively (six months ended 30 June 2006: HK$24,168,000).

The investment properties of the Evergo China Group are expected to generate annual rental yields of 7% to 11% during the Relevant Periods on an ongoing basis. All of the properties held have committed tenants not exceeding five years.

At the balance sheet dates, the Evergo China Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 20,508 27,437 49,397 6,776 13,876 22,667 27,284 41,313 72,064	As at 30 June 2007 HK$’000 59,473 34,460
		93,933

31. Retirement benefits schemes

Employees in the Evergo China Group’s PRC subsidiaries are required to participate in a defined contribution retirement scheme administrated and operated by the local municipal government. The Evergo China Group’s PRC subsidiaries contribute funds which are calculated on certain percentage of the average employee salary as agreed by the local municipal government to the scheme to fund the retirement benefits of the employees.

The Evergo China Group also participates in a pension scheme under the rules and regulations of the Mandatory Provident Fund Scheme (the “MPF Scheme”) for all employees in Hong Kong. The contributions to the MPF Scheme are based on minimum statutory contribution requirement of 5% eligible employees’ relevant aggregate income.

– 245 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

32. Related party transactions

In addition to the balances with related parties and save as disclosed elsewhere in the Financial Information, the Evergo China Group entered into the following significant related party transactions:–

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2004	2005	2006	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Interest income from an associate	5,370	1,995	2,607	987	1,807
Management fee income from
a related party	80	67	–	–	–
Rental income from
a related party	–	37	36	16	14
Rental expenses to an associate	–	105	82	82	169
Rental expenses to a related party	47	56	11	11	–
Imputed interest income from
an associate	–	5,865	–	–	–
Consideration paid to
a related party for
acquisition of a subsidiary	–	–	388,591	–	–

During the Relevant Periods, no compensation of any kind was paid to the directors and other key management personnel of Evergo China.

33. Subsequent events

In August 2007, the ultimate holding company of the Evergo China Group entered into a memorandum of agreement with Sino Land Company Limited and C C Land Holdings Limited in relation to an acquisition of a piece of land at Huaxinjie Street of Jiangbei District in Chongqing City, the PRC for a consideration of approximately RMB4.18 billion. In respect of the memorandum of agreement, it was intended that the Evergo China Group would hold 25% equity interest in the acquisition and a formal joint venture agreement will be executed among the parties in due course.

– 246 –

APPENDIX IV ACCOUNTANTS’ REPORT OF THE EVERGO CHINA GROUP

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for the Evergo China Group in respect of any period subsequent to 30 June 2007. No dividend has been declared, made or paid by the Evergo China Group in respect of any period subsequent to 30 June 2007.

Yours faithfully

HLB Hodgson Impey Cheng

Chartered Accountants Certified Public Accountants Hong Kong

– 247 –

ACCOUNTANTS’ REPORT OF HONEST RIGHT

APPENDIX V

The following is the text of an accountants’ report of Honest Right received from HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, the reporting accountants, for inclusion in this joint circular.

==> picture [215 x 81] intentionally omitted <==

31/F Gloucester Tower

The Landmark 11 Pedder Street Central Hong Kong

31 October 2007

The Directors

Chi Cheung Investment Company, Limited 26th Floor, MassMutual Tower 38 Gloucester Road Wanchai, Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Honest Right Investment Limited (“Honest Right”) for each of the three years ended 31 December 2004, 2005 and 2006 and for the six months ended 30 June 2006 and 2007 (hereinafter collectively referred to as the “Relevant Periods”) for inclusion in the joint circular of Chinese Estates Holdings Limited and Chi Cheung Investment Company, Limited (“Chi Cheung”) dated 31 October 2007 (the “Joint Circular”).

Honest Right was incorporated in Hong Kong on 7 August 1987 with limited liability under the Hong Kong Companies Ordinance. During the Relevant Periods, the principal activity of Honest Right was loan financier for its group companies.

Honest Right has adopted 31 December as its financial year end date. The statutory financial statements of Honest Right for the Relevant Periods were prepared by the directors of Honest Right in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have acted as the auditors of Honest Right for the year ended 31 December 2006 and the six months ended 30 June 2007 and Deloitte Touche Tohmatsu has acted as auditors of Honest Right for the years ended 31 December 2004 and 2005.

– 248 –

ACCOUNTANTS’ REPORT OF HONEST RIGHT

APPENDIX V

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION

The directors of Chi Cheung and Honest Right are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA and the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and the true and fair presentation of Financial Information that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The directors of Chinese Estates and Chi Cheung are responsible for the contents of the Joint Circular in which this report is included.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Financial Information based on our audit. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out additional procedures as we considered necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Financial Information is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Information. The procedures selected depend on the reporting accountants’ judgment, including the assessment of the risks of material misstatement of the Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation and true and fair presentation of the Financial Information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of Honest Right, as well as evaluating the overall presentation of the Financial Information.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

– 249 –

ACCOUNTANTS’ REPORT OF HONEST RIGHT

APPENDIX V

OPINION

In our opinion, the Financial Information for the years ended 31 December 2004, 2005, 2006 and for the six months ended 30 June 2007, for the purpose of this report, gives a true and fair view of the state of affairs of Honest Right and of its results and cash flows for the years and periods then ended.

Material uncertainty concerning going concern basis of accounting

Without qualifying our opinion, we draw attention to Note 3(a) to the Financial Information of Honest Right which indicates that Honest Right recorded net liabilities of approximately HK$77,672,000, HK$61,196,000, HK$43,018,000 and HK$33,535,000 as at 31 December 2004, 2005, 2006 and 30 June 2007 respectively. These conditions, along with other matters as set forth in Note 3(a) to the Financial Information of Honest Right, indicate the existence of a material uncertainty which may cast significant doubt about Honest Right’s ability to continue as a going concern.

COMPARATIVE FINANCIAL INFORMATION

Respective responsibilities of directors and reporting accountants

The directors of Chi Cheung and Honest Right are responsible for the preparation of the unaudited financial information of Honest Right including the income statement, the statement of changes in equity and the cash flow statement for the six months ended 30 June 2006 (the “Comparative Financial Information”), together with the notes thereto.

It is our responsibility to form an independent conclusion, based on our review, on the Comparative Financial Information.

– 250 –

ACCOUNTANTS’ REPORT OF HONEST RIGHT

APPENDIX V

Review work performed

For the purpose of this report, we have also reviewed the unaudited financial information of Honest Right including the Comparative Financial Information, together with the notes thereto, for which the directors of Chi Cheung and Honest Right are responsible, in accordance with Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquiries of company management and applying analytical procedures to the Comparative Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the Comparative Financial Information.

Review conclusion

On the basis of our review which does not constitute an audit, for the purpose of this report, we are not aware of any material modifications that should be made to the Financial Information presented for the six months ended 30 June 2006.

– 251 –

APPENDIX V ACCOUNTANTS’ REPORT OF HONEST RIGHT

A. FINANCIAL INFORMATION OF HONEST RIGHT

I. INCOME STATEMENTS

Notes Turnover 6 Direct expense 7 Gross profit Administrative expenses Profit from operations Impairment loss (recognised) reversed in respect of amounts due from fellow subsidiaries Impairment loss reversed in respect of loan to a fellow subsidiary Finance costs 10 Profit before tax 8 Income tax expense 11 Profit for the year/period Attributable to: Equity holders of Honest Right	Year ended 31 December 2004 2005 HK$’000 HK$’000 2,459 2,831 (939) (1,883) 1,520 948 (118) (9) 1,402 939 1,097 (3,574) 20,889 19,111 – (320) 23,388 16,156 – – 23,388 16,156 23,388 16,156	2006 HK$’000 2,494 (1,812) 682 (10) 672 (2,494) 20,000 – 18,178 – 18,178 18,178	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 1,412 717 (1,020) (516) 392 201 (2) (1) 390 200 (1,412) (717) 10,000 10,000 – – 8,978 9,483 – – 8,978 9,483 8,978 9,483

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II. BALANCE SHEETS

Notes Non-current assets Amounts due from fellow subsidiaries 13 Loan to a fellow subsidiary 14 Current assets Amounts due from fellow subsidiaries 13 Bank balances Current liabilities Accruals 15 Amount due to an immediate holding company 16 Amount due to a fellow subsidiary 17 Secured bank loan – due within one year 18 Net current liabilities Total assets less current liabilities Non-current liabilities Amount due to an immediate holding company 16 Secured bank loan – due after one year 18 Total assets and liabilities Capital and reserves attributable to the equity holders of Honest Right Share capital 19 Reserves Total equity	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 2,460 – – 889 – – 3,349 – – – – – 53 10 18 53 10 18 78 210 116 – – 17,920 – – – 20,000 20,000 20,000 20,078 20,210 38,036 (20,025) (20,200) (38,018) (16,676) (20,200) (38,018) 15,996 15,996 – 45,000 25,000 5,000 60,996 40,996 5,000 (77,672) (61,196) (43,018) – – – (77,672) (61,196) (43,018) (77,672) (61,196) (43,018)	As at 30 June 2007 HK$’000 – – – – 21 21 75 7,920 10,561 15,000 33,556 (33,535) (33,535) – – – (33,535) – (33,535) (33,535)

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III. STATEMENT OF CHANGES IN EQUITY

At 1 January 2004 Profit for the year Deemed contribution At 31 December 2004 and 1 January 2005 Profit for the year Deemed contribution At 31 December 2005 and 1 January 2006 Profit for the year At 31 December 2006 and 1 January 2007 Profit for the period At 30 June 2007 At 1 January 2006 Profit for the period At 30 June 2006 (Unaudited)	Share capital HK$’000 – – – – – – – – – – – – – –	Other reserve HK$’000 – – 320 320 – 320 640 – 640 – 640 640 – 640	Accumulated losses HK$’000 (101,380) 23,388 – (77,992) 16,156 – (61,836) 18,178 (43,658) 9,483 (34,175) (61,836) 8,978 (52,858)	Total HK$’000 (101,380) 23,388 320 (77,672) 16,156 320 (61,196) 18,178 (43,018) 9,483 (33,535) (61,196) 8,978 (52,218)

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IV. CASH FLOW STATEMENTS

OPERATING ACTIVITIES Profit before tax Adjustment for: Impairment loss (reversed) recognised in respect of amounts due from fellow subsidiaries Impairment loss reversed in respect of loan to a fellow subsidiary Finance costs Operating cash flows before working capital changes Increase in amounts due from fellow subsidiaries Increase (decrease) in amount due to an immediate holding company Increase in amount due to a fellow subsidiary Decrease in loan to a fellow subsidiary (Decrease) increase in accruals NET CASH GENERATED FROM OPERATING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Repayment of bank loan NET CASH USED IN FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR/PERIOD CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR/PERIOD ANALYSIS OF BALANCES OF BANK BALANCES	Year ended 31 December 2004 2005 HK$’000 HK$’000 23,388 16,156 (1,097) 3,574 (20,889) (19,111) – 320 1,402 939 (1,362) (1,114) – – – – 20,000 20,000 (10) 132 20,030 19,957 (20,000) (20,000) (20,000) (20,000) 30 (43) 23 53 53 10 53 10	2006 HK$’000 18,178 2,494 (20,000) – 672 (2,494) 1,924 – 20,000 (94) 20,008 (20,000) (20,000) 8 10 18 18	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 8,978 9,483 1,412 717 (10,000) (10,000) – – 390 200 (1,412) (717) (10,000) (10,000) 11,068 10,561 10,000 10,000 (41) (41) 10,005 10,003 (10,000) (10,000) (10,000) (10,000) 5 3 10 18 15 21 15 21

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APPENDIX V ACCOUNTANTS’ REPORT OF HONEST RIGHT

V. NOTES TO THE FINANCIAL INFORMATION OF HONEST RIGHT

1. General information

Honest Right is a private company incorporated in Hong Kong with limited liability. Its ultimate holding company is Chinese Estates Holdings Limited, a company incorporated in Bermuda with its shares listed on The Stock Exchange of Hong Kong Limited. The address of the registered office and principal place of business of Honest Right is 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

Honest Right’s principal activity is loan financier for its group companies.

The Financial Information is presented in Hong Kong dollars, which is the functional currency of Honest Right.

2. Adoption of new and revised Hong Kong Accounting Standards

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) which also include Hong Kong Accounting Standards (“HKASs”) and interpretations issued by the HKICPA.

During the Relevant Periods, the HKICPA issued a number of new and revised HKFRSs (herein collectively referred to as “new HKFRSs”). For the purpose of preparing and presenting the Financial Information of the Relevant Periods, Honest Right has consistently applied all these new HKFRSs over the Relevant Periods.

At the date of this report, the following new and revised HKFRSs have been issued but are not yet effective. Honest Right has not early adopted these new and revised HKFRSs. The directors of Honest Right anticipate that the application of these new and revised HKFRSs will not have material impact on the results and financial position of Honest Right.

HKFRS 8	Operating Segments_1_
HKAS 23 (Revised)	Borrowing Costs_1_
HK(IFRIC) – INT 11	HKFRS 2 – Group and Treasury Share Transactions_2_
HK(IFRIC) – INT 12	Service Concession Arrangements_3_
HK(IFRIC) – INT 13	Customer Loyalty Programmes_4_
HK(IFRIC) – INT 14	HKAS 19 – The Limit on a Defined Benefit Asset,
	Minimum Funding Requirements and their
	Interaction_3_

1 Effective for annual periods beginning on or after 1 January 2009 2 Effective for annual periods beginning on or after 1 March 2007 3 Effective for annual periods beginning on or after 1 January 2008 4 Effective for annual periods beginning on or after 1 July 2008

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3. Summary of significant accounting policies

The principal accounting policies applied in the preparation of the Financial Information are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

The Financial Information has been prepared under historical cost convention except for certain financial instruments which are measured at fair values. The preparation of the Financial Information in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying Honest Right’s accounting policies.

As at 31 December 2004, 2005, 2006 and 30 June 2007, Honest Right had incurred net liabilities of approximately HK$77,672,000, HK$61,196,000, HK$43,018,000 and HK$33,535,000 respectively. The Financial Information has been prepared on a going concern basis because the ultimate holding company of Honest Right has confirmed to provide continuing financial support to Honest Right to enable it to continue as a going concern and to settle its liabilities as and when they fall due for the foreseeable future.

(b) Revenue recognition

Interest income from a financial asset is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

(c) Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when Honest Right becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value

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APPENDIX V

through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in income statement.

Financial assets

Honest Right’s financial assets are classified into loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including amount due from fellow subsidiaries, loan to a fellow subsidiary, and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

Financial liabilities and equity instruments issued by Honest Right is classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

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APPENDIX V

An equity instrument is any contract that evidences a residual interest in the asset of Honest Right after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

Financial liabilities including accruals, amounts due to an immediate holding company, amount due to a fellow subsidiary and secured bank loan are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by Honest Right are recorded at the proceeds received, net of direct issue costs.

(d) Impairment losses

At each balance sheet date, Honest Right reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

(e) Taxation

Income tax expense represents the sum of the tax currently payable and deferred

tax.

The tax currently payable is based on taxable profit for the year. Taxation profits differs from as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that are never taxable and deductible. Honest Right’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

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Deferred tax is recognised on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the Relevant Periods when the liability is settled or the asset realised. Deferred tax is charged or credited to income statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the entity intends to settle its current tax assets and liabilities on a net basis.

(f) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those asset. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognsied in income statement in the Relevant Periods in which they are incurred.

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(g) Provisions

Provisions are recognised when Honest Right has a present obligation as a result of a past event, and it is probable that Honest Right will be required to settle that obligations. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

(h) Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they subject to common control or common significant influences. Related parties may be individuals (being member of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of Honest Right where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of Honest Right or of any entity that is a related party of Honest Right.

A transaction is considered to be a related party transaction where there is a transfer of resources or obligations between related parties.

4. Key sources of estimation uncertainty

In the process of applying Honest Right’s accounting policies which are described in Note 3, management has made certain key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Impairment loss in respect of amounts due from and loan to fellow subsidiaries

The policy for impairment loss in respect of amounts due from and loan to fellow subsidiaries of Honest Right is based on the evaluation of collectability and aging analysis of accounts and on management’s judgement. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of the fellow subsidiaries. If the financial conditions of the fellow subsidiaries of Honest Right were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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APPENDIX V ACCOUNTANTS’ REPORT OF HONEST RIGHT

5. Financial risk management

a. Financial risk management objectives and policies

Honest Right’s major financial instruments include bank balances, accruals, amount due from/to related parties and secured bank loan. The details of these financial instruments are disclosed in respective notes. The risk associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(i) Liquidity risk

Liquidity risk is the risk that funds will not be available to meet liabilities as they fall due, and it results from amount and maturity mismatches of assets and liabilities. Honest Right consistently maintains a prudent financial policy and ensure that it maintains sufficient cash to meet its liquidity requirements.

Honest Right financial liabilities are analysed into relevant maturity groupings based on the remaining period at the respective balance sheet date to the contractual maturity date, using the contractual undiscounted cash flows, as follows:

At 31 December 2004 Bank loan At 31 December 2005 Bank loan At 31 December 2006 Bank loan At 30 June 2007 Bank loan	Less than 1 year HK$’000 20,000 20,000 20,000 15,000	Between 1 and 2 years HK$’000 20,000 20,000 5,000 –	Between 2 and 5 years HK$’000 25,000 5,000 – –	Over 5 years HK$’000 –
				–
				–
				–

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APPENDIX V

(ii) Interest rate risk

Honest Right has variable-rate borrowings and is therefore exposed to cash flow interest rate risk (see Note 18 for details of these borrowings). Honest Right currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposures should the need arise.

(iii) Credit risk

Honest Right’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the balance sheet. In order to minimise the credit risk, Honest Right reviews the recoverable amount of each individual debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of Honest Right consider that Honest Right’s credit risk is significantly reduced.

Honest Right has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers.

b. Fair value

The fair values of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions.

The directors of Honest Right consider that the carrying amounts of financial assets and financial liabilities at amortised cost in the Financial Information approximate to their fair values.

c. Capital risk management

Honest Right’s objectives of managing capital are to safeguard Honest Right’s ability to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

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APPENDIX V

The capital structure of Honest Right consists of debts, which include amount due (to)/from related parties, secured bank loan, bank balances and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained profits respectively. The capital risk management policy and its debt equity structure over the Relevant Periods is as follows:

Total borrowings _Less:_Cash and cash equivalents Net debt Total equity	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 65,000 45,000 25,000 (53) (10) (18) 64,947 44,990 24,982 (77,672) (61,196) (43,018)	As at 30 June 2007 HK$’000 15,000 (21
		14,979
		(33,535

The directors of Honest Right review the capital structure on an annual basis. As a part of this review, the directors of Honest Right consider the cost of capital and other sources of funds other than issuance of shares, including borrowings from related parties or banks. Based on the recommendation of the directors of Honest Right, its overall capital structure will be balanced through raising or repayment of borrowings.

Honest Right’s overall strategy remains unchanged during the Relevant Periods.

6. Turnover

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2004	2005	2006	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Loan interest income from
a fellow subsidiary	2,459	2,831	2,494	1,412	717

Turnover represents the interest income from a financial asset during the Relevant Periods. Segment information is not presented as Honest Right is acted as a loan financier for its group companies in Hong Kong, which over 90% of Honest Right’s results and assets were related to the loan financier business during the Relevant Periods.

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7. Direct expense

Interest on bank loan wholly repayable within five years 8. Profit before tax Profit for the year/period has been arrived at after charging: Auditors’ remuneration Staff costs (including directors’ remuneration): – Salaries and other allowances – Retirement benefit contributions	Year ended 31 December 2004 2005 HK$’000 HK$’000 939 1,883 Year ended 31 December 2004 2005 HK$’000 HK$’000 1 2 – – – –	2006 HK$’000 1,812 2006 HK$’000 2 – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 1,020 516 Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – –

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9. Employee benefit expenses

(a) Directors’ emoluments

The remuneration of every director of Honest Right for the Relevant Periods is set out below:

Basic salaries and allowances and retirement benefit scheme contributions: Name of director Mr. Thomas Lau, Luen-hung_(Note l) Mr. Joseph Lau, Luen-hung Mr. Lau, Ming-wai (Note 2)_	Year ended 31 December 2004 2005 HK$’000 HK$’000 – – – – – – – –	2006 HK$’000 – – – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – – – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – – – –
				–

Note: 1. Mr. Thomas Lau, Luen-hung resigned as director of Honest Right on 15 December 2006.

1. Mr. Lau, Ming-wai was appointed as director of Honest Right on 15 December 2006.

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(b) Five highest paid individuals

The aggregate emoluments of the five highest paid individuals are as follows:

Basic salaries and allowances Retirement benefit scheme contributions	Year ended 31 December 2004 2005 HK$’000 HK$’000 – – – – – –	2006 HK$’000 – – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) – – – – – –
				–

During the Relevant Periods, no emolument was paid to the directors of Honest Right or the five highest paid individuals as an inducement to join or upon joining Honest Right as compensation for loss of office.

10. Finance costs

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2004	2005	2006	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Imputed interest on amount due to
an immediate holding company	–	320	–	–	–

11. Income tax expense

No provision for Hong Kong Profits Tax has been made as Honest Right did not have any assessable profits for the Relevant Periods.

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APPENDIX V

ACCOUNTANTS’ REPORT OF HONEST RIGHT

The tax charge for the Relevant Periods can be reconciled to profit for the year/period per income statement as follow:

Profit for the year/period Tax at Hong Kong Profits Tax rate of 17.5% Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Utilisation of tax losses previously not recognised Tax charge for the year/period	Year ended 31 December 2004 2005 HK$’000 HK$’000 23,388 16,156 4,093 2,827 – 681 (3,848) (3,344) (245) (164) – –	2006 HK$’000 18,178 3,181 436 (3,500) (117) –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 8,978 9,483 1,571 1,660 247 125 (1,750) (1,750) (68) (35) – –

12. Profit attributable to equity holders of Honest Right

Profit of approximately HK$23,388,000, HK$16,156,000, HK$18,178,000 and HK$9,483,000 have been dealt with in the financial statements of Honest Right for the years ended 31 December 2004, 2005, 2006 and for the six months ended 30 June 2007 (six months ended 30 June 2006: HK$8,978,000).

13. Amounts due from fellow subsidiaries

Amounts due from fellow subsidiaries _Less:_Impairment loss recognised	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 3,928 5,042 7,536 (1,468) (5,042) (7,536) 2,460 – –	As at 30 June 2007 HK$’000 8,253 (8,253) –

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APPENDIX V

• (i) The movement of impairment loss in respect of amounts due from fellow subsidiaries were as follow:

At 1 January Impairment loss (reversed)/ recognised in respect of amounts due from fellow subsidiaries At 31 December/30 June	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 2,565 1,468 5,042 (1,097) 3,574 2,494 1,468 5,042 7,536	As at 30 June 2007 HK$’000 7,536 717
		8,253

The balance as at 31 December 2004 is unsecured, interest free and repayable on demand. In the opinion of the directors of Honest Right, the amounts due from fellow subsidiaries are unlikely to be received within twelve months from the balance sheet date and are therefore shown in the balance sheet as non-current.

The balances as at 31 December 2005, 2006 and 30 June 2007 are unsecured, interest free and repayable on demand.

The directors of Honest Right review the fair value of the amounts due from fellow subsidiaries at the balance sheet dates, determined based on the present value of the estimated future cash flow discounted using the prevailing market value rate at the balance sheet dates.

The directors of Honest Right consider that the carrying amount of amounts due from fellow subsidiaries for the Relevant Periods approximate to their fair values.

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APPENDIX V

14. Loan to a fellow subsidiary

Loan to a fellow subsidiary _Less:_Impairment loss recognised	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 65,000 45,000 25,000 (64,111) (45,000) (25,000) 889 – –	As at 30 June 2007 HK$’000 15,000 (15,000) –

• (i) The movement for impairment loss in respect of loan to a fellow subsidiary was as follow:

At 1 January Impairment loss reversed in respect of loan to a fellow subsidiary At 31 December/30 June	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 85,000 64,111 45,000 (20,889) (19,111) (20,000) 64,111 45,000 25,000	As at 30 June 2007 HK$’000 25,000 (10,000) 15,000

The directors of Honest Right review the carrying amount of the loan to a fellow subsidiary at the balance sheet dates, as determined based on the present value of the estimated future cash flows discounted using the prevailing market rates at the balance sheet dates.

The loan is unsecured, bearing interest at the rate mutually agreed by both parties and has no fixed repayment terms. In the opinion of the directors of Honest Right, the loan is unlikely to be received within twelve months from the balance sheet dates and is therefore shown in the balance sheet as non-current.

15. Accruals

The directors of Honest Right consider that the carrying amounts of accruals as at the balance sheet dates approximate to their fair values.

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APPENDIX V

16. Amount due to an immediate holding company

The balances as at 31 December 2004 and 2005 are unsecured, interest free and had no fixed repayment terms. As the immediate holding company would not demand for repayment within twelve months from the balance sheet dates and is therefore shown in the balance sheet as non-current.

The balances as at 31 December 2006 and 30 June 2007 are unsecured, interest free and repayable on demand.

The directors of Honest Right consider that the carrying amount of the amount due to an immediate holding company at the balance sheet dates approximate to its fair value.

17. Amount due to a fellow subsidiary

The amount is unsecured, interest free and repayable on demand.

The directors of Honest Right consider that the carrying amount of amount due to a fellow subsidiary at the balance sheet dates approximate to its fair value.

18. Secured bank loan

Secured bank loan repayable within a period of: Less than one year More than one year but within two years More than two years but within five years	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 20,000 20,000 20,000 20,000 20,000 5,000 25,000 5,000 – 65,000 45,000 25,000	As at 30 June 2007 HK$’000 15,000 – –
		15,000

The loan bears interest at 0.8% above Hong Kong Inter Bank Offering Rate. At the balance sheet dates, the loan is secured by charges over certain investment properties of the fellow subsidiaries of Honest Right with carrying amount of approximately HK$269,000,000, HK$278,000,000, HK$330,000,000 and HK$ 352,000,000 as at 31 December 2004, 2005, 2006 and 30 June 2007 respectively.

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APPENDIX V

19. Share capital

Ordinary shares of HK$1 each Authorised Issued and fully paid	Number of shares As at 31 December 2004 2005 2006 10,000 10,000 10,000 2 2 2	As at 30 June 2007 10,000 2	2004 HK$ 10,000 2	Share capital As at 31 December 2005 2006 HK$ HK$ 10,000 10,000 2 2	As at 30 June 2007 HK$ 10,000
					2

20. Related party transactions

In addition to the balances with related parties and save as disclosed elsewhere in the Financial Information, Honest Right had entered into the following significant related party transactions which, in the opinion of the directors of Honest Right, were carried out in normal commercial terms and in the ordinary course of Honest Right’s business.

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2004	2005	2006	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Loan interest income from
a fellow subsidiary	2,459	2,831	2,494	1,412	717

During the Relevant Periods, no compensation of any kind was paid to the directors and other key management personnel of Honest Right.

21. Subsequent events

No significant subsequent events took place subsequent to 30 June 2007.

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APPENDIX V

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for Honest Right in respect of any period subsequent to 30 June 2007. No dividend has been declared, made or paid by Honest Right in respect of any period subsequent to 30 June 2007.

Yours faithfully

HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

The following is the text of an accountants’ report on the Chi Cheung Group for each of the three years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2007 received from HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, the reporting accountants, for inclusion in this joint circular.

==> picture [215 x 81] intentionally omitted <==

31/F Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

31 October 2007

The Board of Directors

Chi Cheung Investment Company, Limited 26th Floor, MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to Chi Cheung Investment Company, Limited (“Chi Cheung”) and its subsidiaries (hereinafter collectively referred to as the “Chi Cheung Group”), including the consolidated balance sheets of the Chi Cheung Group as at 31 December 2004, 2005 and 2006 and at 30 June 2007, the consolidated income statements, the consolidated cash flow statements and the consolidated statements of changes in equity of the Chi Cheung Group for each of the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007 (hereinafter collectively referred to as the “Relevant Periods”), and the notes, for inclusion in the joint circular of Chinese Estates Holdings Limited and Chi Cheung dated 31 October 2007 in connection with a very substantial acquisition, a very substantial disposal and connected transaction of the Chi Cheung Group (the “Joint Circular”).

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Chi Cheung is a public listed company incorporated in Hong Kong on 24 November 1952 with limited liability and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its ultimate holding company is Chinese Estates Holdings Limited (“Chinese Estates”), a company incorporated in Bermuda with its securities listed on the Stock Exchange. Chi Cheung acts as an investment holding company and its subsidiaries are principally engaged in property investment and development. On 11 September 2007, Chi Cheung entered into a sale and purchase agreement (the “S&P Agreement”) with Chinese Estates under which:

• (i) Shing Ping Development Ltd., a wholly-owned subsidiary of Chi Cheung, has agreed to purchase (i) all the issued shares of Honest Right Investment Limited and Evergo China Holdings Limited (which, together with their respective subsidiaries and associated companies, are collectively referred to as the “Target Companies”); (ii) all sums due from the Target Companies to Chinese Estates Holdings Limited and its subsidiaries (the “Chinese Estates Group”) other than the Target Companies as at the date of the S&P Agreement (the “CE Sale Loan”); and (iii) all those additional loans which may have been provided by members of the Chinese Estates Group (other than the Target Companies) to the Target Companies after the date of the S&P Agreement but prior to the completion of the S&P Agreement and with prior written consent of Chi Cheung (hereinafter collectively referred to as the “Acquisition”).

• (ii) Victory Gain Holdings Limited, a wholly-owned subsidiary of Chinese Estates, has agreed to purchase (i) all the issued shares of Jumbo Legend Limited, Moregift Investments Limited, New Hong Kong Inc., Paperkit International Limited, Pinball International Limited and Star Glory Limited (which, together with their respective subsidiaries and associated companies, are collectively referred to as the “CC Sale Companies”); (ii) all sums due from the CC Sale Companies to the Chi Cheung Group other than the CC Sale Companies as at the date of the S&P Agreement (the “CC Sale Loan”); and (iii) all those additional loan which may have been provided by the Chi Cheung Group (other than the CC Sale Companies) to the CC Sale Companies after the date of the S&P Agreement but prior to the completion of the S&P Agreement and with prior written consent of Chinese Estates (collectively referred to as the “Disposal”) (hereinafter collectively together with the Acquisition referred to as the “Asset Transaction”).

The provisional consideration of the Acquisition is estimated to be approximately HK$10,450.2 million. The provisional consideration of the Disposal is estimated to be approximately HK$689.5 million (assuming the acquisition of 50% shareholding in Canaria Holding Limited and shareholder’s loan due from Canaria Holding Limited and the loan due from Earn Elite Development Limited does not take place before completion of the Asset Transaction (“Canaria Acquisition”)) or approximately HK$706.1 million (assuming Canaria Acquisition takes place before completion of the Asset Transaction).

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APPENDIX VI

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

Under the S&P Agreement, upon the completion of the Asset Transaction, the provisional considerations shall set-off against each other and Shing Ping Development Ltd. will pay the remaining balance of the estimated provisional consideration of the Acquisition in an amount of approximately HK$9,760.7 million by way of:

• (i) the issue and allotment by Chi Cheung of the consideration shares at an issue price of HK$2.66 per ordinary share of HK$0.01 each in the share capital of the Chi Cheung to Chinese Estates or its nominees for the amount of approximately HK$469.7 million;

• (ii) the issue of the convertible bonds by Chi Cheung in the principal amount of approximately HK$9,291 million; and

• (iii) as to the remaining balance, by cash payment of approximately HK$1,097.

Basis of preparation

The Financial Information has been prepared by the directors of Chi Cheung based on the financial statements for the Relevant Periods, on the basis set out in Note 3 below. The Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) which also include Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), accounting principles generally accepted in Hong Kong.

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APPENDIX VI

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

At the date of this report, Chi Cheung has direct and indirect interests in the following subsidiaries and associates which are all private limited companies with limited liability. None of the subsidiaries and associates had issued any debt securities.

			Issued and
	Place and date of		fully paid	Equity interest
		incorporation/	share capital/	held by the	Principal
Name of subsidiaries		registration	registered capital	Chi Cheung Group	activities	Notes
Chi Cheung Management		Hong Kong	HK$2	100%	Dormant	4,5
Services Limited	17 September 1996
Chi Cheung (Nominees)		Hong Kong	HK$2	100%	Dormant	4,5
Limited	13 November 1981
Comford Tower Limited	Republic of Liberia		US$1	100%	Investment holding	1,4,5
	15 December 1989
Country Homes Limited		Hong Kong	Ordinary shares of	100%	Property investment	1,4,5
	11 November 1964		HK$200
			Non-voting deferred
			ordinary shares of
			HK$164,400
			Non-voting deferred
			founder shares of
			HK$1,000
Country Honour Limited		Hong Kong	HK$2	100%	Property investment	1,4,5
		10 June 1988
Dynamic Master Limited		British Virgin	US$1	100%	Investment holding	1,2
		Islands (“BVI”)
		23 March 2004
E-Trade.Com Limited		BVI	US$100	100%	Investment holding	1,2
		26 January 2000
Evergo China Group		Hong Kong	HK$1	100%	Dormant	N/A
Limited (formerly known		8 August 2006
as King Chance Limited)
Farnell Venture Inc.		BVI	US$1	100%	Investment holding	1, 2
		1 July 1997
First Castle Limited		BVI	US$1	100%	Property investment	1,4,5
		17 February 1998
Florta (B.V.I.) Limited		BVI	US$1	100%	Investment holding	2
		2 January 1992
Grade World Investment		Hong Kong	HK$2	100%	Dormant	4,5
Limited		18 June 1997
Hackney Investments		BVI	US$1	100%	Dormant	2
Limited		16 March 1993
Jade Mountain Limited		BVI	US$1	100%	Investment holding	2
		4 January 1993

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APPENDIX VI

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

		Issued and
	Place and date of	fully paid	Equity interest
	incorporation/	share capital/	held by the	Principal
Name of subsidiaries	registration	registered capital	Chi Cheung Group	activities	Notes
Jinline Investments Ltd.	BVI	US$1	100%	Investment holding	4,5
	21 July 1992
Jumbo Legend Limited	BVI	US$2	100%	Investment holding	1,2
	12 June 2002
Kinloch Investments Corp.	BVI	US$100	100%	Investment holding	4,5
	1 November 1990
Konshing Enterprises Limited	Hong Kong	HK$1,000	51%	Property development	1,4,5
	11 June 1991
Lucky Guide International	Hong Kong	HK$6	51%	Property investment	1,4,5
Limited	23 June 1993
Moregift Investments Limited	Hong Kong	HK$10,000	100%	Property holding	1,4,5
	2 September 1981
New Hong Kong Inc.	BVI	US$1	100%	Investment holding	1,2
	8 January 1997
Paperkit International Limited	BVI	US$1	100%	Investment holding	1,2
	8 May 1997
Paton (B.V.I.) Limited	BVI	US$1	100%	Dormant	2
	17 July 1992
Perfect Country Limited	BVI	US$1	100%	Dormant	N/A
	29 December 2005
Pinball International Limited	BVI	US$1	100%	Dormant	1,2
	4 April 1996
Proxy Investment Limited	Hong Kong	HK$2	100%	Dormant	1,4,5
	26 October 1995
Reeden Limited	Hong Kong	HK$2	100%	Investment holding	1,4,5
	26 April 2000
Sanewing Investments Limited	Hong Kong	HK$10,000	100%	Property trading	1,4,5
	27 January 1981
Shing Ping Development	BVI	US$1	100%	Investment holding	N/A
Ltd.	20 June 2007
Star Glory Limited	BVI	US$1	100%	Investment holding	1,2
	12 December 1995
Union Spark Investment	Hong Kong	HK$2	100%	Investment holding	1,4,5
Limited	15 July 1988
View Success Investments	Hong Kong	HK$2	100%	Property investment	1,4,5
Limited	28 November 1989			and trading

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APPENDIX VI

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

		Issued and
	Place and date of	fully paid	Equity interest
	incorporation/	share capital/	held by the	Principal
Name of subsidiaries	registration	registered capital	Chi Cheung Group	activities	Notes
Wing Lee Development	Hong Kong	HK$2	100%	Dormant	1,4,5
Limited	27 January 1997
汕頭市海麗花園有限公司	People’s Republic	RMB34,504,540	100%	Investment holding	6
(Shantou Royal Garden	of China (“PRC”)
Company Limited)	30 March 1996
番禺駿升科技城房產	PRC	US$5,400,000	100%	Property development	6
開發有限公司(Gemstar	2 March 1993
Technology Park Properties
Investment Ltd.)
		Issued and
	Place and date of	fully paid	Equity interest
	incorporation/	share capital/	held by the	Principal
Name of associates	registration	registered capital	Chi Cheung Group	activities	Notes
Canaria Holding Limited	BVI	US$2	50%	Investment holding	1,4,5
	1 July 1997
Earn Elite Development	Hong Kong	HK$2	50%	Property investment	1,4,5
Limited	6 January 1997
Finedale Industries Limited	Hong Kong	HK$9,999	331/3%	Property investment	1,3
	29 July 1988
Golden World Enterprises	Hong Kong	HK$10,000	30%	Investment holding	N/A
(Wuhan) Limited	8 October 1991
Healthy Point Limited	Hong Kong	Ordinary shares of	50%	Property investment	1,3
	20 February 1987	HK$2
		Non-voting
		preferred shares
		of HK$1

Notes

1. Collectively referred to as the “CC Sale Companies”.

2. No audited financial statements have been prepared for these companies, which are incorporated in a country where there were no statutory audit requirements.

3. The statutory audited financial statements of these companies for the three years ended 30 June 2004, 2005 and 2006 were audited by W.M. Sum & Co. and the audited financial statements were prepared in accordance with HKFRSs issued by the HKICPA.

4. The statutory audited financial statements of these companies for the year ended 31 December 2006 were audited by HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants.

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

1. The statutory audited financial statements of these companies for the two years ended 31 December 2004 and 2005 were audited by Deloitte Touche Tohmatsu and the audited financial statements were prepared in accordance with HKFRSs issued by the HKICPA.

2. The statutory financial statements of these companies for the three years ended 31 December 2004, 2005 and 2006 were prepared in accordance with relevant accounting principles and financial regulations applied in the PRC and were audited by PRC auditors of 廣州業勤會計師事務所有限公司 (GuangZhou YeQin Certified Public Accountants Co., Ltd.) and 汕頭市縱橫會計師事務所有限公司 (Shantou Zongheng Public Accountants Co., Ltd.) (formerly known as 汕頭市囱實會計師事務所有限公司 Shantou Hengshi Public Accountant Co., Ltd.）.

We have acted as auditors of Chi Cheung and have audited the consolidated financial statements of the Chi Cheung Group for the year ended 31 December 2006 and the six months ended 30 June 2007. Deloitte Touche Tohmatsu (“Deloitte”) has acted as auditors of Chi Cheung and have audited the consolidated financial statements of Chi Cheung Group for the years ended 31 December 2004 and 2005.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION

The directors of Chi Cheung are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with HKFRSs issued by the HKICPA and the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and the true and fair presentation of Financial Information that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The directors of Chi Cheung are responsible for the contents of the Joint Circular in which this report is included.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Financial Information based on our audit. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out additional procedures as we considered necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Financial Information is free from material misstatement.

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Information. The procedures selected depend on the reporting accountants’ judgment, including the assessment of the risks of material misstatement of the Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal controls relevant to the entity’s preparation and true and fair presentation of the Financial Information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Financial Information.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the Financial Information for the years ended 31 December 2004, 2005 and 2006 and for the six months ended 30 June 2007, for the purpose of this report, gives a true and fair view of the state of affairs of Chi Cheung and the Chi Cheung Group as at 31 December 2004, 2005 and 2006 and at 30 June 2007 and of the results and cash flows of the Chi Cheung Group for the years and period then ended.

COMPARATIVE FINANCIAL INFORMATION

Respective responsibilities of directors and reporting accountants

The directors of Chi Cheung are responsible for the preparation of the unaudited financial information of the Chi Cheung Group including the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the six months ended 30 June 2006 (the “Comparative Financial Information”), together with the notes thereto.

It is our responsibility to form an independent conclusion, based on our review, on the Comparative Financial Information.

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Review work performed

For the purpose of this report, we have also reviewed the unaudited financial information of the Chi Cheung Group including the Comparative Financial Information, together with the notes thereto, for which the directors of Chi Cheung are responsible, in accordance with Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquiries of company management and applying analytical procedures to Comparative Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the Comparative Financial Information.

Review conclusion

On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the Comparative Financial Information for the six months ended 30 June 2006.

– 282 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

A. FINANCIAL INFORMATION

I. CONSOLIDATED INCOME STATEMENTS

Notes Turnover 7 Cost of sales Gross profit Other revenue 7 Other income Administrative expenses Other operating expenses Fair value changes on investment properties 16 Finance costs 8 Impairment loss recognised in respect of property interests held for development Impairment loss recognised in respect of advances to associates 22 Provision for a litigation claim Write-back of allowance for amount due from an associate 22 Write-back of allowance for amounts due from former associates Share of results of associates 9 Profit/(loss) before taxation 10 Taxation 11 Profit/(loss) for the year/period Dividend 15 Attributable to: Equity holders of Chi Cheung Minority interests Earnings/(loss) per share Basic and diluted 14	Year ended 31 December 2004 2005 HK$’000 HK$’000 18,870 3,370 (13,319) (1,363) 5,551 2,007 3,750 8,504 888 906 (3,681) (4,818) (925) – 4,795 4,600 (1,990) (2,100) (183,381) – (8) (4) (8,427) – 1,449 1,024 7,788 8,720 51,199 100,977 (122,992) 119,816 (766) (398) (123,758) 119,418 – – (121,768) 121,518 (1,990) (2,100) (123,758) 119,418 (43.13) cents 36.40 cents	2006 HK$’000 2,916 (1,257) 1,659 11,932 956 (4,711) (638) 14,874 (58) – (13,477) – 897 – 84,886 96,320 (2,029) 94,291 – 94,349 (58) 94,291 27.85 cents	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 1,422 13,720 (638) (7,110) 784 6,610 5,962 6,492 462 561 (2,188) (3,100) (38) – 10,800 1,811 (29) (31) – – – (204) – – 897 – – 976 27,205 35,466 43,855 48,581 (2,149) (1,248) 41,706 47,333 – – 41,735 47,364 (29) (31) 41,706 47,333 12.32 cents 13.98 cents

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

II. CONSOLIDATED BALANCE SHEETS

Notes Non-current assets Investment properties 16 Property, plant and equipment 17 Properties held for development 18 Prepaid lease payments 20 Interests in associates 22 Advances to associates 22 Available-for-sale financial asset 23 Current assets Properties held for sale 24 Debtors, deposits and prepayments 25 Tax recoverable Cash and cash equivalents 26 Current liabilities Creditors and accruals 27 Deposits received Provision for a litigation claim 28 Tax payable Net current assets Total assets less current liabilities	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 49,350 53,950 63,400 287 240 205 750 23,901 – 9,733 9,700 9,666 159,368 246,345 329,152 136,994 124,756 106,911 270 270 270 356,752 459,162 509,604 28,796 28,796 78,483 265 768 672 135 6 6 131,121 195,130 187,900 160,317 224,700 267,061 1,710 6,899 8,886 611 346 3,276 8,427 8,427 – 5 7 1,805 10,753 15,679 13,967 149,564 209,021 253,094 506,316 668,183 762,698	As at 30 June 2007 HK$’000 54,200 196 – 9,649 363,908 98,517 270
		526,740
		72,159 2,765 6 216,391
		291,321
		4,661 286 – 3,373
		8,320
		283,001
		809,741

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Non-current liabilities Loans from minority shareholders of subsidiaries 29 Advance from an associate 30 Deferred tax liabilities 31 Total assets and liabilities Equity Capital and reserves attributable to equity holders of Chi Cheung Share capital 32 Reserves Equity attributable to equity holders of Chi Cheung Minority interests Total equity Notes	38,093 965 1,023 12,909 59 – 619 1,010 1,235 51,621 2,034 2,258 454,695 666,149 760,440 2,823 3,388 3,388 489,965 663,726 758,075 492,788 667,114 761,463 (38,093) (965) (1,023) 454,695 666,149 760,440 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000	1,054 – 914 1,968 807,773 3,388 805,439 808,827 (1,054) 807,773 As at 30 June 2007 HK$’000

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APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

III. BALANCE SHEETS

Notes Non-current assets Property, plant and equipment 17 Interests in subsidiaries 21 Advances to subsidiaries 21 Advances to associates 22 Available-for-sale financial asset 23 Current assets Debtors and prepayments 25 Cash and cash equivalents 26 Current liabilities Creditors and accruals 27 Provision for a litigation claim 28 Net current assets Total assets and liabilities Equity Capital and reserves attributable to equity holders of Chi Cheung Share capital 32 Reserves 33 Total equity	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 45 16 – 1,059 185,311 184,104 400,045 207,736 217,466 9,500 9,500 9,500 270 270 270 410,919 402,833 411,340 56 553 549 112,501 194,522 183,911 112,557 195,075 184,460 739 846 1,042 8,427 8,427 – 9,166 9,273 1,042 103,391 185,802 183,418 514,310 588,635 594,758 2,823 3,388 3,388 511,487 585,247 591,370 514,310 588,635 594,758	As at 30 June 2007 HK$’000 – 184,104 191,178 9,500 270
		385,052
		2,635 215,558
		218,193
		523 –
		523
		217,670
		602,722
		3,388 599,334
		602,722

– 286 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

IV. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The Chi Cheung Group At 1 January 2004 Loss for the year and total recognised expenses for the year Exchange differences on translation of overseas operations Adjustment on contribution from shareholders At 31 December 2004 At 1 January 2005 Profit for the year and total recognised income for the year Amount received from share placing Issue cost on share placing Transfer upon issue of shares for share placing_(Note c)_ Write off of loans from minority shareholders upon voluntary winding-up of certain subsidiaries At 31 December 2005 At 1 January 2006 Profit for the year and total recognised income for the year At 31 December 2006 At 1 January 2006 Profit for the period and total recognised income for the period At 30 June 2006 (unaudited) At 1 January 2007 Profit for the period and total recognised income for the period At 30 June 2007		Equity attributabl	Equity attributabl	e to equity ho	lders of Chi Cheung	Total HK$’000 614,823 (121,768) 311 (578) 492,788 492,788 121,518 53,637 (829) – – 667,114 667,114 94,349 761,463 667,114 41,735 708,849 761,463 47,364 808,827	Minority interests HK$’000 (36,103) (1,990) – – (38,093) (38,093) (2,100) – – – 39,228 (965) (965) (58) (1,023) (965) (29) (994) (1,023) (31) (1,054)	Total equity HK$’000 578,720 (123,758) 311 (578) 454,695 454,695 119,418 53,637 (829) – 39,228 666,149 666,149 94,291 760,440 666,149 41,706 707,855 760,440 47,333 807,773
	Share capital HK$’000 2,823 – – – 2,823 2,823 – 565 – – – 3,388 3,388 – 3,388 3,388 – 3,388 3,388 – 3,388	C Share premium s HK$’000 442,917 – – – 442,917 442,917 – 53,072 (829 ) – – 495,160 495,160 – 495,160 495,160 – 495,160 495,160 – 495,160	ontribution from hareholders HK$’000 (Note a) 104,803 – – (578 ) 104,225 104,225 – – – – – 104,225 104,225 – 104,225 104,225 – 104,225 104,225 – 104,225	Special capital reserve I & II HK$’000 (Note b) 54,720 – – – 54,720 54,720 – – – (54,720 ) – – – – – – – – – – –	Retained profits/ Exchange (accumulated reserve losses) HK$’000 HK$’000 (311 ) 9,871 – (121,768 ) 311 – – – – (111,897 ) – (111,897 ) – 121,518 – – – – – 54,720 – – – 64,341 – 64,341 – 94,349 – 158,690 – 64,341 – 41,735 – 106,076 – 158,690 – 47,364 – 206,054

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Notes:

• (a) On 11 February 2003, Chi Cheung and Jumbo Legend Limited, a wholly-owned subsidiary of Chi Cheung, entered into a sale and purchase agreement with Chinese Estates relating to, among other things, the purchase of a group of wholly-owned subsidiaries of Chinese Estates, which held direct or indirect interests in various properties, and the sale of Super Series Limited (“Super Series”), a wholly-owned subsidiary of Chi Cheung which held 100% indirect interest in the development project of Manhattan Avenue (the “Previous Asset Transaction”). The Previous Asset Transaction was completed on 7 November 2003 and resulted in the acquisition of thirteen properties interests in Hong Kong and in the PRC.

Contribution from shareholders represents the excess of the fair value of the net assets acquired from Chinese Estates over the consideration paid.

• (b) As part of the capital reorganisation, an order on petition dated 7 October 2003 (the “Order”) was issued by the High Court of Hong Kong Special Administrative Region of the People’s Republic of China in connection with the reduction of the capital of Chi Cheung for an amount of HK$296,536,000. Pursuant to the Order, Chi Cheung applied HK$245,025,000 of the above amount to eliminate its accumulated losses as at 31 December 2002 while the remaining balance of HK$51,511,000 was included in a “Special Capital Reserve I” account.

Chi Cheung also undertook that any future recoveries of the advances to Super Series Limited, a former wholly-owned subsidiary of Chi Cheung, which was disposed of under the Previous Asset Transaction, beyond their written down value had to be credited to “Special Capital Reserve II”. Accordingly, the gain on disposal of Super Series amounting to HK$3,209,000 was included in this reserve.

• (c) It was also provided in the Order that, notwithstanding the above undertaking, the amount standing to the credit of the Special Capital Reserve I & II might be reduced by the amount of any increase in the paidup share capital or the amount standing to the credit of the share premium account of Chi Cheung as the result of the payment up of shares by the receipt of the new consideration or capitalisation of distributable profit after 8 October 2003, the effective date (the “effective date”) for capital reduction.

Chi Cheung has increased its issued share capital and share premium account up to the requirement of the Order for reduction of the Special Capital Reserve I & II by the issue and allotment of shares for cash consideration from the effective date up to year ended 31 December 2005. Accordingly, based on legal opinion, the total amount of HK$54,720,000 standing to the credit of the Special Capital Reserve I & II can be totally reduced and transferred to the retained profits/(accumulated losses) of Chi Cheung.

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APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

V. CONSOLIDATED CASH FLOW STATEMENTS

Operating activities Profit/(loss) before taxation Adjustments for: Share of results of associates Interest income Finance costs Depreciation Amortisation of prepaid lease payments Impairment loss recognised in respect of trade receivable Impairment loss recognised in respect of properties held for sale Impairment loss recognised in respect of advances to associates Impairment loss recognised in respect of property interests held for development Write-back of allowance for amounts due from associates Write-back of allowance for amounts due from former associates Provision for a litigation claim Fair value changes on investment properties (Gain)/loss on disposal of investment properties Operating cash flows before movements in working capital Increase/(decrease) in deposits received Decrease in properties held for sale Decrease/(increase) in debtors, deposits and prepayments (Decrease)/increase in creditors and accruals Decrease in provision for a litigation claim Net cash generated from/ (used in) operations Hong Kong Profits Tax (paid)/refunded Overseas tax paid Net cash generated from/(used in) operating activities	Year ended 31 December 2004 2005 HK$’000 HK$’000 (122,992) 119,816 (51,199) (100,977) (4,360) (9,393) 1,990 2,100 55 47 33 33 – – – – 8 4 183,381 – (1,449) (1,024) (7,788) (8,720) 8,427 – (4,795) (4,600) 925 – 2,236 (2,714) (1,943) (264) 12,304 – 4,580 (181) (126) 91 – – 17,051 (3,068) (235) 124 (801) – 16,015 (2,944)	2006 HK$’000 96,320 (84,886) (12,851) 58 35 34 38 600 13,477 – (897) – – (14,874) (24) (2,970) 110 – 27 455 (8,427) (10,805) (6) – (10,811)	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 43,855 48,581 (27,205) (35,466) (6,424) (6,689) 29 31 17 9 17 17 38 – – – – 204 – – (897) – – (976) – – (10,800) (1,811) – (86) (1,370) 3,814 – (1,308) – 6,324 59 51 (8,342) (452) – – (9,653) 8,429 – – – – (9,653) 8,429

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Investing activities Prepayment for acquisition of associates Increase in properties held for development Net proceeds from disposal of investment properties Interest received Deposit received from disposal of properties Dividend received from an associate Repayment from associates Repayment from former associates Net cash generated from/(used in) investing activities Financing activities Increase in advance from an associate Net proceeds from share placing Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Effect of foreign exchange rate changes Cash and cash equivalents at end of the year/period Analysis of the balances of cash and cash equivalents Cash and cash equivalents	– – (263) (18,054) 34,740 – 164 4,608 – – – 1,150 23,806 17,721 7,788 8,720 66,235 14,145 1,020 – – 52,808 1,020 52,808 83,270 64,009 47,870 131,121 (19) – 131,121 195,130 131,121 195,130 Year ended 31 December 2004 2005 HK$’000 HK$’000	– (24,853) 5,448 7,103 2,819 2,020 11,044 – 3,581 – – – (7,230) 195,130 – 187,900 187,900 2006 HK$’000	– (1,708) (22,077) (3,773) – 9,416 3,574 3,892 1,100 – 1,050 710 5,888 10,800 – 725 (10,465) 20,062 – – – – – – (20,118) 28,491 195,130 187,900 – – 175,012 216,391 175,012 216,391 Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited)

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APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

VI. NOTES TO THE FINANCIAL INFORMATION

1. General information

Chi Cheung is a public listed company incorporated in Hong Kong with limited liability and its shares are listed on The Stock Exchange. Its ultimate holding company is Chinese Estates, a company incorporated in Bermuda with its securities listed on The Stock Exchange. The address of the registered office of Chi Cheung is 26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

During the Relevant Periods, Chi Cheung acts as an investment holding company and its subsidiaries are principally engaged in property investment and development. The principal activities and other particulars of its principal subsidiaries are set out in Note 39 to the Financial Information.

2. Application of new and revised Hong Kong Financial Reporting Standards

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) which also include Hong Kong Accounting Standards (“HKASs”) and interpretations issued by the HKICPA.

During the Relevant Periods, the HKICPA issued a number of new and revised HKFRSs (herein collectively referred to as “new HKFRSs”). For the purpose of preparing and presenting the Financial Information of the Relevant Periods, the Chi Cheung Group has consistently applied all these new HKFRSs over the Relevant Periods.

At the date of this report, the HKICPA issued the following new HKFRSs that have been issued but are not yet effective. Chi Cheung has not early adopted these new HKFRSs. The directors of the Chi Cheung anticipate that the application of these new HKFRSs will not have material impact on the results and financial position of the Chi Cheung Group.

HKAS 23 (Revised) Borrowing Costs [1] HKFRS 8 Operating Segments [1] HK(IFRIC) – Int 11 HKFRS 2 – Group and Treasury Share Transactions [2] HK(IFRIC) – Int 12 Service Concession Arrangements [3] HK(IFRIC) – Int 13 Customer Loyalty Programmes [4] HK(IFRIC) – Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction [3]

Notes:

1. Effective for accounting periods beginning on or after 1 January 2009.

2. Effective for accounting periods beginning on after 1 March 2007.

3. Effective for accounting periods beginning on or after 1 January 2008.

4. Effective for accounting periods beginning on or after 1 July 2008.

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3. Significant accounting policies

The Financial Information have been prepared in accordance with all applicable HKFRSs issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance and applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”). The Financial Information is presented in Hong Kong dollars and all values are rounded to the nearest thousand (HK$’000) except otherwise indicated.

The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustments in the next year are discussed in Note 4 to the Financial Information.

A summary of the significant accounting policies followed by the Chi Cheung Group in the preparation of the Financial Information is set out below:

(a) Basis of preparation

The Financial Information has been prepared on the historical cost basis except for certain financial assets, financial liabilities and investment properties, which are measured at their fair values, as explained in the accounting policies set out below.

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(b) Basis of consolidation

The Financial Information incorporates the financial statements of Chi Cheung and its subsidiaries.

The results of subsidiaries acquired or disposed of during Relevant Periods are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Chi Cheung Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s share in the subsidiary’s equity are allocated against the interests of the Chi Cheung Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

(c) Interests in associates

An associate is an entity which the Chi Cheung Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Chi Cheung Group’s share of the profit or loss and of changes in equity of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Chi Cheung Group’s interest in that associate (which includes any long-term interests, that, in substance, form part of the Chi Cheung Group’s net investment in the associate) are not recognised.

Where a group entity transacts with an associate of the Chi Cheung Group, profits and losses are eliminated to the extent of the Chi Cheung Group’s interest in the relevant associate.

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(d) Investment properties

Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at its fair value at the balance sheet date. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss for the year/period in which they arise.

On disposal of investment properties, the gain or loss is directly recognised in the income statement.

(e) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight-line method.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefit are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year/period in which the item is derecognised.

(f) Property interests held for development

Property interests held for development represent a right to develop properties on a piece of land upon payment of a final amount or land acquired pending any definite intention, and are carried at cost, less any identified impairment losses.

(g) Properties held for development

When the leasehold land and buildings are in the course of development for production, rental, for administrative purposes or for sale, the leasehold land component is classified as a prepaid lease payment and amortised over a straight-line basis over the lease term. During the construction period, the amortisation charge provided for the leasehold land is included as part of costs of buildings under construction. Buildings under construction are carried at cost, less any identified impairment losses. Depreciation of buildings commences when they are available for use.

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(h) Properties held for sale

Completed properties held for sale remaining unsold at the balance sheet date are stated at the lower of cost and net realisable value.

(i) Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Chi Cheung Group as lessor

Rental income from operating leases is recognised in the income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

The Chi Cheung Group as lessee

Rentals payable under operating leases is charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefit received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expenses over the lease term on a straight-line basis.

(j) Cash and cash equivalents

Cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Chi Cheung Group’s cash management.

(k) Revenue recognition

Revenue from properties held for sale is recognised on the execution of a binding sales agreement. Payments received from the purchasers prior to this stage are recorded as deposits received on sales of properties and are grouped under current liabilities.

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Rental income from properties under operating leases is recognised on a straightline basis over the term of the relevant lease.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

(l) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the year/period in which they arise, except for exchange differences arising on a monetary item that forms part of the Chi Cheung Group’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Chi Cheung Group’s foreign operations are translated into the presentation currency of Chi Cheung (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year/period unless exchange rates fluctuate significantly during the year/period , in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the exchange reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

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Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the translation reserve.

(m) Retirement benefit costs

Payments to defined contribution schemes are charged as expenses as they fall due.

(n) Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when an entity of the Chi Cheung Group becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Chi Cheung Group’s financial assets are classified into loans and receivables and available-for-sale financial assets. The accounting policies adopted are set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including debtors, deposits and prepayments) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

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Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other catergories under HKAS 39. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in income statement. Any impairment losses on available-for-sale financial assets are recognised in income statement. Impairment losses on available-for-sale equity investments will not reverse in subsequent periods. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

Financial liabilities and equity

Financial liabilities and equity instruments issued by an entity of the Chi Cheung Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Chi Cheung Group after deducting all of its liabilities.

The Chi Cheung Group’s financial liabilities are classified into other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Other financial liabilities

Other financial liabilities including creditors and accruals, deposits received, provision for a litigation claim and loans from minority shareholders of subsidiaries are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by Chi Cheung are recorded at the proceeds received, net of direct issue costs.

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APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

(o) Taxation

Income tax expense represents the sum of the tax currently payable and deferred

tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profits before taxation as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible. The Chi Cheung Group’s liability for current tax is calculated using tax rates that have been enacted or substantially enacted at the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary difference can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in associates, except where the Chi Cheung Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

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(p) Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being member of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Chi Cheung Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Chi Cheung Group or of any entity that is a related party of the Chi Cheung Group.

A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

(q) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

(r) Impairment losses

At each balance sheet date, the Chi Cheung Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

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(s) Provisions

Provisions are recognised when the Chi Cheung Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligations.

(t) Contingent liabilities and assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Chi Cheung Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Chi Cheung Group. Contingent assets are not recognised but are disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(u) Segment reporting

A business segment is a group of assets and operations engaged in property development or property leasing that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in property development or property leasing within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

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APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

4. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under circumstances.

Critical accounting estimates and assumptions

The Chi Cheung Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Income taxes

The Chi Cheung Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Chi Cheung Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(b) Impairment of assets

The Chi Cheung Group tests annually whether the assets have suffered any impairment. The recoverable amount of an asset or a cash generating unit is determined based on value-in-use calculations which require the use of assumptions and estimates.

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ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

(c) Estimate of fair value of investment properties

The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Chi Cheung Group determines the amount within a range of reasonable fair value estimates. In making its judgement, the Chi Cheung Group considers information from a variety of sources including:

• (i) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;

• (ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

• (iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainly in the amount and timing of the cash flows.

If information on current or recent prices of investment properties is not available, the fair values of investment properties are determined using discounted cash flow valuation techniques. The Chi Cheung Group uses assumptions that are mainly based on market conditions existing at each balance date.

The principal assumptions underlying management’s estimation of fair value are those related to: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data, and actual transactions by the Chi Cheung Group and those reported by the market.

The expected future market rentals are determined on the basis of current market rentals for similar properties in the same location and condition.

The Chi Cheung Group assesses the fair value of its investment properties based on valuation determined by qualified independent professional surveyors in Hong Kong.

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• (d) Property interests held for development

As explained in Note 19, the Chi Cheung Group made a full provision for an impairment loss of HK$183,381,000 in respect of property interests held for development in Shantou in 2004.

The write-back of impairment loss to other income (if any) will rely on the conclusive judgement of legal proceedings and the actual amount that could be recovered from the recourse action (if necessary).

5. Financial risk management

The Chi Cheung Group’s activities expose it to a variety of financial risk. The Chi Cheung Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Chi Cheung Group’s financial performance.

(a) Market risks

Foreign exchange risk

The Chi Cheung Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Hong Kong dollars. Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities and net investments in foreign operations.

Price risk

The Chi Cheung Group has investment properties and available-for-sale financial asset which are measured at fair value at each balance sheet date. The Chi Cheung Group manages its exposure by closely monitoring the price movements and the changes in market conditions that may affect the value of these investments.

(b) Credit risk

The Chi Cheung Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at the balance sheet dates in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. The Chi Cheung Group’s time deposits are deposited with banks of high credit quality in Hong Kong. For rent

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APPENDIX VI

receivable, the Chi Cheung Group obtained sufficient deposits from tenants and stringent monitoring procedures are in place to deal with overdue debts. In addition, the Chi Cheung Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of Chi Cheung consider that the Chi Cheung Group’s credit risk is significantly reduced.

The Chi Cheung Group has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers.

(c) Interest rate risk

The Chi Cheung Group has no interest rate risk arises from borrowing.

The Chi Cheung Group has no significant interest-bearing assets except for interest-bearing advances to associates and time deposits and bank balances, details of which have been disclosed in Note 22(b) and Note 26.

(d) Liquidity risk

The Chi Cheung Group manages liquidity risk by regularly monitoring current and expected liquidity requirements and ensuring sufficient liquid cash and intended credit lines of funding from major financial institutions to meet the Chi Cheung Group’s liquidity requirements in the short and long term.

(e) Cash flow and fair value interest rate risk

Long term borrowings at variable interest rates expose the Chi Cheung Group to cash flow interest rate risk and those at fixed rates expose the Chi Cheung Group to fair value interest rate risk.

The Chi Cheung Group monitors the interest rate risk exposure on a continuous basis and adjusts the portfolio of borrowings where necessary.

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(f) Capital risk management

The Chi Cheung Group manages its capital to ensure that entities in the Chi Cheung Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the Chi Cheung Group consists of debts, which include loans from minority shareholders of subsidiaries, time deposits, bank balances and cash and equity attributable to equity holders of Chi Cheung, comprising issued capital, reserves and retained profits respectively.

The directors of Chi Cheung review the capital structure on an annual basis. As a part of this review, the directors of Chi Cheung consider the cost of capital and other sources of funds other than issuance of shares, including borrowings from related parties. Based on the recommendation of the directors of Chi Cheung, the Chi Cheung Group will balance its overall capital structure through raising or repayment of borrowings.

The Chi Cheung Group overall strategy remains unchanged during the Relevant Periods.

6. Segment information

Business segments

For management purposes, the Chi Cheung Group is currently organised into two operating divisions – property development and property leasing. These divisions are the basis on which the Chi Cheung Group reports its primary segment information.

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Principal activities are as follows: – Property development Property development and sales of properties – Property leasing Property rental

Segment information about these businesses is presented below:

Income statement

For the year ended 31 December 2006

Segment turnover Segment result – Operating results before fair value changes on investment properties – Fair value changes on investment properties – Segment result after fair value changes on investment properties Unallocated corporate income Unallocated corporate expenses Finance costs Impairment loss recognised in respect of advances to associates Write-back of allowance for amount due from an associate Share of results of associates Profit before taxation Taxation Profit for the year

Property Property development leasing Consolidated HK$’000 HK$’000 HK$’000 – 2,916 2,916 (391) 5,889 5,498 – 14,874 14,874 (391) 20,763 20,372 7,649 (3,949) (58) – (13,477) (13,477) – 897 897 – 84,886 84,886 96,320 (2,029) 94,291

– 307 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Balance sheet

As at 31 December 2006

	Property	Property
	development	**leasing **	Consolidated
	HK$’000	HK$’000	HK$’000
Assets
Segment assets	102,207	53,076	155,283
Interests in associates	–	329,152	329,152
Advances to associates	–	106,911	106,911
Unallocated corporate assets			185,319
Consolidated total assets			776,665
Liabilities
Segment liabilities	1,523	10,528	12,051
Unallocated corporate liabilities			4,174
Consolidated total liabilities			16,225

Other information

For the year ended 31 December 2006

	Property	Property
	development	leasing	Others	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Capital additions	26,386	–	–	26,386
Depreciation	–	–	35	35
Amortisation of prepaid
lease payments	14	–	20	34
Fair value changes on
investment properties	–	(14,874)	–	(14,874)
Gain on disposal of
investment properties	–	(24)	–	(24)

– 308 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Income statement

For the year ended 31 December 2005

Segment turnover Segment result – Operating results before fair value changes on investment properties – Fair value changes on investment properties – Segment result after fair value changes on investment properties Unallocated corporate expenses Finance costs Impairment loss recognised in respect of advances to associates Write-back of allowance for amount due from an associate Write-back of allowance for amounts due from former associates Share of results of associates Profit before taxation Taxation Profit for the year

Property Property development leasing Consolidated HK$’000 HK$’000 HK$’000 – 3,370 3,370 (931) 8,093 7,162 – 4,600 4,600 (931) 12,693 11,762 (563) (2,100) – (4) (4) – 1,024 1,024 2,964 5,756 8,720 – 100,977 100,977 119,816 (398) 119,418

– 309 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Balance sheet

As at 31 December 2005

Property Property development leasing HK$’000 HK$’000 Assets Segment assets 75,724 236,999 Interests in associates – 246,345 Advances to associates – 124,756 Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities 5,649 10,214 Unallocated corporate liabilities Consolidated total liabilities	Consolidated HK$’000 312,723 246,345 124,756 38
	683,862
	15,863 1,850
	17,713

Other information

For the year ended 31 December 2005

	Property	Property
	development	**leasing **	Consolidated
	HK$’000	HK$’000	HK$’000
Capital additions	23,151	–	23,151
Depreciation	18	29	47
Amortisation of prepaid
lease payments	33	–	33
Fair value changes on
investment properties	–	(4,600)	(4,600)

– 310 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Income statement

For the year ended 31 December 2004

	Property	Property
	development	**leasing **	Consolidated
	HK$’000	HK$’000	HK$’000
Segment turnover	13,155	5,715	18,870
Segment result
– Operating results before
fair value changes on
investment properties	(186,968)	9,865	(177,103)
– Fair value changes on
investment properties	–	4,795	4,795
– Segment result after
fair value changes on
investment properties	(186,968)	14,660	(172,308)
Unallocated corporate expenses			(9,122)
Finance costs			(1,990)
Impairment loss recognised in
respect of advances to associates	–	(8)	(8)
Write-back of allowance for
amounts due from associates, net	–	1,449	1,449
Write-back of allowance for
amounts due from
former associates	3,666	4,122	7,788
Share of results of associates			51,199
Loss before taxation			(122,992)
Taxation			(766)
Loss for the year			(123,758)

– 311 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Balance sheet

As at 31 December 2004

Property Property development leasing HK$’000 HK$’000 Assets Segment assets 55,395 165,036 Interests in associates – 159,368 Advances to associates – 136,994 Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities 91 1,911 Unallocated corporate liabilities Consolidated total liabilities	Consolidated HK$’000 220,431 159,368 136,994 276
	517,069
	2,002 60,372
	62,374

Other information

For the year ended 31 December 2004

	Property	Property
	development	leasing	Others	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Capital additions	750	–	–	750
Depreciation	18	37	–	55
Amortisation of prepaid
lease payments	33	–	–	33
Loss on disposal of
investment properties	–	925	–	925
Impairment loss recognised
in respect of property
interests held for
development	183,381	–	–	183,381
Provision for
a litigation claim	–	–	8,427	8,427
Fair value changes on
investment properties	–	(4,795)	–	(4,795)

– 312 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Income statement

For the six months ended 30 June 2006 (Unaudited)

Segment turnover Segment result – Operating results before fair value changes on investment properties – Fair value changes on investment properties – Segment result after fair value changes on investment properties Unallocated corporate expenses Finance costs Write-back of allowance for amount due from an associate Share of results of associates Profit before taxation Taxation Profit for the period	Property Property development leasing HK$’000 HK$’000 – 1,422 (120) 5,338 – 10,800 (120) 16,138 – 897 – 27,205	Consolidated HK$’000 1,422 5,218 10,800 16,018 (236) (29) 897 27,205 43,855 (2,149) 41,706

– 313 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Balance sheet

As at 30 June 2006 (Unaudited)

Property Property development leasing HK$’000 HK$’000 Assets Segment assets 93,365 53,440 Interests in associates – 272,441 Advances to associates – 122,629 Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities 2,380 3,187 Unallocated corporate liabilities Consolidated total liabilities	Consolidated HK$’000 146,805 272,441 122,629 175,456
	717,331
	5,567 3,908 9,475

Other information

For the six months ended 30 June 2006 (Unaudited)

	Property	Property
	development	leasing	Others	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Capital additions	18,962	–	–	18,962
Depreciation	–	–	17	17
Amortisation of prepaid
lease payments	7	–	10	17
Fair value changes on
investment properties	–	(10,800)	–	(10,800)

– 314 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Income statement

For the six months ended 30 June 2007

Property development HK$’000 Segment turnover 12,384 Segment result – Operating results before fair value changes on investment properties 5,681 – Fair value changes on investment properties – – Segment result after fair value changes on investment properties 5,681 Unallocated corporate income Unallocated corporate expenses Finance costs Impairment loss recognised in respect of advances to associates – Write-back of allowance for amounts due from former associates 603 Share of results of associates – Profit before taxation Taxation Profit for the period

Property leasing Consolidated HK$’000 HK$’000 1,336 13,720 3,016 8,697 1,811 1,811 4,827 10,508 4,437 (2,571) (31) (204) (204) 373 976 35,466 35,466 48,581 (1,248) 47,333

– 315 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Balance sheet

As at 30 June 2007

Property Property development leasing HK$’000 HK$’000 Assets Segment assets 96,061 40,561 Interests in associates – 363,908 Advances to associates – 98,517 Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities 3,643 1,368 Unallocated corporate liabilities Consolidated total liabilities	Consolidated HK$’000 136,622 363,908 98,517 219,014
	818,061
	5,011 5,277
	10,288

Other information

For the six months ended 30 June 2007

	Property	Property
	development	leasing	Others	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000
Depreciation	–	–	9	9
Amortisation of prepaid
lease payments	8	–	9	17
Fair value changes on
investment properties	–	(1,811)	–	(1,811)
Gain on disposal of
investment properties	–	(86)	–	(86)

– 316 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

Geographical segments

The Chi Cheung Group’s operations are located in Hong Kong and the People’s Republic of China, other than Hong Kong, (the “PRC”). The Chi Cheung Group’s turnover is all derived from Hong Kong in the three years and the two periods.

The following is an analysis of the carrying amount of segment assets at balance sheet dates, and capital additions during the Relevant Periods analysed by the geographical area in which the assets are located:

Hong Kong PRC	Carrying amount of segment assets Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 516,964 683,750 776,549 105 112 116 517,069 683,862 776,665	Capital additions Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 750 23,151 26,386 – – – 750 23,151 26,386	Capital additions Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 750 23,151 26,386 – – – 750 23,151 26,386
			26,386

Hong Kong PRC	Carrying amount of segment assets Period ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 717,218 817,941 113 120 717,331 818,061	Capital additions Period ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 18,962 – – – 18,962 –	Capital additions Period ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 18,962 – – – 18,962 –
			–

– 317 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

7. Turnover and other revenue

Turnover represents the aggregate amounts received and receivables analysed as follows:

Turnover Property rental income Sales of properties Other revenue Interest income from bank deposits Interest income on advances to associates Sundry income Finance costs Imputed interest expenses relating to interest-free loans from minority shareholders of certain subsidiaries	2004 HK$’000 5,715 13,155 18,870 177 3,295 278 3,750 2004 HK$’000 1,990	Year ended 31 December 2005 HK$’000 3,370 – 3,370 4,928 3,557 19 8,504 Year ended 31 December 2005 HK$’000 2,100	2006 HK$’000 2,916 – 2,916 7,070 4,855 7 11,932 2006 HK$’000 58	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 1,422 1,336 – 12,384 1,422 13,720 3,547 4,079 2,402 2,139 13 274 5,962 6,492 Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 29 31

8. Finance costs

– 318 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

9. Share of results of associates

Operating income Gain on disposal of properties Fair value changes on investment properties Less: deferred tax arose from fair value changes on investment properties Imputed interest expense relating to interest-free advance from shareholder Current tax Other deferred tax	2004 HK$’000 1,480 6,492	Year ended 31 December 2005 HK$’000 4,731 6,273	2006 HK$’000 6,660 –	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 2,448 5,157 – 1,176	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 2,448 5,157 – 1,176
	56,014 (9,802)	112,071 (19,612)	97,024 (16,608)	31,167 (5,455)	36,608 (6,407)
	46,212 (888) (1,389) (708) 51,199	92,459 (906) (1,580) – 100,977	80,416 (924) (1,063) (203) 84,886	25,712 (462) (331) (162) 27,205	30,201 – (1,449) 381 35,466

– 319 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

10. Profit/(loss) before taxation

2004 HK$’000 Profit/(loss) before taxation is stated after charging: Auditors’ remuneration Current year 282 Underprovision in previous year 21 Depreciation 55 Loss on disposal of investment properties 925 Amortisation of prepaid lease payments 33 Staff costs (excluding directors’ remuneration) – salaries and allowances 888 – retirement benefit costs 41 Impairment loss recognised in respect of property held for sale – Impairment loss recognised in respect of trade receivables – and after crediting: Imputed interest income relating to interest-free advance to an associate 888 Gain on disposal of investment properties – Exchange gain – Gross rental income from properties 5,715 Less: direct operating expenses from properties that generated rental income during the Relevant Periods (489) direct operating expenses from properties that not generated rental income during the Relevant Periods (454) 4,772	2004 HK$’000 Profit/(loss) before taxation is stated after charging: Auditors’ remuneration Current year 282 Underprovision in previous year 21 Depreciation 55 Loss on disposal of investment properties 925 Amortisation of prepaid lease payments 33 Staff costs (excluding directors’ remuneration) – salaries and allowances 888 – retirement benefit costs 41 Impairment loss recognised in respect of property held for sale – Impairment loss recognised in respect of trade receivables – and after crediting: Imputed interest income relating to interest-free advance to an associate 888 Gain on disposal of investment properties – Exchange gain – Gross rental income from properties 5,715 Less: direct operating expenses from properties that generated rental income during the Relevant Periods (489) direct operating expenses from properties that not generated rental income during the Relevant Periods (454) 4,772	Year ended 31 December 2005 HK$’000 373 – 47 – 33 1,057 55 – – 906 – –	2006 HK$’000 365 – 35 – 34 1,843 87 600 38 924 24 8	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 184 172 – – 17 9 – – 17 17 777 1,602 37 74 – – 38 – 462 471 – 86 – 4	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 184 172 – – 17 9 – – 17 17 777 1,602 37 74 – – 38 – 462 471 – 86 – 4
	5,715 (489) (454)	3,370 (541) (822)	2,916 (438) (819)	1,422 (209) (429)	1,336 (153) (610)
		2,007	1,659	784	573

– 320 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

11. Taxation

Current tax – Hong Kong Under/(over)-provision in prior years – Hong Kong – Other regions in the PRC Deferred taxation_(See Note 31)_	Year ended 31 December 2004 2005 HK$’000 HK$’000 6 7 20 – 222 – 248 7 518 391 766 398	2006 HK$’000 1,805 (1) – 1,804 225 2,029	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 1,664 1,569 – – – – 1,664 1,569 485 (321) 2,149 1,248	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 1,664 1,569 – – – – 1,664 1,569 485 (321) 2,149 1,248
				1,569
				(321)
				1,248

Hong Kong Profits Tax is calculated at 17.5% on the estimated assessable profits for the Relevant Periods. Taxation in any other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

No PRC tax provision has been made as the PRC subsidiaries incurred loss during the Relevant Periods.

– 321 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

The taxation charge for the Relevant Periods can be reconciled to the profit/(loss) before taxation for the years/periods per the consolidated income statements as follows:

For the year ended 31 December 2006

Profit/(loss) before taxation Tax at domestic profits tax rate Tax effect of share of results of associates Estimated tax effect of expenses not deductible in determining profits tax Estimated tax effect of income not taxable in determining profits tax Estimated tax effect of utilisation of unrecognised tax losses from prior periods Estimated tax effect of unrecognised tax losses Others Tax charge at the Chi Cheung Group’s effective rate for the year	Hong Kong HK$’000 % 96,602 16,949 17.5 (14,855) (15.4) 3,292 3.4 (2,344) (2.4) (1,443) (1.5) (40) 0.0 470 0.5 2,029 2.1	PRC HK$’000 (282) (93) – – – – 93 – –	% (33.3) – – – – 33.3 – –	Total HK$’000 96,320 16,856 (14,855) 3,292 (2,344) (1,443) 53 470 2,029	% 17.5 (15.4) 3.4 (2.4) (1.5) 0.0 0.5 2.1

– 322 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

For the year ended 31 December 2005

Profit/(loss) before taxation Tax at domestic profits tax rate Tax effect of share of results of associates Estimated tax effect of expenses not deductible in determining profits tax Estimated tax effect of income not taxable in determining profits tax Estimated tax effect of unrecognised tax losses Others Tax charge at the Chi Cheung Group’s effective rate for the year	Hong Kong HK$’000 % 120,439 21,175 17.5 (17,671) (14.7) 590 0.5 (2,856) (2.4) (1,039) (0.7) 199 0.1 398 0.3	PRC HK$’000 (623) (207) – – – 207 – –	% (33.3) – – – 33.3 – –	Total HK$’000 119,816 20,968 (17,671) 590 (2,856) (832) 199 398	% 17.5 (14.7) 0.5 (2.4) (0.7) 0.1 0.3

– 323 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

For the year ended 31 December 2004

Hong Kong HK$’000 % Loss before taxation (122,336) Tax at domestic profits tax rate (21,409) (17.5) Tax effect of share of results of associates (8,960) (7.3) Estimated tax effect of expenses not deductible in determining profits tax 35,127 28.6 Estimated tax effect of income not taxable in determining profits tax (2,482) (2.0) Under-provision in prior years 242 0.2 Estimated tax effect of unrecognised tax losses (1,101) (0.9) Others (651) (0.5) Tax charge at the Chi Cheung Group’s effective rate for the year 766 0.6	PRC HK$’000 (656) (115) – – – – 115 – –	% (33.3) – – – – 33.3 – –	Total HK$’000 (122,992) (21,524) (8,960) 35,127 (2,482) 242 (1,101) (536) 766	% (17.5) (7.3) 28.6 (2.0) 0.2 (0.9) (0.5) 0.6

For the six months ended 30 June 2006 (Unaudited)

Hong Kong HK$’000 % Profit/(loss) before taxation 43,889 Tax at domestic profits tax rate 7,681 17.5 Tax effect of share of results of associates (4,761) (10.9) Estimated tax effect of expenses not deductible in determining profits tax 476 1.1 Estimated tax effect of income not taxable in determining profits tax (1,223) (2.8) Estimated tax effect of unrecognised tax losses (509) (1.1) Others 485 1.1 Tax charge at the Chi Cheung Group’s effective rate for the period 2,149 4.9	PRC HK$’000 (34) (6) – – – 6 – –	% (33.3) – – – 33.3 – –	Total HK$’000 43,855 7,675 (4,761) 476 (1,223) (503) 485 2,149	% 17.5 (10.9) 1.1 (2.8) (1.1) 1.1 4.9

– 324 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

For the six months ended 30 June 2007

Profit/(loss) before taxation Tax at domestic profits tax rate Tax effect of share of results of associates Estimated tax effect of expenses not deductible in determining profits tax Estimated tax effect of income not taxable in determining profits tax Estimated tax effect of unrecognised tax losses Others Tax charge at the Chi Cheung Group’s effective rate for the period	Hong Kong HK$’000 % 48,894 8,557 17.5 (6,206) (12.7) 824 1.7 (1,748) (3.6) (326) (0.6) 147 0.3 1,248 2.6	PRC HK$’000 (313) (55) – – – 55 – –	% (33.3) – – – 33.3 – –	Total HK$’000 48,581 8,502 (6,206) 824 (1,748) (271) 147 1,248	% 17.5 (12.7) 1.7 (3.6) (0.6) 0.3 2.6

– 325 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

12. Profit/(loss) attributable to equity holders of Chi Cheung

For the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2007, net loss of HK$108,553,000 and net profit of HK$21,517,000, HK$6,123,000 and HK$7,964,000 have been dealt with in the financial statements of Chi Cheung.

13. Directors’ and employees’ emoluments

(a) Directors’ emoluments

The emoluments, pension and compensation arrangements paid or payable to the directors and past directors for their services on Chi Cheung for the Relevant Periods were as follows:

For the year ended 31 December 2006

Name of directors Executive directors Mr. Matthew Cheong, Veng-va (appointed on 29 March 2006) Ms. Teresa Poon, Mun-chie (appointed on 29 March 2006) Mr. Joseph Lau, Luen-hung (resigned on 29 March 2006) Mr. Thomas Lau, Luen-hung (resigned on 29 March 2006) Independent Non-executive directors Mr. Lai, Yun-hung (appointed on 1 December 2006) Mr. Mok, Hon-sang Mr. Wong, Tik-tung Mr. Wang, Jian-guo (resigned on 1 December 2006)	Fees HK$’000 – – – – 10 120 120 110 360	Retirement Salaries and benefit scheme other benefits contributions HK$’000 HK$’000 – – – – – – – – – – – – – – – – – –	Total HK$’000 – – – – 10 120 120 110
			360

– 326 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

For the year ended 31 December 2005

Name of directors Fees HK$’000 Executive directors Mr. Joseph Lau, Luen-hung – Mr. Thomas Lau, Luen-hung – Independent Non-executive directors Mr. Mok, Hon-sang 100 Mr. Wong, Tik-tung 100 Mr. Wang, Jian-guo 100 300 For the year ended 31 December 2004	Retirement Salaries and benefit scheme other benefits contributions HK$’000 HK$’000 – – – – – – – – – – – –	Total HK$’000 – – 100 100 100
		300

Name of directors Executive directors Mr. Joseph Lau, Luen-hung Mr. Thomas Lau, Luen-hung Independent Non-executive directors Mr. Mok, Hon-sang (appointed on 28 September 2004) Mr. Wong, Tik-tung (appointed on 28 September 2004) Mr. Wang, Jian-guo (appointed on 28 September 2004) Mr. Shum, Man-wai (resigned on 28 September 2004) Mr. Chan, Kwok-wai (resigned on 28 September 2004)	Fees HK$’000 – – 26 26 26 22 22 122	Retirement Salaries and benefit scheme other benefits contributions HK$’000 HK$’000 – – – – – – – – – – – – – – – –	Total HK$’000 – – 26 26 26 22 22
			122

– 327 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

For the six months ended 30 June 2006 (Unaudited)

Name of directors Executive directors Mr. Matthew Cheong, Veng-va (appointed on 29 March 2006) Ms. Teresa Poon, Mun-chie (appointed on 29 March 2006) Mr. Joseph Lau, Luen-hung (resigned on 29 March 2006) Mr. Thomas Lau, Luen-hung (resigned on 29 March 2006) Independent Non-executive directors Mr. Mok, Hon-sang Mr. Wong, Tik-tung Mr. Wang, Jian-guo	Fees HK$’000 – – – – 60 60 60 180	Retirement Salaries and benefit scheme other benefits contributions HK$’000 HK$’000 – – – – – – – – – – – – – – – –	Total HK$’000 – – – – 60 60 60
			180

For the six months ended 30 June 2007

Name of directors Executive directors Mr. Matthew Cheong, Veng-va Ms. Teresa Poon, Mun-chie Independent Non-executive directors Mr. Lai, Yun-hung Mr. Mok, Hon-sang Mr. Wong, Tik-tung	Fees HK$’000 – – 70 70 70 210	Retirement Salaries and benefit scheme other benefits contributions HK$’000 HK$’000 – – – – – – – – – – – –	Total HK$’000 – – 70 70 70
			210

– 328 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

(b) Employees’ emoluments

During the years ended 31 December 2004, 2005, 2006 and the six months ended 30 June 2006 and 2007 included nil, two, nil, nil and nil directors respectively were included in the five highest paid individuals of the Chi Cheung Group. The emoluments payable to the remaining five, three, five, five and five individuals during the Relevant Periods were as follows:

Salaries and other benefits Retirement benefits scheme contributions	2004 HK$’000 448 22 470	Year ended 31 December 2005 HK$’000 385 19 404	2006 HK$’000 963 42 1,005	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 486 981 23 43 509 1,024	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 486 981 23 43 509 1,024
					1,024

The emoluments of individual employees for the Relevant Periods were all less than HK$500,000.

14. Earnings/(loss) per share

The calculation of the basic earnings/(loss) per share is based on the profit or loss attributable to the ordinary equity holders of Chi Cheung and the weighted average number of ordinary shares in issue during the Relevant Periods are as follows:

Profit/(loss) attributable to equity holders of Chi Cheung Number of shares Weighted average number of ordinary shares	2004 HK$’000 (121,768) 282,305,987	Year ended 31 December 2005 HK$’000 121,518 333,816,069	2006 HK$’000 94,349 338,765,987	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 41,735 47,364 338,765,987 338,765,987	Six months ended 30 June 2006 2007 HK$’000 HK$’000 (Unaudited) 41,735 47,364 338,765,987 338,765,987
					338,765,987

Chi Cheung has no potential ordinary shares outstanding for the Relevant Periods.

– 329 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

For the years ended 31 December 2004, 2005, 2006 and the six months ended 30 June 2006 and 2007, diluted earnings/(loss) per share is the same as the basic earnings/(loss) per share as there were no dilutive events during the Relevant Periods.

15. Dividend

No dividend was paid or proposed during the Relevant Periods, nor has any dividend been proposed since the balance sheet dates.

16. Investment properties

The Chi Cheung Group Fair value At 1 January 2004 Disposals Fair value changes recognised in income statement At 31 December 2004 and 1 January 2005 Fair value changes recognised in income statement At 31 December 2005 and 1 January 2006 Disposals Fair value changes recognised in income statement At 31 December 2006 and 1 January 2007 Disposals Fair value changes recognised in income statement At 30 June 2007

HK$’000 80,220 (35,665) 4,795 49,350 4,600 53,950 (5,424) 14,874 63,400 (11,011) 1,811 54,200

– 330 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

The fair value of the Chi Cheung Group’s investment properties at 31 December 2004, 2005, 2006 and 30 June 2007 were arrived at on the basis of valuation carried out on that date by Norton Appraisals Limited (“Norton Appraisals”), independent qualified professional surveyors not connected with the Chi Cheung Group, who has appropriate qualifications and recent experience in the valuation of similar properties in the relevant locations. The valuation report on the investment properties is signed by a director of Norton Appraisals, who is a member of the Hong Kong Institute of Surveyors. The valuation, which conformed to The Hong Kong Institute of Surveyors Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors was based on open market value basis.

All of the Chi Cheung Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are measured using the fair value model and are classified and accounted for as investment properties. As at 31 December 2004, 2005, 2006 and 30 June 2007, the carrying amount of such property interests amounted to HK$49,350,000, 53,950,000, 63,400,000 and 54,200,000 respectively.

The carrying amounts of investment properties shown above comprise:

As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 Properties in Hong Kong held under: Long lease 2,750 3,350 3,600 Medium-term lease 46,600 50,600 59,800 49,350 53,950 63,400	As at 30 June 2007 HK$’000 4,200 50,000
	54,200

– 331 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

17. Property, plant and equipment

The Chi Cheung Group Cost At 1 January 2004, 31 December 2004, 1 January 2005, 31 December 2005, 1 January 2006, 31 December 2006, 1 January 2007 and 30 June 2007 Depreciation and amortisation At 1 January 2004 Charge for the year At 31 December 2004 and 1 January 2005 Charge for the year At 31 December 2005 and 1 January 2006 Charge for the year At 31 December 2006 and 1 January 2007 Charge for the period At 30 June 2007 Net book value At 30 June 2007 At 31 December 2006 At 31 December 2005 At 31 December 2004	Buildings HK$’000 882 625 18 643 18 661 18 679 9 688 194 203 221 239	Furniture, fixtures and equipment HK$’000 1,121 1,036 37 1,073 29 1,102 17 1,119 – 1,119 2 2 19 48	Total HK$’000 2,003
			1,661 55
			1,716 47
			1,763 35
			1,798 9
			1,807
			196
			205
			240
			287

– 332 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Basis

Type Basis Buildings Over the shorter of the unexpired period of the land lease and 20 years Furniture, fixtures and equipment 10%

Chi Cheung Cost At 1 January 2004, 31 December 2004, 1 January 2005, 31 December 2005, 1 January 2006, 31 December 2006, 1 January 2007 and 30 June 2007 Depreciation At 1 January 2004 Charge for the year At 31 December 2004 and 1 January 2005 Charge for the year At 31 December 2005 and 1 January 2006 Charge for the year At 31 December 2006 and 1 January 2007 Charge for the period At 30 June 2007 Net book value At 30 June 2007 At 31 December 2006 At 31 December 2005 At 31 December 2004	Furniture, fixtures and equipment HK$’000 1,117
	1,036 36
	1,072 29
	1,101 16
	1,117 –
	1,117
	–
	–
	16
	45

– 333 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

18. Properties held for development The Chi Cheung Group Cost At 1 January 2004 Additions At 31 December 2004 and 1 January 2005 Additions At 31 December 2005 and 1 January 2006 Additions Transfer to properties held for sale_(Note 24)_ At 31 December 2006, 1 January 2007 and 30 June 2007	HK$’000 – 750 750 23,151 23,901 26,386 (50,287) –

The Chi Cheung Group’s properties held for development are situated in Hong Kong and held under medium-term lease.

19. Property interests held for development The Chi Cheung Group Cost At 1 January 2004 Exchange difference At 31 December 2004, 1 January 2005, 31 December 2005, 1 January 2006, 31 December 2006, 1 January 2007 and 30 June 2007 Impairment At 1 January 2004 Provided for the year_(Note)_ At 31 December 2004, 1 January 2005, 31 December 2005, 1 January 2006, 31 December 2006, 1 January 2007 and 30 June 2007 Net book value At 30 June 2007 At 31 December 2006 At 31 December 2005 At 31 December 2004

HK$’000 183,051 330 183,381 – (183,381) (183,381) – – – –

– 334 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Note:

The Chi Cheung Group through a wholly-owned subsidiary (“SPV”) has a property interest held for development in Chenghai Royal Garden (the “Development Project”). The site with an area of approximately 466,662 sq.m. (5,023,150 sq.ft) (the “Land”) is situated at the estuary of Xinjin River, Longhu District, Shantou, Guangdong Province, the People’s Republic of China (the “PRC”). Pursuant to a Contract for Pre-registration of Grant of State-owned Land Use Rights dated 5 August 1992 (the “Contract”), SPV has been granted a pre-registered land use rights of the Land by Shantou City Chenghai District Planning and State-owned Land Resources Bureau (the “Chenghai Bureau”). The carrying amount of the Development Project as recorded by the Chi Cheung Group (the “Carrying Amount”) is approximately HK$183.4 million (equivalent to RMB195.1 million). Included in the Carrying Amount is a payment of approximately HK$49.8 million (equivalent to RMB53 million) to the Chenghai Bureau under the Contract (the “Amount Paid”). After submitting the application for the land requisition to the Chenghai Bureau and upon the land use rights of the Land being granted, SPV has to make a final payment of approximately HK$23.4 million (equivalent to RMB24.9 million) (the “Final Payment”). The deadline of the application for the land requisition was 4 August 1993 which had been extended four times at the request of SPV to 16 July 2004 (the “Deadline”). The Chi Cheung Group believed that SPV had the following entitlements or options under the Contract: (i) proceeds to apply for the land requisition of the Land on or before the Deadline and settle the Final Payment; (ii) applies for an extension of the Deadline; or (iii) terminates the Contract and claim for a refund of approximately HK$46.2 million (equivalent to RMB49.1 million), being the Amount Paid (the “Amount Claimed”).

The Chi Cheung Group considered that it was not the suitable time to proceed with the land requisition and determined to request an extension of time. SPV therefore delivered a letter dated 19 April 2004 to the Chenghai Bureau to request an extension of the Deadline but the Chenghai Bureau refused to accept the letter and advised that such request should be diverted to Shantou City Longhu District Planning and State-owned Land Resources Bureau (the “Longhu Bureau”) and their supervisory bureau, Shantou City Planning and State-owned Land Resources Bureau (the “Shantou Bureau”), since the authority and administrative power over the Land had already been transferred to the Longhu Bureau by that time. SPV then delivered letters of the same request to the Longhu Bureau and the Shantou Bureau. Both bureaus however insisted that they would not consider the request either and advised SPV to go back to the Chenghai Bureau for resolving the matter. Given the insistence of the three bureaus in refusing SPV’s request of extension, SPV sought advices and assistance from Shantou Governmental authorities, but to no avail.

In early July 2004, the Deadline became imminent and having considered that (i) extension of the Deadline was unlikely in view of the unexpected and undesirable replies from the bureau; and (ii) the slowdown of luxury residential market in Shantou, the Chi Cheung Group decided not to proceed with the application for the land requisition and instead terminated the Contract and requested the Chenghai Bureau to refund the Amount Claimed.

– 335 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Between July 2004 and February 2005, SPV issued four letters of demand to the Chenghai Bureau to notify the termination of the Contract and requested for a refund of the Amount Claimed. SPV received three reply letters by which the Chenghai Bureau denied its obligations for the refund on the allegation that the pre-registration relationship between the parties under the Contract still existed. The Chenghai Bureau suggested the following three alternatives for SPV’s consideration:

1. SPV proceeds to apply for land requisition of the Land and settle the Final Payment pursuant to the Contract despite of the Deadline; or

2. SPV applies for a portion of the Land with an area equivalent to the Amount Paid; or

3. The Chenghai Bureau, upon the application from SPV for the termination of the Contract, refunds the Amount Paid without interest after the Land is successfully sold to third parties by the Chenghai Bureau.

Based on the opinion from a legal firm in the PRC, which has taken into consideration the recent PRC policy for the granting of land issued by the Ministry of Land Resources, the Chi Cheung Group was in doubt as to whether the Chenghai Bureau could effect any of the above alternatives. Further, if SPV accepted any alternative as suggested, then SPV would be deemed to have waived its right in the Amount Claimed.

The Chi Cheung Group, after considered the further advice from the legal firm, decided not to accept any of the above alternatives as suggested and initiated legal action against the Chenghai Bureau for its entitlements under the Contract including but not limited to the Amount Claimed.

Having considered the uncertainty in the recoverability of the Amount Claimed and any other entitlements under the Contract, the Chi Cheung Group made a full provision for an impairment loss of HK$183,381,000 in the financial information for the year ended 31 December 2004.

On 19 April 2005, SPV commenced legal proceedings by issuing a Writ of Summons against the Chenghai Bureau. SPV requested Shantou City Intermediate People’s Court (the “Intermediate Court”) for the following issues in particular: (1) Examine the validity of the Contract; (2) Terminate the Contract; and (3) Order the Chenghai Bureau to refund the land cost of RMB53 million with interest to SPV. On 27 December 2005, the Intermediate Court notified SPV that the trial period had been extended for six months and the trial would be expected to be adjudicated by the end of June 2006.

On 28 December 2006, the Intermediate Court made the judgment in favour of SPV as follows: (1) The Contract and other related agreements and correspondence are null and void; (2) the Chenghai Bureau shall refund SPV the pre-payment in the sum of RMB53 million and interest accrued from 28 April 2005 to the date of settlement within 10 days from the effective date of the judgment; and (3) the Chenghai Bureau shall be liable for the court fees in sum of RMB285,020 and pay the same to SPV directly.

On 23 January 2007, the Chenghai Bureau submitted an application of appeal to the High People’s Court of Guangdong Province (the “High Court”) and SPV also sent out a reply to the High Court on 13 February 2007. According to the legal opinion of the legal firm, it is more likely that the High Court will sustain the judgment of the Intermediate Court.

On 27 June 2007, High Court accepted the application of appeal by the Chenghai Bureau and made the judgment as follows: (1) The judgment made by the Intermediate Court on 28 December 2006 was revoked; (2) The case is remitted to the Intermediate Court for rehearing. On 22 August 2007, the Intermediate Court accepted for rehearing the case within six months.

– 336 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

20. Prepaid lease payments The Chi Cheung Group Cost At 1 January 2004, 31 December 2004, 1 January 2005, 31 December 2005, 1 January 2006, 31 December 2006, 1 January 2007 and 30 June 2007 Depreciation and amortisation At 1 January 2004 Charge for the year At 31 December 2004 and 1 January 2005 Charge for the year At 31 December 2005 and 1 January 2006 Charge for the year At 31 December 2006 and 1 January 2007 Charge for the period At 30 June 2007 Net book value At 30 June 2007 At 31 December 2006 At 31 December 2005 At 31 December 2004	HK$’000 12,958
	3,192 33
	3,225 33
	3,258 34
	3,292 17
	3,309
	9,649
	9,666
	9,700
	9,733

– 337 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

The Chi Cheung Group’s non-current prepaid lease payments shown above comprise: Leasehold land in Hong Kong: Long lease Medium-term lease	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 9,473 9,460 9,446 260 240 220 9,733 9,700 9,666	As at 30 June 2007 HK$’000 9,439 210
		9,649

21. Interests in subsidiaries/advances to subsidiaries

Chi Cheung Unlisted shares, at cost Capital contribution Less: Impairment loss recognised in respect of the investments in subsidiaries Advances to subsidiaries Less: Impairment loss recognised in respect of the investments in subsidiaries	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 10,391 192,070 192,070 1,059 3,632 5,888 (10,391) (10,391) (13,854) 1,059 185,311 184,104 939,897 666,404 682,178 (539,852) (458,668) (464,712) 400,045 207,736 217,466	As at 30 June 2007 HK$’000 192,070 5,888 (13,854)
		184,104
		657,021 (465,843)
		191,178

Capital contribution represents imputed interest on interest-free advances to subsidiaries.

– 338 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

The advances to subsidiaries, net of allowance are unsecured. Included in the balance as at 31 December 2004, 2005, 2006 and 30 June 2007 the amount of HK$163,260,000, HK$153,358,000, HK$167,462,000 and HK$140,997,000 is interest-bearing. In the opinion of the directors, Chi Cheung will not demand repayment within one year from the balance sheet date and are therefore considered as non-current. The directors of Chi Cheung estimate the advance by discounting their future cash flow at the prevailing market borrowing rate. The directors of Chi Cheung consider that the carrying amount of advances to subsidiaries approximate to their fair values.

Particulars of the Chi Cheung Group’s principal subsidiaries for the Relevant Periods are set out in Note 39 to the financial information.

22. Interests in associates/advances to associates

(a) Interests in associates

The Chi Cheung Group Cost of investments in associates, – unlisted in Hong Kong Share of post-acquisition profits, net of dividend received_(Note ii)_	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 103,252 103,252 103,252 56,116 143,093 225,900 159,368 246,345 329,152	As at 30 June 2007 HK$’000 103,252 260,656
		363,908

(b) Advances to associates

The Chi Cheung Group Interest-bearing advances to associate_(Note iii) Interest-free advances to associates, net of allowances(Note iv) _Less:_impairment loss recognised(Note i)_	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 109,212 96,028 90,742 100,051 99,977 99,979 209,263 196,005 190,721 (72,269) (71,249) (83,810) 136,994 124,756 106,911	As at 30 June 2007 HK$’000 81,762 100,707
		182,469 (83,952)
		98,517

– 339 –

APPENDIX VI

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

				As at
	As at 31 December			30 June
Chi Cheung	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Interest-bearing advances to
associate_(Note iii)_	9,500	9,500	9,500	9,500

Notes:

• (i) The movements in provision for impairment loss recognised in respect of advances to associates are as follows:

2004 HK$’000 At 1 January 73,710 Impairment loss recognised during the year 8 Amount due from an associate written off – Write-back of allowance for amount due from an associate (1,449) At 31 December/30 June 72,269	As at 31 December 2005 2006 HK$’000 HK$’000 72,269 71,249 4 13,477 – (19) (1,024) (897) 71,249 83,810	As at 30 June 2007 HK$’000 83,810 204 (62) –
		83,952

• (ii) The investment properties of the associates were revalued at 31 December 2004, 2005, 2006 and 30 June 2007 on the basis of a valuation carried out on that date by Norton Appraisals. The Chi Cheung Group recognised an interest in the fair value gain on the investment properties of the associates of approximately to HK$46.2 million, HK$92.5 million, HK$80.4 million and HK$30.2 million (net of deferred tax impact) as at 31 December 2004, 2005, 2006 and 30 June 2007 respectively. Details are set out in Note 9 to the financial information.

• (iii) Except for an amount of HK$9,500,000 as at 31 December 2004, 2005, 2006 and 30 June 2007 which bears interest at 6.75%, the remaining balances of interest-bearing advances to associates bear interest at Prime minus 2.75%. The advances are unsecured and the Chi Cheung Group will not demand repayment within one year from the balance sheet date and are therefore considered as non-current. The directors of Chi Cheung consider that the carrying amount of advances to associates approximate to their fair values.

• (iv) The interest-free advances are unsecured and the Chi Cheung Group will not demand repayment within one year from the balance sheet date and are therefore considered as non-current. The directors of Chi Cheung estimate the fair value of the interest-free advances by discounting their future cash flow at the prevailing market borrowing rate. The directors of Chi Cheung consider that the carrying amount of interest-free advances approximate to their fair values.

– 340 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Particulars of the Chi Cheung Group’s principal associates for the Relevant Periods are set out in Note 40 to the Financial Information.

The summarised financial information in respect of the Chi Cheung Group’s associates is set out below:–

Total assets Total liabilities Net assets Chi Cheung Group’s share of net assets of associates Turnover Profit for the year/period Chi Cheung Group’s share of result of associates for the year/period_(Note 9)_	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 887,598 1,160,507 1,426,413 (517,523) (514,533) (556,208) 370,075 645,974 870,205 159,368 246,345 329,152 28,888 36,681 46,465 15,792 274,106 228,390 51,199 100,977 84,886	As at 30 June 2007 HK$’000 1,522,294 (550,935)
		971,359
		363,908
		28,402
		102,574
		35,466

23. Available-for-sale financial asset

				As at
The Chi Cheung Group and	As at 31 December			30 June
Chi Cheung	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Club debenture, at fair value	270	270	270	270

– 341 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

24. Properties held for sale

The Chi Cheung Group Properties held for sale Transfer from properties held for development_(Note 18)_ _Less:_disposal for the year/period impairment loss recognised	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 41,100 28,796 28,796 – – 50,287 41,100 28,796 79,083 (12,304) – – – – (600) 28,796 28,796 78,483	As at 30 June 2007 HK$’000 78,483 – 78,483 (6,324) – 72,159

As at 31 December 2004, 2005, 2006 and 30 June 2007, the directors of Chi Cheung reviewed the carrying value of the properties held for sale with reference to current market situation and the estimated selling price of the properties held for sale provided by Norton Appraisals. No impairment loss was recognised at 31 December 2004, 2005 and 30 June 2007 except that approximately HK$600,000 at 31 December 2006 was made by reference to the recoverable amount of the properties held for sale.

25. Debtors, deposits and prepayments

The Chi Cheung Group and Chi Cheung

The directors of Chi Cheung consider that the carrying amounts of the Chi Cheung Group’s and Chi Cheung’s trade debtors approximates to their fair values.

The Chi Cheung Group

Included in debtors, deposits and prepayments as at 31 December 2004, 2005, 2006 and 30 June 2007 are trade debtors of HK$62,000, HK$68,000, HK$2,000 and HK$2,000 comprising mainly rental receivables which are billed in advance and settlements are expected upon receipts of billings.

– 342 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

The following is an aged analysis of trade receivables at the balance sheet dates:

Within 30 days 31-60 days Over 60 days	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 24 14 2 – 12 – 38 42 – 62 68 2	As at 30 June 2007 HK$’000 2 – –
		2

26. Cash and cash equivalents

The Chi Cheung Group Cash at banks and on hand Time deposits Chi Cheung Cash at banks and on hand Time deposits		As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,671 1,030 1,400 129,450 194,100 186,500 131,121 195,130 187,900 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 501 422 611 112,000 194,100 183,300 112,501 194,522 183,911	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,671 1,030 1,400 129,450 194,100 186,500 131,121 195,130 187,900 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 501 422 611 112,000 194,100 183,300 112,501 194,522 183,911		As at 30 June 2007 HK$’000 1,391 215,000
					216,391
					As at 30 June 2007 HK$’000 558 215,000
			183,911		215,558

The time deposits of the Chi Cheung Group as at 31 December 2004, 2005, 2006 and 30 June 2007 carry interest rate ranging from 0.01% to 0.45%; 3.9% to 4.0%; 3.7% to 4.0% and 3.75% to 4.42% per annum respectively and these deposits had maturity within 3 months. The directors of Chi Cheung consider that the carrying amount of the Chi Cheung Group’s and Chi Cheung’s cash and cash equivalents approximate to their fair values.

– 343 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

27. Creditors and accruals

The Chi Cheung Group and Chi Cheung

There were no trade payables included in creditors and accruals as at 31 December 2004, 2005, 2006 and 30 June 2007. The directors of Chi Cheung consider that the carrying amount of the Chi Cheung Group’s and Chi Cheung’s creditors and accruals approximate to their fair values.

28. Provision for a litigation claim

The Chi Cheung Group and Chi Cheung

A finance company (in liquidation) (the “finance company”) served a writ and claimed against Chi Cheung for an amount of approximately HK$8.4 million. The claim related to a margin loan granted to Chi Cheung for the dealing of securities between the years of October 1996 and January 1998. Chi Cheung filed a Defence and Counterclaim in December 2004 and the finance company also filed their Reply and Defence to Counterclaim in January 2005. The Chi Cheung Group made a provision of approximately HK$8.4 million in 2004 for the claim. In January 2006, upon seeking legal advice including London QC opinion, Chi Cheung paid the finance company a sum of HK$8.3 million for full and final settlement of all claims of the finance company. Consent Summons was filed and an order from the High Court dated 20 January 2006 was sealed to record the discontinuance of the legal proceedings.

The directors of Chi Cheung consider that the carrying amount of the Chi Cheung Group’s and Chi Cheung’s provision for a litigation claim approximates to its fair value. Apart from disclosed as above, the Chi Cheung Group and Chi Cheung did not have any provision for litigation claim as at 31 December 2005, 2006 and 30 June 2007.

29. Loans from minority shareholders of subsidiaries

The Chi Cheung Group

The loans are unsecured and non-interest bearing. The directors of Chi Cheung consider that the minority shareholders will not demand for repayment within one year from the balance sheet date and are therefore shown in the balance sheet as non-current. The directors of Chi Cheung consider the fair value of the loans by discounting their future cash flow at the prevailing market borrowing rate and consider that the carrying amount of the Chi Cheung Group’s loans from minority shareholders of subsidiaries approximates to their fair values.

– 344 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

30. Advance from an associate

The Chi Cheung Group

The amount is unsecured and non-interest bearing. The directors of Chi Cheung consider that the associate will not demand for repayment within one year from the balance sheet date and is therefore shown in the balance sheet as non-current. The amount was fully settled during the year ended 31 December 2006. The directors of Chi Cheung consider that the carrying amount of the Chi Cheung Group’s advance from an associate approximates to its fair value.

31. Deferred tax liabilities

The Chi Cheung Group

The following are the major deferred tax (liabilities) and assets recognised by the Chi Cheung Group and movements thereon during the Relevant Periods:

1 January 2004 Credit/(charge) to the income statement for the year_(Note 11) At 31 December 2004 and 1 January 2005 Credit/(charge) to the income statement for the year(Note 11) At 31 December 2005 and 1 January 2006 Credit/(charge) to the income statement for the year(Note 11) At 31 December 2006 and 1 January 2007 Credit/(charge) to the income statement for the period(Note 11)_ At 30 June 2007	Revaluation of investment properties HK$’000 (1,906) 214 (1,692) 193 (1,499) 245 (1,254) 217 (1,037)	Accelerated tax depreciation HK$’000 39 97 136 (112) 24 (5) 19 (2) 17	Tax losses HK$’000 1,766 (829) 937 (472) 465 (465) – 106 106	Total HK$’000 (101) (518) (619) (391) (1,010) (225) (1,235) 321 (914)

– 345 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

For the purpose of balance sheet presentation, certain deferred tax (liabilities) and assets have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax assets Deferred tax liabilities	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,073 489 19 (1,692) (1,499) (1,254) (619) (1,010) (1,235)	As at 30 June 2007 HK$’000 123 (1,037)
		(914)

At the 31 December 2004, 2005, 2006 and 30 June 2007, the Chi Cheung Group had not recognised deferred tax assets in respect of tax losses of HK$211,917,000, HK$206,669,000, HK$201,387,000 and HK$199,995,000 due to the unpredictability of future profit streams. The unrecognised tax losses may be carried forward indefinitely.

32. Share capital

The Chi Cheung Group and Chi Cheung Ordinary shares of HK$0.01 each Authorised: At 1 January 2004, 31 December 2004, 1 January 2005, 31 December 2005, 1 January 2006, 31 December 2006, 1 January 2007 and 30 June 2007 Issued and fully paid: At 1 January 2004, 31 December 2004 and 1 January 2005 Allotted on share placing At 31 December 2005, 1 January 2006, 31 December 2006, 1 January 2007 and 30 June 2007	Number of shares 50,000,000,000 282,305,987 56,460,000 338,765,987	Share capital HK$’000 500,000
		2,823 565
		3,388

On 2 February 2005, 56,460,000 shares of Chi Cheung were issued and allotted to independent investors pursuant to a placing agreement entered into between Chi Cheung and its placing agent on 24 January 2005.

– 346 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

33. Reserves

Contribution from Chi Cheung shareholders HK$’000 At 1 January 2004 117,054 Loss for the year – At 31 December 2004 117,054 At 1 January 2005 117,054 Amount received from share placing – Issue cost on share placing – Transfer upon issue of shares for share placing_(Note)_ – Profit for the year – At 31 December 2005 117,054 At 1 January 2006 117,054 Profit for the year – At 31 December 2006 117,054 At 1 January 2007 117,054 Profit for the period – At 30 June 2007 117,054	Share premium HK$’000 442,917 – 442,917 442,917 53,072 (829) – – 495,160 495,160 – 495,160 495,160 – 495,160	Special Retained capital profits/ reserve (accumulated I & II losses) HK$’000 HK$’000 (Note) 54,720 5,349 – (108,553) 54,720 (103,204) 54,720 (103,204) – – – – (54,720) 54,720 – 21,517 – (26,967) – (26,967) – 6,123 – (20,844) – (20,844) – 7,964 – (12,880)	Total HK$’000 620,040 (108,553) 511,487 511,487 53,072 (829) – 21,517 585,247 585,247 6,123 591,370 591,370 7,964 599,334

– 347 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Note:

As part of the capital reorganisation, an order on petition dated 7 October 2003 (the “Order”) was issued by the High Court of Hong Kong Special Administrative Region of the People’s Republic of China in connection with the reduction of the capital of Chi Cheung for an amount of HK$296,536,000. Pursuant to the Order, Chi Cheung applied HK$245,025,000 of the above amount to eliminate its accumulated losses as at 31 December 2002 while the remaining balance of HK$51,511,000 was included in a “Special Capital Reserve I” account.

Chi Cheung also undertook that any future recoveries of the advances to Super Series Limited, a former wholly-owned subsidiary of Chi Cheung, which was disposed of under the Asset Transaction, beyond their written down value had to be credited to “Special Capital Reserve II”. Accordingly, the gain on disposal of Super Series amounting to HK$3,209,000 was included in this reserve.

34. Major non-cash transactions

For the year ended 31 December 2006, the Chi Cheung Group had the following major non-cash transactions:

• (i) the Chi Cheung Group had incurred costs for additions of properties under development of approximately HK$26,386,000 of which approximately HK$7,117,000 had not been paid as at 31 December 2006 which was included in creditors and accruals; and

For the year ended 31 December 2005, the Chi Cheung Group had the following major non-cash transactions:

• (i) the Chi Cheung Group applied for the voluntary winding-up of certain subsidiaries and the loans from the minority shareholders amounting to HK$39,228,000 were written off;

• (ii) the Chi Cheung Group had incurred costs for additions of properties under development of approximately HK$23,151,000 of which approximately HK$5,097,000 had not been paid as at 31 December 2005 which was included in creditors and accruals; and

• (iii) the Chi Cheung Group had received dividend income of approximately HK$14,000,000 from an associate by way of set off against the advance from the associate; and

– 348 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

For the year ended 31 December 2004, the Chi Cheung Group had the following major non-cash transactions:

• (i) the Chi Cheung Group had incurred costs for additions of properties under development of approximately HK$750,000 of which approximately HK$487,500 had not been paid as at 31 December 2004 which was included in creditors and accruals.

35. Operating lease commitments

The Chi Cheung Group as lessee

				As at
	As at 31 December			30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Minimum lease payments under
operating leases in respect of
office premises during
the year/period	63	58	78	41

At 31 December 2004, 2005, 2006 and 30 June 2007, the Chi Cheung Group had outstanding commitments under non-cancellable operating leases, which fall due as follows:

Within one year In the second to fifth year inclusive	58 10 68	10 – 10	83 – 83	41 –
				41

Operating lease payments represent rentals payable by the Chi Cheung Group for certain of its office premises. Lease is negotiated for a fixed term of two years.

– 349 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

The Chi Cheung Group as lessor

At 31 December 2004, 2005, 2006 and 30 June 2007, the Chi Cheung Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,291 629 461 839 210 329 2,130 839 790	As at 30 June 2007 HK$’000 407 126
		533

The investment properties of the Chi Cheung Group are expected to generate annual rental yields of 5% to 12% on an ongoing basis during the Relevant Periods. All of the properties held have committed tenants not exceeding approximately three years.

36. Commitments

Commitments in respect of development expenditure of properties held for development contracted for but not provided in the Financial Information Commitments in respect of balance payment to the acquisition of 50% shareholdings, the shareholder’s loan and loan due from an associate but not provided in the Financial Information	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 506 – – – – – 506 – –	As at 30 June 2007 HK$’000 – 10,300
		10,300

– 350 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

37. Retirement benefit schemes

The Chi Cheung Group operates two retirement benefit schemes:

• (i) the provident fund scheme as defined in the Mandatory Provident Fund Scheme Ordinance, Chapter 485 of the laws of Hong Kong (the “MPF Scheme”); and

• (ii) the provident fund scheme as defined in the Occupational Retirement Scheme Ordinance, Chapter 426 of the laws of Hong Kong (the “Top-up Scheme”).

Both the MPF Scheme and the Top-up Scheme were defined contribution schemes and the assets of both schemes were managed by their respective trustees accordingly.

The MPF Scheme was available to all employees aged 18 to 64 and with at least 60 days of service under the employment of the Chi Cheung Group in Hong Kong. Contributions were made by the Chi Cheung Group at 5% based on the staff’s relevant income. The maximum relevant income for contribution purpose is HK$20,000 per month. Staff members were entitled to 100% of the Chi Cheung Group’s contributions together with accrued returns irrespective of their length of service with the Chi Cheung Group, but the benefit was required by law to be preserved until the retirement age of 65. Forfeited contributions of MPF Scheme cannot be used by the Chi Cheung Group to offset the existing level of contributions.

The Top-up Scheme was available to those employees with basic salary over HK$20,000 and/or years of service over 5. Contributions to the Top-up Scheme were made by the Chi Cheung Group at 5%, 7.5% or 10% of staff’s basic salary (depending on the length of service) less the Chi Cheung Group’s mandatory contribution under the MPF Scheme. Staff members were entitled to 100% of the Chi Cheung Group’s contributions together with accrued returns after completing 10 years of service or more, or attaining the retirement age, or were entitled at a reduced scale between 30% to 90% of the Chi Cheung Group’s contributions after completing a period of service of at least 3 years but less than 10 years. The Top-up Scheme allowed any forfeited contributions (made by the Chi Cheung Group for any staff member who subsequently left the Top-up Scheme prior to vesting fully in such contributions) to be used by the Chi Cheung Group to offset the current level of contributions of the Chi Cheung Group.

The Chi Cheung Group’s cost for the MPF Scheme and Top-up Scheme charged to consolidated income statement for the year ended 31 December 2004, 2005, 2006, period ended 30 June 2006 and 2007 amounted to HK$41,000, HK$55,000, HK$87,000, HK$37,000 and HK$74,000.

– 351 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

38. Related party transactions

During the Relevant Periods, the Chi Cheung Group had the following material transactions with related parties:

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2004	2005	2006	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Rental paid to a fellow
subsidiary_(Note i)_	63	58	78	37	41
Interest income on
advances to
associates_(Note ii)_	3,295	3,557	4,855	2,402	2,139
Imputed interest income
relating to interest-free
advance to an associate	888	906	924	462	471

Notes:

• (i) By a sub-lease agreement dated 29 March 2004 entered into between Chi Cheung and Chinese Estates, Limited (“CEL”), a wholly-owned subsidiary of Chinese Estates, CEL agreed to sublease to Chi Cheung the office premises at Room 103, 1st Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong for two years commencing from 1 March 2004 to 28 February 2006 at a monthly rental of HK$4,837.

And during the year ended 31 December 2006, Chi Cheung renewed the sub-lease agreement with CEL. Pursuant to the renewed sub-lease agreement, CEL sub-leases the office premises for the period from 1 March 2006 to 31 December 2007 at a monthly rental of HK$6,881.

• (ii) Interest was charged on outstanding balance during the Relevant Periods.

None of the related party transactions constituted discloseable non-exempted connected transactions or non-exempted continuing connected transactions under the Listing Rules.

– 352 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

39. Particulars of principal subsidiaries

The following list contains the particulars of the subsidiaries of Chi Cheung which, in the opinion of the directors of Chi Cheung, principally affected the results or assets of the Chi Cheung Group. To give details of other subsidiaries would, in the opinion of the directors, results in particulars of excessive length.

				Proportion of	Proportion of
		Class of	Fully paid	nominal value
	Place of	share/	share capital/	of paid-up capital/
	incorporation	registered	registered	registered capital		Principal
Name of subsidiaries	or operation	capital held	capital	held by Chi Cheung		activities
				Directly	Indirectly
Comford Tower Limited	Republic of	Ordinary	US$1	–	100%	Investment
	Liberia					holding
Country Homes Limited	Hong Kong	Ordinary	HK$200	–	100%	Property
		Non-voting	HK$164,400			investment
		deferred
		ordinary
		Non-voting	HK$1,000
		deferred
		founder
Country Honour Limited	Hong Kong	Ordinary	HK$2	–	100%	Property
						investment
Farnell Venture Inc.	BVI	Ordinary	US$1	–	100%	Investment
						holding
First Castle Limited	BVI/	Ordinary	US$1	–	100%	Property
	Hong Kong					investment
Konshing Enterprises	Hong Kong	Ordinary	HK$1,000	–	51%	Property
Limited						development
Lucky Guide International	Hong Kong	Ordinary	HK$2	–	51%	Property
Limited						investment
Moregift Investments	Hong Kong	Ordinary	HK$10,000	100%	–	Property
Limited						holding
Sanewing Investments	Hong Kong	Ordinary	HK$10,000	–	100%	Property
Limited						trading
Union Spark Investment	Hong Kong	Ordinary	HK$2	–	100%	Investment
Limited						holding
View Success Investments	Hong Kong	Ordinary	HK$2	–	100%	Property
Limited						investment
						and trading

– 353 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

40. Particulars of principal associates

The following list contains only the particulars of associates of the Chi Cheung Group which, in the opinion of the directors, principally affected the results or assets of the Chi Cheung Group. To give details of other associates would, in the opinion of directors, result in particulars of excessive length.

				Percentage
			Fully paid	of equity
		Class of	share	attributable
	Place of	share/	capital/	indirectly to
	incorporation	registered	registered	the Chi
Name of associates	and operation	capital held	capital	Cheung Group	Principal activities
Earn Elite Development	Hong Kong	Ordinary	HK$2	50%	Property investment
Limited
Finedale Industries	Hong Kong	Ordinary	HK$9,999	331/3%	Property investment
Limited
Healthy Point Limited	Hong Kong	Ordinary	HK$2	50%	Property investment
		Non-voting	HK$1
		preferred

41. Post balance sheet event

• i) After the period ended 30 June 2007, the Chi Cheung Group entered into various sale and purchase agreements with independent third parties to dispose of six godown units of properties held for sale at totaled consideration of approximately HK$54.9 million. The disposal of two units was completed in August 2007 and the disposal of remaining four units is expected to be completed in November 2007.

– 354 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

• ii) On 23 March 2007, Farnell Venture Inc. (“Farnell”) and Wing Lee Development Limited (“Wing Lee”), both being indirect wholly owned subsidiaries of Chi Cheung entered into a sale and purchase agreement (the “Agreement”) with Fung Ming Venture Limited (“Fung Ming”) and Star East Management Limited (“Star East”), both being indirect wholly owned subsidiaries of SMI Corporation Limited (“SMI Corporation”), a company listed on the Stock Exchange whereby:

• a) Farnell agreed to purchase from Fung Ming i) 50% of the entire issued share capital of Canaria Holding Limited (“Canaria”) (hereby refer to as the “Sale Share”); and ii) all amounts owing by Canaria to Fung Ming as at the date of the Agreement or at completion thereof (the “Shareholder’s Loan”); and

• b) Wing Lee agreed to purchase from Star East all amounts owing by Earn Elite Development Limited (“Earn Elite”) to Star East in the principal sum of HK$9.5 million (the “Earn Elite Debt”).

The aggregate consideration of the Agreement was HK$11.4 million and the Chi Cheung Group has paid HK$1.1 million as a deposit on 23 March 2007 for the transaction.

On 1 August 2007, Farnell, Wing Lee, Fung Ming and Star East agreed to extend the time for fulfillment of certain conditions precedent of the Agreement in relation to the proposed acquisition of Sale Share, Shareholder’s Loan, and the Earn Elite Debt, for a period of 6 months (that is, on or before 31 January 2008) or such date as the parties may agree in writing.

The details are set out in Chi Cheung’s circular and announcement dated 7 May 2007 and 1 August 2007 respectively.

• iii) On 11 September 2007, Chi Cheung entered into a sale and purchase agreement (the “S&P Agreement”) with Chinese Estates under which:

• a. Shing Ping Development Ltd., a wholly-owned subsidiary of Chi Cheung, has agreed to purchase (i) all the issued shares of Honest Right Investment Limited and Evergo China Holdings Limited (which, together with their respective subsidiaries and associated companies, are collectively referred to as the “Target Companies”); (ii) all sums due from the Target Companies to Chinese Estates Holdings Limited and its subsidiaries (the “Chinese Estates Group”) other than the Target Companies as at the date of the S&P Agreement (the “CE Sale Loan”); and (iii) all those additional loans which may have been provided by members of the Chinese Estates Group (other than the Target Companies) to the Target Companies after the date of the S&P Agreement but prior to the completion of the S&P Agreement and with prior written consent of Chi Cheung (hereinafter collectively referred to as the “Acquisition”).

– 355 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

• b. Victory Gain Holdings Limited, a wholly-owned subsidiary of Chinese Estates, has agreed to purchase (i) all the issued shares of Jumbo Legend Limited, Moregift Investments Limited, New Hong Kong Inc., Paperkit International Limited, Pinball International Limited and Star Glory Limited (which, together with their respective subsidiaries and associated companies, are collectively referred to as the “CC Sale Companies”); (ii) all sums due from the CC Sale Companies to the Chi Cheung Group other than the CC Sale Companies as at the date of the S&P Agreement (the “CC Sale Loan”); and (iii) all those additional loan which may have been provided by the Chi Cheung Group (other than the CC Sale Companies) to the CC Sale Companies after the date of the S&P Agreement but prior to the completion of the S&P Agreement and with prior written consent of Chinese Estates (collectively referred to as the “Disposal”) (hereinafter collectively together with the Acquisition referred to as the “Asset Transaction”).

The provisional consideration of the Acquisition is estimated to be approximately HK$10,450.2 million. The provisional consideration of the Disposal is estimated to be approximately HK$689.5 million (assuming the acquisition of 50% shareholding in Canaria Holding Limited and shareholder’s loan due from Canaria Holding Limited and the loan due from Earn Elite Development Limited does not take place before completion of the Asset Transaction (“Canaria Acquisition”)) or approximately HK$706.1 million (assuming Canaria Acquisition takes place before completion of the Asset Transaction).

Under the S&P Agreement, upon the completion of the Asset Transaction, the provisional considerations shall set-off against each other and Shing Ping Development Ltd. will pay the remaining balance of the estimated provisional consideration of the Acquisition in an amount of approximately HK$9,760.7 million by way of:

1. the issue and allotment by Chi Cheung of the consideration shares at an issue price of HK$2.66 per ordinary share of HK$0.01 each in the share capital of Chi Cheung to Chinese Estates or its nominees for the amount of approximately HK$469.7 million;

2. the issue of the convertible bonds by Chi Cheung in the principal amount of approximately HK$9,291 million; and

3. as to the remaining balance, by cash payment of approximately HK$1,097.

– 356 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

• iv a) Included in the consolidated income statement of the Chi Cheung Group are the following unaudited results attributable to the CC Sale Companies during the Relevant Periods which are presented on a combined basis after elimination of intra-entities transactions:

Turnover Cost of sales Gross profit Other revenue Other income Administrative expenses Other operating expenses Fair value changes on investment properties Finance costs Impairment loss recognised in respect of an advance to an associate Impairment loss recognised in respect of an investment of a subsidiary Share of results of associates Profit/(loss) before taxation Taxation Profit/(loss) for the year/period Dividends Attributable to: Equity holders of CC Sale Companies Minority interests Earnings/(loss) per share Basicand diluted	Year ended 31 December 2004 2005 HK$’000 HK$’000 18,870 3,370 (13,319) (1,363) 5,551 2,007 2,934 2,925 888 906 (758) (613) (1,926) (1,061) 4,795 4,600 (6,867) (7,902) – – (66,210) – 51,199 100,977 (10,394) 101,839 (544) (398) (10,938) 101,441 – – (10,886) 101,496 (52) (55) (10,938) 101,441 HK$(10,832) HK$100,891	2006 HK$’000 2,916 (1,257) 1,659 4,283 948 (522) (1,469) 14,874 (9,817) (13,474) – 84,886 81,368 (2,029) 79,339 – 79,397 (58) 79,339 HK$78,923	Six months ended 30 June 2006 2007 HK$’000 HK$’000 1,422 13,720 (638) (7,110) 784 6,610 2,102 1,929 462 557 (290) (317) (442) (361) 10,800 1,811 (4,855) (4,509) – (204) – – 27,205 35,466 35,766 40,982 (2,149) (1,248) 33,617 39,734 – – 33,646 39,765 (29) (31) 33,617 39,734 HK$33,445 HK$39,527

– 357 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

• iv b) Included in the consolidated balance sheet of the Chi Cheung Group are the following unaudited balances of the assets and liabilities attributable to the CC Sale Companies as at respective balance sheet dates which are presented on a combined basis after elimination of intra-entities transactions:

Non-current assets Investment properties Property, plant and equipment Properties held for development Prepaid lease payments Interests in associates Advances to associates Current assets Properties held for sale Debtors, deposits and prepayments Tax recoverable Cash and cash equivalents Current liabilities Creditors and accruals Deposits received Tax payable Net current assets Total assets less current liabilities	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 49,350 53,950 63,400 242 224 205 750 23,901 – 9,733 9,700 9,666 159,368 246,345 329,152 127,494 115,256 97,411 346,937 449,376 499,834 28,796 28,796 78,483 202 204 120 135 6 6 18,433 442 3,706 47,566 29,448 82,315 636 6,063 7,707 611 346 3,276 5 7 1,805 1,252 6,416 12,788 46,314 23,032 69,527 393,251 472,408 569,361	As at 30 June 2007 HK$’000 54,200 196 – 9,649 363,908 89,017
		516,970
		72,159 122 6 551
		72,838
		4,119 286 3,373
		7,778
		65,060
		582,030

– 358 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Non-current liabilities Loans from minority shareholders of subsidiaries Advance from an associate Advance from an immediate holding company Deferred tax liabilities Total assets and liabilities Equity Capital and reserves attributable to equity holders of CC Sale Companies Share capital Reserves Equity attributable to equity holders of CC Sale Companies Minority interests Total equity	911 965 1,023 12,909 59 – 618,560 424,778 439,912 619 1,010 1,235 632,999 426,812 442,170 (239,748) 45,596 127,191 10 10 10 (238,847) 46,551 128,204 (238,837) 46,561 128,214 (911) (965) (1,023) (239,748) 45,596 127,191 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000	1,054 – 413,138 914 415,106 166,924 10 167,968 167,978 (1,054) 166,924 As at 30 June 2007 HK$’000

– 359 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

• iv c) Included in the consolidated cash flow statement of the Chi Cheung Group are the following unaudited consolidated cash flows attributable to the CC Sale Companies during the Relevant Periods which are presented on a combined basis after elimination of intra-entities transactions:

Operating activities Profit/(loss) before taxation Adjustments for: Share of results of associates Interest income Finance costs Depreciation Amortisation of prepaid lease payments Impairment loss recognised in respect of an investment of a subsidiary Impairment loss recognised in respect of trade receivables Impairment loss recognised in respect of properties held for sale Impairment loss recognised in respect of advance to a fellow subsidiary Impairment loss recognised in respect of advance to an associate Fair value changes on investment properties (Gain)/loss on disposal of investment properties Operating cash flows before movements in working capital Increase/(decrease) in deposits received Decrease in properties held for sale Decrease/(increase) in debtors, deposits and prepayments (Decrease)/increase in creditors and accruals Net cash generated from operations Hong Kong Profits Tax (paid)/ refunded Net cash generated from operating activities	Year ended 31 December 2004 2005 HK$’000 HK$’000 (10,394) 101,839 (51,199) (100,977) (3,543) (3,830) 6,867 7,902 18 18 33 33 66,210 – – – – – – 316 – – (4,795) (4,600) 925 – 4,122 701 (1,943) (264) 12,304 – (62) (2) 26 14 14,447 449 (235) 124 14,212 573	2006 HK$’000 81,368 (84,886) (5,202) 9,817 19 34 – 38 600 – 13,474 (14,874) (24) 364 110 – 47 112 633 (6) 627	Six months ended 30 June 2006 2007 HK$’000 HK$’000 35,766 40,982 (27,205) (35,466) (2,552) (2,400) 4,855 4,509 9 9 17 17 – – 38 – – – – – – 204 (10,800) (1,811) – (86) 128 5,958 – (1,308) – 6,324 7 (4) (5) 184 130 11,154 – – 130 11,154

– 360 –

ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

APPENDIX VI

Investing activities Increase in investment properties Net proceeds from disposal of investment property Interest received Deposit received from disposal of properties Dividend received from an associate Repayment from associates Net cash generated from/ (used in) investing activities Financing activities Increase in advance from an associate Net repayment to immediate holding company Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Cash and cash equivalents at end of the year/period Analysis of the balances of cash and cash equivalents Cash and cash equivalents	(263) (18,054) 34,740 – 2 10 – – – 1,150 20,833 16,700 55,312 (194) 1,020 – (53,434) (18,370) (52,414) (18,370) 17,110 (17,991) 1,323 18,433 18,433 442 18,433 442 Year ended 31 December 2004 2005 HK$’000 HK$’000	(24,853) 5,448 62 2,819 2,020 10,150 (4,354) – 6,991 6,991 3,264 442 3,706 3,706 2006 HK$’000	(22,077) (3,773) – 9,416 7 109 1,100 – 1,050 710 4,991 10,800 (14,929) 17,262 – – 15,021 (31,571) 15,021 (31,571) 222 (3,155) 442 3,706 664 551 664 551 Six months ended 30 June 2006 2007 HK$’000 HK$’000

– 361 –

APPENDIX VI ACCOUNTANTS’ REPORT OF THE CHI CHEUNG GROUP

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Chi Cheung or any of its subsidiary companies in respect of any period subsequent to 30 June 2007 up to the date of this report. In addition, no dividend or distribution has been declared, made or paid by Chi Cheung or any of its subsidiary companies in respect of any period subsequent to 30 June 2007.

Yours faithfully,

HLB Hodgson Impey Cheng

Chartered Accountants Certified Public Accountants Hong Kong

– 362 –

APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

The following is the text of a letter, received from the Reporting Accountant, HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants, prepared for the sole purpose, of inclusion in this joint circular.

==> picture [215 x 81] intentionally omitted <==

31/F Gloucester Tower

The Landmark 11 Pedder Street Central Hong Kong

31 October 2007

The Board of Directors

Chi Cheung Investment Company, Limited 26th Floor, MassMutual Tower 38 Gloucester Road Wanchai, Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of (i) Chi Cheung Investment Company, Limited (“Chi Cheung”) and its subsidiaries (hereinafter collectively referred to as the “Chi Cheung Group”); (ii) after the acquisition of Evergo China Holdings Limited (“Evergo China”) and its subsidiaries and associates (hereinafter collectively referred to as the “Evergo China Group”) and Honest Right Investment Limited (“Honest Right”) (hereinafter collectively referred to the “Target Companies”); and (iii) after the disposal of Jumbo Legend Limited, Moregift Investments Limited, New Hong Kong Inc., Paperkit International Limited, Pinball International Limited and Star Glory Limited (together with their respective subsidiaries and associates, collectively referred to as the “CC Sale Companies”) (the remaining Chi Cheung Group, after such acquisition and disposal referred to as the “Enlarged Chi Cheung Group”), which has been prepared by the directors of Chi Cheung for illustrative purposes only, to provide information about the effect of:

• (A) the acquisition of (i) the interest of the Target Companies and (ii) all sum due from the Target Companies to Chinese Estates Holdings Limited and its subsidiaries (the “Chinese Estates Group”) other than the Target Companies (the “CE Sale Loan”) (collectively referred to as the “Acquisition”); and

– 363 –

APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

• (B) the disposal of (i) the interest of the CC Sale Companies and (ii) all sum due from the CC Sale Companies to the Chi Cheung Group other than the CC Sale Companies (the “CC Sale Loan”) (collectively referred to as the “Disposal”) (hereinafter collectively together with the Acquisition referred to as the “Asset Transaction”).

The Unaudited Pro Forma Financial Information has been prepared for illustrative purpose only, to provide information about how the Asset Transaction might have affected the financial information presented, for inclusion in Appendix VII of the joint circular of Chinese Estates Holdings Limited and Chi Cheung dated 31 October 2007 (the “Joint Circular”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages 366 to 378 to the Joint Circular.

RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS OF CHI CHEUNG AND THE REPORTING ACCOUNTANTS

It is the responsibility solely of the directors of Chi Cheung to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibilities for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

BASIS OF OPINION

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of Chi Cheung. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of Chi Cheung on the basis stated, that such basis is consistent with the accounting policies of the Chi Cheung Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

– 364 –

APPENDIX VII

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgments and assumptions of the directors of Chi Cheung, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

• the financial position of the Enlarged Chi Cheung Group as at 30 June 2007 or at any future date; or

• the results and cash flows of the Enlarged Chi Cheung Group for the year ended 31 December 2006 or for any future periods.

OPINION

In our opinion:

• the Unaudited Pro Forma Financial Information has been properly compiled by the directors of Chi Cheung on the basis stated;

• such basis is consistent with the accounting policies of the Chi Cheung Group; and

• the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

HLB Hodgson Impey Cheng Chartered Accountants Certified Public Accountants Hong Kong

– 365 –

APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

A. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED CHI CHEUNG GROUP

I. Introduction

The unaudited pro forma consolidated balance sheet of the Enlarged Chi Cheung Group has been prepared to illustrate the effect of the Asset Transaction.

The unaudited pro forma consolidated balance sheet of the Enlarged Chi Cheung Group has been prepared in accordance with the Rules 4.29 of the Listing Rules for the purpose of illustrating the effect of the Asset Transaction as if the Asset Transaction took place on 30 June 2007.

The unaudited pro forma consolidated balance sheet of the Enlarged Chi Cheung Group is prepared based on the audited consolidated balance sheet of the Chi Cheung Group as at 30 June 2007 as set out in Appendix VI to the Joint Circular, the audited consolidated balance sheet of the Evergo China Group and the audited balance sheet of Honest Right as at 30 June 2007 as set out in Appendix IV and Appendix V to the Joint Circular, after making pro forma adjustments relating to the Asset Transaction that are (i) directly attributable to the transaction; and (ii) factually supportable.

The unaudited pro forma consolidated balance sheet has been prepared by the directors of Chi Cheung for illustrative purposes only and is based on a number of assumptions, estimates and uncertainties. Accordingly, the unaudited pro forma consolidated balance sheet does not purport to describe the actual financial position of the Enlarged Chi Cheung Group that would have been attained had the Asset Transaction been completed on 30 June 2007, nor purport to predict the future financial position of the Enlarged Chi Cheung Group.

The unaudited pro forma consolidated balance sheet should be read in conjunction with the historical information of the Chi Cheung Group as set out in the consolidated financial statements of the Chi Cheung Group for the six months ended 30 June 2007 as set out in Appendix VI to the Joint Circular and other financial information included elsewhere in the Joint Circular.

The Unaudited Pro Forma Financial Information has been prepared by the directors of Chi Cheung for illustrative purposes only and because of its nature, it may not give a true picture of financial position of the Enlarged Chi Cheung Group following completion of the Asset Transaction.

– 366 –

APPENDIX VII

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

II. Unaudited pro forma consolidated balance sheet

Non-current assets Investment properties Property, plant and equipment Prepaid lease payments Properties under development Interests in associates Advances to associates Available-for-sale financial asset Current assets Properties held for sale Properties under development held for sale Debtors, deposits and prepayments Tax recoverable Cash and cash equivalents Current liabilities Creditors, accruals and provisions Deposits and receipts in advance Amount due to an immediate holding company Amounts due to fellow subsidiaries Secured bank loan-due within one year Tax payable Net current assets/(liabilities) Total assets less current liabilities	Chi Cheung Evergo China Group Group as at 30 June as at 30 June 2007 2007 HK$’000 HK$’000 54,200 872,000 196 1,882 9,649 – – 1,150,735 363,908 228,472 98,517 – 270 3,981 526,740 2,257,070 72,159 – – 2,431,110 2,765 24,859 6 – 216,391 93,191 291,321 2,549,160 4,661 170,752 286 24,502 – – – 2,467,128 – – 3,373 1,850 8,320 2,664,232 283,001 (115,072) 809,741 2,141,998	Unaudited pro forma consolidated balance sheet of the Enlarged Honest Right Chi Cheung as at 30 June Pro forma adjustments Group as at 2007 (Note 1) (Note 2) (Note 3) (Note 4) 30 June 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 60,000 (54,200) 932,000 – (196) 1,882 – (9,649) – – 728,265 1,879,000 – 153,227 (363,908) 381,699 – (98,517) – – 4,251 – 3,198,832 – (72,159) – – 11,878,890 14,310,000 – (122) 27,502 – (6) – 21 (20,001) (551) 289,051 21 14,626,553 75 (4,119) 171,369 – (286) 24,502 7,920 (7,920) – 10,561 (2,477,689) – 15,000 15,000 – (3,373) 1,850 33,556 212,721 (33,535) 14,413,832 (33,535) 17,612,664	Unaudited pro forma consolidated balance sheet of the Enlarged Honest Right Chi Cheung as at 30 June Pro forma adjustments Group as at 2007 (Note 1) (Note 2) (Note 3) (Note 4) 30 June 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 60,000 (54,200) 932,000 – (196) 1,882 – (9,649) – – 728,265 1,879,000 – 153,227 (363,908) 381,699 – (98,517) – – 4,251 – 3,198,832 – (72,159) – – 11,878,890 14,310,000 – (122) 27,502 – (6) – 21 (20,001) (551) 289,051 21 14,626,553 75 (4,119) 171,369 – (286) 24,502 7,920 (7,920) – 10,561 (2,477,689) – 15,000 15,000 – (3,373) 1,850 33,556 212,721 (33,535) 14,413,832 (33,535) 17,612,664
			3,198,832
			– 14,310,000 27,502 – 289,051
			14,626,553
			171,369 24,502 – – 15,000 1,850
			212,721
			14,413,832
			17,612,664

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PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

APPENDIX VII

Non-current liabilities Convertible bonds Loan from minority shareholders of subsidiaries Deferred tax liabilities Total assets and liabilities Equity Capital and reserves attributable to equity holders of Chi Cheung Share capital Share premium and reserves Equity attributable to equity holders of Chi Cheung Minority interests Total equity	– – 1,054 – 914 214,703 1,968 214,703 807,773 1,927,295 3,388 100,776 805,439 1,826,496 808,827 1,927,272 (1,054) 23 807,773 1,927,295 Chi Cheung Evergo China Group Group as at 30 June as at 30 June 2007 2007 HK$’000 HK$’000	– 7,503,264 7,503,264 – (1,054) – – 2,346,421 312,854 (914) 2,873,978 – 10,377,242 (33,535) 7,235,422 – 1,766 (100,776) 5,154 (33,535) 7,919,124 1,942,801 98,882 (7,883,799) 4,675,408 (33,535) 4,680,562 – 2,554,837 1,054 2,554,860 (33,535) 7,235,422 Unaudited pro forma consolidated balance sheet of the Enlarged Honest Right Chi Cheung as at 30 June Pro forma adjustments Group as at 2007 (Note 1) (Note 2) (Note 3) (Note 4) 30 June 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	– 7,503,264 7,503,264 – (1,054) – – 2,346,421 312,854 (914) 2,873,978 – 10,377,242 (33,535) 7,235,422 – 1,766 (100,776) 5,154 (33,535) 7,919,124 1,942,801 98,882 (7,883,799) 4,675,408 (33,535) 4,680,562 – 2,554,837 1,054 2,554,860 (33,535) 7,235,422 Unaudited pro forma consolidated balance sheet of the Enlarged Honest Right Chi Cheung as at 30 June Pro forma adjustments Group as at 2007 (Note 1) (Note 2) (Note 3) (Note 4) 30 June 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
			10,377,242
			7,235,422
			5,154 4,675,408
			4,680,562 2,554,860
			7,235,422

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APPENDIX VII

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

III. Notes to the unaudited pro forma consolidated balance sheet

Assuming the Acquisition took place on 30 June 2007, the Chi Cheung Group has applied purchase method to account for subsidiaries acquired in the Acquisition in which the identifiable assets, liabilities and contingent liabilities of the Evergo China Group and Honest Right will be recorded on the consolidated balance sheet of the Chi Cheung Group at their fair value as at 30 June 2007. Any goodwill or discount arising on the acquisition will be determined as the excess or deficit of the purchase price to be incurred by the Chi Cheung Group over the Chi Cheung Group’s interests in the net fair value of the identifiable assets, liabilities and contingent liabilities of the Evergo China Group and Honest Right. Negative goodwill resulting from the business combination should be recognised immediately in the consolidated income statement.

1. (a) The fair value adjustments represented an increase in fair value of (i) investment properties of approximately HK$60,000,000; (ii) of properties under development and properties under development held for sale of approximately HK$12,607,155,000 held by the Evergo China Group; and (iii) property, plant and equipment and investment properties held by the associates of the Evergo China Group of approximately HK$153,227,000 (collectively referred to as the “Acquired Assets”); represented the aggregate effect on the excess of fair values of the Acquired Assets over their carrying amounts as at 30 June 2007, as if the acquisition was completed on 30 June 2007. The fair values of these assets as at 30 June 2007 were determined with reference to valuation as at 31 July 2007 carried out by BMI Appraisals Limited, an independent qualified professional property valuer not connected to the Chi Cheung Group, assuming there was no significant difference in the valuation of the assets between the date of 30 June 2007 and 31 July 2007.

2. (b) Deferred tax on fair value adjustment of approximately HK$2,346,421,000 was provided on the fair value changes at the rates prevailing in the relevant jurisdictions.

3. (c) The adjustment of approximately HK$7,919,124,000 represented the net effect of (i) the increase in fair value of the Acquired Assets of approximately HK$12,820,382,000; (ii) deferred tax liabilities of approximately HK$2,346,421,000; and (iii) the minority interests of approximately HK$2,554,837,000 as there is a minority shareholder having 29.99% interests in one of the subsidiaries of the Evergo China.

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APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

1. The total estimated consideration of the Acquisition to be satisfied by the Chi Cheung Group is approximately HK$10,450,184,000 plus the estimated transaction cost of approximately HK$20,000,000. As the total estimated consideration of the Acquisition will be set-off by the estimated consideration of the Disposal of approximately HK$689,498,000, the net estimated consideration of the Acquisition will be approximately HK$9,760,686,000 (the “Net Consideration”). The settlement of the Net Consideration are set out as follows:

Net Consideration of the Acquisition is to be satisfied by:

Convertible bonds_(note 2(ii) and 2(v)) Consideration Shares(note 2(iv) and 2(v)) Cash consideration(note 2(i)) Add: Estimated transaction costs(note 2(i))_	HK$’000 9,291,000 469,685 1
	9,760,686 20,000
	9,780,686

• (i) The adjustment of approximately HK$20,001,000 represented the sum of (i) the estimated expenses of direct legal and professional costs of approximately HK$20,000,000 in relation to the Asset Transaction; and (ii) the remaining balance of the Net Consideration will be settled by cash of approximately HK$1,000.

• (ii) In accordance with Hong Kong Accountant Standards 32 “Financial Instrument: Disclosure and Presentation”, convertible bonds should be separated as liability portion and equity portion. In preparing the Unaudited Pro Forma Financial Information, the fair value of the convertible bonds of HK$9,291,000,000 has taken to be its fair value as if it were issued on 30 June 2007. The adjustment of approximately HK$7,503,264,000 represented the liability portion of the convertible bonds based on the calculation of the discounted cash flow method. Please refer to note 2(v) for the details of the equity portion of the convertible bonds.

– 370 –

APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

• (iii) The adjustment of approximately HK$312,854,000 represented the deferred tax liabilities arising from the convertible bonds.

• (iv) Assuming the issuance of 176,573,217 consideration shares at par value of HK$0.01 by Chi Cheung (the “Consideration Shares”), the share capital of Chi Cheung would be increased by approximately HK$1,766,000.

• (v) The adjustment of approximately HK$1,942,801,000 represented the sum of (i) the share premium arising from the issuance of the Consideration Shares would be approximately HK$467,919,000 assuming the issue price of HK$2.66 per share was the fair value of the share of Chi Cheung as at 30 June 2007; and (ii) the equity component of the convertible bonds of approximately HK$1,474,882,000. Please also refer to note 2(ii) for the details of the convertible bonds.

• (a) The adjustments represented the aggregate effects of disposing all assets and liabilities of the CC Sale Companies and the CC Sale Loan from the consolidated balance sheet of the Chi Cheung Group as at 30 June 2007, as if the Disposal was completed on 30 June 2007.

• (b) The adjustment of approximately HK$98,882,000 represented the gain on the Disposal as if the Disposal was completed on 30 June 2007, which was carried forward in the reserves as at 30 June 2007. The gain on Disposal is calculated by reference to the net asset values of the CC Sale Companies and the CC Sale Loan as at 30 June 2007. Details were set out as follow:

Consideration received from Chinese Estates Less: Net asset values of CC Sale Companies CC Sale Loan	HK$’000 689,498 (167,978) (422,638) 98,882

1. (a) The adjustments represented the assignment of the CE Sale Loan to the Chi Cheung Group in the sum of approximately HK$2,485,609,000. Such inter-company balance in the Chi Cheung Group was eliminated against each other upon completion of the Acquisition.

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APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

• (b) The adjustment of approximately HK$100,776,000 represented the elimination of the share capital of Evergo China and Honest Right upon the consolidation of the Unaudited Pro Forma Financial Information.

• (c) The adjustments of approximately HK$7,883,799,000 represented the elimination of pre-acquisition reserves and the recognition of negative goodwill arising from the discount on the Acquisition, as if the Asset Transaction was completed on 30 June 2007. Details are set out as follows:–

		HK$’000
	Elimination of pre-acquisition reserve:
	The pre-acquisition reserves of Evergo China Group	1,826,496
	The pre-acquisition reserves of Honest Right	(33,535)
	The fair value gain on revaluation of the Acquired
	Assets upon the Acquisition	7,919,124
	Recognition of negative goodwill:
	The discount on acquisition arising from the
	Acquisition_(note 4(d))_	(1,828,286)
		7,883,799
(d)	The discount on acquisition arising from the Acquisition	was calculated
	on the basis of the excess of fair values of the Acquired Assets as at 31
	July 2007 and the CE Sale Loan as at 30 June 2007 over the consideration
	paid. Details are set out as follows:–
		HK$’000
	Net assets of the Acquired Assets	1,893,737
	Fair value adjustments of the Acquired Assets	12,820,382
	Deferred tax liabilities recognised in
	respect of fair value adjustments_(note 1(b))_	(2,346,421)
	Fair value adjustments of the Acquired Assets shared
	by minority shareholder_(note 1(c))_	(2,554,837)
	CE Sale Loan_(note 4(a))_	2,485,609
	Fair value of net assets of the Acquired Assets	12,298,470
	Less: Total Consideration	(10,450,184)
	Estimated transaction cost	(20,000)
	Excess over cost of a business combination_(note 4(c))_	1,828,286

– 372 –

APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

B. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT AND UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED CHI CHEUNG GROUP

I. Basis of preparation

The unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement of the Enlarged Chi Cheung Group have been prepared to illustrate the effect of the Asset Transaction.

The unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement of the Enlarged Chi Cheung Group have been prepared in accordance with the Rules 4.29 of the Listing Rules for the purpose of illustrating the effect of the Asset Transaction as if the Asset Transaction took place on 1 January 2006.

The unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement of the Enlarged Chi Cheung Group are prepared based on the audited consolidated income statement and audited consolidated cash flow statement of the Chi Cheung Group and the Evergo China Group for the year ended 31 December 2006 as set out in Appendix VI and Appendix IV respectively to the Joint Circular and the audited income statement and audited cash flow statement of Honest Right for the year ended 31 December 2006 as set out in Appendix V to the Joint Circular, after making pro forma adjustments relating to the Acquisition and the Disposal that are (i) directly attributable to the transaction; and (ii) factually supportable.

The unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement have been prepared by the directors of Chi Cheung for illustrative purposes only and are based on a number of assumptions, estimates and uncertainties. Accordingly, the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement do not purport to describe the actual financial position of the Chi Cheung Group that would have been attained had the Asset Transaction been completed on 1 January 2006, nor purport to predict the future financial position of the Enlarged Chi Cheung Group.

The unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement should be read in conjunction with the historical information of the Chi Cheung Group as set out in the consolidated financial statements of the Chi Cheung Group for the year ended 31 December 2006 set out in Appendix VI to the Joint Circular and other financial information included elsewhere in the Joint Circular.

– 373 –

APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

The Unaudited Pro Forma Financial Information has been prepared by the directors of Chi Cheung for illustrative purposes only and because of its nature, it may not give a true picture of financial position of the Enlarged Chi Cheung Group following completion of the Asset Transaction.

II(a) Unaudited pro forma consolidated income statement

Unaudited pro forma consolidated income statement Chi Cheung Evergo China of the Enlarged Group Group Honest Right Chi Cheung Group for the year ended for the year ended for the year ended Pro forma adjustments for the year ended 31 December 2006 31 December 2006 31 December 2006 (Note 1) (Note 2) 31 December 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 2,916 55,432 2,494 (2,916) (a) 57,926 Cost of sales (1,257) (8,018) (1,812) 1,257 (a) (9,830) Gross profit 1,659 47,414 682 48,096 Other revenue 11,932 60,788 – (4,283) (a) 68,437 Other income 956 70,366 – (117) (a) 71,205 Administrative expenses (4,711) (9,239) (10) 522 (a) (13,438) Other operating expenses (638) – – 638 (a) – Fair value changes on investment properties 14,874 – – (14,874) (a) – Finance costs (58) – – 58 (a) (597,255) (b) (597,255) Gains on disposal of subsidiaries – – – 98,882 (b) 98,882 Discount on acquisition 1,828,286 (a) 1,828,286 Impairment loss recognised in respect of amount due from a fellow subsidiary – – (2,494) (2,494) Impairment loss reversed in respect of loan to a fellow subsidiary – – 20,000 20,000 Impairment loss recognised in respect of advances to associates (13,477) – – 13,474 (a) (3) Write back of allowance for amount due from an associate 897 – – 897 Share of results of associates 84,886 9,167 – (84,886) (c) 9,167 Profit before taxation 96,320 178,496 18,178 1,531,780 Deferred tax (225) (112,724) – 225 (a) 104,520 (c) (8,204) Taxation (1,804) (5,682) – 1,804 (a) (5,682) Profit for the year 94,291 60,090 18,178 1,517,894 Attributable to: Equity holders of Chi Cheung 94,349 60,090 18,178 9,726 1,335,551 1,517,894 Minority interests (58) – – 58 – 94,291 60,090 18,178 1,517,894	Unaudited pro forma consolidated income statement Chi Cheung Evergo China of the Enlarged Group Group Honest Right Chi Cheung Group for the year ended for the year ended for the year ended Pro forma adjustments for the year ended 31 December 2006 31 December 2006 31 December 2006 (Note 1) (Note 2) 31 December 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 2,916 55,432 2,494 (2,916) (a) 57,926 Cost of sales (1,257) (8,018) (1,812) 1,257 (a) (9,830) Gross profit 1,659 47,414 682 48,096 Other revenue 11,932 60,788 – (4,283) (a) 68,437 Other income 956 70,366 – (117) (a) 71,205 Administrative expenses (4,711) (9,239) (10) 522 (a) (13,438) Other operating expenses (638) – – 638 (a) – Fair value changes on investment properties 14,874 – – (14,874) (a) – Finance costs (58) – – 58 (a) (597,255) (b) (597,255) Gains on disposal of subsidiaries – – – 98,882 (b) 98,882 Discount on acquisition 1,828,286 (a) 1,828,286 Impairment loss recognised in respect of amount due from a fellow subsidiary – – (2,494) (2,494) Impairment loss reversed in respect of loan to a fellow subsidiary – – 20,000 20,000 Impairment loss recognised in respect of advances to associates (13,477) – – 13,474 (a) (3) Write back of allowance for amount due from an associate 897 – – 897 Share of results of associates 84,886 9,167 – (84,886) (c) 9,167 Profit before taxation 96,320 178,496 18,178 1,531,780 Deferred tax (225) (112,724) – 225 (a) 104,520 (c) (8,204) Taxation (1,804) (5,682) – 1,804 (a) (5,682) Profit for the year 94,291 60,090 18,178 1,517,894 Attributable to: Equity holders of Chi Cheung 94,349 60,090 18,178 9,726 1,335,551 1,517,894 Minority interests (58) – – 58 – 94,291 60,090 18,178 1,517,894	Unaudited pro forma consolidated income statement Chi Cheung Evergo China of the Enlarged Group Group Honest Right Chi Cheung Group for the year ended for the year ended for the year ended Pro forma adjustments for the year ended 31 December 2006 31 December 2006 31 December 2006 (Note 1) (Note 2) 31 December 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 2,916 55,432 2,494 (2,916) (a) 57,926 Cost of sales (1,257) (8,018) (1,812) 1,257 (a) (9,830) Gross profit 1,659 47,414 682 48,096 Other revenue 11,932 60,788 – (4,283) (a) 68,437 Other income 956 70,366 – (117) (a) 71,205 Administrative expenses (4,711) (9,239) (10) 522 (a) (13,438) Other operating expenses (638) – – 638 (a) – Fair value changes on investment properties 14,874 – – (14,874) (a) – Finance costs (58) – – 58 (a) (597,255) (b) (597,255) Gains on disposal of subsidiaries – – – 98,882 (b) 98,882 Discount on acquisition 1,828,286 (a) 1,828,286 Impairment loss recognised in respect of amount due from a fellow subsidiary – – (2,494) (2,494) Impairment loss reversed in respect of loan to a fellow subsidiary – – 20,000 20,000 Impairment loss recognised in respect of advances to associates (13,477) – – 13,474 (a) (3) Write back of allowance for amount due from an associate 897 – – 897 Share of results of associates 84,886 9,167 – (84,886) (c) 9,167 Profit before taxation 96,320 178,496 18,178 1,531,780 Deferred tax (225) (112,724) – 225 (a) 104,520 (c) (8,204) Taxation (1,804) (5,682) – 1,804 (a) (5,682) Profit for the year 94,291 60,090 18,178 1,517,894 Attributable to: Equity holders of Chi Cheung 94,349 60,090 18,178 9,726 1,335,551 1,517,894 Minority interests (58) – – 58 – 94,291 60,090 18,178 1,517,894	Unaudited pro forma consolidated income statement Chi Cheung Evergo China of the Enlarged Group Group Honest Right Chi Cheung Group for the year ended for the year ended for the year ended Pro forma adjustments for the year ended 31 December 2006 31 December 2006 31 December 2006 (Note 1) (Note 2) 31 December 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 2,916 55,432 2,494 (2,916) (a) 57,926 Cost of sales (1,257) (8,018) (1,812) 1,257 (a) (9,830) Gross profit 1,659 47,414 682 48,096 Other revenue 11,932 60,788 – (4,283) (a) 68,437 Other income 956 70,366 – (117) (a) 71,205 Administrative expenses (4,711) (9,239) (10) 522 (a) (13,438) Other operating expenses (638) – – 638 (a) – Fair value changes on investment properties 14,874 – – (14,874) (a) – Finance costs (58) – – 58 (a) (597,255) (b) (597,255) Gains on disposal of subsidiaries – – – 98,882 (b) 98,882 Discount on acquisition 1,828,286 (a) 1,828,286 Impairment loss recognised in respect of amount due from a fellow subsidiary – – (2,494) (2,494) Impairment loss reversed in respect of loan to a fellow subsidiary – – 20,000 20,000 Impairment loss recognised in respect of advances to associates (13,477) – – 13,474 (a) (3) Write back of allowance for amount due from an associate 897 – – 897 Share of results of associates 84,886 9,167 – (84,886) (c) 9,167 Profit before taxation 96,320 178,496 18,178 1,531,780 Deferred tax (225) (112,724) – 225 (a) 104,520 (c) (8,204) Taxation (1,804) (5,682) – 1,804 (a) (5,682) Profit for the year 94,291 60,090 18,178 1,517,894 Attributable to: Equity holders of Chi Cheung 94,349 60,090 18,178 9,726 1,335,551 1,517,894 Minority interests (58) – – 58 – 94,291 60,090 18,178 1,517,894	Unaudited pro forma consolidated income statement Chi Cheung Evergo China of the Enlarged Group Group Honest Right Chi Cheung Group for the year ended for the year ended for the year ended Pro forma adjustments for the year ended 31 December 2006 31 December 2006 31 December 2006 (Note 1) (Note 2) 31 December 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 2,916 55,432 2,494 (2,916) (a) 57,926 Cost of sales (1,257) (8,018) (1,812) 1,257 (a) (9,830) Gross profit 1,659 47,414 682 48,096 Other revenue 11,932 60,788 – (4,283) (a) 68,437 Other income 956 70,366 – (117) (a) 71,205 Administrative expenses (4,711) (9,239) (10) 522 (a) (13,438) Other operating expenses (638) – – 638 (a) – Fair value changes on investment properties 14,874 – – (14,874) (a) – Finance costs (58) – – 58 (a) (597,255) (b) (597,255) Gains on disposal of subsidiaries – – – 98,882 (b) 98,882 Discount on acquisition 1,828,286 (a) 1,828,286 Impairment loss recognised in respect of amount due from a fellow subsidiary – – (2,494) (2,494) Impairment loss reversed in respect of loan to a fellow subsidiary – – 20,000 20,000 Impairment loss recognised in respect of advances to associates (13,477) – – 13,474 (a) (3) Write back of allowance for amount due from an associate 897 – – 897 Share of results of associates 84,886 9,167 – (84,886) (c) 9,167 Profit before taxation 96,320 178,496 18,178 1,531,780 Deferred tax (225) (112,724) – 225 (a) 104,520 (c) (8,204) Taxation (1,804) (5,682) – 1,804 (a) (5,682) Profit for the year 94,291 60,090 18,178 1,517,894 Attributable to: Equity holders of Chi Cheung 94,349 60,090 18,178 9,726 1,335,551 1,517,894 Minority interests (58) – – 58 – 94,291 60,090 18,178 1,517,894
				48,096 68,437 71,205 (13,438) – – (597,255) 98,882 1,828,286 (2,494) 20,000 (3) 897 9,167
	96,320 (225) (1,804) 94,291 94,349 (58) 94,291	178,496 (112,724) (5,682) 60,090 60,090 – 60,090	18,178 – 225 (a) 104,520 (c) – 1,804 (a) 18,178 18,178 9,726 1,335,551 – 58 18,178	1,531,780 (8,204) (5,682)
				1,517,894
				1,517,894 –
				1,517,894

– 374 –

APPENDIX VII

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

II(b) Unaudited pro forma consolidated cash flow statement

							Unaudited pro forma
							consolidated cash
							flow statement
							of the Enlarged
	**Chi Cheung Group **		Evergo China Group	Honest Right			Chi Cheung Group
	for the year ended		for the year ended	for the year ended	Pro forma	adjustments	for the year ended
	31 December 2006		31 December 2006	31 December 2006	(Note 1)	(Note 2, 3 & 4)	31 December 2006
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Operating activities
Profit before taxation		96,320	178,496	18,178	1,836,041	(597,255 )	1,531,780
Adjustments for:
Discount on acquisition		–	–	–	–	(1,828,286 )	(1,828,286 )
Share of results of associates		(84,886 )	(9,167 )	–	84,886		(9,167 )
Interest income		(12,851 )	(3,766 )	–	5,201		(11,416 )
Finance costs		58	–	–	(58 )	597,255	597,255
Depreciation		35	304	–	(19 )		320
Amortisation of prepaid lease payments		34	–	–	(34 )		–
Impairment loss recognised in respect
of trade receivable		38	–	–	(38 )		–
Impairment loss recognised in respect
of properties held for sale		600	–	–	(600 )		–
Impairment loss recognised in respect
of advances to associates		13,477	–	–	(13,474 )		3
Impairment loss recognised in respect
of amounts due from fellow subsidiaries		–	–	2,494			2,494
Impairment loss recognised in respect
of loan to a fellow subsidiary		–	–	(20,000 )			(20,000 )
Write-back of allowance for amount
due from an associate		(897 )	–	–			(897 )
Fair value changes on investment properties		(14,874 )	(56,806 )	–	14,874		(56,806 )
Gain on disposal of associates		–	(70,366 )	–			(70,366 )
Gain on disposal of subsidiaries		–	–	–	(98,882 )		(98,882 )
Gain on disposal of investment property		(24 )	–	–	24		–
Operating cash flows before movements
in working capital		(2,970 )	38,695	672			36,032
Increase in deposits received		110	1,603	–	(110 )		1,603
Increase in properties under development		–	(221,207 )	–			(221,207 )
Decrease/(increase) in debtors, deposits,
prepayments and other receivables		27	(250,814 )	–	(47 )		(250,834 )
Decrease/(increase) in amounts due from fellow
subsidiaries		–	770,276	(2,494)			767,782
Increase in amounts due to fellow
subsidiaries		–	915,133	–			915,133
Increase in amount due to immediate
holding company		–	–	1,924	(1,924 )		–
Decrease in loan to a fellow subsidiary		–	–	20,000			20,000
Increase/(decrease) in creditors and accruals		455	(1,064,838 )	(94 )	(112 )		(1,064,589 )
Decrease in provision for a litigation claim		(8,427 )	–	–			(8,427 )
Net cash (used in)/generated from operations		(10,805 )	188,848	20,008			195,493
Hong Kong Profits Tax paid		(6 )	(4,867 )	–	6		(4,867 )
Net cash (used in)/generated from operating
activities		(10,811 )	183,981	20,008			190,626

– 375 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

APPENDIX VII

								Unaudited pro forma
								consolidated cash
								flow statement
								of the Enlarged
	**Chi Cheung Group **	Evergo China Group			Honest Right			Chi Cheung Group
	for the year ended	for the year ended		for the year ended		Pro forma	adjustments	for the year ended
	31 December 2006	31 December 2006		31 December 2006		(Note 1)	(Note 2, 3 & 4)	31 December 2006
	HK$’000		HK$’000		HK$’000	HK$’000	HK$’000	HK$’000
Investing activities
Acquisition of subsidiaries	–		–		–		(20,001 )	(20,001 )
Increase in properties held for development	(24,853 )		–		–	24,853		–
Purchase of investment property	–		(2,969	)	–			(2,969 )
Purchase of furniture, fixtures and other
fixed assets	–		(814	)	–			(814)
Net proceeds from disposal of investment
property	5,448		–		–	(5,448 )		–
Interest received	7,103		3,766		–	(62 )		10,807
Acquisition of a subsidiary	–		(383,243	)	–			(383,243 )
Net proceeds from disposal of associates	–		636,475		–			636,475
Deposit received from disposal of properties	2,819		–		–	(2,819 )		–
Dividend received from an associate	2,020		–		–	(2,020 )		–
Repayment from associates	11,044		–		–	(10,150 )		894
Net cash generated from investing activities	3,581		253,215		–			241,149
Financing activities
Advance from an associate	–		(19,415	)	–			(19,415 )
Repayment of bank loan	–		–		(20,000 )			(20,000 )
Net cash used in financing activities	–		(19,415	)	(20,000 )			(39,415 )
Net (decrease)/increase in cash
and cash equivalents	(7,230 )		417,781		8			392,360
Cash and cash equivalents at beginning	195,130		13,070		10			208,210
of the year
Effect of foreign exchange rates changes	–		1,663		–			1,663
Cash and cash equivalents
at end of the year	187,900		432,514		18			602,233
Analysis of the balances of cash and
cash equivalents
Cash and cash equivalents	187,900		432,514		18			602,233

– 376 –

APPENDIX VII

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

III. Notes to the unaudited pro forma consolidated income statement

• 1 (a) The adjustments represented the elimination of all income and expenses of CC Sale Companies which were to be disposed of for the year ended 31 December 2006 as if the Disposal had been completed on 1 January 2006.

• (b) The adjustment of approximately HK$98,882,000 represented the gain on the Disposal as if the Disposal had been completed on 1 January 2006. The gain on disposal was calculated based on the net asset values of the CC Sale Companies and the CC Sale Loan as at 30 June 2007 because the net asset values of the CC Sale Companies and the fair value of the CC Sale Loan as at 1 January 2006 and 30 June 2007 are substantially different. As such, the adjustment reflects a not misleading financial impact on the Disposal in the unaudited pro forma consolidated income statement. Please refer to part III note 3 (b) of the unaudited pro forma consolidated balance sheet for the further details on the Disposal.

• (c) The adjustment of share of results of associates of approximately HK$84,886,000 represented the elimination of the share of results of associates by CC Sale Companies which were to be disposed of for the year ended 31 December 2006 as if the Disposal had been completed on 1 January 2006.

• 2 (a) The adjustment of approximately HK$1,828,286,000 represented the negative goodwill arising from the discount on acquisition assuming the Acquisition was completed on 1 January 2006. The discount on acquisition was calculated based on the fair value of the Acquired Assets as at 31 July 2007 because the fair value of the Acquired Assets as at 1 January 2006 and 31 July 2007 are substantially different. As such, the adjustment reflects a not misleading financial impact on the Acquisition in the unaudited pro forma consolidated income statement. Please refer to part III note 4 (d) of the unaudited pro forma consolidated balance sheet for the details of the discount on acquisition.

– 377 –

APPENDIX VII PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED CHI CHEUNG GROUP

• (b) Assuming the convertible bonds were issued on 1 January 2006, the adjustment of approximately HK$597,255,000 represented the imputed interest to be expensed by Chi Cheung for the year ended 31 December 2006. This unaudited pro forma adjustment will have continuing income statement effect to the Enlarged Chi Cheung Group, and the actual amount will vary according to the timing of the conversion and redemption of the whole or any part of the convertible bonds and the applicable effective interest rates.

• (c) The adjustment of approximately HK$104,520,000 represented the adjustment of the deferred tax effect of the convertible bonds for the period ended 31 December 2006.

IV. Notes to the unaudited pro forma consolidated cash flow statement

• 1 These pro forma adjustments represented all cash inflow and outflow effects of the Disposal for the year ended 31 December 2006, assuming the Disposal were completed on 1 January 2006.

• 2 The adjustment reflected one year of imputed interest of approximately HK$597,255,000 on the convertible bonds, which was calculated at prevailing market interest rate.

• 3 The adjustment of approximately HK$1,828,286,000 reflected the discount on acquisition arising from the Acquisition. Please refer to part III note 2 (a) of the unaudited pro forma consolidated income statement for the details of the discount on acquisition.

• 4 The adjustment reflected the net estimated transaction costs directly attributable to the Asset Transaction of approximately HK$20,000,000 and the net cash consideration of approximately HK$1,000 to be paid for the Acquisition, assuming the Asset Transaction had been completed on 1 January 2006.

– 378 –

APPENDIX VIII ADDITIONAL FINANCIAL INFORMATION ON THE CHI CHEUNG GROUP

STATEMENT OF INDEBTEDNESS

As at the close of business on 31 August 2007, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this joint circular, the Chi Cheung Group, the Evergo China Group and Honest Right had outstanding borrowings as follow:–

Secured bank borrowings Loan from minority shareholders of subsidiaries	HK$’000 310,000 1,064
	311,064

The secured bank borrowings were secured by certain investment properties of the Evergo China Group, share mortgage over shares of Loyal Power Investments Limited and corporate guarantee by Chinese Estates.

Save as aforesaid and apart from intra-group liabilities, the Chi Cheung Group, the Evergo China Group and Honest Right did not have any debt securities issued and outstanding, and authorised or otherwise created but unissued, term loans, other borrowings or indebtedness in the nature of borrowing, mortgages and charges as at the close of business on 31 August 2007, being the latest practicable date for the purpose of this indebtedness statement.

The Chi Cheung Group, the Evergo China Group and Honest Right did not have any material contingent liabilities or guarantees as at 31 August 2007.

MATERIAL ADVERSE CHANGES

The directors of Chi Cheung are not aware of any material adverse change in the financial or trading position of the Chi Cheung Group since 31 December 2006, being the date to which the latest published audited financial statements of the Chi Cheung Group were made up.

WORKING CAPITAL

The directors of Chi Cheung are of the opinion that, after taking into account the effect of the existing internal resources, expected cashflow from operation and in the absence of the unforeseeable circumstances, the Enlarged Chi Cheung Group will, following completion of the Asset Transaction, have sufficient working capital for its present requirement and for the next twelve months from the date of this joint circular.

– 379 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP

Six months ended 30 June 2007

Business and financial review

For the six months ended 30 June 2007, the turnover of the Evergo China Group was HK$33,002,000 representing an increase of 36.6% over the same period of last year. The gross profit for the six months amounted to HK$28,206,000 an increase of 38.1% over the same period of last year. The increases in turnover and gross profit during the period were mainly attributable to the rental income generated from the acquisition of Evergo Tower in March 2006. Turnover for period consisted of rental income generated from 79 retail outlets in Lowu Commercial Plaza and Evergo Tower. As at 30 June 2007, the occupancy rate for 79 retail outlets in Lowu Commercial Plaza was 97% and the occupancy rates of the office and retail spaces for Evergo Tower were 88% and 99% respectively. The occupancy rates of Hilton Beijing (50% interest) and Oriental Place (50% interest) as at 30 June 2007 were 86% and 90% respectively. Hilton Beijing (50% interest) was expanded by converting the adjacent auditorium into an executive tower and the construction work of the executive tower is expected to be completed in early 2008.

The revaluation increase on investment properties for the period was HK$62,000,000 compared to the revaluation decrease amounting to $5,194,000 of the same period of last year. Share of results of associates for the period increased by 6.3 times to HK$10,660,000 mainly due to the drop of hotel income for the renovation works incurred by Hilton Beijing (50% interest) in 2006. The disposal of 34.65% interest in Hong Kong New World Tower in March 2006 recorded a gain of HK$70,366,000. The taxation charge for the period increased by 1.3 times to HK$13,614,000 mainly due to the increase of rental income and deferred taxation provided for the investment properties. Profit attributable to equity holders of the parent for the period was HK$86,316,000, representing an increase of 9.4% over the same period of last year.

In January 2007, the Evergo China Group acquired a commercial and residential land at South Taisheng Road of Qingyang District in Chengdu, PRC having site area of 404,264 square feet with a development scale of 3.2 million square feet to be completed in 2011. The land use right was granted in May 2007 upon full settlement of land cost.

– 380 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Liquidity, financial resources and capital structure

During the period, the Evergo China Group obtained fundings which were unsecured and interest-free from subsidiary companies of Chinese Estates (“fellow subsidiaries”). The amounts due by the Evergo China Group to the fellow subsidiaries as at 30 June 2007 was HK$2,467,128,000, representing an increase of HK$1,512,118,000 compared to 31 December 2006. The fundings were mainly utilized for the acquisition of land in PRC and payments of land cost for Macau project. Except for the amounts due to the fellow subsidiaries, the Evergo China Group had no other borrowings as at 30 June 2007.

As at 30 June 2007, the Evergo China Group had net current liabilities of HK$115,072,000 and shareholders’ equity of HK$1,927,295,000. Bank and cash balances amounted to HK$93,191,000 as at 30 June 2007.

As the Evergo China Group’s business transactions, assets and liabilities are principally denominated in Hong Kong dollars, US dollars, Macau dollars and Renminbi, the Evergo China Group’s exposure to exchange rate is limited. It is the Evergo China Group’s treasury policy to manage its foreign exchange exposure only when its potential financial impact is material to the Evergo China Group. The Evergo China Group will continue to monitor its foreign exchange position and, if necessary, utilize hedging tools, if available, to manage its foreign currency exposure.

Charge on assets

As at 30 June 2007, the Evergo China Group’s investment properties with book value of HK$352 million were pledged to the bank to secure the banking facility of Honest Right Investment Limited which was a fellow subsidiary of the Evergo China Group.

Contingent liabilities

As at 30 June 2007, the Evergo China Group had no material contingent liabilities.

Employee and remuneration policy

As at 30 June 2007, the Evergo China Group had approximately 57 (2006: 21) employees with total staff costs for the period amounting to HK$1,544,000 (2006: HK$604,000). Employees were remunerated on the basis of their performance, experience and prevailing industrial practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. The executive directors of Evergo China Group continued to review employees’ contribution and to provide them with necessary incentives and flexibility for their better commitment and performance.

– 381 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Six months ended 30 June 2006

Business and financial review

For the six months ended 30 June 2006, the turnover of Evergo China Group was HK$24,168,000 representing an increase of 64.3% over the same period of last year. The gross profit for the six months amounted to HK$20,420,000 an increase of 59.3% over the same period of last year. The increases in turnover and gross profit during the period were mainly attributable to the rental income generated from the acquisition of Evergo Tower in March 2006. Turnover for period consisted of rental income generated from 79 retail outlets in Lowu Commercial Plaza and Evergo Tower. As at 30 June 2006, the occupancy rate for 79 retail outlets in Lowu Commercial Plaza was 90% and the occupancy rates of the office and retail spaces for Evergo Tower were 87% and 100% respectively. The occupancy rates of Hilton Beijing (50% interest) and Oriental Place (50% interest) as at 30 June 2006 were 78% and 89% respectively. Hilton Beijing (50% interest) was expanded by converting the adjacent auditorium into an executive tower and the construction work of the executive tower was commenced by early 2006.

The revaluation decrease on investment properties for the period was HK$5,194,000 compared to nil of the same period of last year. Share of results of associates for the period decreased by 86.6% to HK$1,456,000 mainly due to the drop of hotel income for the renovation works incurred by Hilton Beijing (50% interest) in 2006 and the disposal of 34.65% interest in Hong Kong New World Tower in March 2006 which recorded a gain of HK$70,366,000. The taxation charge for the period increased by 3.3 times to HK$5,995,000 mainly due to the increase of rental income and deferred taxation provided for the investment properties. Profit attributable to equity holders of the parent for the period was HK$78,898,000, representing an increase of 2.7 times over the same period of last year.

In January 2006 the Evergo China Group acquired 5 parcels of adjoining land in Taipa, Macau (70.01% interest), having site area of 848,000 square feet with gross floor area of 4.23 million square feet.

Liquidity, financial resources and capital structure

During the period, the Evergo China Group obtained fundings which were unsecured and interest-free from subsidiary companies of Chinese Estates (“fellow subsidiaries”). The net amounts due by the Evergo China Group to the fellow subsidiaries as at 30 June 2006 was HK$123,317,000, representing an increase of HK$853,716,000 compared to 31 December 2005. The fundings were mainly utilized for the payments of land cost for Macau project. Except for the amounts due to the fellow subsidiaries, the Evergo China Group had no other borrowings as at 30 June 2006.

– 382 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

As at 30 June 2006, the Evergo China Group had net current assets of HK$1,157,989,000 and shareholders’ equity of HK$1,811,533,000. Bank and cash balances amounted to HK$21,459,000 as at 30 June 2006.

As the Evergo China Group’s business transactions, assets and liabilities are principally denominated in Hong Kong dollars, US dollars, Macau dollars and Renminbi, the Evergo China Group’s exposure to exchange rate is limited. It is the Evergo China Group’s treasury policy to manage its foreign exchange exposure only when its potential financial impact is material to the Evergo China Group. The Evergo China Group will continue to monitor its foreign exchange position and, if necessary, utilize hedging tools, if available, to manage its foreign currency exposure.

Charge on assets

As at 30 June 2006, the Evergo China Group’s investment properties with book value of HK$288 million were pledged to the bank to secure the banking facility of Honest Right Investment Limited which was a fellow subsidiary of the Evergo China Group.

Contingent liabilities

As at 30 June 2006, the Evergo China Group had no material contingent liabilities.

Employee and remuneration policy

As at 30 June 2006, the Evergo China Group had approximately 21 employees with total staff costs for the period amounting to HK$604,000. Employees were remunerated on the basis of their performance, experience and prevailing industrial practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. The executive directors of Evergo China Group continued to review employees’ contribution and to provide them with necessary incentives and flexibility for their better commitment and performance.

– 383 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Year ended 31 December 2006

Business and financial review

For the year ended 31 December 2006, the turnover of Evergo China Group was HK$55,432,000 representing an increase of 89.5% over 2005. The gross profit for the year amounted to HK$47,414,000 an increase of 86.1% over last year. The substantial increases in turnover and gross profit during the year were mainly attributable to the rental income generated from the acquisition of Evergo Tower in March 2006. Turnover for year consisted of rental income generated from 79 retail outlets in Lowu Commercial Plaza and Evergo Tower. As at 31 December 2006, the occupancy rate for 79 retail outlets in Lowu Commercial Plaza was 89% and the occupancy rates of the office and retail spaces for Evergo Tower were 87% and 100% respectively. The occupancy rates of Hilton Beijing (50% interest) and Oriental Place (50% interest) as at 31 December 2006 were 82% and 84% respectively. Hilton Beijing (50% interest) was expanded by converting the adjacent auditorium into an executive tower and the construction work of the executive tower is expected to be completed in early 2008.

The revaluation increase on investment properties was HK$56,806,000 in 2006 compared to HK$9,000,000 in 2005. Share of results of associates for the year decreased by 68.9% to HK$9,167,000 mainly due to the disposal of 34.65% interest in Hong Kong New World Tower in March 2006 which recorded a gain of HK$70,366,000. The taxation charge for the year increased by 31.2 times to HK$118,406,000 mainly due to the deferred taxation provided for the investment properties. Profit attributable to equity holders of the parent for the year was HK$60,090,000, representing a decrease of 5.2% over last year.

In January 2006 the Evergo China Group acquired 5 parcels of adjoining land in Taipa, Macau (70.01% interest), having site area of 848,000 square feet with gross floor area of 4.23 million square feet. In October 2006 the Evergo China Group acquired two pieces of residential land at Dongda Street of Jinjiang District as well as Yingbin Road of Jinniu District in Chengdu, PRC having site area of 194,410 square feet and 795,625 square feet with respective gross floor area of 1.47 million square feet completed in 2009 and 3.76 million square feet completed in 2010.

– 384 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Liquidity, financial resources and capital structure

During the year, the Evergo China Group obtained fundings which were unsecured and interest-free from subsidiary companies of Chinese Estates (“fellow subsidiaries”). The net amounts due by the Evergo China Group to the fellow subsidiaries increased by HK$1,685,409,000 to HK$955,010,000. The fundings were mainly utilized for the acquisition of land in PRC and Macau. Except for the amounts due to the fellow subsidiaries, the Evergo China Group had no other borrowings as at 31 December 2006.

As at 31 December 2006, the Evergo China Group had net current assets of HK$993,989,000 (2005: HK$1,301,875,000) and shareholders’ equity of HK$1,797,531,000 (2005: HK$1,731,683,000). Bank and cash balances amounted to HK$432,514,000 as at 31 December 2006 (2005: HK$13,070,000).

As the Evergo China Group’s business transactions, assets and liabilities are principally denominated in Hong Kong dollars, US dollars, Macau dollars and Renminbi, the Evergo China Group’s exposure to exchange rate is limited. It is the Evergo China Group’s treasury policy to manage its foreign exchange exposure only when its potential financial impact is material to the Evergo China Group. The Evergo China Group will continue to monitor its foreign exchange position and, if necessary, utilize hedging tools, if available, to manage its foreign currency exposure.

Charge on assets

As at 31 December 2006, the Evergo China Group’s investment properties with book value of HK$330 million (2005: HK$278 million) were pledged to the bank to secure the banking facility of Honest Right Investment Limited which was a fellow subsidiary of the Evergo China Group.

Contingent liabilities

As at 31 December 2006, the Evergo China Group had no material contingent liabilities (2005: Nil).

Employee and remuneration policy

As at 31 December 2006, the Evergo China Group had approximately 30 (2005: 13) employees with total staff costs amounting to HK2,277,000 (2005: HK$1,126,000). Employees were remunerated on the basis of their performance, experience and prevailing industrial practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. The executive directors of Evergo China Group continued to review employees’ contribution and to provide them with necessary incentives and flexibility for their better commitment and performance.

– 385 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Year ended 31 December 2005

Business and financial review

For the year ended 31 December 2005, the Evergo China Group’s turnover was HK$29,251,000 representing an increase of 1.3% over 2004. The gross profit for the year amounted to HK$25,471,000 an increase of 0.5% over last year. Turnover for year consisted of rental income generated from 79 retail outlets in Lowu Commercial Plaza. As at 31 December 2005, the occupancy rate for 79 retail outlets in Lowu Commercial Plaza was 98%. The occupancy rates of Hilton Beijing (50% interest) and Oriental Place (50% interest) as at 31 December 2005 were 85% and 100% respectively. The renovation works of Hilton Beijing (50% interest) for all its guest rooms were completed in August 2005. As at 31 December 2005, the occupancy rates of the office and retail spaces for Hong Kong New World Tower (34.65% interest) were 93% and 82% respectively.

The revaluation increase on investment properties was HK$9,000,000 in 2005 compared to HK$10,000,000 in 2004. Share of results of associates for the year increased by 4.4 times to HK$29,481,000 mainly due to the revaluation increase on associates’ investment properties. During the year, no impairment loss was reversed in respect of interest in an associate (2004: HK$354,031,000). Profit attributable to equity holders of the parent for the year was HK$63,370,000, representing a decrease of 83.8% over last year.

Liquidity, financial resources and capital structure

During the year, the Evergo China Group obtained fundings which were unsecured and interest-free from subsidiary companies of Chinese Estates (“fellow subsidiaries”). As at 31 December 2005, the net amounts due by the fellow subsidiaries to the Evergo China Group amounted to HK$ 730,399,000 (2004: HK$713,792,000). Except for the amounts due by the Evergo China Group to the fellow subsidiaries amounting to HK$39,885,000, the Evergo China Group had no other borrowings as at 31 December 2005.

As at 31 December 2005, the Evergo China Group had net current assets of HK$1,301,875,000 (2004: HK$715,720,000), the increase was mainly due to the associate 34.65% interest in Hong Kong New World Tower amounting to HK$566,109,000 classified as assets held for sales under the current assets. Shareholders’ equity amounted to HK$1,731,683,000 as at 31 December 2005 (2004: HK$1,657,986,000). Bank and cash balances amounted to HK$13,070,000 as at 31 December 2005 (2004: HK$9,865,000).

– 386 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

As the Evergo China Group’s business transactions, assets and liabilities are principally denominated in Hong Kong dollars, US dollars and Renminbi, the Evergo China Group’s exposure to exchange rate is limited. It is the Evergo China Group’s treasury policy to manage its foreign exchange exposure only when its potential financial impact is material to the Evergo China Group. The Evergo China Group will continue to monitor its foreign exchange position and, if necessary, utilize hedging tools, if available, to manage its foreign currency exposure.

Charge on assets

As at 31 December 2005, the Evergo China Group’s investment properties with book value of HK$278 million (2004: HK$269 million) were pledged to the bank to secure the banking facility of Honest Right Investment Limited which was a fellow subsidiaries of the Evergo China Group.

Contingent liabilities

As at 31 December 2005, the Evergo China Group had no material contingent liabilities (2004: Nil).

Employee and remuneration policy

As at 31 December 2005, the Evergo China Group had approximately 13 (2004: 13) employees with total staff costs amounting to HK1,126,000 (2004: HK$999,000). Employees were remunerated on the basis of their performance, experience and prevailing industrial practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. The Executive Directors continued to review employees’ contribution and to provide them with necessary incentives and flexibility for their better commitment and performance.

Year ended 31 December 2004

Business and financial review

For the year ended 31 December 2004, the Evergo China Group’s turnover was HK$28,877,000 representing a decrease of 0.8% over 2003. The gross profit for the year amounted to HK$25,333,000 an increase of 2.7% over last year. Turnover for year consisted of rental income generated from 79 retail outlets in Lowu Commercial Plaza. As at 31 December 2004, the occupancy rate for 79 retail outlets in Lowu Commercial Plaza was 100%. The occupancy rates of Hilton Beijing (50% interest) and Oriental Place (50% interest) as at 31 December 2004 were 88% and 100% respectively. As at 31 December 2004, the occupancy rates of the office and retail spaces for Hong Kong New World Tower (34.65% interest) were 87% and 71% respectively.

– 387 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

The revaluation increase on investment properties was HK$10,000,000 in 2004 compared to HK$39,000,000 in 2003. During the year, an impairment loss reversed in respect of interest in an associate amounted to HK$354,031,000 (2003: Nil). Profit attributable to equity holders of the parent for the year was HK$391,106,000, representing an increase of 103.8% over last year.

Liquidity, financial resources and capital structure

During the year, the Evergo China Group obtained fundings which were unsecured and interest-free from subsidiary companies of Chinese Estates (“fellow subsidiaries”). As at 31 December 2004, the amounts due by the fellow subsidiaries to the Evergo China Group and the amounts due by the Evergo China Group to the fellow subsidiaries were HK$738,147,000 and HK$24,355,000 respectively. Except for the amounts due by the Evergo China Group to the fellow subsidiaries amounting to HK$24,355,000, the Evergo China Group had no other borrowings as at 31 December 2004.

As at 31 December 2004, the Evergo China Group’s total current assets and total current liabilities were HK$749,812,000 and HK$34,092,000 respectively resulting in a net current assets of HK$715,720,000. Shareholders’ equity and bank and cash balances as at 31 December 2004 were HK$1,657,986,000 and HK$9,865,000 respectively.

As the Evergo China Group’s business transactions, assets and liabilities are principally denominated in Hong Kong dollars, US dollars and Renminbi, the Evergo China Group’s exposure to exchange rate is limited. It is the Evergo China Group’s treasury policy to manage its foreign exchange exposure only when its potential financial impact is material to the Evergo China Group. The Evergo China Group will continue to monitor its foreign exchange position and, if necessary, utilize hedging tools, if available, to manage its foreign currency exposure.

Charge on assets

As at 31 December 2004, the Evergo China Group’s investment properties with book value of HK$269 million were pledged to the bank to secure the banking facility of Honest Right Investment Limited which was a fellow subsidiary of the Evergo China Group.

– 388 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Contingent liabilities

As at 31 December 2004, the Evergo China Group had no material contingent liabilities.

Employee and remuneration policy

As at 31 December 2004, the Evergo China Group had approximately 13 employees with total staff costs amounting to HK999,000 (2003: HK$1,240,000). Employees were remunerated on the basis of their performance, experience and prevailing industrial practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. The Executive Directors continued to review employees’ contribution and to provide them with necessary incentives and flexibility for their better commitment and performance.

Reconciliation of appraised property values with net carrying values

The reconciliation between the appraised values as at 31 July 2007 of the properties acquired from Evergo China Group prepared by BMI Appraisals Limited with their net carrying values as at 30 June 2007 as reflected in the financial statements of Evergo China Group are as follows:

HK$’000 Investment properties: Property valuation as at 31 July 2007 as set out in Appendix XI Net carrying values as at 30 June 2007 Revaluation surplus	HK$’000 932,000 872,000
	60,000

Properties under development and properties under development held for sale:

Property valuation as at 31 July 2007 as set out in Appendix XI Net carrying values as at 30 June 2007 Additions Revaluation surplus	3,581,845 4,137	16,189,000 3,585,982
		12,603,018

– 389 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

50% interest in an associate: Property valuation attributable to the Evergo China Group as at 31 July 2007 as set out in Appendix XI Net carrying values of property interests attributable to the Evergo China Group which included in interest in associates as at 30 June 2007 252,312 Additions attributable to the Evergo China Group 2,876 Less:_Depreciation attributable to the Evergo China Group (288) Revaluation surplus Deferred tax liabilities recognised in respect of fair value adjustment Revaluation surplus attributable to the Evergo China Group 25% interest in a joint venture: Property valuation attributable to the Evergo China Group as at 31 July 2007 as set out in Appendix XI _HK$’000

628,500 254,900 373,600 (220,373) 153,227 1,069,500 HK$’000

MANAGEMENT’S DISCUSSION AND ANALYSIS OF HONEST RIGHT

Six months ended 30 June 2007

Business and financial review

During the six months ended 30 June 2007, Honest Right recorded a turnover of approximately HK$0.7 million, which represented a decrease of 49.2% over the same period last year. The profit attributable to equity holders of Honest Right for the period was HK$9.5 million as compared to HK$9.0 million for the same period last year.

As at 30 June 2007, the bank borrowing was decreased by HK$10.0 million to HK$15.0 million. The net liabilities value amounted to approximately HK$33.5 million (31 December 2006: HK$43.0 million), a decrease of approximately HK$9.5 million or 22.0% as compared with 31 December 2006. It was mainly due to the profit retained for the period, including the impairment loss reversed in respect of loan to a fellow subsidiary of HK$10.0 million. The directors of Honest Right considered that Honest Right would enable to continue as a going concern and to settle its liabilities as and when they fall due for the foreseeable future because the ultimate holding company of Honest Right has confirmed to provide continuing financial support to it.

– 390 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Liquidity, financial resources and capital structure

During the period, Honest Right had obtained funding from a bank loan denominated in Hong Kong dollars and financed the same amount to a subsidiary company of Chinese Estates with a mark up on interest rate of spent.

The bank borrowing is secured by Lowu Commercial Plaza, an investment property held by the Evergo China Group and the interest rate is calculated with reference to HIBOR. Accordingly, no hedging for interest rate and exchange rate were subsisted at the end of the period.

As at 30 June 2007, bank borrowing amounted to HK$15.0 million (31 December 2006: HK$25.0 million), all of HK$15.0 million (31 December 2006: of which HK$20.0 million) was repayable within one year.

The gearing ratio as at 30 June 2007 was 714 times (31 December 2006: 1389 times), which are expressed as a percentage of total bank borrowings over the total assets of HK$0.021 million (31 December 2006: 0.018 million). The decease in ratio was mainly due to the repayment of bank borrowings.

Charge on assets

As at 30 June 2007, there was no charge on the Honest Right’s assets (31 December 2006: Nil).

Contingent liabilities

As at 30 June 2007, Honest Right had no material contingent liabilities (31 December 2006: Nil).

Employee and remuneration policy

During the six months ended 30 June 2007, Honest Right had no employee and no staff cost incurred.

Six months ended 30 June 2006

Business and financial review

During the six months ended 30 June 2006, Honest Right recorded a turnover of approximately HK$1.4 million, which represented an increase of 8.8% over the same period last year. The profit attributable to equity holders of Honest Right for the period was HK$9.0 million as compared to HK$5.9 million for the same period last year.

– 391 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

As at 30 June 2006, the bank borrowing was decreased by HK$10.0 million to HK$35.0 million. The net liabilities value amounted to approximately HK$52.2 million (31 December 2005: HK$61.2 million), a decrease of approximately HK$9.0 million or 14.7% as compared with 31 December 2005. It was mainly due to the profit retained for the period, including the impairment loss reversed in respect of loan to a fellow subsidiary of HK$10.0 million. The directors of Honest Right considered that Honest Right would enable to continue as a going concern and to settle its liabilities as and when they fall due for the foreseeable future because the ultimate holding company of Honest Right has confirmed to provide continuing financial support to it.

Liquidity, financial resources and capital structure

During the period, Honest Right had obtained funding from a bank loan denominated in Hong Kong dollars and financed the same amount to a subsidiary company of Chinese Estates with a mark up on interest rate of spent.

The bank borrowing is secured by Lowu Commercial Plaza, an investment property held by the Evergo China Group and the interest rate is calculated with reference to HIBOR. Accordingly, no hedging for interest rate and exchange rate were subsisted at the end of the period.

As at 30 June 2006, bank borrowing amounted to HK$35.0 million (31 December 2005: HK$45.0 million), of which HK$20.0 million (31 December 2005: HK$20.0 million) was repayable within one year.

The gearing ratio as at 30 June 2006 was 2333 times (31 December 2005: 4500 times), which are expressed as a percentage of total bank borrowings over the total assets of HK$0.015 million (31 December 2005: 0.010 million). The decease in ratio was mainly due to the repayment of bank borrowings.

Charge on assets

As at 30 June 2006, there was no charge on the Honest Right’s assets (31 December 2005: Nil).

Contingent liabilities

As at 30 June 2006, Honest Right had no material contingent liabilities (31 December 2005: Nil).

Employee and remuneration policy

During the six months ended 30 June 2006, Honest Right had no employee and no staff cost incurred.

– 392 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Year ended 31 December 2006

Business and financial review

During the year ended 31 December 2006, Honest Right recorded a turnover of approximately HK$2.5 million, which represented a decrease of 11.9% over 2005. The profit attributable to equity holders of Honest Right for the year was HK$18.2 million as compared to HK$16.2 million for the same period last year. It was mainly due to the decrease in finance costs and the increase in impairment loss reversed in respect of loan to a fellow subsidiary.

As at 31 December 2006, the bank borrowing was decreased by HK$20.0 million to HK$25.0 million. The net liabilities value amounted to approximately HK$43.0 million (2005: HK$61.2 million), a decrease of approximately HK$18.2 million or 29.7% as compared with last year. It was mainly due to the profit retained for the year, including the impairment loss reversed in respect of loan to a fellow subsidiary of HK$20.0 million. The directors of Honest Right considered that Honest Right would enable to continue as a going concern and to settle its liabilities as and when they fall due for the foreseeable future because the ultimate holding company of Honest Right has confirmed to provide continuing financial support to it.

Liquidity, financial resources and capital structure

During the year, Honest Right had obtained funding from a bank loan denominated in Hong Kong dollars and financed the same amount to a subsidiary company of Chinese Estates with a mark up on interest rate of spent.

The bank borrowing is secured by Lowu Commercial Plaza, an investment property held by the Evergo China Group and the interest rate is calculated with reference to HIBOR. Accordingly, no hedging for interest rate and exchange rate were subsisted at the end of the year.

As at 31 December 2006, bank borrowing amounted to HK$25.0 million (2005: HK$45.0 million), of which HK$20.0 million (2005: HK$20.0 million) was repayable within one year.

The gearing ratio as at 31 December 2006 was 1389 times (2005: 4500 times), which are expressed as a percentage of total bank borrowings over the total assets of HK$0.018 million (2005: 0.010 million). The decease in ratio was mainly due to the repayment of bank borrowings.

Charge on assets

As at 31 December 2006, there was no charge on the Honest Right’s assets (2005: Nil).

– 393 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Contingent liabilities

As at 31 December 2006, Honest Right had no material contingent liabilities (2005: Nil).

Employee and remuneration policy

During the year ended 31 December 2006, Honest Right had no employee and no staff cost incurred.

Year ended 31 December 2005

Business and financial review

During the year ended 31 December 2005, Honest Right recorded a turnover of approximately HK$2.8 million, which represented an increase of 15.1% over 2004. The profit attributable to equity holders of Honest Right for the year was HK$16.2 million as compared to HK$23.4 million for the same period last year. It was mainly due to the increase in finance costs and the decrease in impairment losses reversed in respect of amount due from fellow subsidiaries and loan to a fellow subsidiary.

As at 31 December 2005, the bank borrowing was decreased by HK$20.0 million to HK$45.0 million. The net liabilities value amounted to approximately HK$61.2 million (2004: HK$77.7 million), a decrease of approximately HK$16.5 million or 21.2% as compared with last year. It was mainly due to the profit retained for the year, including the impairment loss reversed in respect of loan to a fellow subsidiary of HK$19.1 million. The directors of Honest Right considered that Honest Right would enable to continue as a going concern and to settle its liabilities as and when they fall due for the foreseeable future because the ultimate holding company of Honest Right has confirmed to provide continuing financial support to it.

Liquidity, financial resources and capital structure

During the year, Honest Right had obtained funding from a bank loan denominated in Hong Kong dollars and financed the same amount to a subsidiary company of Chinese Estates with a mark up on interest rate of spent.

The bank borrowing is secured by Lowu Commercial Plaza, an investment property held by the Evergo China Group and the interest rate is calculated with reference to HIBOR. Accordingly, no hedging for interest rate and exchange rate were subsisted at the end of the year.

– 394 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

As at 31 December 2005, bank borrowing amounted to HK$45.0 million (2004: HK$65.0 million), of which HK$20.0 million (2004: HK$20.0 million) was repayable within one year.

The gearing ratio as at 31 December 2005 was 4500 times (2004: 19 times), which are expressed as a percentage of total bank borrowings over the total assets of HK$0.010 million (2004: 3.402 million). The increase in ratio was mainly due to the decrease in total assets.

Charge on assets

As at 31 December 2005, there was no charge on the Honest Right’s assets (2004: Nil).

Contingent liabilities

As at 31 December 2005, Honest Right had no material contingent liabilities (2004: Nil).

Employee and remuneration policy

During the year ended 31 December 2005, Honest Right had no employee and no staff cost incurred.

Year ended 31 December 2004

Business and financial review

During the year ended 31 December 2004, Honest Right recorded a turnover of approximately HK$2.5 million, which represented a decrease of 4.1% over 2003. The profit attributable to equity holders of Honest Right for the year was HK$23.4 million as compared to a loss of HK$87.2 million for the same period last year. It was mainly due to the impairment losses in respect of amount due from fellow subsidiaries and loan to a fellow subsidiary recognized in last year and the impairment losses in respect of amount due from fellow subsidiaries and loan to a fellow subsidiary reversed during the year

As at 31 December 2004, the bank borrowing was decreased by HK$20.0 million to HK$65.0 million. The net liabilities value amounted to approximately HK$77.7 million (2003: HK$101.1 million), a decrease of approximately HK$23.4 million or 23.1% as compared with last year. It was mainly due to the profit retained for the year, including the impairment loss reversed in respect of loan to a fellow subsidiary of HK$20.9 million. The directors of Honest Right considered that Honest Right would enable to continue as a going concern and to settle its liabilities as and when they fall due for the foreseeable future because the ultimate holding company of Honest Right has confirmed to provide continuing financial support to it.

– 395 –

APPENDIX IX MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE EVERGO CHINA GROUP AND HONEST RIGHT

Liquidity, financial resources and capital structure

During the year, Honest Right had obtained funding from a bank loan denominated in Hong Kong dollars and financed the same amount to a subsidiary company of Chinese Estates with a mark up on interest rate of spent.

The bank borrowing is secured by Lowu Commercial Plaza, an investment property held by the Evergo China Group and the interest rate is calculated with reference to HIBOR. Accordingly, no hedging for interest rate and exchange rate were subsisted at the end of the year.

As at 31 December 2004, bank borrowing amounted to HK$65.0 million (2003: HK$85.0 million), of which HK$20.0 million (2003: HK$20.0 million) was repayable within one year.

The gearing ratio as at 31 December 2004 was 19 times (2003: 3542 times), which are expressed as a percentage of total bank borrowings over the total assets of HK$3.402 million (2003: 0.024 million). The decrease in ratio was mainly due to the increase in total assets and the repayment of bank borrowings.

Charge on assets

As at 31 December 2004, there was no charge on the Honest Right’s assets (2003: Nil).

Contingent liabilities

As at 31 December 2004, Honest Right had no material contingent liabilities (2003: Nil).

Employee and remuneration policy

During the year ended 31 December 2004, Honest Right had no employee and no staff cost incurred.

– 396 –

APPENDIX X MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP AND THE REMAINING CHI CHEUNG GROUP

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP

Six months ended 30 June 2007

Turnover of the Chi Cheung Group for the six months ended 30 June 2007 rose to HK$13.7 million. Gross profit increased to HK$6.6 million. Profit attributable to equity holders of Chi Cheung for the period was HK$47.4 million. The improved results were due to disposal of trading development properties during the period, which included certain units of Gemstar Tower and Meeco Industrial Building.

Fair value changes on investment properties for the period amounted to HK$1.8 million. Included in current period results were write-backs of allowance for impairment loss on amounts due from associates and former associates of HK$1 million.

Share of the results of associates for the period recorded at HK$35.5 million. This result reflected moderate increase in the fair value gain on investment properties held by the associates. The Chi Cheung Group shared from associates an increase in fair value on investment properties, net of deferred tax impact, of HK$30.2 million. During the period, the Chi Cheung Group shared gain on disposal of investment properties from an associate of HK$1.2 million.

As at 30 June 2007, cash and bank balances amounted to HK$216.4 million. The majority of the Chi Cheung Group’s income for the period was denominated in Hong Kong dollars and no hedging for non-Hong Kong dollars assets or investments have been made during the period.

As at 30 June 2007, no assets were pledged by the Chi Cheung Group to secure any banking facilities and the Chi Cheung Group did not have any outstanding bank loans.

The Chi Cheung Group did not have any material contingent liabilities as at 30 June 2007.

Interest income for the period increased to HK$6.7 million. The Chi Cheung Group recorded an imputed interest expense relating to interest-free loan from minority shareholders of subsidiaries of HK$0.03 million.

– 397 –

APPENDIX X MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP AND THE REMAINING CHI CHEUNG GROUP

There were neither material acquisition nor disposal of subsidiaries and associated companies in the Chi Cheung Group during the six months ended 30 June 2007 except for the Canaria Acquisition. The completion of the Canaria Acquisition has been extended for a period of six months (that is, on or before 31 January 2008).

During the period, the Chi Cheung Group employed a total of 12 staff. Employees were remunerated on the basis of their performance, experience and prevailing industry practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. No share option scheme was adopted for the period.

Six months ended 30 June 2006

Turnover of the Chi Cheung Group for the six months ended 30 June 2006 amounted to HK$1.4 million. The fall in turnover was due to drop in occupancy rate resulted from the building extension project carried out at Gemstar Tower. Gross profit recorded at HK$0.8 million. Profit attributable to equity holders of Chi Cheung for the period was HK$41.7 million.

Fair value changes on investment properties for the period recorded at HK$10.8 million. Included in current period results were write-backs of allowance for impairment loss on amounts due from associates and former associates of HK$0.9 million.

Share of the results of associates for the period amounted to HK$27.2 million. This result reflected relatively slow down of the increase in the fair value gain on investment properties held by the associates. The Chi Cheung Group shared from associates an increase in fair value on investment properties, net of deferred tax impact, of HK$25.7 million. No properties disposal was recorded by associates during the period.

As at 30 June 2006, cash and bank balances amounted to HK$175.0 million. The decrease was mainly due to payment of development expenditure for building extension work carried out at Gemstar Tower. The majority of the Chi Cheung Group’s income for the period was denominated in Hong Kong dollars and no hedging for non-Hong Kong dollars assets or investment has been made during the period.

As at 30 June 2006, no assets were pledged by the Chi Cheung Group to secure any banking facility and the Chi Cheung Group did not have any outstanding bank loans.

The Chi Cheung Group did not have any material contingent liabilities as at 30 June 2006.

– 398 –

APPENDIX X MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP AND THE REMAINING CHI CHEUNG GROUP

Interest income for the period amounted to HK$6.4 million. The Chi Cheung Group recorded an imputed interest expenses on interest-free loans from the minority shareholders of subsidiaries of HK$0.03 million.

There were neither material acquisition nor disposal of subsidiaries and associated companies in the Chi Cheung Group during the period.

As at 30 June 2006, the Chi Cheung Group employed a total of 10 staff. Employees were remunerated on the basis of their performance, experience and prevailing industry practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. No share option scheme was adopted for the period.

Year ended 31 December 2006

Turnover of the Chi Cheung Group for the year ended 31 December 2006 fell slightly by 14% to HK$2.9 million. The fall in turnover was due to decrease in rental income as a result of drop in occupancy rate caused by the building extension work at Gemstar Tower during the year. Gross profit for the year amounted to HK$1.7 million. Profit attributable to equity holders of Chi Cheung for the year was HK$94.3 million.

Fair value changes on investment properties for the year amounted to HK$14.9 million, representing more than three-fold increase over HK$4.6 million recorded in 2005. Included in current year results are net allowance for impairment loss on amounts due from associates and former associates of HK$12.6 million.

Share of the results of associates for the year recorded at HK$84.9 million, down by HK$16.1 million from HK$101 million in 2005. This result reflected relatively slow down of the increase in the fair value gain on investment properties held by the associates. The Chi Cheung Group shared from associates an increase in fair value on investment properties, net of deferred tax impact, of HK$80.4 million. No properties disposal was recorded by associates during the year while the Chi Cheung Group shared gain on disposal of investment properties of HK$6.3 million from an associate in 2005.

As at 31 December 2006, cash and bank balances amounted to HK$187.9 million. The moderate decrease was mainly due to payment of development expenditure for building extension work carried out at Gemstar Tower. The majority of the Chi Cheung Group’s income for the year was denominated in Hong Kong dollars and no hedging for non-Hong Kong dollars assets or investment has been made during the year.

– 399 –

APPENDIX X MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP AND THE REMAINING CHI CHEUNG GROUP

As at 31 December 2006, no assets were pledged by the Chi Cheung Group to secure any banking facility and the Chi Cheung Group did not have any outstanding bank loans.

The Chi Cheung Group did not have any material contingent liabilities as at 31 December 2006.

Interest income for the year amounted to HK$12.8 million, representing an increase of HK$3.4 million compared to HK$9.4 million in 2005. The increase in interest income was attributable to higher average deposit rate during the year. The Chi Cheung Group recorded an imputed interest expenses on interest-free loans from the minority shareholders of subsidiaries of HK$0.1 million.

There were neither material acquisition nor disposal of subsidiaries and associated companies in the Chi Cheung Group during the year.

As at 31 December 2006, the Chi Cheung Group employed a total of 12 staff. Employees were remunerated on the basis of their performance, experience and prevailing industry practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. No share option scheme was adopted by the Chi Cheung Group for the year.

Year ended 31 December 2005

Turnover of the Chi Cheung Group for the year ended 31 December 2005 amounted to HK$3.4 million. Turnover for the year was solely derived from rental income without any property trading income as compared with HK$13.2 million recorded in last year. Gross profit for the year amounted to HK$2 million. The drop in gross profit was due to the decrease in rental income after 15 units of Gemstar Tower, which were disposed of in 2004 and also reflecting the vacancy in Gemstar Tower for the purpose of the building extension project. Profit attributable to equity holders of Chi Cheung for the year ended 31 December 2005 was HK$121.5 million.

Share of the results of associates for the year jumped to HK$101 million. The Chi Cheung Group shared the increase in fair value on investment properties of HK$92.5 million (net of deferred tax impact of HK$19.6 million), which was resulted from the steady growth of the property market.

– 400 –

APPENDIX X MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP AND THE REMAINING CHI CHEUNG GROUP

The results for the year also included the write-back of allowance for amounts due form associates and former associates of HK$9.7 million.

As at 31 December 2005, cash and bank balances amounted to HK$195.1 million. The cash position was strengthened by the net proceeds of HK$52.8 million received from the placing of Chi Cheung Shares in February 2005. The majority of the Chi Cheung Group’s income for the year was denominated in Hong Kong dollars and no hedging for non-Hong Kong dollars assets or investment has been made during the year.

As at 31 December 2005, no assets was pledged by the Chi Cheung Group to secure any banking facility and the Chi Cheung Group did not have any outstanding bank loans.

The Chi Cheung Group did not have any material contingent liabilities as at 31 December 2005.

Interest income for the year increased to HK$9.4 million which included an imputed interest income of HK$0.9 million. The Chi Cheung Group recorded an imputed interest expenses on interest-free loans from the minority shareholders of subsidiaries of HK$2.1 million.

There were neither material acquisition nor disposal of subsidiaries and associated companies in the Chi Cheung Group during the year.

As at 31 December 2005, the Chi Cheung Group employed a total of 10 staff. Employees were remunerated on the basis of their performance, experience and prevailing industry practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. No share option scheme was adopted for the year.

Year ended 31 December 2004

Turnover of the Chi Cheung Group for the year ended 31 December 2004 amounted to HK$18.9 million. The significant increase was attributable to property trading of HK$13.2 million and the increased in rental income of HK$4.8 million. The gross profit for the year recorded at HK$5.6 million, which was mainly derived from the results of property leasing. Loss attributable to equity holders of Chi Cheung for the year ended 31 December 2004 was HK$121.8 million, which was mainly attributable to an impairment loss recognized in respect of property interests held for development of HK$183.4 million and a provision for litigation claim of HK$8.4 million.

– 401 –

APPENDIX X MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP AND THE REMAINING CHI CHEUNG GROUP

Share of the results of associates amounted to HK$51.2 million. The Chi Cheung Group also wrote back allowance for amounts due from associates and former associates of HK$9.2 million.

As at 31 December 2004, cash and deposit at bank amounted to HK$131.1 million. The substantial increase was partly due to net proceeds from disposal of properties for amount of HK$47.9 million and loan repayment from associates and former associates of HK$31.6 million.

The majority of the Chi Cheung Group’s income for the year was denominated in Hong Kong dollars. No hedging for non-Hong Kong dollars assets or investment has been made during the year.

The Chi Cheung Group did not have any contingent liabilities as at 31 December 2004.

As at 31 December 2004, no asset was pledged by the Chi Cheung Group to secure any banking facility and the Chi Cheung Group did not have any outstanding bank loans.

Interest income for the year increased to HK$4.4 million which included an imputed interest income of HK$0.9 million. The Chi Cheung Group recorded imputed interest expenses on interestfree loans from minority shareholders of subsidiaries of HK$2.0 million.

There were neither material acquisition nor disposal of subsidiaries and associated companies in Chi Cheung Group during the year.

During the year, the Chi Cheung Group employed a total of 8 staff. Employees were remunerated on the basis of their performance, experience and prevailing industry practice. Remuneration packages comprised salary and year-end discretionary bonus based on market conditions and individual performance. No share option scheme was adopted for the year.

– 402 –

APPENDIX X MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP AND THE REMAINING CHI CHEUNG GROUP

Reconciliation of appraised property values with net carrying values

The reconciliation between the appraised values as at 31 July 2007 of the properties held by the Chi Cheung Group prepared by Norton Appraisals Limited with their net carrying values as at 30 June 2007 as reflected in the financial statements of the Chi Cheung Group are as follows:

Property valuation as at 31 July 2007 as set out in Appendix XII Net carrying values as at 30 June 2007 Revaluation surplus	HK$’000 1,764,720 1,643,202
	121,518

The details of the net carrying values of properties held by the Chi Cheung Group as at 30 June 2007 are as follow:–

Investment properties Prepaid lease payments Properties held for sale Property interest included in property, plant and equipment Property interests included in interests in associates	HK$’000 54,200 9,649 72,159 194 1,507,000
	1,643,202

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE REMAINING CHI CHEUNG GROUP

The principal activities of Chi Cheung Companies are property investment and development in Hong Kong and that the principal assets of the Remaining Chi Cheung Group comprised mainly of cash and bank balances, which generated interest income at prevailing rates. Turnover of the Remaining Chi Cheung Group for the six months ended 30 June 2007 and 2006 and for each of the three years ended 31 December 2006, 2005 and 2004 was nil respectively. Profit attributable to equity holders of the Remaining Chi Cheung Group for the six months ended 30 June 2007 and 2006 and for each of the two years ended 31 December 2006 and 2005 was HK$7.6 million, HK$8.1 million, HK$15.0 million, HK$20.0 million respectively compared to loss attributable to equity holders of the Remaining Chi Cheung Group for the year ended 31 December 2004 of HK$110.9 million which was mainly attributable to an impairment loss recognized in respect of property interests held for development of HK$117.2 million and a provision for litigation claim of HK$8.4 million.

– 403 –

APPENDIX X MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE CHI CHEUNG GROUP AND THE REMAINING CHI CHEUNG GROUP

Included in results for the six months ended 30 June 2007 and 2006 and for each of the three years ended 31 December 2006, 2005 and 2004 was write-backs of allowance for impairment loss on amounts due from associates and former associates of HK$1.0 million, HK$0.9 million HK$0.9 million HK$9.7 million and HK$9.2 million respectively

As at 30 June 2007 and 2006 and 31 December 2006, 2005 and 2004, cash and bank balances amounted to HK$215.8 million, HK$174.3 million, HK$184.2 million, HK$194.7 million and HK$112.7 million respectively. The majority of the Remaining Chi Cheung Group’s income for the periods/years under review was denominated in Hong Kong dollars and no hedging for nonHong Kong dollars assets or investments have been made during the six months ended 30 June 2007 and 2006 and for each of the three years ended 31 December 2006, 2005 and 2004 respectively.

As at 30 June 2007 and 2006 and 31 December 2006, 2005 and 2004, no assets were pledged by the Remaining Chi Cheung Group to secure any banking facilities and the Remaining Group did not have any outstanding bank loans. The Remaining Chi Cheung Group did not have any material contingent liabilities as at 30 June 2007 and 2006 and 31 December 2006, 2005 and 2004.

There were neither material acquisition nor disposal of subsidiaries and associated companies in the Remaining Chi Cheung Group during the six months ended 30 June 2007 and 2006 and for each of the three years ended 31 December 2006, 2005 and 2004 respectively.

The Remaining Chi Cheung Group recorded an imputed interest expense relating to interestfree loan from minority shareholders of subsidiaries for the six months ended 30 June 2007 and 2006 and for year ended 31 December 2006 of nil respectively compared to HK$2.0 million and HK$1.9 million respectively for the two years ended 31 December 2005 and 2004.

During the six months ended 30 June 2007 and 2006 and for each for the three years ended 31 December 2006, 2005 and 2004, the Remaining Chi Cheung Group employed a total of 10, 8, 10, 8 and 6 staff respectively. Employees were remunerated on the basis of their performance, experience and prevailing industry practice. Remuneration packages comprised salary and yearend discretionary bonus based on market conditions and individual performance. No share option scheme was adopted for the six months ended 30 June 2007 and 2006 and for each of the three years ended 31 December 2006, 2005 and 2004.

– 404 –

APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuations of the properties located in the PRC and Macao held by the Chinese Estates Group.

==> picture [133 x 62] intentionally omitted <==

31 October 2007

The Directors

Chinese Estates Holdings Limited

26th Floor, MassMutual Tower No. 38 Gloucester Road Wanchai, Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to your instructions for us to value the properties held by Chinese Estates Holdings Limited (“Chinese Estates”) and/or its subsidiaries and associates (hereinafter referred to as the “Chinese Estates Group”) located in the People’s Republic of China (the “PRC”) and Macao. We confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 31 July 2007 (the “date of valuation”).

BASIS OF VALUATION

Our valuation of each concerned property has been based on the Market Value, which is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

– 405 –

APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

PROPERTY CATEGORIZATION

In the course of our valuations, the portfolio of properties of the Chinese Estates Group is categorized into the following groups:–

– Group I

Properties held by the Chinese Estates Group for investment in the PRC

– Group II Properties held by the Chinese Estates Group for development in the PRC

– Group III Property held by the Chinese Estates Group for development in Macao

VALUATION METHODOLOGY

In valuing the properties held by the Chinese Estates Group, we have valued them on an open market basis by the Comparison Approach assuming sales in their existing states with the benefit of vacant possession and by making reference to comparable sales evidence as available in the relevant markets. Appropriate adjustments have then been made to account for the differences between the properties and the comparables in terms of age, time, location, floor level and other relevant factors. Whenever applicable, we have also adopted the Investment Approach where appropriate by taking into account the current rents passing of the constituent units of the properties being held under existing tenancies and the reversionary potential of the tenancies if they have been or would be let to tenants.

In valuing the market value of Property No. 1, we have also adopted the Profits Method based on capitalization of the hotel’s operating profits in 2007. Allowances for outgoings have been made in arriving at the net operating profit.

TITLE INVESTIGATIONS

For the properties located in the PRC, we have been provided with copies of title documents and have been advised by the Chinese Estates Group that no further relevant documents have been produced. Moreover, due to the nature of the land registration system in the PRC, we have not been able to examine the original documents to verify ownerships or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. Therefore, in the course of our valuations, we have relied on the advice and information given by the Chinese Estates Group and its PRC legal adviser, Chen & Co. Law Firm （瑛明律師事務所）, regarding the titles of the properties in the PRC. All documents have been used for reference only.

For the property located in Macao, we have been provided with copies of title documents. We have been advised by the Chinese Estates Group that no further relevant documents have been produced. However, we have neither examined the original documents to verify ownership nor to ascertain the existence of any amendments, which do not appear on the copies handed to us. All documents have been used for reference only.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the properties are sold in the open market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the values of the properties. In addition, no account has been taken of any option or right of pre-emption concerning or effecting the sales of the properties and no forced sale situation in any manner is assumed in our valuations.

In valuing the properties, we have relied on the advice given by the Chinese Estates Group that the Chinese Estates Group has valid and enforceable titles to the properties which are freely transferable, and has free and uninterrupted rights to use the same, for the whole of the unexpired term granted subject to the payment of annual government rent/land use fees and all requisite land premium/purchase consideration payable have been fully settled.

VALUATION CONSIDERATIONS

We have inspected the exterior and wherever possible, the interior of the properties. During the course of our inspections, we did not note any serious defects. However, no structural surveys have been made nor have any tests been carried out on any of the services provided in the properties. We are, therefore, unable to report that the properties are free from rot, infestation or any other structural defects.

We have relied to a considerable extent on the information provided by the Chinese Estates Group and have accepted advice given to us by the Chinese Estates Group in such matters as approvals or statutory notices, easements, tenure, particulars of occupancy, identification of the properties and other relevant information.

We have not carried out detailed on-site measurements to verify the correctness of the site/ floor areas in respect of the properties but have assumed that the site/floor areas shown on the documents handed to us are correct.

Except otherwise stated, all dimensions, measurements and areas included in the valuation certificates is based on the information contained in the documents provided to us by the Chinese Estates Group and are therefore approximations.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Chinese Estates Group and the Chinese Estates Group has also advised us that no material facts have been omitted from the information so supplied. We consider that we have been provided with sufficient information for us to reach an informed view.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale or purchase.

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors.

Our valuations have been prepared under the generally accepted valuation procedures and are in compliance with the Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

Unless otherwise stated, all money amounts stated are in Hong Kong Dollars (HK$) and no allowances have been made for any exchange transfers. The exchange rates adopted are the average rates as at the date of valuations being HK$1=RMB0.96847 and HK$1=MOP1.04856. There has been no significant fluctuation in the exchange rates between that date and the date of this report.

Our Summary of Values and the Valuation Certificates are attached herewith.

Yours faithfully

For and on behalf of

BMI APPRAISALS LIMITED

Dr. Tony C.H. Cheng Joannau W.F. Chan BSc, MUD, MBA (Finance), MSc (Eng), BSc. MSc. MRICS MHKIS RPS(GP) PhD (Econ), MHKIS, MCIArb, AFA, Director SIFM, FCIM, MASCE, MIET, MIEEE, MASME, MIIE Director

Notes:

Dr. Tony C.H. Cheng is a Chartered Surveyor who has over 15 years’ experience in valuations of properties in Hong Kong and the People’s Republic of China.

Ms. Joannau W.F. Chan is a Chartered Surveyor who has over 15 years’ experience in valuations of properties in Hong Kong and over 9 years’ experience in valuations of properties in the People’s Republic of China.

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PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

SUMMARY OF VALUES

			Interest	Value attributable
		Market Value	attributable to	to the Chinese
		in existing state as at	the Chinese	Estates Group as at
No.	Property	31 July 2007	Estates Group	31 July 2007
		HK$		HK$
Group I – Properties held by the		Chinese Estates Group for investment in		the PRC
1.	Main Tower of Hilton Beijing	981,000,000	50%	490,500,000
	（北京希爾頓酒店主樓）,
	No. 1 Dongfang Road,
	North Dongsanhuan Road,
	Chaoyang District,
	Beijing City,
	the PRC
2.	Oriental Place	90,000,000	50%	45,000,000
	（東方國際大廈）,
	No. 9 East Dongfang Road,
	North Dongsanhuan Road,
	Chaoyang District,
	Beijing City,
	the PRC
3.	79 Retail Shops on 1st Floor of	382,000,000	100%	382,000,000
	Lowu Commercial Plaza
	（羅湖商業城）,
	Jianshe Road,
	Luohu District,
	Shenzhen City,
	Guangdong Province,
	the PRC

– 409 –

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

				Interest	Value attributable	Value attributable
			Market Value	attributable to	to the Chinese
			in existing state as at	the Chinese	Estates Group as at
No.	Property		31 July 2007	Estates Group	31 July 2007
			HK$			HK$
4.	Unsold Portions of Evergo Tower		550,000,000	100%	550,000,000
	（愛美高大廈－未售部份）
	(formerly known as Peregrine Plaza),
	No. 1325 Central Huaihai Road and
	No. 1 Baoqing Road,
	Xuhui District,
	Shanghai City,
	the PRC
		Sub-total:	2,003,000,000		1,467,500,000
Group II – Properties held		by the Chinese Estates Group		for development	in the PRC
5.	Executive Tower		186,000,000	50%	93,000,000
	of Hilton Beijing
	（北京希爾頓酒店行政附樓）
	(redeveloped from the Auditorium),
	No. 1 Dongfang Road,
	North Dongsanhuan Road,
	Chaoyang District,
	Beijing City,
	the PRC
6.	Chengdu Dongda Street		685,000,000	100%	685,000,000
	Development Project,
	East of Yixue Lane,
	South of Hongbu Main Street and
	North of Tangba Street,
	Jinjiang District,
	Chengdu City,
	Sichuan Province,
	the PRC

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

7. Chengdu Yingbin Road Development Project, Group 1, 2, 6 Langjia Village and Group 1, 2, 3, 4, 7 Yuejin Village, Jinniu District, Chengdu City, Sichuan Province, the PRC 8. Chengdu South Taisheng Road Development Project, east of Sanguiqian Street, south of East Daqiang Street, west of South Taisheng Road and north of Tidu Street, Qingyang District, Chengdu City, Sichuan Province, the PRC 9. Chongqing Huaxinjie Street Development Project No. 1 Zhongxin Section and Qiaobei Village, Huaxinjie Street, Jiangbei District, Chongqing City, the PRC Sub-total: No. Property	1,145,000,000 100% 1,879,000,000 100% 4,278,000,000 25% 8,173,000,000 Interest Market Value attributable to in existing state as at the Chinese 31 July 2007 Estates Group HK$	1,145,000,000 1,879,000,000 1,069,500,000 Value attributable to the Chinese Estates Group as at 31 July 2007 HK$
		4,871,500,000

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

Interest Market Value attributable to in existing state as at the Chinese No. Property 31 July 2007 Estates Group HK$ Group III – Property held by the Chinese Estates Group for development 10. Macao Avenida Wai Long 12,480,000,000 70.01% Development Project, Lote 1c, Lote 2, Lote 3, Lote 4 and Lote 5, Estrada da Ponta da Cabrita, Taipa, Macao Sub-total: 12,480,000,000 Total: 22,656,000,000	Value attributable to the Chinese Estates Group as at 31 July 2007 HK$ in Macao 8,737,248,000
	8,737,248,000
	15,076,248,000

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PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

VALUATION CERTIFICATE

Group I – Properties held by the Chinese Estates Group for investment in the PRC

				Market Value in
				existing state as at
No.	Property	Description and tenure	Particulars of occupancy	31 July 2007
				HK$
1.	Main Tower	The property comprises a hotel	As advised by the Chinese	981,000,000
	of Hilton Beijing	building erected on a portion of	Estates Group, the
	（北京希爾頓酒店	a land parcel with a site area of	property is occupied by	(50% interest
	主樓）,	11,270 sq.m. It was completed in	the Chinese Estates Group	attributable to
	No. 1	about 1993.	for hotel, office, catering	the Chinese Estates
	Dongfang Road,		and other ancillary	Group:
	North Dongsanhuan	The gross floor area (“GFA”) of	purposes.	490,500,000)
	Road,	the property is approximately
	Chaoyang District,	30,056.9 sq.m. plus a basement
	Beijing City,	area of 8,738.1 sq.m.
	the PRC
		The land use rights of the
		property have been allocated for
		a term of 27 years commencing
		on 1 July 1996 and expiring on
		30 September 2023 for hotel and
		auditorium uses.

Notes:

1. Pursuant to a Beijing City Foreign Company Investment Enterprise Land Contract（北京市外商投資企業用 地合同）, Jing Fang Di Wai (He) Zi (96) Nian Di No. 032, entered into between Beijing City Building and Land Management Bureau （北京市房屋土地管理局）and Oriental Arts Buildings Co., Ltd.（東方藝術大廈 有限公司）(“OAB”) dated 26 July 1996, the former agreed to allocate the land use rights of the property with a site area of approximately 8,900 sq.m. for a term of 30 years commencing on 1 October 1993 and expiring on 30 September 2023 for hotel and auditorium uses at an annual land use fee of RMB892,150 for the first term of 5 years and subject to renewal after the first term.

2. Pursuant to a supplementary agreement of Beijing City Foreign Company Investment Enterprise Land Contract （北京市外商投資企業用地合同）, Jing Fang Di Wai (He) Zi (96) Nian Di No. 032, entered into between Beijing City Building and Land Management Bureau（北京市房屋土地管理局）and OAB dated 20 July 1998, the site area and the annual land use fee of the property have been revised to 11,270 sq.m. and RMB1,169,130 respectively.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. Pursuant to a State-owned Land Use Rights Certificate（國有土地使用証）, Shi Chao Zhong Wai Guo Yong (98) Zi Di No. 00458, issued by Beijing City Building and Land Management Bureau（北京市房屋土地管理 局）dated 15 September 1998, the land use rights of a land parcel with a site area of 11,270 sq.m. have been allocated to OAB for a term of 27 years commencing on 1 July 1996 and expiring on 30 September 2023 for hotel and auditorium uses.

2. Pursuant to a Building Ownership Certificate（房屋所有權証）, Shi Chao Zhong Wai Zi Di No. 00280, issued by 北京市房屋土地管理局 (Beijing City Building and Land Management Bureau) dated 30 July 1998, the property with a total GFA of 37,590.8 sq.m. plus a basement area of 8,738.1 sq.m. is legally owned by OAB.

3. Pursuant to a Beijing City Building Registration Record (Building)（北京市房屋登記表（樓房））issued by Beijing City Real Estate Inspection Survey Office（北京市房地產勘察測繪所）dated 27 September 1996, the total GFA of the property is about 30,056.9. The salient details are as follows:

Block	Floor	GFA (sq.m.)	Remarks
1	24 storeys above ground	30,056.9	Property No. 1
1	2 storeys in basement	8,738.1	Property No. 1
2	4 storeys above ground	7,533.9	Property No. 5 (under redevelopment)
		46,328.9

1. Pursuant to a Business License（營業執照）, No. 0322933 (Registered No. 110000450006333), issued by Beijing City Industry and Commence Administrative Management Bureau（北京市工商行政管理局）dated 11 April 2007, OAB was established with a registered capital of US$24,920,000 and was authorized to carry on the business of hotel, office and auditorium for a period of 30 years commencing on 1 October 1993 and expiring on 30 September 2023.

2. Pursuant to a Mortgage Agreement（抵押合同）No. 124243 and its Extension Agreement No. 12710282, entered into between Bank of Communications – Beijing Branch Sanyuan Sub-branch（交通銀行－北京分行 三元支行）(the “Bank”) and OAB dated 7 July 2004 and 7 July 2007 respectively, the latter has mortgaged the property together with Property Nos. 2 and 5 to the former for a loan amount of RMB600,000,000 for a term of 3 years from 7 July 2004 to 7 July 2007 and extended to 7 July 2011.

3. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

Beijing City Foreign Company Investment Enterprise Land Contract and
its supplement agreement	Yes
State-owned Land Use Rights Certificate	Yes
Building Ownership Certificate	Yes
Business Licence	Yes
Mortgage Agreement	Yes

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm（瑛明律師事務所）, to Chi Cheung Investment Company, Limited contains, inter alia, the following:

2. a. OAB is entitled to the exclusive rights of use and occupation of the property for the residual term of the allocated land use rights;

3. b. the existing uses of the property are in compliance with the prescribed land use permitted under the relevant State-owned Land Use Rights Certificate;

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

• c. the land use fees of the last 3 years have been settled in full by OAB;

• d. according to the relevant ordinances in the PRC, the owners of those allocated land parcels can transfer, lease out and mortgage their land parcels or any building structures erected therein after settlement of land premium to the local government with a standard application procedures in applying for the relevant State-owned Land Use Rights Certificate. There will be no legal impediments for those owners to obtain such title certificate if they follow the application procedures and settle the land premium strictly. Having been granted with the State-owned Land Use Rights Certificate, the owners can transfer, lease out and mortgage the property legally.

• e. the property had been pledged to the Bank for an amount of up to RMB565,000,000; and

• f. according to the registration records in Beijing City Building and Land Management Bureau（北京市房 屋土地管理局）, the mortgage of the property as mentioned in (e) has been registered and approved by the relevant government department. In consequence, the mortgage is legally established.

• OAB is an indirect 50%-owned associate of Chinese Estates.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

Market Value in existing state as at No. Property Description and tenure Particulars of occupancy 31 July 2007 HK$ 2. Oriental Place The property comprises a land As advised by the Chinese 90,000,000 （東方國際大廈）, parcel with a site area of Estates Group, the No. 9 East Dongfang 2,600.8 sq.m. upon which a property is occupied for (50% interest Road, North 10-storey office building, office use and is subject attributable to Dongsanhuan Road, completed in about 1995, was to various tenancies with the Chinese Estates Chaoyang District, erected. an aggregated monthly Group: Beijing City, rent of about 45,000,000) the PRC The gross floor area (“GFA”) of RMB400,246.02 under the property is approximately various terms with the 8,544.9 sq.m. and a basement of latest expiry date on 31 approximately 1,087.7 sq.m. May 2009.

No. Property Description and tenure

The land use rights of the property have been allocated for a term of 27 years commencing on 1 July 1996 and expiring on 30 September 2023 for office use.

Notes:

1. Pursuant to a Beijing City Foreign Company Investment Enterprise Land Contract（北京市外商投資企業用 地合同）, Jing Fang Di Wai (He) Zi (96) Nian Di No. 033, entered into between Beijing City Building and Land Management Bureau（北京市房屋土地管理局）and Oriental Arts Buildings Co., Ltd.（東方藝術大廈 有限公司）(“OAB”) dated 26 July 1996, the former agreed to allocate the land use rights of the property with a site area of approximately 3,600 sq.m. for a term of 30 years commencing on 1 October 1993 and expiring on 30 September 2023 for office use at an annual land use fee of RMB288,000 for the first term of 5 years and subject to renewal after the first term.

2. Pursuant to a supplementary agreement of Beijing City Foreign Company Investment Enterprise Land Contract （北京市外商投資企業用地合同）, Jing Fang Di Wai (He) Zi (96) Nian Di No. 033, entered into between Beijing City Building and Land Management Bureau（北京市房屋土地管理局）and OAB dated 20 July 1998, the site area and the annual land use fee of the property have been revised to 2,600.8 sq.m. and RMB208,064 respectively.

3. Pursuant to a State-owned Land Use Rights Certificate（國有土地使用証）, Shi Chao Zhong Wai Guo Yong (98) Zi Di No. 00459, issued by Beijing Municipal Building and Land Administrative Bureau（北京市房屋土 地管理局）dated 15 September 1998, the land use rights of the property with a site area of 2,600.8 sq.m. have been allocated to OAB for a term of 27 years commencing on 1 July 1996 and expiring on 30 September 2023 for office use.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. Pursuant to a Building Ownership Certificate（房屋所有權証）, Shi Chao Zhong Wai Zi Di No. 00281, issued by 北京市房屋土地管理局 (Beijing Municipal Building and Land Administrative Bureau) dated 30 July 1998, the building of the property with a total GFA of 8,544.9 sq.m. and a basement area of 1,087.7 sq.m. is legally owned by OAB.

2. Pursuant to a Business License（營業執照）, No. 0322933 (Registered No. 110000450006333), issued by Beijing City Industry and Commerce Administrative Management Bureau（北京市工商行政管理局）dated 11 April 2007, OAB was established with a registered capital of US$24,920,000 and was authorized to carry on the business of hotel, office and auditorium for a period of 30 years commencing on 1 October 1993 and expiring on 30 September 2023.

3. Pursuant to a Mortgage Agreement（抵押合同）No. 124243 and its Extension Agreement No. 12710282, entered into between Bank of Communications – Beijing Branch Sanyuan Sub-branch（交通銀行－北京分行 三元支行）(the “Bank”) and OAB dated 7 July 2004 and 7 July 2007 respectively, the latter has mortgaged the property together with Property Nos. 1 and 5 to the former for a loan amount of RMB600,000,000 for a term of 3 years from 7 July 2004 to 7 July 2007 and extended to 7 July 2011.

4. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

Beijing City Foreign Company Investment Enterprise Land Contract and
its supplement agreement	Yes
State-owned Land Use Rights Certificate	Yes
Building Ownership Certificate	Yes
Business Licence	Yes
Mortgage Agreement	Yes

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm（瑛明律師事務所）, to Chi Cheung Investment Company, Limited contains, inter alia, the following:

2. a. OAB is entitled to the exclusive rights of use and occupation of the property for the residual term of the allocated land use rights;

3. b. the existing uses of the property are in compliance with the prescribed land use permitted under the relevant State-owned Land Use Rights Certificate;

4. c. the land use fees of the last 3 years have been settled in full by OAB;

5. d. according to the relevant ordinances in the PRC, the owners of those allocated land parcels can transfer, lease out and mortgage their land parcels or any building structures erected therein after settlement of land premium to the local government with a standard application procedures in applying for the relevant State-owned Land Use Rights Certificate. There will be no legal impediments for those owners to obtain such title certificate if they follow the application procedures and settle the land premium strictly. Having been granted with the State-owned Land Use Rights Certificate, the owners can transfer, lease out and mortgage the property legally;

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PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

• e. the property had been pledged to the Bank for an amount of up to RMB35,000,000;

• f. according to the registration records in Beijing City Building and Land Management Bureau（北京市房 屋土地管理局）, the mortgage of the property as mentioned in (e) has been registered and approved by the relevant government departments. In consequence, the mortgage is legally established;

• g. save as described in paragraph (h) below, the tenancy agreements of the property are registered in the relevant government department so that they are legally binding;

• h. it is noted that some tenancy agreements have not been registered in the relevant government department. According to the City Building Tenancy Management Regulations（城市房屋租賃管理辦法 ), the government has a right to require OAB to carry out the relevant registration procedure and impose a penalty on OAB. It is suggested that OAB should register the relevant tenancy agreements in order to avoid this risk; and

• i. the registered tenancies of the property are recognized so that the risk level of those forfeits or penalties for leasing out allocated land parcels to be imposed on the owner is relatively low. However, the relevant authority in the PRC still keeps a right of obtaining a land premium and forfeiting the rental income and imposing penalty for leasing out the property.

• After considering the suggestions given by the legal advisor as mentioned in note 8 (h) above, Chinese Estates has confirmed us that they have put in plan to carry out the relevant registration procedures of the tenancy agreements though the risk is minimal in the time beings.

• OAB is an indirect 50%-owned associate of Chinese Estates.

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PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

				Market Value in
				existing state as at
No.	Property	Description and tenure	Particulars of occupancy	31 July 2007
				HK$
3.	79 Retail Shops on	The property comprises 79 retail	As advised by the Chinese	382,000,000
	1st Floor of	shops on 1st floor of a 5-storey	Estates Group, the
	Lowu Commercial	shopping arcade completed in	property is occupied for	(100% interest
	Plaza	about 1994.	commercial use and are	attributable to
	（羅湖商業城）,		subject to various	the Chinese Estates
	Jianshe Road,	The total gross floor area	tenancies with an	Group:
	Luohu District,	(“GFA”) of the property is	aggregated monthly rent	382,000,000)
	Shenzhen City,	approximately 2,732.8 sq.m.	of about RMB2,798,640
	Guangdong Province,		under various terms with
	the PRC	The land use rights of the	the latest expiry date on
		property have been granted for a	31 July 2009.
		term of 40 years commencing on
		1 January 1993 and expiring on
		31 December 2032 for
		commercial use.

Notes:

1. Pursuant to 79 Real Estate Title Certificates（房地產証）issued by Shenzhen City Planning State-owned Land Bureau（深圳市規劃國土局）dated 5 April 1995, the property with a total GFA of approximately 2,732.8 sq.m. is legally owned by various subsidiaries of the Chinese Estates Group. The details of which are summarized in the table below:

Shop Unit No.	GFA	Name of Owner
	(sq.m.)
1001	41.78	Win Victory Development Limited
1002	29.10	Excellent Dragon Investment Limited
1003	48.81	Mass Champion Development Limited
1004	25.96	Universal Crown Investment Limited
1005	25.75	Million Pacific Development Limited
1006	24.67	Magic Time Investment Limited
1007	23.45	Jade Ocean Investment Limited
1008	24.14	Success Century Investment Limited
1009	36.18	Penton Development Limited
1010	35.47	Cheeryork Development Limited
1011	38.13	Best Field Limited
1012	37.42	Great Fame Investment Limited
1013	39.11	Wintrade Investment Limited
1014	38.37	Sky Hall Investment Limited
1015	38.13	Heson Development Limited
1016	37.42	Rock Top Limited
1017	38.13	Beverly Investments Limited

Real Estate Title Certificate Nos.

Shen Fang Di Zi Di No. 0215620 Shen Fang Di Zi Di No. 0215642 Shen Fang Di Zi Di No. 0215643 Shen Fang Di Zi Di No. 0215644 Shen Fang Di Zi Di No. 0215645 Shen Fang Di Zi Di No. 0215621 Shen Fang Di Zi Di No. 0215622 Shen Fang Di Zi Di No. 0215623 Shen Fang Di Zi Di No. 0215624 Shen Fang Di Zi Di No. 0215646 Shen Fang Di Zi Di No. 0215647 Shen Fang Di Zi Di No. 0215648 Shen Fang Di Zi Di No. 0215649 Shen Fang Di Zi Di No. 0215650 Shen Fang Di Zi Di No. 0215651 Shen Fang Di Zi Di No. 0215641 Shen Fang Di Zi Di No. 0215652

– 419 –

APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

Shop Unit No.	GFA	Name of Owner
	(sq.m.)
1018	37.42	Gafield Limited
1019	25.48	Winsilver Development Limited
1020	22.92	Silvereed Limited
1021	23.57	Honour Asset Development Limited
1022	26.77	Profit Island International Limited
1023	26.86	Target Sky Development Limited
1024	42.01	Crown Rise Development Limited
1025	29.61	Strong Earth Limited
1026	48.81	Regent Victory Development Limited
1027	48.23	Harbour Earth Investment Limited
1044	16.43	Power Group Limited
1045	47.41	Best Universal Development Limited
1047	49.75	Wifa Development Limited
1048	45.07	Dynamic South Development Limited
1049	43.58	Mutual Sun Development Limited
1050	32.46	Express Profit Investment Limited
1051	16.43	Country Charm Investment Limited
1052	23.82	Mutual Link Investments Limited
1053	23.82	Charter Bright Development Limited
1054	45.87	King Eagle Development Limited
1055	45.52	Hotlink Development Limited
1056	43.34	Summer Breeze Limited
1057	46.11	Up Build Investments Limited
1059	50.26	Joyful Key Investments Limited
1060	50.45	Leading Edge Development Limited
1061	52.85	Royway Investment Limited
1062	23.21	Magic Point Investments Limited
1063	40.75	Uptop Development Limited
1064	40.22	Double Classic Investment Limited
1065	18.57	Giant Wing Investments Limited
1066	32.53	Kinrich Investment Limited
1067	29.07	Union South Development Limited
1068	16.43	United Dragon Investments Limited
1069	48.04	Power Zone Investments Limited
1070	56.14	Crystal Choice Investments Limited
1071	23.66	City Treasure Investments Limited
1072	49.91	Victory Wise Development Limited
1084	39.87	Million Spectrum Investment Limited
1085	37.40	Wanton Development Limited
1086	77.28	Happy King Limited
1088	39.87	Brilliant Jade Development Limited
1089	37.40	Kingdom Glory Investments Limited
1092	28.85	Win All Investments Limited
1093	25.37	Champion Element Investment Limited

Real Estate Title Certificate Nos.

Shen Fang Di Zi Di No. 0215653 Shen Fang Di Zi Di No. 0215654 Shen Fang Di Zi Di No. 0215655 Shen Fang Di Zi Di No. 0215656 Shen Fang Di Zi Di No. 0215657 Shen Fang Di Zi Di No. 0215658 Shen Fang Di Zi Di No. 0215659 Shen Fang Di Zi Di No. 0215662 Shen Fang Di Zi Di No. 0215686 Shen Fang Di Zi Di No. 0215691 Shen Fang Di Zi Di No. 0215663 Shen Fang Di Zi Di No. 0215664 Shen Fang Di Zi Di No. 0215694 Shen Fang Di Zi Di No. 0215665 Shen Fang Di Zi Di No. 0215666 Shen Fang Di Zi Di No. 0215625 Shen Fang Di Zi Di No. 0215626 Shen Fang Di Zi Di No. 0215627 Shen Fang Di Zi Di No. 0215628 Shen Fang Di Zi Di No. 0215629 Shen Fang Di Zi Di No. 0215630 Shen Fang Di Zi Di No. 0215631 Shen Fang Di Zi Di No. 0215632 Shen Fang Di Zi Di No. 0215633 Shen Fang Di Zi Di No. 0215634 Shen Fang Di Zi Di No. 0215635 Shen Fang Di Zi Di No. 0215636 Shen Fang Di Zi Di No. 0215637 Shen Fang Di Zi Di No. 0215638 Shen Fang Di Zi Di No. 0215639 Shen Fang Di Zi Di No. 0215640 Shen Fang Di Zi Di No. 0215660 Shen Fang Di Zi Di No. 0215661 Shen Fang Di Zi Di No. 0215687 Shen Fang Di Zi Di No. 0215689 Shen Fang Di Zi Di No. 0215688 Shen Fang Di Zi Di No. 0215690 Shen Fang Di Zi Di No. 0215692 Shen Fang Di Zi Di No. 0215693 Shen Fang Di Zi Di No. 0215685 Shen Fang Di Zi Di No. 0215695 Shen Fang Di Zi Di No. 0215698 Shen Fang Di Zi Di No. 0215697 Shen Fang Di Zi Di No. 0215696

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PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

Shop Unit No.	GFA	Name of Owner	Real Estate Title Certificate No
	(sq.m.)
1094	24.40	Rich Dynasty Investments Limited	Shen Fang Di Zi Di No. 0215667
1095	47.72	West Score Investment Limited	Shen Fang Di Zi Di No. 0215684
1096	47.42	Grand Long Investment Limited	Shen Fang Di Zi Di No. 0215668
1097	47.95	Sea Mind Investments Limited	Shen Fang Di Zi Di No. 0215683
1098	48.09	Group Power Limited	Shen Fang Di Zi Di No. 0215682
1099	24.64	Asia Empire Limited	Shen Fang Di Zi Di No. 0215669
1100	25.37	Cheery Target Limited	Shen Fang Di Zi Di No. 0215681
1101	27.35	Double Dollars Investments Limited	Shen Fang Di Zi Di No. 0215680
1102	24.68	Win Mass Development Limited	Shen Fang Di Zi Di No. 0215670
1103	41.68	Queen Eagle Development Limited	Shen Fang Di Zi Di No. 0215679
1104	29.42	Hogo Development Limited	Shen Fang Di Zi Di No. 0215678
1105	48.81	Silver Legend Investment Limited	Shen Fang Di Zi Di No. 0215671
1112	8.88	Win Dynasty Limited	Shen Fang Di Zi Di No. 0215677
1113	8.88	Topspeed Development Limited	Shen Fang Di Zi Di No. 0215676
1114	8.88	Fairank Development Limited	Shen Fang Di Zi Di No. 0215672
1115	8.88	Mega World Development Limited	Shen Fang Di Zi Di No. 0215675
1116	28.42	Ocean Charm Development Limited	Shen Fang Di Zi Di No. 0215673
1117	19.89	Oriental Win Investment Limited	Shen Fang Di Zi Di No. 0215674
Total:	2,732.8

Real Estate Title Certificate Nos.

1. Pursuant to 79 Mortgage Agreements（抵押合同）, entered into between Bank of China (Hong Kong) Limited Shenzhen Branch, Luohu Sub-branch（中國銀行（香港）有限公司深圳分行羅湖支行）and the respective 79 Hong Kong companies dated 17 January 2003, the latter has mortgaged the property to the former for a total loan amount of HK$100,000,000.

2. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

Real Estate Title Certificates Yes Mortgage Agreements Yes

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm（瑛明律師事務所）, to Chi Cheung Investment Company, Limited contains, inter alia, the following:

2. a. The ownership rights of the property are legally vested in the 79 Hong Kong companies listed in Note 1. Within the lease term, the 79 Hong Kong companies have the rights to occupy, use, benefit from and dispose of the property provided that the laws and mortgage agreements have not been contravened;

3. b. The tenancy agreements in respect of the 79 shops have been entered into and registered in the relevant government department, the contents of the said tenancy agreements do not contravene the PRC laws;

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

• c. the property had been pledged to the Bank of China (Hong Kong) Limited Shenzhen Branch Luowu Subbranch（中國銀行（香港）有限公司深圳分行羅湖支行）for an amount of HK$100,000,000 and the relevant mortgage agreements have been notarized by Guangdong Province Notarial Centre（廣東省公 証處）; and

• d. According to the relevant ordinances in the PRC, the mortgagee can sell or realize the property in the market if the borrower fails to repay the loans in accordance with the mortgage agreement upon expiry of a fixed period of term as stated therein.

• The 79 Hong Kong companies listed above are indirect wholly-owned subsidiaries of Chinese Estates.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

No. Property Description and tenure

Particulars of occupancy

Market Value in existing state as at 31 July 2007 HK$

1. Unsold Portions of The property comprises a land Evergo Tower parcel with a site area of

（愛美高大廈 approximately 3,577 sq.m. upon －未售部份） which a 21-storey commercial/ (formerly known as office tower with 2 levels of Peregrine Plaza), basement, completed in about No. 1325 Central 1997, was erected. Huaihai Road and No. 1 Baoqing Road, The gross floor area (“GFA”) of Xuhui District, the property is approximately Shanghai City, 24,499 sq.m. Details of which the PRC are listed as follows:

As advised by the Chinese 550,000,000 Estates Group, the property is occupied for (100% interest office and commercial attributable to uses with carparking the Chinese Estates spaces and are subject to Group: various tenancies with an 550,000,000) aggregated monthly rent of about RMB3,300,000 under various terms with the latest expiry date on 22 April 2010.

Use of unsold

portions Office portion (Level 6 to 23) Retail portion (Basement) Retail portion (Level 1 to 5) 70 carparks (Basement) Total:	GFA (sq.m.) 15,017 1,438 5,823 2,221
	24,499

The land use rights of the property have been granted for a term of 50 years commencing on 29 September 1992 and expiring on 28 September 2042 for commercial and office composite uses.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

Notes:

1. Pursuant to a Shanghai City Land Use Rights Grant Contract（上海市土地使用權出讓合同）, Hu Tu (1992) Chu Rang He Tong Di No. 30, entered into between Shanghai City Land Administrative Bureau（上海市土地 管理局）and Golden Royce Investment Limited（金萊斯投資有限公司）dated 3 July 1992, the former agreed to grant the land use rights of the property with a site area of approximately 3,577 sq.m. at a land premium of US$1,853,244 for a term of 50 years for commercial and office composite uses.

2. Pursuant to a supplementary agreement of Shanghai City Land Use Rights Grant Contract（上海市國有土地 使用權出讓合同）, Hu Fang Di (1999) Chu Rang He Tong Bu Zi Di No. 7, entered into between Shanghai City Land Administrative Bureau（上海市土地管理局）and Shanghai Golden Sea Building Limited（上海金 海大廈有限公司）(“Shanghai Golden Sea”) dated 22 January 1999, the maximum total GFA of the property was increased to 20,156.34 sq.m at an additional land premium of US$45,511.

3. Pursuant to a State-owned Land Use Rights Certificate（國有土地使用証）, Hu Guo Yong (Pi) Zi Di No. 001287, issued by Shanghai City Housing and Land Administrative Bureau（上海市房屋土地管理局）dated 10 July 1995, the land use rights of the property with a site area of 3,577 sq.m. have been granted to Shanghai Golden Sea for a term of 50 years commencing on 29 September 1992 and expiring on 28 September 2042 for commercial and office composite uses.

4. Pursuant to Enterprise Change of Name Pre-permission Notice（企業名稱變更預先核准通知書）dated 22 May 2007 and Permission of Change of Registration Notice（准予變更登記通知書）dated 4 June 2007, the name of Shanghai Golden Sea has been changed into the name of Evergo Real Estate (Shanghai) Company Limited (“Evergo Shanghai”)（愛美高房地產（上海）有限公司）.

5. Pursuant to 2 Shanghai Certificates of Real Estate Ownership（上海市房地產權証）, issued by Shanghai Housing and Land Resources Administration Bureau（上海市房屋土地管理局）dated 16 August 2007, the property with a total GFA of 24,655.86 sq.m. are legally owned by Evergo Shanghai for a term commencing on 29 September 1992 and expiring on 28 September 2042 for commercial and office composite uses. The details of which are summarized in the table below:

Level Basement to Level 22 Level 23 Total:	Shanghai Certificates of GFA Name of Owner Real Estate Ownership No. (sq.m.) 23,950.14 Evergo Shanghai Hu Fang Di Xu Zi (2007) Di No. 015548 705.72 Evergo Shanghai Hu Fang Di Xu Zi (2007) Di No. 015551 24,655.86

1. Pursuant to a Business Licence（營業執照）, Qi Du Hu Zong Zi Di No. 015304 (Xuhui), issued by Shanghai Industry and Commerce Administrative Bureau（上海工商行政管理局）dated 5 June 2007, Evergo Shanghai was established with a registered capital of US$10,500,000 and was authorized to carry on the business for a period of 50 years commencing on 14 January 1993 and expiring on 13 January 2043.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

Shanghai City Land Use Rights Grant Contract and its supplementary agreement Yes State-owned Land Use Rights Certificate Yes Shanghai Certificates of Real Estate Ownership Yes Business Licence Yes

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm（瑛明律師事務所）, to Chi Cheung Investment Company, Limited contains, inter alia, the following:

2. a. Evergo Shanghai is in possession of a proper legal title to the property and is entitled to the exclusive rights to occupy, use, benefit from and dispose of the property;

3. b. The property is not subject to mortgage or any other material encumbrances; and

4. c. The tenancy agreements of the property are legally binding.

5. Evergo Shanghai is an indirect wholly-owned subsidiary of Chinese Estates.

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PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

Group II – Properties held by the Chinese Estates Group for development in the PRC

				Market Value in
				existing state as at
No.	Property	Description and tenure	Particulars of occupancy	31 July 2007
				HK$
5.	Executive Tower	The property comprises an	The property is currently	186,000,000
	of Hilton Beijing	extension development of Hilton	under construction and
	（北京希爾頓酒店	Beijing erected on a portion of a	half of the construction	(50% interest
	行政附樓）	land parcel with a site area of	works have been	attributable to
	(redeveloped from	11,270 sq.m.	completed.	the Chinese Estates
	the Auditorium),			Group:
	No. 1	The property is under		93,000,000)
	Dongfang Road,	construction. It will have a total
	North Dongsanhuan	gross floor area (“GFA”) of
	Road,	approximately 21,382 sq.m.
	Chaoyang District,	upon completion.
	Beijing City,
	the PRC	The land use rights of the
		property have been allocated for
		a term of 27 years commencing
		on 1 July 1996 and expiring on
		30 September 2023 for hotel and
		auditorium uses.

Notes:

1. Pursuant to a Beijing City Foreign Company Investment Enterprise Land Contract（北京市外商投資企業用 地合同）, Jing Fang Di Wai (He) Zi (96) Nian Di No. 032, entered into between Beijing City Building and Land Management Bureau（北京市房屋土地管理局）and Oriental Arts Buildings Co., Ltd.（東方藝術大廈 有限公司）(“OAB”) dated 26 July 1996, the former agreed to allocate the land use rights of the property with a site area of approximately 8,900 sq.m. for a term of 30 years commencing on 1 October 1993 and expiring on 30 September 2023 for hotel and auditorium uses at an annual land use fee of RMB892,150 for the first term of 5 years and subject to renewal after the first term.

2. Pursuant to a supplementary agreement of Beijing City Foreign Company Investment Enterprise Land Contract （北京市外商投資企業用地合同）, Jing Fang Di Wai (He) Zi (96) Nian Di No. 032, entered into between Beijing City Building and Land Management Bureau（北京市房屋土地管理局）and OAB dated 20 July 1998, the site area and the annual land use fee of the property have been revised to 11,270 sq.m. and RMB1,169,330 respectively.

3. Pursuant to a State-owned Land Use Rights Certificate（國有土地使用証）, Shi Chao Zhong Wai Guo Yong (98) Zi Di No. 00458, issued by Beijing City Building and Land Management Bureau（北京市房屋土地管理 局）dated 15 September 1998, the land use rights of the property with a site area of 11,270 sq.m. have been allocated to OAB for a term of 27 years commencing on 1 July 1996 and expiring on 30 September 2023 for hotel and auditorium uses.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. Pursuant to a Construction Works Planning Permit（建築工程規劃許可証）, 2005 Gui Jian Zi No. 0509, issued by Beijing City Planning Committee Board（北京市規劃委員會）dated 17 October 2005, OAB was permitted to redevelop Block C of Oriental Arts Buildings（東方藝術大廈 C樓）with a GFA of 21,382.2 sq.m.

2. Pursuant to a Construction Works Commencement Permit（建築工程施工許可証）, (2006) Shi (Chao) Jian Zi No. 0081, issued by Beijing City Chaoyang District Construction Committee Board（北京市朝陽區建設委員 會）dated 29 June 2006, OAB was permitted to commence the construction works of the redevelopment of Block C of Oriental Arts Buildings（東方藝術大廈 C樓）with a GFA of 21,382 sq.m.

3. As per information provided by the Chinese Estates Group, the redevelopment details of the property are summarized as follows:

Existing stage of development : The property is currently at its early stage of construction. Estimated completion date : August 2008 Estimated cost of carrying : The estimated cost for the whole development is about out/completing the development RMB241,690,319. Estimated cost of carrying out : The estimated cost for the development is about RMB62,893,000 the development as at 31 July 2007 as at 31 July 2007. Estimated capital value after completion : Based on the proposed development, the capital value after completion is estimated to be approximately RMB375,000,000.

1. Pursuant to a Business License（營業執照）, No. 0322933 (Registered No. 110000450006333), issued by Beijing City Industry and Commence Administrative Management Bureau（北京市工商行政管理局）dated 11 April 2007, OAB was established with a registered capital of US$24,920,000 and was authorized to carry on the business of hotel, office and auditorium for a period of 30 years commencing on 1 October 1993 and expiring on 30 September 2023.

2. Pursuant to a Mortgage Agreement（抵押合同）No. 124243 and its Extension Agreement No. 12710282, entered into between Bank of Communications – Beijing Branch Sanyuan Sub-branch（交通銀行－北京分行 三元支行）(the “Bank”) and OAB dated 7 July 2004 and 7 July 2007 respectively, the latter has mortgaged the property together with the Property Nos. 1 and 2 to the former for a loan amount of RMB600,000,000 for a term of 3 years from 7 July 2004 to 7 July 2007 and extended to 7 July 2011.

3. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

Beijing City Foreign Company Investment Enterprise Land Contract and its supplementary agreement Yes State-owned Land Use Rights Certificate Yes Construction Works Planning Permit Yes Construction Works Commencement Permit Yes Business Licence Yes

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm（瑛明律師事務所）, to Chi Cheung Investment Company, Limited contains, inter alia, the following:

2. a. OAB is entitled to the exclusive rights of use and occupation of the property for the residual term of the allocated land use rights;

3. b. the land use fees of the last 3 years have been settled in full by OAB;

4. c. according to the relevant ordinances in the PRC, owners of those allocated land parcels can transfer, lease out and mortgage their land parcels or any building structures erected therein after settlement of land premium to the local government with a standard application procedures in applying for the relevant State-owned Land Use Rights Certificate. There will be no legal impediments for those owners to obtain such title certificates if they follow the application procedures and settle the land premium strictly. Having been granted with the State-owned Land Use Rights Certificate, the owners can transfer, lease out and mortgage their properties legally.

5. d. the property had been pledged to the Bank for an amount of up to RMB565,000,000;

6. e. according to the registration records in Beijing City Building and Land Management Bureau（北京市房 屋土地管理局）, the mortgage of the property as mentioned in (d) has been registered and approved by the relevant government department. In consequence, the mortgage is legally established;

7. f. the construction works of the property have been permitted and approved by the relevant government authorities;

8. g. OAB has the rights to carry out the redevelopment works within the scope of the relevant permits, consents and approvals;

9. h. pursuant to a Construction Works Appointment and Supervision Contract（建設工程委託監理合同）, OAB did not employ a contractor of the construction works by tender. If OAB is required by the relevant supervisory authority to rectify the said conduct, the penalty to be imposed on OAB will be in the range of more than 0.5% but lower than 1% of the total contract sum. However, since the construction contract is in the course of performance or approaching completion, the possibility that administrative department forces OAB to cancel the construction contract is relatively low; and

10. i. the original permitted use of Block C of Oriental Arts Buildings（東方藝術大廈 C樓）granted by the government department should be for auditorium use. According to the City Real Estate Management Law（城市房地產管理法）, OAB should apply to the relevant government department for the change of building use to become hotel rooms or suites for approval, which may be subject to a premium payment.

11. As confirmed by Chinese Estates, they will apply for Building Ownership Certificate upon the completion of the construction works of the property. If the relevant government department demands for any premium for the change of usage for granting such title document, Chinese Estates will intend to comply with the instructions from the relevant government department correspondingly.

12. OAB is an indirect 50%-owned associate of Chinese Estates.

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PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

Description and tenure

No. Property

1. Chengdu Dongda Dongda Street Development is Street Development a large-scale residential Project, development project (the East of Yixue Lane, “development”) erected on a South of Hongbu land parcel with a site area of Main Street approximately 18,060.93 sq.m. and North of Tangba Street, The property will have a total Jinjiang District, Gross Floor Area (“GFA”) of Chengdu City, approximately 162,549 sq.m. Sichuan Province, upon completion. the PRC The land use rights of the property have been granted for a term of 70 years for residential use and 40 years for commercial use.

Market Value in existing state as at Particulars of occupancy 31 July 2007 HK$ The property is currently 685,000,000 at its early stage of development. (100% interest attributable to the Chinese Estates Group: 685,000,000)

Notes:

1. Pursuant to a State-owned Land Use Rights Grant Contract（國有土地使用權出讓合同）, 5101 Jin (2006) Chu Rang He Tong Di No. 23, entered into between Chengdu City State-owned Land Resource Bureau（成都 市國土資源局）and Evergo Real Estate (chengdu) Company Limited（愛美高房地產（成都）有限公司） (“Evergo Chengdu”) dated 10 November 2006, the former agreed to transfer the land use rights of the property with a site area of approximately 18,060.93 sq.m. to the latter at a land premium of RMB272,268,570 for a term of 70 years for residential and 40 years for commercial use.

2. Pursuant to a State-owned Land Use Rights Certificate（國有土地使用証）, Cheng Guo Yong (2007) Di No. 464, issued by 成都市國土資源局 (Chengdu City State-owned Land Resource Bureau) dated 17 May 2007, the land use rights of the property with a site area of 18,060.93 sq.m. have been granted to Evergo Chengdu for a term expiring on 9 November 2076 for residential use and 9 November 2046 for commercial use.

3. Pursuant to a Construction Project Location Opinion Letter（建設項目選址意見書）, Cheng Gui Xuan Zhi [2006] Di No. 575, issued by Chengdu City Planning Administrative Bureau（成都市規劃管理局）dated 13 December 2006, Evergo Chengdu was permitted to develop the property for residential use in the area located at South of Hongbu Main Street, North of Tangba Street and East of Yixue Lane of Jinjiang District.

4. Pursuant to a Construction Land Planning Permit（建設用地規劃許可証）, Cheng Gui Yong Di [2006] Di No. 578, issued by Chengdu City Planning Administrative Bureau（成都市規劃管理局）dated 22 December 2006, Evergo Chengdu was permitted to develop the property for residential use with a site area of approximately 22,073.37 sq.m.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. Pursuant to a Chengdu Military District Air Force Auxiliary Department (Letter)（成都軍區空軍後勤部） （函）, Hou Ying (2007) Di No. 155, issued by Chinese People’s Jie Fang Army Chengdu Military District Air Force Auxiliary Department（中國人民解放軍成都軍區空軍後勤部）dated 22 May 2007, Evergo Chengdu was permitted to construct buildings not exceeding 165 m in building height.

2. As per information provided by the Chinese Estates Group, the development details of the property are summarized as follows:

Existing stage of development : The property is currently at its early stage of development. Estimated date : September 2007 (Start excavation) January 2008 (Construction Permit) October 2008 (Pre-sale launch) December 2009 (Phase 1) Estimated cost of carry : The estimated costs for the whole development is about out/completing the development RMB854,000,000. Estimated capital value after completion : Based on the proposed development, the capital value after completion is estimated to be approximately RMB1,417,000,000.

1. Pursuant to a Business License（營業執照）, No. 0063445 (Registered No. Qi Du Chuan Rong Zong Zi Di No. 004063), issued by Chengdu City Industry and Commence Administrative Management Bureau（成都市工商 行政管理局）dated 24 May 2007, Evergo Chengdu was established with a registered capital of US$100,000,000 and was authorized to carry on the business of development, operation, agency, consultation and management of real estate for a period of 70 years commencing on 28 September 2006 and expiring on 28 September 2076.

2. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

State-owned Land Use Rights Grant Contract	Yes
State-owned Land Use Rights Certificate	Yes
Construction Project Location Opinion Letter	Yes
Construction Land Planning Permit	Yes
Chengdu Military District Air Force Auxiliary Department (Letter)	Yes
Business Licence	Yes

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm（瑛明律師事務所）to Chi Cheung Investment Company, Limited, contains, inter alia, the following:

2. a. Evergo Chengdu is in possession of a proper legal title to the property and is entitled to transfer, occupy, use, benefit from and dispose of the property for the residual term of land use rights;

3. b. the property is not subject to mortgage or any other material encumbrances;

4. c. according to the State-owned Land Use Rights Grant Contract, the deferral of the commencement of the proposed development of the property for one year from the date of commencement of development as specified in the contract will lead to a penalty of not more than 20% of the land premium for not developing the land for use on time（土地閑置費）. Chengdu City State-owned Land Resources Bureau may re-enter the land where the property situated in case the commencement of the proposed development has been deferred for a period of 2 years from the specified date in the contract. In consequence, it is suggested that the owner of the property should apply for extension of commencing development as well as to speed up the progress; and

5. d. it is noted that the property address has been wrongly stated in the title document as mentioned in Note 2 above. It is suggested that Evergo Chengdu should request the relevant government department to correct the mistake in order to protect the legal rights of Evergo Chengdu.

6. As confirmed by Chinese Estates, Evergo Chengdu is in the process to contact the relevant government department for the rectification of the address of the property as stated on the title certificate.

7. Evergo Chengdu is an indirect wholly-owned subsidiary of Chinese Estates.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

Description and tenure

No. Property

1. Chengdu Yingbin Yingbin Road Development is a Road Development large-scale residential and Project, commercial development project Group 1, 2, 6 Langjia (the “development”) erected on a Village and Group 1, land parcel with a site area of 2, 3, 4, 7 Yuejin approximately 73,914.1 sq.m. Village, Jinniu District, The property will have a total Chengdu City, Gross Floor Area (“GFA”) of Sichuan Province, approximately 318,500 sq.m. for the PRC residential units and approximately 30,276 sq.m. for the commercial portion and a total of about 1,936 car parking spaces will be provided upon completion.

Market Value in existing state as at Particulars of occupancy 31 July 2007 HK$ The property is currently 1,145,000,000 at its early stage of development. (100% interest attributable to the Chinese Estates Group: 1,145,000,000)

The land use rights of the property have been granted for a term expiring on 2 November 2076 for residential use and 2 November 2046 for commercial use.

Notes:

1. Pursuant to a State-owned Land Use Rights Grant Contract（國有土地使用權出讓合同）, 5101 Jin (2006) Chu Rang He Tong Di No. 50, entered into between Chengdu City State-owned Land Resource Bureau（成都 市國土資源局）and Evergo Real Estate (chengdu) Company Limited（愛美高房地產（成都）有限公司） (“Evergo Chengdu”) dated 3 November 2006, the former agreed to transfer the land use rights of the property with a site area of approximately 73,914.1 sq.m. to the latter at a land premium of RMB460,115,065 for town mixed residential （城鎮混合住宅）use.

2. Pursuant to a State-owned Land Use Rights Certificate（國有土地使用証）, Cheng Guo Yong (2007) Di No. 463, issued by Chengdu City State-owned Land Resource Bureau（成都市國土資源局）dated 17 May 2007, the land use rights of the property with a site area of 73,914.1 sq.m. have been granted to Evergo Chengdu for a term expiring on 2 November 2076 for residential use and 2 November 2046 for commercial use.

3. Pursuant to a Construction Project Location Opinion Letter（建設項目選址意見書）, Cheng Gui Xuan Zhi [2006] Di No. 569, issued by Chengdu City Planning Administrative Bureau（成都市規劃管理局）dated 11 December 2006, Evergo Chengdu was permitted to develop the property for residential, commercial, ancillary and public toilet uses in the area located at Group 1, 2, 6 Langjia Village and Group 1, 2, 3, 4, 7 Yuejin Village of Jinniu District.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. Pursuant to a Construction Land Planning Permit（建設用地規劃許可証）, Cheng Gui Yong Di (2006) No. 591, issued by 成都市規劃管理局 (Chengdu City Planning Administrative Bureau) dated 27 December 2006, Evergo Chengdu was permitted to develop the property for residential, commercial, ancillary and public toilet uses with a site area of approximately 91,659.06 sq.m.

2. Pursuant to a Chengdu Military District Air Force Auxiliary Department (Letter)（成都軍區空軍後勤部） （函）, Hou Ying (2007) Di No. 94, issued by Chinese People’s Jie Fang Army Chengdu Military District Air Force Auxiliary Department（中國人民解放軍成都軍區空軍後勤部）dated 21 March 2007, Evergo Chengdu was permitted to construct buildings not exceeding 91 m in building height.

3. As per information provided by the Chinese Estates Group, the development details of the property are summarized as follows:

Existing stage of development : The property is currently at its early stage of development. Estimated completion date : Phase 1: April 2009 Phase 2: May 2010 Estimated cost of carrying out/completing : The estimated costs for the whole development is about the development RMB1,498,000,000. Estimated capital value after completion : Based on the proposed development, the capital value after completion is estimated to be approximately RMB2,732,000,000.

1. Pursuant to a Business License（營業執照）, No. 0063445 (Registered No. Qi Du Chuan Rong Zong Zi Di No. 004063), issued by Chengdu City Industry and Commence Administrative Management Bureau（成都市工商 行政管理局）dated 24 May 2007, Evergo Chengdu was established with a registered capital of US$100,000,000 and was authorized to carry on the business of development, operation, agency, consultation and management of real estate for a period of 70 years commencing on 28 September 2006 and expiring on 28 September 2076.

2. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

State-owned Land Use Rights Grant Contract Yes State-owned Land Use Rights Certificate Yes Construction Project Location Opinion Letter Yes Construction Land Planning Permit Yes Chengdu Military District Air Force Auxiliary Department (Letter) Yes Business Licence Yes

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm（瑛明律師事務所）, to Chi Cheung Investment Company, Limited contains, inter alia, the following:

2. a. Evergo Chengdu is in possession of a proper legal title to the property and is entitled to transfer, occupy, use, benefit from and dispose of the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government; and

3. b. the property is not subject to mortgage or any other material encumbrances.

4. Evergo Chengdu is an indirect wholly-owned subsidiary of Chinese Estates.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

No. Property Description and tenure

1. Chengdu South South Taisheng Road Taisheng Road Development is a large-scale Development Project, comprehensive development east of Sanguiqian project (the “development”) Street, south of East erected on a land parcel with a Daqiang Street, west site area of approximately of South Taisheng 37,556.66 sq.m. Road and north of Tidu Street, The development will comprise Qingyang District, an office building, a 5-star hotel, Chengdu City, a service apartment, a shopping Sichuan Province, arcade on podium level and a the PRC total of about 3,000 car parking spaces in basement upon completion. The total Gross Floor Area (“GFA”) of the property will be approximately 300,000 sq.m. upon completion. The land use rights of the property have been granted for a term expiring on 6 March 2077 for residential use and 6 March 2047 for commercial use.

Market Value in existing state as at Particulars of occupancy 31 July 2007 HK$ The property is currently 1,879,000,000 at its early stage of construction. (100% interest attributable to the Chinese Estates Group: 1,879,000,000)

Notes:

1. Pursuant to a State-owned Land Use Rights Grant Contract（國有土地使用權出讓合同）, 5101 Qing (2007) Chu Rang He Tong Di No. 05, entered into between Chengdu City State-owned Land Resource Bureau（成都 市國土資源局）and Evergo Enterprises (Chengdu) Company Limited (“Evergo Enterprises Chengdu”)（愛美 高實業（成都）有限公司）dated 7 March 2007, the former agreed to transfer the land use rights of the property with a site area of approximately 37,556.66 sq.m. to the latter at a land premium of RMB1,072,618,400 for a term of 70 years for residential use and 40 years for commercial use.

2. Pursuant to a State-owned Land Use Rights Certificate（國有土地使用証）, Cheng Guo Yong (2007) Di No. 465, issued by Chengdu City State-owned Land Resource Bureau（成都市國土資源局）dated 21 May 2007, the land use rights of the property with a site area of 37,556.66 sq.m. have been granted to Evergo Enterprises Chengdu for a term expiring on 6 March 2077 for residential use and 6 March 2047 for commercial use.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. Pursuant to a Construction Project Location Opinion Letter（建設項目選址意見書）, Cheng Gui Xuan Zhi (2007) Di No. 108, issued by Chengdu City Planning Administrative Bureau（成都市規劃管理局）dated 19 March 2007, Evergo Enterprises Chengdu was permitted to develop the property for public utility and residential uses in the area located at east of Sanguiqian Street, south of East Daqiang Street, west of South Taisheng Road and north of Tidu Street of Qingyang District.

2. Pursuant to a Construction Land Planning Permit（建設用地規劃許可証）, Cheng Gui Yong Di (2007) No. 121, issued by Chengdu City Planning Administrative Bureau（成都市規劃管理局）dated 27 March 2007, Evergo Enterprises Chengdu was permitted to develop the property for public utility and residential uses with a site area of approximately 37,556.66 sq.m.

3. As per information provided by the Chinese Estates Group, the development details of the property are summarized as follows:

Existing stage of development : The property is currently at its early stage of development. Estimated completion date : February 2011 Estimated cost of carrying out/completing : The estimated costs for the whole development is about the development RMB3,815,000,000. Estimated capital value after completion : Based on the proposed development, the capital value after completion is estimated to be approximately RMB4,420,000,000.

1. Pursuant to a Business License（營業執照）, No. 0063516 (Registered No. Qi Du Chuan Rong Zong Zi Di No. 004191), issued by Chengdu City Industry and Commence Administrative Management Bureau（成都市工商 行政管理局）dated 29 May 2007, Evergo Enterprises Chengdu was established with a registered capital of US$150,000,000 and was authorized to carry on the business of residential and commercial development, operation, agency, consultation and management of real estate for a period of 40 years commencing on 1 February 2007 and expiring on 31 January 2047.

2. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

State-owned Land Use Rights Grant Contract Yes State-owned Land Use Rights Certificate Yes Construction Project Location Opinion Letter Yes Construction Land Planning Permit Yes Business Licence Yes

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PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

APPENDIX XI

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm（瑛明律師事務所）, to Chi Cheung Investment Company, Limited contains, inter alia, the following:

2. a. Evergo Enterprises Chengdu is in possession of a proper legal title to the property and is entitled to transfer, occupy, use, benefit from and dispose of the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;

3. b. the property is not subject to mortgage or any other material encumbrances; and

4. c. pursuant to a temporary car parking tenancy agreement（太升南路愛美高項目地塊臨時停車場協議）, dated 28 March 2007, entered into between Evergo Enterprises Chengdu, Chengdu City Qingyang District People’s Government Taisheng Road Street Office（成都市青羊區人民政府太升路街道辦事處）and Chengdu City Qingyang District Police Security Bureau Taisheng Road Police Substation, Evergo Enterprises Chengdu agreed to lease the property to the police substation located on Taisheng Road for car parking use temporarily. However, the relevant agreement has not been registered in the relevant State-owned Land Resources Bureau in accordance with the Land Grant Contract. It is suggested that Evergo Enterprises Chengdu should carry out the registration procedures in accordance with the contract.

5. After considering the suggestions given by the legal advisor as mentioned in note 8 (c) above, Chinese Estates intents to contact the relevant government department for the registration of the tenancy agreement though the risk is minimal in the time beings.

6. Evergo Enterprises Chengdu is an indirect wholly-owned subsidiary of Chinese Estates.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

				Market Value in
				existing state as at
No.	Property	Description and tenure	Particulars of occupancy	31 July 2007
				HK$
9.	Chongqing Huaxinjie	The property comprises a land	The property is currently	4,278,000,000
	Street Development	parcel with a site area of	vacant.
	Project,	approximately 205,086 sq.m.		(25% interest
	No. 1 Zhongxin			attributable to
	Section and	The property is planned to be		the Chinese Estates
	Qiaobei Village,	developed into a comprehensive		Group:
	Huaxinjie Street,	development with a total Gross		1,069,500,000)
	Jiangbei District,	Floor Area (“GFA”) of
	Chongqing City,	approximately 1,049,798 sq.m.
	the PRC	for residential, commercial,
		industrial, school and car
		parking spaces uses upon
		completion.

Notes:

1. Pursuant to a Auction Transaction Confirmation Letter (拍賣成交確認書 ), (Land Auction) No. 20070730, dated 30 July 2007, Sinoland China Investment Holdings Limited（信和置業中國投資集團有限公司） (“Sinoland China”) has successfully bid the land use rights of the property at a consideration of RMB4,180,000,000.

2. Pursuant to a Confirmation Letter on Transaction Relating to the State-owned Land Use Rights（國有土地使 用權成交確認書）, Yu Di Jiao Yi Chu [2007] No. 152, issued by Chongqing City Land and Mining-rights Exchange Centre (重慶市土地和礦業權交易中心 ) dated 30 July 2007, the land use rights of the property with a site area of 205,086 sq.m. have been transferred to Sinoland China for residential and schooling uses subject to several installments of the land premium by Sinoland China in accordance with a schedule suggested in this letter.

3. Pursuant to a Fee Settlement Details（㶅款明細）dated 25 July 2007, an Initial Deposit Payment Declaration （保証金代繳款說明）and a Chongqing City Land Transaction Centre Fee Settlement Receipt（重慶市土地 交易中心收款收據）both dated 26 July 2007, Sinoland China has settled an initial payment of the land premium at a sum of RMB250,000,000.

4. Pursuant to a Transaction Agreement（轉讓協議）, entered into between Sinoland China and Champion Glory Holdings Limited（卓康集團有限公司）(“Champion Glory”) dated 17 August 2007, the former has agreed to transfer the holding interests on Chongqing Jianzhi Real Estate Limited (重慶尖置房地產有限公司 ) (“Chongqing Jianzhi”) to the latter.

5. Pursuant to a Memorandum of Agreement dated 17 August 2007, Chinese Estates intended to invest in Benefit East Investments Limited, which is being an immediate holding company of Champion Glory to become a 25% shareholder.

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APPENDIX XI PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

1. As per information provided by the Chinese Estates Group, the development details of the property are summarized as follows:

Existing stage of development : The property is currently vacant. Estimated cost of carrying out/completing : The estimated building costs for the whole development is the development about RMB1,338,750,000. Estimated capital value after completion : Based on the proposed development, the capital value after completion is estimated to be approximately RMB8,480,000,000.

1. Pursuant to a Business License（營業執照）, No. 500000400002738, issued by Chongqing City Industry and Commence Administrative Management Bureau (重慶市工商行政管理局 ) dated 22 August 2007, Chongqing Jianzhi was established with a registered capital of HK$760,000,000 and was authorized to carry on the business of real estate composite development for a period commencing on 22 August 2007 and expiring on 6 August 2008.

2. The status of title and grant of major approvals and licences with the information provided by the Chinese Estates Group are as follows:

Auction Transaction Confirmation Letter Yes Confirmation Letter on Transaction Relating to the Rights to Use State-owned Land Yes Fee Settlement Details Yes Transaction Agreement Yes Memorandum of Agreement Yes Business Licence Yes

1. The opinion of the PRC legal advisor, Chen & Co. Law Firm (瑛明律師事務所 ), to Chi Cheung Investment Company, Limited contains, inter alia, the following:

2. a. Sinoland China has successfully bid the property from an auction as the transferee of the land use rights of the property which conforms with the relevant laws of the PRC; and

3. b. According to State-owned Land Use Rights Open Tranfer Announcement (國有土地使用權公開出讓公 告 ), Chongqing Jianzhi should enter into a State-owned Land Use Rights Grant Contract（國有土地使 用權出讓合同）after one month (i.e. 30 August 2007) starting from the date of Auction Transaction Confirmation Letter as mentioned in Note 1 above. Otherwise, the Confirmation Letter on Transaction Relating to the State-owned Land Use Rights as mentioned in Note 2 above will become invalid. In consequence, Chongqing Jianzhi should obtain an approval for signing the State-owned Land Use Rights Grant Contract（國有土地使用權出讓合同）from the relevant Chongqing City Land Management Department（重慶市土地管理部門）.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

Group III – Property held by the Chinese Estates Group for development in Macao

Market Value in existing state as at No. Property Description and tenure Particulars of occupancy 31 July 2007 HK$ 10. Macao Avenida Wai Avenida Wai Long Development The property is currently 12,480,000,000 Long Development is a large-scale comprehensive vacant. Project, development project (the (70.01% interest Lote 1c, Lote 2, “development”) which comprises attributable to Lote 3, Lote 4 and 5 land parcels with a total site the Chinese Estates Lote 5, Estrada da area of approximately Group: Ponta da Cabrita, 78,742 sq.m. 8,737,248,000) Taipa, Macao The property is planned to be developed into a comprehensive development with a total Gross Floor Area (“GFA”) of approximately 390,000 sq.m. for residential and car parking uses.

The land use rights of the property have been granted for a term expiring on 13 December 2015 for residential and commercial uses.

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APPENDIX XI

PROPERTY VALUATION OF THE CHINESE ESTATES PROPERTIES

Notes:

1. Pursuant to 5 sets of Promissory Contracts of Transmission of Concession Rights (批租地承租權移轉預約合 同 ) all dated 15 October 2005, the land use rights of the property with a total site area of 78,742 sq.m. have been transferred to Moon Ocean Ltd. for a term expiring on 13 December 2015 at a total consideration of MOP1,368,000,000 for commercial, services and car parking uses. The salient details of the contract are as follows:

Land Parcel No. Site Area Vendor Purchaser Land Premium (sq.m.) (RMB) Lote 1C 4,012 Tai Lei Loi Development Moon Ocean 77,367,609 Company, Limited Ltd. Lote 2 13,425 San Hung Fat Development Moon Ocean 232,102,828 Company, Limited Ltd. Lote 3 18,707 San Hou Kong Development Moon Ocean 289,542,416 Company, Limited Ltd. Lote 4 8,750 San Vai Ip Development Moon Ocean 239,136,247 Company, Limited Ltd. Lote 5 33,848 Lei Tin Development Moon Ocean 529,850,900 Company, Limited Ltd. Total: 78,742 1,368,000,000

Max. GFA (sq.m.) 23,955 63,800 95,250 76,500 133,000

392,505

1. Pursuant to a Property Registration Certificate (物業登記書面報告 ) dated 30 August 2006, the property is owned by Moon Ocean Ltd.

2. As per information provided by the Chinese Estates Group, the development details of the property are summarized as follows:

Existing stage of development : The property is currently vacant. Estimated completion date : Phase 1: 1st Quarter, 2010 Phase 2: 2nd Quarter, 2011 Phase 3: 4th Quarter, 2012 Phase 4: 4th Quarter, 2013 Estimated cost of carrying : The estimated building costs for the whole development is out/completing the development about MOP8,336,000,000. Estimated capital value after completion : Based on the proposed development, the capital value after completion is estimated to be approximately MOP29,600,000,000.

1. Moon Ocean Ltd. is an indirect 70.01%-owned subsidiary of Chinese Estates.

– 441 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

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==> picture [128 x 43] intentionally omitted <==

31 October 2007

The Directors Chi Cheung Investment Company, Limited 26/F, MassMutual Tower 38 Gloucester Road Wanchai Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property interests (as specified in the Summary of Values as attached) held by Chi Cheung Investment Company, Limited (hereinafter referred to as the “Company”), its subsidiaries and associated companies (hereinafter together referred to as the “Chi Cheung Group”) in the Hong Kong Special Administrative Region (“Hong Kong”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of values of such property interests as at 31 July 2007 (hereinafter referred to as the “Date of Valuation”) for public documentation purpose.

BASIS OF VALUATION

Our valuation of the property interests are our opinion of its market value which we would define as intended to mean “an estimated amount for which a property should exchange on the Date of Valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

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APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

In valuing the property interests, we have assumed that the Chi Cheung Group has valid and enforceable title to the property interests which are freely transferable, and has free and uninterrupted right to use the same, for the whole of the unexpired lease granted subject to payment of annual Government rent and all requisite land premium/purchase consideration payable has been fully settled.

We have valued the properties on the basis that each of them is considered individually. We have not allowed for any discount for the properties to be sold to a single party nor have taken into account any effect on the values if the properties are to be offered for sale at the same time as a portfolio.

VALUATION METHODOLOGIES

In valuing the property interests under Group I which are held for investment by the Chi Cheung Group in Hong Kong, we have adopted Investment Approach by taking into account the current passing rents and the reversionary income potential of the tenancies.

In valuing the property interest under Group II which is held for owner occupation, Group III which are held for sale and Group V which are contracted to be sold by the Chi Cheung Group in Hong Kong, we have adopted the Direct Comparison Approach by making reference to comparable transactions as available in the relevant markets.

In valuing the property interest under Group IV which is held for development by the Chi Cheung Group in Hong Kong, we have assumed that the property will be developed in accordance with the latest development proposal provided to us by the Chi Cheung Group. We have assumed that approvals for the proposed development have been obtained. In arriving at our opinion of the value of property interest, we have adopted the Direct Comparison Approach by making reference to comparable transactions as available in the relevant market and have also taken into account the construction costs that will be expended to complete the development to reflect the development potential of the property and the quality of the completed development.

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the Chi Cheung Group sells the properties on the open market in their existing states without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the values of such property interests. In addition, no account has been taken of any option or right of pre-emption concerning or affecting sales of the properties and no forced sale situation in any manner is assumed in our valuations.

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APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

In valuing those property interests located in Hong Kong, the Government Leases of which have expired before 30 June 1997, we have taken into account the provisions contained in the Basic Law of the Hong Kong Special Administrative Region and the New Territories (Extension) Ordinance 1988 that such leases have been extended without any additional payment of premium until 30 June 2047 and that an annual rent equivalent to 3% of the rateable value of the properties will be charged from the date of extension.

TITLE INVESTIGATION

In the course of our valuations, we have, as agreed with the Chi Cheung Group, caused sampling title searches at the relevant Land Registries. We have not, however, searched the original documents to verify the ownership or to determine the existing of any lease amendments which do not appear on the copies handed to us.

LIMITING CONDITIONS

All dimensions, measurements and areas included in the attached valuation certificates are based on information contained in the documents provided to us by the Chi Cheung Group and are therefore only approximations.

We have inspected the exteriors and, where possible, the interiors of each of the properties. However, we have not carried out investigations on site to determine the suitability of the ground conditions and the services and so forth for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred in the event of any development. The study of possible alternative development options (except Property No. 12) and the related economics of the properties are not within the scope of our valuation.

Moreover, no structural survey has been made, but in the course of our inspections, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects, nor were any tests carried out to any of the services. Unless otherwise stated, we have not been able to carry out detailed on-site measurements to verify the floor areas of the properties and we have assumed that the areas shown on the documents handed to us are correct.

We have relied to a considerable extent on the information provided by the Chi Cheung Group and have accepted advice on such matters as planning approvals, statutory notices, easements, tenures, completion dates of buildings, particulars of occupancy, tenancy summaries and floor areas and all other relevant matters in the identification of the properties in which the Chi Cheung Group has valid interests.

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APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

We have had no reason to doubt the truth and accuracy of the information provided to us by the Chi Cheung Group. We are also advised by the Chi Cheung Group that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on any of the properties nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Our valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors and all the requirements contained in the Chapter 5 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

Unless otherwise stated, all sums stated in our valuation certificates are in Hong Kong Dollars.

Our Summary of Values and the Valuation Certificates are enclosed herewith.

Yours faithfully, For and on behalf of

Norton Appraisals Limited

Nick C. L. Kung MRICS, MHKIS, RPS (G.P.)

Director

Note: Mr. Nick C. L. Kung is a Registered Professional Surveyor who has more than 16 years’ experience in valuation of properties in Hong Kong.

– 445 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

SUMMARY OF VALUES

			Interest	Capital value
		Capital value	attributable to	attributable to
		**in its existing **	the Chi Cheung	the Chi Cheung
		state as at	Group in	Group as at
	Property	31 July 2007	percentage	31 July 2007
		HK$		HK$
Group I – Property interests held for investment by the Chi Cheung Group
	in Hong Kong
1.	Shops 14 and 16 on Ground Floor	$51,000,000	50%	$25,500,000
	and Cinema (including all that
	portion of the flat roof over
	the Cinema and all those
	the external walls above
	the canopy level of
	the Cinema portion and
	all those external walls beneath
	the canopy level of the Cinema
	portion not being the external
	walls of any shop or transformer
	room of the building and
	all those three water tanks),
	Tuen Mun Centre,
	Nos. 2-8 Wo Ping Path,
	Nos. 7-35 Yan Ching Street,
	Tuen Mun, New Territories,
	Hong Kong
2.	Various Portions of	$1,320,000,000	331/3%	$440,000,000
	No. 1 Hung To Road,
	Kwun Tong,
	Kowloon, Hong Kong

– 446 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

			Interest	Capital value
		Capital value	attributable to	attributable to
		**in its existing **	the Chi Cheung	the Chi Cheung
		state as at	Group in	Group as at
	Property	31 July 2007	percentage	31 July 2007
		HK$		HK$
3.	Unit C (including the storeroom	$35,800,000	100%	$35,800,000
	thereof) on 13th Floor and
	the Roof together with
	50 Car Parking Spaces on 1st,
	2nd and lower part of 3rd Floors,
	Gemstar Tower,
	No. 23 Man Lok Street,
	Hung Hom, Kowloon, Hong Kong
4.	Unit 301 on 3rd Floor,	$3,250,000	100%	$3,250,000
	Sim City of Chung Kiu Commercial
	Building, Nos. 47-51 Shantung Street,
	Mong Kok, Kowloon, Hong Kong
5.	The whole of 3rd Floor and the	$136,000,000	50%	$68,000,000
	adjacent Flat Roof and the whole of
	8th Floor, Inter-Continental Plaza
	(formerly known as Asean Plaza),
	No. 94 Granville Road,
	Tsim Sha Tsui, Kowloon, Hong Kong
6.	The whole of the 3rd Floor	$950,000	51%	$484,500
	of Unit B, No. 1 South Lane,
	Western District, Hong Kong
7.	9/24 parts or shares of	$11,000,000	100%	$11,000,000
	and in Lot Nos. 2, 4, 7, 8 and 9 in
	Demarcation District No. 464, So Shi Tau,
	Clear Water Bay, New Territories,
	Hong Kong

– 447 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

			Interest	Capital	value
		Capital value	attributable to	attributable to
		**in its existing **	the Chi Cheung	the Chi Cheung
		state as at	Group in	Group	as at
	Property	31 July 2007	percentage	31 July	2007
		HK$			HK$
8.	The Remaining Portion of	$3,200,000	100%	$3,200,000
	Lot No. 453 in Demarcation District
	No. 401, Po Lam Road, Ma Yau Tong,
	Sai Kung, New Territories, Hong Kong
	Sub-total:	$1,561,200,000		$587,234,500
Group II – Property interest held for owner occupation			by the Chi Cheung Group
	in Hong Kong
9.	Unit 5 on 10th Floor, Hing Wai Centre,	$1,020,000	100%	$1,020,000
	No. 7 Tin Wan Praya Road,
	Aberdeen, Hong Kong
	Sub-total:	$1,020,000		$1,020,000
Group III – Property interests held for sale by the Chi Cheung Group in				Hong Kong
10.	Units C to G on 16th Floor	$35,600,000	100%	$35,600,000
	(including the storeroom thereof),
	Gemstar Tower,
	No. 23 Man Lok Street,
	Hung Hom, Kowloon,
	Hong Kong
11.	The whole of 17th Floor	$118,600,000	100%	$118,600,000
	(including the roof terrace thereof)
	and 18th Floor, Gemstar Tower,
	No. 23 Man Lok Street,
	Hung Hom, Kowloon, Hong Kong
	Sub-total:	$154,200,000		$154,200,000

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APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

Interest Capital value Capital value attributable to attributable to in its existing the Chi Cheung the Chi Cheung state as at Group in Group as at Property 31 July 2007 percentage 31 July 2007 HK$ HK$

– Group IV Property interest held for future development by the Chi Cheung Group in Hong Kong 12. No. 34 Hill Road, Western District, $33,300,000 51% $16,983,000 Hong Kong Sub-total : $33,300,000 $16,983,000 – Group V Property interest contracted to be sold by the Chi Cheung Group in Hong Kong 13. Units A and B on 16th Floor, $15,000,000 100% $15,000,000 Gemstar Tower, No. 23 Man Lok Street, Hung Hom, Kowloon, Hong Kong Sub-total : $15,000,000 $15,000,000 GRAND TOTAL: $1,764,720,000 $774,437,500

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APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

VALUATION CERTIFICATE

– Group I Property interests held for investment by the Chi Cheung Group in Hong Kong

Property Description and tenure

Particulars of

occupancy

Capital value in its existing state at 31 July 2007

1. Shops 14 and 16 on Ground Floor and Cinema (including all that portion of the flat roof over the Cinema and all those the external walls above the canopy level of the Cinema portion and all those external walls beneath the canopy level of the Cinema portion not being the external walls of any shop or transformer room of the building and all those three water tanks), Tuen Mun Centre, Nos. 2-8 Wo Ping Path, Nos. 7-35 Yan Ching Street, Tuen Mun, New Territories, Hong Kong

125/951st equal and undivided shares of and in Castle Peak Town Lot No. 57 (the “Lot”)

Tuen Mun Centre comprises two 12-storey residential buildings erected over a 4-level commercial/cinema podium completed in 1977.

The property comprises two retail shop units and the two foyers of cinema on the Ground Floor, the whole of cinema portions on 1st, 2nd and 3rd Floors with a total gross floor area of approximately 1,862.51 sq.m. (20,048 sq.ft.). The flat roof on 4th Floor has an area of approximately 608.51 sq.m. (6,550 sq.ft.).

Details breakdown of the gross floor areas are as follows:

Shop No. 14 on G/F Shop No. 16 on G/F Cinema Portion on G/F Cinema Portion of 1/F Cinema Portion of 2/F Cinema Portion Between 2/F-3/F Cinema Portion of 3/F Total *:	Approximate Gross Floor Area (sq.ft.) (sq.m.) 792 73.58 247 22.95 6,322 587.33 6,322 587.33 2,181 202.62 686 324.97 3,498 63.73 20,048 1,862.51	Approximate Gross Floor Area (sq.ft.) (sq.m.) 792 73.58 247 22.95 6,322 587.33 6,322 587.33 2,181 202.62 686 324.97 3,498 63.73 20,048 1,862.51
		1,862.51

Part of the Ground Floor $51,000,000 of the cinema portion is (50% interest subject to a licence attributable to yielding a monthly licence fee of $90,000 (inclusive the Chi Cheung of rates, government rents Group: $25,500,000) and management fee) whilst the remaining portion of the cinema is vacant.

Shop Nos. 14 and 16 on Ground Floor are subject to two separate licences, yielding monthly licence fees of $43,000 (inclusive of rates and government rents) and $22,000 (exclusive of rates, government rents and management fee) respectively.

* (excluding the flat roof on 4/F)

The Lot is held under New Grant No.1838 for a term of 99 years less the last three days thereof commencing from 1 July 1898, which is statutorily extended to 30 June 2047.

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APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

Notes:

• i) The registered owner of the property is Earn Elite Development Limited, which is an associate of the Chi Cheung Group, vide an Assignment Memorial No. TM826206 dated 31 October 1997 and two Assignments Memorial Nos. TM827083 and TM827786 both dated 19 November 1997.

• ii) The cinema portion of the property is subject to an Order No. DR00210/NT/04 under Section 28(3) of Buildings Ordinance vide Memorial No. TM1120223 dated 25 November 2004.

– 451 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

Property

Description and tenure

Particulars of

occupancy

Capital value in its existing state at 31 July 2007

1. Various Portions of No. 1 Hung To Road (the No. 1 Hung To Road, “Building”) is a 33-storey Kwun Tong, industrial building with ancillary Kowloon, Hong Kong car parking, loading and unloading areas completed in 575,345/800,000th 1994. equal and undivided shares of and in The property comprises 399 Kwun Tong Inland workshop units on various Lot No. 415 (the floors, 3 container parking “Lot”) spaces, 36 lorry parking spaces and 38 private car parking spaces of the Building.

Except with a total gross $1,320,000,000 floor area of 17,774.06 sq.m. (191,320 sq.ft.) (33[1] /3% interest which is vacant, the attributable to property is let under the Chi Cheung various tenancies and Group: licences yielding a total $440,000,000) monthly income of about $4.12 million (exclusive of rates and service charges).

The total gross floor area (excluding the car parking spaces) of the property is approximately 50,264.59 sq.m. (541,048 sq.ft.).

The Lot is held under Conditions of Sale No. 7697 for a term of 21 years commencing from 1 July 1962 (less the last 3 days thereof), renewable for a further term of 14 years, which is statutorily extended to 30 June 2047.

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APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

Notes:

• i) The property comprises the whole of the Ground Floor (comprising Factory Units 1-3, 3A, 5-8) and 2nd Floor (comprising Factory Units 1-3, 5 & 6), Factory Units 2, 3, 6, 7, 8, 9, 10, 12, 13, 15, 16, 17, 18, 19, 20, 21 and Store Room Unit 23 on 6th Floor, the whole of the 7th Floor (comprising Factory Units 1-3, 5-13, 15-22 and Store Room Unit 23), Factory Units 1, 2, 3, 6, 7, 8, 9, 10, 12, 13, 15, 16, 17, 18, 19, 20, 21, 22 and Store Room Unit 23 on 8th Floor, Store Room Unit 23 on 10th Floor, the whole of 11th Floor (comprising Factory Units 1-3, 5-13, 15-22 and Store Room Unit 23), 12th Floor (comprising Factory Units 1-3, 5-13, 15-22 and Store Room Unit 23), 15th Floor (comprising Factory Units 1-3, 5-13, 15-22 and Store Room Unit 23), 16th Floor (comprising Factory Units 1-3, 5-13, 15-22 and Store Room Unit 23), 17th Floor (comprising Factory Units 1-3, 5-13, 15-22 and Store Room Unit 23), 18th Floor (comprising Factory Units 1-3, 5-13, 15-22 and Store Room Unit 23), Units 3, 5, 6, 7, 8, 9, 10, 11, 17, 18, 19, 22 and Store Room Unit 23 on 20th Floor, Units 11, 12, 13, 16, 17, 18 and 23 on 21st Floor, the whole of 23rd Floor (comprising Factory Units 1-3, 5-13, 1522) and 25th Floor (comprising Factory Units 1-3, 5-13, 15-22), Factory Units 3, 5, 6, 7, 8, 9, 12, 13, 15, 16, 17, 18, 19, 20, 21 and 22 on 26th Floor, the whole of 28th Floor (comprising Factory Units 1-3, 5-13, 15-22), 29th Floor (comprising Factory Units 1-3, 5-13, 15-22), 30th Floor (comprising Factory Units 1-3, 5-13, 1522), 32nd Floor (comprising Factory Units 1-3, 5-13, 15-22), 33rd Floor (comprising Factory Units 1-3, 5-13, 15-22), Factory Units 12, 13, 15, 16, 17, 18, 19, 20, 21 and 22 on 35th Floor, Factory Units 1, 3, 5, 6, 7, 8, 9, 11, 12, 15, 16, 17, 18, 19, 20 and 22 on 36th Floor, and all the 77 parking spaces (comprising Car Parking Spaces C1-C3 on Ground Floor, Car Parking Spaces L1-L36 on 1st Floor, Car Parking Spaces CP1-CP38 on 3rd Floor), Roof, retained area and common area of the Building.

• ii) The registered owner of the property is Finedale Industries Limited, which is an associate of the Chi Cheung Group, vide an Assignment Memorial No. UB3956667 dated 30 December 1988.

– 453 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

				Capital value in
			Particulars of	its existing state at
	Property	Description and tenure	occupancy	31 July 2007
3.	Unit C (including the	Gemstar Tower (the “Building”)	Unit C on 13th Floor is	$35,800,000
	storeroom thereof) on	is a 20-storey godown with	subject to a tenancy at a
	13th Floor and the	godown/car parking spaces on	monthly rental of $33,950	(100% interest
	Roof together with	the Ground Floor, car parking	(exclusive of rates and	attributable to
	50 Car Parking	spaces with loading/unloading	service charges)	the Chi Cheung
	Spaces on 1st, 2nd	areas on the 1st and 2nd Floors	commenced from 23	Group:
	and lower part of 3rd	and godown on upper floors	October 2006 to 22	$35,800,000)
	Floors, Gemstar	completed in 1992 whereas the	October 2008. 21 out of
	Tower, No. 23 Man	extension for 17th and 18th	50 Car Parking Spaces are
	Lok Street, Hung	floors of the Building were	subject to various
	Hom, Kowloon, Hong	completed in 2006.	tenancies/licences
	Kong		yielding a total monthly
		The property comprises a	income of $91,700.
	17,864/691,680th	godown unit (including the store
	equal and undivided	room thereof) on 13th Floor and
	shares of and in	the Roof together with a total of
	Hung Hom Inland	50 car parking spaces including
	Lot No. 545 (the	2 container car parking spaces,
	“Lot”)	22 lorry parking spaces and 26
		private car parking spaces
		located on 1st Floor, 2nd Floor
		and lower part of 3rd Floor of
		the Building.
		The total gross floor area of the
		property (excluding the car
		parking spaces and the Roof) is
		approximately 450.58 sq.m.
		(4,850 sq.ft.).
		The Lot is held under Conditions
		of Sale No. 12089 for a term
		commencing from 23 January
		1990 and expiring on 30 June
		2047.

Notes:

• i) The registered owner of the property is View Success Investments Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, held under Conditions of Sale No. 12089 of the Lot.

• ii) 50 car parking spaces comprises Car Parking Space Nos. P3 to P8 on 2nd Floor and P9 to P28 on Lower Part of 3rd Floor; Lorry Parking Space Nos. L3 to L6 and L9 to L18 on 1st Floor and L19 to L24 and L27 to L28 on 2nd Floor; and Container Parking Space Nos. C1 and C2 on 1st Floor of the Building.

– 454 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

				Capital value in
			Particulars of	its existing state at
	Property	Description and tenure	occupancy	31 July 2007
4.	Unit 301 on 3rd	The property comprises an	The property is currently	$3,250,000
	Floor, Sim City of	arcade shop on the 3rd Floor of	vacant.
	Chung Kiu	a 4-storey commercial podium		(100% interest
	Commercial	where an 18-storey office tower		attributable to
	Building, Nos. 47-51	erected upon (excluding		the Chi Cheung
	Shantung Street,	basement Floor and plant/		Group:
	Mong Kok, Kowloon,	mechanical Floor). The building		$3,250,000)
	Hong Kong	was completed in or about 1977.
	20,976/520,667th of	The property has a gross floor
	21/400th equal and	area of approximately 42.09
	undivided shares and	sq.m. (453 sq.ft.) and a saleable
	in of Kowloon Inland	area of approximately 21.0 sq.m.
	Lot No. 10253 (the	(226 sq.ft.).
	“Lot”)
		The Lot is held under Conditions
		of Regrant No. 10669 for a term
		of 150 years commencing from
		27 June 1910.

Note:

The registered owner of the property is First Castle Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, vide an Assignment Memorial No. UB7526985 dated 22 June 1998.

– 455 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

Capital value in Particulars of its existing state at Property Description and tenure occupancy 31 July 2007 5. The whole of 3rd Inter-Continental Plaza is a 15With the exception of the $136,000,000 Floor and the storey (including two basement adjacent flat roof on the adjacent Flat Roof levels) commercial building 3rd Floor which is vacant, (50% interest and the whole of 8th completed in 1982. the property is let under attributable to Floor, Intervarious tenancies for the Chi Cheung Continental Plaza The property comprises two terms of two years with Group: (formerly known as office floors and flat roof of the the latest one expiring on $68,000,000) Asean Plaza), No. 94 building. The total gross floor 8 March 2009, yielding a Granville Road, Tsim area and saleable area of the two total monthly rental Sha Tsui, Kowloon, office floors are approximately income of $350,794 Hong Kong 2,062.80 sq.m. (22,204 sq.ft.) (exclusive of rates and and 1,784.28 sq.m. (19,206 management fee). 321/3,000th equal sq.ft.) respectively. The flat roof and undivided shares on the 3rd Floor has an area of of and in Kowloon approximately 174.28 sq.m. Inland Lot No. 10603 (1,876 sq.ft.). (the “Lot”) The Lot is held under Conditions of Sale No. 11258 for a term of 75 years commencing from 30 October 1978 renewable for a further term of 75 years.

Note:

The registered owner of the property is Healthy Point Limited, which is an associate of the Chi Cheung Group, vide an Assignment Memorial No.UB3741408 dated 25 May 1988.

– 456 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

				Capital value in
			Particulars of	its existing state at
	Property	Description and tenure	occupancy	31 July 2007
6.	The whole of the	The property comprises a	The property is currently	$950,000
	3rd Floor of Unit B,	domestic unit in a 7-storey	vacant.
	No. 1 South Lane,	building which was completed in		(51% interest
	Western District,	about 1958.		attributable to
	Hong Kong			the Chi Cheung
		The ground floor of the building		Group:
	1/13th equal and	is designated for retail uses		$484,500)
	undivided share of	whilst the upper floors are
	and in Section A of	designated for domestic uses.
	Sub-section 1 of
	Section C and Sub-	The saleable area of the property
	section 2 of Section	is approximately 49.05 sq.m.
	C of Inland Lot No.	(528 sq.ft.).
	1300 (the “Lot”)
		The Lot is held under a
		Government Lease for a term of
		999 years commencing from 25
		December 1891.

Notes:

• i) The registered owner of the property is Lucky Guide International Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, vide Memorial No. UB6247104 dated 28 February 1995.

• ii) The property is subject to Sealed Copy Order in favour of Sik Tak Sheung, Ho Sim, Lam Shiu Chien, Suing as Trustees or Managers of Kwong Sin Tong (the “Plaintiffs”) and Sik Miu Wai (the “Defendant”) vide Memorial No. UB6237845 dated 3 August 1993. (Remarks: In H.C.M.P. No. 2797 of 1993).

– 457 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

				Capital value in
			Particulars of	its existing state at
	Property	Description and tenure	occupancy	31 July 2007
7.	9/24 parts or shares	The property comprises five	The property is currently	$11,000,000
	of and in Lot Nos. 2,	contiguous agricultural lots of	vacant.
	4, 7, 8 and 9 in	irregular shape located in Sai		(100% interest
	Demarcation District	Kung District of New Territories.		attributable to
	No. 464, So Shi Tau,	The total registered site area is		the Chi Cheung
	Clear Water Bay,	approximately 34,458.57 sq.m.		Group:
	New Territories,	(370,912 sq.ft.).		$11,000,000)
	Hong Kong
		Lot Nos. 2, 4, 7 and 8 in
		Demarcation District No. 464
		are commonly held under a
		Government Lease for a term of
		75 years commencing from 1
		July 1898 with a right to renew
		for a further term of 24 years
		less the last 3 days thereof
		whilst Lot No. 9 in Demarcation
		District No. 464 is held under
		New Grant No. 2609 for a term
		of 99 years, all are statutorily
		extended to 30 June 2047.
		The total annual Government
		Rent for the property is $13.98.

Notes:

• i) The registered owner of the property is Country Homes Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, (4/12 and 1/24) vide two Memorial Nos. SK78320 and SK78321 both dated 30 November 1964, three Memorial Nos. SK78481, SK86150 and SK86215 dated 4 January 1965, 2 May 1973 and 8 May 1973 respectively.

• ii) The property falls within an area zoned as “Conservation Area” under Clear Water Bay Peninsula South Outline Zoning Plan No. S/SK-CWBS/2 approved on 30 May 2006.

• iii) As advised by the Chi Cheung Group, the title to the property cannot be provided as at the date of our valuation since some title deeds necessary to provide the title are not produced.

– 458 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

• Capital value in

• Particulars of its existing state at

• Property Description and tenure occupancy 31 July 2007

• 1. The Remaining The property comprises an The property is currently $3,200,000 Portion of Lot No. agricultural lot of irregular shape vacant. 453 in Demarcation located in Sai Kung District of (100% interest District No. 401, Po the New Territories. The attributable to Lam Road, Ma Yau registered site area of the the Chi Cheung Tong, Sai Kung, New property is approximately Group: Territories, Hong 2,292.4 sq.m. (24,675 sq.ft.). $3,200,000) Kong Lot No. 453 in Demarcation District No. 401 is held under a Government Lease for a term of 75 years commencing from 1 July 1898 renewable for 24 years less the last three days thereof which is statutorily extended to 30 June 2047.

The annual Government Rent for the property is $1.48.

Notes:

• i) The registered owner of the property is Country Honour Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, vide Memorial No. SK153780 dated 19 February 1990.

• ii) The property is subject to a Waiver Letter vide Memorial No. SK190803 dated 2 January 1992.

• iii) The property falls within an area zoned as “Green Belt” under Tseung Kwan O Outline Zoning Plan No. S/TKO/15 approved on 2 November 2004.

– 459 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

• Group II Property interest held for owner occupation by the Chi Cheung Group in Hong Kong

Property Description and tenure 9. Unit 5 on 10th Floor, The property comprises a Hing Wai Centre, workshop unit on the 10th Floor No. 7 Tin Wan Praya of a 35-storey (plus one Road, Aberdeen, basement and one refuge floor) Hong Kong industrial building. The building was completed in 1990. 109/102,588th equal and undivided shares The gross floor area of the of and in Aberdeen property is approximately 123.10 Inland Lot No. 414 sq.m. (1,325 sq.ft.). (the “Lot”) The Lot is held under Conditions of Exchange No. 12040 commencing from 21 January 1989 until 30 June 2047.

Capital value in Particulars of its existing state at occupancy 31 July 2007 The property is currently $1,020,000 occupied by the Chi Cheung Group for storage (100% interest purpose. attributable to the Chi Cheung Group: $1,020,000)

Note:

The registered owner of the property is Moregift Investments Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, vide Memorial No. UB6078874 dated 30 June 1994.

– 460 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

– Group III Property Interest held for sale by the Chi Cheung Group in Hong Kong

				Capital value in
			Particulars of	its existing state at
	Property	Description and tenure	occupancy	31 July 2007
10.	Units C to G on 16th	Gemstar Tower (the “Building”)	The property is currently	$35,600,000
	Floor (including the	is a 20-storey godown with	vacant.
	storeroom thereof),	godown/car parking spaces on		(100% interest
	Gemstar Tower,	the Ground Floor, car parking		attributable to
	No. 23 Man Lok	spaces with loading/unloading		the Chi Cheung
	Street, Hung Hom,	areas on the 1st and 2nd Floors		Group:
	Kowloon, Hong Kong	and godown on upper floors		$35,600,000)
		completed in 1992 whereas the
	30,340/691,680th	extension for 17th and 18th
	equal and undivided	floors of the Building were
	shares of and in	completed in 2006.
	Hung Hom Inland
	Lot No. 545 (the	The property comprises 5
	“Lot”)	industrial units on 16th Floor
		together with the storeroom
		thereof of the Building with a
		total gross floor area of
		approximately 2,338.35 sq.m.
		(25,170 sq.ft.).
		The Lot is held under Conditions
		of Sale No. 12089 for a term
		commencing from 23 January
		1990 and expiring on 30 June
		2047.

Note:

The registered owner of the property is View Success Investments Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, held under Conditions of Sale No. 12089 of the Lot.

– 461 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

Capital value in Particulars of its existing state at Property Description and tenure occupancy 31 July 2007 11. The whole of 17th Gemstar Tower (the “Building”) The property is currently $118,600,000 Floor (including the is a 20-storey godown with vacant. (100% interest roof terrace thereof) godown/car parking spaces on attributable to and 18th Floor, the Ground Floor, car parking Gemstar Tower, spaces with loading/unloading the Chi Cheung No. 23 Man Lok areas on the 1st and 2nd Floors Group: $118,600,000) Street, Hung Hom, and godown on upper floors Kowloon, Hong Kong completed in 1992 whereas the extension for 17th and 18th 138,318/691,680th floors of the Building were equal and undivided completed in 2006. shares of and in Hung Hom Inland The property comprises the Lot No. 545 (the whole of 17th and 18th Floors of “Lot”) the Building accommodating seven industrial units (Units A to G) on each floor with the total gross floor area of approximately 6,155.15 sq.m. (66,254 sq.ft.) and the roof terrace of 17th Floor of the Building with a floor area of approximately 745.63 sq.m. (8,026 sq.ft.). The Lot is held under Conditions of Sale No. 12089 for a term commencing from 23 January 1990 and expiring on 30 June 2047.

Notes:

• i) The registered owner of the property is View Success Investments Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, held under Conditions of sale No. 12089 of the Lot.

• ii) We have been provided with the Occupation Permit of the Property (Permit No. KN17/2006(OP)) by the Chi Cheung Group and as advised, the said Occupation Permit is pending for registration.

• iii) As advised by the Chi Cheung Group, Unit G on 17th Floor and Units E, F and G on 18th Floor were subject to four Preliminary Agreements for Sale and Purchase with a total consideration of $33,665,400 as follows:

Unit Date of Preliminary Agreement for Sale and Purchase G on 17/F 2 October 2007 E on 18/F 3 September 2007 F on 18/F 18 September 2007 G on 18/F 2 October 2007 Total:	Consideration $6,946,500 $15,600,000 $4,172,400 $6,946,500
	$33,665,400

– 462 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

• Group IV Property interest held for future development by the Chi Cheung Group in Hong Kong

				Capital value in
			Particulars of	its existing state at
	Property	Description and tenure	occupancy	31 July 2007
12.	No. 34 Hill Road,	The property comprises two	As at the date of	$33,300,000
	Western District,	contiguous parcels of land and	inspection, the building	(note (iv))
	Hong Kong	having a total registered site area	erected thereon the
		of approximately 199.37 sq.m.	property was vacant.	(51% interest
	The Remaining	(2,146 sq.ft.).		attributable to
	Portion of Section C			the Chi Cheung
	of Inland Lot No.	Currently erected on the		Group:
	1300 and the	property comprises a 7-storey		$16,983,000)
	Remaining Portion of	tenement building completed in
	Sub-section 1 of	about 1958.
	Section C of Inland
	Lot No. 1300 (the	The Lot is held under a
	“Lot”)	Government Lease for a term of
		999 years commencing from 25
		December 1891.
		The annual Government Rent
		payable for the Lot is $20.

Notes:

• i) The registered owner of the property is Konshing Enterprises Limited, which is a subsidiary of the Chi Cheung Group, vide Memorial No. UB4968280 dated 9 August 1991.

• ii) The property is subject to a Mutual Grant of Right of Way Re ss.2 & the R.P. vide Memorial No. UB276781 dated 19 May 1958.

• iii) The Remaining Portion of Section C of Inland Lot No. 1300 is subject to the following encumbrances:

• (A) a Debenture Incorporating a Building Mortgage & Floating Charge in favour of The Bank of China (Hong Kong) Limited (formerly known as The Kwangtung Provincial Bank) for a consideration of $36,000,000 vide Memorial No. UB7277737 dated 28 August 1997; and

• (B) a Deed of Assignment of Debenture Memorial No. UB7277737 in favour of Proxy Investment Limited “The Assignee” vide Memorial No. UB9118980 dated 3 January 2004.

• iv) In the course of our valuation, we have considered its redevelopment potential with the benefit of immediate vacant possession.

– 463 –

APPENDIX XII PROPERTY VALUATION OF THE CHI CHEUNG PROPERTIES

– Group V Property interests contracted to be sold by the Chi Cheung Group in Hong Kong

				Capital value in
			Particulars of	its existing state at
	Property	Description and tenure	occupancy	31 July 2007
13.	Units A and B on	Gemstar Tower (the “Building”)	As at the date of	$15,000,000
	16th Floor, Gemstar	is a 20-storey godown with	valuation, the property is
	Tower, No. 23 Man	godown/car parking spaces on	vacant.	(100% interest
	Lok Street, Hung	the Ground Floor, car parking		attributable to
	Hom, Kowloon, Hong	spaces with loading/unloading		the Chi Cheung
	Kong	areas on the 1st and 2nd Floors		Group:
		and godown on upper floors		$15,000,000)
	9,686/691,680th	completed in 1992 whereas the
	equal and undivided	extension for 17th and 18th
	shares of and in	floors of the Building were
	Hung Hom Inland	completed in 2006.
	Lot No. 545 (the
	“Lot”)	The property comprises 2
		industrial units on 16th Floor of
		the Building with a total gross
		floor area of approximately
		985.04 sq.m. (10,603 sq.ft.).
		The Lot is held under Conditions
		of Sale No. 12089 for a term
		commencing from 23 January
		1990 and expiring on 30 June
		2047.

Notes:

• i) The registered owner of the property is View Success Investments Limited, which is a wholly-owned subsidiary of the Chi Cheung Group, held under Conditions of Sale No. 12089 of the Lot.

• ii) The property is subject to Agreement for Sale and Purchase in favour of Brightex Industries Limited with a consideration of $21,206,000.00 vide Memorial No. 07081502060055 dated 27 July 2007 under Deeds Pending Registration. As advised by the Chi Cheung Group, the property was sold on 31 August 2007.

– 464 –

NOTICE OF EGM OF CHI CHEUNG

==> picture [87 x 49] intentionally omitted <==

CHI CHEUNG INVESTMENT COMPANY, LIMITED 至祥置業有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 112)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ Meeting ”) of the shareholders of Chi Cheung Investment Company, Limited (the “ Company ”) will be held at Salon I and II, Mezzanine Floor, Grand Hyatt Hong Kong, One Harbour Road, Hong Kong on Wednesday, 28 November 2007 at 10:00 a.m. for the purpose of considering and, if thought fit, passing (with or without modifications) the resolution numbered 1 as an ordinary resolution and resolution numbered 2 as a special resolution of the Company:

ORDINARY RESOLUTION

1. “ THAT

• (a) the conditional sale and purchase agreement dated 11 September 2007 (the “ Agreement ”) between Chinese Estates Holdings Limited (“ Chinese Estates ”), Victory Gain Holdings Limited (the “ CE Subsidiary ”), Shing Ping Development Ltd. (the “ CC Purchaser ”) and the Company, a copy of which has been signed by the chairman of the Meeting and for the purpose of identification marked “A”, pursuant to which, inter alia, (i) the Company agrees to sell or procure the sale of, and the CE Subsidiary agrees to purchase or procure the purchase of, the CC Sale Shares (as defined in the Agreement) together with the CC Sale Loan and the Permitted Additional CC Sale Loan (each as defined in the Agreement); (ii) Chinese Estates agrees to procure the sale of, and the CC Purchaser agrees to purchase or procure the purchase of, the CE Sale Shares (as defined in the Agreement) together with the CE Sale Loan and the Permitted Additional CE Sale Loan (each as defined in the Agreement); (iii) the CE Subsidiary agrees to assume the CE Assumed Debt (as defined in the Agreement); and (iv) the CC Purchaser agrees to assume the CC Assumed Debt (as defined in the Agreement), in each case, on terms and conditions as set out in the Agreement (collectively the “ Asset Transaction ”), be and is hereby generally and unconditionally approved;

• (b) the issue and allotment of the Consideration Shares (as defined in the Agreement) by the Company to Chinese Estates and/or its nominee(s) pursuant to the terms of the Agreement be and is hereby approved;

– 465 –

NOTICE OF EGM OF CHI CHEUNG

• (c) the issue of the Consideration Bonds (as defined in the Agreement) by the Company to Chinese Estates and/or its nominee(s) pursuant to the terms of the Agreement be and is hereby approved;

• (d) the directors of the Company be and are hereby authorized to issue and allot shares of the Company upon the exercise of the conversion rights attaching to and in accordance with the terms and conditions of the Consideration Bonds; and

• (e) the authority to the directors of the Company to do all such further acts and things and execute such further documents and take all such steps which in their opinion may be necessary, desirable or expedient to implement and/or give effect to the terms of the Agreement be and is hereby approved.”

SPECIAL RESOLUTION

1. “ THAT conditional upon completion of the Asset Transaction, the name of the Company be changed from ‘Chi Cheung Investment Company, Limited（至祥置業有 限公司）’ to ‘Evergo China Holdings Limited（愛美高中國控股有限公司）’.”

By order of the board

Chi Cheung Investment Company, Limited Lam, Kwong-wai Company Secretary

Hong Kong, 31 October 2007

Registered office:

26th Floor, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

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NOTICE OF EGM OF CHI CHEUNG

Notes:

1. The register of members of the Company will be closed from 26 November 2007 to 28 November 2007, both days inclusive. For the purpose of ascertaining the members’ entitlement to the attendance of the Meeting, all share transfers accompanied by the relevant share certificates must be lodged with the Company’s registrar and transfer office, Tricor Secretaries Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong not later than 4:30 p.m. on 23 November 2007.

2. Any shareholder entitled to attend and vote at the Meeting is entitled to appoint one or more separate proxies to attend and vote instead of him. A proxy need not be a member of the Company.

3. To be valid, a form of proxy in the prescribed form together with the power of attorney or other authority (if any) under which it is signed (or a notarially certified copy thereof) must be deposited at the Company’s registrar and transfer office, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, not less than 48 hours before the time for holding the Meeting (or at any adjournment thereof). Completion and return of the form of proxy shall not preclude members from attending and voting in person at the Meeting or at any adjourned meeting (as the case may be) should they so wish.

4. Where there are joint registered holders of any share, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders are present at the Meeting personally or by proxy, the joint member whose name stands first on the register of members of the Company in respect of such share, or his proxy, shall be alone entitled to vote and will be accepted to the exclusion of other joint registered holders in respect thereof.

5. As the above ordinary resolution is subject to independent shareholders’ approval, the votes of shareholders to be taken at the Meeting to approve such ordinary resolution shall be taken on a poll.

6. As at the date hereof, the executive directors of the Company are Mr. Matthew Cheong, Veng-va and Ms. Teresa Poon, Mun-chie and the independent non-executive directors of the Company are Mr. Lai, Yun-hung, Mr. Mok, Hon-sang and Mr. Wong, Tik-tung.

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