RemeGen Co., Ltd. — Proxy Solicitation & Information Statement 2007

Jul 30, 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Huali Holdings (Group) Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

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HUALI HOLDINGS (GROUP) LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 3366)

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF DISPOSAL OF PROPERTIES CONTINUING CONNECTED TRANSACTION IN RESPECT OF LEASEBACK OF PROPERTIES

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

Hantec Capital Limited

A letter from the Board is set out on pages 4 to 11 of the circular. A letter from the Independent Board Committee is set out on pages 12 of this circular and a letter from the Independent Financial Adviser is set out on pages 13 to 18.

A notice convening an extraordinary general meeting of the Company to be held on 14 August 2007 (Tuesday) at 11:00 a.m. at Suite 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong is set out on pages 28 to 29 of this circular. Whether or not you are able to attend the extraordinary general meeting, you are requested to complete and return the enclosed proxy form in accordance with the instructions printed thereon to the Company’s principal place of business at Suite 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the extraordinary general meeting. Completion and return of the proxy form will not preclude you from attending and voting in person at the extraordinary general meeting, or any adjournment thereof, should you so wish.

30 July 2007

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . .	12
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . .	13
APPENDIX I – VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
APPENDIX II – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . . .	28

– i –

DEFINITIONS

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

“Board”	the board of Directors
“Company”	Huali Holdings (Group) Limited, a company incorporated
	in the Cayman Islands with limited liability, the Shares of
	which are listed on the Stock Exchange
“connected person”	has the meaning ascribed to it in the Listing Rules
“Directors”	the directors of the Company
“Disposal”	the disposal of the Properties by the Company pursuant to
	the S&P Agreement
“EGM”	the extraordinary general meeting of the Company to be
	convened to consider and, if thought fit, approve the
	Disposal and the Leaseback
“Group”	the Company and its subsidiaries
“Hantec” or “Independent	Hantec Capital Limited, the independent financial
Financial Adviser”	adviser to the Independent Board Committee and the
	Independent Shareholders in relation to the Disposal and
	Leaseback
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Board Committee”	an independent board committee of the Board comprising
	the independent non-executive Directors, namely Ms.
	Wong Wai Ling, Mr. Chen Xiangdong and Mr. Xiao
	Yongping
“Independent Shareholder(s)”	Shareholders other than Pacific Climax Limited and its
	associates
“Land”	a piece of land located at Huaqiaocheng, Nanshan
	District, Shenzhen, the PRC, with a total site area of
	12,404.82 sq.m.

– 1 –

DEFINITIONS

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

||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|“Latest|Practicable|Date”|27 July 2007, being the latest practicable date prior to the|
|printing|of|this|circular|for|ascertaining|certain|
|information|contained|in|this|circular|
|“Leaseback”|the|tenancy|contemplated|under|the|Tenancy|Agreement|
|“Listing|Rules”|the|Rules|Governing|the|Listing|of|Securities|on|the|
|Stock|Exchange|
|“OCT|Group”|Overseas|Chinese|Town|Group|Company|
|(|),|a|PRC|state-owned|company|
|incorporated|in|the|PRC|
|“PRC”|the|People’s|Republic|of|China,|for|the|purpose|of|this|
|circular,|excluding|Hong|Kong,|the|Macau|Special|
|Administrative|Region|of|the|PRC|and|the Taiwan|region|
|“Properties”|two|factory|buildings|with|an|aggregate|gross|floor|area|
|of|21,985.37|sq.m.|erected|on|the|Land|together|with|the|
|land|use|rights|of|the|Land|
|“Purchaser”|or|“OCT|Properties”|Overseas|Chinese|Town|Real|Estate|Company|Limited|
|(|),|a|connected|person|of|the|
|Company|within|the|meaning|of|the|Listing|Rules|
|“RMB”|Renminbi,|the|lawful|currency|of|the|PRC|
|“SFO”|The Securities and Futures Ordinance (Chapter 571 of the|
|Laws|of|Hong|Kong)|as|amended|or|supplemented|from|
|time|to|time|
|“Shareholder(s)”|holder(s)|of|shares|of|the|Company|
|“Shenzhen|Huali”|or|“Vendor”|(Shenzhen|Huali|Packing|&|
|Trading|Co.,|Ltd),|a|wholly|foreign|owned|enterprise|
|with|limited|liability|established|in|the|PRC|and|an|
|indirect|wholly-owned|subsidiary|of|the|Company|
|“Stock|Exchange”|The|Stock|Exchange|of|Hong|Kong|Limited|
|“S&P|Agreement”|a sale and purchase agreement dated 11 July 2007 entered|
|into|between|the|Vendor|and|the|Purchaser|

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DEFINITIONS

“Tenancy Agreement” the tenancy agreement dated 11 July 2007 and entered into between the Purchaser being the landlord and the Vendor being the tenant

“Valuer” Savills Valuation and Professional Services Limited, an independent property valuer “HK$” Hong Kong dollars, the lawful currency of the Hong Kong “sq.m.” square metres “%” per cent

If there is any inconsistency between the Chinese names of PRC entities, departments, facilities or titles mentioned in this circular and their English translations, the Chinese version shall prevail.

Unless otherwise specified in this circular, amounts denominated in RMB have been converted, for the purposes of illustration only, into Hong Kong dollars at HK$1.00 to RMB0.9744. The above exchange rate is for purposes of illustration only and does not constitute a representation that any amounts have been, could have been or may be converted at the above rates or at any other rates.

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LETTER FROM THE BOARD

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HUALI HOLDINGS (GROUP) LIMITED

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 3366)

Executive Directors: Mr. Zheng Fan (Chairman) Mr. Ni Zheng Mr. Liu Danlin Mr. Zhou Guangneng

Non-executive Director:

Registered Office: Clifton House 75 Fort Street PO Box 1350 GT George Town Grand Cayman Cayman Islands

Ms. Xie Mei

Head Office and

Independent non-executive Directors: Ms. Wong Wai Ling Mr. Chen Xiangdong Mr. Xiao Yongping

Principal Place of Business: Suite 3203-3204, Tower 6 The Gateway, Harbour City Canton Road Tsim Sha Tsui Kowloon, Hong Kong

30 July 2007

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF DISPOSAL OF PROPERTIES CONTINUING CONNECTED TRANSACTION IN RESPECT OF LEASEBACK OF PROPERTIES

INTRODUCTION

On 13 July 2007, the Board announced that the Vendor, an indirect wholly-owned subsidiary of the Company, entered into the S&P Agreement with the Purchaser, pursuant to which the Vendor conditionally agreed to sell the Properties to the Purchaser at an aggregate

– 4 –

LETTER FROM THE BOARD

consideration of RMB50,600,000 (equivalent to approximately HK$51,929,000). The Vendor and the Purchaser also entered into the Tenancy Agreement pursuant to which the Purchaser (as landlord) agrees to lease back the Properties to the Vendor (as tenant) at a monthly rental of approximately RMB263,824 (equivalent to approximately HK$270,755) for a fixed term up to 31 December 2009.

The Disposal constitutes a discloseable transaction for the Company under the Listing Rules. The Purchaser, OCT Properties, is a non-wholly owned subsidiary of OCT Group. OCT Group is the ultimate shareholder of 100% interest in OCT (HK) (OCT (HK) owns 100% equity interest in Pacific Climax Limited, which is the controlling shareholder of the Company). Thus, the Purchaser is a connected person of the Company within the meaning of the Listing Rules. Accordingly, the Disposal constitutes a connected transaction, and the Leaseback constitutes a continuing connected transaction for the Company under the Listing Rules. As the consideration of the Disposal is more than HK$10,000,000 and the applicable percentage ratios for the Disposal is more than 2.5%, the Disposal and the Leaseback are subject to the reporting, announcement and Independent Shareholders’ approval requirements under the Listing Rules.

The purpose of this circular is to provide you with further details, in relation to, among other things, (i) further details of the Disposal and the Leaseback; (ii) the advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Disposal and the Leaseback; (iii) the recommendation of the Independent Board Committee to the Independent Shareholders in relation to the Disposal and the Leaseback; and (iv) a notice convening the EGM and certain information as required by the Listing Rules.

THE S&P AGREEMENT

Date : 11 July 2007 Vendor : Shenzhen Huali, a wholly foreign owned enterprise with limited liability established in the PRC and an indirect wholly-owned subsidiary of the Company

• Purchaser : OCT Properties, a connected person of the Company within the meaning of the Listing Rules

Pursuant to the S&P Agreement, the Vendor has agreed to sell the Properties to the Purchaser subject to the terms and conditions thereof.

Information of the Properties

The Properties consisted of two factory buildings with a total gross floor area of 21,985.37 sq.m. are erected on the Land which is located at Huaqiaocheng, Nanshan District, Shenzhen, the PRC and have been issued with the real estate title certificate ( ). The Properties shall be used for industrial purpose. The land use right of the Land has been granted for a term of 50 years expiring on 25 October 2041.

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LETTER FROM THE BOARD

Consideration

The consideration for the Disposal is RMB50,600,000 (equivalent to approximately HK$51,929,000). The consideration was arrived at after arm’s length negotiations between the Vendor and the Purchaser with reference to the valuation of the Properties of RMB50,600,000 (equivalent to approximately HK$51,929,000) as at 30 April 2007 made by the Valuer.

Payment of Consideration

The consideration shall be paid in cash by the Purchaser in the following manner:

1. 50% of the consideration shall be paid to the Vendor within 7 days from the date the S&P Agreement takes effect;

2. the remaining 50% of the consideration shall be paid within 7 days after completion of the procedures for the transfer of the Properties.

Conditions

The S&P Agreement shall take effect from the date of approval of the Disposal by the Independent Shareholders at the EGM.

The parties shall proceed with the procedures for registering the Disposal with the relevant PRC authorities. The registration procedures for the Disposal will complete when the real estate title certificate concerning the Properties is issued in the name of the Purchaser.

Financial Effect of the Disposal

With reference to the audited account of the Group for the year ended 31 December 2006, the net book value of the Properties were approximately RMB13.9 million as at 31 December 2006. It is estimated that the Disposal will result in a book profit (before tax and expenses) of approximately RMB36.7 million with reference to the net book value of the Properties as at 31 December 2006 for the financial year ended 31 December 2006.

Immediately after the Disposal, in so far as assets and liabilities are concerned, bank balance of the Group will be increased by approximately RMB34.2 million while the net book value of the properties will be reduced by approximately RMB13.9 million.

Use of Proceeds

The net proceeds of approximately RMB34.2 million from the Disposal, after deducting tax of approximately RMB16 million and expenses of approximately RMB0.4 million arising therefrom will be used as general working capital of the Group.

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LETTER FROM THE BOARD

LEASEBACK

The Vendor as tenant entered into the Tenancy Agreement dated 11 July 2007 with the Purchaser as landlord, pursuant to which the Vendor will lease back the Properties based on the following principal terms:

• Term : Subject to the approval from Independent Shareholders, commencing from the day the Purchaser having obtained the title of the Properties by having the real estate title certificate concerning the Properties being issued in the name of the Purchaser, and ending on 31 December 2009.

• Premises : Two factory buildings with a total gross floor area of 21,985.37 sq.m. erected on the Land. The Vendor may, upon giving one-month advance notice to the Purchaser, reduce the renting area.

• Rental : RMB12 per sq.m., totaling RMB263,824 (equivalent to approximately HK$270,755) per month during the tenancy term.

The rent was determined after arm’s length negotiations between the Vendor and the Purchaser with reference to the location and conditions of the Properties. As advised by the Valuer, the rental value is below the current market rent. In case the renting area is reduced, the rent shall be adjusted accordingly in proportion to the reduced renting area.

The Properties have been occupied by the Group as office and production base.

The Company intends to satisfy the rent payable under the Tenancy Agreement with internal resources of the Company. The rental may be subject to adjustment in case of the leased area has been reduced.

Conditions

The Tenancy Agreement shall be effective when both of the following conditions have been fulfilled: (1) the date of the Independent Shareholders’ approval on the Leaseback; and (2) the Purchaser having the real estate title certificate concerning the Properties being issued in the name of the Purchaser.

Annual Caps of the Tenancy Agreement

The annual caps for each of the financial years ended 31 December 2007, 2008, 2009 will be approximately RMB1,320,000, RMB3,166,000 and RMB3,166,000 respectively. The annual caps are determined by reference to the aggregate annual rent payable by the Group to OCT Properties under the Tenancy Agreement. For the annual cap for the financial year ended 31 December 2007, it is assumed that the Tenancy Agreement will come into force from 1 August 2007, subject to the Independent Shareholders’ approval has been obtained and the real estate title certificate concerning the Properties has been issued in the name of the Purchaser.

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LETTER FROM THE BOARD

REASONS FOR THE DISPOSAL AND LEASEBACK

The Company intends to relocate its production base with a view to improve the logistic management within the factory zone and to enhance production efficiency.

After the Disposal, the Company plans to relocate its production base to the parcel of land at Hangcheng Industrial Park, Xinqiao Village, Danshui Town, Huiyang District, Guangdong Province, the PRC with a total area of approximately 220,000 sq.m. The parcel of land was acquired by the Group on 19 March 2007. The site where the land is situated has a well developed transport and road network which represents a significant advantage to the Group.

The Company intends to relocate its production base to the above site step by step and is planning to build new production facility at the above site. As the production facility at the above site is expected to be completed at the end of 2008, the Leaseback will allow the Group to maintain its production at the Properties for the time being. As the Purchaser agrees that the Group may reduce the renting area of the Properties during the term of the tenancy, it offers flexibility to the Group to relocate its production base by phases.

The terms of the S&P Agreement and the Tenancy Agreement were arrived at after arm’s length negotiation and are on normal commercial terms. The Directors (including the independent non-executive Directors) consider that the terms of the S&P Agreement and the Tenancy Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

INFORMATION ON THE GROUP

The Group is principally engaged in the manufacture of quality paper-based packaging containers and materials, including corrugated paperboard and printed cartons for customers.

INFORMATION ON SHENZHEN HUALI

Shenzhen Huali, a limited liability company established in the PRC, is an indirect wholly-owned subsidiary of the Company. It is principally engaged in the manufacture of quality paper-based packaging containers and materials, including corrugated paperboard and printed cartons for customers.

INFORMATION ON OCT PROPERTIES AND OCT GROUP

OCT Group is the ultimate shareholder of 100% interest in OCT (HK) (OCT (HK) owns 100% equity interest in Pacific Climax Limited, which is the controlling shareholder of the Company, holding approximately 67.185% of the Company’s issued share capital as at the Latest Practicable Date). OCT Properties is a non-wholly owned subsidiary of OCT Group.

OCT Properties is principally engaged in property development projects.

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LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

The Disposal constitutes a discloseable transaction for the Company under the Listing Rules as the applicable percentage ratios for the Disposal is more than 5%. The Purchaser, OCT Properties, is a non-wholly owned subsidiary of OCT Group. OCT Group is the ultimate shareholder of 100% interest in OCT (HK) (OCT (HK) owns 100% equity interest in Pacific Climax Limited, which is the controlling shareholder of the Company). Thus, the Purchaser is a connected person of the Company within the meaning of the Listing Rules. Accordingly, the Disposal constitutes a connected transaction, and the Leaseback constitutes a continuing connected transaction for the Company under the Listing Rules. As the consideration of the Disposal is more than HK$10,000,000 and the applicable percentage ratios for the Disposal is more than 2.5%, the Disposal is subject to the reporting, announcement and Independent Shareholders’ approval requirements under the Listing Rules. Under the Tenancy Agreement, the aggregate annual rent payable by the Group to OCT Properties is approximately RMB3,166,000. As the applicable percentage ratio is, on annual basis, less than 2.5%, the Tenancy Agreement is not subject to Independent Shareholders’ approval requirement but are subject to the reporting and announcement requirements under the Listing Rules. However, as the Leaseback is resulting from the Disposal which is subject to, inter alia , the Independent Shareholders’ approval requirements under the Listing Rules, for the sake of prudence, the Company elects to voluntarily submit the Leaseback to the Independent Shareholders for their approval.

Pacific Climax Limited and its associates, which at the Latest Practicable Date held approximately 67.185% of the Company’s issued share capital, will abstain from voting on the resolutions to approve the Disposal and the Leaseback at the EGM.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising all of the independent non-executive Directors, has been formed to advise the Independent Shareholders in respect of the Disposal and the Leaseback, and the transactions contemplated thereunder. Your attention is drawn to the advice from the Independent Board Committee set out in their letter dated 30 July 2007 on page 12 of this circular.

Having regard to the opinion of Hantec which is set out on pages 13 to 18 of this circular, the Independent Board Committee is of the opinion that the terms of the Disposal and the Leaseback are fair and reasonable so far as the Independent Shareholders are concerned and the Disposal and the Leaseback is in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends that the Independent Shareholders vote in favour of the ordinary resolutions to approve the S&P Agreement and the Tenancy Agreement set out in the notice of EGM contained in this circular.

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LETTER FROM THE BOARD

INDEPENDENT FINANCIAL ADVISER

Hantec has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Disposal and the Leaseback, and the transactions contemplated thereunder. The letter from Hantec to the Independent Board Committee and the Independent Shareholders, containing its advice and recommendations, is set out on pages 13 to 18 of this circular. Having considered the principal reasons and factors stated in the letter from Hantec to the Independent Board Committee and the Independent Shareholders, Hantec is of the view that the Disposal and the Leaseback are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable, and in the interests of the Company and the Shareholders as a whole. Accordingly, Hantec advises the Independent Board Committee to recommend the Independent Shareholders vote in favour of the ordinary resolutions to approve the S&P Agreement and the Tenancy Agreement set out in the notice of EGM contained in this circular.

EXTRAORDINARY GENERAL MEETING

A notice convening the EGM to be held on 14 August 2007 (Tuesday) at 11:00 a.m. at Suite 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong is set out on pages 28 to 29 of this circular for the purpose of considering and, if thought fit, passing the resolutions set out therein. The voting in respect of the approval of the resolutions will be conducted by way of poll.

You will find enclosed a proxy form for use at the EGM. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed proxy form in accordance with the instructions printed thereon to the Company’s principal place of business at Suite 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM, or any adjournment thereof, should you so wish.

RECOMMENDATION

The Directors consider that both the Disposal and the Leaseback were entered into on normal commercial terms after arm’s length negotiation and the terms of the Disposal and Leaseback are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 10 –

LETTER FROM THE BOARD

PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Pursuant to Article 72 of the Articles, a resolution put to the vote of a general meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by: (i) the chairman of such meeting; or (ii) at least two shareholders present in person (or in the case of a shareholder being a corporation by its duly authorized representative) or by proxy for the time being entitled to vote at the meeting; or (iii) any shareholder or shareholders present in person (or in the case of a shareholder being a corporation, by its duly authorized representative) or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders having the right to vote at the meeting; or (iv) any shareholder or shareholders present in person (or in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being 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 shares conferring that right.

Pursuant to Article 73 of the Articles, unless a poll is demanded and the demand is not withdrawn, a declaration by the chairman of the general meeting that a resolution has on a show of hands been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect made in the book containing the minutes of the proceedings of the Company, shall be conclusive evidence of the facts without proof of the number or proportion of the votes recorded for or against the resolution.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular and the notice of the EGM.

By Order of the Board Huali Holdings (Group) Limited Zheng Fan Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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HUALI HOLDINGS (GROUP) LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 3366)

30 July 2007

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RESPECT OF DISPOSAL OF PROPERTIES CONTINUING CONNECTED TRANSACTION IN RESPECT OF LEASEBACK OF PROPERTIES

We have been appointed as members of the Independent Board Committee to advise you in respect of the Disposal and Leaseback, details of which are set out in the letter from the Board in the circular of the Company dated 30 July 2007 (the “Circular”) to the Shareholders, of which this letter forms part. Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.

Your attention is drawn to the advice of Hantec in respect of the Disposal and Leaseback as set out in the section “Letter from the Independent Financial Adviser” in the Circular.

Recommendation

Having taken into account the principal factors and reasons considered by Hantec regarding the Disposal and the Leaseback and its conclusion and advice, we concur with the view of Hantec and consider the terms of the S&P Agreement and the Tenancy Agreement are fair and reasonable and that the Disposal and Leaseback are in the interests of the Company and the Shareholders as a whole. We therefore recommend that the Independent Shareholders vote in favour of the resolutions to be proposed at the EGM to approve both the Disposal and Leaseback and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of the

Independent Board Committee

Wong Wai Ling

Chen Xiangdong

Independent Independent non-executive Director non-executive Director

Xiao Yongping

Independent non-executive Director

– 12 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from Hantec to the Independent Board Committee and the Independent Shareholders for the purpose of inclusion in this circular:

Hantec Capital Limited

45th Floor, COSCO Tower 183 Queen’s Road Central Hong Kong

30 July 2007

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

DISCLOESABLE AND CONNECTED TRANSACTION CONTINUING CONNECTED TRANSACTION

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders on the Disposal and the Leaseback, details of which are contained in the Letter from the Board (the “ Letter from the Board ”) contained in the circular (the “ Circular ”) of the Company to the Shareholders dated 30 July 2007, of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

On 11 July 2007, the Vendor, an indirect wholly-owned subsidiary of the Company, entered into the S&P Agreement with the Purchaser, pursuant to which the Vendor conditionally agreed to sell the Properties to the Purchaser at an aggregate consideration of RMB50,600,000 (equivalent to approximately HK$51,929,000). The Vendor and the Purchaser also entered into the Tenancy Agreement pursuant to which the Purchaser (as landlord) agrees to lease back the Properties to the Vendor (as tenant) at a monthly rental of approximately RMB263,824 (equivalent to approximately HK$270,755) for a fixed term up to 31 December 2009.

The Purchaser, OCT Properties, is a non-wholly owned subsidiary of OCT Group which is the ultimate shareholder of OCT (HK) (OCT (HK) owns 100% equity interest in Pacific Climax Limited, which is the controlling shareholder of the Company). Thus, the Purchaser is a connected person of the Company within the meaning of the Listing Rules. Accordingly, the Disposal constitutes a connected transaction, and the Leaseback constitutes continuing connected transactions for the Company under the Listing Rules. As the consideration of the

– 13 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Disposal is more than HK$10,000,000 and the applicable percentage ratios for the Disposal is more than 2.5%, the Disposal is subject to the reporting, announcement and Independent Shareholders’ approval requirements under the Listing Rules. Under the Tenancy Agreement, the aggregate annual rent payable by the Group to OCT Properties is approximately RMB3,166,000. As the applicable percentage ratio is, on annual basis, less than 2.5%, the Tenancy Agreement is not subject to Independent Shareholders’ approval requirement but are subject to the reporting and announcement requirements under the Listing Rules. However, as the Leaseback is resulting from the Disposal which is subject to, inter alia, the Independent Shareholders’ approval requirements under the Listing Rules, for the sake of prudence, the Company elects to voluntarily submit the Leaseback to the Independent Shareholders for their approval. Pacific Climax Limited and its associates will be required to abstain from voting on the resolutions to approve the Disposal and the Leaseback at the EGM.

The Independent Board Committee has been established to advise whether the terms of the Disposal and the Leaseback are fair and reasonable and whether the Disposal and the Leaseback are in the interests of the Company and its Independent Shareholders as a whole and to advise the Independent Shareholders on how to vote. The Independent Board Committee comprising Ms. Wong Wai Ling, Mr. Chen Xiangdong and Mr. Xiao Yongping, all being independent non-executive Directors, has been formed to advise the Independent Shareholders in this respect.

BASIS OF OUR ADVICE

In arriving at our recommendation, we have relied on the information and facts provided by the Company and have assumed that any representations made to us are true, accurate and complete. We have also relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and management of the Company for which they are solely responsible, are true and accurate at the time they were made and will continue to be accurate at the date of the despatch of the Circular.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular the omission of which would make any such statement contained in the Circular misleading. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading.

– 14 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have not, however, carried out any independent verification of the information provided by the Directors and management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group.

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

The principal factors and reasons that we have taken into consideration in assessing the terms of the S&P Agreement and the Tenancy Agreement and arriving at our opinion are set out as follows:

1. Background and reason for the Disposal and the Leaseback

As set out in the circular of the Company dated 10 April 2007, the Group acquired a parcel of land at Hangcheng Industrial Park, Xinqiao Village, Danshui Town, Huiyang District, Guangdong Province, the PRC with a total area of approximately 220,000 sq.m. (the “ Land ”) in order to facilitate the Group’s production expansion and the Group might consider to relocate the Group’s operation in Shenzhen to the new production base.

The Company plans to relocate its production base to the Land with a view to improve the logistic management within the factory zone and to enhance production efficiency. The site where the Land is situated has a well developed transport and road network which represents a significant advantage to the Group. In view of such relocation plan, the Directors consider that it is a good opportunity for the Group to dispose of the Properties.

The Company intends to relocate its production base to the Land step by step and is planning to build new production facility at the above site. As the production facility at the above site is expected to be completed at the end of 2008, the Leaseback will allow the Group to maintain its production at the Properties for the time being. As the Purchaser agrees that the Group may reduce the renting area of the Properties during the term of the tenancy, it offers flexibility to the Group to relocate its production base by phases.

In view of the above, the Disposal and the Leaseback is in line with the Group’s plan to relocate its operation in Shenzhen to the new production base in Huiyang District. We consider that the Disposal and the Leaseback are in line with the business development strategy of the Group and is in the interests of the Group and the Shareholders as a whole.

2. Terms of the Disposal

(a) Consideration

The consideration for the Disposal (the “ Disposal Consideration ”) is RMB50,600,000 (equivalent to approximately HK$51,929,000), which was arrived at after arm’s length negotiations between the Vendor and the Purchaser with reference to the valuation of the Properties of RMB50,600,000 (equivalent to

– 15 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

approximately HK$51,929,000) as at 30 April 2007 (the “ Valuation ”) made by Savills Valuation and Professional Services Limited (“ Savills ”), an independent property valuer of the Group, which is set out in Appendix I to the Circular.

In assessing the fairness and reasonableness of the Disposal Consideration, we have reviewed the Valuation and have discussed with Savills on the methodology adopted and assumptions used in arriving at the market value of the Properties as at 30 April 2007. Such a valuation equals to the Disposal Consideration. We understand that Savills has adopted direct comparison approach assuming sale in its existing state with the benefit of vacant possession and by making reference to comparable sales evidence as available in the relevant market. We have no reason to doubt the fairness and appropriateness of the methodology adopted and assumptions used by Savills in arriving at the Valuation.

In view that the Disposal Consideration equals to the Valuation, we consider that the Disposal Consideration is fair and reasonable so far as the Group and the Independent Shareholders are concerned.

(b) Payment terms

The Disposal Consideration shall be paid in cash by the Purchaser in the following manner:

1. 50% of the Disposal Consideration shall be paid to the Vendor within 7 days from the date the S&P Agreement takes effect;

2. the remaining 50% of the Disposal Consideration shall be paid within 7 days after completion of the procedures for the transfer of the Properties.

We consider it fair and reasonable that the balance of the Disposal Consideration will only be made upon completion of the procedures for the transfer of the Properties.

3. Terms of the Leaseback

(a) Rental

Under the Tenancy Agreement, the Group will have to pay monthly rental of approximately RMB263,824 or RMB12 per sq.m., payable in advance on the 5th day of each month during the tenancy term.

The rent was determined after arm’s length negotiations between the Vendor and the Purchaser with reference to the location and condition of the Properties.

– 16 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Savills has reviewed the Tenancy Agreement and has confirmed that the rental payments by the Group to the Purchaser contemplated therein are below the market level under the current market condition. We understand from Savills that in providing their opinion on the market rental, they have conducted on-site visits to the Properties as well as market research on various premises in the locality of the Properties. The relatively low rent under the Tenancy Agreement indicates that the Group will lease the Properties at a favourable price from the Purchaser. As such, we consider that the rent under the Tenancy Agreement is on normal commercial terms, fair and reasonable.

(b) Term

The term of the Tenancy Agreement will commence from the day after the Purchaser having obtained the title of the Properties by having the real estate title certificate concerning the Properties being issued in the name of the Purchaser, and ending on 31 December 2009. The Vendor may, upon giving one-month advance notice to the Purchaser, reduce the renting area. As the production facility at the Land is under construction and expected to be completed at the end of 2008, we consider that having a term ending a year later than the end of 2008 is in the interest of the Group to allow time for the relocation of the production facilities while at the same time, the term for the reduction of the renting area as mentioned above allows flexibility to the Group in case the Group’s needs of rental area in the Properties reduce as a result of the completion of construction of the production facility in Huiyang District.

(c) Annual caps

The annual cap for the Tenancy Agreement for each of the financial year ended 31 December 2007, 2008 and 2009 will be approximately RMB1,320,000, RMB3,166,000 and RMB3,166,000 respectively. The annual caps are determined by reference to the aggregate annual rent payable by the Group to OCT Properties under the Tenancy Agreement. For the annual cap for the financial year ended 31 December 2007, it is assumed that the Tenancy Agreement will come into force from 1 August 2007. According to the Company, it is expected that the Independent Shareholders’ approval on the Disposal and the Leaseback can be obtained and the Purchaser will obtain the title of the Properties in August 2007 and therefore, the term of the Tenancy Agreement will commence from August 2007. The annual caps for the three years ended 31 December 2009 represented rental payable under the Tenancy Agreement for 5 months, one year and one year. Since the annual cap for each of the three years ended 31 December 2009 is reached at the applicable rental under the Tenancy Agreement, which in turn is comparable to market level in the locality and are fair and reasonable as discussed above, we are of the view that the annual caps for the Tenancy Agreement are fair and reasonable.

– 17 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Financial effect of the Disposal on the Group

• (a) Earnings

According to the audited accounts of the Group, the net book value of the Properties was approximately RMB13.9 million as at 31 December 2006. Accordingly, the Disposal at the consideration of RMB50.6 million will give rise to a gain of approximately RMB36.7 million (before tax and expenses) for the Group.

• (b) Net asset value

As at 31 December 2006, the Group had an audited net assets of approximately RMB337.9 million. In view of the gain on disposal of approximately RMB36.7 million (before tax and expenses) mentioned above, the net asset value of the Group would have been increased by the same amount, representing an increase of approximately 10.9%.

• (c) Cash position and gearing ratio

As set out in the annual report of the Group for the year ended 31 December 2006, the cash at bank of the Group was approximately RMB172.2 million. The net proceeds from the Disposal (after deducting tax and expenses of approximately RMB16.4 million) of approximately RMB34.2 million, which will be used as general working capital, will increase the cash at bank by approximately 19.9%. The Group had total borrowings of approximately RMB70.2 million as at 31 December 2006, representing a gearing ratio (defined as total borrowings over total assets) of approximately 11.3%. Since the net proceeds from the Disposal is higher than the book value of the Properties, the total asset value will increase by approximately RMB20.3 million and accordingly, the gearing ratio will show a decrease after the Disposal.

RECOMMENDATION

Having taken into account the principal factors and reasons referred to the above, we are of the opinion that the terms of the Disposal and the Leaseback are fair and reasonable so far as the Independent Shareholders are concerned and the Disposal and the Leaseback are in the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Disposal and the Leaseback.

Yours faithfully, For and on behalf of

Hantec Capital Limited Kinson Li

Director

– 18 –

APPENDIX I

VALUATION REPORT

The following is the text of a letter and valuation certificate, prepared for the purpose of incorporation in this prospectus and received from Savills Valuation and Professional Services Limited, an independent property valuer, in connection with their valuation as at 30 April 2007 of the property interest of the Group.

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==> picture [84 x 79] intentionally omitted <==

30 July 2007

The Directors Huali Holdings (Group) Limited Suite 3203-4, Tower 6 The Gateway, Harbour City Canton Road, Tsimshatsui Kowloon Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property held by Huali Holdings (Group) Limited (the “Company”) and its subsidiaries (hereinafter together referred to as the “Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out an inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of value of the property as at 30 April 2007 for the purpose of disposal.

Our valuation of the property is our opinion of its market value which we would define as intended to mean “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”.

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APPENDIX I

VALUATION REPORT

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by specifically terms or circumstances such as atypical financing, sale and leaseback arrangements, joint ventures, management agreements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

We have valued the property by using the direct comparison approach by making reference to the comparable market transactions as available in the market assuming sales with the benefit of immediate vacant possession.

We have been provided with copies of title documents relating to the property, such as Real Estate Title Certificate. However, we have not inspected the original documents to verify ownership or to ascertain the existence of any amendments which do not appear on the copies handed to us. In the course of our valuation, we have relied to a considerable extent on the information given by the Group and its PRC legal advisers, Win & Sun Law Firm, regarding the title to the property held by the Group.

We have relied to a considerable extent on information given by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, particulars of occupancy, floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations. We have not been able to carry out on-site measurements to verify the correctness of the floor areas of the property and have assumed that the floor areas shown on the documents handed to us are correct. We have had no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to our valuation. We have also sought confirmation from you that no material facts have been omitted from the information supplied.

We have inspected the exterior and where possible, the interior of the property. In the course of our inspection, we did not note any serious defects. Moreover, no structural survey has been made, we are therefore not able to report that the property is free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that all the property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

– 20 –

VALUATION REPORT

APPENDIX I

In valuing the property, we have had regard to the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by the Stock Exchange of Hong Kong Limited and the Valuation Standards on Properties (First Edition January 2005) published by the Hong Kong Institute of Surveyors.

Unless otherwise stated, all money amounts stated in our report are in Renmenbi (RMB).

We enclose herewith our valuation certificate..

Yours faithfully, For and on behalf of

Savills Valuation and Professional Services Limited

Charles C K Chan

MSc FRICS FHKIS MCIArb RPS(GP) Managing Director

Note: Charles C K Chan, MSc., F.R.I.C.S., M.C.I.Arb., R.P.S. (G.P.), is a qualified valuer and has about 22 years’ experience in the valuation of properties in Hong Kong and has about 17 years’ experience in the valuation of properties in the PRC.

– 21 –

VALUATION REPORT

APPENDIX I

VALUATION CERTIFICATE

Market value in Particulars of existing state as at Property Description and tenure occupancy 30 April 2007 An industrial complex The property comprises a The property is RMB50,600,000 located at East Industrial 6-storey factory building and a currently occupied by Park Huaqiaocheng single-storey warehouse together the Group for Nanshan District with other ancillary facilities packaging business Shenzhen Guangdong erected on a site with an area of use. Province The PRC 12,404.82 sq.m. (133,525 sq.ft.). The buildings of the property were completed in various stages between 1987 and 1994. The total gross floor area of the property is approximately 21,985.37 sq.m. (236,651 sq.ft.). The land use rights of the property were granted for a term of 50 years commencing on 26 October 1991 and expiring on 25 October 2041 for industrial uses.

Notes:

1. Pursuant to the Real Estate Title Certificate No. Shen Fang Di Zi Di 4000231128 issued by the People’s Government of Shenzhen on 22 July 2005, the property with a site area of approximately 12,404.82 sq.m. and a total gross floor area of 21,985.37 sq.m. is held by Shenzhen Huali Packing & Trading Co., Ltd. (hereinafter referred to as “Shenzhen Huali”), a wholly-owned subsidiary of the Company, for a term of 50 years expiring on 25 October, 2041 for industrial uses.

2. Pursuant to the Shenzhen Real Estate Sale and Purchase Agreement entered into between Shenzhen Huali and Overseas Chinese Town Real Estate Company Limited (OCT Properties), a connected person of the Group, on 11 July 2007, Shenzhen Huali agreed to dispose of the property to OCT Properties at a consideration of RMB50,600,000.

3. We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal adviser, Win & Sun Law Firm, which contains, inter alia , the following information:

4. i. the property is legally and solely owned by Shenzhen Huali;

5. ii. Shenzhen Huali has the rights to use, lease, transfer, mortgage or dispose of the property in other legal means during the land use term; and

6. iii. the property is not subject to any mortgages, liens or encumbrances.

– 22 –

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group.

The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

(i) Directors’ and chief executive’s interests and/or short positions in securities of the Company and its associated corporations

As at the Latest Practicable Date, interests and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) held by the Directors and chief executives of the Company which have been notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which were taken or deemed to have under such provisions of the SFO) or have been entered in the register maintained by the Company pursuant to section 352 of the SFO, or otherwise have been notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) are as follows:

Long Positions in the Ordinary Shares of the Company

			Approximate
		No. of shares	shareholding
Name	Capacity/Nature	involved	percentage
Ni Zheng (Note 1)	Beneficial owner	2,000,000	1.00%
Liu Danlin (Note 2)	Beneficial owner	1,700,000	0.85%
Zhou Guangneng (Note 3)	Beneficial owner	1,700,000	0.85%

Notes:

• (1) Ni Zheng is taken to be interested as a grantee of options to subscribe for 2,000,000 Shares under the Share Option Scheme of the Company.

• (2) Liu Danlin is taken to be interested as a grantee of options to subscribe for 1,700,000 Shares under the Share Option Scheme of the Company.

• (3) Zhou Guangneng is taken to be interested as a grantee of options to subscribe for 1,700,000 Shares under the Share Option Scheme of the Company.

– 23 –

APPENDIX II

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept by the Company under section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

As at the Latest Practicable Date, none of the Directors has any direct or indirect interest in any assets which have been, since 31 December 2006, being the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by, or leased to any members of the Group, or are proposed to be acquired or disposed of by, or leased to any members of the Group.

As at the Latest Practicable Date, none of the Directors is materially interested in any contracts or arrangements entered into by any members of the Group which is subsisting at the date of this circular and which is significant in relation to the business of the Group.

(ii) Persons who have interests or short positions which are discloseable under Divisions 2 and 3 of Part XV of the SFO

As at the Latest Practicable Date, as far as is known to the Directors, the following persons (not being a Director or chief executive of the Company) had interests or short positions in the shares or underlying shares of the Company which fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company pursuant to section 336 of the SFO:

Long Position in the Ordinary Shares of the Company

			Approximate
		No. of Shares	shareholding
Name	Capacity/Nature	of interest	percentage
Substantial Shareholders
Pacific Climax Limited	Beneficial owner	134,370,000	67.185%
(Note 1)
Overseas Chinese Town (HK)	Interest of a controlled	134,370,000	67.185%
Company Limited (“OCT	corporation (Note 3)
(HK)”) (Note 2)
Overseas Chinese Town	Interest of a controlled	134,370,000	67.185%
Enterprises Co.	corporation (Note 5)
(“OCT Group”) (Note 4)

– 24 –

GENERAL INFORMATION

APPENDIX II

			Approximate
		No. of Shares	shareholding
Name	Capacity/Nature	of interest	percentage
Others
Polyfairz Group Limited	Beneficial owner	15,630,000	7.815%
(formerly known as
Polyfair Limited)
Zhang Zhilin	Interest of a controlled	15,630,000	7.815%
	corporation (Note 6)
Tang Qinmei	Interest of spouse	15,630,000	7.815%
	(Note 7)

Notes:

• (1) Mr. Ni Zheng, Mr. Zhou Guangneng and Ms. Xie Mei, Directors, are also directors of Pacific Climax Limited.

• (2) Mr. Zheng Fan, a Director, is the chairman of the board of directors of OCT (HK). Mr. Zhou Guangneng, a Director, is the deputy general manager of OCT (HK). Mr. Ni Zheng and Ms. Xie Mei, Directors, are also directors of OCT (HK).

• (3) OCT (HK) is the beneficial owner of all the issued share capital in Pacific Climax Limited. Therefore OCT (HK) is deemed, or taken to be interested in these shares which are beneficially owned by Pacific Climax Limited for the purpose of the SFO.

• (4) Mr. Zheng Fan, a Director, is the Chief Cultural Officer of OCT Group.

• (5) OCT Group is the beneficial owner of all the issued shares in OCT (HK) (OCT Group holds 454,999,998 shares in OCT (HK) in its own name. Mr. Zheng Fan, an executive Director, and Mr. Guo Yubin hold one share each in OCT (HK) on trust for OCT Group) and which is in turn the beneficial owner of all the issued share capital in Pacific Climax Limited and therefore OCT Group is deemed, or taken to be, interested in the 134,370,000 shares which are beneficially owned by Pacific Climax Limited for the purposes of the SFO.

• (6) Polyfairz Group Limited (formerly known as Polyfair Limited) is beneficially owned as to 90% by Mr. Zhang Zhilin and thus a controlled corporation of Mr. Zhang Zhilin, and Mr.Zhang Zhilin is deemed, or taken to be, interested in the 15,630,000 shares which are beneficially owned by Polyfairz Group Limited for the purpose of the SFO.

• (7) Ms. Tang Qinmei is the spouse of Mr. Zhang Zhilin. Therefore, Ms. Tang Qinmei is deemed, or taken to be, interested in all the Shares in which Mr. Zhang Zhilin is interested for the purpose of the SFO.

Save as disclosed above, no other interests required to be recorded in the register kept under section 336 of the SFO have been notified to the Company.

3. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or their respective associates (as defined in the Listing Rules) has any interest in any business which competes or is likely to compete with the business of the Group.

4. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors has a service contract with any member of the Group which was not determinable by the Group within one year without payment of compensation (other than normal statutory compensation).

– 25 –

GENERAL INFORMATION

APPENDIX II

5. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance, and so far as the Directors are aware, no litigation or arbitration of material importance is pending or threatened against the Company or any of its subsidiaries.

6. EXPERT AND CONSENT

• (a) The following is the qualification of the experts which have given their advice contained in this circular:

Name

Qualification

Hantec Capital Limited

a deemed licensed corporation under the SFO permitted to engage in types 1 and 6 of the regulated activities as defined in the SFO

Savills Valuation and Professional Services Limited

• Property valuer

Win & Sun Law Firm PRC legal advisers

• (b) As at the Latest Practicable Date, Hantec, the Valuer and the aforesaid PRC legal advisers did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) Hantec, the Valuer and the aforesaid PRC legal advisers have given and have not withdrawn their written consent to the issue of this circular with the inclusion of their letters or reports and references to their names in the form and context in which they are included.

• (d) As at the Latest Practicable Date, Hantec, the Valuer and the aforesaid PRC legal advisers did not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2006, being the date to which the latest published audited consolidated financial statements of the Company were made up.

• (e) The letters and reports given by Hantec and the Valuer are given as of the date of this circular for incorporation herein.

7. MATERIAL ADVERSE CHANGE

The Directors confirm that, as at the Latest Practicable Date, they were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2006, being the date to which the latest published audited consolidated financial statements of the Company were made up.

– 26 –

GENERAL INFORMATION

APPENDIX II

8. GENERAL

• (a) The company secretary and the qualified accountant of the Company is Mr. Fong Fuk Wai, who is a fellow member of the Hong Kong Institute of Certified Public Accountants.

• (b) The Company’s registered office is at Clifton House, 75 Fort Street, PO Box 1350 GT, George Town, Grand Cayman, Cayman Islands. The head office and principal place of business is at Suites 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong.

• (c) The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Ltd. at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’S Road East, Wan Chai, Hong Kong.

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

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours except on Saturday, Sunday and public holidays at the offices of the Company in Hong Kong at Suites 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong from the date of this circular up to and including 13 August 2007:

• (a) the memorandum and articles of association of the Company;

• (b) the S&P Agreement;

• (c) the Tenancy Agreement;

• (d) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 12 of this circular;

• (e) the letter from Hantec to the Independent Board Committee and the Independent Shareholders dated 30 July 2007, the text of which is set out on pages 13 to 18 of this circular;

• (f) the property valuation report from the Valuer, the text of which is set out in Appendix I to this circular;

• (g) the written consent of Hantec referred to in this section headed “Expert and Consent” in paragraph 6 of this appendix;

• (h) the written consent of the Valuer referred to in this section headed “Expert and Consent” in paragraph 6 of this appendix; and

• (i) the written consent of Win & Sun Law Firm referred to in this section headed “Expert and Consent” in paragraph 6 of this appendix.

– 27 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

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==> picture [64 x 49] intentionally omitted <==

HUALI HOLDINGS (GROUP) LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 3366)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “Meeting”) of Huali Holdings (Group) Limited (the “Company”) will be held on 14 August 2007 (Tuesday) at 11:00 a.m. at Suite 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong for considering and, if thought fit, passing, with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT

• (1) the sale and purchase agreement entered into between (Shenzhen Huali Packing & Trading Co., Ltd) (as vendor) and (Overseas Chinese Town Real Estate Company Limited) (as purchaser)

• dated 11 July 2007 (the “S&P Agreement”) in relation to the sale of two factory buildings together with the relevant land use rights (the “Properties”) (a copy of which has been produced to the meeting marked “A” and initialled by the Chairman of this meeting for the purpose of identification) and the transaction contemplated therein be and is hereby approved, confirmed and ratified, and each of the directors of the Company be and is hereby authorised to do all such further acts and things, negotiate, approve, agree, sign, initial, ratify and/or execute such further documents and take all steps which may be in their opinion necessary, desirable or expedient to implement and/or give effect to the terms of the S&P Agreement and the transaction contemplated thereunder;

• (2) the tenancy agreement entered into between (Shenzhen Huali Packing & Trading Co., Ltd) (as tenant) and (Overseas Chinese Town Real Estate Company Limited) (as landlord) dated 11 July 2007 (the “Tenancy Agreement”) in relation to the lease of the Properties (a copy of which has been produced to the meeting marked “B” and initialled by the Chairman of this meeting for the purpose of identification) subject to the annual caps for each of the financial years ended 31 December 2007, 2008, 2009 of RMB1,320,000, 3,166,000 and 3,166,000 respectively, and the transaction contemplated therein be and is hereby approved, confirmed and ratified, and each of the directors of the Company be and is hereby authorised to do all such further acts and things, negotiate, approve, agree, sign, initial, ratify and/or execute such further documents

– 28 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

and take all steps which may be in their opinion necessary, desirable or expedient to implement and/or give effect to the terms of the Tenancy Agreement and the transaction contemplated thereunder.”

By Order of the Board FONG Fuk Wai Company Secretary

Hong Kong, 30 July 2007

Notes:

1. Any member of the Company entitled to attend and vote at the Meeting shall be entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the Meeting. A proxy need not be a member of the Company. On a poll, votes may be given either personally or by proxy.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same.

3. To be valid, the instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be delivered to the principal place of business of the Company at Suite 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.

4. No instrument appointing a proxy shall be valid after expiration of 12 months from the date named in it as the date of its execution, except at an adjourned meeting or on a poll demanded at the Meeting or any adjournment thereof in cases where the Meeting was originally held within 12 months from such date.

5. Where there are joint holders of any shares, any one of such joint holders may vote at the Meeting, either in person or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such joint holders be present at the Meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose, seniority shall be determined by the order in which the names stand in the Register of Members of the Company in respect of the joint holding.

6. Completion and delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the Meeting if the member so wish and in such event, the instrument appointing a proxy should be deemed to be revoked.

7. The transfer books and Register of Members of the Company will be closed from 10 August 2007 to 14 August 2007, both days inclusive. During such period, no share transfers will be effected. In order to qualify for attending the Meeting, all transfer documents, accompanied by the relevant share certificates, must be lodged with the Company’s branch share registrars in Hong Kong, Computershare Hong Kong Investor Services Limited whose share registration public offices are located at Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration no later than 4:30 p.m. on 9 August 2007.

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