THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Overseas Chinese Town (Asia) Holdings Limited (the “Company”), you should at once hand this circular accompanying with the 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 transferee.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities.

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

==> picture [213 x 53] intentionally omitted <==

Overseas Chinese Town (Asia) Holdings Limited 華僑城（亞洲）控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 03366)

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION, PLACING OF NEW SHARES UNDER THE SPECIFIC MANDATE AND SUBSCRIPTION OF NEW SHARES UNDER THE SPECIFIC MANDATE

Financial adviser to the Company

==> picture [240 x 33] intentionally omitted <==

Independent financial adviser to the independent board committee and the independent shareholders of the Company

China Everbright Capital Limited

A letter from the independent board committee of the Company is set out on page 54 of this circular. A letter from China Everbright Capital Limited containing its advice to the independent board committee and the independent shareholders of the Company is set out on pages 55 to 87 of this circular.

A notice convening the extraordinary general meeting of the Company to be held at Function Room – Cypress, InterContinental Hong Kong, 18 Salisbury Road, Kowloon, Hong Kong on 31 May 2010 at 10:30 a.m. is set out on pages 297 to 299 of this circular. Whether or not you are able to attend the meeting in person, please complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s principal place of business at Suites 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong, as soon as practicable but in any event not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the accompanying form of proxy will not preclude you from attending and voting at the meeting should you so wish.

13 May 2010

CONTENTS

		Page
Definitions		1
Letter from	the Board
A	Introduction	5
B	The Capital Increase Agreement dated 1 April 2010	7
C	Information of Chengdu OCT Group 9
D	Business model of Chengdu OCT Group 13
E	Management discussion and analysis of Chengdu OCT Group 18
F	The management team of Chengdu OCT Group 22
G	Reasons for and benefit of the Capital Injection 25
H	The Placing Agreement dated 1 April 2010	26
I	The Subscription Agreement dated 1 April 2010 30
J	Reasons for the Placing and the Subscription and Use of Proceeds 31
K	Funds raised during the past 12 months 32
L	Shareholding structures before and after the Capital Injection, the Placing and the Subscription 33
M	Financial effect of the Capital Injection, the Placing and the Subscription 35
N	Financial and trading prospects of the Enlarged Group	35
O	Industry Overview 36
P	Risk Factors	45
Q	EGM 52
R	Recommendations 53
S	Additional Information	53
Letter from	the Independent Board Committee 54
Letter from	China Everbright 55
Appendix I	– Accountants’ report of Chengdu OCT 88
Appendix II – Financial information of the Group 142
Appendix III – Management discussion and analysis of the Group 200
Appendix IV – Unaudited pro forma financial information of the Enlarged Group		212
Appendix V	– Property valuation of the Enlarged Group	222
Appendix VI – Summary of PRC Laws 251
Appendix VII – General Information 288
Notice of EGM 297

DEFINITIONS

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

“Announcement” the announcement of the Company dated 9 April 2010 in relation to inter alia, the Capital Injection, the Placing and the Subscription
“associates” has the meaning ascribed to in the Listing Rules
“Bantix” Bantix International Limited, a company incorporated in Hong Kong with limited liability and is an indirect wholly-owned subsidiary of the Company
“Board” the board of Directors
“Business Day” a day (excluding a Saturday, Sunday or public holiday) on which licensed banks in Hong Kong are generally open for business
“Capital Increase Agreement” the conditional capital increase agreement entered into between OCT Properties, OCT Holding and Bantix on 1 April 2010 in relation to the Capital Injection
“Capital Injection” the capital injection of RMB588 million into Chengdu OCT to be made by Bantix pursuant to the Capital Increase Agreement
“China Everbright” China Everbright Capital Limited, a licensed corporation under the SFO to carry out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities, being the independent financial adviser to the Independent Board Committees and the Independent Shareholders in relation to the Capital Injection and the Subscription
“Chengdu OCT” 成都天府華僑城實業發展有限公司 (Chengdu Tianfu OCT Industry Development Company Limited), a sino-foreign equity joint venture established under the laws of the PRC in accordance with the terms of the joint venture agreement and the articles of Chengdu OCT
“Chengdu OCT Group” Chengdu OCT and its subsidiaries
“Completion” completion of the Capital Increase Agreement
“Company”
Overseas Chinese Town (Asia) Holdings Limited, an exempted company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the main board of the Stock Exchange
1 -

DEFINITIONS

“connected person(s)” has the meaning ascribed to in the Listing Rules “Director(s)” the director(s) of the Company “EGM” the extraordinary general meeting of the Company to be held at Function Room – Cypress, InterContinental Hong Kong, 18 Salisbury Road, Kowloon, Hong Kong on 31 May 2010 at 10:30 a.m. for approving, inter alia, the Capital Increase Agreement, the Subscription Agreement, the Placing Agreement and the transactions contemplated therein
“Enlarged Group” the Group as enlarged by the Capital Injection
“Group” the Company and its subsidiaries
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” the independent board committee of the Company comprising independent non-executive Directors, namely, Ms. Wong Wai Ling, Mr. Xu Jian and Mr. Lam Sing Kwong Simon
“Independent Shareholders” Shareholders other than Pacific Climax and its associates
“Independent Third Parties” to the best of the Directors’ knowledge, information and belief after making reasonable enquiries, third parties independent of the Company and its connected persons
“Latest Practicable Date” 10 May 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“OCT HK” Overseas Chinese Town (HK) Company Limited, a company incorporated in Hong Kong with limited liability and wholly owned by OCT Holding
“OCT Holding” Shenzhen Overseas Chinese Town Holding Company (深圳華僑城控股股份有限公司), a company incorporated in the PRC, the shares of which are listed on the Shenzhen Stock Exchange
“OCT Properties” 深圳華僑城房地產有限公司 (Overseas Chinese Town Real Estate Company Limited), a wholly-owned subsidiary of OCT Holding
2 -

DEFINITIONS

“OCT Property Management” 深圳市華僑城物業管理有限公司 (Shenzhen Overseas Chinese Town Property Management Company), a company incorporated in the PRC with limited liability and a non-wholly owned subsidiary of OCT Properties

“Pacific Climax” or “Subscriber” Pacific Climax Limited, a company incorporated in the British Virgin Islands with limited liability, is the controlling Shareholder and is wholly owned by OCT HK
“Placing” a placing by the Placing Agent of Placing Shares with placee(s) pursuant to the Placing Agreement on a fully underwritten basis
“Placing Agent” China Merchants Securities (HK) Co., Limited, a licensed corporation to carry on type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO
“Placing Agreement” a conditional placing agreement dated 1 April 2010 entered into between the Company and the Placing Agent in relation to the Placing
“Placing Completion Date” the second Business Day following the satisfaction of the conditions of the Placing Agreement or such other date as the Company and the Placing Agent may agree at which completion of the Placing shall take place
“Placing Share(s)” 60,000,000 new Shares to be issued under the Placing
“PRC” the People’s Republic of China, for the purpose of this circular only, excludes Hong Kong, Taiwan and Macau Special Administrative Region
“PRC Legal Adviser” China Commercial Law Firm 廣東華商律師事務所, the PRC legal adviser of the Company
“SFO” the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)
“Share(s)” existing ordinary share(s) of HK$0.10 each in the issued share capital of the Company
“Shareholders” holders of Shares
3 -

DEFINITIONS

“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription”	the subscription of the Subscription Shares subject to and upon
	the terms and conditions of the Subscription Agreement
“Subscription Agreement”	the conditional subscription agreement entered into between the
	Company and Pacific Climax on 1 April 2010 in relation to the
	issue of the Subscription Shares by the Company
“Subscription Share(s)”	91,800,000 new Shares to be subscribed by Pacific Climax
	pursuant to the Subscription Agreement
“Unplaced Shares”	such of the Placing Shares which have not been placed by or
	on behalf of the Placing Agent under the Placing Agreement on
	the Placing Completion Date
“GFA”	gross floor area
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“%”	per cent.
“sq.m.”	square meters

For the purpose of this circular and solely for the purpose of illustration, all amounts in RMB are translated into HK$ at an exchange rate of RMB0.875: HK$1.

LETTER FROM THE BOARD

==> picture [213 x 54] intentionally omitted <==

Overseas Chinese Town (Asia) Holdings Limited 華僑城（亞洲）控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 03366)

Executive Directors: Mr. Hou Songrong (Chairman) Mr. Ni Zheng Ms. Xie Mei (Chief Executive Officer) Mr. Zhou Guangneng

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

Non-Executive Director:

Mr. Zheng Fan

Independent Non-executive Directors:

Ms. Wong Wai Ling Mr. Xu Jian Mr. Lam Sing Kwong Simon

Head Office and Principal Place of Business: Suites 3203–3204, Tower 6 The Gateway, Harbour City Canton Road Tsim Sha Tsui Kowloon Hong Kong

13 May 2010

To the Shareholders,

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION, PLACING OF NEW SHARES UNDER THE SPECIFIC MANDATE AND SUBSCRIPTION OF NEW SHARES UNDER THE SPECIFIC MANDATE

A. INTRODUCTION

On 9 April 2010, the Board announces that on 1 April 2010,

(i) Bantix (a wholly owned subsidiary of the Company) entered into the Capital Increase Agreement with OCT Properties and OCT Holding to increase the registered capital of Chengdu OCT from RMB400 million (approximately HK$457.1 million) to RMB612 million (approximately HK$699.4 million) and Bantix will solely contribute, in cash,
5 -

LETTER FROM THE BOARD

RMB588 million (approximately HK$672.0 million) into Chengdu OCT and in return, Bantix’s interest in Chengdu OCT will increase from 25% to approximately 51% with the additional registered capital contribution of RMB212 million (approximately HK$242.3 million) and the remaining RMB376 million (approximately HK$429.7 million) will be booked as capital reserve of Chengdu OCT;

(ii) the Company entered into the Placing Agreement with the Placing Agent pursuant to which the Placing Agent has agreed to act as agent for the Company to procure placee(s) for 60,000,000 Placing Shares at the placing price of HK$5.0 per Placing Share on a fully underwritten basis; and
(iii) the Company entered into the Subscription Agreement with Pacific Climax pursuant to which Pacific Climax agreed to subscribe for 91,800,000 Subscription Shares at the subscription price of HK$5.0 per Subscription Share.

As the applicable percentage ratios for the Capital Injection under the Listing Rules are more than 100%, the Capital Injection constitutes a very substantial acquisition for the Company under the Listing Rules. OCT Holding holds 100% equity interest in OCT HK. OCT HK holds 100% equity interest in Pacific Climax, which is the controlling Shareholder. OCT Properties is a wholly owned subsidiary of OCT Holding. Hence, OCT Properties and OCT Holding are connected persons of the Company under the Listing Rules. Accordingly, the transaction contemplated under the Capital Increase Agreement constitutes a connected transaction of the Company and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Pacific Climax and its associates (the controlling Shareholder interested in 196,620,000 Shares, representing approximately 56.70% of the issued share capital of the Company as at the Latest Practicable Date) will be required to abstain from voting at the EGM in respect of the Capital Increase Agreement and the Subscription Agreement. The Independent Board Committee has been appointed by the Board to advise the Independent Shareholders on the terms of the Capital Injection and the Subscription. China Everbright has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

As mentioned in the Announcement, the Placing Shares would be issued under a general mandate granted by the Shareholders at the extraordinary general meeting of the Company held on 12 January 2010. It was also agreed that if the Placing Completion Date is on or later than the forthcoming annual general meeting of the Company in 2010, the Directors may propose an ordinary resolution at the EGM to authorize the Directors to allot and issue the Placing Shares pursuant to the Placing Agreement. Since the EGM is to be held on that same date of the forthcoming annual general meeting of the Company in 2010 i.e. 31 May 2010, the Placing Completion Date will be later than the forthcoming annual general meeting of the Company in 2010. The Directors will propose an ordinary resolution at the EGM to authorize the Directors to allot and issue the Placing Shares pursuant to the Placing Agreement. As no Shareholder has a material interest in the Placing, no Shareholder is required to abstain from voting on the relevant resolution to be proposed at the EGM to approve the Placing Agreement and the transactions contemplated thereunder.

LETTER FROM THE BOARD

The purpose of this circular is to give the Shareholders with details of the Capital Increase Agreement, the Subscription Agreement, the Placing Agreement, the recommendation from the Independent Board Committee, the advice of China Everbright and a notice to convene the EGM to consider and, if thought fit, pass the resolutions to approve the Capital Increase Agreement, the Subscription Agreement, the Placing Agreement and the transactions contemplated thereunder.

B. THE CAPITAL INCREASE AGREEMENT DATED 1 APRIL 2010

Parties

Party A: OCT Properties, a wholly-owned subsidiary of OCT Holding and is principally engaged in properties investment and development business
Party B: OCT Holding, a company incorporated in the PRC, the shares of which are listed on the Shenzhen Stock Exchange
Party C: Bantix, a company incorporated in Hong Kong with limited liability and is an indirect wholly-owned subsidiary of the Company

華僑城集團公司 (Overseas Chinese Town Enterprises Company) (“OCT Group”) holds approximately 56.36% equity interest in OCT Holding as at the Latest Practicable Date. OCT Holding holds 100% equity interest in OCT HK. OCT HK holds 100% equity interest in Pacific Climax, which is the controlling Shareholder. OCT Properties is a wholly owned subsidiary of OCT Holding. Hence, OCT Properties and OCT Holding are connected persons of the Company under the Listing Rules.

Pursuant to the Capital Increase Agreement, Bantix will solely contribute, in cash, RMB588 million (approximately HK$672.0 million) in Chengdu OCT and in return, Bantix’s interest in Chengdu OCT will increase from 25% to approximately 51% with an additional registered capital contribution of RMB212 million (approximately HK$242.3 million) and the remaining RMB376 million (approximately HK$429.7 million) will be booked as capital reserve of Chengdu OCT. After Completion, the registered capital of Chengdu OCT will increase from RMB400 million to RMB612 million, whereby the equity interest of Chengdu OCT will be owned as to approximately 24.8%, 24.2% and 51.0% by OCT Properties, OCT Holding and Bantix respectively. According to the Capital Increase Agreement, the total investment amount of Chengdu OCT will increase from RMB780 million (approximately HK$891.4 million) to RMB1,204 million (approximately HK$1,376.0 million). The increase of RMB424 million of the total investment amount bears no direct relationship with the total cash contribution of RMB588 million to be made by Bantix.

In relation to the Capital Injection, OCT Properties, OCT Holding and Bantix also entered into the supplemental sino-foreign equity joint venture agreement and the supplemental articles of association regarding Chengdu OCT on the same date. The major terms of the supplemental sinoforeign equity joint venture agreement are to reflect the proposed change in equity holding between the three shareholders of Chengdu OCT, the increase of the registered capital as well as the right to appoint directors of Chengdu OCT, all of which have been included in the major terms of the Capital Increase Agreement as disclosed in this circular.

LETTER FROM THE BOARD

The amounts of contribution to be made by Bantix was determined on normal commercial terms and arrived at after arm’s length negotiation among the parties to the Capital Increase Agreement after taking into consideration (i) that the Capital Injection will enable the Group to expand its exposure in the property and tourist industry with an aim of broadening the income base of the Group; (ii) the financial performance and asset position of Chengdu OCT Group as well as its growth potential and business prospect; (iii) the potential economic growth in Chengdu; and (iv) the Capital Injection will be financed by the Placing and the Subscription. In view of the above, the Board considers that the Capital Injection is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The equity interest holding structure of Chengdu OCT before and after Completion is set out as follows:

Shareholders OCT Properties OCT Holding Bantix Total	Before Completion Contribution Shareholding RMB’million 152 38% 148 37% 100 25% 400 100%	After Completion Contribution Shareholding RMB’million (Approximately) 152 24.8% 148 24.2% 312 51.0% 612 100%	After Completion Contribution Shareholding RMB’million (Approximately) 152 24.8% 148 24.2% 312 51.0% 612 100%
			100%

The capital contribution of RMB588 million (approximately HK$672.0 million) shall be contributed in the following manners:

Bantix shall pay RMB117.6 million (equivalent amount in Hong Kong dollars based on the middle rate to be quoted from The People’s Bank of China on the payment date), being 20% of the capital contribution, after the effective date of the Capital Increase Agreement and fulfillment or, if applicable, waiver of all the conditions of the Capital Increase Agreement and upon the application of the registration of the change of registered capital by Chengdu OCT; and
Bantix shall pay the remaining RMB470.4 million within 90 days from the date of issue of the new business licence of Chengdu OCT.

The Capital Increase Agreement takes effect after execution by the parties and the issuance of the approval certificate by the authorized authority in the PRC for the change in Chengdu OCT.

The capital contribution of RMB588 million (approximately HK$672.0 million) to be made by Bantix will be financed by the Placing and the Subscription and will be used to expand the existing business operation of Chengdu OCT.

It is agreed that upon Completion, (i) Chengdu OCT shall continue to be responsible for the original indebtedness and liabilities of Chengdu OCT, (ii) the shareholders of Chengdu OCT shall be entitled to enjoy the profit sharing in proportion to their respective shareholdings after the Capital Injection in Chengdu OCT since 1 January 2010, and (iii) the board of directors of Chengdu OCT will comprise three directors, of which one director is to be appointed by OCT Properties and two directors are to be appointed by Bantix.

LETTER FROM THE BOARD

Conditions

The payment of the capital contribution of RMB588 million is subject to fulfillment or, if applicable, waiver of the following conditions by Bantix:

all necessary approvals of PRC government authorities shall have been obtained;
no material adverse change in Chengdu OCT; and
the obtaining by Bantix and the Company of all necessary consents, authorizations and approvals, including the approval of the Independent Sharesholders of the Capital Injection, all requirements under the Listing Rules having been complied with and all consents, authorizations and approvals having been obtained from any other regulatory authorities.

If any of the above conditions is not fulfilled or waived on or before 30 September 2010 or such later date as shall be mutually agreed by the parties to the Capital Increase Agreement, the Capital Increase Agreement shall terminate and each party’s further rights and obligations will cease immediately without affecting a party’s then accrued rights and obligations under the joint venture agreement of Chengdu OCT before the Capital Increase Agreement.

C. INFORMATION OF CHENGDU OCT GROUP

Chengdu OCT is a sino-foreign equity joint venture incorporated in the PRC on 31 October 2005. The operating period of Chengdu OCT is 40 years from 31 October 2005 to 30 October 2045. The registered capital of Chengdu OCT was RMB400 million (approximately HK$457.1 million) which has been fully paid up. According to the sino-foreign equity joint venture agreements of Chengdu OCT, the registered capital and the total investment amount of Chengdu OCT were initially RMB400 million (approximately HK$457.1 million) and RMB780 million (approximately HK$891.4 million) respectively. According to the Capital Increase Agreement, the registered capital of Chengdu OCT will be increased to RMB612 million (approximately HK$699.4 million) and the total investment amount of Chengdu OCT will be increased to RMB1,204 million (approximately HK$1,376.0 million).

As at the Latest Practicable Date, Chengdu OCT is beneficially owned as to 38% by OCT Properties, as to 37% by OCT Holding and as to 25% by Bantix. Upon Completion, Chengdu OCT will be beneficially owned as to approximately 24.8% by OCT Properties, as to approximately 24.2% by OCT Holding and as to approximately 51.0% by Bantix. Accordingly, Chengdu OCT will become a 51% owned subsidiary of the Company upon Completion.

The PRC Legal Adviser advised that since the establishment, Chengdu OCT has complied with the relevant laws and regulations in the PRC without any penalties due to violation of the relevant laws and regulations.

The PRC Legal Adviser confirmed that, as at the Latest Practicable Date, Chengdu OCT has obtained all the relevant permits, licences, certificates and approvals for its operations in the PRC.

LETTER FROM THE BOARD

Chengdu OCT and its subsidiaries are principally engaged in development and operation of tourism facilities; design and planning of tourist projects; properties development and operation; provision of management services for food and beverage businesses; planning and organizing of culture activities; art training; operation of the performance facilities; manufacturing and sales of crafts; provision of traveling information service; and garden design.

Chengdu OCT owns four parcels of land, namely Land Lots A, B, C and D, which are located at both sides of Shaxi line of Outer Sanhuan Road, Jinniu District, Chengdu, Sichuan Province, the PRC with a total site area of approximately 1,827,000 sq.m, which are proposed to be developed into a metropolitan composite area in various phases namely “Chengdu OCT Project”. The acquisition cost of the four parcels of land was approximately RMB1,833 million (approximately HK$2,094.9 million) which has been fully paid. The usage of the properties should comprise, inter alia, cultural and entertainment, theme park and residential properties and the land use rights of the land have been granted for terms of 40 and 70 years commencing on 29 September 2006 for commercial & theme park and residential uses respectively. Upon completion of Chengdu OCT Project, Chengdu OCT Project will provide a total GFA of approximately 2,249,980 sq.m..

Chengdu OCT Project is planned to comprise three major segments, namely (i) residential property project (“Residential Property Project”), (2) commercial property project (“Commercial Property Project”), and (3) theme park project of 成都歡樂谷 Chengdu Happy Valley (“Chengdu Happy Valley”). Chengdu OCT Project represents a landmark comprehensive development project in Chengdu which features a concept of blending residential, commercial and theme park elements into a comprehensive development project which aims to offer exquisite landscape and environment to the users of the project.

Development Plan

The Residential Property Project

The Residential Property Project which is located at Land Lots B&D, with a total unsold GFA of approximately 629,000 sq.m in Land Lot B and a total GFA of approximately 824,000 sq.m in Land Lot D, is planned to be developed into eight phases on a rolling basis, which offers a broad range of facilities, including, inter alias, high-rise and low-rise apartments, townhouse, clubhouse and ancillary facilities. Phase I of Land Lot B was completed for sale. Based on the current development plan, Phase II of the Residential Property Project with GFA of approximately 286,256 sq.m. will mainly include the development of high rise and multi-storied residential buildings and townhouses. Total development cost of Phase II is estimated to be approximately RMB822 million (excluding the land premium) and construction of Phase II has commenced and is expected to be completed in December 2010. The high-rise apartments of Phase II will be launched in the first half of 2010.

Phase III of the Residential Property Project with GFA of approximately 337,295 sq.m. will mainly include the development of high rise residential buildings and townhouses. Total development cost of Phase III is estimated to be approximately RMB829 million (excluding the land premium) and construction of Phase III has commenced and is expected to be completed by the end of 2011. Phase III of the development is estimated to be available for pre-sale in the second half of 2010 and be able to be delivered to the purchasers by end of 2011.

10 -

LETTER FROM THE BOARD

Phase IV-VIII of the Residential Property Project with GFA of approximately 818,135 sq.m. will include various residential properties and townhouses. Total development cost of Phase IV-VIII is estimated to be approximately RMB2,500 million (excluding the land premium) and construction of Phase IV-VIII is expected to be commenced by late 2011 and be completed by the end of 2015.

Due to the delay in demolishment and relocation of existing structures, Chengdu State-owned Land Resources Bureau (the “Grantor”) may be unable to deliver portion of land of Land Lot D with a site area of approximately 56,667 sq.m. to Chengdu OCT. Chengdu OCT is negotiating with the Grantor on the land exchange of a parcel of land in the adjacent land of Land Lot D with the same size as aforesaid mentioned and under the same conditions to Chengdu OCT. The PRC Legal Adviser advised that, except for the portion of land of Land Lot D that the Grantor may not be able to deliver, there is no legal impediment for Chengdu OCT to obtain the State-owned Land use certificate for Land Lot D. Also, according to the relevant laws and the provisions of the land transfer contract, Chengdu OCT has the right to request the Grantor to perform its responsibilities under the land transfer contract to deliver a portion of land to Chengdu OCT in exchange. After obtaining the portion of land in exchange, there is no legal impediment for Chengdu OCT to obtain the State-owned Land use certificate for such portion of land. As such, the Directors consider that there will not be any material adverse effect on the business operation of Chengdu OCT Group.

The Commercial Property Project

The Commercial Property Project, which is located at Land Lots A&C, with a total GFA of approximately 340,000 sq.m in Land Lot A and a total GFA of approximately 210,000 sq.m in Land Lot C, is planned to be developed into five phases and provide a wide range of facilities, including, inter alias, shops, theatre, five-star hotel and office. The construction of Phase I of the Commercial Property Project in Land Lot C was completed in 2009. Based on the current development plan, Phase II of the Commercial Property Project with GFA of approximately 5,317 sq.m. will mainly include the development of shops. Total development cost of Phase II is estimated to be approximately RMB17 million (excluding the land premium) and construction of Phase II has commenced and to be completed in July 2010. Phase III – V in Land Lot A and Land Lot C of the Commercial Property Project with GFA of approximately 434,000 sq.m. will mainly include the development of shopping-mall, offices and hotels. Total development cost of Phase III – V in Land Lot A and Land Lot C is estimated to be approximately RMB1,953 million (excluding the land premium) and construction of Phase III – V in Land Lot A and Land Lot C will commence in 2011 and to be completed in December 2015.

It is Chengdu OCT Group’s strategy to retain the Commercial Property Projects for rent. Up to 31 March 2010, the Group leased out retail units of GFA of approximately 40,000 sq.m. In selecting tenants for the properties of the Group, the Group assesses whether the tenants have the financial means to sustain long-term rental.

Chengdu Happy Valley

Chengdu Happy Valley is the third Happy Valley chain theme park by OCT Holding in the PRC following the two in Shenzhen and Beijing and is located at Land Lot C with a total GFA of approximately 50,000 sq. m.. Phase I of Chengdu Happy Valley has commenced operation on 18 January 2009 and offers seven theme zones including, Sunny Harbour, Happy Hour, Caribbean Cyclone, Great Szechwan, Happy Forest, Magic Castle and Dream of Mediterranean which provide an amusement base in southwest of the PRC. There were approximately 2.3 million people visiting Chengdu Happy Valley in 2009. Based on the current development plan, Phase II of Chengdu Happy Valley with GFA of approximately 10,000 sq.m.. Total development cost of Phase II is estimated to be approximately RMB100 million (excluding the land premium) and construction of Phase II is expected to be commenced in 2011 and to be completed in February 2012.

11 -

LETTER FROM THE BOARD

The following table illustrates the detailed information of Chengdu OCT Group’s (i) completed property development; (ii) properties under development; and (iii) properties for future development as at 31 March 2010:

Completed property development Residential Property Project: Phase I Commercial Property Project: Phase I Chengdu Happy Valley: Phase I Properties under development Residential Property Project: Phase II Residential Property Project: Phase III Commercial Property Project: Phase II Chengdu Happy Valley: Phase II Properties for future development Residential Property Project: Phase IV – VIII Commercial Property Project: Phase III – V Chengdu Happy Valley: Phase III Total	Total planned GFA (sq.m.) 207,786 111,191 25,600 286,256 337,295 5,317 10,000 818,135 434,000 14,400	Completed GFA (sq.m.) 207,786 111,191 25,600 65,102 – –	Total saleable GFA (sq.m.) 153,097 213,967 231,343 656,907	Total sold GFA (sq.m.) 150,848 29,145 – –	Total presold saleable GFA (sq.m.) – 139,441 – –	Actual/ Estimated Total expectedDevelopment further unsold completion costsdevelopment GFA date incurred costs (sq.m.) (RMB (RMB ’million) ’million) 2,249 August 546.63 – 2009 December 667.25 – 2009 January 954.66 – 2009 45,381 December 511.99 310 2010 231,343 December 11.79 818 2011 July 2010 7.6 9 February 100 2012 656,907 December – 2,503 2015 December 1,953 2015 100 935,880 2,699.92 5,793	Actual/ Estimated Total expectedDevelopment further unsold completion costsdevelopment GFA date incurred costs (sq.m.) (RMB (RMB ’million) ’million) 2,249 August 546.63 – 2009 December 667.25 – 2009 January 954.66 – 2009 45,381 December 511.99 310 2010 231,343 December 11.79 818 2011 July 2010 7.6 9 February 100 2012 656,907 December – 2,503 2015 December 1,953 2015 100 935,880 2,699.92 5,793
	2,249,980	409,679	1,255,314	179,993	139,441		5,793

It is expected there will be saleable GFA for sale (pre-sold included) of over 1 million sq.m.; undeveloped GFA for lease of approximately 437,000 sq.m. and undeveloped theme park GFA of approximately 24,000 sq.m. The development plan for the properties for future development as described above has not been finalized, which will be further amended and revised and subject to the approval by the relevant local government authorities in the PRC. It will also be subject to changes depending on, among other things, the property market performance in Chengdu, availability of sufficient funds of the Group to develop the project and the general economy of the PRC. The Group will monitor the projected cashflow of the project from time to time and will revise the development plan and construction program if necessary.

12 -

LETTER FROM THE BOARD

to be approximately RMB1,652 million, RMB588 million of which is expected to be covered by the Capital Injection but the break down of the balance of RMB1,064 million to be covered by bank loans and proceeds from pre-sale of the Residential Property Project has not been determined.

To maintain or grow the property development business in the future, Chengdu OCT will need to replenish its land reserves with suitable development sites. Based on the current development plan, the Chengdu OCT Project will be completed in 2015. Thereafter, it is expected that Chengdu OCT will continue to (i) sell its unsold units of the Residential Property Project and (ii) record ticket sales from theme park and rental income of the Commercial Property Project but the Company currently has no sales forecast with amount after completion of Chengdu OCT Project. It is expected that Chengdu OCT will be able to contribute recurring cash flow and favourable return to the Group. The management of Chengdu OCT is currently negotiating with local government authority for further land reserves and confident about the long-term prospects of Chengdu OCT and it is believed that Chengdu OCT will generate returns in the long run.

D. BUSINESS MODEL OF CHENGDU OCT GROUP

By leveraging on (i) the brand name of “Overseas Chinese Town”; (ii) the experience in comprehensive property development; and (iii) the relationship with the local government, Chengdu OCT Group (including its project companies) manages to procure lands at a relatively lower cost. Through the overall development of real estate, tourism and commercial, in addition to the profit generated, Chengdu OCT Group is able to enhance (i) the surrounding living environment and leisure facilities and (ii) improve the overall quality of the project, thereby resulting in mutual benefit to the businesses of Chengdu OCT Group.

Management Structure

The following chart illustrates the management structure of Chengdu OCT Group:

	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors	Board of directors
	Marketing Department Administration Department Finance Department Design Department Cost control Department Engineering Department City Area Management Department Investment Development Department Human Resources Department Audit Control Department General Manager Office Commercial Business Property Business Division Happy Valley Tourism Branch Human Resources department Finance Department Market Department Operation Department Tourist Department Facility Department Engineering Department Arts Group Security Department Back Office Commercial Engineering department Property sales center Property Engineering Department General Manager Office


Division	Commercial Business		Property Business Division	Administration Department		Marketing Department		Finance Department	Design Department	Cost control Department	Engineering Department		City Area Management Department		Investment Development Department		Human Resources Department		Audit Control Department		Happy Valley Tourism Branch
					Property sales center Property Engineering Department


Commercial operation center		Commercial Engineering department			Property sales center		Property Engineering Department
										General Manager Office		Human Resources department	Finance Department	Market Department		Operation Department		Tourist Department	Facility Department	Engineering Department	Arts Group	Security Department	Back Office

13 -

LETTER FROM THE BOARD

The major stages involved in the property development of Chengdu OCT Group include (1) opportunity identification; (2) due diligence; (3) preparation, (4) planning and design, (5) construction, (6) marketing and (7) after sales services (property development).

Opportunity Identification and Feasibility Study

Strategic planning
Resources analysis
Market analysis
Preliminary feasibility study
Preliminary review and approval

Due diligence

Due diligence
Preliminary design and planning
Set out terms for negotiation
In-depth feasibility study
Final review and approval

Preparation

Establishment of the project working team
Negotiation and execution of contract
Financial arrangement
Obtain relevant approval

Property Development

Planning and design

Conceptual design
Architectural and construction design
Construction plan

Tourism

Planning and design

Main theme
Architectural and construction design
Construction plan

Construction

Outsource of contractors
Procurement of supplies
Construction supervision
Quality and budget control
Completion inspection

Construction

Outsource of contractors
Procurement of supplies
Construction supervision
Quality and budget control
Completion inspection

Pre-sale, sales and marketing

Preparation of pre-sales
Marketing and promotional activities

Marketing

Marketing and promotional activities
selecting of the strategic partners

After sales services

Property management

Management

Management of the theme park
Handling of customers’ feedback and complains
Customer services
14 -

LETTER FROM THE BOARD

Opportunity Identification and Feasibility Study

The first stage of the development process involves the identification of new opportunities for investment. The senior management bases on the preliminary market analysis and resources analysis to identify the investment opportunity. Upon identification of the investment opportunity, a working team, comprising professional staffs from various departments, will be established to conduct a feasibility study and prepare a written report to the management for review and approval.

Due Diligence

The proposed investment once vetted, the working team will conduct an in-depth due diligence exercise, set out the preliminary design, planning and basic terms for negotiations for the preparation of the feasibility report to the management for final review and approval.

Preparation

Upon the final approval from the management, a project committee will be established and is responsible for acquisition of the land, financing, budgeting and obtaining of the relevant consents and approval etc. and preparation of the detailed execution plan to the management for approval.

Planning and design (Property Development)

Upon granting of the land use right of the land, Chengdu OCT Group will appoint an architectural design firm to undertake the design work based on the requirements of the City Planning and Management Department (城市規劃管理部門) and seek the approval from relevant government departments. Upon approval of preliminary design, Chengdu OCT Group will appoint the design department to proceed with the project, the preliminary design (including revision). Chengdu OCT Group will also provide the surveyor’s report, respective government approval documentations and the construction plan (with budgets) and seek the approval from City Planning and Management Department (城市規劃管理部門) to obtain the construction works planning permit.

Construction (Property Development)

Upon obtaining the construction works planning permit, Chengdu OCT Group will outsource the contractors through tender and obtain the construction permit. A significant portion of the equipment and materials used during construction will be purchased by the contractors. Certain other equipment and materials, such as elevators, partial construction materials and gardening materials will be purchased by Chengdu OCT Group. A management engineer from the project team will be assigned to monitor quality and cost control and construction progress closely during the construction period. Chengdu OCT Group, the management engineer, architectural design firm, construction team and the relevant governmental authorities will inspect the property to ensure the quality of the completed property.

15 -

LETTER FROM THE BOARD

Pre-sale, sales and marketing (Property Development)

The pre-sale, sales and marketing are conducted by the marketing department. From the beginning of the development process, the marketing department will conduct market research and formulate the stylistic direction of the project and the signature identity and brand that the project aim to achieve, conduct feasibility studies based on market analysis and pricing strategies and determine appropriate advertising and sales plans for the Residential Property Project. When the development projects are ready for pre-sale, the marketing department will establish a sales team to carry out the actual selling activities. Meanwhile, Chengdu OCT Group has adopted various measures, such as advertising through outdoor media, print media and the internet as well as sponsoring performance and holding entertainment activities for the public to promote the properties of Chengdu OCT Group to potential customers.

After-sales services (Property Development)

Chengdu OCT Group endeavours to provide good after-sales services by assisting customers who purchase the residential properties of Chengdu OCT Group in arranging for and providing information relating to various title registration procedures relating to their properties, attends to the delivery of the properties to the relevant customers, as well as arrange for and supervise the repair and maintenance of its developed properties in a timely manner.

Planning and design (Tourism)

Chengdu OCT Group’s planning and design team is responsible for the planning and design of the projects. In general, the planning and design team will first base on the size of the local tourism and entertainment market, the niches, seasonal factors, competitions, development trend and the consumption preference to develop the theme of the master plan. Once the theme is determined, the Group will appoint an architectural design firm to undertake the design work and seek approval from relevant government departments. Chengdu OCT Group’s planning and design team will collaborate with the appointed design firm to conduct the master plan of the project with significant in-depth details to ensure that the final design of the master plan will be consistent with the theme and in compliance with the relevant PRC laws and regulations.

16 -

LETTER FROM THE BOARD

Construction (Tourism)

Construction of a theme park includes the construction of buildings, purchase of the relevant machineries, installation and testing of the facilities, decoration of the theme zones and gardening the environments. The project team is also responsible for tender and procurement of contractors, construction supervision, quality and budget control and completion inspection.

Marketing (Tourism)

Sales and marketing department is primarily responsible for selling activities and promotion and formulating the marketing strategy including pricing of the tickets and analysis of spending pattern of customers. Before the opening of the theme park, the sales and marketing department will increase level of marketing activities including selecting of the strategic partners for food & beverages, entertainment, shops and holding entertainment activities for the public to promote the theme park to potential customers.

Management (Tourism)

Happy Valley Tourism Branch is responsible for the management of the theme park.

Customers and Suppliers

The target customers of Chengdu OCT Group are domestic individuals and families in the PRC, particularly in Chengdu. It is expected that the demand for properties designed for these customers will increase as such customers’ household income and purchasing power continue to rise. The principal suppliers of Chengdu OCT Group are the contractors. The five largest contractors of Chengdu OCT Group accounted for approximately 69%, 39% and 47% of the total contract sum of the Group for each of the three years ended 31 December 2009 respectively.

Taxation

PRC Corporate Income Tax (“CIT”) is provided at the rate of 33% for the year ended 31 December 2007 and 25% for the years ended 31 December 2008 and 2009 of the profits for the PRC statutory financial reporting purpose, adjusted for those items, which are not assessable or deductible for the PRC CIT purpose.

17 -

LETTER FROM THE BOARD

PRC Land Appreciation Tax (“LAT”) is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds of sales of properties less deductible expenditures including lease charges of land use rights and all property development expenditures, which is included in the consolidated statements of comprehensive income as income tax. Chengdu OCT Group has estimated the tax provision for LAT according to the requirements set forth in the relevant PRC tax laws and regulations. The actual LAT liabilities are subject to the determination by the tax authorities upon completion of the property development projects and the tax authorities might disagree with the basis on which the provision for LAT is calculated.

Laws and regulations

Please refer to Appendix VI to this circular for the summary of the applicable laws and regulations relating to property development and tourism in the PRC.

E. MANAGEMENT DISCUSSION AND ANALYSIS OF CHENGDU OCT GROUP

The Directors confirmed that the accounting policies of the accountants’ report of Chengdu OCT are materially consistent with those of the Group. Set out below are certain financial information extracted from the accountants’ report of Chengdu OCT for the three year ended 31 December 2009 prepared under Hong Kong Financial Reporting Standards, as set out in Appendix I to this circular:

	For the	year ended 31	December
(RMB’000)	2007	2008	2009
Income statement summary
Turnover	–	–	1,521,962
Gross profit	–	–	392,181
Profit/(loss) before taxation	(21,096 )	(97,957 )	176,551
Profit/(loss) after taxation	(15,822 )	(73,350 )	102,894

18 -

LETTER FROM THE BOARD

Non-current assets Property and equipment Investment property Intangible assets Other financial assets Deferred tax assets Current assets Inventories Trade and other receivables Prepaid tax Cash and cash equivalents Total assets Current liabilities Borrowings Trade and other payables Receipts in advance Tax payable Net current liabilities Non-current liabilities Interest-bearing borrowings Deferred tax liabilities Total liabilities Net assets Current ratio Gearing ratio (based on total liabilities over total assets)	2007 RMB’000 820,605 81,053 87 4,320 5,274 911,339 425,127 594 – 70,647 496,368 1,407,707 365,000 258,763 – – 623,763 (127,395 ) 400,000 – 400,000 1,023,763 383,944 0.80 0.73	At 31 December 2008 2009 RMB’000 RMB’000 1,651,747 1,902,553 380,776 488,823 103 256 4,320 4,320 35,420 31,704 2,072,366 2,427,656 1,697,687 1,392,769 97,092 70,401 8,487 – 76,409 62,526 1,879,675 1,525,696 3,952,041 3,953,352 1,248,450 674,213 1,080,323 1,181,842 707,722 843,516 4,952 27,922 3,041,447 2,727,493 (1,161,772 ) (1,201,797 ) 600,000 800,000 – 12,371 600,000 812,371 3,641,447 3,539,864 310,594 413,488 0.62 0.56 0.92 0.90

19 -

LETTER FROM THE BOARD

Business Overview

No revenue was recorded for the two years ended 31 December 2007 and 2008, which was mainly due to Chengdu OCT Project were under construction before 2009. The turnover of Chengdu OCT Group was RMB1,522.0 million for the year ended 31 December 2009, which was mainly comprised sales of residential properties of RMB1,323.2 million and ticket sales from theme park of RMB165.8 million. Net profit of RMB102.9 million was recorded for the year ended 31 December 2009.

Gross profit margin of sales of residential properties was 29%. The Sichuan earthquake in May 2008 negatively affected the selling price of Phase I of the Residential Property Project. Gross profit margin of the operation of theme park was 27%. The directors of Chengdu OCT are of the opinion that it was a reasonable level as the theme park is located in western China. In addition, customers were given promotional discounts during the trial operation period in January and February 2009.

Distribution costs increased during the three years, which was consistent with Chengdu OCT Group’s business development. As Chengdu OCT Group started presales of Phase I of the Residential Property in 2008 and Phase II in 2009, advertising and marketing expenses were incurred for the pre-sales. In addition, advertisements and promotions were also made for opening of the theme park and its subsequent operation. Administrative expenses increased during the three years, which was consistent with the business development. To meet the demand of construction in 2008 and the operation of the theme park in 2009, Chengdu OCT Group expanded its staff number. The increase of administrative expenses year by year was mainly contributed by increased staff cost. Finance costs increased significantly in 2009, as the theme park and surrounding commercial properties became available for use from 2009. Consequently, borrowing costs ceased being capitalized and most of loan interests were charged to the income statement.

Income tax includes Corporate Income Tax (CIT) and Land Appreciation Tax (LAT). The effective tax rate for CIT was 25%. The CIT was increased in line with the recognition of sales of residential properties and the operation results of the theme park. LAT was calculated by applicable tax rate of 30% on the proceeds of sales of properties less deductible expenditures.

Please refer to Note 28 to the accountants’ report of Chengdu OCT as set out in Appendix I to this circular for the critical accounting estimates and assumptions in preparing the financial information of Chengdu OCT Group.

Segment information

As portion of the Residential Property Project was completed and sold in 2009 and Chengdu Happy Valley has commenced its operation in early 2009, the turnover by business mainly comprised sales of properties and ticket sales from theme park.

Significant investment, material acquisition and disposal

Chengdu OCT did not have any significant investments and material acquisitions and disposals for each of the three years ended 31 December 2009.

20 -

LETTER FROM THE BOARD

Prospects and futures plans

In view of the growing economic development in Chengdu, Chengdu OCT Group will continue its existing development plan to develop Chengdu OCT Projects. Please refer to the section headed “Development Plan” under “C. INFORMATION OF CHENGDU OCT GROUP” for details of the development plan.

Liquidity, financial resources, gearing ratio and capital structure

Chengdu OCT Group generally finances its operations with interest bearing bank loans, related party loans and internal generated cash flows.

As at 31 December 2007, Chengdu OCT Group had bank loans of RMB650.0 million with interest rates ranged from 5.51% to 6.89% per annum and related party loans of RMB115.0 million with interest rate of 6.56% per annum. Approximately RMB365.0 million out of the total borrowing as at 31 December 2007 was repayable within one year.

As at 31 December 2008, Chengdu OCT Group had bank loans of RMB600.0 million with interest rates ranged from 5.83% to 6.89% per annum and related party loans of RMB1,248.5 million with interest rates ranged from 3.70% to 7.47% per annum. Approximately RMB1,248.5 million out of the total borrowing as at 31 December 2008 was repayable within one year.

As at 31 December 2009, Chengdu OCT Group had no bank loans and related party loans of RMB1,474.2 million with interest rates ranged from 1.11% to 4.44% per annum. Approximately RMB674.2 million out of the total borrowing as at 31 December 2009 was repayable within one year.

Please refer to the above table, as set out on page 19 of this circular, for the information of the nature of major assets and liabilities, gearing ratio and liquidity of Chengdu OCT Group for each of the three years ended 31 December 2009.

Charge on assets

Chengdu OCT Group did not pledge any assets as at 31 December 2007 and 31 December 2008. As at 31 December 2009, Chengdu OCT Group pledged of approximately RMB10.1 million cash deposit to the bank to secure bills payable for purchase of construction materials.

Treasury policies and foreign currency exposure

Chengdu OCT Group had no formal treasury policy for each of the three years ended 31 December 2009. Chengdu OCT Group’s transactions and monetary assets are principally denominated in Renminbi. Chengdu OCT Group has not experienced any material difficulties or effects on its operations or liquidity as a result of fluctuations in currency exchange rates during the three year ended 31 December 2009. During the corresponding years, Chengdu OCT Group did not employ any material financial instrument for hedging purposes.

21 -

LETTER FROM THE BOARD

Capital commitment

For construction of Chengdu OCT Project, Chengdu OCT Group had contracted capital commitment of approximately RMB1,363.2 million, RMB396.7 million and RMB397.3 million as at 31 December 2007, 31 December 2008 and 31 December 2009 respectively.

Employees and Remuneration Policy

As at 31 December 2007, 31 December 2008 and 31 December 2009, Chengdu OCT Group had a total of approximately 150, 850 and 1,050 full-time staff members respectively. The basic remunerations of the employees are determined with reference to the industry’s remuneration benchmark, the employees’ experience and their performance. It is the policy of Chengdu OCT Group to maintain salaries of employees at a competitive level and to review salaries annually, with close reference to the relevant labour market and economic situation. Directors’ remuneration is determined based on a variety of factors such as market conditions and responsibilities assumed by each director. Apart from the basic remuneration and statutory benefits required by laws, Chengdu OCT Group also provides discretionary bonuses based upon Chengdu OCT Group’s results and the individual performance of the staff.

Chengdu OCT Group has not experienced any significant problems with its employees or disruption to its operations due to labour disputes nor has it experienced any difficulty in the recruitment and retention of experienced staff.

Contingent liabilities

Chengdu OCT Group did not have any contingent liabilities as at 31 December 2007, 31 December 2008 and 31 December 2009. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Chengdu OCT Group was not engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened against any member of Chengdu OCT Group.

F. THE MANAGEMENT TEAM OF CHENGDU OCT GROUP

List of the experienced management team of Chengdu OCT Group is as follows:

Zhang Dafan (張大帆), aged 43, is the director and general manager of Chengdu OCT and is also the general manager of commercial business division of Chengdu OCT. Mr. Zhang joined Chengdu OCT since its establishment in October 2005. Mr. Zhang was the deputy general manager of import and export department of Overseas Chinese Town Enterprises Company (華僑城集團公司); director of Shenzhen Bay Hotel (深圳灣大酒店); and deputy general manager of OCT HK. Mr. Zhang graduated from the management engineering department of Nanjing University of Aeronautics and Astronautics (南京航空學院管理工程系) and obtained a master degree of business administration from People’s University of China (中國人民大學).

22 -

LETTER FROM THE BOARD

Zang Yalin (臧亞林), aged 51, is the deputy general manager of Chengdu OCT. He joined Chengdu OCT in June 2009. Mr. Zang was the deputy general manager of branch company of Century OCT (Beijing) Co., Ltd. Happy Valley Beijing (北京世紀華僑城實業有限公司歡樂谷旅遊分公司) and Beijing Century Overseas Chinese Town Industrial Co. Ltd. (北京世紀華僑城實業有限公司) from September 2006 to June 2009. Mr. Zang was also the chief officer of investment and development department of OCT Holding and assistant to general manager of Shenzhen Splendid China Co., Ltd. (深圳錦繡中華有限公司).

Zheng Ping (鄭平), aged 46, is the deputy general manger of Chengdu OCT and general manger of the property business division of Chengdu OCT. He joined Chengdu OCT since its establishment in October 2005. Mr. Zheng was the deputy general manager of Shenzhen Qiaojian Construction Inspection Co., Ltd. (深圳僑建工程監理有限公司), a wholly owned subsidiary of OCT Holding, from April 1999 to July 2005 and was general manager and director of the company when he left the company. Mr. Zheng obtained a degree in engineering in Shanghai Tongji University (上海同濟大學).

Feng Wenhong (馮文紅), aged 42, is the chief financial officer of Chengdu OCT. She joined Chengdu OCT since its establishment in October 2005. She was working in OCT Properties from February 1991 to July 2005 and was the deputy chief officer of the financial department of the company when she left the company. She has extensive management experience in the property development market in the PRC.

In addition, the following Directors have relevant experiences in property market and tourism industry in the PRC:

Mr. Zheng Fan, aged 54, joined the Group since April 2002. He is also a director of OCT HK, the intermediate holding company of the Company. He had been a director of Shenzhen Huali, a subsidiary of the Company, from April 2002 to July 2006. Currently, Mr. Zheng is the deputy general manager of OCT Group, the ultimate controlling shareholder of the Company, chairman of Yunnan OCT and a director of OCT Holding. Since 1994, Mr. Zheng has held various senior positions at OCT Group and its subsidiaries and has rich management experience in real estate and tourism. Mr. Zhang was appointed as executive Director and chairman of the Board in September 2005, and was re-designated as non-executive Director in May 2009.

Mr. Ni Zheng, aged 42. He has been a director of Shenzhen Huali Packing & Trading Co., Ltd. (“Shenzhen Huali”) since 1999. Mr. Ni is a director of all the BVI and Hong Kong incorporated subsidiaries of the Company (except Huali Holdings Company Limited (“Huali Holdings”)) and the following PRC incorporated subsidiaries of the Company: Shenzhen Huali, Shanghai Huali Packaging Co., Ltd. (“Shanghai Huali”), Huizhou Huali, Huali Packaging (Huizhou) Co., Ltd. (華勵包裝(惠州)有限公司) (“Huali Huizhou”) and Shenzhen Huayou Packaging Co., Ltd. (“Shenzhen Huayou”). Mr. Ni is a director of Pacific Climax Limited, the immediate holding company of the Company, and a director of OCT HK, the intermediate holding company of the Company. Mr. Ni is also a director of various subsidiaries of OCT HK, a director of Chengdu OCT, and the Board Secretary of OCT Holding. He had been the deputy general manager and general manager of the investment department of OCT Group. Mr. Ni graduated from the department of Applied Physics of Chongqing University and obtained a bachelor’s degree in Science and a master degree in Engineering in 1988 and 1991, respectively.

23 -

LETTER FROM THE BOARD

Ms. Xie Mei, aged 42, is the Chief Executive Officer of the Company. Ms. Xie joined the Group in December 2004. Ms. Xie is a director of all the BVI and Hong Kong incorporated subsidiaries of the Company (except Bantix) and the following PRC incorporated subsidiaries of the Company: Shenzhen Huali, Huizhou Huali, Huali Huizhou and Shenzhen Huayou. Ms. Xie has been a deputy general manager and general manager of the strategic development department of OCT Group. Ms. Xie is currently a director of two subsidiaries of OCT Group, namely Inter Continental, Shenzhen and Yunnan OCT Industrial Co., Ltd. (雲南華僑城實業有限公司) (“Yunnan OCT”). She has extensive management experience in the real estate and tourism. Ms. Xie has rich management experience in real estate and tourism. Ms. Xie is also the general manager of OCT HK. Ms. Xie graduated from the Department of Electrical Engineering of Xi’ an Jiaotong University and obtained a bachelor’s degree in Engineering in1989. She also obtained a master degree in Economics from the People’s University of the PRC in 1999. Ms. Xie was appointed as a non-executive Director in September 2005 and was re-designated as an executive Director in August 2007.

Mr. Zhou Guangneng, aged 58, has participated in the Group’s management since January 2002. Currently, Mr. Zhou is a director of all the BVI and Hong Kong incorporated subsidiaries of the Company and the following PRC incorporated subsidiaries of the Company, namely Shanghai Huali, Zhongshan Huali Packaging Co., Ltd (中山華力包裝有限公司) (“Zhongshan Huali”) and Zhongshan Huali Packaging Co., Ltd (中山華勵包裝有限公司) (“Zhongshan Huali Packaging”). He is also a director of Pacific Climax, the immediate holding company of the Company and a director of various subsidiaries of OCT (HK). Mr. Zhou is also the deputy general manager of OCT (HK), being responsible of purchasing amusement facilities. Mr. Zhou graduated from the Department of Physics of Nanjing University in 1978, and obtained a master degree in Science in 1982. Mr. Zhou has more than 20 years of experience in corporate management and has held various senior positions in subsidiaries of Shenzhen Electronics Group Co., Ltd.

24 -

LETTER FROM THE BOARD

G. REASONS FOR AND BENEFIT OF THE CAPITAL INJECTION

The Group is principally engaged in the manufacture of quality paper-based packaging containers and materials, including corrugated paperboard and printed cartons for customers. In recent years, it also participates in property investment and property development projects in the PRC.

Being the provincial capital of the Sichuan Province, the PRC and a city participating in 中國西部大開發 (The China’s Western Development), Chengdu enjoys a substantial economic development in the last decade. Pursuant to the statistics published by 成都統計資訊網 (Chengdu Bureau of Statistics Internet), a public website under 成都市統計局 (Chengdu Bureau of Statistics), the gross domestic product (“GDP”) per capital and urban disposal income of Chengdu increased from RMB17,915.35 in 2003 to RMB34,676.61 in 2008, representing an annual compound growth rate (“CAGR”) of approximately 14.12%, and from RMB9,641 in 2003 to RMB16,943 in 2008, representing a CAGR of approximately 11.94%, respectively. On the other hand, both commodity property price and residential property price in Chengdu experienced a double digit CAGR for a decade up to 2008, to RMB4,921.08 per sq.m. and RMB4,869.06 per sq.m, respectively, in 2008. The number of tourists of Chengdu was nearly doubled to approximately 55.65 million in 2009 since 2003. The drop in number of tourists of Chengdu in 2008 was mainly due to Sichuan earthquakes in that year. The table below illustrates the major indicators of the Chengdu’s economy:

			Urban	Commodity	Residential
		GDP	disposable	property	property	Number of
Year	GDP	per capital	income	price	price		tourists
	(RMB billion)	(RMB)	(RMB)	(RMB/	per sq.m.)	(’ million)
2003	187.09	17,915.35	9,641	2,096.34	1,908.37		28.66
2004	203.11	19,166.64	10,394	2,713.07	2,376.74		32.56
2005	237.08	21,910.30	11,359	3,213.32	2,865.82		36.70
2006	275.05	24,927.32	12,789	3,591.88	3,436.58		40.62
2007	332.42	29,886.09	14,849	4,266.48	4,189.94		43.32
2008	390.10	34,676.61	16,943	4,921.08	4,869.06		41.55
2009	450.26	NA	18,659	NA	N/A		55.65

Source: Chengdu Bureau of Statistics Internet

25 -

LETTER FROM THE BOARD

Taking into account (i) the above economic data of Chengdu and the expected long-term economic development in the PRC, particularly Chengdu; (ii) the fact that Chengdu OCT Project represents a landmark comprehensive development project in Chengdu with distinguished features; (iii) the fact that Chengdu OCT Group’s operations have been profitable and generating cash flows; and (iv) the future earnings potential of Chengdu OCT Group upon the commencement of the other operations and sales of properties in the coming years, the Board is of the view that the entering into the Capital Increase Agreement is in line with the business strategy of the Group and will enable the Group to further increase its exposure in the property and the tourism industry of Chengdu. The Board considers that the terms of the Capital Increase Agreement are fair and reasonable and the Capital Injection is in the interests of the Company and the Shareholders as a whole.

H. THE PLACING AGREEMENT DATED 1 APRIL 2010

Issuer

The Company

Placing Agent

China Merchants Securities (HK) Co., Limited

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Placing Agent and its ultimate beneficial owners are Independent Third Parties.

The Placing Agent will charge the Company a placing commission of 2.5% of the gross proceeds from the Placing. The Placing commission was negotiated on arm’s length basis between the Company and the Placing Agent and determined with reference to, among other things, the market rate and the price performance of the Shares. The Directors consider the terms of the Placing, including the placing commission, are fair and reasonable based on the current market conditions.

Placee(s)

No fewer than six (6) subscribers whom the Placing Agent will procure to subscribe any of the Placing Shares pursuant to its obligations under the Placing Agreement.

In the event that, as at the Placing Completion Date, there are any Unplaced Shares, the Placing Agent shall on the Placing Completion Date subscribe the said Unplaced Shares at the placing price of HK$5.00 per Placing Share and pay the relevant amounts due therefor on the Placing Completion Date. If there are no Unplaced Shares on the Placing Completion Date, the obligations of the Placing Agent to subscribe the Unplaced Shares shall cease.

26 -

LETTER FROM THE BOARD

Independence of the Placing Agent and placee(s)

The Placing Agent is, and the placee(s) and their respective ultimate beneficial owners are expected to be, Independent Third Parties.

Number of Placing Shares

60,000,000 new Shares represent (i) approximately 17.30% of the existing issued share capital of the Company as at the Latest Practicable Date and (ii) approximately 12.04% of the issued share capital of the Company as enlarged by the Placing Shares and the Subscription Shares.

It was originally proposed that the Placing Shares would be issued under a general mandate granted by the Shareholders at the extraordinary general meeting of the Company held on 12 January 2010. No Shares have been issued under such general mandate up to the Latest Practicable Date. It was also agreed that the Placing Completion Date is on or later than the forthcoming annual general meeting of the Company in 2010, the Directors may propose an ordinary resolution at the EGM to authorize the Directors to allot and issue the Placing Shares pursuant to the Placing Agreement.

Since the EGM is expected to be held on the same date as the forthcoming annual general meeting of the Company in 2010 i.e. 31 May 2010, the Placing Completion Date will be later than the forthcoming annual general meeting of the Company in 2010. The Directors will propose an ordinary resolution at the EGM to authorize the Directors to allot and issue the Placing Shares pursuant to the Placing Agreement.

Application has been made by the Company to the Listing Committee of the Stock Exchange for the granting of the listing of, and permission to deal in, the Placing Shares. The Company has obtained conditional approval for the listing of, and permission to deal in, the Placing Shares from the Listing Committee of the Stock Exchange.

Placing Price

The placing price of HK$5.00 for the Placing Shares was arrived at after arm’s length negotiations between the Company and the Placing Agent and represents:

(i) a discount of approximately 2.34% to the closing price of HK$5.12 per Share as quoted on the Stock Exchange on 31 March 2010, being the last trading day prior to the publication of the Announcement;
(ii) a discount of approximately 1.77% to the average closing price of HK$5.09 per Share as quoted on the Stock Exchange in the 5 trading days up to and including 31 March 2010;
(iii) a premium of approximately 2.04% over the average closing price of HK$4.90 per Share as quoted on the Stock Exchange in the 10 trading days up to and including 31 March 2010;
27 -

LETTER FROM THE BOARD

(iv) approximately 1.18 times over the audited consolidated net asset value per Share of approximately HK$2.29 as at 31 December 2009 (based on 346,750,000 Shares in issue); and
(v) a premium of approximately 8.70% above the closing price of HK$4.60 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The net price per Placing Share (based on the amount of net proceeds from the Placing) is approximately HK$4.80, calculated after deducting the commission and expenses in relation to the Placing.

Ranking of the Placing Shares

The Company will issue and allot the Placing Shares free from all liens, charges, security interests, encumbrances and adverse claims and the Placing Shares, when issued and fully paid, will rank pari passu in all respects with the Shares in issue at the date of allotment of the Placing Shares, and in particular will rank in full for all dividends and other distributions declared, made or paid in respect thereof.

Conditions of the Placing Agreement

Completion of the Placing is conditional upon the occurrence of the followings by not later than 31 July 2010 (or such later date as may be agreed between the Placing Agent and the Company in writing):

the passing of an ordinary resolution by the Independent Shareholders at a general meeting approving by way of a poll the issue and allotment of the Subscription Shares by the Company, the Subscription Agreement and the transactions contemplated in the Subscription Agreement;
the passing of an ordinary resolution by the Independent Shareholders at a general meeting approving by way of a poll the Capital Increase Agreement and the transactions contemplated in the Capital Increase Agreement;
where the existing general mandate (under which the Placing Shares are to be issued) to issue new Shares granted to the Directors at the extraordinary general meeting of the Company held on 12 January 2010 lapsed or revoked before the completion of the Placing, an ordinary resolution by the Shareholders granting the Directors the necessary authority to issue and allot the Placing Shares pursuant to the Placing Agreement has been passed; and
the Listing Committee of the Stock Exchange having granted listing of and permission to deal in all of the Placing Shares and the Subscription Shares in principle.

If the above conditions are not fulfilled by 31 July 2010, the Placing will lapse and the obligations and liabilities of the Company and the Placing Agent under the Placing shall be null and void and the Company and the Placing Agent shall be released from all rights and obligations pursuant to the Placing.

28 -

LETTER FROM THE BOARD

Completion

Completion of the Placing will take place on the second Business Day following the satisfaction of the conditions of the Placing Agreement or such other date as the Company and the Placing Agent may agree in writing after the issue and allotment of Subscription Shares to Pacific Climax.

Rescission

If any of the following events occur at any time prior to 9:00 a.m. on the Placing Completion Date, the Placing Agent may (after such consultation with the Company and/or its advisers as the circumstances shall admit or be necessary), by giving a written notice to the Company, at any time prior to 9:00 a.m. on the Placing Completion Date rescind the Placing Agreement without liability to the other parties hereto or any thereof and, subject to certain clauses of the Placing Agreement which shall continue, the Placing Agreement shall thereupon cease to have effect and none of the parties hereto shall have any rights or claims by reason thereof:

(a) in the reasonable opinion of the Placing Agent there shall have been since the date of the Placing Agreement such a change in national or international financial, political or economic conditions or taxation or exchange controls as would be likely to prejudice materially the consummation of the Placing; or
(b) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any matter whatsoever which may adversely affect the business or the financial or trading position or prospects of the Group as a whole; or
(c) any material breach of any of the representations, warranties and undertakings given by the Company under the Placing Agreement comes to the knowledge of the Placing Agent or any event occurs or any matter arises on or after the date of the Placing Agreement and prior to the Placing Completion Date which if it had occurred or arisen before the date of the Placing Agreement would have rendered any of such representations, warranties and undertakings untrue or incorrect in any material respect or there has been a material breach by the Company of any other provision of the Placing Agreement; or
(d) there is any adverse change in the financial position of the Company which in the reasonable opinion of the Placing Agent is material in the context of the Placing; or
(e) there is any moratorium, suspension or material restriction on trading in shares or securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise.
29 -

LETTER FROM THE BOARD

I. THE SUBSCRIPTION AGREEMENT DATED 1 APRIL 2010

Issuer

The Company

Subscriber

Pacific Climax

Subscription Shares

The 91,800,000 Subscription Shares represent approximately 26.47% of the existing issued share capital of the Company as at the Latest Practicable Date and approximately 18.41% of the issued share capital of the Company as enlarged by the issue of the Placing Shares and the Subscription Shares.

Application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares. The Company has obtained conditional approval for the listing of, and permission to deal in, the Subscription Shares from the Listing Committee of the Stock Exchange.

Subscription price

The Subscription price of HK$5.0 per Subscription Share, which was arrived at after arm’s length negotiations between the Company and the Subscriber, represents a discount of approximately 2.34% to the closing price of HK$5.12 per Share as quoted on the Stock Exchange on 31 March 2010, being the last trading day prior to the publication of the Announcement.

Mandate to issue the Subscription Shares

The Subscription Shares will be issued under a specific mandate proposed to be granted to the Directors at the EGM.

Ranking of the Subscription Shares

The Subscription Shares, when fully paid, will rank pari passu in all respects with the Shares in issue at the date of allotment of the Subscription Shares.

30 -

LETTER FROM THE BOARD

Conditions of the Subscription

Completion is conditional upon the occurrence of the followings by not later than 31 July 2010 (or such later date as may be agreed between the Subscriber and the Company):

(a) the passing of an ordinary resolution by the Independent Shareholders at a general meeting approving by way of a poll the issue and allotment of the Subscription Shares by the Company, the Subscription Agreement and the transactions contemplated hereby; and
(b) the Listing Committee of the Stock Exchange having granted the listing of and permission to deal in all of the Subscription Shares and the Placing Shares in principle.

If the above conditions are not fulfilled by 31 July 2010, the obligations and liabilities of the Subscriber and the Company under the Subscription shall be null and void and the Subscriber and the Company shall be released from all rights and obligations pursuant to the Subscription.

Completion of the Subscription

Completion of the Subscription will take place on the second Business Day following the satisfaction of the conditions of the Subscription Agreement is satisfied or such other date as may be agreed by the Company.

J. REASONS FOR THE PLACING AND THE SUBSCRIPTION AND USE OF PROCEEDS

Apart from equity financing, the Directors considered other financing alternatives such as debt financing as possible fund raising method for the Group to finance the Capital Injection. However, taking into account that the capital contribution payable by the Group under the Capital Injection will amount to approximately RMB588 million, which represents approximately 81.6% the Group’s net asset value as at 31 December 2009, the Directors believe that it would be very difficult for the Group to obtain sufficient bank borrowings with favourable or acceptable terms to finance the Capital Injection. Furthermore, additional debt financing shall inevitably increase the interest burden on the Group and it may subject to lengthy due diligence and negotiations between the Group and its financiers.

The Directors also consider that a rights issue or open offer may not be desirable. A typical rights issue or open offer is underwritten by one or a syndicate of securities brokerages. Since the Shareholders’ response to a rights issue or open offer is uncertain, in particular when stock market becomes volatile, securing underwriting arrangement for a rights issue or open offer is comparatively more difficult and time consuming than the Placing and Subscription. Furthermore, a rights issue or open offer would involve numerous steps including notice period for book closure, issue of prospectus and offer period which would normally take no less than one and a half month’s time to complete under the prevailing Listing Rules. In addition, to maintain their pro-rata shareholding in a rights issue or open offer, the existing Shareholders will have to participate in the rights issue or open offer or face dilution. This may create undue financial burden on certain existing Shareholders.

31 -

LETTER FROM THE BOARD

Taking into account that bank borrowings will (i) create additional finance cost to the Group and increase its gearing ratio; and (ii) involve refinancing risk to the Group and rights issue or open offer will (i) be time-consuming and (ii) create undue financial burden on certain existing Shareholders, the Directors consider that, as compared to bank borrowings, open offer and rights issue, equity financing through the Placing and Subscription is a comparatively prudent way to finance the Group’s future business development.

With reference to the Capital Injection, the purpose of entering into the Placing Agreement and the Subscription Agreement is to raise gross amount of funding of HK$759 million to fulfill the payment obligations of the Group under the Capital Increase Agreement and the Directors consider that the terms of the Placing Agreement and the Subscription Agreement are fair and reasonable and the Placing and the Subscription are in the best interest of the Company and the Shareholders as a whole. The Company plans to apply the net proceeds of the Placing and the Subscription of approximately HK$747 million to settle the cash contribution of approximately HK$672 million for the Capital Increase Agreement and the remaining balance of approximately HK$75 million is intended for future working capital purpose and other future investments of the Group if opportunities arise.

Based on the Company’s due diligence work on Chengdu OCT, the Board does not foresee any difficulties in completing the Capital Injection. In the event that any of the conditions for the payment of the capital contribution by Bantix under the Capital Increase Agreement is not fulfilled or waived and the Capital Increase Agreement is terminated, the Directors may be required to reallocate the intended part of the net proceeds from the Subscription and the Placing of approximately HK$747 million to other business plans or new projects or hold such funds in bank accounts or short term investments so long as the Directors consider such use of proceeds to be in the best interests of the Group. It is expected that HKD650 million will be retained for other business plans or new projects, if opportunities arise; and the remaining HKD97 million will be used for general working capital purpose.

K. FUNDS RAISED DURING THE PAST 12 MONTHS

Save for the top-up placing of 57,000,000 new Shares at a subscription price of HK$2.80 per Share as stated in the announcement of the Company dated 12 November 2009, the Company has not carried out any fund raising activity by the issue of equity securities or convertible securities in the 12 months preceding the Announcement. The net proceeds of the top-up placing was approximately HK$155 million, of which (i) HK$40 million has been ultized as working capital for expansion of the existing business operation of the Group; (ii) HK$20.4 million has been used for repayment of bank loans; (iii) RMB50 million (approximately HK$57.1 million) has been utilized for the capital injection in 西安華僑城投資有限公司 (Xi’an OCT Investment Ltd.), details of which are set out in the circular of the Company dated 23 December 2009, and (iv) the remaining balance of HK$37.5 million will be utilized as general working capital and other future investments of the Group if opportunities arise.

32 -

LETTER FROM THE BOARD

L. SHAREHOLDING STRUCTURES BEFORE AND AFTER THE CAPITAL INJECTION, THE PLACING AND THE SUBSCRIPTION

The diagram below shows the current corporate and shareholding structure of the Group and Chengdu OCT:

Existing corporate structure

==> picture [283 x 259] intentionally omitted <==

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

OCT Holding
100%
OCT HK
100%
100%
Pacific Climax
56.70% OCT Properties
The Company
100%
OCT Investments Limited 37%
38%
100%
Bantix
25%
Chengdu OCT
----- End of picture text -----

33 -

LETTER FROM THE BOARD

Upon completion of the Capital Increase Agreement, the Placing and the Subscription

==> picture [283 x 259] intentionally omitted <==

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

OCT Holding
100%
OCT HK
100%
100%
Pacific Climax
57.85% OCT Properties
The Company
100%
OCT Investments Limited 24.2%
24.8%
100%
Bantix
51.0%
Chengdu OCT
----- End of picture text -----

The respective shareholding structures of the Company immediately before and after the Placing and the Subscription are set out below:

Name of Shareholders Pacific Climax_(Note)_ Directors: Ni Zheng Zhou Guangneng Public Shareholders: Placees Other public Shareholders Total	Shareholding as at the Latest Practicable Date Number of Shares % 196,620,000 56.70 600,000 0.17 510,000 0.15 – – 149,020,000 42.98 346,750,000 100.00	Shareholding upon completion of the Placing and the Subscription Number of Shares % 288,420,000 57.85 600,000 0.12 510,000 0.10 60,000,000 12.04 149,020,000 29.89 498,550,000 100.00	Shareholding upon completion of the Placing and the Subscription Number of Shares % 288,420,000 57.85 600,000 0.12 510,000 0.10 60,000,000 12.04 149,020,000 29.89 498,550,000 100.00
			100.00

Note:

OCT Holding is the sole beneficial owner of all the issued share capital of OCT HK which holds the entire issued share capital of Pacific Climax.

34 -

LETTER FROM THE BOARD

M. FINANCIAL EFFECT OF THE CAPITAL INJECTION, THE PLACING AND THE SUBSCRIPTION

Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to this circular, the audited total assets of the Group as at 31 December 2009 were approximately RMB1,177 million and the unaudited pro forma total assets of the Enlarged Group upon completion of the Placing and the Subscription would amount to approximately RMB6,646 million. The audited total liabilities of the Group as at 31 December 2009 were approximately RMB483 million and the unaudited pro forma total liabilities of the Enlarged Group upon completion of the Placing and the Subscription would amount to approximately RMB4,393 million. The audited net assets of the Group as at 31 December 2009 approximately RMB695 million and the unaudited pro forma net assets of the Enlarged Group upon completion of the Placing and the Subscription would increase to approximately RMB2,253 million. Assuming the Capital Injection took place on 1 January 2009, the Group’s profit attributable to owners of the Company for the year ended 31 December 2009 of RMB24 million would become to a profit of RMB161 million.

N. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

For the year ended 31 December 2009, the Group’s turnover was RMB622 million, representing a decrease of 18.5% over 2008. Profit for the year was RMB23.81 million, representing an increase of approximately 43.5% over 2008. Gross profit margin was approximately 13.8%, representing an increase of 2.1% over 2008. Total assets and total equity amounted to RMB1.177 billion and RMB695 million, representing an increase of 27.2% and 29.4% over 2008 respectively.

During the period under review, China registered stable economic growth amid the shroud of uncertainties around global economic recovery. In the first half of the year, despite the slow recovery of the economy, overall demand for paper packaging remained stagnant and the paper packaging market in China showed few signs of promising recovery, which posed great pressure to the Group. However, in the second half of the year, the combination of the economic stimulus of “Home appliances going to the countryside”, as well as the stringent internal management and the shift of sales focus of the Group, the Group recorded steady increase in sales.

To cope with the changing market environment, the Group actively launched a series of sales strategies to mitigate the negative impacts resulting from the change in customer demand and the intensification in industry competition, which included the active expansion of domestic sales and the color printed packaging business and so on, which enabled the Group to maintain a healthy development during economic hard times.

In December 2009, Huizhou Huali Packaging Co., Ltd. (“Huizhou Huali”), a subsidiary of the Company, commenced operation. The Group has successfully relocated a majority of the production facilities and personnel of its Shenzhen plant to Huizhou. Huizhou Huali is committed to becoming the largest corrugated paper packaging production base in Southern China, with an integrated production pattern from concept and design, R&D and testing, plate making and printing, post-press processing to storage and logistics. The Company believes that the operation of Huizhou Huali can effectively integrate regional resources and further the penetration into the Southern China market by the Group, so as to seize opportunities to expand our market share.

35 -

LETTER FROM THE BOARD

In addition to the investment in Chengdu OCT, the Group has committed to hold 25% interest in 西安華僑城投資有限公司 (Xi’an OCT Investment Ltd.) (“Xi’an OCT”). As an important window to the Development of Western China, Xi’an has great development potential, therefore the Group intends to explore new profit sources through the investment in the property projects of Xi’an OCT project.

In spite of the nascent recovery of the global economy and the intensification of industry competition, as the economic development in China progresses steadily and the domestic consumption power picks up rapidly, the Group is still optimistic about the prospects of the paper packaging industry at home and abroad. Looking into 2010, product demand is expected to increase progressively, and overall paper packaging business will continue to sustain a healthy growth. Therefore, the Company will adhere to its past strategies to augment its market competitiveness through maintaining and reinforcing high level of internal management and production process control, exploring new customers, developing new products and expanding the market share of high profit margin products.

The Company is confident about the long-term prospects of Chengdu OCT, which the Directors believe is likely to generate returns for the Company. Please refer to the section headed “Development Plan” under “C. INFORMATION OF CHENGDU OCT GROUP” for the development plan for the coming years.

In 2010, the construction of Xi’an OCT will also gradually unfold. It is expected that the construction of low density residential building will commence in 2010. OCT Group, the ultimate controlling shareholder of the Company, is one of the sixteen Central State Owned Enterprises engaging in real estate development and operation as its main business. Looking forward, the Company will work with OCT Group to seek for more suitable investment opportunities and increase the investment in comprehensive development projects. In 2010, the Company will continue to maintain steady development of the paper packaging business. The management believes that, leveraging on the extensive experience of the Company and the established brand image of “OCT”, the Group can effectively strengthen its market competitiveness, which in turn can steadily increase the Company’s value and bring long-term satisfactory results to its Shareholders.

The Group will continue its existing business i.e. manufacturing of quality paper-based packaging containers and materials and has no intention to dispose of its existing business and assets. The Company is optimistic about the property industry in the PRC. In the coming years, the Group will continue to pursue property development project in the PRC with a focus in Chengdu.

O. INDUSTRY OVERVIEW

THE OVERVIEW OF THE PRC ECONOMY

According to the World Factbook[1] , during the past 30 years, China has changed from a centrally planned system that was largely closed to international trade to a more marketoriented economy and is the third largest economy among the world based on the GDP in 2009 adjusted by the purchasing power parity. Pursuant to the statistics published by National Bureau of Statistic of China, the PRC’s nominal GDP grew at CAGR of approximately 15.97% from approximately RMB15,987.8 billion in 2004 to approximately RMB33,535.3 billion in 2009, making it became one of the fastest growing economies during the period.

36 -

LETTER FROM THE BOARD

The table below illustrates selected statistics of the PRC for the period indicated:

							CAGR
	2004	2005	2006	2007	2008	2009	(2004-2009)
Nominal GDP
(in RMB billion)	15,987.8	18,321.7	21,192.4	25,730.6	30,067.0	33,535.3	15.97%
Per capita GDP	12,336.0	14,053.0	16,165.0	19,524.0	22,698.0	NA	16.47%
(in RMB)							(Note)
Fixed assets investment
(in RMB billion)	7,047.7	8,877.4	10,999.8	13,732.4	17,282.8	22,484.6	26.12%
Foreign direct investments
(actually utilized)	60.6	60.3	63.0	74.8	92.4	NA	11.12%
(USD billion)							(Note)

Sources: China Statistical Yearbook 2009 and 2009 年國民經濟和社會發展統計公報 (“2009 National Economic and Social Development Report”)

Note: It represents the CAGR for the period from 2004 to 2008.

1 The World Factbook is published and updated by the Central Intelligence Agency, an independent agency, on 7 April 2010.

THE OVERVIEW OF THE PRC PROPERTY MARKET

Driven by (1) increasing urbanization, (2) increasing per capita disposal income for urban household and (3) robust economic development, the PRC’s property market has underwent a remarkable growth in the recent years. Pursuant to the statistic published by National Bureau of Statistic of China, the PRC’s urbanization increased from approximately 41.8% in 2004 to 46.6% in 2009, and per capita disposable income for urban household rose from approximately RMB9,421.6 in 2004 to RMB17,175 in 2009, representing CAGR of approximately 12.76%.

The table below illustrates selected statistics in respect of the PRC’s urbanization rate and per capita disposal income for urban household:

							CAGR
	2004	2005	2006	2007	2008	2009	(2004-2009)
Urban year-end population
(in million)	542.8	562.1	577.1	593.8	606.7	621.9	2.76%
Total year-end population
(in million)	1,299.9	1,307.6	1,314.5	1,321.3	1,328.0	1,334.7	0.53%
Urbanization rate (%)(Note)	41.8	43.0	43.9	44.9	45.7	46.6	2.20%
Per capita disposable income
for urban household	9,421.6	10,493.0	11,759.5	13,785.8	15,780.8	17,175	12.76%

Sources: China Statistical Yearbook 2009 and 2009 年國民經濟和社會發展統計公報

(“2009 National Economic and Social Development Report”)

Note: It is determined by dividing the urban year-end population by the total year-end population.

37 -

LETTER FROM THE BOARD

Demand for real estates in the PRC has been, in general, riding on an upward trend over the years. Pursuant to the statistics published by National Bureau of Statistic of China, the GFA of commodity properties, comprising (1) residential buildings, (2) office buildings, (3) houses for business use and (4) others, sold in 2004 was approximately 382.3 million sq.m. in 2004 to 937.1 million sq.m. in 2009. The average selling price of commodity properties in 2008 was approximately RMB3,800 per sq.m., increasing from approximately RMB2,778.0 per sq.m. in 2004, representing a CAGR of approximately 8.15% during the period.

							CAGR
	2004	2005	2006	2007	2008	2009	(2004-2009)
GFA of commodity
properties sold
(sq.m. in million)	382.3	554.9	618.6	773.5	659.7	937.1	14.61%
GFA of residential
properties sold
(sq.m. in million)	338.2	495.9	554.2	701.4	592.8	852.9	15.06%
GFA of villas, high-grade
apartment sold	23.2	28.2	36.7	45.8	28.7	NA	5.46%
(sq.m. in million)							(Note)
GFA of office building sold	6.9	11.0	12.3	14.7	11.6	NA	13.87%
(sq.m. in million)							(Note)
Average selling price of
commodity properties	2,778.0	3,168.0	3,367.0	3,864.0	3,800	NA	8.15%
(in RMB per sq.m)							(Note)
Average selling price of
residential properties	2,608.0	2,937.0	3,119.0	3,645.0	3,576.0	NA	8.21%
(in RMB per sq.m)							(Note)
Average selling price of villas,
high-grade apartment	5,576.0	5,834.0	6,585.0	7,471.0	7,801.0	NA	8.76%
(in RMB per sq.m)							(Note)
Average selling price of
office building	5,744.0	6,923.0	8,053.0	8,667.0	8,378.0	NA	9.90%
(in RMB per sq.m)							(Note)

Sources: China Statistical Yearbook 2009 and 2009 年國民經濟和社會發展統計公報 (“2009 National Economic and Social Development Report”) Note: It represents the CAGR for the period from 2004 to 2008.

The prosperous development in the PRC has seen a rapid growth in total revenue for the property developers with a CAGR of approximately 19.00% during the period from 2004 to 2008. In the corresponding period, the total operating profit for the property developer advanced from approximately RMB85.8 billion in 2004 to RMB343.2 billion in 2008, representing a CAGR of approximately 41.42%.

38 -

LETTER FROM THE BOARD

							CAGR
	2004	2005	2006	2007	2008	2009	(2004-2008)
Total revenue for the
property developers
(in RMB billion)	1,331.4	1,476.9	1,804.7	2,339.7	2,669.7	NA	19.00%
Total operating profit to
the property developers
(in RMB billion)	85.8	110.9	167.0	243.7	343.2	NA	41.42%

Sources: China Statistical Yearbook 2009

THE ECONOMY AND PROPERTY MARKET IN CHENGDU

Chengdu is the provincial capital of Sichuan province, the PRC and a city participating in 中國西部開發 (“The China’s Western Development”) with a year-end population of approximately 11.2 million in 2008. Pursuant to statistic published by Chengdu Bureau of Statistics Internet, the nominal GDP of Chengdu increased from approximately RMB203.11 billion in 2004 to RMB450.26 billion in 2009, representing a CAGR of approximately 17.72%.

The table below illustrates the selected statistic in respect of Sichuan province and Chengdu for the years indicated:

							CAGR
	2004	2005	2006	2007	2008	2009	(2004-2009)
Nominal GDP of Chengdu
(in RMB billion)	203.11	237.08	275.05	332.42	390.1	450.26	17.72%
Nominal GDP of
Sichuan Province	637.96	738.51	863.78	1,050.53	1,250.63	1,415.1	18.33%
(in RMB billion)
As a percentage of the
nominal GDP of
Sichuan Province (%)
(Note)	31.84	32.10	31.84	31.64	31.19	31.82	NA

Source: 成都市統計年鑒 (“Chengdu Statistical Yearbooks”), 2009 年成都市國民經濟和社會發展統計公報 (“2009 Chengdu’s Economic and Social Development Report”), China Statistical Yearbook 2009 and 2009 年四川國民經濟和社會發展統計公報 (“2009 Sichuan Province’s Economic and Social Development Report”)

Note: It is determined by dividing the nominal GDP of Chengdu by the nominal GDP of Sichuan Province

39 -

LETTER FROM THE BOARD

Fueled by (1) increasing urbanization, (2) increasing per capita disposable income for urban household and (3) robust economic development, Chengdu’s property market has experienced a remarkable growth in the recent years. According to the statistics published by Chengdu Bureau of Statistics Internet, Chengdu’s urbanization rate increased from approximately 43.9% in 2004 to 45.3% in 2008 and per capita disposable income for urban household rose from approximately RMB10,394 in 2004 to RMB18,659.0 in 2009, representing a CAGR of approximately 12.41%.

The table below illustrates the selected statistic, inter alias (i) urbanization rate and (ii) per capita disposable income for urban household, in respect of Chengdu for the years indicated:

							CAGR
	2004	2005	2006	2007	2008	2009	(2004-2009)
Urban year-end population
(in million)	4.65	4.82	4.97	5.07	5.10	NA	7.75%
Total year-end population
(in million)	10.60	10.82	11.03	11.12	11.25	11.40	1.47%
Urbanization rate (%)(Notes)	43.87	44.55	45.06	45.60	45.33	NA	NA
Per capita disposable income
for urban household (RMB)	10,394	11,359	12,789	14,849	16,943	18,659	12.41%

Source: 成都市統計年鑒 (“Chengdu Statistical Yearbooks”) and 2009 年成都市國民經濟和社會發展統計公報 (“2009 Chengdu’s Economic and Social Development Report”)

Note: It is determined by dividing the urban year-end population by the total year-end population

40 -

LETTER FROM THE BOARD

According to the statistics published by Chengdu Bureau of Statistics Internet, the average selling price per sq.m. of commodity properties in Chengdu increased from approximately RMB2,713.07 per sq.m. in 2004 to approximately RMB4,934.83 per sq.m. in 2009, representing a CAGR of approximately 12.71%. The below table illustrates the selected statistics relating to GFA of properties sold and the average selling price for the years indicated:

							CAGR
	2004	2005	2006	2007	2008	2009	(2004-2009)
Sales of commodity properties
(in RMB billion)	30.63	39.52	55.06	95.71	62.67	132.90	34.11%
Sales of residential properties
(in RMB billion)	24.23	31.88	49.04	88.06	58.01	123.43	34.89%
GFA of commodity properties
sold (including pre-sold)
(sq.m. in million)	11.29	12.30	15.33	22.43	12.74	26.93	18.99%
GFA of residential properties
sold (including pre-sold)
(sq.m. in million)	10.20	11.12	14.27	21.02	11.91	25.32	19.94%
Average selling price of
commodity properties
(in RMB per sq.m)(Note 1)	2,713.07	3,213.32	3,591.88	4,266.48	4,921.08	4,934.83	12.71%
Average selling price of
residential properties
(in RMB per sq.m)(Note 2)	2,376.74	2,865.82	3,436.58	4,189.94	4,869.06	4,874.80	15.45%

Source: 成都市統計年鑒 (“Chengdu Statistical Yearbooks”) and 2009 年成都市國民經濟和社會發展統計公報 (“2009 Chengdu’s Economic and Social Development Report”)

Note:

1. It is determined by dividing the sales of commodity properties by GFA of commodity properties sold; and

2. It is determined by dividing the sales of residential properties by GFA of residential properties sold.

41 -

LETTER FROM THE BOARD

THE TOURISM MARKET IN THE PRC

The PRC’s tourism market has been benefited from the strong economic growth in China, which has resulted in higher disposable income of both urban and rural households and a more affluent domestic customer base. In addition, the increased in number of international travels also play an important role in the growth of the PRC’s tourism market. Pursuant to the statistics published by the National Statistics Bureau of China, the number of domestic tourists increased from approximately 1,102.0 million of persons in 2004 to 1,900.0 million of persons in 2009, representing a CAGR of approximately 11.51%, whilst the number of oversea tourists grew at a CAGR of approximately 3.01% from 109.04 million of persons in 2004 to 126.48 million of persons in 2009.

The table below illustrates the selected statistics in respect of the tourism volume and tourism revenue in the PRC:

							CAGR
	2004	2005	2006	2007	2008	2009	(2004-2009)
Tourism volume
(in millions of persons)
– Domestic	1,102.0	1,212.0	1,394.0	1,610.0	1,712.0	1,900.0	11.51%
– Oversea (including
Hong Kong,
Macau and Taiwan)	109.04	120.29	124.94	131.87	130.03	126.48	3.01%
Tourism revenue
– International tourism
(in billion USD)	25.74	29.30	33.95	41.92	40.84	39.70	9.05%
– Domestic tourism
(in RMB billion)	471.07	528.59	622.97	777.06	874.93	1,018.40	16.67%

Sources: China Statistical Yearbook 2009 and 2009 年國民經濟和社會發展統計公報 (“2009 National Economic and Social Development Report”)

THE TOURISM MARKET IN CHENGDU

Chengdu is located in Sichuan province is one of the 24 historical and cultural cities in the PRC, which attract many tourists from other places and countries in the past. Pursuant to the statistics published by the Chengdu Bureau of Statistics Internet, the number of domestic tourists increased from approximately 32.15 million of persons in 2004 to 55.06 million of persons in 2009, representing a CAGR of approximately 11.36%, whilst the number of oversea tourist grew at a CAGR of approximately 7.55% from 0.41 million of persons in 2004 to 0.59 million of persons in 2009.

42 -

LETTER FROM THE BOARD

The table below illustrates the selected statistics in respect of the tourism volume and tourism revenue in Chengdu:

							CAGR
	2004(1)	2005(1)	2006(1)	2007(1)	2008(1)	2009(1)	(2004-2009)
Tourism volume
(in millions of persons)
– Domestic	32.15	36.20	40.04	42.54	41.05	55.06	11.36%
– Oversea (including
Hong Kong,
Macau and Taiwan)	0.41	0.50	0.58	0.79	0.50	0.59	7.55%
Tourism revenue
– International tourism
(in million USD)	140.0	180.0	200.0	260.0	170.0	240.0	11.38%
– Domestic tourism
(in RMB billion)	21.68	27.25	32.41	39.54	36.36	48.52	17.48%

Source: 成都市國民經濟和社會發展統計公報 (“Chengdu’s Economic and Social Development Reports”)

COMPETITIVE LANDSCAPE

Real Estate Development

Real estate development industry is a capital intensive industry which requires a relatively substantial initial capital outlays for investment in lands and carrying out all the construction works, the directors of Chengdu OCT, thus, consider that there are entry barriers to the real estate development industry.

Chengdu OCT Group has identified there are three principle competitors in respect of real estate development in Chengdu after taking into account the scale and financial position of the competitors, which are comparable to Chengdu OCT. Chengdu OCT directly competes with them in terms of price, quality and the range of product mix. Although Chengdu OCT has only one real estate development project in Chengdu, the senior management of Chengdu OCT has (i) an extensive experience and knowledge in real estate development from elsewhere in the PRC and (ii) the financial supports from the Group, which provide competition edges to Chengdu OCT to compete with its principle competitors.

43 -

LETTER FROM THE BOARD

The table below illustrates the details of the principal competitors of Chengdu OCT:

Company	Principle Activities	Range of products	Property Development Project in Chengdu
龍湖地產有限公司 (Longfor Properties Co., Ltd)	Engaged in the property development, property investment and property management business in China	Middle-high and products including low and high rise apartment and stand-alone houses etc.	9
萬科企業股份有限公司 (China Vanke Co., Ltd.)	Engaged in real estate development and property management	High rise apartment and villa etc.	13
中國海外發展有限公司 (China Overseas Land & Investment Ltd.)	Engaged in property development, property investment and property management	Middle-high and products including high end apartment	8

Theme park

Given the relatively substantial capital requirement for investment in lands and amusement rides and carrying out all the construction work, the Directors consider that there are entry barriers to the theme park industry.

After taking into account the scale and the amusement rides provided of certain theme parks in Chengdu, the Group has identified that there is only one principle competitor in respect of the theme park in Chengdu, which is generally comparable to the amusement park of Chengdu OCT whilst other is relatively small in scale. Chengdu OCT directly competes with them in terms of price, quality and the range of amusement rides. Although the principal competitor, in term of land size, is much larger than Chengdu OCT, the Directors believe Chengdu OCT could leverage on the financial resources and the management expertise to be provided by the Group to increase its competitive edges in Chengdu.

44 -

LETTER FROM THE BOARD

The table below illustrates the details of the principal competitor of Chengdu OCT:

Theme Park	Occupied land area of the themepark	Range ofproducts	Number of visitors visited since incorporation
成都國色天香樂園 (Floraland)	First phase: Approximately 400,000 sq.m. Second phase: Approximately 433,336 sq.m. (under construction)	Roller coaster, ferris wheel, ocean theater, bumper car etc.	Approximately 6 million visitors

SEASONAL FLUCTUATION OF PROPERTY PRICES, CHALLENGES AND RISKS IN SHORT AND LONG TERM

Real Estate Development

The Directors indicate that the property prices of the Company’s residential property has not been exposed to seasonal price fluctuation. In addition, the Directors consider that the price of which is primarily subject to challenges and risks in the short and long term relating to, inter alia, the market competition from other property developers, the market interest rate, the regulations and/or rules implemented by the PRC authorities and the economic condition in the PRC. Please refer to the section headed “Real Estate Development” under “COMPETITIVE LANDSCAPE” above; and “RISK FACTORS” below for more details of competition and various risk factors in relation to the real estate development.

Theme Park

The Directors consider that the operation of the theme park is primarily exposed to the challenges and risks in short and long term relating to, inter alia, the market competition from other theme parks and natural disaster or bad weather in Chengdu. Please refer to the section headed “Theme Park” under “COMPETITIVE LANDSCAPE” above and “RISK FACTORS” below for more details of competition and various risk factors in relation to the theme park.

P. RISK FACTORS

The Group may be heavily dependent on the performance of property market in Chengdu, the PRC

Apart from the investment in X’ian, the PRC, most of the properties and property development projects of the Group will be located in Chengdu, the PRC. The success of the business of Chengdu OCT Group largely depends and continues to depend on the continued growth of the property market in Chengdu. The financial condition, results of operations and profitability of the Group may be materially and adversely affected by any adverse development

45 -

LETTER FROM THE BOARD

in the supply and demand for properties, properties prices or government actions toward the real estate market in Chengdu, the PRC. There is no assurance that the property market in Chengdu will not decline significantly and there will be no measures implemented by the relevant PRC government authorities to curb the growth of the Chengdu property market, or that there will not be material adverse changes in the PRC economy and property market as a result of the PRC government’s policies. Any such changes could have a material and adverse effect on the revenue, business operation and profitability of the Group.

Curtailment of overheating of and overinvestment in the PRC property market

PRC’s accession to World Trade Organization in 2001 has further speed up reform of the PRC economy, leading to significant economic growth and increasing property investments in recent years. In response to the concern over the increase in property investments, the PRC government has adopted various measures and policies to curtail or slow down the property investments, including:

requiring property developers to finance 30% of the total capital outlays of those property development projects, other than 20% of those low-income housings and non-luxury properties, with their internal resources;
limiting the monthly mortgage payment to 50% of an individual borrower’s monthly income and limiting the total monthly debt service to 55% of an individual borrower’s monthly income;
halting land supply for villa construction and restricting land supply for high-end residential property construction;
requiring that at least 70% of the land supply approved by any local government for residential property development during any given year must be used for developing low– to medium-cost and small– to medium-size units for sale or as low-cost rental properties;
requiring that at least 70% of the total development and construction area of residential projects approved or constructed on or after 1 June 2006 in any administrative jurisdiction must consist of units with a unit floor area of less than 90 sq.m. and that projects which have received project approvals prior to this date but have not obtained construction permits must adjust their planning in order to comply with this new requirement, with the exception that municipalities under direct administration of the PRC central government and provincial capitals and certain cities may deviate from such ratio under special circumstances upon approval from the Ministry of Construction;
requiring any second-time home buyer to pay an increased minimum amount of downpayment at 40% of the purchase price of the underlying property;
46 -

LETTER FROM THE BOARD

imposing more restrictions on the types of property developments that foreign investments may engage in; and
limiting the financing from banks to property developers that hold a large amount of idle land and vacant commodity properties.

The restrictive measures and regulations regarding property industry may limit the access to capital resources, reduce market demand for the products and increase the operating costs in complying with such measures and regulations. There is no assurance that no additional measures will be imposed by the PRC government to further slow down the property market in the PRC which may materially and adversely affect the business operations of the Group.

The Group may have insufficient financing to fund its property developments

Property development is capital intensive and may require a high level of debt financing. Chengdu OCT Group finances most of its property projects primarily through combination of pre-sale, sale proceeds, borrowings from financial institutions and internal funding. There is no assurance that there will not be restriction from new PRC laws and regulations on the ability to pre-sell the properties of the Group and the usage of pre-sale proceeds, such as possible increase in the amount of initial expenditures incurred before reaching the level to obtain a pre-sale permit or not all of the pre-sale proceeds can be applied towards the development of certain properties. The occurrence of the aforesaid events would extend the timeframe to recover the capital outlay and force the Group to seek for other means of financing to complete the relevant property projects, which, in turn, could have a material adverse effect on the cashflow, operation, financial position of the Group. There is no assurance that the Group will be able to raise sufficient capital in the future to meet its funding requirement in a timely manner and on acceptable terms or at all, particularly if the property market is depressed.

The ability of the Group to arrange adequate financing for land acquisitions and property development depends on a number of factors that are beyond control of the Group. The PRC Government has in recent years introduced a variety of policy initiatives to the financial sector to further regulate the grant of financial assistance to property developers. These initiatives may limit the flexibility and ability of the Group to use bank loans to finance the property development of the Group and therefore may require the Group to maintain a relatively high level of internally generated cash. As a result, the Group may not have adequate resources to fund land acquisitions or property developments, or to service the financing obligations of the Group and the business, financial condition and results of operations of the Group may be materially and adversely affected.

Volatility in the price of construction materials

The results of operations and financial performance of the Group will be affected by volatility in the price of construction materials. The cost of construction materials constitutes the most substantial item among the construction costs of Chengdu OCT Group, thus any rise in the cost of construction materials may result in higher fees charged by the construction contractors of the Group. Given that the costs of the aforesaid construction materials have been

47 -

LETTER FROM THE BOARD

fluctuating in the PRC, it is challenging for the Group to maintain a consistent gross profit margin for the properties of the Group. In the event that the Group is not able to (i) source the same construction materials at competitive cost level or (ii) pass any or all of the increased costs to the customers of the Group without affecting the quantity demanded, the revenue and profitability of the Group may be adversely affected.

Revenue may vary substantially from time to time

The Group will engage in property development and it is expected that most of the revenue of the Group will derive from sale of properties that the Group developed. According to the relevant accounting policy, Chengdu OCT Group recognizes revenue upon the signing of the sale and purchase agreement and the receipt of the deposits pursuant to the sale and purchase agreement or the issue of a completion certificate by the relevant government authorities, whichever is the later. As such, the results of operations will be largely depended on the construction timetables and timing of sales and delivery of the development projects of the Group. In addition, sale prices of properties may vary significantly from time to time that are largely due to the local and nationwide economic condition, thereby affecting the revenue from selling the development projects of the Group. Generally, there is a timing difference ranging from one year to two years between the commencement date of the presale of properties under development and the date of delivery of properties to the purchasers where these pre-sale will be recognized as turnover of the Group for that particular year of delivery. In light of the above, the Directors believe period-to-period comparisons of the operation results of the Group would be not as meaningful, in contrary to companies which have a steady recurring revenue. There is no assurance that the revenue of the Group could be maintained or continue to grow in the future. In the event that there were delay in completion or delivery, or the Group significantly changes in property selling price of the properties developed by the Group, the business, financial condition and results of operations of the Group may be materially and substantially affected.

Fluctuation of interest rates

The Group relied on interest bearing debt as one of the important financing sources to fund its operations and all of the loans are Renminbi denominated, thus any changes in interest rate in the PRC will affect the financing costs of the Group. There is no assurance that the People’s Bank of China (the “PBOC”) will not further raise lending rates in the future, thereby increasing the financing costs of the Group. In the event that the PBOC raises lending rates in the future, the business, financial condition or results of operations of the Group may be materially and adversely affected.

Reliance on key management personnel

The success of the business of Chengdu OCT Group, to a large extent, depends on the continued services of the existing key senior staffs of Chengdu OCT Group. They, generally gained their experience in the real estate industry after joining the Chengdu OCT Group. If any of these key senior staffs cease to be involved in the management and operations of the Group or their full-time services be interrupted, there may be a material and adverse impact on the financial and operating performance of the Group. Besides, there can be no assurance that the Group will be able to retain their services in the future.

48 -

LETTER FROM THE BOARD

The Directors believe that the future success of the Group will, to a large extent, depend on the ability of the Group to attract, retain and motivate skilful and experienced professionals. In addition, the future expansion of the Group will require an increase in the number of relevant well-experienced staffs. However, there is no assurance that the Group will be able to attract or retain such staffs in the future. In the event that the Group fails to attract, retain and motivate skilful and experienced professionals and or experiences an inadequate supply of staff, the operations and business growth of the Group may be adversely affected.

The Group may be unable to obtain qualification certificates

A property developer must obtain a qualification certificates in order to engage in property development in the PRC. According to the regulations on real estate industry, a newly established developer must first apply for a provision qualification certificate which is valid for one year and can be extended for a maximum for two years. However, if a property developer fails to commence development project within one year, it is not allowed to extend its provisional qualification certificate.

Besides, property developers in the PRC must also produce qualification certificate when applying for a pre-sale permit. There is no assurance that the qualification certificates of the Group will continue to be renewed after expiry or that formal qualification certificates for new project companies will be obtained in a timely manner, or at all. Thus, if the project companies of the Group fail to maintain or renew the qualification certificates, the business, financial condition and the results of operations of the Group could be materially and adversely affected.

The operations of the Group are subject to extensive governmental regulations and in particular, the Group is susceptible to changes in policies related to the real property markets in the PRC

As a property developer in the PRC principally engaged in development projects involving diverse land uses, the operations of Chengdu OCT Group are subject to extensive governmental regulations. The Group must comply with various requirements mandated by the PRC laws and regulations, including the policies and procedures established by local authorities designed for the implementation of such laws and regulations. In order to develop and complete a property development, the Group must obtain various permits, licences, certificates and other approvals from the relevant administrative authorities at various stages of property development of the Group, including approvals in relation to the injection of capital into the project subsidiaries of the Group, land use rights documents, planning permits, construction permits, pre-sale permits and certificates or confirmation of completion and acceptance. Each approval is also dependent on the satisfaction of certain conditions.

There is no assurance that the Group will not encounter major problems in obtaining the necessary approvals or fulfilling the conditions precedent to the receipt of approvals, or that the Group will be able to adapt to new laws, regulations or policies that may come into effect

49 -

LETTER FROM THE BOARD

from time to time with respect to the property industry in general or the particular processes with respect to the granting of the approvals. There may also be delays on the part of the administrative bodies in reviewing the applications and granting approvals. If the Group fails to obtain, or experience material delays in obtaining, the requisite governmental approvals, the development and sale of the developments of the Group could be substantially disrupted, which would result in a material adverse effect on the business, results of operations and financial condition of the Group. Further changes in tax laws may adversely affect demand for properties. Further, there is no assurance that implementation of the laws and regulations by the relevant authorities, or the interpretation or enforcement of such standards, will not require us to incur additional costs, which could have a material adverse effect on the business, financial condition and results of operations of the Group.

Proceeds from the Subscription and the Placing may not be used in the ways described

In the event that any of the conditions for the payment of the capital contribution by Bantix under the Capital Increase Agreement is not fulfilled or waived and the Capital Increase Agreement is terminated, the proceeds of the Subscription and the Placing may not be utilized as described in the section headed ‘‘Reasons for the Placing and the Subscription and Use of Proceeds’’, the Directors may be required to reallocate the intended part of the net proceeds of the Subscription and the Placing to other business plans or new projects or hold such funds in bank accounts or short term investments so long as the Directors consider such use of proceeds to be in the best interests of the Group.

Intensified competition

Given the large number of property developers, in Chengdu where Chengdu OCT Group has operations, the competition among developers is keen, which may lead to an increase in land premium and raw materials costs, shortage of quality construction contractors, further delays in issuance of government approvals or higher costs to attract or retain talented employees. Thus, if the Group fails to compete effectively, the business operations and financial condition of the Group will suffer.

Chengdu OCT Group relies on external contractors for most of its property construction and external subcontractors for some of its property construction and are subject to risks relating to the performance of these contractors and/or subcontractors.

All of the property construction works of Chengdu OCT Group were relied on the external construction contractors. Completion of such projects of Chengdu OCT Group has been, subject to the performance of these independent contractors. On the other hand, outsourcing exposes Chengdu OCT Group to risks associated with non-performance, delayed performance or substandard performance by subcontractors or third parties. None of the subcontractors were related parties of the Company. However, the contractors may not be able to monitor the performance of these subcontractors as directly and efficiently as with its own staff.

50 -

LETTER FROM THE BOARD

In addition, the inability of the contractors to hire qualified subcontractors could hinder the ability of the contractors to complete a project successfully. There is no assurance that the services rendered by such contractors and/or subcontractors will remain satisfactory to the Group or match the targeted quality level the Group requires. In addition, contractors and/or subcontractors may experience financial or other difficulties that may affect their ability to carry out the work for which they were contracted, thus delaying the completion of the property developments of the projects of the Group or resulting in additional costs for the Group. Any of these factors could adversely affect the revenues and reputation of the Group.

The Group may be unable to obtain the land use certificate for portion of land of Land Lot D with a site area of approximately 56,667 sq.m.

As the Grantor may be unable to deliver portion of land of Land Lot D with a site area of approximately 56,667 sq.m., Chengdu OCT is negotiating with the Grantor on the land exchange of a parcel of land in the adjacent land of Land Lot D with the same size as aforesaid mentioned and under the same conditions to Chengdu OCT (the “land exchange portion”). If the Grantor is definitely unable to deliver the aforesaid portion of land with an area of approximately 56,667 sq.m. to Chengdu OCT and Chengdu OCT is unable to obtain the State-owned Land Use Certificate for the land exchange portion, the business operations of the Group could be adversely affected.

The PRC Legal Adviser advised that, except for the portion of land of Land Lot D that the Grantor may not be able to deliver, there is no legal impediment for Chengdu OCT to obtain the State-owned Land Use Certificate for Land Lot D. Also, if Grantor cannot deliver the aforesaid portion of land to Chengdu OCT, then according to the relevant laws and the provisions of the land transfer contract, Chengdu OCT has the right to request Grantor to perform its responsibilities under the land transfer contract to deliver the land exchange portion to Chengdu OCT in exchange. After obtaining the land exchange portion, there would be no legal impediment for Chengdu OCT to obtain the State-owned Land Use Certificate for such portion of land.

Natural disaster or bad weather that may disrupt operations and damage the properties in Chengdu Happy Valley

In the event of any natural disaster or bad weather in Chengdu, the business of Chengdu Happy Valley may be disrupted and our results of operations could be adversely affected. There is no assurance that the insurance coverage will be sufficient to fully indemnify us against all direct and indirect costs, including loss of business, that could result from substantial damage to, or partial or complete destruction of, properties in Chengdu Happy Valley or other damage to the infrastructure or economy of Chengdu as a result of such events.

51 -

LETTER FROM THE BOARD

RISKS RELATING TO THE PRC

Political, economic and social environment

It is uncertain as to whether the PRC government will make further changes to its laws or regulations, introduce additional tax measures, impose restrictions on currency exchange and remittance, and change tax rates or customs duties in the future. In case of occurrence of such changes, the business operation of the Group may be adversely affected.

The fluctuation of RMB exchange rate and changes in foreign exchange regulations may adversely affect the business operation of the Group

All of the proceeds earned from rental income and sale of the properties by Chengdu OCT Group are denominated in Renminbi which is not freely convertible into other currencies. Under the existing PRC foreign exchange regulations, the Group may not require any approval from the State Administration of Foreign Exchange of the PRC but chiefly complying with certain procedural requirements when settling current-account items. However, approval from government agency is required when Renminbi is converted into foreign currencies and remitted out of the PRC for capital-account transaction, including the repatriation of equity investment in the PRC and repayment of the principal loans denominated in foreign currencies. Any such changes in foreign currency regulations may adversely affect the Group’s ability to pay dividends or satisfy other foreign exchange requirements.

The exchange rate of Renminbi against other currencies depends, to a larger extent, on the international and the PRC economy, political development and government policies. There is no assurance that such exchange rate will not fluctuate widely against US dollar and any other foreign currencies in the future. Since all of Chengdu OCT Group’s revenue, expenses, assets and liabilities are denominated in Renminbi, any fluctuation of Renminbi exchange rate may adversely affect the business operation of Chengdu OCT Group.

Outbreak of any epidemics may adversely affect the business operation of the Group

The business of Chengdu OCT Group could be adversely affected by outbreak of any epidemics such as avian flu and Severe Acute Respiratory Syndrome (SARS). A occurrence of any epidemics, depending on their scale, may cause different degree of damage or disruption to property development, sales and marketing, which in turn may adversely affect the business operation of Chengdu OCT Group.

Q. EGM

A notice convening the EGM at which resolutions will be proposed to consider, and if thought fit, to approve the Capital Increase Agreement, the Subscription Agreement, the Placing Agreement and the transactions contemplated thereunder to be held at Function Room – Cypress, InterContinental

52 -

LETTER FROM THE BOARD

Hong Kong, 18 Salisbury Road, Kowloon, Hong Kong on 31 May 2010 at 10:30 a.m. is set out on pages 297 to 299 of this circular. Whether or not you are able to attend the meeting in person, please complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s share registrars, Computershare Hong Kong Investor Services Limited at Shops 1712-16, 17/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as practicable but in any event not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the accompanying form of proxy will not preclude you from attending and voting at the meeting should you so wish.

As no Shareholder has a material interest in the Placing, no Shareholder is required to abstain from voting on the relevant resolution to be proposed at the EGM to approve the Placing Agreement and the transactions contemplated thereunder.

R. RECOMMENDATIONS

The Board believes that the terms of the Capital Increase Agreement, the Subscription Agreement and the Placing Agreement are fair and reasonable and the Capital Increase Agreement and the Subscription Agreement and the Placing Agreement are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the resolutions in relation to the Capital Increase Agreement, the Subscription Agreement, the Placing Agreement and the transactions contemplated thereunder to be proposed in the EGM.

Your attention is drawn to the letters from the Independent Board Committee and China Everbright which set out their recommendations in respect of the Capital Increase Agreement and the Subscription Agreement and the principal factors considered by them in arriving at their recommendations.

S. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information contained in the appendices to this circular.

By order of the Board Overseas Chinese Town (Asia) Holdings Limited Hou Songrong Chairman

53 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [213 x 54] intentionally omitted <==

Overseas Chinese Town (Asia) Holdings Limited 華僑城（亞洲）控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 03366)

13 May 2010

To the Independent Shareholders,

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND SUBSCRIPTION OF NEW SHARES UNDER THE SPECIFIC MANDATE

We refer to this circular dated 13 May 2010 issued by the Company of which this letter forms part. Terms defined in this circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the terms of the Capital Increase Agreement and the Subscription Agreement and to advise you as to whether, in our opinion, the terms of the Capital Increase Agreement and the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned. China Everbright has been appointed as the independent financial adviser to advise the Independent Board Committee in respect of the terms of the Capital Increase Agreement and the Subscription Agreement.

We also wish to draw your attention to (i) the letter from the Board; (ii) the letter from China Everbright; and (iii) the additional information set out in the appendices to this circular.

Having considered the terms of the Capital Increase Agreement and the Subscription Agreement, and having taken into account the opinion of China Everbright and, in particular, the factors, reasons and recommendations as set out in the letter from China Everbright on pages 55 to 87 of this circular, we consider that the terms of the Capital Increase Agreement and the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned, and the Capital Increase Agreement and the Subscription Agreement are in the interests of the Independent Shareholders. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolutions which will be proposed at the EGM to approve the Capital Increase Agreement and the Subscription Agreement.

Yours faithfully, For and on behalf of

the Independent Board Committee

Wong Wai Ling Xu Jian Lam Sing Kwong Simon Independent non-executive Directors

54 -

LETTER FROM CHINA EVERBRIGHT

The following is the text of the “Letter from China Everbright” to the Independent Board Committee and the Independent Shareholders prepared for the purpose of inclusion in this circular.

13 May 2010

To the Independent Board Committee and
the Independent Shareholders of Overseas Chinese Town (Asia) Holdings Limited

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND SUBSCRIPTION OF NEW SHARES UNDER THE SPECIFIC MANDATE

INTRODUCTION

We refer to our engagement as the independent financial adviser to make recommendations to the Independent Board Committee and the Independent Shareholders in relation to the transactions (“ Transactions ”) contemplated under (i) the Capital Increase Agreement; and (ii) the Subscription Agreement.

The details of the Transactions are set out in the Letter from the Board in the circular (“ Circular ”) to the Shareholders dated 13 May 2010, of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

The independent board committee (“ Independent Board Committee ”), comprising all of the three independent non-executive Directors, namely Ms. Wong Wai Ling, Mr. Xu Jian and Mr. Lam Sing Kwong Simon, has been formed to consider the fairness and reasonableness of the Transactions, and to make recommendations to the Independent Shareholders in respect thereof. We, China Everbright Capital Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

Our role as the independent financial adviser to the Independent Board Committee and the Independent Shareholders is to give our opinion as to whether the Transactions are: (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

Apart from normal professional fees for our services to the Company in connection with the engagement described above, no arrangement exists whereby China Everbright will receive any fees and benefits from the Group, Pacific Climax or any of their respective associates. China Everbright Capital Limited is independent from and not connected with the Group and Pacific Climax or any of their respective substantial shareholders, directors or chief executive, or any of their respective associates pursuant to Rule 13.84 of the Listing Rules, and is accordingly qualified to give independent advice to the Independent Board Committee and the Independent Shareholders regarding the Transactions.

55 -

LETTER FROM CHINA EVERBRIGHT

In formulating our advice and recommendation, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management (“ Management ”) of the Company and have assumed that such information, facts and opinions are true and accurate. We have also sought and received confirmation from the Directors that no material factors have been omitted from the information supplied and opinions expressed to us. However, we have not conducted any independent investigation into the business, operations or financial condition of the Company, Pacific Climax and Chengdu OCT. We have assumed that all statements and presentations made or referred to in the Circular were accurate at the time when they were made and are true at the date of the Circular.

We consider we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation.

PRINCIPAL FACTORS AND REASONS TAKEN INTO ACCOUNT

In formulating our views on the Transactions, we have taken into consideration the principal factors and reasons as set out below. In reaching our conclusion, we have considered the results of the analysis in light of each other and ultimately reached our opinion based on the results of all analysis taken as a whole.

(I) THE CAPITAL INJECTION

(A) Background of and reasons for the Capital Injection

(i) The Group and its investments in PRC real estate business

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

Apart from the principal business in relation to the packaging industry, the Group has also commenced to participate in the real estate business by virtue of its 25% equity interest in Chengdu OCT since December 2008. As stated in the 2009 annual result announcement, Chengdu OCT was operating smoothly. Its theme park project “Chengdu Happy Valley” (Phase I) opened on 18 January 2009. The park recorded approximately 2.3 million visitors over the year, becoming a new tourist attraction in Sichuan Province. The retail project “Park Plaza” also commenced operation in January 2009. The multi-storey and high-rise apartments of Phase I property projects have been delivered for occupation, the multi-storey and low density residential project of Phase II was successfully launched into the market in the second half of the year, while Phase III commenced construction at the end of year as scheduled.

56 -

LETTER FROM CHINA EVERBRIGHT

In addition to its investment in Chengdu OCT, the Group also intends to expand its real estate business in Xi’an through cooperation with OCT Properties. According to the circular of the Company dated 23 December 2009, the Group entered into a capital increase agreement with OCT Properties, being the then sole shareholder of Xi’an OCT Investment Ltd. (“ Xi’an OCT Investment ”), whereby each of Group and OCT Properties agreed to contribute RMB50,000,000 in cash in Xi’an OCT Investment.

As an important window to the Development of Western China, Xi’an has great development potential, therefore the Group intends to explore new profit sources through the investment in the property projects of Xi’an OCT project. In 2010, the construction of Xi’an OCT will also gradually unfold. It is expected that the construction of low density residential building will commence in 2010.

After discussion with the Management, we understand that the Group is confident about the future prospects of real estate business in the PRC. In order to enhance the Group’s competitive edges and increase its profitability, the Group will endeavor to seek suitable investment projects to maximize the returns for the shareholders.

Set out below are the audited consolidated financial statements of the Group for the three years ended 31 December 2009 as extracted from the Appendix II to the Circular:

	For the	year ended 31	December
(RMB’000)	2007	2008	2009
	(Audited)	(Audited)	(Audited)
Turnover	760,763	762,769	622,063
Gross profit	105,917	89,575	85,826
Profit attributable to equity
holders of the Company	38,361	16,590	23,810
Net assets	510,818	536,816	694,561

2009 compared to 2008

For the year ended 31 December 2009, the Group’s turnover was approximately RMB622.1 million, representing a decrease of 18.4% over 2008. That was mainly due to overall demand was still weak and paper packaging business remained in downturn during the first half of the year, which posed great pressure on the Group.

As advised by the Management, the Group recorded steady increase in sales in the second half of 2009 mainly attributable to the combination of the economic stimulus of “Home appliances going to the countryside”, as well as the stringent internal management and the shift of sales focus of the Group.

57 -

LETTER FROM CHINA EVERBRIGHT

Gross profit slightly decreased by approximately 4.2% from approximately RMB89.6 million in 2008 to approximately RMB85.8 million in 2009. However, the gross profit margin increased from approximately 11.7% in 2008 to approximately 13.8% in 2009 which was mainly attributable to the decline in average price of raw material prices.

Profit attributable to equity holders of the Company increased by approximately 43.4% from approximately RMB16.6 million in 2008 to approximately RMB23.8 million in 2009. Such improvement was mainly contributed by the share of profit from Chengdu OCT of approximately RMB20.7 million in 2009, which was partly offset by the decline in profitability of the Group’s paper packaging business. In 2008, the share of loss from Chengdu OCT was approximately RMB10.6 million.

For the details of financial performance of Chengdu OCT, please refer to the paragraph headed “Chengdu OCT Group” below.

2008 compared to 2007

The Group realized turnover of approximately RMB762.8 million in 2008, representing an increase of approximately 0.3% over the same period in 2007. Gross profit decreased by approximately 15.4% from approximately RMB105.9 million in 2007 to approximately RMB89.6 million in 2008.

As Chengdu OCT was under construction and did not commence operation in 2008, the Group’s share of loss from Chengdu OCT amounted to approximately RMB10.6 million in 2008, up approximately 21 times from approximately RMB484,000 in 2007.

In light of the above, profit attributable to equity holders of the Company decreased by approximately 56.8% from approximately RMB38.4 million in 2007 to approximately RMB16.6 million in 2008.

(ii) Chengdu OCT Group

58 -

LETTER FROM CHINA EVERBRIGHT

As at the Latest Practicable Date, Chengdu OCT is beneficially owned as to 38% by OCT Properties, as to 37% by OCT Holding and as to 25% owned by Bantix (a subsidiary of the Company). Upon Completion, Chengdu OCT will be beneficially owned as to 25% by OCT Properties, as to 24% by OCT Holding and as to 51% owned by Bantix. Accordingly, Chengdu OCT will become a non-wholly owned subsidiary of the Company upon Completion.

OCT Properties, one of the joint venture partners of Chengdu OCT, has proven experience on property investment and property development. As advised by the Management, OCT Properties has over 20 years’ property development experiences and is one of the largest property development enterprises in Shenzhen. OCT Properties currently has numerous projects in Beijing, Shanghai, Shenzhen and Chengdu comprise of residential buildings, shopping malls/commercial areas, art/cultural center, hotels/resorts. OCT Holding, the ultimate controlling shareholder of the Company and OCT Properties, is one of the sixteen Central State Owned Enterprises engaging in real estate development and operation as its main business. As advised by the Management, the Company will work with OCT Group and its subsidiaries to seek for more suitable investment opportunities and increase the investment in comprehensive development projects.

As stated in the Letter from the Board, Chengdu OCT owns four parcels of land, namely Land Lots A, B, C and D, which are located at both sides of Shaxi line of Outer Sanhuan Road, Jinniu District, Chengdu, Sichuan Province, the PRC with a total site area of approximately 1,827,000 sq.m., which are proposed to be developed into a metropolitan composite area in various phases namely “Chengdu OCT Project”. The acquisition cost of the four parcels of land was approximately RMB1,833 million (approximately HK$2,094.9 million) which has been fully paid. The usage of the properties should comprise, inter alia, cultural and entertainment, theme park and residential and the land use rights of the property have been granted for terms of 40 and 70 years commencing on 29 September 2006 for commercial & theme park and residential uses respectively. Upon completion of Chengdu OCT Project, Chengdu OCT Project will provide a total GFA of approximately 2,249,980 sq.m..

Chengdu OCT Project is planned to comprise three major segments, namely (i) residential property project (“ Residential Property Project ”), (2) commercial property project (“ Commercial Property Project ”), and (3) theme park project of歡樂谷Chengdu Happy Valley (“ Chengdu Happy Valley ”). Chengdu OCT Project represents a landmark comprehensive development project in Chengdu which features a concept of blending residential, commercial and theme park elements into a comprehensive development project which aims to offer exquisite landscape and environment to the users of the project.

The Residential Property Project, which is located at Land Lots B&D, with a total unsold GFA of approximately 629,000 sq.m. in Land Lot B and a total GFA of approximately 824,000 sq.m. in Land Lot D, is planned to be developed into eight phases on a rolling basis, which offers a broad range of facilities, including, inter alias high-rise and low-rise apartments, townhouse, clubhouse and ancillary facilities. The Land Lot D is currently a vacant site. Phase I of Land Lot B was completed for sale.

59 -

LETTER FROM CHINA EVERBRIGHT

Based on the current development plan, Phase II of the Residential Property Project with GFA of approximately 286,256 sq.m. will mainly include the development of high rise and multi-storied residential buildings and townhouses. Total development cost of Phase II is estimated to be approximately RMB822 million (excluding the land premium) and construction of Phase II has commenced and is expected to be completed in December 2010. The high-rise apartments of Phase II will be launched in the first half of 2010.

The Commercial Property Project, which is located at Land Lots A&C, with a total GFA of approximately 340,000 sq.m. in Land Lot A and a total GFA of approximately 210,000 sq.m. in Land Lot C, is planned to be developed into four phases and provide a wide range of facilities, including, inter alias, shops, theatre, five-star hotel and office. The construction of Phase I of the Commercial Property Project in Land Lot C was completed in 2009. Based on the current development plan, Phase II of the Commercial Property Project with GFA of approximately 5,317 sq.m. will mainly include the development of shops. Total development cost of Phase II is estimated to be approximately RMB17 million (excluding the land premium) and construction of Phase II has commenced and to be completed in July 2010.

Phase III-V in Land Lot A and Land Lot C of the Commercial Property Project with GFA of approximately 434,000 sq.m. will mainly include the development of shoppingmall, offices, shops and hotels. Total development cost of Phase III-V in Land Lot A and Land Lot C is estimated to be approximately RMB1,953 million (excluding the land premium) and construction of Phase III-V in Land Lot A and Land Lot C will commence in 2011 and to be completed in December 2015.

60 -

LETTER FROM CHINA EVERBRIGHT

Chengdu Happy Valley is the third Happy Valley chain theme park by OCT Holding in the PRC following the two in Shenzhen and Beijing and is located at Land Lot C with a total GFA of approximately 50,000 sq.m.. Phase I of Chengdu Happy Valley has commenced operation on 18 January 2009 and offers seven theme zones including, Sunny Harbour, Happy Hour, Caribbean Cyclone, Great Szechwan, Happy Forest, Magic Castle and Dream of Mediterranean which provide an amusement base in southwest of the PRC. There were approximately 2.3 million people visiting Chengdu Happy Valley in 2009. It is expected that construction of phase II of the Chengdu Happy Valley will commence in 2011 and is expected to be completed by 2012. Based on the current development plan, Phase II of Chengdu Happy Valley with GFA of approximately 10,000 sq.m.. Total development cost of Phase II is estimated to be approximately RMB100 million (excluding the land premium) and construction of Phase II is expected to be commenced in 2011 and to be completed in February 2012.

Set out below is selective financial information of Chengdu OCT for the three years ended 31 December 2009 as extracted from Appendix I to the Circular:

	For the year ended 31	For the year ended 31	December
(RMB’000)	2007	2008	2009
	(Audited)	(Audited)	(Audited)
Turnover	–	–	1,521,962
Gross profit	–	–	392,181
Profit/(loss) before taxation	(21,096 )	(97,957 )	176,551
Profit/(loss) after taxation	(15,822 )	(73,350 )	102,894
Total assets	1,407,707	3,952,041	3,953,352
Total liabilities	1,023,763	3,641,447	3,539,864
Net assets	383,944	310,594	413,488

No revenue was recorded for the two years ended 31 December 2007 and 2008 which was mainly due to the residential properties and the theme park were under construction before 2009. The turnover of Chengdu OCT Group was approximately RMB1,522 million for the year ended 31 December 2009, which mainly comprised sales of residential properties of RMB1,323.2 million and ticket sales from theme park of RMB165.8 million. Net profit of RMB102.9 million was recorded for the year ended 31 December 2009.

Taking into account that (i) the Group has became one of the shareholders of Chengdu OCT since December 2008; (ii) Chengdu OCT Project, which is a landmark comprehensive development project in Chengdu which features a concept of blending residential, commercial and theme park elements into a comprehensive development project, has contributed revenue and net profit to the Group in 2009; (iii) recurring stable income will be generated by the Commercial Property Project and Chengdu Happy Valley of Chengdu OCT Project; and (iv) the future earnings potential of Chengdu OCT

61 -

LETTER FROM CHINA EVERBRIGHT

will be further improved upon the commencement of the other operations and sales of properties on Phases II-VII of the Residential Property Project in the coming few years, the Management expects that the further investment in Chengdu OCT under the Capital Increase Agreement enables the Group generating higher investment return from Chengdu OCT over the long term with a manageable investment risk.

Apart from the Capital Injection, it is also the intention of Chengdu OCT Group that the development cost of Chengdu OCT Project will be financed by internal resources to be generated from pre-sale of the properties on the Residential Property Project and bank borrowings. Based on the current development plan, the development cost to be incurred in the coming 12 months is estimated to be approximately HK$1,652 million, of which approximately RMB588 million is expected to be covered by the Capital Injection but the break down of the balance of approximately RMB1,064 million to be covered by bank loans and proceeds from pre-sale of the Residential Property Project has not been determined.

Based on the current development plan, the Chengdu OCT Project will be completed in 2015. Thereafter, it is expected that Chengdu OCT will continue to (i) sale its unsold units of the Residential Property Project and (ii) record ticket sales from theme park and rental income of the Commercial Property Project.

(iii) Real estate market and tourism industry in Chengdu

Real estate market

Chengdu is the provincial capital of the Sichuan Province and has emerged as an important manufacturing hub of southwest China following the entry of a number of large multinational companies. Covering an area of approximately 12,390 square kilometers, Chengdu’s total permanent population was approximately 12.7 million in 2008.

Having benefited from the PRC Government’s West Development Strategy, Chengdu has experienced substantial economic growth, with nominal GDP increasing at a compound annual growth rate (“ CAGR ”) of approximately 15.8% from RMB187.1 billion in 2003 to RMB450.3 billion in 2009. Urban disposable income in Chengdu also grew significantly at a CAGR of approximately 11.6% from RMB9,641 in 2003 to RMB18,659 in 2009, indicating the increasing purchase power of the Chengdu urban population.

As a result of the sustainable rise of urban disposable income, Chengdu’s real estate market has experienced a robust upward trend in recent years, with the total investment in the real estate sector amounting to RMB94.5 billion in 2009, representing a CAGR of approximately 25.2% from RMB24.5 billion in 2003.

62 -

LETTER FROM CHINA EVERBRIGHT

According to Chengdu Bureau of Statistics Internet, the total GFA of commodity properties sold grew at a CAGR of approximately 18.5% from approximately 9.7 million sq.m. in 2003 to approximately 26.9 million sq.m. in 2009. Meanwhile, the sales revenue of commodity properties grew at a CAGR of approximately 36.8% from approximately 20.3 billion in 2003 to approximately 132.9 billion in 2009.

The table below sets out selected data relating to real estate development in Chengdu for the years indicated:

	2003	2004	2005	2006	2007	2008	2009
Total GFA of
commodity
properties sold
(million sq.m.)	9.7	11.3	12.3	15.3	22.4	12.7	26.9
Sales revenue of
commodity properties
(RMB billion)	20.3	30.6	39.5	55.1	95.7	62.7	132.9

Source: Chengdu Bureau of Statistics Internet

Tourism industry

With the nation’s rising standard of living and PRC government’s concerted effort to shift its economy towards a consumption-driven one, tourism has been gaining greater salience and attention.

On February 2009, Chengdu was awarded as one of the “best tourist city in China” by China National Tourism Administration and UNWTO. It has advantaged tourism resources, such as the panda ecological culture, ancient Jinsha Shu culture and Dujiangyan Irrigation System-Mount Qingcheng World Cultural Heritage. The Emei Mountain, Dujiangyan Irrigation Project and Chengdu Research Base of Giant Panda Breeding are always on the top list of every traveler to Chengdu.

Benefited from the increasing average per capita disposable income in the PRC and the continuous effort of Sichuan government in developing its tourism industry, the number of tourists visiting Sichuan has experienced substantial growth, increasing at a CAGR of approximately 11.7% from approximately 28.7 million in 2003 to approximately 55.7 million in 2009.

63 -

LETTER FROM CHINA EVERBRIGHT

The table below sets out the total number of tourists visiting Chengdu for the years indicated:

2003 2004 2005 2006 2007 2008 2009 Number of tourists (million) 28.7 32.6 36.7 40.6 43.3 41.6 55.7

Our view:

Having considered the above, in particular:–

(i) Chengdu OCT Project represents a landmark comprehensive development project in Chengdu with distinguished features. The Group has become one of the shareholders of Chengdu OCT since December 2008 and the Capital Injection merely represents the Group’s further step in increasing its equity interest in Chengdu OCT which is expected to generate higher investment return by the Group from Chengdu OCT over the long term with a manageable investment risk;
(ii) the Group’s packaging business has been negatively affected by slumping market demand for paper packaging products, rising production costs and intensive industry competition during the recent years;
(iii) leveraging on the extensive experience of OCT Properties in property investment and property management in the PRC, the Group can obtain assistance from OCT Properties in developing and managing Chengdu OCT Project;
(iv) as Phase I of Land Lot B was completed for sale and Phase I of Chengdu Happy Valley commenced operation on 18 January 2009, Chengdu OCT Group’s operations started to generate revenue and net profit in 2009;
(v) the future earnings potential of Chengdu OCT will be further improved persistently upon the commencement of the other operations and sales of properties on Phases II-VII of the Residential Property Project over the coming few years;
(vi) the Capital Injection will be financed by the Placing and the Subscription, and therefore, it will not increase gearing or reduce the working capital of the Group; and
64 -

LETTER FROM CHINA EVERBRIGHT

(vii) the promising business opportunities in the real estate market and tourism industry in Chengdu as illustrated by economic statistics of Chengdu during the past few years,

we are of the view that the Capital Injection is (i) in the ordinary and usual course of business of the Group; (ii) consistent with the overall corporate strategy of the Group; and (iii) in the interests of the Company and the Independent Shareholders as a whole.

(B) Valuation of the properties (“Properties”) of Chengdu OCT Group

The Properties have been valued by Savills Valuation and Professional Services Limited (“ Property Valuer ”), an independent professional surveyor and property valuer. The full text of the relevant valuation report and certificates (“ Valuation Report ”) are set out in Appendix V to the Circular.

The Property Valuer has adopted the market approach in valuing the Properties. For the completed portion which is held by sale, the Property Valuer has adopted the direct comparison approach by making reference to the comparable market transactions as available in the relevant markets assuming sales with the benefit of vacant possession. For the remaining portions of this property which is held under construction and for future development, the Property Valuer has valued such portions on the basis that they will be developed and completed in accordance with the latest development proposals provided to us.

In arriving at their opinion of value, the Property Valuer has adopted the direct comparison approach by making reference to the comparable market transactions as available in the markets and also has taken into account the construction costs to be expended to reflect the quality of the completed development. The methodology is, in our opinion, a reasonable approach in establishing the open market value of the Properties.

The Property Valuer has also carried out inspections, made relevant enquiries and obtained such further information as they consider necessary for the purpose of the valuation. We have reviewed and discussed with the Property Valuer the bases and assumptions adopted for the valuation of the Properties. We consider that the assumptions adopted by the Property Valuer are fair and reasonable and the basis used is a normal one for valuing properties. We have also performed work as required under note (1)(d) to the Listing Rule 13.80 in relation to the Property Valuer and its work as regards the valuation of the Properties.

65 -

LETTER FROM CHINA EVERBRIGHT

Chengdu OCT Project is a large scale composite development erected on four parcels of land with a total site area of approximately 1.83 million sq.m., the breakdown of which is as follows:

Land		Approximate
lot	Use	site area (sq.m.)	Plot ratio
A	Culture and entertainment	148,766.94	Not exceeding 1.8 for culture
			and entertainment use
B	Residential and commercial	346,863.42	Not exceeding 1.8 for
			residential use
C	Theme park	688,983.82	Not exceeding 0.25 for theme
			park use
D	Residential and commercial	642,799.65	Not exceeding 1 for
			residential use

According to the Valuation Report as set out in the Appendix V to the Circular, the market value of the Properties as at 30 March 2010 was approximately RMB1.48 billion which only reflected the market value of Land Lot B.

As advised by the Property Valuer, they have assigned no commercial value to Land Lot D of the property due to lack of State-owned Land Use Rights Certificate. Had a valid Stateowned Land Use Rights Certificate for Land Lot D been obtained by Chengdu OCT, the market value of Land Lot D as at the date of valuation would be RMB1,122,900,000. The Property Valuer has also assigned no commercial value to Land Lots A and C of the property as Chengdu OCT has no rights to transfer them during the residual land use term.

(C) The major terms of the Capital Increase Agreement

(i) Amount of Capital Injection

Pursuant to the Capital Increase Agreement, Bantix will solely contribute, in cash, RMB588 million (approximately HK$672.0 million) in Chengdu OCT and in return, Bantix’s interest in Chengdu OCT will increase from 25% to approximately 51% with an additional registered capital contribution of RMB212 million (approximately HK$242.3 million) and the remaining RMB376 million (approximately HK$429.7 million) will be booked as capital reserve of Chengdu OCT. After Completion, the registered capital of Chengdu OCT will increase from RMB400 million to RMB612 million, whereby the equity interest of Chengdu OCT will be owned as to approximately 24.8%, 24.2% and 51.0% respectively by OCT Properties, OCT Holding and Bantix respectively. According to the Captal Increase Agreement, the total investment amount of Chengdu OCT will increase from RMB780 million (approximately HK$891.4 million) to RMB1,204 million (approximately HK$1,376.0 million). The increase of RMB424 million of the total investment amount bears no direct relationship with the total cash contribution of RMB588 million to be made by Bantix.

66 -

LETTER FROM CHINA EVERBRIGHT

The equity interest holding structure of Chengdu OCT before and immediately upon Completion is set out as follows:

	Before Completion	Before Completion	Immediately upon Completion	Immediately upon Completion
Shareholders	Contribution	Shareholding	Contribution	Shareholding
	RMB (million)		RMB (million)	(Approximately)
OCT Properties	152	38%	152	24.8%
OCT Holding	148	37%	148	24.2%
Bantix	100	25%	312	51.0%
Total	400	100%	612	100%

The capital contribution of RMB588 million (approximately HK$672.0 million) shall be contributed in the following manners:

Bantix shall pay RMB117.6 million (equivalent amount in Hong Kong dollars based on the middle exchange rate to be quoted from The People’s Bank of China on the payment date), being 20% of the capital contribution, after the effective date of the Capital Increase Agreement and fulfillment or, if applicable, waiver of all the conditions of the Capital Increase Agreement and upon the application of the registration of the change of registered capital by Chengdu OCT; and
Bantix shall pay the remaining RMB470.4 million within 90 days from the date of issue of the new business licence of Chengdu OCT.

The Captial Increase Agreement takes effect after execution by the parties and the issuance of the approval certificate by the authorized authority in the PRC for the change in Chengdu OCT.

(a) Basis of determination (“ Consideration ”)

As disclosed in the Letter from the Board, the amounts of contribution to be made by Bantix was determined on normal commercial terms and arrived at after arm’s length negotiation among the parties to the Capital Increase Agreement after taking into consideration (i) that the Capital Injection will enable the Group to expand its exposure in the property and tourist industry with an aim of broadening the income base of the Group; (ii) the financial performance and asset position of Chengdu OCT Group as well as its growth potential and business prospect; (iii) the potential economic growth in Chengdu; and (iv) the Capital Injection will be financed by the Placing and the Subscription.

67 -

LETTER FROM CHINA EVERBRIGHT

(b) Comparable analysis

For the purpose of assessing the fairness and reasonableness of the Consideration, we have identified 45 Hong Kong listed companies (the “ Comparable Companies ”) principally engaged in property development and/or investment business in the PRC and the property development and/or investment business contributed over 80% of the consolidated turnover of such companies in the last financial year as set out in their respective latest published annual reports or announcements or prospectuses, and we consider the list of Comparable Companies an exhaustive list of relevant comparable companies. It should be noted that the businesses, operations and prospects of Chengdu OCT are not exactly the same as the Comparable Companies and we have not conducted any in-depth investigation into the businesses and operations of the Comparable Companies. The Market Comparables are hence only used for illustrative purpose.

As at the Latest Practicable Date, the registered capital of Chengdu OCT was RMB400 million, of which RMB100 million or 25% was contributed by the Group. Excluding the additional registered capital contribution of RMB212 million by the Group under the Capital Injection, immediately upon the Completion, the existing equity interest of the Group in Chengdu OCT will be diluted to approximately 16.34% of the enlarged registered capital of Chengdu OCT. Given that the Group will be interested in approximately 51% of the enlarged registered capital of Chengdu OCT, the additional equity interest acquire by the Group through the Capital Injection will be approximately 34.66%.

Based on the financial information of Chengdu OCT as set out in Appendix I to the Circular, we calculated the implied price to book multiples (“ P/B ”) of the Capital Injection, being the Consideration divided by approximately 34.66% of the sum of the audited consolidated net assets value of Chengdu OCT as at 31 December 2009, to be of approximately 4.10 times. As for the implied price earnings ratios (“ PER ”) of the Capital Injection, being the Consideration divided by approximately 34.66% of the audited net profit after tax of Chengdu OCT for the year ended 31 December 2009, we calculated it to be of approximately 16.49 times.

We have reviewed and compared the P/B and PER of the Comparable Companies with the implied P/B and PER of the Capital Injection. The valuation multiples of the Comparable Companies have been computed on a historical basis, using the financial data obtained from their respective latest published annual reports or annual results announcements, or the interim reports or interim results announcements, or prospectuses (where applicable), and based on their respective closing prices of shares and number of total issued shares as at the Latest Practicable Date.

68 -

LETTER FROM CHINA EVERBRIGHT

Set out below are the PBs and PERs of the Comparable Companies:

			Market
			capitalization
			(based on the
			closing price as
			at the Latest
	Company (stock		Practicable Date)
	code)	Principal activities	(HK$ million)	P/B	PER
1	Country Garden	Property development,	36,193	1.52	15.16
	Holdings Co.	construction, fitting and
	Ltd. (2007)	decoration, property
		management and hotel
		operation and theme park
2	Guangzhou R&F	Development of quality	30,677	1.59	9.28
	Properties Co.,	residential and commercial
	Ltd. (2777)	properties for sale in China,
		also develops hotels, office
		buildings and shopping malls
		in Guangzhou, Beijing and
		other cities
3	Agile Property	Property development,	29,825	1.87	14.21
	Holdings Ltd.	property management, hotel
	(3383)	management and decoration
		service
4	Sino-Ocean Land	Real estate development,	31,343	1.18	14.48
	Holdings Ltd.	construction, reparation
	(3377)	and decoration, property
		investment, property
		management and hotel
		operation businesses
5	Shui On Land Ltd.	Property development and	17,328	0.70	5.50
	(272)	investment
6	SOHO China Ltd.	Investment in real estate	21,269	1.08	5.66
	(410)	development
7	Beijing North Star	Property investment, property	13,604	0.48	3.76
	Co. Ltd. (588)	leasing, land and property
		development, retail
		operation, hotel operation
		and the provision of food
		and beverage services

69 -

LETTER FROM CHINA EVERBRIGHT

			Market
			capitalization
			(based on the
			closing price as
			at the Latest
	Company (stock		Practicable Date)
	code)	Principal activities	(HK$ million)	P/B	PER
8	Greentown China	Develop quality residential	13,531	1.23	11.20
	Holdings Ltd.	properties targeting middle
	(3900)	to higher income residents
		in China
9	KWG Property	Property development, property	11,949	1.01	13.94
	Holding Ltd.	investment, and provision
	(1813)	of property management
		services
10	Zhong An Real	Property development, leasing	4,176	0.86	8.96
	Estate Ltd. (672)	and hotel operation
11	Beijing Capital	Property development and hotel	4,468	0.83	7.17
	Land Ltd. (2868)	investment and operation
12	Shanghai Forte	Property development, property	4,957	0.74	8.77
	Land Co., Ltd.	agency, property investment,
	(2337)	property management and all
		consultancy services relating
		to such businesses
13	SPG Land	Property and hotel	3,963	0.92	5.14
	(Holdings) Ltd.	development, property
	(337)	investment, property
		management and education
14	Central China Real	Residential property	3,740	1.05	8.10
	Estate Ltd. (832)	development in Henan
		Province, the PRC
15	China Overseas	Property development and	119,941	2.85	16.03
	Land &	investment, real estate
	Investment Ltd.	agency and management, and
	(688)	treasury operations
16	China Resources	Property development,	68,882	1.82	15.17
	Land Ltd. (1109)	investment and management
		and construction and
		decoration services
17	Shimao Property	Property development, property	41,676	1.57	10.15
	Holdings Ltd.	investment and hotel
	(813)	operation in the PRC

70 -

LETTER FROM CHINA EVERBRIGHT

			Market
			capitalization
			(based on the
			closing price as
			at the Latest
	Company (stock		Practicable Date)
	code)	Principal activities	(HK$ million)	P/B	PER
18	Hopson	Investment holding and	16,805	0.54	2.54
	Development	property development,
	Holdings Ltd.	investment, property
	(754)	management and hotel
		operations
19	Poly (Hong Kong)	Property development, property	23,382	1.49	24.33
	Investments Ltd.	investment and management,
	(119)	hotel operations and its
		related services, securities
		investment and construction
		services
20	New World China	Property development and	13,471	0.33	7.39
	Land Ltd. (917)	investment in the PRC
21	Shenzhen	Property development,	7,881	0.63	7.54
	Investment Ltd.	investment and management,
	(604)	provision of transportation
		services, manufacture
		and sale of industrial and
		commercial products
22	Yuexiu Property Co.	Development, selling and	12,062	0.91	16.62
	Ltd. (123)	management of properties,
		holding of investment
		properties, development,
		operation and management of
		toll highways and bridges
23	Tian An China	Property development and	7,157	0.66	6.71
	Investments Co.	investment, property
	Ltd. (28)	management and hotel
		operation
24	Sinolink Worldwide	Property development, property	4,072	0.68	3.17
	Holdings Ltd.	management and property
	(1168)	investment

71 -

LETTER FROM CHINA EVERBRIGHT

			Market
			capitalization
			(based on the
			closing price as
			at the Latest
	Company (stock		Practicable Date)
	code)	Principal activities	(HK$ million)	P/B	PER
25	Tomson Group Ltd.	Property development and	4,191	0.45	2.99
	(258)	investment, hospitality
		and leisure activities,
		manufacturing of PVC
		pipes, securities trading and
		investment holding
26	China Properties	Property development and	3,727	0.13	0.39
	Group Ltd.	investment, provision of
	(1838)	building management and
		construction consultancy
		services
27	Shanghai Zendai	Construction of commercial	4,497	1.04	8.78
	Property Ltd.	and residential properties
	(755)	for sale, ownership and
		operation of hotel business,
		leasing, management and
		agency of commercial
		and residential properties,
		provision of travel and
		related services
28	SRE Group Ltd.	Real estate development in the	2,883	0.35	3.27
	(1207)	PRC
29	Lai Fung Holdings	Property development for sale	2,052	0.28	5.04
	Ltd. (1125)	and property investment for
		rental purposes
30	Coastal Greenland	Property development, property	1,172	0.37	5.45
	Ltd. (1124)	investment and provision
		of property management
		services
31	China Chengtong	Property investment and	2,253	1.74	25.23
	Development	property development
	Group Ltd. (217)

72 -

LETTER FROM CHINA EVERBRIGHT

			Market
			capitalization
			(based on the
			closing price as
			at the Latest
	Company (stock		Practicable Date)
	code)	Principal activities	(HK$ million)	P/B	PER
32	Hong Long	Development of mid-range	1,132	0.49	25.71
	Holdings Ltd.	residential and commercial
	(1383)	properties as well as leasing
		of commercial properties
		in Guangdong and Heibei
		Provinces, the PRC
33	China Aoyuan	Property development and	3,135	0.48	7.96
	Property Group	property investment
	Ltd. (3883)
34	Hengli Properties	Property development in the	341	2.92	30.50
	Development	PRC
	(Group) Ltd.
	(169)
35	New Heritage	Property development and	310	0.39	18.93
	Holdings Ltd.	property investment in the
	(95)	PRC
36	Glorious Property	Development and sale of high	20,884	1.61	6.19
	Holdings Ltd.	quality properties in key
	(845)	economic cities in the PRC
37	Mingfa Group	Property development primarily	13,980	2.65	10.82
	(International)	on large-scale, mixed use
	Co. Ltd. (846)	commercial complexes
		and integrated residential
		properties in Fujian and
		Jiangsu Provinces
38	Powerlong Real	Development and operation of	8,747	0.94	2.00
	Estate Holdings	high-quality, large-scale,
	Ltd. (1238)	multi-functional commercial
		complexes in China

73 -

LETTER FROM CHINA EVERBRIGHT

			Market
			capitalization
			(based on the
			closing price as
			at the Latest
	Company (stock		Practicable Date)
	code)	Principal activities	(HK$ million)	P/B	PER
39	Yuzhou Properties	Development of high-quality	5,952	1.41	3.75
	Co. Ltd. (1628)	residential, retail and
		commercial properties,
		and provision of property
		management for both
		residential and commercial
		properties
40	Evergrande Real	Development of quality	37,950	2.59	30.00
	Estate Group Ltd.	residential property projects
	(3333)	in different cities across
		China
41	Longfor Properties	Property development, property	36,719	2.65	11.69
	Co. Ltd. (960)	investment and property
		management businesses in
		China
42	Fantasia Holdings	Property development business,	6,043	1.41	10.88
	Group Co., Ltd.	and provision of property
	(1777)	operation services, property
		agency services and hotel
		services
43	Kaisa Group	Principally engaged in the	11,200	1.47	14.24
	Holdings Ltd.	property development,
	(1638)	property investment, property
		management and project
		consultancy businesses
44	China SCE Property	Principally engaged in property	6,277	0.14	10.78
	Holdings Ltd.	development, property
	(1966)	investment and property
		management
45	Franshion Properties	Principally engaged in real	18,964	1.15	15.10
	(China) Limited	estate investment and
	(817)	development in China

74 -

LETTER FROM CHINA EVERBRIGHT

		Market
		capitalization
		(based on the
		closing price as
		at the Latest
Company (stock		Practicable Date)
code)	Principal activities	(HK$ million)	P/B	PER
Average			1.14	10.92
Maximum			2.92	30.50
Minimum			0.13	0.39
The Capital			4.10	16.49
Injection

Source of information for Comparable Companies: Bloomberg, www.hkex.com.hk and annual reports or announcements or interim reports or announcements or prospectuses of the respective companies above. Amounts denominated in Renminbi (“ RMB ”), if any, have been translated into HK$ at an exchange rate of RMB1 = HK$1.135 for comparison purpose only.

Based on the respective closing prices of the shares of the Comparable Companies as at the Latest Practicable Date, the P/Bs of the Comparable Companies range from approximately 0.13 time to approximately 2.92 times, with an average of approximately 1.14 times, and the PERs of the Comparable Companies range from approximately 0.39 times to approximately 30.50 times, with an average of approximately 10.92 times.

The implied P/B of the Capital Injection is approximately 4.10 times, which is higher than (i) the range of the P/Bs of the Comparable Companies; and (ii) the average of the P/Bs of the Comparable Companies calculated based on the closing price of shares as at the Latest Practicable Date.

The implied PER of the Capital Injection is approximately 16.49 times, which is (i) within the range of the PERs of the Comparable Companies; and (ii) higher than the average of the PERs of the Comparable Companies calculated based on the closing price of shares as at the Latest Practicable Date.

75 -

LETTER FROM CHINA EVERBRIGHT

However, taking into account of the following factors, we consider that the Consideration is justifiable and acceptable:

According to the accountants’ report of Chengdu OCT as set out in Appendix I to the Circular, we note that the inventories (“ Inventories of Chengdu OCT, including mainly properties held for future development and under development for sale and completed properties held for sale located at Land Lots B & D, amounted to RMB1,392.8 million as at 31 December 2009, and the Inventories were stated at cost in accordance with the accounting policies of Chengdu OCT. According to the Valuation Report as set out in the Appendix V to the Circular, the market value of the properties of Chengdu OCT as at 30 March 2010 was approximately RMB1.48 billion which only reflects the market value of Land Lot B. As advised by the Property Valuer, no commercial value was assigned to Land Lot D due to lack of State-owned Land Use Rights Certificate as at the reference date of the Valuation Report. Had a valid State-owned Land Use Rights Certificate for Land Lot D been obtained by Chengdu OCT, the market value of Land Lot D as at the date of valuation would be RMB1,122,900,000. After discussion with the Management, we understand that (i) the Group is applying for the State-owned Land Use Rights Certificate for Land Lot D and it is expected to obtain the valid State-owned Land Use Rights Certificate for Land Lot D by the end of 2010. In light of the above, we consider that market value of the Inventories has not been fully reflected in the accountants’ report of Chengdu OCT for the year ended 31 December 2009. As the lands and properties are the principal assets of Chengdu OCT and the reference date of the Valuation Report is more recent than the date of the accountants’ report, we consider it necessary to consider the recent valuation of the Inventories when consider the reasonableness and fairness of the Consideration. As such, the net asset value of Inventories should be adjusted upward by approximately RMB1,212.9 million (being the difference of the appraised value of Land Lots B & D of approximately RMB2,605.7 million (assuming a valid State-owned Land Use Rights Certificate for Land Lot D been obtained by Chengdu OCT by the end of 2010) and the cost of the Inventories of approximately RMB1,392.8 million) to reflect such revaluation. Taking into account such adjustment, we note that the implied P/B of the Capital Injection shall be reduced to approximately 2.38 times;
The implied P/B of the Capital Injection are calculated based on the historical net assets value of Chengdu OCT as at 31 December 2009, and therefore cannot reflect the increase in the net assets value of Chengdu OCT arising from the Capital Injection;
76 -

LETTER FROM CHINA EVERBRIGHT

As at the Latest Practicable Date, Chengdu OCT was beneficially owned as to 38% by OCT Properties, as to 37% by OCT Holding and as to 25% owned by the Group. Through the Capital Injection, the Group will own 51% equity interest in Chengdu OCT and Chengdu OCT will become subsidiary of the Group by virtue of the Group’s controlling equity interest and control in the board of Chengdu OCT;
the Capital Injection will be financed by the issue of new Shares under Placing and the Subscription, and therefore, it will not increase gearing or reduce the working capital of the Group; and
As Phase I of Land Lot B was completed for sale and Phase I of Chengdu Happy Valley commenced operation on 18 January 2009, Chengdu OCT Group’s operations started to generate revenue and net profit in 2009. In addition, taking into account that (i) the construction of phase II of the Chengdu Happy Valley will commence in 2011 and is expected to be completed by 2012; and (ii) the development of the Residential Property Project and the Commercial Property Project will be completed in phases by 2015, the earnings potential of Chengdu OCT Group is expected to grow persistently over the next few years. Through the Capital Injection, the Group can obtain the control over Chengdu OCT and generate higher investment return from Chengdu OCT over the long term with a manageable investment risk.

(ii) Profit sharing and management of Chengdu OCT

According to the Capital Increase Agreement, upon Completion, (i) Chengdu OCT shall continue to be responsible for the original indebtedness and liabilities of Chengdu OCT; (ii) the shareholders of Chengdu OCT shall be entitled to enjoy the profit sharing in proportion to their respective shareholdings after the Capital Injection in Chengdu OCT since 1 January 2010; and (iii) the board of directors of Chengdu OCT will comprise three directors, of which one director is to be appointed by OCT Properties and two directors are to be appointed by Bantix.

Based on the abovementioned provisions, we are of the view that the Capital Increase Agreement will ensure (i) there will be sufficient management control afforded to the Group in the development and operations of Chengdu OCT; and (ii) profit and loss sharing of Chengdu OCT is proportionate to the shareholders’ respective equity interests in Chengdu OCT.

Our view:

In light of the above, we consider the terms of the Capital Increase Agreement are fair and reasonable, on normal commercial terms and in the interests of both the Company and the Shareholders as a whole.

77 -

LETTER FROM CHINA EVERBRIGHT

(II) THE SUBSCRIPTION

(A) The background of the Subscription Agreement

With reference to the Capital Injection, the purpose of entering into the Placing Agreement and the Subscription Agreement is to raise gross amount of funding of HK$759 million to fulfill the payment obligations of the Group under the Capital Increase Agreement. The Company plans to apply the net proceeds of the Placing and the Subscription of approximately HK$747 million to settle the cash contribution of approximately HK$672 million for the Capital Increase Agreement and the remaining balance of approximately HK$75 million is intended for future working capital purpose and other future investments of the Group if opportunities arise.

As stated in the Letter from the Board, based on the Company’s due diligence work on Chengdu OCT, the Board does not foresee any difficulties in completing the Capital Injection. In the event that any of the conditions for the payment of the capital contribution by Bantix under the Capital Increase Agreement is not fulfilled or waived and the Capital Increase Agreement is terminated, the Directors may be required to reallocate the intended part of the net proceeds from the Subscription and the Placing of approximately HK$747 million to other business plans or new projects or hold such funds in bank accounts or short term investments so long as the Directors consider such use of proceeds to be in the best interests of the Group. It is expected that HK$650 million will be retained for other business plans or new projects, if opportunities arise; and the remaining HK$97 million will be used for general working capital purpose.

We understand from the Management that apart from equity financing, the Management also considered other financing alternatives such as debt financing as possible fund raising method for the Group to finance the Capital Injection.

However, taking into account that the capital contribution payable by the Group under the Capital Injection will amount to approximately RMB588 million, which represents approximately 81.6% the Group’s net asset value as at 31 December 2009, the Management believe that it would be very difficult for the Group to obtain sufficient bank borrowings with favourable or acceptable terms to finance the Capital Injection. Furthermore, additional debt financing shall inevitably increase the interest burden to the Group and it may subject to lengthy due diligence and negotiations between the Group and its financiers.

Taking into account that bank borrowings will (i) create additional finance cost to the Group and increase its gearing ratio; and (ii) involve refinancing risk to the Group, the Management considers that, as compared to bank borrowings, equity financing through the Placing and Subscription is a comparatively prudent way to finance the Group’s future business development.

The Directors also indicated to us that a rights issue or open offer may not be desirable. A typical rights issue or open offer is underwritten by one or a syndicate of securities brokerages. Since the Shareholders’ response to a rights issue or open offer is uncertain, in particular when stock market becomes volatile, securing underwriting arrangement for a rights issue or open offer is comparatively more difficult and time-consuming than the Placing and Subscription. Furthermore, a rights issue or open offer would involve numerous steps including notice period

78 -

LETTER FROM CHINA EVERBRIGHT

for book closure, issue of prospectus and offer period which would normally take no less than one and a half month’s time to complete under the prevailing Listing Rules. In addition, to maintain their pro-rata shareholding in a rights issue or open offer, the existing Shareholders will have to participate in the rights issue or open offer or face dilution. This may create undue financial burden on certain existing Shareholders.

In light of the above, we concur with the Directors’ view that equity financing through the Subscription and the Placing is in the interest of the Company and the Shareholders as a whole, and is a fair and reasonable channel to raise capital for the Group.

(B) The Subscription Price

On 1 April 2010, the Company entered into the Subscription Agreement with Pacific Climax pursuant to which Pacific Climax agreed to subscribe for and the Company agreed to issue and allot 91,800,000 Subscription Shares, which represent approximately 26.47% of the existing issued share capital of the Company as at the Latest Practicable Date and approximately 18.41% of the issued share capital of the Company as enlarged by the issue of the Placing Shares and the Subscription Shares, at issue price (“ Subscription Price ”) of HK$5.0 per Subscription Share under a specific mandate proposed to be granted to the Directors at the EGM.

The Subscription Price is the same with the issue price of new Shares to independent subscribers in accordance with the Placing Agreement.

(i) Historical Share price performance

The chart below shows the closing price of the Shares during a period starting from 1 April 2009, being one year prior to the signing of the Subscription Agreement, up to and including the Latest Practicable Date (“ Review Period ”):

==> picture [398 x 218] intentionally omitted <==

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

HK($)
6
Subscription
5
Price
4
3
2
1
0
1/4/2009 1/5/2009 1/6/2009 1/7/2009 1/8/2009 1/9/2009 1/10/2009 1/11/2009 1/12/2009 1/1/2010 1/2/2010 1/3/2010 1/4/2010 1/5/2010
----- End of picture text -----

Source: Stock Exchange Website

79 -

LETTER FROM CHINA EVERBRIGHT

The above chart shows that during the Review Period, the closing prices of the Shares gradually increased from HK$0.75 per Share in 1 April 2009 to HK$4.60 per Share as at the Latest Practicable Date, with an average of approximately HK$3.04 per Share (“ Average Closing Price ”).

The Subscription Share of HK$5.0 represents i) a discount of approximately 6.37% to the highest closing price of HK$5.34 per Share as quoted from the Stock Exchange on 14 April 2010; ii) approximately 5.85 times to the lowest closing price of HK$0.73 per Share as quoted from the Stock Exchange on 1 April 2009; and iii) a premium of approximately 64.47% to the Average Closing Price of HK$3.04 per Share during the Review Period.

(ii) Comparison of the issue price for the Subscription Shares

The issue price of HK$5.0 per Subscription Share was agreed based on arm’s length negotiations between the Company and Pacific Climax and represents:

(a) a discount of approximately 2.34% to the closing price of HK$5.12 per Share as quoted on the Stock Exchange as at 31 March 2010 (“ Last Trading Day ”), being the last trading day of the Shares immediately before the date of suspension of trading of the Shares pending the release of the Announcement;
(b) a discount of approximately 1.77% to the average closing price of approximately HK$5.09 per Share based on the daily closing prices as quoted on the Stock Exchange over the five trading days up to and including the Last Trading Day;
(c) a premium of approximately 2.04% to the average closing price of approximately HK$4.90 per Share based on the daily closing prices as quoted on the Stock Exchange over the ten trading days up to and including the Last Trading Day;
(d) a premium of approximately 8.70% to the closing price of HK$4.60 per Share as quoted on the Stock Exchange as at the Latest Practicable Date; and
(e) approximately 1.2 times over the audited consolidated net asset value per Share of approximately HK$2.06 as at 31 December 2009 (based on 346,750,000 Shares in issue).
80 -

LETTER FROM CHINA EVERBRIGHT

(iii) Comparable analysis

In assessing the fairness and reasonableness of the Subscription Price, we have also reviewed placements of shares by companies principally engaged in property development in the PRC and have their shares listed on the Main Board of the Stock Exchange. The information relates to the share placements (“ Comparable Placements ”) made by such listed companies from 1 January 2009 up to and including the Latest Practicable Date as we were able to identify from the Stock Exchange’s websites. The results of our research are as follows:

		Premium over/	Premium over/
		(discount to)	(discount to)
		the average	the average
		closing price for	closing price for
		the last 5 trading	the last 10 trading
		days up to and	days up to and
		including the last	including the last
		trading day	trading day
		immediately prior	immediately prior
		to the respective	to the respective
Name of comparable	Date of	date of	date of
companies	announcement	announcement	announcement
Shimao Property
Holdings Limited
(813.HK)	7-Apr-09	(8.2% )	(1.3% )
China Resources Land
Limited (1109.HK)
	19-May-09	(2.2% )	(0.3% )
Hopson Development
Holdings Limited
(754.HK)	4-Jun-09	4.6%	14.7%
Shui On Land Limited
(272.HK)	10-Jun-09	(10.9% )	(6.7% )
Poly (Hong Kong)
Investments Limited
(119.HK)	14-Jun-09	(5.3% )	(6.9% )
Zhong An Real Estate
Limited (672.HK)	29-Jun-09	1.0%	2.6%

81 -

LETTER FROM CHINA EVERBRIGHT

		Premium over/	Premium over/
		(discount to)	(discount to)
		the average	the average
		closing price for	closing price for
		the last 5 trading	the last 10 trading
		days up to and	days up to and
		including the last	including the last
		trading day	trading day
		immediately prior	immediately prior
		to the respective	to the respective
Name of comparable	Date of	date of	date of
companies	announcement	announcement	announcement
SRE Group Limited
(1207.HK)	29-Jun-09	(8.6% )	(10.2% )
KWG Property Holdings
Limited (1813.HK)	30-Jun-09	(1.0% )	3.1%
China Aoyuan Property
Group Limited (3883.HK)	12-Jul-09	(14.0% )	(12.0% )
Franshion Properties
(China) Limited
(817.HK)	22-Jul-09	(6.7% )	(5.1% )
C C Land Holdings
Limited (1224.HK)	28-Jul-09	1.1%	8.0%
Shenzhen Investment
Limited (604.HK)	4-Aug-09	(5.2% )	(1.5% )
Poly (Hong Kong)
Investments Limited
(119.HK)	17-Sep-09	(6.3% )	(1.4% )
Shell Electric Mfg.
(Holdings) Company
Limited (81.HK)	29-Sep-09	(24.3% )	(24.2% )
Sinolink Worldwide
Holdings Limited
(1168.HK)	9-Oct-09	(5.5% )	(4.1% )

82 -

LETTER FROM CHINA EVERBRIGHT

		Premium over/	Premium over/
		(discount to)	(discount to)
		the average	the average
		closing price for	closing price for
		the last 5 trading	the last 10 trading
		days up to and	days up to and
		including the last	including the last
		trading day	trading day
		immediately prior	immediately prior
		to the respective	to the respective
Name of comparable	Date of	date of	date of
companies	announcement	announcement	announcement
Poly (Hong Kong)
Investments Limited
(119.HK)	14-Oct-09	(11.7% )	(11.7% )
Minmetals Land Limited
(230.HK)	17-Dec-09	(15.4% )	(11.7% )
Sino-Ocean Land Holdings
Limited (3377.HK)	27-Dec-09	(6.6% )	(12.7% )
Hong Long Holdings
Limited (1383.HK)	30-Dec-09	(2.5% )	(0.9% )
Shanghai Zendai Property
Limited (755.HK)	8-Jan-10	(1.6% )	(1.1% )
Comparable Placements	Highest	4.6%	14.7%
	Lowest	(24.3% )	(24.2% )
	Median	(5.9% )	(2.8% )
	Mean	(6.6% )	(4.2% )
The Company		(1.8% )	2.0%

83 -

LETTER FROM CHINA EVERBRIGHT

As illustrated above, the placing prices of the Comparable Placements ranged from (i) a premium of approximately 4.6% to a discount of approximately 24.3% to the average closing price for the last five trading days up to and including the last trading day, with a median and mean of 5.9% discount and 6.6% discount respectively; and (ii) a premium of approximately 14.7% to a discount of approximately 24.2% to the average closing price for the last ten trading days up to and including the last trading day, with a median and mean of 2.8% discount and 4.2% discount respectively.

The premium/(discount) of the Subscription Price to the average closing price for the last five and ten trading days up to and including the Last Trading Day are approximately (1.8%) and 2.0% respectively, which are within the market range.

In light of our above analysis, we consider the Subscription Price fair and reasonable.

(III) THE POSSIBLE FINANCIAL EFFECTS OF THE TRANSACTIONS

Upon Completion, Chengdu OCT will become a non-wholly-owned subsidiary of the Company. As such the financial performance of Chengdu OCT will be accounted for using the consolidation method under which the assets and liabilities, income and expenses and cash flow of Chengdu OCT will be consolidated and be included in the relevant components of the consolidated accounts of the Group.

(i) Effects on net assets value

As shown in the unaudited pro forma combined financial information of the Enlarged Group as at 31 December 2009 contained in Appendix IV to the Circular (the “ Pro Forma Financial Information ”), the unaudited pro forma net asset value of the Enlarged Group would be approximately RMB2,253.4 million upon completion of the Capital Injection, representing an increase of approximately 224.4%.

As illustrated above, the unaudited pro forma net assets of the Enlarged Group would increase as a result of the Capital Injection, thus, we consider the Capital Injection is in the interest of the Company and the Shareholders as a whole.

(ii) Effects on earnings

As Chengdu OCT Group’s operations have been profitable and generating stable cash flows, the Group’s turnover and profitability will be improved immediately upon the Completion. In addition, future earnings potential of Chengdu OCT Group will be further strengthened upon the commencement of the other operations and sales of properties in the coming few years, which in turn, will further strengthen the Group’s turnover and profitability in future.

84 -

LETTER FROM CHINA EVERBRIGHT

Based on the Pro Forma Financial Information, the unaudited pro forma turnover and net profit attributable to the equity shareholders of the Enlarged Group would be approximately RMB2,144.0 million and approximately RMB110.8 million, representing an increase of approximately 244.7% and approximately 365.2%, respectively.

However, Shareholders should note that of the above increase in unaudited pro forma net profit attributable to the equity shareholders of the Enlarge Group of approximately RMB87.0 million in 2009, approximately RMB55.2 million arises from the gain on bargain purchase and gain on remeasurement of the previously held 25% interest in Chengdu OCT which is non-recurring in nature. If the contribution from the gain on bargain purchase and gain on remeasurement of the previously held 25% interest in Chengdu OCT was excluded, the unaudited pro forma net profit attributable to the equity shareholders of the Enlarge Group would be approximately RMB55.6 million, representing an increase of 133.3%.

In light of the above and the expected positive outlook of the real estate market and tourism industry in Chengdu, the Management expects that the Capital Injection will have a positive impact to the profitability of the Group upon the Completion.

(iii) Effects on gearing and net current assets

As at 31 December 2009, the gearing ratio of the Company, which is calculated based on total bank loans divided by the total assets at the end of the year, was approximately 10.8%. Upon completion of the Capital Injection, the gearing ratio of the Enlarged Group would be 24.1%.

As at 31 December 2009, the net current assets of the Company was approximately RMB197.0 million. Based on the Pro Forma Financial Information, the unaudited pro forma net current assets of the Enlarged Group would be increased by approximately 278.4% to approximately RMB745.6 million.

In light of the benefits arising from the Capital Injection, details of which are set out in the paragraph headed “Background of and reasons for the Capital Injection” above, we consider that the rise of the gearing ratio of the Enlarged Group is acceptable.

(iv) Effects on working capital

As at 31 December 2009, the Group had cash and cash equivalents of approximately RMB314.0 million. As stated in the Letter from the Board, the capital contribution of RMB588 million (approximately HK$672.0 million) to be made by Bantix will be financed by the Placing and the Subscription and will be used to expand the existing business operation of Chengdu OCT. As such, the Group would not incur cash outflow for the Capital Injection.

In addition, the Directors are of the opinion that, following the Capital Injection, taking into account the financial resources available to the Enlarged Group, including the internally generated funds and the present available bank facilities, and in the absence of unforeseen circumstances, the Enlarged Group will have sufficient working capital for its requirements for at least the next 12 months from the date of the Circular.

85 -

LETTER FROM CHINA EVERBRIGHT

(v) Effects on the shareholding structure of the Company

The following table sets out the shareholding structure of the Company as at the Latest Practicable Date and immediately after the Completion (assuming no further issue of Shares between the Latest Practicable Date and the date of Completion):

Name of Shareholders Pacific Climax_(Note)_ Directors: Ni Zheng Zhou Guangneng Public Shareholders: Placees Other public Shareholders Total	Shareholding as at the Latest Practicable Date Number of Shares % 196,620,000 56.70 600,000 0.17 510,000 0.15 – – 149,020,000 42.98 346,750,000 100.00	Shareholding upon completion of the Placing and the Subscription Number of Shares % 288,420,000 57.85 600,000 0.12 510,000 0.10 60,000,000 12.04 149,020,000 29.89 498,550,000 100.00	Shareholding upon completion of the Placing and the Subscription Number of Shares % 288,420,000 57.85 600,000 0.12 510,000 0.10 60,000,000 12.04 149,020,000 29.89 498,550,000 100.00
			100.00

Note:

OCT Holding is the sole beneficial owner of all the issued share capital of OCT HK which holds the entire issued share capital of Pacific Climax.

Upon Completion, the existing Independent Shareholders’ holdings would be diluted by approximately 13.09%, from approximately 42.98% to approximately 29.89%.

After taking into account that (i) the Independent Shareholders will participate in a larger business and the Capital Injection is expected to improve the revenue base of the Group in the longer term with a manageable investment risk; and (ii) the Subscription and the Placing allow the Group to increase its equity interest in Chengdu OCT without incurring cash outflow for the Capital Injection, we consider this level of dilution to Independent Shareholders justifiable and acceptable.

86 -

LETTER FROM CHINA EVERBRIGHT

RECOMMENDATION

Based on the above principal factors and reasons, we are of the opinion that the Capital Increase Agreement and the Subscription Agreement are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Transactions as detailed in the notice of EGM set out at the end of the Circular.

Yours faithfully, For and on behalf of China Everbright Capital Limited

Alvin Kam Director

87 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

The following is the text of a report, prepared for the purpose of incorporation in this circular, received from the Company’s reporting accountants, KPMG, Certified Public Accountants, Hong Kong.

==> picture [90 x 36] intentionally omitted <==

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

13 May 2010

The Directors

Overseas Chinese Town (Asia) Holdings Limited

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Chengdu Tianfu OCT Industry Development Co., Ltd. (“Chengdu OCT”) and its subsidiaries (hereinafter collectively referred to as the “Chengdu OCT Group”) for each of the years ended 31 December 2007, 2008 and 2009 (the “Relevant Period”) in Section A to D below, including the statement of comprehensive income, the statement of changes in equity and the cash flow statement of Chengdu OCT for the year ended 31 December 2007 and the balance sheet of Chengdu OCT as at 31 December 2007, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements of Chengdu OCT Group for each of the years ended 31 December 2008 and 2009 and the consolidated balance sheets of Chengdu OCT Group as at 31 December 2008 and 2009, together with the notes thereto (the “Financial Information”), for inclusion in the circular of Overseas Chinese Town (Asia) Holdings Limited (the “Company”) dated 13 May 2010 (the “Circular”).

On 1 April 2010, Bantix International Limited (“Bantix”), a wholly owned subsidiary of the Company, entered into the Capital Increase Agreement with Overseas Chinese Town Real Estate Company Limited and Shenzhen Overseas Chinese Town Holding Company to increase the registered capital of Chengdu OCT from RMB400 million to RMB612 million, and Bantix will solely contribute, in cash, RMB588 million and in return, Bantix’s interest in Chengdu OCT will increase from 25% to 51%. As a result of the foregoing transaction, the Company will own 51% equity interest in Chengdu OCT.

88 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

Chengdu OCT was incorporated in the People’s Republic of China (the “PRC”) on 31 October 2005. All subsidiaries of Chengdu OCT as at the date of this report were incorporated in 2008. As at and for the year ended 31 December 2007, Chengdu OCT had no subsidiaries. Accordingly, the Financial Information includes the financial statements of Chengdu OCT as at and for the year ended 31 December 2007 and the consolidated financial statements of Chengdu OCT Group as at and for each of the two years ended 31 December 2008 and 2009. Information relating to Chengdu OCT’s balance sheets as at 31 December 2008 and 2009 is set forth in Section C below. Particulars of the subsidiaries of Chengdu OCT as at the date of this report are set out below:

	Place and	Issued and	Attributable equity	Attributable equity
	date of	fully paid	interest
Name of company	incorporation	paid-in capital	Direct	Indirect	Principal activities
Chengdu Tianfu OCT Wanhui	the PRC,	RMB	100%	–	Consulting and
Management Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城萬匯商城管理有限公司”)					entertainment project
Chengdu Tianfu OCT Park Plaza	the PRC,	RMB	100%	–	Consulting and
Management Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城公園廣場管理有限公司”)					entertainment project
Chengdu Tianfu OCT Chuangzhan	the PRC,	RMB	100%	–	Consulting and
Business District Management Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城創展商業區管理有限公司”)					entertainment project
Chengdu Tianfu OCT Commercial	the PRC,	RMB	100%	–	Consulting and
Plaza Management Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城商業廣場管理有限公司”)					entertainment project
Chengdu Tianfu OCT Theater	the PRC,	RMB	100%	–	Venue rental,
Management Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城大劇院管理有限公司”)					entertainment project
Chengdu Tianfu OCT Lakeside	the PRC,	RMB	100%	–	Consulting and
Business Management Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城湖濱商業管理有限公司”)					entertainment project
Chengdu Tianfu OCT Riverside	the PRC,	RMB	100%	–	Consulting and
Business Management Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城純水岸商業管理有限公司”)					entertainment project
Chengdu Tianfu OCT Urban	the PRC,	RMB	100%	–	Consulting and
Entertainment Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城都市娛樂有限公司”)					entertainment project
Chengdu Tianfu OCT Hotel	the PRC,	RMB	100%	–	Hotel management,
Management Co., Ltd.	29 August 2008	10,000,000			management of
(“成都天府華僑城酒店管理有限公司”)					entertainment project

Note: The English translation of the above subsidiaries’ name is for reference only. The official name of these companies is in Chinese.

89 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

The statutory financial statements of Chengdu OCT Group were prepared in accordance with the relevant accounting rules and regulations applicable to enterprises in the PRC.

The statutory financial statements of Chengdu OCT for the year ended 31 December 2007 were audited by Daxin Certified Public Accountants. The statutory consolidated financial statements of Chengdu OCT Group for the years ended 31 December 2008 and 2009 were audited by Zhongrui Yuehua Certified Public Accountants Co., Ltd.. The subsidiaries of Chengdu OCT have not carried out any business since their respective dates of establishment, and no statutory audited financial statements have been prepared for the period ended 31 December 2008 and the year ended 31 December 2009.

The directors of Chengdu OCT have prepared the financial statements of Chengdu OCT and the consolidated financial statements of Chengdu OCT Group for the Relevant Period in accordance with the accounting policies set out in Section B below (the “Underlying Financial Statements”). The Underlying Financial Statements for each of the years ended 31 December 2007, 2008 and 2009 were audited by us in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

The Financial Information has been prepared by the directors of Chengdu OCT based on the Underlying Financial Statements, with no adjustments made thereon and in accordance with the applicable disclosure provisions of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF CHENGDU OCT AND REPORTING ACCOUNTANTS

The directors of Chengdu OCT are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with Hong Kong Financial Reporting Standards (the “HKFRSs”) issued by the HKICPA, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Listing Rules. This responsibility includes designing, implementing and maintaining internal control 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.

Our responsibility is to form an opinion on the Financial Information based on our procedures.

90 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

BASIS OF OPINION

As a basis for forming an opinion on the Financial Information, for the purpose of this report, we have examined the Underlying Financial Statements and have carried out such appropriate procedures as we considered necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA.

We have not audited any financial statements of Chengdu OCT, its subsidiaries or Chengdu OCT Group in respect of any period subsequent to 31 December 2009.

OPINION

In our opinion, for the purpose of this report, the Financial Information, in accordance with the accounting policies set out in Section B below, gives a true and fair view of Chengdu OCT’s results and cash flows for the year ended 31 December 2007 and the state of affairs of Chengdu OCT as at 31 December 2007, and Chengdu OCT Group’s consolidated results and cash flows for the years ended 31 December 2008 and 2009 and the consolidated state of affairs of Chengdu OCT Group as at 31 December 2008 and 2009.

91 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

A FINANCIAL INFORMATION
1 Statement of comprehensive income for the year ended 31 December 2007 Consolidated statements of comprehensive income for the years ended 31 December 2008 and 2009

Section B Note Turnover 3 & 10 Cost of sales Gross profit Other revenue 4 Other net (expenses)/income 4 Distribution costs Administrative expenses (Loss)/profit from operations Finance costs 5(a) (Loss)/profit before taxation 5 Income tax 6 (Loss)/profit and total comprehensive income for the year (Loss)/profit and total comprehensive income attributable to: Equity holders of Chengdu OCT	Year 2007 RMB’000 – – – 2,147 (48 ) (7,382 ) (13,301 ) (18,584 ) (2,512 ) (21,096 ) 5,274 (15,822 ) (15,822 )	ended 31 December 2008 2009 RMB’000 RMB’000 – 1,521,962 – (1,129,781 ) – 392,181 1,944 1,652 97 244 (60,182 ) (86,976 ) (39,816 ) (58,197 ) (97,957 ) 248,904 – (72,353 ) (97,957 ) 176,551 24,607 (73,657 ) (73,350 ) 102,894 (73,350 ) 102,894

The accompanying notes form part of the Financial Information.

92 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 Balance sheet as at 31 December 2007 Consolidated balance sheets as at 31 December 2008 and 2009

Section B
Note
Non-current assets
Property and equipment
11
Investment property
12
Intangible assets
13
Other financial assets
14
Deferred tax assets
21(b)
Current assets
Inventories
15
Trade and other receivables
16
Prepaid tax
21(a)
Cash and cash equivalents
17
Current liabilities
Borrowings
18
Trade and other payables
19
Receipts in advance
20
Tax payable
21(a)
Net current liabilities
Total assets less current
liabilities

At 31 December
2007
2008
2009
RMB’000
RMB’000
RMB’000
820,605
1,651,747
1,902,553
81,053
380,776
488,823
87
103
256
4,320
4,320
4,320
5,274
35,420
31,704
911,339
2,072,366
2,427,656
425,127
1,697,687
1,392,769
594
97,092
70,401
–
8,487
–
70,647
76,409
62,526
496,368
1,879,675
1,525,696
365,000
1,248,450
674,213
258,763
1,080,323
1,181,842
–
707,722
843,516
–
4,952
27,922
623,763
3,041,447
2,727,493
(127,395 )
(1,161,772 )
(1,201,797 )
783,944
910,594
1,225,859

The accompanying notes form part of the Financial Information.

93 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 Balance sheet as at 31 December 2007

Consolidated balance sheets as at 31 December 2008 and 2009 (continued)

Section B Note Non-current liabilities Interest-bearing borrowings 18 Deferred tax liabilities 21(b) Net assets Capital and reserves 22 Paid-in capital Reserves Total equity attributable to equity holders of Chengdu OCT Total equity	At 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 400,000 600,000 800,000 – – 12,371 400,000 600,000 812,371 383,944 310,594 413,488 400,000 400,000 400,000 (16,056 ) (89,406 ) 13,488 383,944 310,594 413,488 383,944 310,594 413,488	At 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 400,000 600,000 800,000 – – 12,371 400,000 600,000 812,371 383,944 310,594 413,488 400,000 400,000 400,000 (16,056 ) (89,406 ) 13,488 383,944 310,594 413,488 383,944 310,594 413,488
		812,371

		413,488

		400,000 13,488
		413,488
		413,488

The accompanying notes form part of the Financial Information.

94 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

3 Statement of changes in equity for the year ended 31 December 2007 Consolidated statements of changes in equity for the years ended 31 December 2008 and 2009

Section B
Note
Balance at 1 January 2007
Total comprehensive income
for the year
Balance at 31 December 2007
and 1 January 2008
Total comprehensive income
for the year
Balance at 31 December 2008
and 1 January 2009
Total comprehensive income
for the year
Appropriation of statutory
reserve fund
22(b)
Balance at 31 December 2009

Attributable to equity holders of
Chengdu OCT
(Accumulated
Statutory
losses)/
Paid-in
reserve
retained
capital
fund
profits
Total
RMB’000
RMB’000
RMB’000
RMB’000
400,000
–
(234 )
399,766
–
–
(15,822 )
(15,822 )
400,000
–
(16,056 )
383,944
–
–
(73,350 )
(73,350 )
400,000
–
(89,406 )
310,594
–
–
102,894
102,894
–
1,372
(1,372 )
–
400,000
1,372
12,116
413,488

The accompanying notes form part of the Financial Information.

95 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

4 Cash flow statement for the year ended 31 December 2007 Consolidated cash flow statements for the years ended 31 December 2008 and 2009

Section B Note Operating activities Cash (used in)/generated from operations 17(b) Tax paid Net cash (used in)/generated from operating activities Investing activities Payment for the purchase of property and equipment and investment property Payment for purchase of intangible assets Payment for purchase of other investments New loans to related party Loans repaid by related party Proceeds from local government 19(b) Net cash used in investing activities Financing activities Proceeds from new bank loans Repayment of bank loans Proceeds from new related party loans Repayment of related party loans Interest paid Net cash generated from/ (used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year 17(a) Cash and cash equivalents at the end of the year 17(a)	Year 2007 RMB’000 (60,360 ) – (60,360 ) (858,504 ) (57 ) (4,320 ) (100,000 ) 100,000 250,000 (612,881 ) 650,000 – 150,000 (100,000 ) (18,002 ) 681,998 8,757 61,890 70,647	ended 31 December 2008 2009 RMB’000 RMB’000 (469,993 ) 813,343 (9,074 ) (26,113 ) (479,067 ) 787,230 (787,588 ) (421,635 ) (38 ) (212 ) – – – – – – 250,000 50,000 (537,626 ) (371,847 ) 242,300 100,000 (292,300 ) (700,000 ) 1,448,450 1,135,763 (315,000 ) (910,000 ) (60,995 ) (66,022 ) 1,022,455 (440,259 ) 5,762 (24,876 ) 70,647 76,409 76,409 51,533

The accompanying notes form part of the Financial Information.

96 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

B NOTES TO THE FINANCIAL INFORMATION

1 PRINCIPAL PLACE OF BUSINESS

Chengdu Tianfu OCT Industry Development Co., Ltd. (“Chengdu OCT”) is a company incorporated on 31 October 2005 and domiciled in Chengdu, the People’s Republic of China (“the PRC”). Its registered office and principal place of business is at 1 Shaxi Avenue, Jinniu District, Chengdu, the PRC.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. The Financial Information also complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by Chengdu OCT and its subsidiaries (together referred to as the “Chengdu OCT Group”) is set out below.

During the Relevant Period, the HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing the Financial Information, Chengdu OCT Group has adopted all these new and revised HKFRSs in the Relevant Period, except for any new standards or interpretation that are not yet effective for the Relevant Period.

(b) Basis of preparation of the Financial Information

All subsidiaries of Chengdu OCT were incorporated in 2008. As such, the financial statements for the year ended 31 December 2007 included in the Financial Information comprise Chengdu OCT only. The Financial Information for the years ended 31 December 2008 and 2009 comprises Chengdu OCT Group.

(i) Going concern basis

As at 31 December 2009, Chengdu OCT Group had net current liabilities of RMB1,201,797,000. In view of these circumstances, the directors of Chengdu OCT Group have given careful consideration to the future liquidity and performance of Chengdu OCT Group and its available sources of finance in assessing whether Chengdu OCT Group will have sufficient financial resources to continue as a going concern.

The directors of Chengdu OCT Group consider that sufficient financial support to Chengdu OCT Group could be obtained from its ultimate holding company, Overseas China Town Enterprises Co., Ltd. (“OCT Group”), so as to enable Chengdu OCT Group to meet its liabilities as and when they fall due and to enable Chengdu OCT Group to continue its operations for the foreseeable future. As a result, the directors of Chengdu OCT Group are of the opinion that Chengdu OCT Group has sufficient financial resources to enable it to carry out its activities and to meet its liabilities and other financial obligations as they fall due for at least twelve months from the date of approval of the Financial Information. Therefore, they have adopted the going concern basis in the preparation of the Financial Information.

97 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Basis of preparation of the Financial Information (continued)

(ii) Measurement basis

The Financial Information is presented in Renminbi (“RMB”) which is the functional and presentation currency of Chengdu OCT Group, rounded to the nearest thousand. The measurement basis used in the preparation of the Financial Information is the historical cost basis.

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 the 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 underlying 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 Information and major sources of estimation uncertainty are discussed in note 28.

The accounting policies set out below have been consistently applied to all periods presented in preparing the Financial Information.

(c) Subsidiaries

Subsidiaries are entities controlled by Chengdu OCT Group. Control exists when Chengdu OCT Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In Chengdu OCT’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note 2(i)).

(d) Other investments in equity securities

Chengdu OCT Group’s policies for investments in equity securities, other than investments in subsidiaries, are as follows:

Investments in equity securities are initially stated at cost, which is their transaction price unless fair value can be more reliably estimated using valuation techniques whose variables include only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below.

98 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(d) Other investments in equity securities (continued)

Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognised in the balance sheet at cost less impairment losses (see note 2(i)).

Investments are recognised/derecognised on the date Chengdu OCT Group commits to purchase/sell the investments or they expire.

(e) Investment property

Investment properties are land and/or buildings which are owned or held under a leasehold interest (see note 2(h)) to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use and property that is being constructed or developed for future use as investment property.

Investment properties are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 2(i)). Depreciation is calculated to write off the cost less estimated residual value if applicable and is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives ranging from 25 years to 38 years.

Rental income from investment properties is accounted for as described in note 2(r)(iv).

When Chengdu OCT Group holds a property interest under an operating lease to earn rental income and/ or for capital appreciation, the interest is classified and accounted for as an investment property on a propertyby-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease (see note 2(h)), and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 2(h).

Property that is being constructed or developed for future use as investment property is stated at cost less impairment loss (see note 2(i)) until construction or development is complete.

(f) Property and equipment

(i) Property and equipment

The following items of property and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 2(i)).

Buildings held for own use which are situated on leasehold land, where the fair value of the building could be measured separately from the fair value of the leasehold land at the inception of the lease (see note 2(h)); and
Other items of property and equipment
99 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(f) Property and equipment (continued)

(i) Property and equipment (continued)

The cost of self-constructed items of property and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see note 2(t)).

Gains or losses arising from the retirement or disposal of an item of property and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost of items of property and equipment, less their estimated residual value, if any, using the straight-line method over the estimated useful lives as follows:

Buildings held for own use which are situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives, being no more than 25 years after the date of completion.
Interests in leasehold land held for own use are amortised over the unexpired term of lease, being 38 years after the date of acquiring land use right.
Other fixed assets: 5 to 10 years.

Where parts of an item of property and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

(ii) Construction in progress

Construction in progress is stated at cost less impairment losses (see note 2(i)). Cost comprises direct costs of construction during the year of construction and installation. Capitalisation of these costs ceases and the construction in progress is transferred to property and equipment when substantially all of the activities necessary to prepare the assets of their intended use are substantially complete, notwithstanding any delays in the issue of the relevant completion certificates by the relevant PRC authorities.

No depreciation is provided in respect of construction in progress until it is substantially complete and ready for its intended use.

100 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(g) Intangible assets

Intangible assets that are acquired by Chengdu OCT Group are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 2(i)).

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows:

–	Software	5	years
–	Copyright	2	years

Both the period and method of amortisation are reviewed annually.

(h) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if Chengdu OCT Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to Chengdu OCT Group

Assets held under leases which transfer to Chengdu OCT Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to Chengdu OCT Group are classified as operating leases, with the following exceptions:

property held under operating leases that would otherwise meet the definition of an investment property is classified as investment property on a property-by-property basis and, if classified as investment property, is accounted for as if held under a finance lease (see note 2(e)).

(ii) Operating lease charges

Where Chengdu OCT Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term except where the property is classified as an investment property (see note 2(e)) or properties for sale (see note 2(j)).

101 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(i) Impairment of assets

(i) Impairment of investments in equity securities and other receivables

Investments in equity securities (other than investments in subsidiaries: see note 2(i)(ii)) and other current and non-current receivables that are stated at cost or amortised cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of Chengdu OCT Group about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

If any such evidence exists, any impairment loss is determined and recognised as follows:

For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities carried at cost are not reversed.
For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

102 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(i) Impairment of assets (continued)
(i) Impairment of investments in equity securities and other receivables (continued)

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors and bills receivable included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When Chengdu OCT Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors and bills receivable directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired.

property and equipment;
investment properties;
pre-paid interests in leasehold land classified as being held under an operating leases;
intangible assets; and
investments in subsidiaries.

If any such indication exists, the asset’s recoverable amount is estimated.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

–

Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

103 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(i) Impairment of assets (continued)
(ii) Impairment of other assets (continued)
- Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(j) Inventories

Inventories in respect of property development activities are classified as current assets and carried at the lower of cost and net realisable value. Cost and net realisable values are determined as follows:

(i) Properties held for future development and under development for sale

The cost of properties held for future development for sale comprises specifically identified cost, including the acquisition cost of land, aggregate cost of development, materials and supplies, wages and other direct expenses, an appropriate proportion of overheads and borrowing costs capitalised (see note 2(t)). Net realisable value represents the estimated selling price less estimated costs of completion and costs to be incurred in selling the property.

(ii) Completed properties held for sale

In the case of completed properties developed by Chengdu OCT Group, cost is determined by apportionment of the total development costs for that development project, attributable to the unsold properties. Net realisable value represents the estimated selling price less costs to be incurred in selling the property.

The cost of completed properties held for sale comprises all costs of purchase, costs of conversion and other costs incurred in bring the inventories to their present location and condition.

(k) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 2(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

(l) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

104 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(m) Trade and other payables

Trade and other payables are initially recognised at fair value. Trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(n) Cash and cash equivalents

Cash and 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, having been within three months of maturity at acquisition.

(o) Employee benefits

Short-term employee benefits and contributions to defined contribution retirement plans:

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.
Contributions to appropriate local defined contribution retirement schemes pursuant to the relevant labor rules and regulations in the PRC are expensed in the period in which they are incurred, except to the extent that they are included in construction in progress, investment property under development and properties under development for sale not yet recognised as an expense.

(p) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised directly in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

105 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(p) Income tax (continued)

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, Chengdu OCT Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient tax able profits will be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if Chengdu OCT Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

in the case of current tax assets and liabilities, Chengdu OCT Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(q) Provisions and contingent liabilities

Provisions are recognised for other liabilities of uncertain timing or amount when Chengdu OCT Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

106 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(r) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to Chengdu OCT Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of properties

Revenue from the sale of completed properties for sale is recognised upon the signing of the sale and purchase agreement and the receipt of the deposits pursuant to the sale and purchase agreement or the issue of a completion certificate by the relevant government authorities, whichever is the later. Revenue from the sales of properties excludes business tax or other sales related tax and is after deduction of any trade discounts. Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the balance sheet under sales deposits received in advance.

(ii) Sale of tickets

Revenue from the sales of tickets of theme park is recognised when the services are rendered and the ticket proceeds have been received. Revenue from the sales of tickets excludes business tax or other sales related tax and is after deduction of any trade discounts.

(iii) Sale of goods

Revenue is recognised when goods are delivered at the customers’ premises, which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(iv) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in the profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned. Revenue from operating leases excludes business tax or other sales related tax.

(v) Interest income

Interest income is recognised as it accrues using the effective interest method.

(vi) Government grants

Government grants are recognised in the balance sheet initially when there is reasonable assurance that they will be received and that Chengdu OCT Group will comply with the conditions attaching to them. Grants that compensate Chengdu OCT Group for expenses incurred are recognised as revenue in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate Chengdu OCT Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

107 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(s) Translation of foreign currencies

Foreign currency transactions during the year are translated into Renminbi at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates.

(t) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(u) Related parties

For the purpose of the Financial Information, a party is considered to be related to Chengdu OCT Group

if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control Chengdu OCT Group or exercise significant influence over Chengdu OCT Group in making financial and operating policy decisions, or has joint control over Chengdu OCT Group;
(ii) Chengdu OCT Group and the party are subject to common control;
(iii) the party is a member of key management personnel of Chengdu OCT Group or Chengdu OCT Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(iv) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(v) the party is a post-employment benefit plan which is for the benefit of employees of Chengdu OCT Group or of any entity that is a related party of Chengdu OCT Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

108 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(v) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to Chengdu OCT Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, Chengdu OCT Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

3 TURNOVER

Chengdu OCT Group is principally engaged in the development and management of properties, and the development and operation of tourism theme park.

Turnover represents the sales of properties, rental income from investment properties, ticket sales from theme park, and others as follows:

Sales of properties Rental income from investment properties Ticket sales from theme park Others	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – – 1,323,240 – – 3,773 – – 165,835 – – 29,114 – – 1,521,962	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – – 1,323,240 – – 3,773 – – 165,835 – – 29,114 – – 1,521,962
		1,521,962

4 OTHER REVENUE AND OTHER NET (EXPENSES)/INCOME

Other revenue Interest income from bank deposits Interest income from loans to related party Other net (expenses)/income Exchange (loss)/gain Others	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 1,226 1,944 1,652 921 – – 2,147 1,944 1,652 (48 ) 104 160 – (7 ) 84 (48 ) 97 244	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 1,226 1,944 1,652 921 – – 2,147 1,944 1,652 (48 ) 104 160 – (7 ) 84 (48 ) 97 244
		1,652

		160 84
		244

109 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

5 (LOSS)/PROFIT BEFORE TAXATION

(Loss)/profit before taxation is arrived at after charging/(crediting):

(a) Finance costs

Interest on bank loans Interest on related party loans Total interest expense Less: interest expense capitalised*	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 20,067 44,784 20,941 5,065 63,104 63,690 25,132 107,888 84,631 (22,620 ) (107,888 ) (12,278 ) 2,512 – 72,353	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 20,067 44,784 20,941 5,065 63,104 63,690 25,132 107,888 84,631 (22,620 ) (107,888 ) (12,278 ) 2,512 – 72,353
		84,631 (12,278 )
		72,353

The borrowing costs have been capitalised at rates of 5.59%, 6.48% and 4.27% per annum for the years ended 31 December 2007, 2008 and 2009 respectively.

(b) Staff costs

Contributions to defined contribution retirement plan Salaries, wages and other benefits	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 1,167 1,364 4,735 8,670 18,876 56,279 9,837 20,240 61,014	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 1,167 1,364 4,735 8,670 18,876 56,279 9,837 20,240 61,014
		61,014

Employees of Chengdu OCT Group in the PRC are required to participate in defined contribution retirement schemes which are administered and operated by the local municipal government. Chengdu OCT Group contributes funds which are calculated on certain percentage of the basic salary benchmark as agreed by the local municipal government to the scheme to fund the retirement benefits of the employees.

110 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

5 (LOSS)/PROFIT BEFORE TAXATION (continued)

(c) Other items

Cost of properties sold_(note 15(c))_ Depreciation and amortisation – Property and equipment – Investment property – Intangible assets Rental receivable from investment properties Less: direct outgoings Rental receivable from investment properties less direct outgoings	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – – 936,435 1,832 2,431 83,622 – – 17,648 14 22 59 1,846 2,453 101,329 – – 3,773 – – 7,433 – – (3,660)	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – – 936,435 1,832 2,431 83,622 – – 17,648 14 22 59 1,846 2,453 101,329 – – 3,773 – – 7,433 – – (3,660)
		101,329

		3,773 7,433
		(3,660)

6 INCOME TAX IN THE STATEMENT OF COMPREHENSIVE INCOME/THE CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(a) Taxation in the statement of comprehensive income/the consolidated statements of comprehensive income represents:

Current tax – PRC Corporate Income Tax – PRC Land Appreciation Tax Deferred tax – Origination and reversal of temporary differences – Effect on opening deferred tax balance resulting from a change in tax rate	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – 5,539 30,720 – – 26,850 – 5,539 57,570 (6,962 ) (30,146 ) 16,087 1,688 – – (5,274 ) (30,146 ) 16,087 (5,274 ) (24,607 ) 73,657	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – 5,539 30,720 – – 26,850 – 5,539 57,570 (6,962 ) (30,146 ) 16,087 1,688 – – (5,274 ) (30,146 ) 16,087 (5,274 ) (24,607 ) 73,657
		57,570
		16,087 –
		16,087

		73,657

111 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

6 INCOME TAX IN THE STATEMENT OF COMPREHENSIVE INCOME/THE CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (continued)

(a) Taxation in the statement of comprehensive income/the consolidated statements of comprehensive income represents (continued):

(b) Reconciliation between tax expense and accounting (loss)/profit at applicable tax rates:

(Loss)/profit before taxation Notional tax on (loss)/profit before taxation, calculated at applicable rates Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of unused tax losses not recognised LAT Tax effect of LAT Effect on deferred tax balances resulting from a change in tax rate Actual tax expense	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (21,096 ) (97,957 ) 176,551 (6,962 ) (24,489 ) 44,138 – 305 102 – (423 ) – – – 1 – – 39,221 – – (9,805 ) 1,688 – – (5,274 ) (24,607 ) 73,657

112 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

7 DIRECTORS’ REMUNERATION

Details of directors’ remuneration are set out as follows:

Year ended 31 December 2007 Mr Wu Siyuan Total Year ended 31 December 2008 Mr Wu Siyuan Total Year ended 31 December 2009 Mr Wu Siyuan Mr Zhang Dafan Total	Directors’ fees RMB’000 – – – – – – –	Salaries, allowances Retirement and benefits Discretionary scheme in kind bonuses contributions RMB’000 RMB’000 RMB’000 299 488 20 299 488 20 334 466 63 334 466 63 334 501 62 305 347 47 639 848 109	Total RMB’000 807
			807

			863
			863

			897 699
			1,596

Note a: Mr Zhang Dafan had been appointed as a director in 2009. Note b: Other directors did not receive remuneration throughout the Relevant Period.

8 INDIVIDUALS wITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, one is a director whose emoluments are disclosed in note 7 for the years ended 31 December 2007 and 2008, two are directors whose emoluments are disclosed in note 7 for the year ended 31 December 2009. The aggregate of the emoluments in respect of the remaining individuals are as follows:

Salaries and other emoluments Discretionary bonuses Retirement scheme contributions	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 916 1,109 832 1,470 1,291 1,041 105 159 139 2,491 2,559 2,012	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 916 1,109 832 1,470 1,291 1,041 105 159 139 2,491 2,559 2,012
		2,012

113 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

8 INDIVIDUALS wITH HIGHEST EMOLUMENTS (continued)

The emoluments of the remaining individuals with the highest emoluments are within the following bands:

Nil to RMB1,000,000	Number of individuals Year ended 31 December 2007 2008 2009 4 4 3

9 (LOSS)/PROFIT ATTRIBUTABLE TO EqUITY HOLDERS OF CHENGDU OCT

The (loss)/profit attributable to equity holders of Chengdu OCT for the years ended 31 December 2008 and 2009 includes a loss of RMB73,126,000 and a profit of RMB102,899,000, respectively, which has been dealt with in the financial statements of Chengdu OCT.

10 SEGMENT REPORTING

Chengdu OCT Group manages its businesses by divisions, which are organised by business lines. Prior to 2009, Chengdu OCT Group was principally engaged in the construction of properties and the tourism theme park. Chengdu OCT Group did not prepare discrete financial information for resource allocation and assessment of the segment performance during the construction stage. During 2009, Chengdu OCT Group commenced to recognise income from the sales of properties and the theme park also commenced its operation. In a manner consistent with the way in which information is reported internally to Chengdu OCT Group’s most senior executive management for the purposes of resource allocation and performance assessment, Chengdu OCT Group has presented the following two reportable segments in 2009.

Property development and management: the development and sales of residential properties, and development and management of properties.
Theme park operation.

(a) Segment results and assets

For the purposes of assessing segment performance and allocating resources between segments, Chengdu OCT Group’s senior executive management monitors the results and assets attributable to each reportable segment on the following bases:

Segment assets include all tangible, intangible assets and current assets. In accordance with the OCT Group’s practice, the leasehold land occupied by the theme park and its amortisation were recorded under the segment of property development and management.

Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation or amortisation of assets attributable to those segments except for that related to the leasehold land occupied by the theme park as above mentioned. However, other than reporting inter-segment sales of theme park tickets, assistance provided by one segment to another, including sharing of assets, is not measured.

The measure used for reporting segment result is “net profit”. Inter-segment sales are priced with reference to prices charged to external parties for similar orders.

114 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

10 SEGMENT REPORTING (continued)

(a) Segment results and assets (continued)

Information regarding Chengdu OCT Group’s reportable segments as provided to Chengdu OCT Group’s most senior executive management for the purposes of resource allocation and assessment of segment performance for the year ended 31 December 2009 is set out below.

	Property
	development
	and	Theme park
	management	operation	Total
	RMB’000	RMB’000	RMB’000
Revenue from external customers	1,327,013	194,949	1,521,962
Inter-segment revenue	–	6,286	6,286
Interest income	1,620	32	1,652
Finance cost	55,286	17,067	72,353
Depreciation and amortisation for the year	41,656	59,673	101,329
Income tax	70,813	2,844	73,657
Reportable segment profit	94,363	8,531	102,894
Reportable segment assets	3,006,031	953,607	3,959,638
Additions of non-current segment assets of
the year	252,971	106,035	359,006

(b) Reconciliations of reportable segment revenues, profit or loss and assets

31 Revenue Reportable segment revenue Elimination of inter-segment revenue Consolidated turnover Profit Reportable segment profit Elimination of inter-segment profit Consolidated profit Assets Reportable segment assets Elimination of inter-segment receivables Consolidated total assets	Year ended December 2009 RMB’000 1,528,248 (6,286
	1,521,962
	102,894 –
	102,894
	3,959,638 (6,286
	3,953,352

115 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

11 PROPERTY AND EqUIPMENT

Interests in leasehold land held for own use under operating lease RMB’000 Cost At 1 January 2007 – Additions 689,527 Transfer from construction in progress – At 31 December 2007 689,527 Accumulated amortisation and depreciation At 1 January 2007 – Charge for the year – At 31 December 2007 – Net book value At 31 December 2007 689,527 Cost At 1 January 2008 689,527 Additions 54,803 Disposals – Transfer from construction in progress – At 31 December 2008 744,330 Accumulated amortisation and depreciation At 1 January 2008 – Charge for the year – Written back on disposals – At 31 December 2008 – Net book value At 31 December 2008 744,330	Construction Buildings in progress RMB’000 RMB’000 4,577 6,159 163 116,516 237 (237 ) 4,977 122,438 – – (895 ) – (895 ) – 4,082 122,438 4,977 122,438 – 774,943 – – 2,380 (2,481 ) 7,357 894,900 (895 ) – (958 ) – – – (1,853 ) – 5,504 894,900	Furniture, fixtures and equipment RMB’000 1,495 901 – 2,396 (78 ) (353 ) (431 ) 1,965 2,396 2,272 (2 ) 101 4,767 (431 ) (646 ) 1 (1,076 ) 3,691	Motor vehicles RMB’000 2,738 794 – 3,532 (355 ) (584 ) (939 ) 2,593 3,532 1,565 (9 ) – 5,088 (939 ) (827 ) – (1,766 ) 3,322	Total RMB’000 14,969 807,901 –
				822,870
				(433 ) (1,832 )
				(2,265 )

				820,605

				822,870 833,583 (11 ) –
				1,656,442
				(2,265 ) (2,431 ) 1
				(4,695 )

				1,651,747

116 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

11 PROPERTY AND EqUIPMENT (continued)

Interests in leasehold land held for own use under operating lease Buildings RMB’000 RMB’000 Cost At 1 January 2009 744,330 7,357 Additions 4,626 7,858 Disposals – – Transfer from construction in progress – 573,738 Other deductions_(note 19(b))_ – – At 31 December 2009 748,956 588,953 Accumulated amortisation and depreciation At 1 January 2009 – (1,853 ) Charge for the year (19,884 ) (21,947 ) Written back on disposals – – At 31 December 2009 (19,884 ) (23,800 ) Net book value: At 31 December 2009 729,072 565,153 (a) The analysis of net book value of properties In the PRC – medium-term leases Representing: Buildings carried at cost Interests in leasehold land held for own use under operating lease At 31 December	Construction in progress RMB’000 894,900 410,747 – (1,031,752 ) (108,160 ) 165,735 – – – – 165,735 is as follows: 2007 RMB’000 693,609	Construction in progress RMB’000 894,900 410,747 – (1,031,752 ) (108,160 ) 165,735 – – – – 165,735 is as follows: 2007 RMB’000 693,609	Furniture, fixtures and Motor equipment vehicles RMB’000 RMB’000 4,767 5,088 14,088 5,294 (32 ) – 458,014 – – – 476,837 10,382 (1,076 ) (1,766 ) (40,338 ) (1,453 ) 7 – (41,407 ) (3,219 ) 435,430 7,163 At 31 December 2008 RMB’000 749,834 5,504 744,330 749,834	Furniture, fixtures and Motor equipment vehicles RMB’000 RMB’000 4,767 5,088 14,088 5,294 (32 ) – 458,014 – – – 476,837 10,382 (1,076 ) (1,766 ) (40,338 ) (1,453 ) 7 – (41,407 ) (3,219 ) 435,430 7,163 At 31 December 2008 RMB’000 749,834 5,504 744,330 749,834	Total RMB’000 1,656,442 442,613 (32 ) – (108,160 )
					1,990,863
					(4,695 ) (83,622 ) 7
					(88,310 )

					1,902,553

					2009 RMB’000 1,294,225

		4,082 689,527			565,153 729,072
		693,609			1,294,225

(b) According to the State-owned Land Use Right Grant Contract, leasehold land of RMB689,527,000, RMB744,330,000 and RMB729,072,000 as at 31 December 2007, 2008 and 2009 respectively is nontransferable.

117 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

12 INVESTMENT PROPERTY

Cost At 1 January Transfer from inventories Additions At 31 December Accumulated amortisation and depreciation At 1 January Charge for the year At 31 December Net book value At 31 December	2007 RMB’000 – – 81,053 81,053 – – – 81,053	At 31 December 2008 RMB’000 81,053 – 299,723 380,776 – – – 380,776	2009 RMB’000 380,776 18,479 107,216 506,471 – (17,648 ) (17,648 ) 488,823

(a) Fair value of investment properties

Investment properties of Chengdu OCT included commercial properties and underground parking garage. These investment properties were under construction as at 31 December 2007 and 2008, and no fair value was determined as at these dates. These investment properties were completed in 2009 and their fair value as at 31 December 2009 was RMB495,408,000.

(b) Investment properties leased out under operating leases

All the investment properties of Chengdu OCT Group are located in the PRC and are with medium-

term.

Chengdu OCT Group leases out its investment properties under operating leases. The leases typically run for an initial period of one to twelve years, with an option to renew the lease after that date at which time all terms are renegotiated. In respect of most of the lessees entered or would enter into a new lease for the same or an equivalent asset with Chengdu OCT Group, the directors of Chengdu OCT Group are of the opinion that operating lease contracts under investment properties are cancellable, and no future minimum lease payments under non-cancellable operating leases were disclosed.

(c) According to the State-owned Land Use Right Grant Contract, leasehold land of RMB71,995,000, RMB75,350,000 and RMB76,123,000 as at 31 December 2007, 2008 and 2009 respectively is nontransferable.
118 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

13 INTANGIBLE ASSETS

Cost At 1 January Additions At 31 December Accumulated amortisation At 1 January Charge for the year At 31 December Net book value At 31 December	2007 RMB’000 52 57 109 (8 ) (14 ) (22 ) 87	At 31 December 2008 RMB’000 109 38 147 (22 ) (22 ) (44 ) 103	2009 RMB’000 147 212
			359
			(44 ) (59 )
			(103 )

			256

The amortisation charge for the years is included in note 5(c).

14 OTHER FINANCIAL ASSETS

Unlisted equity securities, at cost – in the PRC	2007 RMB’000 4,320	At 31 December 2008 RMB’000 4,320	2009 RMB’000 4,320

The unlisted equity securities do not have quoted market price in active market and were stated at cost at each balance sheet date. Chengdu OCT Group’s interests in unlisted equity securities are summarised as follows:

	Percentage of equity attributable to	Percentage of equity attributable to
		Chengdu OCT Group
		at 31 December
	2007	2008	2009
Shenzhen OCT International Media Co., Ltd.	10%	10%	10%

119 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

15 INVENTORIES

Properties held for future development and under development for sale Completed properties held for sale Others	2007 RMB’000 425,106 – 21 425,127	At 31 December 2008 RMB’000 1,697,578 – 109 1,697,687	2009 RMB’000 1,238,554 150,343 3,872
			1,392,769

(a) The analysis of carrying value of leasehold land included in properties held for future development and under development for sale and completed properties held for sale are set out as follows:

In the PRC –long leases –medium-term leases	2007 RMB’000 332,474 24,197 356,671	At 31 December 2008 RMB’000 1,075,077 24,197 1,099,274	2009 RMB’000 908,500 24,197
			932,697

At 31 December 2008 and 2009, the balance included prepayments for leasehold land of RMB690,040,000, for which Chengdu OCT Group had not obtained the land use right certificate.

(b) The amount of properties held for future development and under development for sale expected to be recovered after more than one year is analysed as follows:

		At 31 December
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
Properties held for future development and
under development for sale	425,106	877,540	690,040

(c) The analysis of the amount of properties for sale recognised as an expense is as follows:

		December
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
Carrying amount of properties for sale sold	–	–	936,435

120 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

16 TRADE AND OTHER RECEIVABLES

Trade receivable Amount due from related parties (note 25(d)) Other receivables, deposits and prepayments	2007 RMB’000 – – 594 594	At 31 December 2008 RMB’000 – 1 97,091 97,092	2009 RMB’000 476 129 69,796
			70,401

(a) All of the trade receivable (net of allowance for doubtful debts) are expected to be recovered within one year. Included in trade receivable are trade debtors with the following ageing analysis as at each balance sheet date:

Current Less than 1 month past due 1 to 3 months past due More than 3 months but less than 12 months past due Amounts past due	2007 RMB’000 – – – – – –	At 31 December 2008 RMB’000 – – – – – –	2009 RMB’000 137
			– – 339
			339

			476

Chengdu OCT Group’s credit policy is set out in note 23(a).

121 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

17 CASH AND CASH EqUIVALENTS

(a) Cash and cash equivalents comprise:

Cash at bank and in hand Cash and cash equivalents in the balance sheets Less: pledged deposits Cash and cash equivalents in the cash flow statements	2007 RMB’000 70,647 70,647 – 70,647	At 31 December 2008 RMB’000 76,409 76,409 – 76,409	2009 RMB’000 62,526
			62,526 10,993
			51,533

(b) Reconciliation of (loss)/profit before taxation to cash (used in)/generated from operations:

Note (Loss)/profit before taxation Adjustments for: Depreciation and amortisation of property and equipment 5(c) Depreciation and amortisation of investment property 5(c) Amortisation of intangible assets 5(c) Finance costs 5(a) Loss on sale of property and equipment Interest income 4 Changes in working capital: (Increase)/decrease in inventories Decrease/(increase) in trade and other receivables Increase in trade and other payables Increase in receipts in advance Cash (used in)/generated from operations	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (21,096 ) (97,957 ) 176,551 1,832 2,431 83,622 – – 17,648 14 22 59 2,512 – 72,353 – 10 25 (921 ) – – (402,632 ) (1,208,369 ) 307,707 356,243 (53,729 ) (3,128 ) 3,688 179,877 22,712 – 707,722 135,794 (60,360 ) (469,993 ) 813,343	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 (21,096 ) (97,957 ) 176,551 1,832 2,431 83,622 – – 17,648 14 22 59 2,512 – 72,353 – 10 25 (921 ) – – (402,632 ) (1,208,369 ) 307,707 356,243 (53,729 ) (3,128 ) 3,688 179,877 22,712 – 707,722 135,794 (60,360 ) (469,993 ) 813,343
		813,343

122 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

18 BORROwINGS

Bank loans Related party loans	2007 RMB’000 650,000 115,000 765,000	At 31 December 2008 RMB’000 600,000 1,248,450 1,848,450	2009 RMB’000 – 1,474,213
			1,474,213

(a) At 31 December 2007, 2008 and 2009, the borrowings were payable as follows:

Within 1 year or on demand After 1 year but within 2 years After 2 years but within 5 years	2007 RMB’000 365,000 – 400,000 400,000 765,000	At 31 December 2008 RMB’000 1,248,450 – 600,000 600,000 1,848,450	2009 RMB’000 674,213 – 800,000
			800,000

			1,474,213

(b) At 31 December 2007, 2008 and 2009, the borrowings were secured as follows:

Secured loans Unsecured loans	2007 RMB’000 450,000 315,000 765,000	At 31 December 2008 RMB’000 600,000 1,248,450 1,848,450	2009 RMB’000 – 1,474,213
			1,474,213

Secured loans as at 31 December 2007 included the loans of RMB400,000,000 guaranteed by Overseas Chinese Town (HK) Company Limited (“OCT HK”) and Shenzhen Overseas Chinese Town Real Estate Co., Ltd. (“OCT Properties”) to the extent of RMB100,000,000 and RMB300,000,000 respectively, and the loans RMB50,000,000 jointly guaranteed by OCT HK and OCT Properties with OCT HK’s guarantee amount limited to RMB25,000,000.

Secured loans as at 31 December 2008 included the loans of RMB400,000,000 guaranteed by OCT HK and OCT Properties to the extent of RMB100,000,000 and RMB300,000,000 respectively, and the loans of RMB200,000,000 guaranteed by OCT Properties.

123 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

18 BORROwINGS (continued)

(c) The effective interest rates at the respective balance sheet dates are set out as follows:

Bank loans Related party loans TRADE AND OTHER PAYABLES Note Bills payable (a) Trade payable (a) Other tax payable Amounts due to related parties 25(d) Other payables and accruals (b)	2007 5.51%-6.89% 6.56% 2007 RMB’000 – 309 319 4,125 254,010 258,763	At 31 December 2008 5.83%-6.89% 3.70%-7.47% At 31 December 2008 RMB’000 – 395,370 31,530 130,222 523,201 1,080,323	2009 –

			1.11%– 4.44%

			2009 RMB’000 10,114 446,686 71,627 87,686 565,729
			1,181,842

19 TRADE AND OTHER PAYABLES

Note:

(a) Included in trade and other payables are bills payable and trade payable with the following ageing analysis as at each balance sheet date:

Due within 1 month or on demand	2007 RMB’000 309	At 31 December 2008 RMB’000 395,370	2009 RMB’000 456,800

(b) Other payables and accruals mainly consist of the advance received from local government. Chengdu OCT entered into an agreement and a supplementary agreement with Chengdu Jinniu District Government on 10 April 2005 and 29 April 2007 respectively in relation to the property development and tourism theme park project of Chengdu OCT. Pursuant to these agreements, the government would compensate Chengdu OCT a total sum of RMB635,475,000 for the construction cost of infrastructure facilities. To date, Chengdu OCT has received a total sum of RMB550,000,000 from the local government, comprising RMB250,000,000 in 2007, RMB250,000,000 in 2008 and RMB50,000,000 in 2009. The amount of compensation received was deducted from the carrying amount of the related infrastructure facilities as follows:

Compensation received from local government Less: infrastructure facilities_(note 11)_	2007 RMB’000 250,000 – 250,000	At 31 December 2008 RMB’000 500,000 – 500,000	2009 RMB’000 550,000 108,160
			441,840

124 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

20 RECEIPTS IN ADVANCE

Receipts in advance included amounts received from buyers in connection with pre-sale of properties amounting to RMB707,220,000 and RMB843,444,000 for the years ended 31 December 2008 and 2009, respectively.

21 INCOME TAX IN THE BALANCE SHEET/CONSOLIDATED BALANCE SHEETS

(a) Current taxation in the balance sheet/consolidated balance sheets represents:

PRC Corporate Income Tax At 1 January Charged to the statement of comprehensive income_(note 6(a)) Tax paid At 31 December Land Appreciation Tax At 1 January Charged to the statement of comprehensive income(note 6(a))_ Tax paid At 31 December Total Representing: Tax payable Prepaid tax	2007 RMB’000 – – – – – – – – – – – –	At 31 December 2008 RMB’000 – 5,539 (2,000 ) 3,539 – – (7,074 ) (7,074 ) (3,535 ) 4,952 (8,487 ) (3,535 )	2009 RMB’000 3,539 30,720 (17,706 ) 16,553 (7,074 ) 26,850 (8,407 ) 11,369 27,922 27,922 – 27,922

125 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

21 INCOME TAX IN THE BALANCE SHEET/CONSOLIDATED BALANCE SHEETS (continued)
(b) The components of deferred tax assets/liabilities recognised in the balance sheet/consolidated balance sheets and the movements during the Relevant Period are as follows:

Deferred tax assets arising from:

Tax losses RMB’000 At 1 January 2007 – Credited to the statement of comprehensive income_(note 6(a)) 5,274 At 31 December 2007 5,274 (Charged)/credited to the statement of comprehensive income(note 6(a)) (5,199 ) At 31 December 2008 75 Charged to the statement of comprehensive income(note 6(a)) – At 31 December 2009 75 Deferred tax liabilities arising from: At 1 January 2007, 31 December 2007 and 2008 Charged to the statement of comprehensive income(note 6(a))_ At 31 December 2009	Unrealised gain on pre-sale of properties RMB’000 – – – 35,345 35,345 (3,716 ) 31,629 Provision for LAT RMB’000 – 12,371 12,371	Total RMB’000 – 5,274 5,274 30,146 35,420 (3,716 ) 31,704 Total RMB’000 – 12,371 12,371

126 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

22 CAPITAL AND RESERVES

At 1 January 2007 Loss for the year At 31 December 2007 and 1 January 2008 Loss for the year At 31 December 2008 and 1 January 2009 Income for the year Transfer to statutory reserve fund At 31 December 2009	Paid-in capital RMB’000 400,000 – 400,000 – 400,000 – – 400,000	Statutory (Accumulated reserve loss)/retained fund profits RMB’000 RMB’000 – (234 ) – (15,822 ) – (16,056 ) – (73,350 ) – (89,406 ) – 102,894 1,372 (1,372 ) 1,372 12,116	Total RMB’000 399,766 (15,822 ) 383,944 (73,350 ) 310,594 102,894 – 413,488

(a) Paid-in capital

Chengdu OCT was incorporated in the PRC on 31 October 2005. The registered capital of Chengdu OCT was RMB400,000,000. OCT Properties, Shenzhen Overseas Chinese Town Holding Company (“OCT Holding”), OCT Investments Limited (“OCT Investments”) and Chengdu Jinpeng Investment Management Co.,Ltd. (“Jinpeng Investment”) have an interest of 38%, 35%, 25% and 2% of the registered capital respectively.

In March 2007, pursuant to the Equity Interest Transfer Agreement signed between Jinpeng Investment and OCT Group, Jinpeng Investment transferred its 2% equity interest of Chengdu OCT to OCT Group; and in August 2007, pursuant to the Equity Interest Transfer Agreement signed between OCT Investments and Bantix International Limited (“Bantix”), OCT Investments transferred its 25% equity interest of Chengdu OCT to Bantix.

In June 2009, pursuant to the Equity Interest Transfer Agreement signed between OCT Group and OCT Holding, OCT Group transferred its 2% equity interest of Chengdu OCT to OCT Holding.

(b) Nature and purpose of statutory reserve fund

The statutory reserve fund is non-distributable and the transfer to this reserve is determined by the board of directors in accordance with the relevant laws and regulations of the PRC. This reserve can be used to offset accumulated losses and increase capital upon approval from the relevant authorities.

(c) Capital management

Chengdu OCT Group’s primary objectives when managing capital are to safeguard Chengdu OCT Group’s ability to continue as a going concern, so that it can continue to provide returns for equity holders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

127 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

22 CAPITAL AND RESERVES (continued)

(c) Capital management (continued)

Chengdu OCT Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher equity holders returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

Consistent with industry practice, Chengdu OCT Group monitors its capital structure on the basis of debt to equity ratio. This ratio is calculated as total debt divided by equity attributable to equity holders of Chengdu OCT. Total debt is calculated as total borrowings.

Borrowings – Current – Non-current Total debt Total equity attributable to equity holders Debt to equity ratio	2007 RMB’000 365,000 400,000 765,000 383,944 1.99	At 31 December 2008 RMB’000 1,248,450 600,000 1,848,450 310,594 5.95	2009 RMB’000 674,213 800,000
			1,474,213 413,488 3.57

23 FINANCIAL RISk MANAGEMENT AND FAIR VALUES

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of Chengdu OCT Group’s business. The risks are limited by Chengdu OCT Group’s financial management policies and practices described below.

(a) Credit risk

Chengdu OCT Group’s credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

In respect of trade receivables of mortgage sales, no credit terms will be granted to the purchasers. In addition, Chengdu OCT Group did not provide any guarantee to the banks to secure repayment obligations of such purchasers. The management reviews the recoverable amount of each debtor at each balance sheet date to ensure that adequate impairment losses are recorded for irrecoverable amounts.

In respect of trade receivables arising from other sales and other receivables, Chengdu OCT Group assesses the financial abilities of the debtors before granting the facilities to them. Chengdu OCT Group chases the debtors to settle outstanding balances and monitors the settlement progress on an ongoing basis. Normally, Chengdu OCT Group does not obtain collateral from debtors. The impairment losses on bad and doubtful accounts are within management’s expectation.

(b) Liquidity risk

Chengdu OCT Group’s management reviews the liquidity position of Chengdu OCT Group on an ongoing basis, including review of the expected cash inflows and outflows, sale/pre-sale results of respective property projects, maturity of loans and borrowings and the progress of the planned property development projects in order to monitor Chengdu OCT Group’s liquidity requirements in the short and longer terms.

128 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

23 FINANCIAL RISk MANAGEMENT AND FAIR VALUES (continued)

(b) Liquidity risk (continued)

The following tables show the remaining contractual maturities at the balance sheet date of Chengdu OCT Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the balance sheet date) and the earliest date Chengdu OCT Group can be required to pay.

Borrowings Trade and other payables Borrowings Trade and other payables Tax payable Borrowings Trade and other payables Tax payable	Carrying amount RMB’000 765,000 258,763 1,023,763 Carrying amount RMB’000 1,848,450 1,080,323 4,952 2,933,725 Carrying amount RMB’000 1,474,213 1,181,842 27,922 2,683,977	Total contractual undiscounted cash flow RMB’000 874,964 258,763 1,133,727 Total contractual undiscounted cash flow RMB’000 1,959,979 1,080,323 4,952 3,045,254 Total contractual undiscounted cash flow RMB’000 1,575,674 1,181,842 27,922 2,785,438	At 31 December 2007 within 1 year or on demand RMB’000 399,750 258,763 658,513 At 31 December 2008 within 1 year or on demand RMB’000 1,303,815 1,080,323 4,952 2,389,090 At 31 December 2009 within 1 year or on demand RMB’000 716,506 1,181,842 27,922 1,926,270	More than 1 year but less than 2 years RMB’000 24,381 – 24,381 More than 1 year but less than 2 years RMB’000 229,712 – – 229,712 More than 1 year but less than 2 years RMB’000 35,520 – – 35,520	More than 2 years but less than 5 years RMB’000 450,833 –
					450,833

					More than 2 years but less than 5 years RMB’000 426,452 – –
					426,452

					More than 2 years but less than 5 years RMB’000 823,648 – –
					823,648

129 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

23 FINANCIAL RISk MANAGEMENT AND FAIR VALUES (continued)

(c) Interest rate risk

Chengdu OCT Group’s interest rate risk arises primarily from borrowings disclosed in note 18 to the Financial Information. Chengdu OCT Group does not carry out any hedging activities to manage its interest rate exposure.

A general increase of 100 basis points in interest rates, with all other variables held constant, would increase Chengdu OCT Group’s loss and decrease its total equity by approximately RMB297,000 and RMB8,040,000 for the years ended 31 December 2007 and 2008 respectively, and decrease Chengdu OCT Group’s profit and total equity by approximately RMB2,340,000 for the year ended 31 December 2009.

(d) Foreign currency risk

Chengdu OCT Group is exposed to currency risk primarily through bank deposits, borrowings and trade and other payables that are denominated in a currency other than the functional currency of the operations to which they related. The currencies giving rise to this risk are primarily Hong Kong Dollars.

The following table details Chengdu OCT Group’s exposure at each balance sheet date to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate.

Cash and bank deposits Borrowings Trade and other payables Overall net exposure	2007 RMB’000 140 – – 140	At 31 December 2008 RMB’000 1,084 (225,000 ) (91,624 ) (315,540 )	2009 RMB’000 73 (425,000 ) (16,718 ) (441,645 )

A reasonably possible increase of 1% in the foreign exchange rate of Hong Kong Dollars against RMB would decrease Chengdu OCT Group’s loss and increase its total equity by RMB1,000 for the year ended 31 December 2007, increase Chengdu OCT Group’s loss and decrease its total equity by RMB2,087,000 for the year ended 31 December 2008, and decrease Chengdu OCT Group’s profit and total equity by RMB2,917,000 for the year ended 31 December 2009.

(e) Fair values

Unlisted investments for which their fair values cannot be reliably measured are stated at cost less impairment losses. The fair values of the other financial assets and liabilities are considered to approximate their carrying amounts.

130 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

24 COMMITMENTS

Capital commitments outstanding at Relevant Period end not provided for in the Financial Information were as follows:


Contracted but not provided for Authorised but not contracted for	2007 RMB’000 1,363,168 – 1,363,168	At 31 December 2008 RMB’000 396,728 1,117,799 1,514,527	2009 RMB’000 397,347 172,878
			570,225

25 MATERIAL RELATED PARTY TRANSACTIONS

During the Relevant Period, except for disclosed in notes 16, 18 and 19, transactions with the following parties are considered as related party transactions.

(a) key management personnel remuneration

Remuneration for key management personnel of Chengdu OCT Group, including amounts paid to the directors as disclosed in note 7 and certain of the highest paid employees as disclosed in note 8, is as follows:

Short-term employee benefits Post-employment benefits	Years ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 3,337 3,558 4,123 – 227 273 3,337 3,785 4,396	Years ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 3,337 3,558 4,123 – 227 273 3,337 3,785 4,396
		4,396

(b) Property purchase contracts between key management personnel and Chengdu OCT

During the year ended 31 December 2008, certain key management personnel have purchased two apartments for a total consideration of RMB2,850,000 from Chengdu OCT. During the year ended 31 December 2009, certain key management personnel has purchased a villa for a total consideration of RMB5,599,000 from Chengdu OCT.

(c) Transactions with other state-controlled entities:

Chengdu OCT is a state-controlled entity and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government (“state-controlled entities”) through its government authorities, agencies, affiliations and other organisations.

Other than those disclosed in note 25(d), transactions with other state-controlled entities include but are not limited to the following:

Financial services arrangement
Purchase of services
131 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

25 MATERIAL RELATED PARTY TRANSACTIONS (continued)

(c) Transactions with other state-controlled entities (continued) :

These transactions are conducted in the ordinary course of Chengdu OCT Group’s business on terms comparable to those with other entities that are not state-controlled. Chengdu OCT Group has established its buying, pricing strategy and approval process for purchases and sales of products and services. Such buying, pricing strategy and approval processes do not depend on whether the counterparties are state-controlled entities or not.

Having considered the potential for transactions to be impacted by related party relationships, Chengdu OCT Group’s pricing strategy, buying and approval processes and what information would be necessary for an understanding of the potential effect of the relationship on the Financial Information, the directors are of the opinion that the following transactions with other state-controlled entities require disclosure:

(i) Transactions and balances with state-controlled banks in the PRC:

Interest income Interest expense Cash at bank Borrowings	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 1,226 1,944 1,652 20,067 44,784 20,941 At 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 70,646 76,390 62,221 650,000 600,000 –

(ii) Transactions and balances with other state-controlled entities in the PRC:

Purchase of services Trade and other payables	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 15,217 560,848 523,712 At 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – 125,402 137,103	Year ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 15,217 560,848 523,712 At 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – 125,402 137,103

		2009 RMB’000 137,103

(iii) During the Relevant Period, Chengdu OCT Group paid fees to other state-owned enterprises in respect of general supply and services such as supply of water, electricity and gas, communications, transportation. Such fees were included in the statement of comprehensive income as administrative expenses or in the balance sheet as construction costs. Chengdu OCT Group does not believe the amounts were significant and therefore no separate disclosure is made.

132 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

25 MATERIAL RELATED PARTY TRANSACTIONS (continued)

(d) Chengdu OCT Group has a related party relationship with the following parties:

Relationship with the Name of party Chengdu OCT Group OCT Group Ultimate holding company OCT Holding Immediate holding company OCT Properties Equity holder Bantix Equity holder Overseas Chinese Town (Asia) Holdings Limited Shareholder of Bantix International (“OCT Asia”) OCT HK Shareholder of OCT Asia Shenzhen Overseas Chinese Town Water and Subsidiary of OCT Group Electricity Co., Ltd. (“OCT Water and Electricity”) Shenzhen Overseas Chinese Town Happy Coast Investment Co., Ltd. Subsidiary of OCT Group (“OCT Happy Coast”) Shenzhen Overseas Chinese Town Tourism Advisory Co., Ltd. Subsidiary of OCT Group Shenzhen Overseas Chinese Town Property Management Co., Ltd. Subsidiary of OCT Group Chengdu Branch Shenzhen Overseas Chinese Town City Inn Co., Ltd. Chengdu Branch Subsidiary of OCT Group Shanghai Overseas Chinese Town Investment Co., Ltd. Subsidiary of OCT Group Shenzhen Overseas Chinese Town Happy Valley Tourism Co., Ltd. Subsidiary of OCT Group Konka Group Company Limited and its subsidiaries An entity significantly influenced by an shareholder who controlled Chengdu OCT

Transactions with related parties

Purchases of equipment – Associate of OCT Group Purchases on behalf of Chengdu OCT Group – OCT HK Commission and other charges related to purchases on behalf of Chengdu OCT Group – OCT HK Purchase of design, property management and other services – Other subsidiaries of OCT Group Payments for the use of “Happy Valley” brand – OCT Holding	Years ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – – 35,819 54,378 110,860 37,643 – 6,271 3,940 3,800 9,083 9,878 – – 1,050	Years ended 31 December 2007 2008 2009 RMB’000 RMB’000 RMB’000 – – 35,819 54,378 110,860 37,643 – 6,271 3,940 3,800 9,083 9,878 – – 1,050

		37,643

		3,940

		9,878

		1,050

133 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

25 MATERIAL RELATED PARTY TRANSACTIONS (continued)

(d) Chengdu OCT Group has a related party relationship with the following parties (continued) :

Transactions with related parties (continued):

Loans obtained from related parties
– OCT Group
– OCT Properties
– OCT HK
– Other subsidiaries of OCT Group
Loans repaid to related parties
– OCT Group
– OCT Properties
– Other subsidiaries of OCT Group
Interest expenses
– OCT Group
– OCT Properties
– OCT HK
– Other subsidiaries of OCT Group
Other charges related to loans
– OCT Group
– OCT HK
Loans provided to related parties
– OCT Properties
Loans repayments from related parties
– OCT Properties
Interest income
– OCT Properties
Net increase/(decrease) of guarantees
– OCT HK
– OCT Properties
– Jointly by OCT HK and OCT Properties

Year ended 31 December
2007
2008
2009
RMB’000
RMB’000
RMB’000
–
500,000
800,000
150,000
750,000
100,000
–
198,450
175,763
–
–
60,000
150,000
1,448,450
1,135,763
–
–
200,000
100,000
315,000
650,000
–
–
60,000
100,000
315,000
910,000
–
17,943
30,926
5,065
44,430
19,707
–
731
11,444
–
–
1,613
5,065
63,104
63,690
–
50
290
–
2,098
1,622
–
2,148
1,912
100,000
–
–
100,000
–
–
921
–
–
100,000
-
(100,000 )
300,000
200,000
(500,000 )
50,000
(50,000 )
–
450,000
150,000
(600,000 )

134 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

25 MATERIAL RELATED PARTY TRANSACTIONS (continued)

(d) Chengdu OCT Group has a related party relationship with the following parties (continued) :

Balances with related parties

Amount due from related parties Shenzhen Overseas Chinese Town Property Management Co., Ltd. Chengdu Branch Shenzhen Overseas Chinese Town City Inn Co., Ltd. Chengdu Branch Amount due to related parties OCT Group OCT Properties OCT HK Konka Group Company Limited and its subsidiaries Shenzhen Overseas Chinese Town Happy Valley Tourism Co., Ltd. Shanghai Overseas Chinese Town Investment Co., Ltd. Guarantee from related parties – OCT HK – OCT Properties – Jointly by OCT HK and OCT Properties	2007 RMB’000 – – – – 119,125 – – – – 119,125 100,000 300,000 50,000 450,000	At 31 December 2008 RMB’000 1 – 1 500,013 599,274 279,231 – 154 – 1,378,672 100,000 500,000 – 600,000	2009 RMB’000 81 48
			129

			1,100,050 68,897 388,933 3,219 – 800
			1,561,899

			– – –
			–

135 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

26 NON-ADjUSTING POST BALANCE SHEET EVENTS

On 1 April 2010, Bantix entered into the Capital Increase Agreement with OCT Properties and OCT Holding to increase the registered capital of Chengdu OCT from RMB400 million to RMB612 million, and Bantix will solely contribute, in cash, RMB588 million and in return, Bantix’s interest in Chengdu OCT will increase from 25% to 51%.

27 IMMEDIATE AND ULTIMATE CONTROLLING PARTY

As at 31 December 2009, the directors consider the immediate controlling party and the ultimate controlling party of Chengdu OCT Group to be OCT Holding and OCT Group, respectively, which are incorporated in the Shenzhen Nanshan District Overseas Chinese Town. OCT Holding produces financial statements available for public use.

28 ACCOUNTING jUDGEMENTS AND ESTIMATES

Judgements and estimates used in preparing the Financial Information are evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Chengdu OCT 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 may have a significant effect on the carrying amounts of assets and liabilities mainly include those related to property development activities.

(a) Impairment provision for investment properties under development and construction in progress

As explained in note 2(i), Chengdu OCT Group makes impairment provision for the above properties taking into account Chengdu OCT Group’s estimates of the recoverable amount from such properties. The recoverable amounts have been determined based on value-in-use calculations, taking into account the latest market information and past experience. These calculation and valuations require the use of judgement and estimates.

Given the volatility of the PRC property market, the actual recoverable amount may be higher or lower than estimated at the balance sheet date. Any increase or decrease in the provision would affect profit or loss in future years.

(b) Provision for completed properties held for sale and properties held for future development and under development for sale

As explained in note 2(j), Chengdu OCT Group’s completed properties held for sale and properties held for future development and under development for sale are stated at the lower of cost and net realisable value. Based on Chengdu OCT Group’s recent experience and the nature of the subject properties, Chengdu OCT Group makes estimates of the selling prices, the costs of completion in case for properties under development for sale, and the costs to be incurred in selling the properties based on prevailing market conditions.

If there is an increase in costs to completion or a decrease in net sales value, the net realisable value will decrease and this may result in provision for completed properties held for sale and properties held for future development and under development for sale. Such provision requires the use of judgement and estimates. Where the expectation is different from the original estimate, the carrying value and provision for properties in the periods in which such estimate is changed will be adjusted accordingly.

In addition, given the volatility of the PRC property market and the unique nature of individual properties, the actual outcomes in terms of costs and revenue may be higher or lower than estimated at the balance sheet date. Any increase or decrease in the provision would affect profit or loss in future years.

136 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

28 ACCOUNTING jUDGEMENTS AND ESTIMATES (continued)

(c) Recognition of deferred tax assets

Deferred tax assets in respect of tax losses carried forward are recognised and measured based on the expected manner of realisation or settlement of the carrying amount of the assets, using tax rates enacted or substantively enacted at the balance sheet date. In determining the carrying amounts of deferred assets, expected taxable profits are estimated which involves a number of assumptions relating to the operating environment of Chengdu OCT Group and require a significant level of judgement exercised by the directors. Any change in such assumptions and judgement would affect the carrying amounts of deferred tax asses to be recognised and hence the net profit in future years.

(d) PRC CIT and PRC LAT

As explained in note 6(a), Chengdu OCT Group is subject to PRC CIT and PRC LAT under audited taxation method. Significant judgement is required in determining the level of provision, as the calculations of which depend on the ultimate tax determination and are subject to uncertainty. When the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax provision in the period in which such determination is made.

(e) Recognition and allocation of construction cost on properties under development

Development costs of properties are recorded as properties under development during construction stage and will be transferred to profit or loss upon the recognition of the sale of the properties. Before the final settlement of the development costs and other costs relating to the sale of the properties, these costs are accrued by Chengdu OCT Group based on management’s best estimate.

When developing properties, Chengdu OCT Group typically divides the development projects into phases. Specific costs directly related to the development of a phase are recorded as the cost of such phase. Costs that are common to phases are allocated to individual phases based on gross floor area.

Where the final settlement of costs and the related cost allocation is different from the initial estimates, any increase or decrease in the development costs and other costs would affect the profit or loss in future years.

137 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

29 POSSIBLE IMPACT OF AMENDMENTS, NEw STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE RELEVANT PERIOD

Up to the date of issue of the Financial Information, the HKICPA has issued the following amendments, new standards and interpretations which are not yet effective for the Relevant Period and which have not been adopted in the Financial Information:

	Effective for
	accounting periods
	beginning on or after
Improvements to HKFRSs 2009	1 July 2009 or
	1 January 2010
Amendment to HKFRS 1, First-time adoption of	1 July 2010
Hong Kong Financial Reporting Standards – Limited
exemption from comparative HKFRS 7
disclosures for first-time adopters
Revised HKAS 24, Related party disclosures	1 January 2011
Amendment to HK(IFRIC) 14, HKAS 19 – The limit on	1 January 2011
a defined benefit asset, minimum funding requirements and
their interaction – Prepayments of a minimum funding requirement
HKFRS 9, Financial instruments	1 January 2013

Chengdu OCT Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on Chengdu OCT Group’s results of operations and financial position.

138 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

C BALANCE SHEET OF CHENGDU OCT

The balance sheets of Chengdu OCT as at 31 December 2008 and 2009 were as follows:

Note
Non-current assets
Property and equipment
Section B note 11
Investment property
Section B note 12
Intangible assets
Section B note 13
Investments in subsidiaries
(a)
Other financial assets
Section B note 14
Deferred tax assets
Current assets
Inventories
Section B note 15
Trade and other receivables
Section B note 16
Prepaid tax
Section B note 21(a)
Cash and cash equivalents
Current liabilities
Borrowings
Section B note 18
Trade and other payables
(b)
Receipts in advance
Section B note 20
Tax payable
Section B note 21(a)
Net current liabilities
Total assets less current liabilities

At 31 December
2008
2009
RMB’000
RMB’000
1,651,747
1,902,553
380,776
488,823
103
256
90,000
90,000
4,320
4,320
35,345
31,629
2,162,291
2,517,581
1,697,687
1,392,769
97,092
70,401
8,487
–
76,260
62,382
1,879,526
1,525,552
1,248,450
674,213
1,169,875
1,271,394
707,722
843,516
4,952
27,922
3,130,999
2,817,045
(1,251,473 )
(1,291,493 )
910,818
1,226,088

139 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

The balance sheets of Chengdu OCT as at 31 December 2008 and 2009 were as follows (continued) :

Note Non-current liabilities Interest-bearing borrowings Section B note 18 Deferred tax liabilities Section B note 21(b) Net assets Capital and reserves (c) Paid-in capital Reserves Total equity Notes:	At 31 December 2008 2009 RMB’000 RMB’000 600,000 800,000 – 12,371 600,000 812,371 310,818 413,717 400,000 400,000 (89,182 ) 13,717 310,818 413,717	At 31 December 2008 2009 RMB’000 RMB’000 600,000 800,000 – 12,371 600,000 812,371 310,818 413,717 400,000 400,000 (89,182 ) 13,717 310,818 413,717
		812,371

		413,717

		400,000 13,717
		413,717

(a) Investments in subsidiaries

Details of Chengdu OCT’s subsidiaries are set out in the Introduction section of this report. The investments in subsidiaries are stated at cost less impairment losses.

(b) Trade and other payables

Bills payable Trade payable Other tax payable Amounts due to subsidiaries Amounts due to other related parties Other payables and accruals	At 31 December 2008 2009 RMB’000 RMB’000 – 10,114 395,370 446,686 31,530 71,627 89,552 89,552 130,222 87,686 523,201 565,729 1,169,875 1,271,394	At 31 December 2008 2009 RMB’000 RMB’000 – 10,114 395,370 446,686 31,530 71,627 89,552 89,552 130,222 87,686 523,201 565,729 1,169,875 1,271,394
		1,271,394

140 -

ACCOUNTANTS’ REPORT OF CHENGDU OCT

APPENDIX I

The balance sheets of Chengdu OCT as at 31 December 2008 and 2009 were as follows (continued) :

(c) Capital and reserves

At 31 December 2007 and 1 January 2008 Loss for the year At 31 December 2008 and 1 January 2009 Income for the year Transfer to statutory reserve fund At 31 December 2009	Paid-in capital RMB’000 400,000 – 400,000 – – 400,000	Statutory reserve fund RMB’000 – – – – 1,372 1,372	(Accumulated loss)/retained profits RMB’000 (16,056 ) (73,126 ) (89,182 ) 102,899 (1,372 ) 12,345	Total RMB’000 383,944 (73,126 ) 310,818 102,899 – 413,717

D SUBSEqUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Chengdu OCT or any of the companies comprising Chengdu OCT Group in respect of any period subsequent to 31 December 2009.

Yours faithfully kPMG Certified Public Accountants Hong Kong

141 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

I. THREE YEARS FINANCIAL SUMMARY

Set out below is a summary of the audited consolidated results and assets and liabilities of the Group for each of the three years ended 31 December 2009 as extracted from the respective published audited financial statements:

Consolidated Income Statement

for the three years ended 31 December

(Expressed in Renminbi)

Turnover Cost of sales Gross profit Other revenue Other net income/(loss) Distribution costs Administrative expenses Other operating expenses Profit from operations Finance costs Share of profit/(loss) from an associate Profit before taxation Income tax Profit for the year Attributable to: Equity shareholders of the Company Minority interests Profit for the year Dividends payable to equity shareholders of the Company attributable to the year: Final dividend proposed after the balance sheet date Earnings per share (RMB) Basic Diluted	2009 RMB’000 622,063 (536,237 ) 85,826 2,662 1,454 (31,625 ) (42,913 ) (1,392 ) 14,012 (3,202 ) 20,728 31,538 (7,728 ) 23,810 23,810 – 23,810 7,205 0.08 0.08	2008 RMB’000 762,769 (673,194 ) 89,575 3,121 36,680 (33,920 ) (50,701 ) (6,423 ) 38,332 (3,304 ) (10,648 ) 24,380 (7,790 ) 16,590 16,590 – 16,590 5,079 0.07 0.07	2007 RMB’000 760,763 (654,846 ) 105,917 7,420 (3,836 ) (30,799 ) (28,378 ) (4,214 ) 46,110 (4,381 ) (484 ) 41,245 (2,826 ) 38,419 38,361 58 38,419 12,618 0.18 0.17

142 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Balance Sheet

at 31 December

(Expressed in Renminbi)

Non-current assets Property, plant and equipment Construction in progress Goodwill Lease prepayments Interest in an associate Deferred tax assets Current assets Non-current assets held for sale Inventories Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Bank loans Current taxation Net current assets Total assets less current liabilities Non-current liabilities Other payable to intermediate holding company Bank loans Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Share capital Reserves Total equity attributable to equity shareholders of the Company TOTAL EQUITY	2009 RMB’000 265,223 29,141 24,937 68,983 234,401 8,810 631,495 – 82,628 149,031 314,006 545,665 278,391 65,947 4,304 348,642 197,023 828,518 73,082 60,723 152 133,957 694,561 34,148 660,413 694,561 694,561	2008 RMB’000 165,753 59,386 24,937 70,671 213,673 10,579 544,999 – 84,853 167,371 127,307 379,531 204,907 42,199 7,948 255,054 124,477 669,476 73,198 57,279 2,183 132,660 536,816 28,976 507,840 536,816 536,816	2007 RMB’000 191,468 921 24,937 72,169 89,907 6,444
			385,846
			12,361 91,866 210,296 119,292
			433,815
			259,789 32,735 4,333
			296,857

			136,958

			522,804

			– 11,986 –
			11,986

			510,818

			25,260 485,558
			510,818
			510,818

The Company’s auditors, KPMG have not issued any qualified or modified opinion on the Group’s financial statements for the three financial years ended 31 December 2009.

143 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

II. AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE TWO YEARS ENDED 31 DECEMBER 2009

Set out below are the audited financial statements of the Group as extracted from the annual report of the Group for the year ended 31 December 2009:

Consolidated Income Statement

for the year ended 31 December 2009 (Expressed in Renminbi)

Note Turnover 3 Cost of sales Gross profit Other revenue 4(a) Other net income 4(b) Distribution costs Administrative expenses Other operating expenses Profit from operations Finance costs 5(a) Share of profit/(loss) from an associate 17 Profit before taxation 5 Income tax 6 Profit for the year Attributable to: Equity shareholders of the Company Profit for the year Dividends payable to equity shareholders of the Company attributable to the year: Final dividend proposed after the balance sheet date 10 Earnings per share (RMB) 11 Basic Diluted	2009 RMB’000 622,063 (536,237 ) 85,826 2,662 1,454 (31,625 ) (42,913 ) (1,392 ) 14,012 (3,202 ) 20,728 31,538 (7,728 ) 23,810 23,810 23,810 7,205 0.08 0.08	2008 RMB’000 762,769 (673,194 ) 89,575 3,121 36,680 (33,920 ) (50,701 ) (6,423) 38,332 (3,304 ) (10,648) 24,380 (7,790) 16,590 16,590 16,590 5,079 0.07 0.07

144 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2009 (Expressed in Renminbi) Note Profit for the year Other comprehensive income for the year (after tax and reclassification adjustments): Exchange differences on translation of: – financial statements of overseas subsidiaries Total comprehensive income for the year Attributable to: Equity shareholders of the Company Total comprehensive income for the year	2009 RMB’000 23,810 (35 ) 23,775 23,775 23,775	2008 RMB’000 16,590 (3,844 ) 12,746 12,746 12,746

145 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Balance Sheet

at 31 December 2009 (Expressed in Renminbi) Note Non-current assets Property, plant and equipment 12 Construction in progress 13 Goodwill 14 Lease prepayments 15 Interest in an associate 17 Deferred tax assets 25(b) Current assets Inventories 18 Trade and other receivables 19 Cash and cash equivalents 20 Current liabilities Trade and other payables 21 Bank loans 22 Current taxation 25(a) Net current assets Total assets less current liabilities Non-current liabilities Other payable to intermediate holding company 29(b) Bank loans 22 Deferred tax liabilities 25(b) NET ASSETS	2009 RMB’000 265,223 29,141 24,937 68,983 234,401 8,810 631,495 82,628 149,031 314,006 545,665 278,391 65,947 4,304 348,642 197,023 828,518 73,082 60,723 152 133,957 694,561	2008 RMB’000 165,753 59,386 24,937 70,671 213,673 10,579
		544,999
		84,853 167,371 127,307
		379,531
		204,907 42,199 7,948
		255,054

		124,477

		669,476
		73,198 57,279 2,183
		132,660

		536,816

146 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note CAPITAL AND RESERVES Share capital 26(a) Reserves Total equity attributable to equity shareholders of the Company 26 TOTAL EQUITY	2009 RMB’000 34,148 660,413 694,561 694,561	2008 RMB’000 28,976 507,840
		536,816
		536,816

147 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Balance Sheet at 31 December 2009 (Expressed in Renminbi) Note Non-current assets Investments in subsidiaries 16 Property, plant and equipment 12 Current assets Trade and other receivables 19 Cash and cash equivalents 20 Current liabilities Trade and other payables 21 Bank loans 22 Net current assets Total assets less current liabilities Non-current liabilities Other payable to intermediate holding company 29(b) Bank loans 22 NET ASSETS CAPITAL AND RESERVES Share capital 26(a) Reserves 26(g) TOTAL EQUITY	2009 RMB’000 389,452 – 389,452 580,077 120,264 700,341 226,536 35,924 262,460 437,881 827,333 73,082 33,811 720,440 34,148 686,292 720,440	2008 RMB’000 389,452 9
		389,461
		388,662 12,564
		401,226
		104,211 32,277
		136,488

		264,738

		654,199
		73,198 40,744

		540,257

		28,976 511,281
		540,257

148 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Statement of Changes in Equity

for the year ended 31 December 2009 (Expressed in Renminbi)

Attributable to equity shareholders of the Company

Registered/ issued Share Contributed Merger Capital capital premium surplus reserve reserve Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (note 26(a)) (note 26(b)) (note 26(b)) (note 26(c)) (note 26(d)) At 1 January 2008 25,260 174,960 147,711 24,757 25,386 Issuance of shares 26(a) 3,716 23,521 – – (1,367 ) Transfer between reserves – – – – – Dividend approved in respect of previous year_10(b) – – – – – Total comprehensive income for the year – – – – – At 31 December 2008 28,976 198,481 147,711 24,757 24,019 At 1 January 2009 28,976 198,481 147,711 24,757 24,019 Issuance of shares _26(a) 5,172 134,281 – – (404 ) Transfer between reserves – – – – – Dividend approved in respect of previous year_10(b)_ – – – – – Total comprehensive income for the year – – – – – At 31 December 2009 34,148 332,762 147,711 24,757 23,615	General Enterprise Exchange reserve expansion reserve fund fund RMB’000 RMB’000 RMB’000 (note 26(e)) (note 26(f)) (1,776 ) 33,697 5,366 – – – – 2,494 – – – – (3,844 ) – – (5,620 ) 36,191 5,366 (5,620 ) 36,191 5,366 – – – – 1,630 – – – – (35 ) – – (5,655 ) 37,821 5,366	Retained profits RMB’000 75,457 – (2,494 ) (12,618 ) 16,590 76,935 76,935 – (1,630 ) (5,079 ) 23,810 94,036	Total RMB’000 510,818
			25,870 – (12,618 ) 12,746
			536,816
			536,816
			139,049 – (5,079 ) 23,775
			694,561

149 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Cash Flow Statement

for the year ended 31 December 2009 (Expressed in Renminbi)

Operating activities Profit before taxation Adjustments for: – Depreciation and amortisation – Interest income – Gain on disposal of property, plant and equipment – Impairment on property, plant and equipment – Interest expense – Share of (profit)/loss of an associate Operating profit before changes in working capital Decrease in inventories Decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash generated/(used in) from operations PRC tax paid Interest paid Net cash generated/(used in) from operating activities	2009 RMB’000 31,538 33,285 (1,371 ) (266 ) – 3,202 (20,728 ) 45,660 2,225 18,306 75,968 142,159 (11,601 ) (3,321 ) 127,237	2008 RMB’000 24,380 30,051 (1,333 ) (36,194 ) 3,306 3,304 10,648 34,162 7,013 1,686 (73,188 ) (30,327 ) (6,127 ) (3,109 ) (39,563 )

150 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note Investing activities Payment for purchase of property, plant and equipment Payment for acquisition of an associate Proceeds from disposal of property, plant and equipment Payment for construction in progress Interest received Net cash (used in)/generated from investing activities Financing activities Net proceeds from issuance of shares Proceeds from new bank loans Dividends paid to the equity shareholders of the Company Repayment of bank loans Net cash generated from financing activities Net increase 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 20	2009 RMB’000 (8,204 ) – 270 (95,063 ) 1,450 (101,547 ) 139,049 89,371 (5,079 ) (62,258 ) 161,083 186,773 127,307 (74 ) 314,006	2008 RMB’000 (5,187 ) (1,505 ) 49,104 (41,433 ) 1,333 2,312 7,334 88,190 (12,618 ) (33,433 ) 49,473 12,222 119,292 (4,207 ) 127,307

151 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes to the Financial Statements

(Expressed in Renminbi unless otherwise indicated)

The Company was incorporated in the Cayman Islands on 28 February 2005 as an exempted company with limited liability under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands.

1 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). A summary of the significant accounting policies adopted by the Group is set out below.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group. The adoption of these new and revised HKFRSs did not result in significant changes to the Group’s accounting policies applied in these financial statements for the periods presented (see note 2).

(b) Basis of preparation of the financial statements

The consolidated financial statements for the year ended 31 December 2009 comprise the Company and its subsidiaries (collectively referred to as the “Group”) and the Group’s interest in an associate. The Group is primarily involved in the manufacture and sale of paper cartons and products.

The measurement basis used in the preparation of the financial statements is the historical cost basis.

The estimates and underlying 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 major sources of estimation uncertainty are discussed in note 32.

152 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(c) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note 1(i)).

(d) Associates

An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the consolidated financial statements under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment. The Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of comprehensive income.

When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest in the associate is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

(e) Goodwill

Goodwill represents the excess of the cost of a business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 1(i)). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the interest in the associate and the investment as a whole is tested for impairment whenever there is objective evidence of impairment (see note 1(i)).

Any excess of the Group’s interest in the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised immediately in profit or loss.

On disposal of a cash generating unit, any attributable amount of purchased goodwill is included in the calculation of profit or loss on disposal.

153 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(f) Property, plant and equipment

(i) Property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 1(i)). The cost of an asset comprises its purchase price, any directly attributable costs of bringing the asset to working condition and location for its intended use, the cost of borrowed funds used during the year of construction and, when relevant, the costs of dismantling and removing the items and restoring the site on which they are located, and changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate.
(ii) The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred.
(iii) Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:

Buildings	20 years
Plant and machinery	5 to 10 years
Motor vehicles	4 to 5 years
Other property, plant and equipment	3 to 5 years

(iv) Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.
(v) Construction in progress represents items of property, plant and equipment under construction and pending installation and is stated at cost less impairment losses (see note 1(i)). Cost comprises direct costs of construction, borrowing costs and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges, during the period of construction.

Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all the activities necessary to prepare the asset for its intended use are completed.

No depreciation is provided in respect of construction in progress until it is substantially complete and ready for its intended use.

(g) Operating lease

Assets that are held by the Group under leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.

Where the Group has the use of assets under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

154 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(h) Lease prepayments

Lease prepayments represent land use rights paid to the PRC’s government authorities. Land use rights are carried at cost less impairment losses (see note 1(i)) and amortised on a straight-line basis over the respective periods of the rights which range from 18 to 45 years.

(i) Impairment of assets

(i) Impairment of investments in debt and equity securities and other receivables

Investments in debt and equity securities (other than investments in subsidiaries: see note 1(i)(ii)) and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the group about one or more of the following loss events.

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

If any such evidence exists, any impairment loss is determined and recognised as follows:

For investments in associates recognised using the equity method (see note 1(d)), the impairment loss is measured by comparing the recoverable amount of the investment as a whole with its carrying amount in accordance with note 1(i)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with note 1(i)(ii).

– For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

155 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors and bills receivable included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors and bills receivable directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
construction in progress;
lease prepayments;
investments in subsidiaries; and
goodwill.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment.

– Calculation of recoverable amount

Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less cost to sell, or value in use, if determinable.

156 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

– Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(j) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When the inventories are sold, the carrying amount of those inventories is realisable as an expense in the period in which the related revenue is realisable. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(k) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment loss for bad and doubtful debts (see note 1(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts (see note 1(i)).

(l) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of borrowings, together with any interest and fee payable, using the effective interest method.

(m) Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(n) Cash and cash equivalents

157 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(o) Employee benefits

(i) Short term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Share based payments

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in a capital reserve within equity. The fair value is measured at grant date using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the options, the total estimated fair value of the options is spread over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options that is expected to vest is reviewed. Any resulting adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit or loss for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s share. The equity amount is recognised in the capital reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to retained profits).

(iii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(p) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

158 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary differences or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.
159 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(q) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

(r) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable.

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sales of goods

(ii) Interest income

Interest income is recognised as it accrues using the effective interest method.

(iii) Government grants

Government grants are recognised in the balance sheet initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as revenue in profit or loss on a systematic basis in the same period in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

(s) Translation of foreign currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates.

The results of foreign operations are translated into Renminbi at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items are translated into Renminbi at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.

160 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(t) Borrowing costs

(u) Related parties

For the purposes of these financial statements, a party is considered to be related to the Group if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a joint venture in which the Group is a venture;
(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

(v) Segment reporting

The directors consider the Group operates within a single business and geographical segment. Accordingly, no segment information is provided.

161 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2 CHANGES IN ACCOUNTING POLICIES

The HKICPA has issued one new HKFRS, a number of amendments to HKFRSs and new Interpretations that are first effective for the current accounting period of the Group and the Company. Of these, the following of these developments are relevant to the Group’s financial statements:

HKFRS 8, Operating segments
HKAS 1 (revised 2007), Presentation of financial statements
Improvements to HKFRSs (2008)
Amendments to HKAS 27, Consolidated and separate financial statements – cost of an investment in a subsidiary, jointly controlled entity or associate
HKAS 23, Borrowing costs

HKFRS 8 and the amendment to HKAS 23 have had no material impact on the Group’s financial statements as HKFRS 8 and the amendment were consistent with policies already adopted by the Group. The impact of the remainder of these developments is as follows:

As a result of the adoption of HKAS 1 (revised 2007), details of changes in equity during the period arising from transactions with equity shareholders in their capacity as such have been presented separately from all other income and expenses in a revised consolidated statement of changes in equity. All other items of income and expense are presented in the consolidated income statement, if they are recognised as part of profit or loss for the period, or otherwise in a new primary statement, the consolidated statement of comprehensive income. Corresponding amounts have been restated to conform to the new presentation. This change in presentation has no effect on reported profit or loss, total income and expense or net assets for any period presented.
The “Improvements to HKFRSs (2008)” comprise a number of minor and non-urgent amendments to a range of HKFRSs which the HKICPA has issued as an omnibus batch of amendments. Of these, the following amendment have resulted in changes to the Group’s accounting policies:
As a result of amendments to HKAS 28, Investments in associates, impairment losses recognised in respect of an associate carried under the equity method are no longer allocated to the goodwill inherent in that carrying value. As a result, when there has been a favourable change in the estimates used to determine the recoverable amount, the impairment loss will be reversed. Previously, the Group allocated impairment losses to goodwill and, in accordance with the accounting policy for goodwill, did not consider the loss to be reversible. In accordance with the transitional provisions in the amendment, this new policy will be applied prospectively to any impairment losses that arise in the current or future periods and previous periods have not been restated.
The amendments to HKAS 27 have removed the requirement that dividends out of pre-acquisition profits should be recognised as a reduction in the carrying amount of the investment in the investee, rather than as income. As a result, as from 1 January 2009, all dividends receivable from subsidiaries, associates and jointly controlled entities, whether out of pre- or post-acquisition profits, will be recognised in the Company’s profit or loss and the carrying amount of the investment in the investee will not be reduced unless that carrying amount is assessed to be impaired as a result of the investee declaring the dividend. In such cases, in addition to recognising dividend income in profit or loss, the Company would recognise an impairment loss. In accordance with the transitional provisions in the amendment, this new policy will be applied prospectively to any dividends receivable in the current or future periods and previous periods have not been restated.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 33).

162 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

3 TURNOVER

The principal activity of the Group is the manufacture and sale of paper cartons and products. Turnover represents the sales value of goods supplied to customers, net of value-added tax.

4 OTHER REVENUE AND NET INCOME

(a) Other revenue

Interest income Sale of materials Government grants Tax refund for dividend re-investment Other net income Net gain on disposal of property, plant and equipment_(Note)_ Exchange gain/(loss) Others	2009 RMB’000 1,371 472 819 – 2,662 2009 RMB’000 266 670 518 1,454	2008 RMB’000 1,333 61 20 1,707 3,121 2008 RMB’000 36,194 (624 ) 1,110 36,680

(b) Other net income

Note: Included in the net gain on disposal of property, plant and equipment in 2008 was gain on disposal of non-current assets held for sale of RMB35,592,000.

163 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

5 PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging:

(a) Finance costs: Interest on bank loans Other interest expense (b) Staff costs: Salaries, wages and other benefits# Contributions to defined contribution retirement schemes_(note 23)# (c) Other items: Amortisation of lease prepayments# Depreciation of property, plant and equipment# Impairment losses on trade and other receivables Impairment losses on property, plant and equipment Auditors’ remuneration – audit services Operating lease charges in respect of land and properties# Exchange (gain)/loss Cost of inventories(note 18(b)_)#	2009 RMB’000 1,493 1,709 3,202 65,336 4,206 69,542 1,688 31,597 1,491 – 1,419 12,141 (670 ) 536,077	2008 RMB’000 3,304 –
		3,304

		66,345 3,781
		70,126

		1,498 28,553 2,055 3,306 1,658 10,176 624 674,574

# Cost of inventories included RMB76,787,000 (2008: RMB76,760,000) relating to staff costs, depreciation and amortisation expenses and operating lease charges, amount of which is also included in the respective total amounts disclosed separately in notes 5(b) and 5(c) for each of these types of expenses.

164 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

6 INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT

(a) Taxation in the consolidated income statement represents:

Current tax – Provision for PRC income tax Provision for the year Deferred tax Origination and reversal of temporary differences (note 25(b))	2009 RMB’000 7,990 (262 ) (262 ) 7,728	2008 RMB’000 9,742 (1,952 ) (1,952 ) 7,790

Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands, the Group is not subject to any income tax in the Cayman Islands and the British Virgin Islands during the year (2008: Nil).

No provision for Hong Kong Profits Tax has been made as the Group did not have any assessable profits subject to Hong Kong Profits Tax during the year (2008: Nil).

Pursuant to the income tax rules and regulations of the PRC, taxation for PRC subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant cities in the PRC, which range between 20% – 25% (2008: 18% – 25%). Certain subsidiaries are entitled to a tax concession period in which it is fully exempted from PRC income tax for two years, starting from its first profit-making year, followed by a 50% reduction in the PRC income tax for the next three years (“two years free and three years half”).

According to the Corporate Income Tax Law of the PRC and Circular 39, the income tax rate of certain PRC subsidiaries are reduced from 33% to 25% from 1 January 2008; the tax rate of certain PRC subsidiaries are gradually increased from 15% to 25% over a five-year transitional period (18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011 and 25% in 2012 and thereafter). If a PRC subsidiary has not become profit-making and enjoyed the two years free and three years half tax concession period before 2008, the PRC subsidiary can enjoy the tax concession period from 2008 and onward.

Additionally, a 10% withholding tax is levied on dividends declared to foreign investors from the PRC effective from 1 January 2008. A lower withholding tax rate may be applied if there is a tax treaty arrangement between the PRC and jurisdiction of the foreign investors. According to the tax treaty between Hong Kong Special Administrative Region and PRC for avoidance of double taxation and prevention of tax evasion, dividends from declared from PRC subsidiaries to Hong Kong holding companies are subject to 5% withholding income tax from 1 January 2008 and onwards.

165 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Reconciliation between tax expense and accounting profit at applicable tax rates:

Profit before taxation Notional tax on profit before taxation, calculated at the rates applicable to profits in the tax jurisdictions concerned Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of prior year’s unrecognised tax losses utilised Tax effect of unused tax losses not recognised Effect of tax concessions Actual tax expense	2009 RMB’000 31,538 7,374 578 (3,420 ) – 4,968 (1,772 ) 7,728	2008 RMB’000 24,380 6,635 3,072 (652 ) (256 ) 1,645 (2,654 )
		7,790

7 DIRECTORS’ REMUNERATION

Directors’ remuneration disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as

follows:

Executive directors: – Hou Songrong – Ni Zheng – Zhou Guangneng – Xie Mei Independent non-executive directors: – Zheng Fan – Wong Wai Ling – Chen Xiangdong – Xiao Yongping – Lam Sing Kwong – Xu Jian	Salaries, allowances Retirement Directors’ and benefits Discretionary schemes fees in kind bonuses contributions RMB’000 RMB’000 RMB’000 RMB’000 – – – – – 391 208 13 – 254 120 10 – 235 120 13 – – – – 106 – – – – – – – 40 – – – 66 – – – 66 – – – 278 880 448 36	2009 Total RMB’000 – 612 384 368 – 106 – 40 66 66
		1,642

166 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Executive directors: – Zheng Fan – Ni Zheng – Zhou Guangneng – Xie Mei Independent non-executive directors: – Wong Wai Ling – Chen Xiangdong – Xiao Yongping	Salaries, allowances Retirement Directors’ and benefits Discretionary schemes fees in kind bonuses contributions RMB’000 RMB’000 RMB’000 RMB’000 – – – – – 391 202 12 – 256 104 11 – 236 58 12 107 – – – – – – – 107 – – – 214 883 364 35	2008 Total RMB’000 – 605 371 306 107 – 107
		1,496

8 INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, three (2008: two) are directors whose emoluments are disclosed in note 7. The aggregate of the emoluments in respect of the other two (2008: three) individuals are as follows:

Salaries and other emoluments Discretionary bonuses Retirement schemes contributions	2009 RMB’000 858 291 23 1,172	2008 RMB’000 1,039 308 23
		1,370

The emoluments of the two (2008: three) individuals with the highest emoluments are within the band from HK$Nil to HK$1,000,000.

167 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

9 PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY

The consolidated profit attributable to equity shareholders of the Company includes a loss of RMB5,834,000 (2008: RMB15,014,000) which has been dealt with in the financial statements of the Company.

Reconciliation of the above amount to the Company’s loss for the year:

		2009	2008
		RMB’000	RMB’000
	Amount of loss attributable to equity shareholders dealt
	with in the Company’s financial statements	(5,834 )	(15,014 )
	Final dividends from subsidiaries attributable to the
	profits of the previous financial year, approved
	and paid during the year	52,047	28,844
	Company’s profit for the year_(note 26(g))_	46,213	13,830

10	DIVIDENDS
	(a) Dividends payable to equity shareholders of the Company attributable to the year
		2009	2008
		RMB’000	RMB’000
	Final dividend proposed after the balance sheet date of
	HK$2.36 cents per share (equivalent RMB2.08
	cents per share) (2008: HK$2.00 cents per share
	(equivalent RMB1.76 cents per share))	7,205	5,079

Final dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date.

(b) Dividends payables to equity shareholders of the Company attributable to the previous financial year, approved and paid during the year

	2009	2008
	RMB’000	RMB’000
Final dividend in respect of the previous financial
year, approved and paid during the year, of HK$2.00
cents per share (equivalent RMB1.76 cents
per share) (2008: HK$5.70 cents per share
(equivalent RMB5.207 cents per share))	5,079	12,618

168 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

11 EARNINGS PER SHARE

(a) Basic earnings per share

The calculation of basic earnings per share is based on the profit attributable to equity shareholders of the Company of RMB23,810,000 (2008: RMB16,590,000) and the weighted average of 294,552,219 (2008: 252,874,645) ordinary shares in issue during the year, calculated as follows:

Weighted average number of ordinary shares

Issued ordinary shares at 1 January_(note 26(a)) Issuance of new shares(note 26(a))_ Weighted average number of ordinary shares at 31 December	2009 No. of shares 288,040,000 6,512,219 294,552,219	2008 No. of shares 246,000,000 6,874,645
		252,874,645

(b) Diluted earnings per share

The calculation of diluted earnings per share is based on the profit attributable to equity shareholders of the Company of RMB23,810,000 (2008: RMB16,590,000) and the weighted average of 299,037,447 (2008: 256,412,944) ordinary shares (diluted), calculated as follows:

Weighted average number of ordinary shares (diluted)

Weighted average number of ordinary shares at 31 December Effect of deemed issue of shares under the Company’s share option scheme for nil consideration_(note 24)_ Weighted average number of ordinary shares (diluted) at 31 December	2009 No. of shares 294,552,219 4,485,228 299,037,447	2008 No. of shares 252,874,645 3,538,299
		256,412,944

169 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

12 PROPERTY, PLANT AND EQUIPMENT

The Group

Cost: At 1 January 2008 Exchange adjustment Additions Transfer from construction in progress_(note 13) Disposals At 31 December 2008 At 1 January 2009 Additions Transfer from construction in progress(note 13)_ Disposals At 31 December 2009	Buildings RMB’000 66,325 – 499 – (1,955 ) 64,869 64,869 3,234 77,237 – 145,340	Plant and machinery RMB’000 304,592 – 969 451 (8,596 ) 297,416 297,416 4,429 38,480 (2,650 ) 337,675	Motor vehicles RMB’000 21,270 – 1,047 – (746 ) 21,571 21,571 2,223 350 (5,333 ) 18,811	Other property, plant and equipment RMB’000 20,936 (3 ) 2,468 1,261 (90 ) 24,572 24,572 1,685 3,433 (216 ) 29,474	Total RMB’000 413,123 (3 ) 4,983 1,712 (11,387 ) 408,428 408,428 11,571 119,500 (8,199 ) 531,300

170 -

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

Accumulated depreciation and impairment loss: At 1 January 2008 Exchange adjustments Charge for the year Impairment loss Written back on disposal At 31 December 2008 At 1 January 2009 Charge for the year Written back on disposal At 31 December 2009 Net book value: At 31 December 2009 At 31 December 2008	Buildings RMB’000 16,272 – 3,806 – (1,616 ) 18,462 18,462 6,004 – 24,466 120,874 46,407	Plant and machinery RMB’000 173,892 – 19,989 3,306 (8,395 ) 188,792 188,792 21,186 (2,650 ) 207,328 130,347 108,624	Motor vehicles RMB’000 16,991 – 1,794 – (746 ) 18,039 18,039 1,666 (5,333 ) 14,372 4,439 3,532	Other property, plant and equipment RMB’000 14,500 (1 ) 2,964 – (81 ) 17,382 17,382 2,741 (212 ) 19,911 9,563 7,190	Total RMB’000 221,655 (1 ) 28,553 3,306 (10,838 ) 242,675 242,675 31,597 (8,195 ) 266,077 265,223 165,753

All of the Group’s buildings are located in the PRC.

171 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Company Cost: As at 1 January 2008 Exchange adjustment As at 31 December 2008 As at 1 January and 31 December 2009 Accumulated depreciation: As at 1 January 2008 Exchange adjustment Charge for the year As at 31 December 2008 As at 1 January 2009 Charge for the year As at 31 December 2009 Net book value: As at 31 December 2009 As at 31 December 2008	Other property, plant and equipment RMB’000 39 (2 ) 37 37 17 (1 ) 12 28 28 9 37 – 9

172 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

13 CONSTRUCTION IN PROGRESS

Cost: At 1 January Additions Transfer to property, plant and equipment_(note 12)_ At 31 December 14 GOODWILL Cost: At 1 January 2008, 31 December 2008 and 31 December 2009	The Group 2009 2008 RMB’000 RMB’000 59,386 921 89,255 60,177 (119,500 ) (1,712 ) 29,141 59,386 The Group RMB’000 24,937	The Group 2009 2008 RMB’000 RMB’000 59,386 921 89,255 60,177 (119,500 ) (1,712 ) 29,141 59,386 The Group RMB’000 24,937
		59,386

		The Group RMB’000 24,937

Impairment test for cash-generating units containing goodwill

Goodwill is allocated to the Group’s cash-generating units (“CGU”) identified according to the manufacturing bases as follows:

Shanghai Shenzhen	2009 RMB’000 1,012 23,925 24,937	2008 RMB’000 1,012 23,925
		24,937

The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using an estimated weighted average growth rate of 8% (2008: 7-9%) which is consistent with the forecasts included in industry reports. The growth rates used do not exceed the long-term average growth rates for the business in which the CGU operates. The cash flows are discounted using a discount rate of 6% (2008: 6%). The discount rates used are pre-tax and reflect specific risks relating to the relevant segments.

15 LEASE PREPAYMENTS

Leasehold land of the Group is held in the PRC. At 31 December 2009, the remaining lease terms of these pieces of land range from 18 to 45 years.

173 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

16 INVESTMENTS IN SUBSIDIARIES

Unlisted shares, at cost	The Company 2009 2008 RMB’000 RMB’000 389,452 389,452

Details of subsidiaries at 31 December 2009 are as follows. The class of shares held is ordinary.

Place of
Particular of
incorporation/
registered/
Name of company
establishment
issued capital
Shenzhen Huali
PRC
Paid-up capital of
Packing & Trading.
HK$40,000,000
Co., Ltd. (“Shenzhen

Huali”)(note (i))
Shanghai Huali
PRC
Paid-up capital of
Packaging Co., Ltd.
RMB55,000,000
(“Shanghai Huali”)

(note (i))
Zhongshan Huali
PRC
Paid-up capital of
Packaging Co., Ltd.
HK$40,000,000
(“Zhongshan Huali”)

(note (i))
Zhongshan Huali
PRC
Paid-up capital of
Packing Co., Ltd.
HK$5,000,000
(note (i) and note (iii))
Anhui Huali Packaging
PRC
Paid-up capital of
Co., Ltd. (“Anhui
HK$40,000,000
Huali)(note (i))
Shenzhen Huayou
PRC
Paid-up capital of
Packaging Co., Ltd.
RMB3,000,000
(“Shenzhen Huayou”)
(note (ii))
Huizhou Huali Packaging
PRC
Paid-up capital of
Co., Ltd. (“Huizhou
HK$90,000,000
Huali”)(note (i))

Proportion of
ownership interest
Group’s
effective
Held by the
Held by a
Principal
interest
Company
subsidiary
activities
100%
–
100%
Manufacture
and sale of
paper boxes
and products
100%
–
100%
Manufacture
and sale of
paper boxes
and products
100%
–
100%
Manufacture
and sale of
paper boxes
and products
100%
–
100%
Manufacture
and sale of
paper boxes
and products
100%
–
100%
Manufacture
and sale of
paper boxes
and products
100%
–
100%
Manufacture
and sale of
paper boxes
and products
100%
–
100%
Manufacture
and sale of
paper boxes
and products

174 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Place of
Particular of
incorporation/
registered/
Name of company
establishment
issued capital
Huali Packaging (Huizhou)
PRC
Paid-up capital of
Co., Ltd. (“Huali Huizhou”)
HK$10,000,000
(note (i))
Max Surplus Limited
British Virgin
1 share of
(“Max Surplus”)
Islands (“BVI”)
US$1 each
Forever Galaxies Limited
BVI
1 share of
US$1 each
Fortune Crown International
BVI
1 share of
Limited
US$1 each
Miracle Stone Development
BVI
1 share of
Limited
US$1 each
Grand Signal Limited
BVI
1 share of
US$1 each
Huali Holdings Company
Hong Kong
1,000,000
Limited
shares of
HK$1 each
OCT Investments Limited
BVI
100 shares of
(“OCT Investments”)
US$1 each
Power Shiny Development
Hong Kong
1 share of
Limited
HK$1 each
Bantix International Limited
Hong Kong
1 share of
HK$1 each
Wantex Investment Limited
Hong Kong
1 share of
HK$1 each
Barwin Development
Hong Kong
1 share of
Limited
HK$1 each
Excel Founder Limited
Hong Kong
1 share of
HK$1 each
Hanmax Investment
Hong Kong
1 share of
Limited
HK$1 each

Proportion of
ownership interest
Group’s
effective
Held by the
Held by a
Principal
interest
Company
subsidiary
activities
100%
–
100%
Manufacture
and sale of
paper boxes
and products
100%
100%
–
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Trading
100%
100%
–
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Investment
holding
100%
–
100%
Investment
holding

Notes:

(i) These companies are wholly foreign-owned enterprises established in the PRC.

(ii) The company is a limited company established in the PRC.

(iii) During the year, the Group established a wholly owned subsidiary, Zhongshan Huali Packing Co., Ltd.

175 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

17 INTEREsT IN AN AssOCIATE

Share of net assets Goodwill	The Group 2009 2008 RMB’000 RMB’000 130,866 110,138 103,535 103,535 234,401 213,673	The Group 2009 2008 RMB’000 RMB’000 130,866 110,138 103,535 103,535 234,401 213,673
		213,673

Details of the associate of the Group, which is an unlisted corporate entity, are as follows:

					Proportion of
			Particulars		ownership interest
	Form of		of issued	Group’s	Held	Held
	business		and paid up	effective	by the	by a	Principal
Name of associate	structure	Registered	capital	interest	Company	subsidiary	activity
Chengdu Tianfu	Incorporated	PRC	RMB	25%	–	25%	Travel and
OCT Industry			400,000,000				real estate
Development							development
(“Chengdu OCT”)
summary financial information on the			associate
			Assets	Liabilities	Equity	Revenues	Profit/(Loss)
		RMB’000		RMB’000	RMB’000	RMB’000	RMB’000
2009
100 per cent		4,099,992		(3,576,528 )	523,464	1,521,962	82,915
Group’s effective
interest		1,024,998		(894,132 )	130,866	380,491	20,728
2008
100 per cent		4,125,320		(3,684,767 )	440,553	–	(73,350 )
Group’s effective
interest		1,031,330		(921,192 )	110,138	–	(10,648 )

176 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

18 INVENTORIEs

(a) Inventories in the balance sheet comprise:

Raw materials Work-in-progress Finished goods Spare parts	The Group 2009 2008 RMB’000 RMB’000 73,035 72,601 2,108 2,031 7,485 10,211 – 10 82,628 84,853	The Group 2009 2008 RMB’000 RMB’000 73,035 72,601 2,108 2,031 7,485 10,211 – 10 82,628 84,853
		84,853

(b) The analysis of the amount of inventories recognised as an expense and included in profit or loss is as follows:

Carrying amount of inventories sold Write down of inventories Reversal of write-down of inventories	The Group 2009 2008 RMB’000 RMB’000 536,237 673,194 – 1,380 (160 ) – 536,077 674,574	The Group 2009 2008 RMB’000 RMB’000 536,237 673,194 – 1,380 (160 ) – 536,077 674,574
		674,574

19 TRADE AND OTHER RECEIVAbLEs

Trade receivables and bills receivable: Amounts due from fellow subsidiaries_(note 29(b)) Amounts due from other related companies(note 29(b)) Amounts due from third parties Less: allowance for doubtful debts(note 19(b)) Prepayment, deposits and other receivables: Amounts due from immediate subsidiaries Amounts due from fellow subsidiaries(note 29(b))_ Amounts due from third parties	The Group 2009 2008 RMB’000 RMB’000 22 90 8,706 702 135,671 167,095 (6,331 ) (5,023 ) 138,068 162,864 – – 796 820 10,167 3,687 149,031 167,371	The Company 2009 2008 RMB’000 RMB’000 – – – – – – – – – – 579,209 388,481 – – 868 181 580,077 388,662	The Company 2009 2008 RMB’000 RMB’000 – – – – – – – – – – 579,209 388,481 – – 868 181 580,077 388,662
			– 388,481 – 181
			388,662

177 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The amounts due from subsidiaries, associates, fellow subsidiaries and other related companies are unsecured, non-interest bearing and have no fixed terms of repayment.

Apart from rental deposits of RMB1,109,000 (2008: RMB1,117,000) which are expected to be recovered after one year, all of the trade and other receivables, net of impairment losses for bad and doubtful debts, are expected to be recovered within one year.

(a) Ageing analysis

Included in trade and other receivables are trade and bills receivable (net of allowance for doubtful debts) with the following ageing analysis as of the balance sheet date:

Current Less than three months past due Three to six months past due Amount past due	The Group 2009 2008 RMB’000 RMB’000 124,400 150,802 13,643 11,883 25 179 13,668 12,062 138,068 162,864	The Group 2009 2008 RMB’000 RMB’000 124,400 150,802 13,643 11,883 25 179 13,668 12,062 138,068 162,864

		11,883 179
		12,062

		162,864

The Group’s credit policy is set out in note 27(a).

(b) Impairment of trade receivables

Impairment losses in respect of trade and bills receivable are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade and bills receivable directly (see note 1(i)).

The movement in the allowance for doubtful debts during the year, including both specific and collective loss components, is as follows:

At 1 January Impairment loss recognised Amount of reversal At 31 December	The Group 2009 2008 RMB’000 RMB’000 5,023 3,146 1,429 2,052 (121 ) (175 ) 6,331 5,023	The Group 2009 2008 RMB’000 RMB’000 5,023 3,146 1,429 2,052 (121 ) (175 ) 6,331 5,023
		5,023

178 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

At 31 December 2009, the Group’s trade receivables of nil (2008: RMB2,397,000) were individually determined to be impaired. The individually impaired receivables related to customers that were in financial difficulties and management assessed that it is highly unlikely that the receivables can be recovered. Consequently, specific allowances for doubtful debts of nil (2008: RMB2,397,000) were recognised. The Group does not hold any collateral over these balances.

(c) Trade receivable and bills receivable that are not impaired

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances.

20 CAsH AND CAsH EqUIVALENTs

The Group 2009 2008 RMB’000 RMB’000 Cash at bank and in hand 314,006 127,307 21 TRADE AND OTHER PAyAbLEs The Group 2009 2008 RMB’000 RMB’000 Trade payables and bills payable: Amounts due to fellow subsidiaries_(note 29(b)) 195 2 Amounts due to third parties 214,589 136,350 214,784 136,352 Other payables: Amounts due to subsidiaries – – Amounts due to other related companies(note 29(b))_ 76 493 Amounts due to third parties 63,531 68,062 278,391 204,907	The Company 2009 2008 RMB’000 RMB’000 120,264 12,564 The Company 2009 2008 RMB’000 RMB’000 – – – – – – 221,439 99,883 76 195 5,021 4,133 226,536 104,211	The Company 2009 2008 RMB’000 RMB’000 120,264 12,564 The Company 2009 2008 RMB’000 RMB’000 – – – – – – 221,439 99,883 76 195 5,021 4,133 226,536 104,211
		– 99,883 195 4,133
		104,211

All of the trade and other payables (including amount due to related parties) are expected to be settled within one year.

The Group’s exposure to currency and liquidity risks related to trade and other payables is disclosed in note

179 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Included in trade and other payables are trade creditors and bills payable with the following ageing analysis as of the balance sheet date:

Due within 3 months or on demand Due after 3 months but less than 1 year Due after 1 year	The Group 2009 2008 RMB’000 RMB’000 171,394 114,051 43,390 22,267 – 34 214,784 136,352	The Group 2009 2008 RMB’000 RMB’000 171,394 114,051 43,390 22,267 – 34 214,784 136,352
		136,352

22 bANk LOANs

At 31 December 2009, the bank loans were repayable as follows:

Within 1 year or on demand After 1 year but within 2 years After 2 years but within 5 years	The Group 2009 2008 RMB’000 RMB’000 65,947 42,199 41,815 34,218 18,908 23,061 60,723 57,279 126,670 99,478	The Company 2009 2008 RMB’000 RMB’000 35,924 32,277 33,811 20,989 – 19,755 33,811 40,744 69,735 73,021	The Company 2009 2008 RMB’000 RMB’000 35,924 32,277 33,811 20,989 – 19,755 33,811 40,744 69,735 73,021
			20,989 19,755
			40,744

			73,021

180 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Group’s short-term bank loans comprise:

Short-term HK Dollars Interest rates at denominated HIBOR+1% – HIBOR+1.35% per annum with maturities through 2 November 2010 – 27 December 2010 Current portion of long-term bank loan HK Dollars Interest rates at denominated HIBOR+0.88% – HIBOR+1.2% per annum with maturities through 15 February 2010 – 27 December 2010	The Group 2009 2008 RMB’000 RMB’000 13,293 – 52,654 42,199 65,947 42,199	The Company 2009 2008 RMB’000 RMB’000 – – 35,924 32,277 35,924 32,277	The Company 2009 2008 RMB’000 RMB’000 – – 35,924 32,277 35,924 32,277
			32,277

* Hong Kong Interbank Offer Rate

181 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Group’s long-term bank loans comprise:

RMB Interest rates at denominated 5.4% per annum with maturity through 28 October 2012 HK Dollars Interest rates at denominated HIBOR+0.88% – HIBOR+1.2% per annum with maturities through 15 February 2010 – 15 September 2014 Less: Current portion of long-term bank loan	The Group 2009 2008 RMB’000 RMB’000 6,000 – 107,377 99,478 (52,654 ) (42,199 ) 60,723 57,279	The Company 2009 2008 RMB’000 RMB’000 – – 69,735 73,021 (35,924 ) (32,277 ) 33,811 40,744	The Company 2009 2008 RMB’000 RMB’000 – – 69,735 73,021 (35,924 ) (32,277 ) 33,811 40,744
			40,744

* Hong Kong Interbank Offer Rate

The bank loans of the Group at 31 December 2009 were guaranteed by its subsidiaries, namely Forever Galaxies Limited, Fortune Crown International Limited and Miracle Stone Development Limited. Except for the above, the Group and the Company did not have secured or guaranteed bank loans at 31 December 2009.

All of the Group’s banking facilities are subject to the fulfilment of covenants relating to certain of the Group’s balance sheet ratios, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants, the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. Further details of the Group’s management of liquidity risk are set out in note 27(b). As at 31 December 2009, none of the covenants relating to drawn down facilities had been breached (2008: Nil).

23 EMPLOyEE RETIREMENT bENEFITs

Pursuant to the relevant labour rules and regulations in the PRC, the Group participates in defined contribution retirement benefit schemes (the “Schemes”) organised by the relevant local government authorities in Shenzhen, Zhongshan, Huizhou, Shanghai and Anhui whereby the Group is required to make contributions to the Schemes at a rate ranging from 10% to 22% (2008: 10% to 22%) of the eligible employees’ salaries. The local government authorities are responsible for the entire pension obligations payable to the retired employees.

The Group also operates a Mandatory Provident Fund Scheme (“the MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. Contributions to the plan vest immediately.

The Group has no other material obligation for the payment of pension benefits associated with those schemes beyond the annual contributions described above.

182 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

24 EqUITy sETTLED sHARE-bAsED TRANsACTION

The Company has a share option scheme which was adopted on 12 October 2005 whereby the directors are authorised, at its absolute discretion and on such terms as it may think fit, grant an employee (full-time or part-time), a director, consultant and adviser of the Group, or any substantial shareholder of the Group, options to subscribe for share of the Company. The share option scheme shall be valid and effective for a period of ten years ending on 11 October 2015, unless terminated earlier by shareholders of the Company in general meetings.

On 7 February 2006, 5,400,000 and 13,900,000 share options were granted to directors and employees of the Company respectively under the Company’s share option scheme. Each option gives the holder the right to subscribe for one ordinary share of HK$0.1 each of the Company which will be settled by physical delivery of shares. These share options vested immediately from the date of grant, and then be exercisable within a period of ten years. The exercise price is HK$1.41, as specified in the rules governing the share option scheme, being the higher of (i) the closing price of the shares of the Company on the Stock Exchange on the date of the grant of the options, (ii) the average of the closing prices of the shares on the Stock Exchange for the five business days immediately preceding the date of the grant of the options and (iii) the nominal value of the Company’s share of the date of grant of the option.

On 21 April 2008, 20 July 2009 and 4 September 2009, 5,790,000, 1,380,000 and 330,000 share options of the Company at par value of HK$0.1 were exercised at exercise price of HK$1.41 per share respectively. In 2009, 560,000 share options were forfeited. The remaining 11,240,000 options granted above were outstanding and exercisable at 31 December 2009 with a remaining contractual life of 6 years and 1 month.

25 INCOME TAX IN THE bALANCE sHEET

(a) Current taxation in the balance sheet represents:

	The Group
	2009	2008
	RMB’000	RMB’000
Provision for PRC income tax	4,304	7,948

183 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Deferred tax assets and liabilities recognised:

The Group

The components of deferred tax assets/(liabilities) recognised in the consolidated balance sheet and the movements during the year are as follows:

Accounting
depreciation
in excess of
depreciation
allowances
Provisions
RMB’000
RMB’000
Deferred tax
arising from:
At 1 January 2008
4,299
1,487
Credited to profit or loss
9
1,335
At 31 December 2008
4,308
2,822
At 1 January 2009
4,308
2,822
Credited to profit or loss
(513 )
289
At 31 December 2009
3,795
3,111
Net deferred tax asset recognised
on the balance sheet
Net deferred tax liability recognised
on the balance sheet date

Pre- Undistributed
Accrued
Unrealised
operating
profits of
expenses
profit
expenses subsidiaries
Total
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
136
–
522
–
6,444
3,003
208
(420 )
(2,183 )
1,952
3,139
208
102
(2,183 )
8,396
3,139
208
102
(2,183 )
8,396
(1,453 )
(34 )
(58 )
2,031
262
1,686
174
44
(152 )
8,658
2009
2008
RMB’000
RMB’000
8,810
10,579
(152 )
(2,183 )
8,658
8,396

(c) Deferred tax assets not recognised

In accordance with the accounting policy set out in note 1(p), the Group has not recognised deferred tax assets in respect of cumulative tax losses of RMB9,242,000 (2008: RMB4,274,000) as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax jurisdiction and entity. Among the RMB9,242,000, RMB2,945,000 will expire in five years. The remaining tax losses do not expire under current tax regulations.

184 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

26 EqUITy ATTRIbUTAbLE TO EqUITy sHAREHOLDERs OF THE COMPANy

(a) share capital

Authorised and issued share capital

2009 No. of shares ’000 HK$’000 Authorised: Ordinary shares of HK$0.1 each 2,000,000 200,000 Ordinary shares, issued and fully paid: No. of shares ’000 RMB’000 At 1 January 288,040 28,976 Issuance of new shares 58,710 5,172 At 31 December 346,750 34,148	2008 No. of shares ’000 HK$’000 2,000,000 200,000 No. of shares ’000 RMB’000 246,000 25,260 42,040 3,716 288,040 28,976	2008 No. of shares ’000 HK$’000 2,000,000 200,000 No. of shares ’000 RMB’000 246,000 25,260 42,040 3,716 288,040 28,976

		RMB’000 25,260 3,716
		28,976

On 21 April 2008, 20 July 2009 and 4 September 2009, 5,790,000, 1,380,000 and 330,000 share options of the Company at par value of HK$0.1 were exercised at exercise price of HK$1.41 per share respectively. The excess of the exercise price over the par value of the shares issued has been credited to the share premium account of the Company.

On 2 December 2008, the Company issued and allotted 36,250,000 shares at par value of HK$0.1 to its holding Company, OCT (HK) or its nominee(s), as part of the consideration for acquiring 51% shareholding of OCT Investments.

On 24 November 2009, the Company issued and allotted 57,000,000 shares at par value of HK$0.1 to its immediate holding company, Pacific Climax Limited, at a price of HK$2.8 per share.

(b) share premium and contributed surplus

Under the Companies Law (Revised) of the Cayman Islands, the funds in the share premium account and the contributed surplus account of the Company are distributable to the shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of business.

The excess of the issued price net of any issuance expenses over the par value of the shares issued has been credited to the share premium account of the Company.

185 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(c) Merger reserve

Merger reserve arose from the recognition of the remaining goodwill arising on the original acquisition of the subsidiaries as recorded in the controlling party’s financial statements in these financial statements.

(d) Capital reserve

Capital reserve comprises the following:

difference between the total amount of registered capital and the amount of contributions from the equity holders of a subsidiary; and
the fair value of the unexercised share options granted to employees of the Company recognised in accordance with the accounting policy adopted for share based payments in note 1(o)(ii).

(e) General reserve fund

Transfers from retained earnings to general reserve fund were made in accordance with the relevant PRC rules and regulations and the articles of association of the Company’s subsidiaries incorporated in the PRC and were approved by the respective boards of directors.

The subsidiaries in the PRC are required to transfer 10% of their net profits, as determined in accordance with the PRC accounting rules and regulations, to general reserve fund until the reserve balance reaches 50% of the registered capital. The transfer to this fund must be made before distribution of dividends to the equity holders.

General reserve fund can be used to make good previous years’ losses, if any, and may be converted into paid up capital provided that the balance of the general reserve fund after such conversion is not less than 25% of the registered capital.

(f) Enterprise expansion fund

The subsidiaries in the PRC are required to transfer a certain percentage of their net profits, as determined in accordance with the PRC accounting rules and regulations, to the enterprise expansion fund. The percentage of this appropriation is decided by the directors of the subsidiaries.

The enterprise expansion fund can be used for the subsidiaries’ business development purposes and for working capital purposes. This fund can also be used to increase capital of the subsidiaries, if approved. This fund is non-distributable other than upon liquidation. Transfers to this fund must be made before distribution of dividends to the equity holders.

186 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(g) Reserves of the Company

Note At 1 January 2008 Issuance of shares Profit for the year Dividend approved in respect of the previous year 10(b) At 31 December 2008 At 1 January 2009 Issuance of shares Profit for the year Dividend approved in respect of the previous year 10(b) At 31 December 2009	share premium RMB’000 174,960 23,521 – – 198,481 198,481 134,281 – – 332,762	Contributed surplus RMB’000 248,970 – – – 248,970 248,970 – – – 248,970	Capital reserve RMB’000 4,558 (1,367 ) – – 3,191 3,191 (404 ) – – 2,787	Retained profits RMB’000 59,427 – 13,830 (12,618 ) 60,639 60,639 – 46,213 (5,079 ) 101,773	Total RMB’000 487,915 22,154 13,830 (12,618 )
					511,281

					511,281 133,877 46,213 (5,079 )
					686,292

(h) Distributability of reserves

At 31 December 2009, the aggregate amount of reserves available for distribution to equity shareholders of the Company is RMB686,292,000 (2008: RMB511,281,000).

After the balance sheet date, the directors proposed a final dividend of HK$2.36 cents per ordinary share (2008: HK$2.00 cents per share), amounting to RMB7,205,000 (2008: RMB5,079,000). This dividend has not been recognised as a liability at the balance sheet date.

(i) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

Consistent with industry practice, the Group monitors its capital structure on the basis of a net debt-toadjusted capital ratio. For this purpose the Group defines net debt as total debt (which includes interest-bearing loans and borrowings and trade and other payables), plus unaccrued proposed dividends, less cash and cash equivalents. Adjusted capital comprises all components of equity less unaccrued proposed dividends.

During 2009, the Group’s strategy, which was unchanged from 2008, was to maintain the net debt-toadjusted capital ratio at a level of lower than 100%. In order to maintain or adjust the ratio, the Group may issue new shares, return capital to shareholders, raise new debt financing or sell assets to reduce debt.

187 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

27 FINANCIAL RIsk MANAGEMENT AND FAIR VALUE

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. These risks are limited by the Group’s financial management policies and practices described below:

(a) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within 60120 days from the date of billing. Debtors with balances that are more than 1 month past due are requested to settle all outstanding balances before any further credit is granted. Normally, the Group does not obtain collateral from customers.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry or country in which the customers operate and therefore significant concentrations of credit risk primarily arise when the Group has significant exposure to individual customers. At the balance sheet date, 7% (2008: 10%) and 22% (2008: 20%) of the total trade and other receivables was due from the Group’s largest customer and the five largest customers respectively.

The maximum exposure to credit risk without taking into account of any collateral held is represented by the carrying amount of each financial asset. The Group does not provide any guarantees which would expose the Group or the Company to credit risk.

Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 19.

(b) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the raising of loans to cover expected cash demands, subject to approval by the Company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

Further quantitative disclosures in respect of the Group’s exposure to liquidity risk arising from trade and other receivables, trade and other payables, bank loans and other payables to intermediate holding company are set out in notes 19, 21, 22 and 29.

(c) Interest rate risk

The Group’s interest rate risk arises primarily from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk.

The effective interest rate of cash and cash equivalents is 0.96% per annum (2008: 1.1% per annum). The effective interest rate of bank loans is 1.58% per annum (2008: 4.99% per annum). The interest rates and terms of repayment of the Group’s bank loans and other payable to intermediate holding company are disclosed in notes 22 and 29.

188 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

At 31 December 2009, it is estimated that a general increase of 100 basis points in interest rates, with all other variables held constant, would have increased the Group’s profit after tax and retained profits by approximately RMB881,000 (2008: increased RMB576,000).

A 100 basis points decrease in interest rates at 31 December 2009 would have had equal but opposite effect on the basis that all other variables remain constant.

The sensitivity analysis above indicates the instantaneous change in the Group’s profit after tax and retained profits that would arise assuming that the change in interest rates had occurred at the balance sheet date. In respect of the exposure to cash flow interest rate risk arising from floating rate non- derivative instruments held by the Group at the balance sheet date, the impact on the Group’s profit after tax and retained is estimated as an annualised impact on interest expense or income of such a change in interest rates. The analysis is performed on the same basis for 2008.

(d) Currency risk

The Group is exposed to currency risk primarily through sales and purchases which give rise to receivables, payables and cash balances that are denominated in a foreign currency, i.e. a currency other than the functional currency of the operations to which the transactions relate. The currencies giving rise to this risk are primarily Euros, United States dollars, Hong Kong dollars. The Group manages this risk as follows:

(i) Forecast transactions

The Group hedge certain of its estimated foreign currency exposure in respect of committed future sales and purchases and certain of its estimated foreign currency exposure in respect of highly probable forecast sales and purchases. The Group used forward exchange contracts to mitigate its currency risk. There was no forward exchange contract at 31 December 2009.

(ii) Exposure to currency risk

The following table details the Group’s and the Company’s exposure at the balance sheet date to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate.

The Group

United states Dollars ’000 Trade and other receivables 1,128 Cash and cash equivalents 1,602 Trade and other payables (48 ) Other payable to intermediate holding company – Bank loans – Gross exposure arising from recognised assets and liabilities 2,682	2009 Hong kong Dollars ’000 35,114 172,738 (8,939 ) (83,000 ) (84,200 ) 31,713	United states Dollars ’000 1,832 3,622 (2,364 ) – – 3,090	2008 Hong kong Dollars ’000 54,504 36,891 (18,321 ) (83,000 ) (82,800 )
			(92,726 )

189 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Company

Trade and other receivable Cash and cash equivalents Trade and other payables Other payable to intermediate holding company Bank loans Gross exposure arising from recognised assets and liabilities	2009 HK$’000 569,130 136,582 (257,280 ) (83,000 ) (79,200 ) 286,232	2008 HK$’000 408,525 14,247 (118,167 ) (83,000 ) (82,800 ) 138,805

The Group and the Company ensure that the net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to address the short term imbalances.

(iii) Sensitivity analysis

A 5 per cent weakening of the Hong Kong dollars and United States dollars against the above RMB at 31 December 2009 would have decreased profit by RMB1,907,000 (2008: increased RMB2,428,000). This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2008.

A 5 per cent strengthening of the Hong Kong dollars and United States dollars against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

Results of the analysis as presented above represent an aggregation of the instantaneous effects on each of the Group entities’ profit after tax and equity measured in the respective functional currencies.

The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the balance sheet date, including inter-company payables and receivables within the Group which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result from the translation of the financial statements of foreign operations into the Group’s presentation currency. The analysis is performed on the same basis for 2008.

(e) Fair values

All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2009 and 2008 due to their nature of short-term maturities or floating interest rate for the long-term bank loans.

(f) Estimation of fair values

(i) Forward exchange contracts

Forward exchange contracts are either marked to market using listed market prices or by discounting the contractual forward price and deducting the current spot rate.

190 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ii) Interest-bearing loans and borrowings

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

28 COMMITMENTs

(a) Capital commitments, outstanding at 31 December 2009 not provided for in the financial statements were as follows:

Contracted for Authorised but not contracted for	The Group 2009 2008 RMB’000 RMB’000 100,172 46,337 28,596 126,718 128,768 173,055	The Company 2009 2008 RMB’000 RMB’000 – – – – – –	The Company 2009 2008 RMB’000 RMB’000 – – – – – –
			–

The capital commitments mainly represented the commitments in connection with the capital injection of RMB50,000,000 into Xi’an OCT Investment Ltd. and the planned capital expenditure for expansion of production facilities.

(b) At 31 December 2009, the total future minimum lease payments under non-cancellable operating leases in respect of land and properties were payable as follows:

Within one year After one year but within five years After five years	The Group 2009 2008 RMB’000 RMB’000 6,047 8,096 9,846 2,281 10,116 1,457 26,009 11,834	The Company 2009 2008 RMB’000 RMB’000 – – – – – – – –	The Company 2009 2008 RMB’000 RMB’000 – – – – – – – –
			–

The Group leases a number of land and properties under operating leases. The leases run for period from one to twenty-six years, certain of the leases are with an option to renew when all terms are renegotiated. None of the leases includes contingent rentals.

29 MATERIAL RELATED PARTy TRANsACTIONs

(a) Transactions with other state-controlled entities:

The Company is a state-controlled entity and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government (“state-controlled entities”) through its government authorities, agencies, affiliations and other organisations.

191 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Other than those disclosed in 29(b), transactions with other state-controlled entities include but are not limited to the following:

Utility supplies; and
Financial services arrangement.

These transactions are conducted in the ordinary course of the Group’s business on terms comparable to those with other entities that are not state-controlled. The Group has established its buying, pricing strategy and approval process for purchases and sales of products and services. Such buying, pricing strategy and approval processes do not depend on whether the counterparties are state-controlled entities or not.

Having considered the potential for transactions to be impacted by related party relationships, the Group’s pricing strategy, buying and approval processes and what information would be necessary for an understanding of the potential effect of the relationship on the financial statements, the directors are of the opinion that the following transactions with other state-controlled entities require disclosure:

(i) Transactions with other state-controlled entities in the PRC:

2009 RMB’000 Interest income 1,042 Interest expense 1,202 (ii) Balances with other state-controlled entities in the PRC: 2009 RMB’000 Cash at bank 293,811 Bank loans 80,138	2008 RMB’000 1,234 2,458

	2008 RMB’000 120,800 73,021

(b) The Group has a related party relationship with the following parties:

Name of party Relationship with the Group Overseas Chinese Town Enterprises Ultimate holding company Corporation (“OCT Group”) Shenzhen Overseas Chinese Town Intermediate holding company Holding Company (“OCT Holding”) Overseas Chinese Town (HK) Company Limited Intermediate holding company (“OCT (HK)”) Shanghai Huiyang Industry Co., Ltd. An entity majority-owned by an equity (“Shanghai Hui Yang”) (note 1) shareholder who has significant influence over the Company Shanghai Mei Ling Central Air Conditioner Subsidiary of Shanghai Hui Yang Company Limited (“Mei Ling Air-Conditioner”) Shanghai Pudong Xiamei Plastics Co., Ltd. Subsidiary of Shanghai Hui Yang (“Shanghai Xiamei”) (note 1) Shenzhen Overseas Chinese Town Real Estate Subsidiary of OCT Group Company Limited (“OCT Properties”) Konka Group Company Limited, its subsidiaries Common director and associates (“Konka Group”) (note 2)

192 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note 1: Shanghai Huiyang and its two subsidiaries, Meiling Air-Conditioner and Shanghai Xiamei ceased to be related parties of the Group upon Mr. Zhang Zhilin’s resignation as a director from Shanghai Huali Packaging Co., Ltd., a subsidiary of the Group.

Note 2: Due to the change in the chairman of the Group, Konka Group became a related party of the Group under HKAS 24, Related Party Disclosures from 26 May 2009. However, the chairman of the Group and his family do not have any equity interest in Konka Group and do not control the composition of a majority of the board of directors of Konka Group. Therefore Konka Group is not considered a connected person under the Listing Rules.

Recurring transactions

Sales of goods to: Konka Group_(note) OCT Group, its subsidiaries and associates Mei Ling Air-Conditioner _Purchase of goods from: OCT Group, its subsidiaries and associates Interest expense: OCT (HK) Rental paid to: OCT Group, its subsidiaries and associates Shanghai Xia Mei Utility expenses paid to: OCT Group, its subsidiaries and associates	2009 RMB’000 57,302 202 – 57,504 974 1,709 4,716 – 4,716 3,631	2008 RMB’000 – 655 8,733
		9,388

		544

		–

		3,563 180
		3,743

		3,899

Note: The amount for the year ended 31 December 2009 represents transactions occurred after 26 May 2009 when Konka Group was regarded as a related party of the Group.

193 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Non recurring transactions

		2009		2008
		RMB’000		RMB’000
Acquisition of OCT Investments:
OCT (HK)		–		91,708

On 2 December 2008, the Company	acquired 51% equity interests in		OCT Investments from
OCT (HK).
		2009		2008
		RMB’000		RMB’000
Sales of land use right and factory buildings to:
OCT Properties		–		50,600

Balances with related parties
Amounts due from/(to) related parties	are as follows:
		2009		2008
	Notes	RMB’000		RMB’000
Trade receivable from fellow
subsidiaries_(note 19)_	(i)	22		90
Trade receivable from other related
companies_(note 19)_	(i)	8,706		702
Trade payable to fellow subsidiaries
(note 21)	(ii)	(195 )		(2 )

Other receivable from fellow
subsidiaries_(note 19)_	(iii)	796		820
Other payable to other related
companies_(note 21)_	(iii)	(76 )		(493 )
Other payable to intermediate
holding company	(iv)	(73,082 )		(73,198 )

Notes:

(i) The trade receivable balances are unsecured, non-interest bearing and are expected to be recovered within six months. These refer to receivables in respect of sale of paper cartons and paper boxes to related parties.

194 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ii) The trade payable balances are unsecured, non-interest bearing and are expected to be settled within three months. These refer to payables in respect of purchases of raw material from related parties.
(iii) Other receivables and payables are unsecured, non-interest bearing, and repayable on demand.

(iv) Other payable to intermediate holding company of HK$83,000,000 is unsecured, bearing an interest at HIBOR+1%.

(c) The key management personnel remuneration is as follows:

Remuneration for key management personnel, including amounts paid to the Company’s directors as disclosed in note 7 and certain of the highest paid employees as disclosed in note 8, is as follows:

Short-term employee benefits Post employment benefits	2009 RMB’000 2,755 59 2,814	2008 RMB’000 2,808 58
		2,866

Total remuneration is included in “staff costs” (see note 5(b)).

(d) Contributions to post-employment benefits plans

The Group participates in various defined contribution post-employment benefit plans for its employees. Further details of these plans are disclosed in note 23.

30 NON-ADjUsTING POsT bALANCE sHEET EVENTs

(a) Final dividend

After the balance sheet date the directors proposed a final dividend. Further details are disclosed in note 10.

(b) Capital injection into Chengdu OCT

Bantix International Limited (“Bantix”), the Group’s wholly owned subsidiary, is in the process to enter into the Chengdu OCT Capital Increase Agreement with OCT Properties and OCT Holding. Bantix will solely contribute, in cash, RMB588,000,000 into Chengdu OCT. After completion of the capital injection, Bantix’s interest in Chengdu OCT will increase from 25% to 51%. Consequently, Chengdu OCT will become a non-wholly owned subsidiary of the Group. As the transaction is a very substantial acquisition and a connected transaction, it is subject to approval procedures as set out in the Listing Rules. In addition, it is subject to necessary approvals of the PRC government authorities.

31 PARENT AND ULTIMATE HOLDING COMPANy

At 31 December 2009, the directors consider the ultimate holding company of the Group to be Overseas Chinese Town Enterprises Corporation, which is incorporated in the PRC. The directors consider the immediate holding company to be Pacific Climax Limited, which is incorporated in BVI and the intermediate holding company to be OCT Holding, which is listed on Shenzhen Stock Exchange. Only OCT Holding produces financial statements available for public use.

195 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

32 ACCOUNTING EsTIMATEs AND jUDGEMENTs

Note 14 contains information about the assumptions relating to goodwill impairment. Other key sources of estimation uncertainty are as follows:

(i) Impairment loss for trade and other receivables

As explained in note 1(i), the Group makes impairment loss for trade and other receivables based on the Group’s estimates of the present value of the estimated future cash flow. Given the uncertainties involved in estimating the future cash flow of individual customer, the actual recoverable amount may be higher or lower than that estimated at the balance sheet date.

(ii) Provision for inventories

As explained in note 1(j), the Group’s inventories are stated at the lower of cost and net realisable value. Based on the Group’s recent experience and the nature of the inventories, the Group makes estimates of the selling prices, the costs of completion in case for work in progress, and the costs to be incurred in selling the inventories. Uncertainty exists in these estimations.

(iii) Impairment loss for property, plant and equipment

As explained in note 1(i), the Group’s makes impairment loss for property, plant and equipment based on the Group’s estimates of the recoverable amount. Uncertainty exists in these estimations.

33 POssIbLE IMPACT OF AMENDMENTs, NEw sTANDARDs AND INTERPRETATIONs IssUED bUT NOT yET EFFECTIVE FOR THE yEAR ENDED 31 DECEMbER 2009

Up to the date of issue of these financial statements, the HKICPA has issued the following amendments, new standards and Interpretations which are not yet effective for the year ended 31 December 2009 and which have not been adopted in these financial statements.

	Effective for
	accounting periods
	beginning on or after
HKFRS 3 (Revised), Business combinations	1 July 2009
Amendments to HKAS 27, Consolidated and separate
financial statements	1 July 2009
Improvements to HKFRSs 2009	1 July 2009 or 1 January 2010

The group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the company’s results of operations and financial position.

34 COMPARATIVE FIGUREs

As a result of the application of HKAS 1 (revised 2007), Presentation of Financial Statements, certain comparative figures have been adjusted to conform to current period’s presentation and to provide comparative amounts in respect of items disclosed for the first time in 2009. Further details of these developments are disclosed in note 2.

196 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

III. INDEbTEDNEss sTATEMENT

borrowings

The following table illustrates the Enlarged Group’s bank loans, bills payable, letter of credit and related party loans as at 31 March 2010, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular:

Bank loans Bills payable Letter of credit Related party loans	RMB’000 320,713 118,577 5,553 1,544,500	HKD’000 Equivalent 366,529

		135,517

		6,346

		1,765,143

Among the above outstanding bank loans, approximately RMB120.71 million (equivalent to approximately HK$137.95 million) were guaranteed by subsidiaries of the Enlarged Group, and RMB200.00 million (equivalent to approximately HK$228.58 million) was guaranteed by a fellow subsidiary of the Enlarged Group.

Among the above bills payable, approximately RMB79.08 million (equivalent to approximately HK$90.38 million) was guaranteed by subsidiaries of the Enlarged Group, and approximately RMB39.50 million (equivalent to approximately HK$45.14 million) was secured by cash deposits.

The above letter of credit of approximately RMB5.55 million (equivalent to approximately HK$6.35 million) was guaranteed by subsidiaries of the Enlarged Group.

The above related party loans of approximately RMB1,544.50 million (equivalent to approximately HK$1,765.14 million) were all unsecured.

Contingent liabilities

As at 31 March 2010, the Enlarged Group had no contingent liabilities.

197 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Available banking facilities

As at 31 March 2010, the Enlarged Group’s total credit facilities provided by the banks were approximately RMB829.68 million (equivalent to approximately HK$948.21 million), of which approximately RMB320.71 million (equivalent to approximately HK$366.53 million) bank loans, approximately RMB81.61 million (equivalent to approximately HK$93.27 million) bills payable and approximately RMB5.55 million (equivalent to approximately HK$6.35 million) letter of credit were utilised.

For the purpose of this circular, all amounts in RMB are translated into HK$ at an exchange rate of RMB0.875: HK$1.

Save as disclosed in this circular and apart from intra-group company liabilities, the Enlarged Group did not have any outstanding debt securities issued and outstanding, and authorised or otherwise created but unissued, term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts and other liabilities under acceptances (other than normal trade bills), acceptance credits, hire purchase commitments, mortgages and charges, contingent liabilities or guarantees outstanding at the close of business on 31 March 2010.

The Directors are not aware of any material changes in the indebtedness or contingent liabilities of the Enlarged Group since 31 March 2010.

IV. wORkING CAPITAL

The Directors are of the opinion that, following the Capital Injection, taking into account the financial resources available to the Enlarged Group, including the internally generated funds and the present available bank facilities, and in the absence of unforeseen circumstances, the Enlarged Group will have sufficient working capital for its requirements for at least the next 12 months from the date of this circular.

V. MATERIAL ADVERsE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009, the date to which the latest published audited financial information of the Group were made up.

198 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

VI. RECONCILIATION OF THE NET bOOk VALUE OF THE RELEVANT LAND UsE RIGHTs AND PROPERTIEs OF THE GROUP

Savills Valuation and Professional Services Limited, an independent property valuer, has valued the property interests of the Group as at 31 March 2010. The text of the letter, summary of valuation and the valuation certificates are set out in Appendix V to this circular.

A reconciliation of the net book value of the relevant land use rights and properties of the Group as at 31 December 2009 to their fair value as stated in Appendix V to this circular is as follows:

	Properties
	(RMB’000)
Net book value as 31 December 2009	1,036,820
Movement for the period from 31 December 2009 to 31 March 2010	15,302
– Additions	26,977
– Disposal	(4,976 )
– Depreciation	(6,699 )
Net book value as at 31 March 2010	1,052,122
Valuation appreciation	–
Valuation depreciation	(442,232 )
Valuation as at 31 March 2010	609,890

Note:

For indication purpose, the above depreciation is mainly due to (a). no commercial value was assigned to the land use rights and the construction erected thereon of Land Lots A, C and D of Chengdu Project of Property 1 in Appendix V for the reasons of non-transferable and lack state-owned land use rights certificate; and (b). no commercial value assigned to Property 6 in Appendix V respectively. As at 31 March 2010, the aforesaid asset with interest attributable to the Group had a total net book value of RMB662,398,874.

199 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

The following is the management discussion and analysis of the Group’s financial conditions and results of operations for each of the three years ended 31 December 2009:

FOR THE YEAR ENDED 31 DECEMBER 2007

Operating Results

The Group realised sales income of RMB761 million in 2007, representing an increase of 6.7% over the same period in 2006. Profits attributable to equity holders were RMB38.36 million, representing an increase of 16.2% over 2006. The basic earnings per share for the year were RMB0.18, as compared to RMB0.16 for 2006.

During the period under review, gross profit margin was approximately 13.9% (2006: approximately 14.7%), representing a decrease of 0.8% over the same period in 2006. The decease was mainly attributable to the increase in raw material prices, resulting in an increase in the cost of sales. Net profit margin attributable to equity holders of the Company was approximately 5.0% (2006: approximately 4.6%). Profits attributable to equity holders increased by 16.2% over 2006. Excluding the fact that the fair value of RMB4.56 million of share options granted to employees was recognised as expenses in 2006, profits attributable to equity holders increased by approximately 2.1% over the same period in 2006.

Segment Information

The principal activity of the Group is the manufacture and sale of paper boxes and products. As the Group operates within a single business and geographical segment, no segment information is provided.

Acquisition and Disposal

Acquisition of a piece of land in Huizhou – On 19 March 2007, Huizhou Huali, a wholly-owned subsidiary of the Company, acquired the land use rights of a piece of land in Huizhou at a consideration of RMB62,313,000 (equivalent to approximately HK$62,835,000). A new Huizhou production base of the Group would be built on the land and the Company also considered relocating the Group’s operation in Shenzhen to the new production base gradually in a few years. It is expected that the production capacity of the Group will be enhanced accordingly.

200 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

Disposal of 100% equity interest in Mission Holdings Services Limited (“Mission Holdings”) – On 8 May 2007, the Group entered into an equity transfer agreement to dispose 100% equity interest in Mission Holdings at a consideration of HK$9,920,000 (equivalent to approximately RMB9,780,000) and Mission Holdings ceased to be a subsidiary of the Company after completion of the transaction. The sole business of Mission Holdings is to hold 85% interest in Mudanjiang Huali Packaging Company Limited (“Mudanjiang Huali”). Since Mudanjiang Huali is situated at a relatively remote location, and the Group is planning to focus its business on more economically-developed cities in the PRC, the Directors consider it is in the Group’s long term interest in disposing Mission Holdings at a premium.

Disposal of properties – On 11 July 2007, Shenzhen Huali, a wholly-owned subsidiary of the Company, entered into a sale and purchase agreement with Overseas Chinese Town Real Estate Company Limited (“OCT Properties”), pursuant to which Shenzhen Huali sold its properties consisting of 2 factory buildings to OCT Properties at an aggregate consideration of RMB50,600,000. OCT Properties is a non-wholly owned subsidiary of OCT Group, which is the ultimate controlling shareholder of the Company. The properties are now used for the production and operation by Shenzhen Huali. Both parties also entered into a tenancy agreement on the same date, pursuant to which the properties would be leased back to Shenzhen Huali at a monthly rental of approximately RMB263,824 commencing from the date OCT Properties having obtained the title of the properties and ending on 31 December 2009. The annual caps for each of the financial years ended 2008 and 2009 are approximately RMB3,166,000 and RMB3,166,000 respectively. As a result, the Group can still maintain the production in its premises in Shenzhen before the production facilities of Shenzhen Huali are relocated to the production base in Huizhou. As at 31 December 2007, the procedure of transferring title of the properties was in process and the tenancy agreement would commence when the real estate title certificate concerning the properties being issued in the name of OCT Properties.

Acquisition of 49% equity interest in OCT Investments Limited (“OCT Investments”) – On 21 August 2007, the Company entered into a share transfer agreement with OCT HK, pursuant to which the Company acquired 49% equity interest in OCT Investments Limited, a wholly-owned subsidiary of OCT HK, and the corresponding portion of shareholder’s loans owed by OCT Investments Limited to OCT HK at an aggregate consideration of HK$140,000,000, out of which HK$88,400,000 had been satisfied by the Company to issue and allot a total of 26,000,000 shares at an issue price of HK$3.40 per share to Pacific Climax, a controlling Shareholder and a wholly owned subsidiary of OCT HK. Upon completion, the Company holds 49% interest in OCT Investments Limited, which in turn holds 25% equity interest in Chengdu OCT. The Company considers that the acquisition will facilitate the Group to expand its business scope and explore potential profits sources, which is beneficial to the Company’s long term development.

201 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

Future plans and prospectus

As at the date of 2007 annual report, there is a rising pace in the surge in raw material prices. Looking ahead in 2008, the Directors expect that the continuous rise in operation cost and the increasingly intense market competition will present more challenges to the packaging industry. The Group will use its best endeavours in improving its products and marketing in order to cope with the possible difficulties and maintain its competitive edge. Apart from enhancing the bonding of valued customers, the Group will also explore new customer base, increase the proportion of high margin products such as colour packaging products, strengthen the innovation of production technology, satisfy customers’ needs and continuously enlarge its market share.

In addition, Huizhou Huali, a subsidiary of the Company, is expected to complete the construction of factories and installation of basic production facilities by the end of 2008, and production facilities of Shenzhen Huali will be gradually relocated to the new production base in Huizhou in the coming years. With the growth of the economy and the increase in the consumption power in the PRC, the prospect for packaging industry is still optimistic. The management of the Company believes that by relying on its high quality product and services, its expanding customer base, the management’s experience in the industry and its ever-optimising strategic planning, the Group will be able to face new challenges and create better results for the Group.

Liquidity, financial resources, gearing ratio and capital structure

The total equity of the Group as at 31 December 2007 was RMB511 million (31 December 2006: RMB338 million). As at 31 December 2007, the Group had current assets of RMB434 million (31 December 2006: RMB372 million) and current liabilities of RMB297 million (31 December 2006: RMB256 million). The liquidity ratio was 1.46 as at 31 December 2007 as compared to 1.45 as at 31 December 2006.

The Group’s gearing ratio (being the total borrowings including bills payable and bank loans divided by total assets) decreased from approximately 27% as at 31 December 2006 to approximately 21% as at 31 December 2007.

The Group generally finances its operations with internally generated funds and credit facilities provided by banks. As at 31 December 2007, approximately 45% of the total amount of outstanding bank loans of the Group was in Renminbi (31 December 2006: 43%) and approximately 55% in Hong Kong Dollars (31 December 2006: 57%). As at 31 December 2007, approximately 44% of the total amount of cash and cash equivalents of the Group was in Renminbi (31 December 2006: 39%), approximately 44% of its cash and cash equivalents was in Hong Kong Dollars (31 December 2006: 55%) and approximately 12% of its cash and cash equivalents was in US Dollars (31 December 2006: 6%).

202 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

The Group’s liquidity position remains stable and the Group possesses sufficient cash and available banking facilities to meet its commitments, working capital requirements and future investments for expansion.

In September 2007, the Company completed the issue of a total of 20,000,000 shares at a placing price of HK$3.40 per share. Net proceeds were approximately HK$65,830,000, which were mostly used for the acquisition of 49% of the equity interest and the corresponding portion of the shareholder‘s loans of OCT Investments Limited. OCT Investments Limited holds 25% equity interest in Chengdu OCT. In October 2007, the Company issued 26,000,000 shares to Pacific Climax at an issuing price of HK$3.40 per share, as part of the consideration for the acquisition of 49% equity interest and the corresponding portion of the shareholder’s loans of OCT Investments Limited. As a result of the above, the Company’s total issued share capital increased to 246,000,000 Shares as at 31 December 2007.

Charge on assets

As at 31 December 2007, the Group had outstanding bank loans of RMB44.72 million of which RMB20.00 million were fixed-rate loans (31 December 2006: outstanding bank loans of RMB70.19 million of which RMB15.00 million were fixed-rate loans). As at 31 December 2007, the bank loan interest rates of the Group ranged from 4.132% to 6.561% per annum (For the year ended 31 December 2006, the bank loan interest rates of the Group ranged from 4.96% to 7.07% per annum). Some of those bank loans were secured by corporate guarantees provided by certain subsidiaries of the Company.

Foreign currency exposure

The Group’s transactions and monetary assets are principally denominated in Renminbi, Hong Kong dollars or United States dollars. The Group has not experienced any material difficulties or effects on its operations or liquidity as a result of fluctuations in currency exchange rates during the year ended 31 December 2007. During the year ended 31 December 2007, the Group did not employ any material financial instrument for hedging purposes.

Employees and Remuneration Policy

As at 31 December 2007, the Group employed approximately 1,860 full-time staff members. The basic remunerations of the employees are determined with reference to the industry’s remuneration benchmark and the employees’ experience and their performance. Salaries of employees are reviewed annually with close reference to the performance of the employees. Directors’ remuneration is determined based on a variety of factors such as market conditions and responsibilities assumed by each director. Apart from the basic remuneration and statutory benefits required by laws, the Group also provides discretionary bonuses based upon the Group’s results and the individual performance of the staff.

203 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

The Group has not experienced any significant problems with its employees or disruption to its operations due to labour disputes nor has it experienced any difficulty in the recruitment and retention of experienced staff. The Group maintains a good relationship with its employees. Most members of senior management have been working for the Group for many years. The Group adopted a share option scheme at the time of its initial public offering. As at the date of 2007 annual report, the Company granted a total of 19,300,000 share options under the scheme.

Contingent liabilities

The Group had no contingent liabilities as at 31 December 2007.

Dividends

The Board has resolved to recommend the payment of a final dividend of HK5.7 cents per share for the year ended 31 December 2007 (2006: HK6.4 cents per share).

FOR THE YEAR ENDED 31 DECEMBER 2008

Operating Results

The Group realized sales of RMB763 million in 2008, representing an increase of 0.3% over the same period in 2007. Profits attributable to equity holders were RMB16.59 million, representing a decrease of 56.8% over 2007, which was partly attributable to the share of loss from Chengdu OCT of RMB10.65 million.

During the period under review, gross profit margin was approximately 11.7% (2007: approximately 13.9%), representing a decrease of 2.2% over the same period in 2007. The decrease was mainly attributable to the increase in raw material prices, resulting in an increase in the cost of sales. Net profit margin attributable to equity holders of the Company was approximately 2.2% (2007: approximately 5.0%). Profits attributable to equity holders decreased by 56.8% over 2007.

Segment Information

204 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

Acquisition and Disposal

On 2 June 2008 and 4 June 2008, the Company entered into a share transfer agreement and a supplemental agreement with OCT HK, pursuant to which the Company acquired 51% equity interest in OCT Investments Limited held by OCT HK, and the corresponding portion of shareholder’s loans owed by OCT Investments Limited to OCT HK. The consideration had been satisfied by the Company to issue and allot a total of 36,250,000 Shares to Pacific Climax, a controlling Shareholder and a wholly owned subsidiary of OCT HK; and a payment in cash of HK$83,000,000 by the Company to OCT HK. Upon completion, the Company holds 100% interest in OCT Investments Limited, which in turn holds 25% equity interest in Chengdu OCT. The Company considers that the acquisition will facilitate the Group to expand its business scope and explore potential profits sources, which is beneficial to the Company’s long term development. The acquisition constituted a major and connected transaction of the Company, details of which can be found at the announcements of the Company dated 4 June 2008 and 25 November 2008 and the circular of the Company dated 24 June 2008.

Future plans and prospectus

Looking forward, the cost of raw materials is expected to slightly decline; whilst falling product demand and intensifying market competition are likely to persist in the near term. The packaging industry will continue to face difficult challenges. In order to overcome such hard times amid economic downturn and maintain its competitive advantages to grow in the future, the Group will adhere to its past strategies to explore revenue sources and reduce costs through reinforcing internal management, exploring new customers, developing new products and expanding the market share of high profit margin products. In addition, the construction (phase one) of the production facilities of Huizhou Huali is expected to be completed and operation is expected to commence gradually in 2009. Such production facilities will include a high standard and modern steel structured industrial factory and an office building comprising office, R&D center and showroom features. The Company will start to gradually relocate the production facilities in Shenzhen to Huizhou since 2009 as scheduled. Moreover, the theme park of Chengdu OCT commenced operation in January 2009; whilst other segments will also commence business gradually in 2009. With the fast growing economy of Chengdu city and strong local government support on the development of tourism and real estate sectors, the Group believes that the prospect of Chengdu OCT is promising.

In spite of the global macro-economic downturn and falling market demand in the near term, as the economic development and consumption power in China pick up steadily, the Directors are optimistic about the prospects of the packaging industry. The management believes that, leverage on the extensive industry experience of the management, accelerating technology innovation and gradual improvement of strategies and plans, the Group is able to sustain through the financial crisis and be well-positioned for the economic recovery.

205 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

Liquidity, financial resources, gearing ratio and capital structure

The total equity of the Group as at 31 December 2008 was RMB537 million (31 December 2007: RMB511 million). As at 31 December 2008, the Group had current assets of RMB380 million (31 December 2007: RMB434 million) and current liabilities of RMB255 million (31 December 2007: RMB297 million). The liquidity ratio was 1.49 as at 31 December 2008 as compared to 1.46 as at 31 December 2007.

The Group generally finances its operations with internally generated funds and credit facilities provided by banks. The Group’s gearing ratio (being the total borrowings including bills payable and loans divided by total assets) increased from approximately 21% as at 31 December 2007 to approximately 25% as at 31 December 2008.

As at 31 December 2008, approximately 100% of the total amount of outstanding bank loans of the Group was in Hong Kong Dollars (31 December 2007: 45% in Renminbi, 55% in Hong Kong Dollars). As at 31 December 2008, approximately 47% of the total amount of cash and cash equivalents of the Group was in Renminbi (31 December 2007: 44%), approximately 33% of its cash and cash equivalents was in Hong Kong Dollars (31 December 2007: 44%) and approximately 20% of its cash and cash equivalents was in United States Dollars (31 December 2007: 12%).

In December 2008, the Company issued 36,250,000 shares to Pacific Climax Limited as part of the consideration for the acquisition of 51% equity interest in OCT Investments Limited. As a result of the above and the exercise of certain share options by the grantees during the year, the Company’s total issued share capital increased to 288,040,000 Shares as at 31 December 2008.

Charge on assets

As at 31 December 2008, the Group had outstanding bank loans of RMB99.48 million of which nil was fixed rate loan (31 December 2007: outstanding bank loans of RMB44.72 million of which RMB20.00 million was fixed-rate loan). As at 31 December 2008, the bank loan interest rates of the Group ranged from 1.33% to 6.56% per annum (while for the year ended 31 December 2007, the bank loan interest rates of the Group ranged from 4.13% to 6.56% per annum). Some of those bank loans were secured by corporate guarantees provided by certain subsidiaries of the Company.

206 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

Foreign currency exposure

The Group’s transactions and monetary assets are principally denominated in Renminbi, Hong Kong Dollars or United States Dollars. The Group has not experienced any material difficulties or effects on its operations or liquidity as a result of fluctuations in currency exchange rates during the year ended 31 December 2008. During the year ended 31 December 2008, except for certain foreign exchange forward contracts to mitigate its foreign exchange risk, the Group did not employ any material financial instrument for hedging purposes.

Employees and Remuneration Policy

As at 31 December 2008, the Group employed approximately 1,870 full-time staff members. The basic remunerations of the employees are determined with reference to the industry’s remuneration benchmark, the employees’ experience and their performance. Salaries of employees are reviewed annually with reference to the performance of the employees. Directors’ remuneration is determined based on a variety of factors such as market conditions and responsibilities assumed by each director. Apart from the basic remuneration and statutory benefits required by laws, the Group also provides discretionary bonuses based upon the Group’s results and the individual performance of the staff.

The Group has not experienced any significant problems with its employees or disruption to its operations due to labour disputes nor has it experienced any difficulty in the recruitment and retention of experienced staff. The Group maintains a good relationship with its employees. Most members of senior management have been working for the Group for many years. The Group adopted a share option scheme at the time of its initial public offering. As at the date of 2008 annual report, the Company granted a total of 19,300,000 share options under the scheme, of which 5,790,000 share options had been exercised resulting in 5,790,000 shares have been issued during 2008.

Contingent liabilities

The Group had no contingent liabilities as at 31 December 2008.

Dividends

The Board has resolved to recommend the payment of a final dividend of HK$2.0 cents per share for the year ended 31 December 2008 (2007: HK$5.7 cents per share).

207 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

FOR THE YEAR ENDED 31 DECEMBER 2009

Operating Results

The Group realized sales of RMB622 million in 2009, representing a decrease of 18.5% over 2008. Profits attributable to equity holders of the Company were RMB23.81 million, representing an increase of 43.5% over 2008. The basic earnings per share for the year were RMB0.08, as compared to RMB0.07 for 2008.

During the period under review, gross profit margin was approximately 13.8% (2008: approximately 11.7%), representing an increase of 2.1% over the same period in 2008. The increase was mainly attributable to the decrease in the average price of raw materials compared to that in the same period in 2008, resulting in a decrease in the cost of sales. Net profit margin attributable to equity holders of the Company was approximately 3.8% (2008: approximately 2.2%). Net profit margin attributable to equity holders of the Company increased by 1.6% over 2008.

Segment Information

The principal activity of the Group is the manufacture and sale of paper boxes and products. As the Group operates within a single business and geographical segment no segment information is provided.

Acquisition and Disposal

Capital Increase of Xi’an OCT – On 7 December 2009, Bantix, a wholly-owned subsidiary of the Company, entered into the Capital Increase Agreement with OCT Properties, whereby each of Bantix and OCT Properties conditionally agreed to contribute RMB50 million in cash to 西安華僑城投資有限公司 (Xi’an OCT Investment Ltd.) (“Xi’an OCT”). After completion of the increase of the capital, the equity interest of Xi’an OCT will be owned as to 75% and 25% by OCT Properties and Bantix, respectively. The details of the transaction are disclosed in the announcement of the Company dated 7 December 2009 and the circular of the Company dated 22 December 2009.

Capital Increase and Termination of OCT Wuhan – The Group had also committed to increase the capital of 武漢華僑城實業發展有限公司 (Wuhan OCT Industrial Development Ltd.) (“OCT Wuhan”). However, in order to give priority to investments with existing projects so that the Board would be in a better position to estimate the growth potential of the investments, the said investment in OCT Wuhan was terminated on 14 December 2009.

Joint Venture of OCT Xi’an

On 14 September 2009, OCT Properties and Bantix, a wholly-owned subsidiary of the Company, entered into a joint venture agreement to establish Overseas Chinese Town (Xi’an) Industry Company Limited (“OCT Xi’an”), a Sino-foreign equity joint venture enterprise. It was intended that OCT Xi’an will be principally engaged in property development business in Xi’an, the PRC. OCT Properties would hold 75% of the equity interest of OCT Xi’an, and Bantix would hold the remaining 25%

208 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

equity interest of OCT Xi’an. The total registered capital of OCT Xi’an would be RMB100,000,000, to which OCT Properties and Bantix would contribute RMB75,000,000 and RMB25,000,000 in cash, respectively. OCT Properties is a connected person of the Company within the meaning of the Listing Rules. Therefore, the arrangements under the above transaction constitute connected transactions under the Listing Rules. The above transaction was terminated on 7 December 2009. Details of the above transaction are disclosed in the announcements of the Company dated 15 September 2009 and 7 December 2009 and the circular of the Company dated 28 September 2009 in compliance with the requirements under Chapter 14A of the Listing Rules.

Future plans and prospectus

In spite of the nascent recovery of the global economy and the intensification of industry competition, as the economic development in China progresses steadily and the domestic consumption power picks up rapidly, the Directors are still optimistic about the prospects of the paper packaging industry at home and abroad. Looking into 2010, product demand is expected to increase progressively, and overall paper packaging business will continue to sustain a healthy growth. Therefore, the Company will adhere to its past strategies to augment its market competitiveness through maintaining and reinforcing high level of internal management and production process control, exploring new customers, developing new products and expanding the market share of high profit margin products.

In additional to the Capital Injection, meanwhile, the construction of Xi’an OCT will also gradually unfold. Overseas Chinese Town Enterprises Company (“OCT Group”), the ultimate controlling shareholder of the Company, is one of the sixteen Central State Owned Enterprises engaging in real estate development and operation as its main business. Looking forward, the Company will work with OCT Group to seek for more suitable investment opportunities and increase the investment in comprehensive development projects.

Meanwhile, the Company will continue to maintain steady development of the paper packaging business. The management believes that, leveraging on the extensive experience of the Company and the established brand image of “OCT”, the Group can effectively strengthen its market competitiveness, which in turn can steadily increase the Company’s value and bring long-term satisfactory results to its Shareholders.

Liquidity, financial resources, gearing ratio and capital structure

The total equity of the Group as at 31 December 2009 was RMB695 million (31 December 2008: RMB537 million). As at 31 December 2009, the Group had current assets of RMB546 million (31 December 2008: RMB380 million) and current liabilities of RMB349 million (31 December 2008: RMB255 million). The liquidity ratio was 1.56 as at 31 December 2009 as compared to 1.49 as at 31 December 2008. The increase in liquidity ratio was mainly due to the increase in the working capital during the period.

209 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

The Group’s gearing ratio (being the total borrowings including bills payable and loans divided by total assets) increased from approximately 25% as at 31 December 2008 to approximately 27% as at 31 December 2009.

The Group generally finances its operations with internally generated funds and credit facilities provided by banks. As at 31 December 2009, approximately 95% of the total amount of outstanding bank loans of the Group was in Hong Kong Dollars, and approximately 5% of its outstanding bank loans was in Renminbi (31 December 2008: 100% in Hong Kong Dollars). As at 31 December 2009, approximately 40% of the total amount of cash and cash equivalents of the Group was in Renminbi (31 December 2008: 47%), approximately 56% of its cash and cash equivalents was in Hong Kong Dollars (31 December 2008: 33%) and approximately 4% of its cash and cash equivalents was in United States Dollars (31 December 2008: 20%).

The Group’s liquidity position remains stable and the Group possesses sufficient cash and available banking facilities to meet its commitments and working capital requirements.

In November 2009, the Company issued an aggregate of 57,000,000 ordinary shares of HK$0.10 each in the Company at the price of HK$2.80 per share to Pacific Climax. The same number of the Company’s ordinary shares owned by Pacific Climax were placed at a price of HK$2.80 per share to independent investors. The placing price represented a discount of approximately 17.65% to the closing price of HK$3.40 per Share as quoted on the Stock Exchange on the day before the date of the placing and subscription agreement. The net proceeds from the Placing amounted to approximately HK$155 million, which was intended to be used as general working capital of the Group. As a result of the above and the exercise of certain share options by the grantees during the year, the Company’s total issued share capital increased to 346,750,000 Shares as at 31 December 2009.

Charge on assets

As at 31 December 2009, the Group had outstanding bank loans of RMB127 million, of which fixed-rate loans amounted to RMB6 million (31 December 2008: outstanding bank loans of RMB99.48 million of which there was no fixed-rate loan). As at 31 December 2009, the bank loan interest rates of the Group ranged from 0.93% to 5.40% per annum (while for the year ended 31 December 2008, the bank loan interest rates of the Group ranged from 1.33% to 6.56% per annum). Some of those bank loans were secured by corporate guarantees provided by certain subsidiaries of the Company.

Foreign currency exposure

The Group’s transactions and monetary assets are principally denominated in Renminbi, Hong Kong Dollars or United States Dollars. The Group has not experienced any material difficulties in or effects on its operations or liquidity as a result of fluctuations in currency exchange rates during the year ended 31 December 2009. During the year ended 31 December 2009, except for certain foreign exchange forward contracts to mitigate its foreign exchange risk, the Group did not employ any material financial instrument for hedging purposes.

210 -

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX III

Employees and Remuneration Policy

As at 31 December 2009, the Group employed approximately 1,800 full-time staff members. The basic remunerations of the employees are determined with reference to the industry’s remuneration benchmark, the employees’ experience and their performance. Salaries of employees are reviewed annually with reference to the performance of the employees. Directors’ remuneration is determined based on a variety of factors such as market conditions and responsibilities assumed by each director. Apart from the basic remuneration and statutory benefits required by laws, the Group also provides discretionary bonuses based upon the Group’s results and the individual performance of the staff.

The Group has not experienced any significant problems with its employees or disruption to its operations due to labour disputes nor has it experienced any difficulty in the recruitment and retention of experienced staff. The Group maintains a good relationship with its employees. Most members of senior management have been working for the Group for many years. The Group adopted a share option scheme at the time of its initial public offering. As at the date of this report, the Company granted a total of 19,300,000 share options under the scheme, of which 1,710,000 share options had been exercised during 2009.

Contingent liabilities

The Group had no contingent liabilities as at 31 December 2009.

Dividends

The Board has resolved to recommend the payment of a final dividend of HK$2.36 cents per share for the year ended 31 December 2009 (2008: HK$2.0 cents per share).

211 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

For illustrative purpose only, set out below is the unaudited pro forma financial information of the Enlarged Group as at 31 December 2009, being the latest financial reporting date of the Company, to show the effect of the Capital Injection.

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(1) Introduction to the unaudited pro forma financial information

The following is the unaudited pro forma financial information of the Enlarged Group as if the capital injection into Chengdu Tianfu OCT Industry Development Co., Ltd. (“Chengdu OCT”) had been completed on 31 December 2009 for the pro forma consolidated balance sheet and at the commencement of the year ended 31 December 2009 for the pro forma consolidated income statement and pro forma consolidated cash flow statement. The accompanying unaudited pro forma financial information of the Enlarged Group has been prepared to illustrate the effect of the capital injection into Chengdu OCT (“Capital Injection”). Details of the Capital Injection are set out in the section headed “The Capital Increase Agreement dated 1 April 2010” in the Letter from the Board contained in this circular.

The unaudited pro forma financial information of the Enlarged Group has been prepared in accordance with Rule 4.29(1) and Rule 14.69(4)(a)(ii) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. It has been prepared by the Directors of the Company for illustrative purposes only.

The unaudited pro forma consolidated financial information of the Enlarged Group is based upon the audited consolidated financial statements of the Group as at 31 December 2009, which has been extracted from the Company’s annual report for the year then ended as set out in Appendix II to this circular and the audited financial information of Chengdu OCT as extracted from the accountants’ report thereon set out in Appendix I to this circular, and adjusted to reflect the effect of the Capital Injection. These unaudited pro forma financial information adjustments of the capital injection are (i) directly attributable to the Capital Injection and not relating to other future events and decision and (ii) factually supportable based on the terms of the Chengdu Capital Increase Agreement.

The unaudited pro forma financial information of the Enlarged Group is based on a number of assumptions, estimates and uncertainties. As a result of these assumptions, estimates and uncertainties, the unaudited pro forma financial information of the Enlarged Group does not purport to describe the true picture of the financial position or results of the Enlarged Group that would have been attained had the Capital Injection been completed as at the specified dates. Further, the unaudited pro forma financial information of the Enlarged Group does not purport to predict the future financial position or results of the Enlarged Group.

212 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the historical financial information of the Group as set out in the annual report of the Company for the year ended 31 December 2009 and other financial information included elsewhere in this circular.

(2) Unaudited pro forma consolidated balance sheet as at 31 December 2009

The Group RMB’000 Non-current assets Property, plant and equipment 265,223 Investment property – Construction in progress 29,141 Goodwill 24,937 Lease prepayments 68,983 Intangible assets – Interest in an associate 234,401 Other finance assets – Deferred tax assets 8,810 631,495 Current assets Inventories 82,628 Trade and other receivables 149,031 Cash and cash equivalents 314,006 545,665 Current liabilities Trade and other payables (278,391) Bank loans (65,947) Current taxation (4,304) (348,642) Net current assets/(liabilities) 197,023 Total assets less current liabilities 828,518	Chengdu Pro Forma The Enlarged OCT Combined Pro Forma Adjustments Group RMB’000 RMB’000 RMB’000 Notes RMB’000 Notes RMB’000 1,902,553 2,167,776 5 2,167,776 488,823 488,823 488,823 – 29,141 29,141 – 24,937 24,937 – 68,983 68,983 256 256 256 – 234,401 (234,401) 3 – 4,320 4,320 4,320 31,704 40,514 40,514 2,427,656 3,059,151 2,824,750 1,392,769 1,475,397 1,089,885 2(ii) 2,565,282 70,401 219,432 219,432 62,526 376,532 660,470 1 1,037,002 1,525, 696 2,071,361 3,821,716 (2,025,358) (2,303,749) (2,303,749) (674,213) (740,160) (740,160) (27,922) (32,226) (32,226) (2,727,493) (3,076,135) (3,076,135) (1,201,797) (1,004,774) 745,581 1,225,859 2,054,377 3,570,331	Chengdu Pro Forma The Enlarged OCT Combined Pro Forma Adjustments Group RMB’000 RMB’000 RMB’000 Notes RMB’000 Notes RMB’000 1,902,553 2,167,776 5 2,167,776 488,823 488,823 488,823 – 29,141 29,141 – 24,937 24,937 – 68,983 68,983 256 256 256 – 234,401 (234,401) 3 – 4,320 4,320 4,320 31,704 40,514 40,514 2,427,656 3,059,151 2,824,750 1,392,769 1,475,397 1,089,885 2(ii) 2,565,282 70,401 219,432 219,432 62,526 376,532 660,470 1 1,037,002 1,525, 696 2,071,361 3,821,716 (2,025,358) (2,303,749) (2,303,749) (674,213) (740,160) (740,160) (27,922) (32,226) (32,226) (2,727,493) (3,076,135) (3,076,135) (1,201,797) (1,004,774) 745,581 1,225,859 2,054,377 3,570,331
		2,824,750
		2,565,282 219,432 1,037,002
		3,821,716
		(2,303,749) (740,160) (32,226)
		(3,076,135)

		745,581

		3,570,331

213 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The Group RMB’000 Non-current liabilities Other payable to intermediate holding company (73,082) Bank loans (60,723) Deferred tax liabilities (152) (133,957) NET ASSETS 694,561 CAPITAL AND RESERVES Share capital (34,148) Reserves (660,413) Total equity attributable to equity shareholders of the Company (694,561) Non-controlling interests – TOTAL EQUITY (694,561)	Chengdu OCT RMB’000 – (800,000) (12,371) (812,371) 413,488 (400,000) (13,488) (413,488) – (413,488)	Pro Forma The Enlarged Combined Pro Forma Adjustments Group RMB’000 RMB’000 Notes RMB’000 Notes RMB’000 (73,082) (73,082) (860,723) (860,723) (12,523) (370,561) 2(ii) (383,084) (946,328) (1,316,889) 1,108,049 2,253,442 (434,148) (13,358) 1 400,000 2(i) (47,506) (673,901) (647,112) 1 13,488 2(i) (1,362,738) (55,213) 2(iii) (1,108,049) (1,410,244) – (843,198) 4 (843,198) (1,108,049) (2,253,442)	Pro Forma The Enlarged Combined Pro Forma Adjustments Group RMB’000 RMB’000 Notes RMB’000 Notes RMB’000 (73,082) (73,082) (860,723) (860,723) (12,523) (370,561) 2(ii) (383,084) (946,328) (1,316,889) 1,108,049 2,253,442 (434,148) (13,358) 1 400,000 2(i) (47,506) (673,901) (647,112) 1 13,488 2(i) (1,362,738) (55,213) 2(iii) (1,108,049) (1,410,244) – (843,198) 4 (843,198) (1,108,049) (2,253,442)
			(1,316,889)

			2,253,442

			(47,506) (1,362,738)
			(1,410,244)
			(843,198) (2,253,442)

214 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(3) Unaudited pro forma consolidated income statement for the year ended 31 December 2009

Turnover Cost of sales Gross profit Other revenue Other net income Distribution costs Administrative expenses Other operating expenses Profit from operations Finance costs Share of profit from an associate Gain on bargain purchase and gain on remeasurement of the previously held 25% interest Profit before taxation Income tax Profit for the year Attributable to: Equity shareholders of the Company Non-controlling interests Profit for the year	The Group RMB’000 622,063 (536,237 ) 85,826 2,662 1,454 (31,625 ) (42,913 ) (1,392 ) 14,012 (3,202 ) 20,728 – 31,538 (7,728 ) 23,810 23,810 – 23,810	Chengdu OCT RMB’000 1,521,962 (1,129,781 ) 392,181 1,652 244 (86,976 ) (58,197 ) – 248,904 (72,353 ) – – 176,551 (73,657 ) 102,894 102,894 – 102,894	Pro Forma The Enlarged Combined Pro Forma Adjustments RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 2(iii) Note 4 2,144,025 2,144,025 (1,666,018 ) (1,666,018 ) 478,007 478,007 4,314 4,314 1,698 1,698 (118,601 ) (118,601 ) (101,110 ) (101,110 ) (1,392 ) (1,392 ) 262,916 262,916 (75,555 ) (75,555 ) 20,728 (20,728 ) – – 55,213 55,213 208,089 242,574 (81,385 ) (81,385 ) 126,704 161,189 126,704 (20,728 ) 55,213 (50,418 ) 110,771 – 50,418 50,418 126,704 161,189	Pro Forma The Enlarged Combined Pro Forma Adjustments RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note 3 Note 2(iii) Note 4 2,144,025 2,144,025 (1,666,018 ) (1,666,018 ) 478,007 478,007 4,314 4,314 1,698 1,698 (118,601 ) (118,601 ) (101,110 ) (101,110 ) (1,392 ) (1,392 ) 262,916 262,916 (75,555 ) (75,555 ) 20,728 (20,728 ) – – 55,213 55,213 208,089 242,574 (81,385 ) (81,385 ) 126,704 161,189 126,704 (20,728 ) 55,213 (50,418 ) 110,771 – 50,418 50,418 126,704 161,189
				478,007 4,314 1,698 (118,601 ) (101,110 ) (1,392 )
				262,916 (75,555 ) – 55,213
				242,574 (81,385 )
				161,189

				110,771 50,418 161,189

215 -

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(4) Unaudited pro forma consolidated cash flow statement for the year ended 31 December 2009

Operating activities Profit before taxation Adjustments for: Depreciation and amortisation of property and equipment Depreciation and amortisation of investment property Amortisation of intangible assets Interest expense (Gain)/loss on sale of property and equipment Interest income Gain on bargain purchase and gain on remeasurement of the previously held 25% interest Share of profit of an associate Operating profit before changes in working capital Changes in working capital: Decrease in inventories Decrease/(increase) in trade and other receivables Increase in trade and other payables Cash generated from operations PRC tax paid Interest paid Net cash generated from operating activities Investing activities Payment for purchase of property, plant and equipment, investment property and intangible assets Proceeds from disposal of property, plant and equipment Payment for construction in progress Interest received Proceeds from local government Net cash used in investing activities	The Group RMB’000 31,538 33,285 – – 3,202 (266 ) (1,371 ) – (20,728 ) 45,660 2,225 18,306 75,968 142,159 (11,601 ) (3,321 ) 127,237 (8,204 ) 270 (95,063 ) 1,450 – (101,547 )	Chengdu OCT RMB’000 176,551 83,622 17,648 59 72,353 25 – – – 350,258 307,707 (3,128 ) 158,506 813,343 (26,113 ) – 787,230 (421,847 ) – – – 50,000 (371,847 )	Pro Forma Combined Pro Forma Adjustments RMB’000 RMB’000 Notes 208,089 34,485 116,907 17,648 59 75,555 (241 ) (1,371 ) – (55,213 ) 2(iii) (20,728 ) 20,728 395,918 309,932 15,178 234,474 955,502 (37,714 ) (3,321 ) 914,467 (430,051 ) 270 (95,063 ) 1,450 50,000 (473,394 )	The Enlarged Group RMB’000 242,574 116,907 17,648 59 75,555 (241 ) (1,371 ) (55,213 ) –
				395,918 309,932 15,178 234,474
				955,502 (37,714 ) (3,321 )
				914,467
				(430,051 ) 270 (95,063 ) 1,450 50,000
				(473,394 )

216 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The Group RMB’000 Financing activities Net proceeds from issue of shares 139,049 Proceeds from new bank loans and related party loans 89,371 Dividends paid to the equity shareholders of the Company (5,079) Repayment of bank loans and related party loans (62,258) Interest paid – Net cash generated from/(used in) financing activities 161,083 Net increase/(decrease) in cash and cash equivalents 186,773 Cash and cash equivalents at 1 January 127,307 Effect of foreign exchange rate changes (74) Cash and cash equivalents at 31 December 314,006 Cash and cash equivalents comprise: Cash at bank and on hand 314,006 Cash and cash equivalents in the balance sheets 314,006 Less: pledged deposits – Cash and cash equivalents in the cash flow statements 314,006	Chengdu OCT RMB’000 – 1,235,763 – (1,610,000) (66,022) (440,259) (24,876) 76,409 – 51,533 62,526 62,526 (10,993) 51,533	Pro Forma The Enlarged Combined Pro Forma Adjustments Group RMB’000 RMB’000 Notes RMB’000 Notes RMB’000 139,049 660,470 1 799,519 1,325,134 1,325,134 (5,079) (5,079) (1,672,258) (1,672,258) (66,022) (66,022) (279,176) 381,294 161,897 822,367 203,716 203,716 (74) (74) 365,539 1,026,009 376,532 660,470 1 1,037,002 376,532 660,470 1 1,037,002 (10,993) (10,993) 365,539 1,026,009	Pro Forma The Enlarged Combined Pro Forma Adjustments Group RMB’000 RMB’000 Notes RMB’000 Notes RMB’000 139,049 660,470 1 799,519 1,325,134 1,325,134 (5,079) (5,079) (1,672,258) (1,672,258) (66,022) (66,022) (279,176) 381,294 161,897 822,367 203,716 203,716 (74) (74) 365,539 1,026,009 376,532 660,470 1 1,037,002 376,532 660,470 1 1,037,002 (10,993) (10,993) 365,539 1,026,009
			381,294
			822,367 203,716 (74)
			1,026,009

			1,037,002
			1,037,002 (10,993)
			1,026,009

217 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(5) Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

The adjustment represents the condition precedent to the completion of the Capital Injection that the Group shall complete the issue of 151,800,000 new shares of par value HKD0.10 by the Company to Pacific Climax and independent third party investors with the total net proceeds of HKD751,200,000 (equivalent to RMB660,470,000), which would be injected into Chengdu OCT.
The adjustments represent
(i) elimination of share capital and reserves of Chengdu OCT amounted to approximately RMB400,000,000 and RMB13,488,000, respectively;
(ii) adjustments to record acquired completed properties held for sale and properties under development for sale of Chengdu OCT at estimated selling prices less estimated costs of completion, the costs of disposal and a reasonable profit margin (“fair value of inventories”), and the related deferred tax effect amounting to RMB1,089,885,000 and RMB370,561,000, respectively. The pro forma adjustments have been determined based on the difference between the fair value of inventories as at 31 March 2010 of RMB2,518,180,000 and the book value of such inventories of RMB1,428,295,000 as at the same date. This measurement date is used in order to better reflect the amount of fair value adjustments that are expected to result from the proposed the Capital Injection as at the actual completion date. The carrying value of inventories as at 31 December 2009 was RMB1,388,897,000;
(iii) recognition of gain on bargain purchase of RMB7,401,000 as profit arising from the Capital Injection, in accordance with Hong Kong Financial Reporting Standards 3, Business Combination (effective from 1 July 2009 and will be adopted by the Group from 1 January 2010) as the transaction will occur in 2010, and gain of RMB47,812,000 relating to the difference between the carrying value and the fair value of the Group’s previously held 25% equity interest in Chengdu OCT at the acquisition date, which was diluted to 16.4% upon the Capital Injection. The estimated gain on bargain purchase represents the excess of fair value of the identifiable assets acquired and liabilities assumed over the sum of the fair value of the consideration transferred, the fair value of the previously held 25% equity interest and the recognised amount of non-controlling interest. The amount of gain on bargain purchase and gain on remeasurement of the 25% previously held interest would change depending on the fair value of the identifiable net assets of Chengdu OCT and the fair value of the 25% interest determined at the actual acquisition date.
218 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Removal of carrying value of 25% equity interest in Chengdu OCT of RMB234,401,000 as at 31 December 2009 and share of profit from Chengdu OCT of RMB20,728,000 for the year ended 31 December 2009 assuming Chengdu OCT had become a subsidiary of the Group.
Adjustments to record non-controlling interests in the consolidated balance sheet as at 31 December 2009 and the profit attributable to non-controlling interests for the year then ended assuming Chengdu OCT had become a subsidiary of the Group.
Included in property, plant and equipment was leasehold land for own use under operating lease, buildings and construction in progress recorded on a historical cost basis with net book value of RMB729,072,000, RMB565,153,000 and RMB165,735,000, respectively, which represent hotel and theme park. Such assets will be recognised at their fair value on the acquisition date upon completion of the Capital Injection. For the purpose of the unaudited pro forma financial information presented herein, such assets are stated at historical cost as the Directors of the Company believe the historical cost of such assets approximates their fair value.
219 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

==> picture [78 x 32] intentionally omitted <==

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

13 May 2010

The Directors

Overseas Chinese Town (Asia) Holding Limited (“the Company”)

Dear Sirs,

We report on the unaudited pro forma financial information (“the Pro Forma Financial Information”) of the Company and its subsidiaries (“the Group”) set out in Section A of Appendix IV of the circular dated 13 May 2010 (“the Circular”), which has been prepared by the directors of the Company solely for illustrative purposes to provide information about how the capital injection to Chengdu Tianfu OCT Industry Development Co., Ltd. (“Chengdu OCT”) might have affected the relevant financial information of the Group. The basis of preparation of the unaudited Pro Forma Financial Information is set out in the accompanying introduction thereto.

Responsibilities

It is the responsibility solely of the directors of the Company 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 responsibility 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 work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (“HKSIR”) 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 the Company. The engagement did not involve independent examination of any of the underlying financial information.

220 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the unaudited Pro Forma 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 the Company on the basis stated, that such basis is consistent with the accounting policies of the Company 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.

The unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, 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 Group as at 31 December 2009 or any future date; or
the results and cash flows of the Group for the year ended 31 December 2009 or any future periods.

Opinion

In our opinion:

(a) the unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group, and
(c) the adjustments are appropriate for the purposes of the unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Without qualifying our opinion, we draw attention to Note 2 to the unaudited Pro Forma Financial Information, which sets out the basis of determining the acquisition accounting adjustments under the new accounting standard, Hong Kong Financial Reporting Standards 3, Business Combination (Revised), that the Group will adopt prospectively to business combinations for which the acquisition date is on or after 1 January 2010.

Yours faithfully,

KPMG

Certified Public Accountants Hong Kong

221 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

The following is the text of the letter, summary of values and valuation certificates received from Savills Valuation and Professional Services Limited, an independent property valuer, prepared for the purpose for incorporation in this circular, in connection with their valuations of the properties to be acquired and those held by the Group in People’s Republic of China as at 31 March 2010.

==> picture [101 x 100] intentionally omitted <==

The Directors Overseas Chinese Town (Asia) Holdings Limited Suite 3203-4, Tower 6 The Gateway, Harbour City Canton Road, Tsimshatsui Kowloon Hong Kong

Savills Valuation and Professional Services Limited 23/F Two Exchange Square Central, Hong Kong T: (852) 2801 6100 F: (852) 2530 0756 EA LICENCE: C-023750 savills.com 13 May 2010

Dear Sirs,

In accordance with your instructions for us to value the properties in which Overseas Chinese Town (Asia) Holdings Limited (hereinafter referred to as the “Company”) and its subsidiaries and associated companies (hereinafter together referred to as the “Group”) have interests located in the People’s Republic of China (the “PRC”) and 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 properties as at 31 March 2010 (“date of valuation”) for incorporation into a public circular.

Our valuation of each of the properties 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”.

222 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

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 special 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.

In valuing Property No. 1 in Group I which is held by Chengdu Tianfu OCT Industry Development Co., Ltd. (hereinafter referred to as “Chengdu OCT”), currently a 25% owned associate company of the Company, we have valued the completed portion which is held by sale by adopting the direct comparison approach by making reference to the comparable market transactions as available in the relevant markets assuming sales with the benefit of vacant possession. For the remaining portions of this property which is held under construction and for future development, we have valued such portions on the basis that they will be developed and completed in accordance with the latest development proposals provided to us. We have assumed that all consents, approvals and licenses from relevant government authorities for the proposals have been granted without onerous conditions or delay. In arriving at our opinion of value, we have adopted the direct comparison approach by making reference to the comparable market transactions as available in the markets and also have taken into account the construction costs to be expended to reflect the quality of the completed development.

The properties in Group II are held by the Group for owner occupation in the PRC. In valuing Property No. 5, we have adopted the direct comparison approach by making reference to the comparable market transactions as available in the relevant markets assuming sales with the benefit of vacant possession. For the remaining portion of the properties in Group II, due to the specific purposes for which the buildings and structures of the properties have been constructed, there are no readily identifiable market comparables. Thus the buildings and structures cannot be valued on the basis of direct comparison approach. They have therefore been valued on the basis of their depreciated replacement cost. We would define “depreciated replacement cost” for these purposes to be our opinion of the land value in its existing use and an estimate of the new replacement costs of the buildings and structures, including professional fees and finance charges, from which deductions are then made to allow for age, condition and functional obsolescence. The depreciated replacement cost approach generally provides the most reliable indication of value for property in the absence of a known market based on comparable sales.

In valuing the properties in Groups III and IV, which are rented and occupied by the Group in the PRC and Hong Kong, we have attributed no commercial values to such properties due to the prohibition against assignment or subletting of the properties or otherwise lack of substantial profit rent.

223 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

We have been provided with copies of extracts of the title documents relating to the properties in the PRC. However, we have not inspected the original documents to verify ownership or to verify any amendments which may not appear on the copies handed to us. We have relied to a considerable extent on the information given by the Company and its PRC legal adviser, China Commercial Law Co., regarding the titles and other legal matters relating to the properties. We have also accepted advice given by the Company on such matters as planning approvals or statutory notices, easements, tenures, ownership, completion dates, particulars of occupancy, site and 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. No on-site measurements have been taken. Company We have no reason to doubt the truth and accuracy of the information provided to us by the Company which is material to the valuation. We were also advised by the Company that no material facts have been omitted from the information provided.

We have inspected the exterior and where possible, the interior of the properties. We did not note any serious defects during our inspection. However, no structural survey has been made, we are therefore unable to report whether the properties are free of rot, infestation or any other structural defects. No tests were carried out on any of the services. We have also not carried out investigations on site to determine the suitability of the ground conditions and the services etc 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 during the construction period.

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

Our valuation is prepared in accordance with 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 monetary amounts stated in this report are in Renminbi (“RMB”).

We enclose herewith our summary of values and 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 FRICS FHKIS MCIArb RPS(GP), is a qualified valuer and has about 25 years’ experience in the valuation of properties in Hong Kong and has about 20 years’ experience in the valuation of properties in the PRC.

224 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

SUMMARY OF VALUES

					Capital value
					attributable
		Capital value in	Interest		to the Group
		existing state as at	attributable		as at
No.	Property	31 March 2010	to the Group		31 March 2010
		(RMB)		(%)	(RMB)
Group	I – Property interest to be acquired by the Company in the PRC
1.	Chengdu OCT Project located	1,482,800,000		25%	370,700,000
	at both sides of Shaxi line				(Please see Note)
	of Outer Sanhuan Road,
	Jinniu District,
	Chengdu,
	Sichuan Province,
	The PRC
			Sub-total:		370,700,000
Group	II – Property interests held by the Group for owner occupation in the PRC
2.	An industrial complex located	43,250,000		100%	43,250,000
	at Qihuan, Xinqianjin Village,
	Tanzhou Town,
	Zhongshan,
	Guangdong Province,
	The PRC
3.	An industrial complex located	164,800,000		100%	164,800,000
	at East of Huiao Dadao,
	Xinqiao Village,
	Danshui Town,
	Huizhou,
	Guangdong Province,
	The PRC
4.	An industrial complex located	30,510,000		100%	30,510,000
	at 399 Huayuan Road,
	Chuzhou,
	Anhui Province,
	The PRC

225 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Capital value in
Interest
existing state as at
attributable
No.
Property
31 March 2010
to the Group
(RMB)
(%)
5.
Room 305 of Building No. 26
630,000
100%
and Room 304 of Building
No. 27, Lantian West Area and
Rooms 601 and 604 of Building
No. 10, Changle Xiao Qu,
Chuzhou,
Anhui Province,
The PRC
6.
An industrial complex located at
No commercial
100%
50 Xiangyang Xu,
value
The 3rd Team, Xiangyang Village,
Heqing Town, Pudong,
Shanghai
The PRC
Sub-total:
Group III – Property interests rented by the Group in the PRC
7.
Portion of Block C-3, Block C-2,
Portion of Block C-1, Units 101
of Block 1 in Eastern
Industrial Park,
Huaqiaocheng, Nanshan District,
Shenzhen,
Guangdong Province,
The PRC
8.
Units 201, 202, 203, 204, 205,
306, 405, 406 and 503
of Block 4 and Units 501
and 511 of Block 2,
Huashan Village,
Huaqiaocheng, Nanshan District,
Shenzhen,
Guangdong Province,
The PRC

Capital value
attributable
to the Group
as at
31 March 2010
(RMB)
630,000
No commercial
value

239,190,000
No commercial
value
No commercial
value

226 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Capital value in Interest existing state as at attributable No. Property 31 March 2010 to the Group (RMB) (%) 9. Three factory buildings and an office building located at 50 Xiangyang Xu, The 3rd Team, Xiangyang Village, Heqing Town, Pudong, Shanghai, The PRC Sub-total: Group IV – Property interest rented by the Group in Hong Kong 10. Suite 3203-4, Tower 6, The Gateway Harbour City, Canton Road, Tsimshatsui, Kowloon, Hong Kong Sub-total: Total:	Capital value attributable to the Group as at 31 March 2010 (RMB) No commercial value
	Nil No commercial value
	Nil
	609,890,000

Note:

The market value of RMB1,482,800,000 mentioned in Property 1 above reflects that of Land Lot B. In the course of our valuation, we have assigned no commercial value to Land Lot D of the property due to lack of State-owned Land Use Rights Certificate. Had a valid State-owned Land Use Rights Certificate for Land Lot D been obtained by Chengdu OCT, the capital value of Land Lot D as at the date of valuation would be RMB1,122,900,000. We have also assigned no commercial value to Land Lots A and C of the property for the reason that Chengdu OCT is not entitled to transfer them during the residual land use term as stated in Note (1) of the valuation certificate. Please refer to Property 1 for the details.

227 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Group I – Property interest to be acquired by the Company in the PRC

No. Property Description and tenure

Particulars of

occupancy

Capital value in existing state as at 31 March 2010

Chengdu OCT Project Chengdu OCT Project (the “Development”) is a located at both sides of large scale composite development erected on four Shaxi line of parcels of land with a total site area of approximately Outer Sanhuan Road, 1,827,423.83 sq.m. (19,670,390 sq.ft.), the breakdown Jinniu District, of which is as follows: Chengdu, Sichuan Province, Land Use Approximate site area The PRC lot (sq.m.) (sq.ft.) A Culture and Entertainment 148,776.94 1,601,435

B Residential and Commercial 346,863.42 3,733,638

C Theme Park 688,983.82 7,416,222 D Residential and Commercial 642,799.65 6,919,095

The commercial square, theatre and RMB1,482,800,000 happy valley erected on Land Lot (25% interest C are under operation, Phase I of attributable Land Lot B was completed for sale to the Group: while Phases II and III are under RMB370,700,000) development.

(Please see note (12)) The remaining portion of the property is currently a vacant site.

Total 1,827,423.83 19,670,390

As advised by the Company, the Development is proposed to be developed into a metropolitan composite area which shall contain modern theme parks, metropolitan entertainments and residential buildings in various phases namely Chengdu OCT Project. Upon completion, the proposed Development will provide a total gross floor area of approximately 2,249,979.66 sq.m. (24,218,781 sq.ft.). The Development is scheduled to be completed between 2008 and around 2015.

228 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

No. Property

Description and tenure According to the information provided by the Company, portions of Phases I and II of Land Lot B has been sold out. The property comprises the remaining portion of the Development which is to be developed with a total gross floor area of approximately 2,053,929.39 sq.m. (22,108,496 sq.ft.)., the breakdown of which is as follows:

Particulars of occupancy

Capital value in existing state as at 31 March 2010

Land Lot A

Use Phase I Serviced apartment Commercial Office Sub-total Phase II Serviced apartment Sub-total Phase III Commercial Sub-total Phase IV Serviced Apartment Commercial Sub-total	Approximate gross floor area (sq.m.) (sq.ft.) 60,000.00 645,840 75,000.00 807,300 50,000.00 538,200 185,000.00 1,991,340 60,000.00 645,840 60,000.00 645,840 5,316.53 57,227 5,316.53 57,227 45,000.00 484,380 45,000.00 484,380 90,000.00 968,760	Approximate gross floor area (sq.m.) (sq.ft.) 60,000.00 645,840 75,000.00 807,300 50,000.00 538,200 185,000.00 1,991,340 60,000.00 645,840 60,000.00 645,840 5,316.53 57,227 5,316.53 57,227 45,000.00 484,380 45,000.00 484,380 90,000.00 968,760
	185,000.00 60,000.00	1,991,340 645,840
	60,000.00 5,316.53	645,840 57,227
	5,316.53 45,000.00 45,000.00	57,227 484,380 484,380
	90,000.00	968,760

229 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

No. Property

Description and tenure Land Lot B Use Phase I Residential Clubhouse Car Parking Space Ancillary facilities Sub-total Phase II Residential Townhouse Car Parking Space Ancillary facilities Sub-total Phase III Residential Car Parking Space Ancillary facilities Subtotal Phase IV Residential Car Parking Space Ancillary facilities Sub-total	Particulars of occupancy Approximate gross floor area (sq.m.) (sq.ft.) 2,249.36 24,212 3,875.72 41,718 44,552.21 479,560 4,480.75 48,231 55,158.04 593,721 161,297.00 1,736,201 23,524.78 253,221 57,948.15 623,754 63.59 684 242,833.52 2,613,860 79,565.10 856,439 18,743.87 201,759 11,897.73 128,067 110,206.70 1,186,265 172,745.01 1,859,427 48,000.00 516,672 400.00 4,306 221,145.01 2,380,405
	55,158.04 161,297.00 23,524.78 57,948.15 63.59
	242,833.52 79,565.10 18,743.87 11,897.73
	110,206.70 172,745.01 48,000.00 400.00
	221,145.01

Capital value in existing state as at 31 March 2010

230 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

No. Property

Description and tenure Land Lot C Use Hotel Clubhouse Commercial square Theater Park Car Parking Space Subtotal Land Lot D Use Phase I Residential Townhouse Car Parking Space Subtotal Phases II to VI Phase II Phase III Phase IV Phase V Phase VI Subtotal Total	Particulars of occupancy Capital value in existing state as at 31 March 2010 Approximate gross floor area (sq.m.) (sq.ft.) 91,000.00 979,524 8,000.00 86,112 51,023.32 549,215 16,056.00 172,827 50,000.00 538,200 44,112.54 474,827 260,191.86 2,800,705 Approximate gross floor area (sq.m.) (sq.ft.) 120,070.00 1,292,433 31,708.00 341,305 75,310.00 810,637 227,088.00 2,444,375 184,564.23 1,986,649 179,536.27 1,932,528 51,199.57 551,112 113,470.20 1,221,393 68,219.46 734,315 596,989.73 6,425,997 2,053,929.39 22,108,496
	227,088.00 184,564.23 179,536.27 51,199.57 113,470.20 68,219.46
	596,989.73
	2,053,929.39

The land use rights of the property have been granted for terms of 40 and 70 years commencing on 29 September 2006 for commercial & theme park and residential uses.

231 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Notes:

(1) Pursuant to State-owned Land Use Rights Grant Contract No. 5101 Jinniu (2006) Chu Rang He Tong Di 47 entered into between Chengdu State-owned Land Resources Bureau (the “Grantor”) and Chengdu OCT on 29 September 2006 (the “Grant Contract”), the Grantor agreed to grant the land use rights of four parcels of land with a total site area of approximately 2,036,779.18 sq.m. to Chengdu OCT at a total consideration of RMB1,833,101,280. The salient conditions of the said contract are, inter-alia, as follows:

Usage : Cultural and entertainment, theme park, residential and kindergarten and other ancillary facilities Land use term : 40 years for commercial and theme park uses and 70 years for residential use Plot ratio : Land A : not exceeding 1.8 for culture and entertainment use Land B : not exceeding 1.8 for residential use Land C : not exceeding 0.25 for theme park use Land D : not exceeding 1 for residential use Based on the aforesaid contract and the advice from the Company, Land Lots A and C are not transferable.

(2) Pursuant to the Article of Association, the shareholders of Chengdu OCT include Shenzhen Overseas Chinese Town Real Estate Co., Ltd (“Shenzhen OCT”) (Party A), Shenzhen OCT Holding Co., Ltd. (Party B), Bantix International Limited (Party C). The salient conditions as stipulated in the said document are as follows:

Period of operation : 40 years commencing on 31 October 2005 and expiring on 30 October 2045 Total investment amount : RMB780,000,000 Registered capital : RMB400,000,000

(3) Pursuant to Business Licence No. 510100400016286 issued by Chengdu industrial and Commercial Administration Bureau on 23 October 2009, Chengdu OCT was established with a registered capital of RMB 400,000,000 for an operation period of 40 years from 31 October 2005 to 30 October 2045.
(4) Pursuant to fifteen State-owned Land Use Rights Certificates issued by the People’s Government of Chengdu, the land use rights of Land lots A, B & C of the property with a total site area of approximately 1,184,624.18 sq.m. have been granted to Chengdu OCT. Details of such certificates are as follows:

No.
Certificate No.
Land Lot A
i.
Cheng Guo Yong (2008)
Di 940 (成國用(2008)第940號)
ii.
Cheng Guo Yong (2008)
Di 941 (成國用(2008)第941號)
iii.
Cheng Guo Yong (2008)
Di 942 (成國用(2008)第942號)
iv.
Cheng Guo Yong (2008) Di 943
(成國用(2008)第943號)
Sub-total

Site area
Land use term
Issuance date
(sq.m.)
22,501.70
Expiring on 28 September 2046, for catering,
28 September 2008
hotel and commercial uses
31,524.37
Expiring on 28 September 2046,
28 September 2008
for commercial use
67,429.30
Expiring on 28 September 2046 for catering,
28 September 2008
hotel and commercial uses
27,321.57
Expiring on 28 September 2046 for catering,
28 September 2008
hotel, commercial and other business
services uses
148,776.94

232 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

No.
Certificate No.
Land Lot B
v.
Cheng Guo Yong (2008)
Di 677(成國用(2008)第677號)
vi.
Cheng Guo Yong (2008)
Di 678 (成國用(2008)第678號)
vii.
Cheng Guo Yong (2008)
Di 679 (成國用(2008)第679號)
viii.
Cheng Guo Yong (2008)
Di 872 (成國用(2008)第872號)
ix.
Cheng Guo Yong (2008)
Di 873 (成國用(2008)第873號)
Sub-total
Land Lot C
x.
Cheng Guo Yong (2008)
Di 937 (成國用(2008)第937號)
xi.
Cheng Guo Yong (2008)
Di 938 (成國用(2008)第938號)
xii.
Cheng Guo Yong (2008)
Di 939 (成國用(2008)第939號)
xiii.
Cheng Guo Yong (2008)
Di 944 (成國用(2008)第944號)
xiv.
Cheng Guo Yong (2008)
Di 946 (成國用(2008)第946號)
xv.
Cheng Guo Yong (2008)
Di 1132 (成國用(2008)
第1132號)
Sub-total
Total

Site area
Land use term
Issuance date
(sq.m.)
3,999.98
Expiring on 28 September 2056 for education
14 July 2008
(kindergarten) use.
14,999.99
Expiring on 28 September 2056 for education
14 July 2008
(primary) use
296,770.54
Expiring on 28 September 2076,
14 July 2008
28 September 2046 for residential and
commercial uses
29,581.08
Expiring on 28 September 2076,
10 September 2008
28 September 2046 for residential and
commercial uses
1,511.83
Expiring on 28 September 2046
10 September 2008
for police station use
346,863.42
79,202.28
Expiring on 28 September 2046
28 September 2008
for commercial use
36,576.37
Expiring on 28 September 2046 for
28 September 2008
commercial and other business services uses
11,817.39
Expiring on 28 September 2046 for other
28 September 2008
business services use
49,802.90
Expiring on 28 September 2046 for
28 September 2008
commercial use
44,607.86
Expiring on 28 September 2046 for cartering,
28 September 2008
hotel and commercial uses
466,977.02
Expiring on 29 September 2046
11 December 2008
for leisure use
688,983.82
1,184,624.18

As advised by the Company, demolition work for the structures erected on Land Lot D is in progress and Chengdu OCT is applying for State-owned Land Use Rights Certificate for Land Lot D. Pursuant to State-owned Land Use Rights Grant Contract mentioned in Note (1), the site area of Land Lot D is approximately 642,799.65 sq.m..

233 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

(5) Pursuant to two Construction Land Planning Permits issued by Chengdu Urban Planning Administration Bureau, Land Lots A, B, C & D of the property with a total site area of approximately 2,233,393.03 sq.m. (including 414,584.36 sq.m. for land expropriation) are permitted for use. Details of such permits are as follows:

No. Land lot Permit No. Site area Issuance date (sq.m.) i. A, B, C Cheng Gui Yong Di [2007] 241 1,527,259.90 12 June 2007 (成規用地[2007]241號) ii. D Di Zi Di 510106200820279 706,133.13 19 November 2008 (地字第510106200820279) Total 2,233,393.03

(6) Pursuant to six Construction Works Planning Permits issued by Chengdu Urban Planning Administration Bureau, the total approved construction scale of portion of the property erected on Land Lots B & C is 605,721.77 sq.m.. Details of such permits are as follows:

No.	Permit No.	Construction scale	Issuance date
		(sq.m.)
i.	Cheng Gui Jian Zhu [2007] 378	205,363.20	30 October 2007
	(成規建築[2007]378號)
ii.	Jian Zi No 510106200930153	289,304.07	7 April 2009
	(建字第510106200930153)
iii.	Jian Zi No 510106200830403	74,482.70	5 June 2008
	(建字第510106200830403)
iv.	Jian Zi No 510106200930339	16,056.00	10 June 2009
	建字第510106200930339
v.	Jian Zi No 510106200930326	19,681.60	9 June 2009
	(建字第510106200930326)
vi.	Jian Zi No 510106201030145	834.20	2 April 2010
	(建字第510106201030145)
	Total	605,721.77

234 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

(7) Pursuant to nine Construction Works Commencement Permits issued by Chengdu Construction Committee, construction of portion of the property erected on Land Lots B & C is permitted to commence and the approved construction scale is approximately 604,887.57 sq.m.. Details of such permits are as follows:

No.	Permit No.	Construction scale	Construction period	Issuance date
		(sq.m.)
i.	510100200801030101	5,316.53	30 November 2007 – 30 April 2008	3 January 2008
ii.	510100200801090201	88,169.16	19 December 2007 – 30 May 2009	9 January 2008
iii.	510100200801110401	111,877.51	29 December 2007 – 30 April 2009	11 January 2008
iv.	510100200811270101	74,482.70	01 December 2007 – 20 July 2008	27 November 2008
v.	510100200904130501	39,700.93	10 February 2009 – 30 November 2009	13 April 2009
vi.	510100200904130301	68,015.38	10 February 2009 – 30 November 2009	13 April 2009
vii.	510100200906220201	181,587.76	26 January 2009 – 31 August 2010	22 June 2009
viii.	510100200909210101	16,056.00	20 April 2008 – 30 August 2009	21 September 2009
ix.	510100200910090101	19,681.60	1 August 2008 – 16 August 2009	19 September 2009
	Total:	604,887.57

(8) Pursuant to eleven Pre-sale Permits issued by Chengdu Real Estate Administration Bureau, Phase I and portion of Phase II erected on Land Lot B with a total gross floor area of approximately 380,825.75 sq.m. is permitted for pre-sale. Details of such permits are as follows:

No.	Permit No.	Pre-sale scale	Issuance date
		(sq.m.)
i.	Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 5575	55,154.17	1 September 2008
	(成房預售中心城區字第5575號)
ii.	Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 5525	67,032.82	5 August 2008
	(成房預售中心城區字第5525號)
iii.	Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 5630	21,804.43	21 October 2008
	(成房預售中心城區字第5630號)
iv.	Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 5609	10,796.27	25 September 2008
	(成房預售中心城區字第5609號)
v.	Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 6042	21,382.83	27 August 2009
	(成房預售中心城區字第6042號)
vi.	Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 6043	47,653.31	24 August 2009
	(成房預售中心城區字第5995號)

235 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

No.
Permit No.
vii.
Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 5914
(成房預售中心城區字第5914號)
viii.
Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 5885
(成房預售中心城區字第5885號)
ix.
Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 6017
(成房預售中心城區字第6017號)
x.
Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 5871
(成房預售中心城區字第5871號)
xi.
Cheng Fang Yu Shou Zhong Xin Cheng Qu Zi Di 5926
(成房預售中心城區字第5926號)
Total

Pre-sale scale
Issuance date
(sq.m.)
11,547.51
14 May 2009
10,952.87
24 April 2009
80,229.72
7 August 2009
9,283.5
27 April 2009
44,988.32
1 June 2009
380,825.75

(9) Pursuant to Construction Works Planning Certified Certificates issued by Chengdu Urban Planning Administration Bureau on 14 July 2009, the construction project with a total gross floor area of 92,164.63 sq.m. were completed.
(10) As advised by the Company, portion of Phase II of Land Lot B with a total gross floor area of approximately 139,440.86 sq.m. has been pre-sold under various sales and purchases agreements at a total consideration of approximately RMB959,196,433. Accordingly, we have taken into account the aforesaid consideration in our valuation.
(11) As advised by the Company, the construction cost expended to Phases II and III on Land Lot B as at the date of valuation was approximately RMB523,786,410. Accordingly, we have taken into account the said amounts of construction cost in our valuation. The capital value of the above portion under construction of the property as if completed as at the date of valuation was RMB1,829,000,000.
(12) According to the confirmation by the Company, the property portion held for investment comprises the completed commercial square and its underground car parking spaces erected on Land Lot C and the completed underground car parking spaces of Phase I of the property erected on Land Lot B. The breakdown of the capital value of above investment portions is listed as follows:

		Capital value in
		existing state as
	Gross floor	of 31 March 2010
Investment property portion	area (sq.m.)	(RMB)	Remarks
the completed commercial square	95,135.96	No commercial value	The land is non-transferable. As
and its underground car parking			if this portion of the property is
spaces erected on Land Lot C			entitled to be transferable in the
			market, the capital value of this
			portion will be RMB511,000,000.
the completed underground car	44,552.21	87,520,000
parking spaces of Phase I of the
property erected on Land Lot B

236 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

(13) We have assigned no commercial value to Land Lot D of the property due to lack of State-owned Land Use Rights Certificate. Had a valid State-owned Land Use Rights Certificate for Land Lot D been obtained by Chengdu OCT, the capital value of Land Lot D as at the date of valuation would be RMB1,122,900,000. We have also assigned no commercial value to Land Lots A and C of the property as Chengdu OCT has no rights to transfer them during the residual land use term as stated in Note (1).
(14) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Co., which contains, inter alia, the following information:
i. Chengdu OCT has legally obtained State-owned Land Use Rights Certificates for Land Lots A, B, C of the Development and is entitled to occupy, use correspondent land under the regulations stipulated in the Grant Contract. Chengdu OCT is entitled to transfer, lease and mortgage or by other means dispose of relevant land use rights of Land lot B during the residual land use term under the PRC laws. Chengdu OCT is not entitled to transfer, lease, mortgage the land use rights of Land Lots A and C according to State-owned Land Use Rights Grant Contract;
ii. as advised by Chengdu OCT, as the Grantor may be unable to deliver portion of land of Land Lot D with a site area of approximately 56,667 sq.m., Chengud OCT is negotiating with the Grantor on the land exchange of a parcel of land in the adjacent land of Land Lot D with the same size as aforesaid mentioned and under the same conditions to Chengdu OCT (“land exchange portion”). Except for the land exchange portion, there are no legal impediment for Chengdu OCT to obtain the State-owned Land Use Certificate for the remaining portion of Land Lot D. In the end, if the Grantor is definitely unable to deliver the aforesaid portion of land with an area of approximately 56,667 sq.m. to Chengdu OCT, Chengdu OCT has the rights to request the Grantor to fulfil its obligations and deliver the exchanged land in accordance with the Grant Contract. There are no legal impediments for Chengdu OCT to obtain the State-owned Land Use Certificate for the exchanged land portion. Upon obtaining the Land Use Rights Certificate of the exchanged land portion, Chengdu OCT is entitled to transfer, lease or mortgage or by other legal means dispose of the land use rights of the exchanged land portion;
iii. the land premium of the Development has been fully settled;
iv. the land use rights of the Development are not subject to any transfer, lease, mortgage or sequestration;
v. Chengdu OCT has obtained Construction Works Planning Permits and Construction Works Commencement Permits for Phases I and II of residence and Phase I of commercial and still need to apply for relevant permits for remaining projects;
vi. Chengdu OCT has obtained the pre-sale permits for Phases I and II of Land Lot B and is entitled to pre-sell accordingly. Chengdu OCT legally owns the unsold portion of Phases I and II of Land Lot B;
vii. Chengdu OCT is entitled to develop Land Lots B and D in accordance with the development conditions stipulated in the Grant Contract after obtaining relevant government approvals/documents; and
viii. Chengdu OCT is entitled to develop Land Lots A and C in accordance with the development conditions stipulated in State-owned Land Use Rights Grant Contract after obtaining relevant government approvals/documents. Chengdu OCT is entitled to own, occupy, use and lease the buildings erected thereon except for transferring.
237 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Group II – Property interests held by the Group for owner occupation in the PRC

No. Property Description and tenure 2. An industrial complex The property comprises an industrial complex erected located at Qihuan, on two parcels of land with a total site area of Xinqianjin Village, approximately 51,725.10 sq.m. (556,769 sq.ft.) Tanzhou Town, Zhongshan, The property comprises 4 one to five– storey buildings Guangdong Province, for workshops, offices and staff quarers and ancillary The PRC facilities completed in 2004. In addition, the property also comprises 2 buildings which are currently under construction and scheduled for completion in 2010.

Capital value Particulars of in existing state as occupancy at 31 March 2010

Except for 2 buildings which are RMB43,250,000 under construction, the remaining 4 buildings of the property (100% interest are occupied by the Group for attributable manufacturing use. to the Group: RMB43,250,000)

The gross floor area of the property are approximately as follows:

Use Completed portion Construction in progress Total	Approximate gross floor area (sq.m.) (sq.ft.) 28,531.98 307,118 2,212.80 23,819 30,744.78 330,937	Approximate gross floor area (sq.m.) (sq.ft.) 28,531.98 307,118 2,212.80 23,819 30,744.78 330,937
	30,744.78	330,937

The land use rights of the property have been granted for a term of 50 years expiring on 23 October 2053 for industrial use.

238 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Notes:

(1) Pursuant to two State-owned Land Use Rights Certificates Nos. Zhong Fu Guo Yong (2003) Di 331845 and 331846 issued by People’s Government of Zhongshan on 20 October, 2003, the land use rights of the property with a total site area of 51,725.10 sq.m. have been granted to Zhongshan Huali for terms expiring on 23 October 2053 for industrial use.
(2) Pursuant to Real Estate Title Certificate No. Yue Fang Di Zheng Zi Di C3450095 issued by People’s Government of Zhongshan on 4 February 2005, the building ownership of the property and its underlying land use rights with a gross floor area of approximately 28,531.98 sq.m. is held by Zhongshan Huali Packaging Co., Ltd. (中山華力包裝有限公司)(“Zhongshan Huali”), a wholly-owned subsidiary of the Company for a term expiring on 23 October 2053 for industrial use.
(3) Pursuant to two Construction Works Planning Permits Nos. 080042009040003 and 080042009040004 issued by Zhangshan Planning Bureau on 2 April 2009, the approved construction scales of the property are approximately 1,108.80 and 1,104.00 sq.m respectively.
(4) Pursuant to Construction Works Commencement Permit No. 442000200911260439ZX4035 issued by Construction Bureau of Zhongshan Municipality on 26 November 2009, commencement of the construction of the property with a total gross floor area of approximately 2,212.5 sq.m is permitted.
(5) As advised by the Company, the construction cost expended for the portion under construction as at the date of valuation was approximately RMB400,000. Accordingly, we have taken into account the said amount of construction cost in our valuation. The capital value of the constructing portion of the property as if completed as at the date of valuation was RMB2,200,000.
(6) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Co., which contains, inter alia, the following information:
i. Zhongshan Huali has obtained the State-owned Land Use Rights Certificate for the property and the Real Estate Ttitle Certificate for the 4 buildings of the property with a total gross floor area of approximately 28,531.98 sq.m.;
ii. Zhongshan Huali has obtained all requisite planning permits for the portion under construction; and
iii. Zhongshan Huali is entitled to freely use, transfer, lease, mortgage or by any other legal means dispose of the buildings of the property subject to the Real Estate Title Certificate No. Yue Fang Di Zheng Zi Di C3450095 within the land use term.
239 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Capital value
Particulars of in existing state as
No. Property Description and tenure occupancy at 31 March 2010 3. An industrial complex The property comprises an industrial complex erected The property is occupied by the RMB164,800,000 located at East of on four parcels of land with a total site area of Group for manufacturing use. Huiao Dadao, approximately 212,672.60 sq.m. (2,289,208 sq.ft.). (100% interest Xinqiao Village, attributable Danshui Town, The property comprises 3 one to six-storey workshops, to the Group: Huizhou, offices and staff quarers and ancillary facilities RMB164,800,000) Guangdong Province, completed in January 2010. The PRC The total gross floor area of the property is approximately 79,842.19 sq.m. (859,421 sq.ft.). The land use rights of the property have been granted for a term of 50 years expiring on 19 August 2054 for industrial use.

Notes:

(1) Pursuant to four State-owned Land Use Rights Certificates issued by the People’s Government of Huizhou, the land use rights of the property with a total site area of approximately 212,672.60 sq.m. have been granted to Huizhou Huali Packaging Co., Ltd. (惠州華力包裝有限公司) (“Huizhou Huali”), a wholly-owned subsidiary of the Company. Details of such certificates are as follows:

No. Certificate No. i. Huiyang Guo Yong (2007) Di 0100983 (惠陽國用(2007) 第0100983) ii. Huiyang Guo Yong (2007) Di 0100984 (惠陽國用(2007) 第0100984) iii Huiyang Guo Yong (2007) Di 0100985 (惠陽國用(2007) 第0100985) iv Huiyang Guo Yong (2007) Di 0100986 (惠陽國用(2007) 第0100986) Total	Site area Land use term Issuance date (sq.m.) 40,005.60 50 years expiring on 19 August 2054 28 June 2007 for industrial use 37,385.00 50 years expiring on 19 August 2054 28 June 2007 for industrial use 120,000.00 50 years expiring on 19 August 2054 28 June 2007 for industrial use 15,282.00 50 years expiring on 19 August 2054 28 June 2007 for industrial use 212,672.60

240 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

(2) Pursuant to seven Construction Works Planning Permits issued by Planning Bureau of Huiyang District, Huizhou, the total approved construction scale of the property is 77,895.00 sq.m.. Details of such permits are as follows:

No.	Permit No.	Construction scale	Issuance date
	(sq.m.)
i.	Huiyang Gui Jian Zi No [2008]005
	(惠陽規建字[2008]005號)	4,287.00	7 January 2008
ii.	Huiyang Gui Jian Zi No [2008]006
	(惠陽規建字[2008]006號)	1,689.00	7 January 2008
iii.	Jian Zi No 441303200810526
	(建字第441303200810526號)	2,217.00	7 January 2008
iv.	Huiyang Gui Jian Zi No [2008]009
	(惠陽規建字[2008]009號)	38,119.00	7 January 2008
v.	Huiyang Gui Jian Zi No [2008]004
	(惠陽規建字[2008]004號)	840.00	7 January 2008
vi.	Jian Zi No 441303200910126
	(建字第441303200910126號)	13,978.00	24 April 2009
vii.	Jian Zi No 441303200910125
	(建字第441303200910125號)	16,765.00	24 April 2009
	Total	77,895.00

(3) Pursuant to three Construction Works Commencement Permits issued by Construction Bureau of Huiyang District, Huizhou, the construction of the property has been permitted to commence and the total approved construction scale of the property is approximately 79,842.00 sq.m. Details of such permits are as follows:

No.	Permit No.	Construction scale	Construction period	Issuance date
		(sq.m.)
i.	442521200812310101	8,420.00	From December 2008 to December 2009	31 December 2008
ii.	442521200809120101	40,679.00	From September 2008 to September 2009	12 September 2008
iii.	442521200908280101	30,743.00	From August 2009 to August 2010	28 August 2009
	Total	79,842.00

241 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

(4) Pursuant to five Completed Construction Works Certified Reports, the construction project with a total gross floor area of 79,842.19 sq.m. were completed. Details of such permits are as follows:

No. i. ii. iii. iv. v. Total	Pre-sale scale Issuance date (sq.m.) 6,715.00 25 June 2009 1,705.35 25 June 2009 13,978.00 13 January 2010 16,764.84 13 January 2010 40,679.00 29 April 2009 79,842.19

(5) As advised by the Company, the construction cost of the property to be expended as at the date of valuation was approximately RMB7,751,437. Accordingly, we have taken into account the said amount of construction cost in our valuation.
(6) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Co., which contains, inter alia, the following information:
i. Huizhou Huali has obtained the State-owned Land Use Rights Certificate for the property. Huizhou Huali legally owns the land use rights of the property;
ii. Huizhou Huali has obtained all requiste planning permits for the construction;
iii. Huizhou Huali is in the process of appling to Construction Bureau of Huiyang District, Planning and Construction Bureau of Huizhou for Completed Works Certified Record for the buildings of the property and there shall be no legal impediment for Huizhou Huali to obtain the Real Estate Title Certificates for the buildings of the property; and
iv. Huizhou Huali is entitled to occupy, transfer, lease, mortgage or by other legal means dispose of the land use rights and the buildings of the property within the land use term after obtaining the Real Estate Title Certificates.
242 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Capital value
Particulars of in existing state as
No. Property Description and tenure occupancy at 31 March 2010 4. An industrial complex The property comprises an industrial complex erected The property is occupied by the RMB30,510,000 located at on a parcel of land with a site area of approximately Group for manufacturing use. 399 Huayuan Road, 66,667 sq.m. (717,604 sq.ft.). (100% interest Chuzhou, attributable Anhui Province, The property comprises a two-storey workshop and to the Group: The PRC ancillary facilities completed in 2006. RMB30,510,000)

The total gross floor area of the property is approximately 20,465.19 sq.m. (220,287 sq.ft.).

The land use rights of the property have been granted for a term of 50 years expiring on 4 November 2053 for industrial use.

Notes:

(1) Pursuant to State-owned Land Use Rights Certificate No. Chu Guo Yong (2008) Di 009425 issued by the People’s Government of Chuzhou on 22 August 2008, the land use rights of the property with a site area of approximately 66,667 sq.m. have been granted to Anhui Huali Packing Co., Ltd. (安徽華力包裝有限公司) (“Anhui Huali”) for a term expiring on 4 November 2053 for industrial use.
(2) Pursuant to Real Estate Title Certificate No. Chu Fang Quan Zheng 2008 Zi Di 009425 issued by滁州市國土資源和房產管理局(Chuzhou Land Resources and Housing Administration Bureau) on 22 August 2008, the building ownership of the property with gross floor areas of approximately 1,084.29 sq.m. and 19,380.9 sq.m. is held by Anhui Huali.
(3) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Firm, which contains, inter alia, the following information:
i. Anhui Huali has obtained the State-owned Land Use Rights Certificate and the Real Estate Ttitle Certificate for the buildings of the property. Anhui Huali legally owns the building ownership and the land use rights of the property; and
ii. Anhui Huali is entitled to freely use, transfer, lease, mortgage or by other legal means disposal of the buildings of the property within the land use term.
243 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

No. Property Description and tenure 5. Room 305 of Building No. 26 and Room 304 of Building No. 27, Lantian West Area and Rooms 601 and 604 of Building No. 10, Changle Xiao Qu, Chuzhou, Anhui Province, The PRC The property comprises two residential units of a 6-storey building in Lantian West Area completed in 2008 and another two residential units of a 6-storey building Changle Xiao Qu completed in 2006. The gross floor areas of the property are approximately as follows: Approximate gross floor area Unit No (sq.m.) (sq.ft.) Lantian West Area Room 305, Building No. 26 71.00 764 Room 304, Building No. 27 70.75 762 Sub-total 141.75 1,526 Changle Xiao Qu Room 601, Building No. 10 87.64 943 Room 604, Building No. 10 87.64 943 Sub-total 175.28 1,886 Total 317.03 3,412	No. Property Description and tenure 5. Room 305 of Building No. 26 and Room 304 of Building No. 27, Lantian West Area and Rooms 601 and 604 of Building No. 10, Changle Xiao Qu, Chuzhou, Anhui Province, The PRC The property comprises two residential units of a 6-storey building in Lantian West Area completed in 2008 and another two residential units of a 6-storey building Changle Xiao Qu completed in 2006. The gross floor areas of the property are approximately as follows: Approximate gross floor area Unit No (sq.m.) (sq.ft.) Lantian West Area Room 305, Building No. 26 71.00 764 Room 304, Building No. 27 70.75 762 Sub-total 141.75 1,526 Changle Xiao Qu Room 601, Building No. 10 87.64 943 Room 604, Building No. 10 87.64 943 Sub-total 175.28 1,886 Total 317.03 3,412	No. Property Description and tenure 5. Room 305 of Building No. 26 and Room 304 of Building No. 27, Lantian West Area and Rooms 601 and 604 of Building No. 10, Changle Xiao Qu, Chuzhou, Anhui Province, The PRC The property comprises two residential units of a 6-storey building in Lantian West Area completed in 2008 and another two residential units of a 6-storey building Changle Xiao Qu completed in 2006. The gross floor areas of the property are approximately as follows: Approximate gross floor area Unit No (sq.m.) (sq.ft.) Lantian West Area Room 305, Building No. 26 71.00 764 Room 304, Building No. 27 70.75 762 Sub-total 141.75 1,526 Changle Xiao Qu Room 601, Building No. 10 87.64 943 Room 604, Building No. 10 87.64 943 Sub-total 175.28 1,886 Total 317.03 3,412
	141.75 87.64 87.64	1,526 943 943
	175.28	1,886
	317.03	3,412

Capital value in existing state as at 31 March 2010

Particulars of

occupancy

The property is currently occupied RMB630,000 by the Group for dormitory use.

(100% interest attributable to the Group: RMB 630,000)

The land use rights of the property have been granted for terms of 70 years expiring on 26 November 2077 for residential use.

244 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Notes:

(1) Pursuant to four Real Estate Title Certificates issued by滁州市國土資源和房產管理局 (Chuzhou Land Resources and Housing Administration Bureau) on 12 January 2008, the building ownership of the property is held by Anhui Huali. Details of such certificates are as follows:

No.	Certificate No.	Gross floor area	Issuance date
		(sq.m.)
i	Fang Di Quan Chu Zi Di 2008000418	70.75	12 January 2008
ii	Fang Di Quan Chu Zi Di 2008000381	71.00	12 January 2008
iii	Fang Di Quan Chu Zi Di 2008000362	87.64	12 January 2008
iv	Fang Di Quan Chu Zi Di 2008000366	87.64	12 January 2008
	Total	317.03

(2) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Co., which contains, inter alia, the following information:
i. Anhui Huali has obtained the Real Estate Title Certificates for the buildings of the property; and
ii. Anhui Huali is entitled to freely use, transfer, lease, mortgage or by other legal means dispose of the buildings of the property within the land use term.
245 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

				Capital value
			Particulars of	in existing state as
No.	Property	Description and tenure	occupancy	at 31 March 2010
6.	An industrial complex	The property comprises an industrial complex erected	The property is occupied by the	No commercial value
	located at	on a parcel of land with a site area of approximately	Group for manufacturing use.
	50 Xiangyang Xu,	26,455 sq.m. (284,762 sq.ft.).
	The 3rd Team,
	Xiangyang Village,	The property comprises 7 one to two-storey workshops,
	Heqing Town, Pudong,	warehouses and ancillary facilities completed in
	Shanghai	various stages between 1992 and 2004.
	The PRC
		The total gross floor area of the property is
		approximately 12,321.80 sq.m. (132,632 sq.ft.).
		The land use rights of the property with a site area of
		26,455.00 sq.m. (284,762 sq.ft.) is leased by the Group
		for a term commencing from 11 August 2000 and
		expiring on 26 October 2027 for industrial use.

Notes:

(1) Pursuant to Real Estate Title Certificate No. Hu Fang Di Pu Zi (2002) Di 029328 (滬房地浦字(2002)第029328號) issued by Shanghai Municipal Housing, Land and Resources Administration Bureau on 14 May 2002, building ownership of the property with a total gross floor area of approximately 12,321.80 sq.m. is held by Shanghai Huali Packaging Co., Ltd. (上海華勵包裝有限公司) (“Shanghai Huali”), a wholly-owned subsidiary of the Company.
(2) Pursuant to the State-owned Land Lease Contract of Pudong, Shanghai, No. Hu Pu (2000) Land Lease Di 016 entered into between Pudong Composite Planning Land Bureau, Shanghai (“the Lessor”) and Shanghai Huali on 11 August 2000, the Lessor agreed to lease the land with a site area of 26,455.00 sq.m. to Shanghai Huali from 11 August 2000 to 26 October 2027 at an annual land use fee of RMB105,820.
(3) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Co., which contains, inter alia, the following information:
i. Shanghai Huali has obtained the Real Estate Title Certificate for the buildings of the property. Shanghai Huali legally owns relevant land use rights and building ownerships of the property within the leased term;
ii. Shanghai Huali is entitled to freely use, transfer, lease, mortgage or by other legal means dispose of buildings of the property within the land leased term; and
iii. the land lease agreement as stated in note (2) is legal and valid.
(4) We have assigned no commercial value to the property as the land use rights of the property are leased by the Group. For indicative purpose, the replacement cost of the buildings (excluding the land) as at the date of valuation was in the region of RMB15,250,000.
246 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Group III – Property interests rented by the Group in the PRC

No. Property

Description and tenure

Capital value Particulars of in existing state as occupancy at 31 March 2010

Portion of Block C-3, The property comprises basement, levels 1 to 3, Block C-2, Portion of mezzanine and roof of Block C-3, Block C-2, Units Block C-1, Units 101 101, 102, 201, 301, 401 of Block C-1, Units 101 of Block 1 in Eastern of Block 1 in Eastern Industrial Park completed in Industrial Park, various stages between 1986 and 1989. Huaqiaocheng, Nanshan District, The total gross floor area of the property is Shenzhen, approximately 29,184.73 sq.m. (314,144 sq.ft.). Guangdong Province, The PRC Portion of Block C-3, Block C-2 of the property are rented by the Group for a term expiring on 31 December 2010 at a total annual rental of RMB2,427,888.

The property is currently occupied No commercial value by the Group for manufacturing use.

The remaining portion of the property is rented by the Group for a term expiring on 31 December 2010 at a total annual rental of RMB1,629,012.

Note:

(1) Pursuant to two tenancy agreements entered into between Shenzhen OCT and Shenzhen Huali Packing & Trading Co., Ltd. (“Shenzhen Huali”), an indirect connected party of the Group, on 27 December 2007 and 23 December 2009, the property is rented by the Group for a term expiring on 31 December 2010 at a total annual rental of RMB 4,056,900.
(2) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Co., which contains, inter alia, the following information:
i. Shenzhen OCT has obtained the Building Ownership Certificate for portion of Block C-3, Block C-2 of the property;
ii. though Shenzhen OCT has not obtained the Real Estate Title Certificate for portion of Block C-1, Units 101 of Block 1 of the property, there is evidence that Shenzhen OCT owns the land use rights of such portion of the property and built such portion by itself;
iii. Shenzhen OCT is entitled to lease the property;
iv. the tenancy agreements are legal and valid; and
v. Shenzhen Huali is entitled to legally use the property within the leased term.
247 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

No. Property Description and tenure 8. Units 201, 202, 203, The property comprises 9 residential units in Block 4 204, 205, 306, 405, and 2 residential units in Block 2 of Huashan Village 406 and 503 of completed in 1995. Block 4 and Units 501 and 511 of Block 2, The total gross floor area of the property is Huashan Village, approximately 467.34 sq.m. (5,030 sq.ft.). Huaqiaocheng, Nanshan District, The property is rented by the Group for a term Shenzhen, expiring on 31 December 2010 at a total annual Guangdong Province, rental of RMB87,468. The PRC

Capital value Particulars of in existing state as occupancy at 31 March 2010

The property is currently occupied No commercial value by the Group for dormitory use.

Note:

(1) Pursuant to a tenancy agreement entered into between Shenzhen OCT and Shenzhen Huali on 27 December 2007, the property is rented by the Group for a term expiring on 31 December 2010 at a total annual rental of RMB 87,468.
(2) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Co., which contains, inter alia, the following information:
i. though Shenzhen OCT has not obtained the Real Estate Title Certificate for the property, there is evidence that Shenzhen OCT owns the land use rights of the property and built the property by itself. Shenzhen OCT is entitled to lease the property; and
ii. Shenzhen Huali is entitled to legally use the property within the leased term.
248 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

No. Property Description and tenure 9. Three factory buildings The property comprises three single-storey factory and an office building buildings and a two-storey office building completed located at in various stages between 1996 and 2003. 50 Xiangyang Xu, The 3rd Team, The total gross floor area of the property is Xiangyang Village, approximately 11,962.57 sq.m. (128,765 sq.ft.) Heqing Town, Pudong, Shanghai, The property is leased to the Group under two tenancy The PRC agreements due to expire on 31 December 2018 at a total annual rental of RMB2,200,874.

Capital value Particulars of in existing state as occupancy at 31 March 2010 The property is currently occupied No commercial value by the Group for manufacturing and office uses.

Note:

(1) Pursuant to a tenancy agreement entered into between上海市浦東新區合慶鎮向陽村村委 (the Village Committee of Xiangyang Village, Heqing Town, Pudong New District, Shanghai) (“Villiage Committee”) and Shanghai Huali on 18 February 2009, the factory building of the property are rented by the Group for a term expiring on 31 December 2018 at a total annual rental of RMB2,000,874.
(2) Pursuant to a tenancy agreement entered into between Shanghai Pudong Xiamei Plastics Co., Ltd (“Shanghai Xiamei”) and Shanghai Huali on 18 February 2009, the office building of the property is rented by the Group for a term expiring on 31 December 2018 at a total annual rental of RMB200,000.
(3) We have been provided with a legal opinion on the title to the property issued by the Company’s legal adviser, China Commercial Law Co., which contains, inter alia, the following information:
i. the Villiage Committee is entitled to lease factory portion of the property;
ii. Shanghai Xiamei has obtained the Building Ownership Certificate for the office portion of the property and is entitled to lease such portion of the property;
iii. the tenancy agreements are legal and valid; and
iv. Shanghai Huali is entitled to legally use the property within the leased term.
249 -

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Group IV – Property interest rented by the Group in Hong Kong

				Capital value
			Particulars of	in existing state as
No.	Property	Description and tenure	occupancy	at 31 March 2010
10.	Suite 3203-4, Tower 6,	Gateway is a large-scale commercial development	The property is currently occupied	No commercial value
	The Gateway	comprising one block of 35-storey office and two blocks	by the Group for office use.
	Harbour City,	of 35-storey office/serviced apartment surmounting a
	Canton Road,	6-storey (including two basement levels) retail/car
	Tsimshatsui,	parking podium completed in mid-1998.
	Kowloon,
	Hong Kong	The property comprises two office units on 32nd
		Floor of Tower 6 with a total gross floor area of
		approximately 216.83 sq.m. (2,334 sq.ft.).
		The property is rented by the Group for a term
		expiring on 14 November 2012 at a monthly rental
		of HK$93,360 exclusive of government rates, air-
		conditioning charge, service charges and utility
		charges.

Note:

(1) Pursuant to a tenancy agreement entered into between Harbour City Estates Limited and Huali Holdings Company Limited on 29 June 2009, the property is rented by the Group for a term expiring on 14 November 2012 at a total monthly rental of HK$93,360.

250 -

SUMMARY OF PRC LAWS

APPENDIX VI

I. LEGAL SUPERVISION RELATING TO PROPERTY SECTOR IN THE PRC

A. Establishment of a property development enterprise

Pursuant to the “Law of the People’s Republic of China on Administration of Urban Property” (the “Urban Property Law”) enacted by the Standing Committee of the National People’s Congress on 5 July 1994 enforced on 1 January 1995 and revised on 30 August 2007, a property developer is defined as “an enterprise which engages in the development and operation of property for the purposes of making profits”. Under the “Regulations on Administration of Development of Urban Property” (the “Development Regulations”) enacted by the State Council and enforced on 20 July 1998, a property development enterprise must satisfy the following requirements: (1) has a registered capital of not less than RMB1 million and (2) have four or more full-time professional property/construction technicians and two or more full-time accounting officers, each of whom shall hold the relevant qualifications. The Development Regulations also stipulated that people’s governments of the provinces, autonomous regions and/or municipalities directly under the central government may impose more stringent requirements regarding the registered capital and qualifications of professional personnel of a property development enterprise according to the local circumstances.

Pursuant to the Development Regulations, application for registration has to be submitted to the department of administration of industry and commerce above county level for the establishment of property development enterprise. The property development enterprise must file for record with the property development authority in the location of the registration authority, within 30 days of the receipt of its Business License.

Under the “Notice on Adjusting the Portion of Capital Fund for Fixed Assets Investment of Certain Industries” issued by the State Council on 26 April 2004, the portion of capital fund of property projects (excluding economically-affordable housing projects) has been increased from 20% or above to 35% or above.

B. Foreign-invested property development enterprises

Foreign-invested property development enterprises can be established in the form of sinoforeign equity joint venture, sino-foreign co-operative joint venture or wholly-owned foreign enterprise according to the Industrial Guidance Catalogue and other laws and administrative regulations relating to foreign investment enterprises. Prior to the application for registration to the department of administration of industry and commerce, the enterprise must be approved by the authorities of commerce and obtain an Approval Certificate for a Foreign Investment Enterprise.

251 -

SUMMARY OF PRC LAWS

APPENDIX VI

On 31 October 2007, China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) promulgated the new Industrial Guidance Catalogue of Foreign Investments (2007 Revision) (“the 2007 Catalogue”). The 2007 Catalogue has taken effect on 1 December, 2007. The major changes on Real Estate industry in the 2007 Catalogue are the followings: (1) the development and construction of ordinary residential houses has been removed from the encouraged category; (2) the restricted category has been adjusted as the followings: (i) the development of a whole land lot which shall be operated only by sinoforeign equity joint venture or sino-foreign co-operate joint venture; (ii) the construction and operation of up-market hotels, villas, premium office buildings, international conference centres; (iii) housing agents, brokerages and the second-tier real estate market; (3) the construction and operation of large scale theme park has been removed from the Real Estate industry to the Culture, Sports and Entertainment Industries which is still in the restricted category. It means that the enterprise investing in such projects will not be regarded as a real estate development company; (4) the construction and operation of golf courts has been removed from the restricted category to the prohibited category.

On 11 July 2006, the PRC Ministry of Construction, the Ministry of Commerce, the National Development and Reform Commission, the People’s Bank of China, the State Administration of Industry and Commerce and the State Administration for Foreign Exchange jointly enacted the “Circular on Standardising the Admittance and Administration of Foreign Capital in the Property Market” (Jianzhufang [2006] 171). According to this Circular, the admittance and administration of the foreign capital in property market must comply with the following requirements:

(a) Foreign institutions or individuals purchasing property in China not for their own use shall follow the principle of commercial existence and apply for establishment of foreign investment enterprises under the regulations of foreign investment in property. The foreign institutions and individuals can only carry on their business pursuant to the approved business scope after obtaining the approvals from the relevant authorities and upon completion of the relevant registrations.
(b) If the total investment of a foreign-invested property development enterprise exceeds or equals to USD10 million, the registered capital must not be less than 50% of the total investment. If the total investment is less than USD10 million, the amount of the registered capital shall follow the existing regulations.
(c) For the establishment of a foreign-invested property development enterprise, the commerce authorities and the department of administration of industry and commerce are in charge of granting approval for establishment and effecting registration of the foreign invested property development enterprise and issuing the Approval Certificate for a Foreign Investment Enterprise and the Business License which are only effective for one year. After settlement of the consideration of land use right, the enterprises should apply for the land use rights certificate by presenting the above-mentioned certificate and license. With the land use rights certificate, the
252 -

SUMMARY OF PRC LAWS

APPENDIX VI

enterprises will receive an official Approval Certificate for a Foreign Investment Enterprise from the commerce authorities, and shall replace the business license with one that has the same operation term as the formal Approval Certificate for Foreign Investment Enterprise in the department of administration of industry and commerce, and then it shall apply for tax registration with the tax authorities.

(d) Transfers of projects of or shares in foreign-invested property development enterprises, and the acquisitions of domestic property development enterprises by foreign investors should follow strictly the relevant laws, regulations and policies to obtain the approvals. The investor should submit: (a) the guarantee letters for the performance of the State-owned Land Use Right Grant Contracts, Construction Land Planning Permit and Construction Work Planning Permit; (b) Certificate of Land Use Right; (c) the certification on alteration of archival files issued by construction authorities; (d) the certification on the payment of tax issued by the relevant tax authorities.
(e) While merging and acquiring domestic property development enterprises by way of share transfer or other means, or the purchase of shares from the Chinese party in a sino-foreign equity joint venture, the foreign investors shall properly resettle the employees, settle the bank loans and pay all the consideration at a time with its internal fund. The foreign investors with unfavourable record shall not be allowed to conduct any of the aforesaid activities.

On 23 May 2007, MOFCOM and SAFE jointly issued the “Notice Concerning Further Strengthening and Regulating the Examination, Approval and Supervision of Direct Foreign Investment in Real Estate” (關於進一步加强、規範外商直接投資房地產業審批和監管的通知 (Shang Zi Han [2007] No. 50). The Notice provides stricter controlling measures including, among others:

(a) Where the application is filed for establishment of a property company, the land use right, the ownership of the property should be obtained first, or the pre-assignment/ purchase agreement has already been concluded with the land administration authority, land developer/ owner of the property. If the above requirements have not been satisfied, the approval authority shall not approve the application.
(b) Acquisition of or investment in domestic property enterprises by way of return investment (including the same actual controlling person) shall be strictly controlled. Oversea investors may not avoid approval for foreign investment in property by way of changing the actual controlling person of the domestic real estate enterprise. Once the foreign exchange authority has found the foreign-invested property enterprise
253 -

SUMMARY OF PRC LAWS

APPENDIX VI

established by way of deliberately avoiding and false representation, it shall take action against the enterprise’s conduct of remittance of capital and interest accrued without approval, and the enterprise shall bear the liability for cheated purchase and evasion of foreign exchange.

(c) Agreement as to any fixed return or of the same effect for either party of a foreigninvested real property enterprise is prohibited.
(d) Local examination and approval authorities must make a filing with MOFCOM for recording their approvals of establishment of foreign-invested real estate enterprises.
(e) Local SAFE administrative authorities and designated foreign exchange banks shall not conduct foreign exchange purchase and settlement process in respect of capital projects for any foreign-invested real property enterprises who fail to satisfy the MOFCOM for filing requirement or annual review procedure.

On 10 July 2007, the SAFE promulgated “Notice of the list of first batch of foreigninvested real estate projects that have been filed with the MOFCOM” (國家外匯管理局綜合司關於下發第一批通過商務部備案的外商投資房地產項目名單的通知) (Hui Zhong Fa [2007] No. 130), ceasing to conduct any foreign debt registration and foreign debt settlement process filed subsequent to 1 June 2007 for all foreign-invested property enterprises. The Notice provides that:

(a) For a foreign-invested property enterprise (both newly-established and through capital increase, same below) which has obtained the approval certificate from the competent authorities of the MOFCOM and filed with the MOFCOM after and including (same below) 1 June 2007, the branch institutes will not conduct the foreign debt registration and foreign debts settlement approval process.
(b) For a foreign-invested property enterprise which has obtained the approval certificate from the local competent authorities of the MOFCOM but has not filed with the MOFCOM after and including 1 June 2007, the branch institutes will not conduct foreign exchange registration (or change the registration) and the purchase and settlement process for capital projects.
254 -

SUMMARY OF PRC LAWS

APPENDIX VI

C. Qualifications of a property developer

(a) Classifications and assessment of a property development enterprises’ qualification

Under the “Regulations on Administration of Development of Urban Property”, a property developer must file for record of its establishment to the property development authority in the location of the registration authority within 30 days after receiving its business license. The property development authority shall assess the qualification classification of the property developer, which is filing for record by considering its assets, professional personnel and development and operation records. A property development enterprise shall only engage in property development projects in compliance with its approved qualification.

Under the “Provisions on Administration of Qualifications of Property Developers” (the “Provisions on Administration of Qualifications”) enacted by the Ministry of Construction and entered into force on 29 March 2000, a property developer shall apply for registration of its qualifications according to the Provisions on Administration of Qualifications. An enterprise may not engage in the development and sale of property without a qualification classification certificate for property development.

In accordance with the Provisions on Administration of Qualifications, qualifications of a property development enterprise are classified into four classes: class 1, class 2, class 3 and class 4. Different classes of qualification should be examined and approved by the corresponding authorities. The class 1 qualification shall be subject to preliminary examination by the construction authority under the people’s government of the relevant province, autonomous region or municipality directly under the central government and final approval by the construction authority under the State Council. Procedures for assessing class 2 or lower qualifications developers shall be formulated by the construction authority under the people’s government of the relevant province, autonomous region or municipality directly under the central government. A developer, which passes the qualification examination will be issued with a qualification certificate of the relevant class by the qualification assessment authority. After a newly established property developer reports its establishment to the property development authority, the latter shall issue a provisional qualification certificate to the eligible developer within 30 days of receipt of the report. The provisional qualification certificate shall be effective for one year from the date of its issuance. The property development authority can extend the validity period for not more than two years after considering the actual business situation of the enterprise. The property developer shall apply for qualification classification by the property development authority within one month before the expiry of the provisional qualification certificate. Any enterprise engages in the operation of property development without obtaining a qualification certificate will be ordered by

255 -

SUMMARY OF PRC LAWS

APPENDIX VI

the property development authority to rectify the irregularity within a certain period of time, and will be imposed a fine between RMB50,000 and RMB100,000. A property development enterprise failing to rectify the irregularity within the required period of time will have its qualification certificate suspended and a proposal will be sent to the industrial and commercial administration authority for the suspension of business license of such property development enterprise.

(b) The business scope of a property developer

Under the “Provisions on Administration of Qualifications”, a developer of any qualification classification may engage in the development and sale of property within its approved scope of business and is not allowed to engage in business which exceeded the approved scope of its qualification classification. A class 1 property developer may undertake a property development project anywhere in the country without any limit of the scale of property project. A property developer of class 2 or lower may undertake a project with a gross floor area of less than 250,000 sq.m. and the specific scope of business shall be determined by the construction authority under the people’s government of the relevant province, autonomous region or municipality.

(c) The annual inspection of a property developer’s qualification

Pursuant to “Provisions on Administration of Qualifications”, the qualification of a property developer should be annually inspected. The construction authority under the State Council or the entrusted institution is responsible for carrying out the annual inspection of class 1 property developer’s qualification. Procedures for annual inspection of developers of class 2 or lower qualifications shall be formulated by the construction authority under the people’s government of the relevant province, autonomous region or municipality. Any enterprise fails to comply with the qualification requirement or operation requirements will have its qualification classification down-graded or qualification certificate cancelled.

D. Development of a property project

(a) Land for property development

Under the “Interim Regulations of the People’s Republic of China on Assignment and Transfer of the Right to Use State-owned Land in Urban Areas” (the “Interim Regulations on Assignment and Transfer”) promulgated and enforced by the State Council on 19 May 1990, a system of assignment and transfer of the right to use State-owned land is adopted. A land user shall pay a premium to the State as consideration for the assignment of the land use rights within certain terms, and a land user may transfer, lease, mortgage or otherwise commercially exploit the land use right within his terms of use. Under the Interim Regulations on Assignment and Transfer and the Urban Property

256 -

SUMMARY OF PRC LAWS

APPENDIX VI

law, the land administration authority under the local government of the relevant city or county shall enter into an assignment contract with the land user for an assignment of land use right. The land user shall pay the assignment price as stipulated in the assignment contract. After paying the assignment price in full, the land user shall register with the land administration authority and obtain a Land Use Right Certificate. The Certificate is an evidence of the acquisition of land use rights. The “Regulations on Administration of Development of Urban Property” provide that the land use rights for a site intended for property development shall be obtained by way of an assignment except for those land use rights, which may be obtained by way of allocation pursuant to the PRC laws or the stipulations of the State Council.

Under the “Regulations on the Assignment of State-Owned Land Use Right through Competitive bidding, Auction and Listing-for-Sale” (“2002 Regulations”), as amended by the 2007 Regulations on 28 September 2007 enacted by the Ministry of Land and Resources on 9 May 2002 and enforced on 1 July 2002, land for commercial use, tourism, entertainment and commodity housing development shall be assigned by way of competitive bidding, public auction or listing-for-sale. The procedures are as follows:

i. The land authority under the people’s government of the city and county (the “assignor”) shall make an announcement at least 20 days prior to the date of the proposed competitive bidding, public auction or listing-for-sale. The announcement should include basic particulars such as land parcel, qualification requirement of the bidder and auction applicants, methods and criteria on confirming the winning tender or winning bidder, and other conditions such as the deposit of the bid.
ii. The assignor shall conduct a qualification verification of the bidding applicants and auction applicants, inform the applicants who satisfy the requirements set out in the announcement and invite them to attend the competitive bidding, public auction or listing-for-sale.
iii. After determining the winning tender or the winning bidder by the competitive bidding, public auction or listing-for-sale, the assignor and the winning tender or winning bidder shall then enter into a confirmation. The assignor should return the bidding or tender deposit to other bidding or auction applicants.
iv. The assignor and the winning tender or winning bidder shall enter into a contract for State-owned land use right assignment according to the time and venue set out in the confirmation. The deposit of the bid paid by the winning tender or winning bidder will be used to set off part of the assignment price of the state-owned land use rights.
257 -

SUMMARY OF PRC LAWS

APPENDIX VI

v. The winning tender or winning bidder should apply for the land registration after paying off the assignment price in accordance with the State-owned land use right assignment contract. The people’s government above the city and county level should issue the “Land Use Permit for State-Owned Land”.

According to the “Notice of the Ministry of Land and Resources on Relevant Issues Concerning the Strengthening of Examination and Approval of Land Use in Urban Construction” enacted by the Ministry of Land and Resources on 4 September 2003 (the “Notice”). Commencing from the day of distribution of the Notice, land use for luxurious commodity houses shall be stringently controlled, and applications for land use for building villas shall be stopped. On 21 March 2004, the Ministry of Land and Resources together with the Ministry of Supervision promulgated the “Notice in Respect of Enforcing and Supervising The Transfer of Operative Land Use Rights Through Tenders, Bidding and Public Auction (關於繼續開展經營性土地使用權招標拍賣掛牌出讓情況執法監察工作的通知)”, which expressively required that after 31 August 2004, no land use rights transfer in the form of agreement by the excuse of historical difficulties will be allowed. On 30 May 2006, the Ministry of Land and Resources issued the “Urgent Notice of Further Strengthening the Administration of the Land”. It is expressly prescribed in this Notice that land for property development must be assigned by way of competitive bidding, public auction or Listing-for-sale; the rules of stopping the development project for villas should be strictly enforced; and all supply of land for such purpose and handling of related land use procedure will be ceased from the day of the Notice’s issuance.

Under the “Urgent Notice of Further Strengthening the Administration of the Land”, the land authority should rigidly execute the “Model Text of the State-owned Land Use Right Assignment Contract” and “Model Text of the State-owned Land Use Right Assignment Supplementary Agreement (for Trial Implementation)” jointly enacted by the Ministry of Land Resources and SAIC. The document of the land assignment should ascertain the requirement of planning, construction and land use such as the restriction of the dwelling size, plot ratio and the time limit of starting and completion. All these should be agreed in the Land Use Right Assignment Contract.

On 28 September 2007, the Ministry of Land Resources promulgated the Regulation on Bidding, Auction and Listing Required for Assignment of State Owned Construction Land (《招標拍賣掛牌出讓國有建設用地使用權規定》) (“this Regulation”) (“2007 Regulations”). This Regulation specifies that the assignee of state owned construction land use right shall fully pay up the premium for the land use right in accordance with the state owned land assignment agreement before it could proceed with the relevant procedures for land use right registration and apply for a state owned construction land use right certificate. No assignee could be granted a state owned construction land use right certificate for the land in proportion to the partial payment of the premium that the assignee has paid up. In 2007, it is provided in detail that operative lands for properties to be used for industrial, commercial, tourism, entertainment and commodity residential purposes as well as lands with two or more prospective users must be granted only through competitive bidding.

258 -

SUMMARY OF PRC LAWS

APPENDIX VI

On 2 January 2007, the National People’s Congress promulgated the “Laws on Urban and Rural Planning (城鄉規劃法)” which provided that for construction projects having obtained rights to use State-owned lands by way of grant, after the rights to use State-owned lands grant contract have been verified, the construction entity shall apply for a permit for construction site planning from the relevant municipal or county or city or rural planning authority.

(b) Development of a property project
i. Commencement of a property project and the idle land

Under the Urban Property Law, those who have obtained the land use right through an assignment must develop the land in accordance with the terms of use and within the period of commencement prescribed in the contract for the land use rights assignment. According to the “Measures on Disposing Idle Land” enacted and enforced by the Ministry of Land and Resources on 28 April 1999, the land can be defined as idle land under any of the following circumstances:

development and construction of the land is not commenced within the prescribed time limit after obtaining the land use right without consent from the people’s government who approved the use of the land;
where the “Contract on Paid Use of the Right to Use State-Owned Land” or the “Approval Letter on Land Used for Construction” has not prescribed the date of commencing the development and construction, the development and construction of the land is not commenced at the expiry of one year from the date when the “Contract on Paid Use of the Right to Use State-Owned Land” became effective or when the administrative department of land issued the “Approval Letter on Land Used for Construction”;
the development and construction of the land has been commenced but the area of the development and construction that has been commenced is less than one-third of the total area to be developed and constructed or the invested amount is less than 25% of the total amount of investment, and the development and construction have been continuously suspended for one year or more without an approval; and
other circumstances prescribed by the laws and the administrative regulations.
259 -

SUMMARY OF PRC LAWS

APPENDIX VI

The municipality or county-level municipality administrative department shall, after a piece of land which has been ascertained as idle land, notify the concerned land user and draft a proposal on methods of disposal of the idle land including but not limited to extending the time period for development and construction (provided that the extension shall be no longer than one year), changing the use of the land, arranging for temporary use, ascertaining a new land user by competitive bidding, public auction. The administrative department of land under the people’s government of city or county level shall, after the proposal on disposal has been approved by the original people’s government who approved the use of the land, arrange for implementation of the proposal. To the land which is obtained by assignment and is within the scope of city planning, if the work has not been commenced after one year from the prescribed date of commencement, a surcharge on idle land equivalent to less than 20% of the assignment price may be levied; if the work has not been commenced after two years from the prescribed date of commencement, the land can be confiscated without any compensation. However, the preceding stipulations shall not apply if the delay is caused by force majeure; acts of government or acts of other relevant departments under the government; or by the indispensable preliminary work.

The State Council promulgated the “Notice on Promoting the Saving and Intensification of Use of Land (Guo Fa No.[2008]) ( 關於促進節約集約用地的通知(國發[2008] 3 號))” on 3 January 2008, which required that policy in respect of unused land shall be strictly implemented. If the land approved for development left idle for more than two years, it must be recovered for reused without any compensation by the government according to applicable laws and regulations. Even if the land may not be recovered according to relevant laws and regulations, the land shall be disposed of in time and used efficiently through altering usage of the land, equivalent exchange etc. For lands left unused for over one year but less than two years, an idle land fees shall be levied at a rate equal to 20% of the price for the land granted or allocated.

ii. Planning of a property project

According to the “Measures for Control and Administration of Assignment and Transfer of Right to Use Urban State-owned Land” enacted by the Ministry of Construction on 4 December 1992 and enforced on 1 January 1993 and the “Notice of the Ministry of Construction on Strengthening the Planning Administration of Assignment and Transferring Right to Use State-owned Land” enacted and enforced by the Ministry of Construction on 26 December 2002, after signing an assignment contract, a property developer shall apply for a Opinion on Construction Project’s Site Selection and a Permit for Construction Site Planning from the city and county planning authority with the assignment contract. After obtaining a Permit for Construction Site Planning, a property developer shall organise the necessary

260 -

SUMMARY OF PRC LAWS

APPENDIX VI

planning and the design work with regard to planning and design requirements; and apply for a Permit for Construction Work Planning from city planning authority with the relevant approval documents.

iii. Construction of a property project

After obtaining the Permit for Construction Work Planning, a property developer shall apply for a Construction Permit from the construction authority under the local people’s government above the county level according to the “Measures for the Administration of Construction Permits for Construction Projects” enacted by the Ministry of Construction on 15 October 1999 and revised and enforced on 4 July 2001.

iv. Completion of a property project

According to the “Regulations on Administration of Development of Urban Property”, the “Regulation on the Quality Management of Construction Projects” enacted and enforced by the State Council on 30 January 2000, the “Interim Measures for Reporting Details Regarding Acceptance Examination Upon Completion of Buildings and Municipal Infrastructure” enacted by the Ministry of Construction in April 2000 and the “Interim Provisions on Acceptance Examination Upon Completion of Buildings and Municipal Infrastructure” enacted and enforced by the Ministry of Construction on 30 June 2000, after completion of work for a project, a property developer shall apply for the acceptance examination upon completion to the property development authority under the people’s government on or above the county level and report details of the acceptance examination, upon which the “Record of acceptance examination upon project completion”. For a housing estate or other building complex project, an acceptance examination shall be conducted upon completion of the whole project and where such a project is developed in phases, separate acceptance examination may be carried out for each completed phase.

E. Property Construction

Under the Bid and Tender Law of the People’s Republic of China 《中華人民共和國招標投標法》promulgated by the Standing Committee of the National People’s Congress dated 30 August 1999 and implemented on 1 January 2000, tender is compulsory with respect to construction projects within the territory of the PRC such as large-scale infrastructure and public utilities relating to social public interests or public security, including the investigation, design, construction, construction supervision thereof as well as procurements pertaining to important equipment and materials in connection with project construction. The tender is divided into open tender and invited tender. Any entity or individual shall not nullify related projects that must be offered to tender as statutory required or circumvent tender through any other means.

261 -

SUMMARY OF PRC LAWS

APPENDIX VI

The successful tenderer, on the basis of contractual covenant or upon the tenderee’s consent, may contract to others the non-principal non-critical works in the tender project. The individual accepting such contracting shall be equipped with appropriate qualifications and shall not subcontract his portion of works. The successful tenderer shall be accountable to the tenderee for the subcontracted project while the subcontractor shall bear joint liability for the same. To conduct bidding and tendering activities within the PRC territory, relevant entity or individual shall comply with the above regulation.

F. Property Transactions

(a) Transfer of property

According to the “Urban Property Law” and the “Provisions on Administration of Transfer of Urban Property” enacted by the Ministry of Construction on 7 August 1995 and revised on 15 August 2001, a property owner may sell, give or otherwise legally transfer a property to another person or legal entity. When transferring a building, the ownership of the building and the land use rights attached to the site on which the building is situated are transferred simultaneously. The parties to a transfer shall enter into a property transfer contract in writing and register the transfer with the property administration authority having jurisdiction over the location of the property within 90 days of the execution of the transfer contract.

Where the land use rights were originally obtained by assignment, the real property may only be transferred on the condition that: (a) the assignment price has been paid in full for the assignment of the land use rights as provided by the assignment contract and a land use right certificate has been obtained; (b) the development has been carried out according to the assignment contract; and with respect to a project in which buildings are being developed, development representing more than 25% of the total investment has been completed.

If the land use rights were originally obtained by assignment, the term of the land use rights after transfer of the property shall be the remaining portion of the original term provided by the land use right assignment contract after deducting the time that has been used by the former land users. In the event that the transferee intends to change the use of the land provided in the original assignment contract, consent shall first be obtained from the original assignor and the planning administration authority under the local government of the relevant city or county and an agreement to amend the land use right assignment contract or a new land use right assignment contract shall be signed in order to, inter alia, adjust the land use right assignment price accordingly.

262 -

SUMMARY OF PRC LAWS

APPENDIX VI

If the land rights were originally obtained by allocation, transfer of the real property shall be subject to the approval of the government vested with the necessary approval power as required under the regulations of the State Council. If the people’s government vested with the necessary approval power approves such a transfer, the transferee shall complete the formalities for transfer of the land use rights, unless the relevant statutes require no transfer formalities, and pay the transfer price according to the relevant statutes.

(b) Sale of commodity properties

Under the “Regulatory Measures on the Sale of Commodity Properties” enacted by the Ministry of Construction on 4 April 2001 and enforced on 1 June 2001, sale of commodity properties can include both pre-completion and post-completion sales.

i. Permit of pre-completion sale of commodity properties

According to the “Regulations on Administration of Development of Urban Property” and the “Measures for Administration of Pre-completion Sale of Commodity Properties” (the “Pre-completion Sale Measures”) enacted by the Ministry of Construction on 15 November 1994 and revised on 15 August 2001 and 20 July 2004 respectively, the pre-completion sale of commodity properties shall be subject to a permit system, under which a property developer intending to sell a commodity building before its completion shall make the necessary precompletion sale registration with the property development authority of the relevant city or county to obtain a permit of pre-completion sale of commodity properties. A commodity building may only be sold before completion provided that: (a) the assignment price has been paid in full for the assignment of the concerned land use rights and a land use rights certificate has been issued; (b) a Permit for Construction Work Planning and a Permit for Construction of Work have been obtained; (c) the funds invested in the development of the commodity properties put to pre-completion sale represent 25% or more of the total investment in the project and the progress of work and the completion and delivery dates have been ascertained; and (d) the pre-completion sale has been registered and a Permit for Pre-completion Sale of Commodity Properties has been obtained.

In addition, according to the “Regulations on Administration of Pre-completion Sale of Commodity Properties of Guangdong Province” enacted by the Standing Committee of Guangdong Provincial People’s Congress on 22 August 1998 and revised on 14 October 2000, and the “Notice on Adjusting Conditions of Image and Progress for Commodity Building Pre-sale Project in Guangdong Province” issued by the Guangdong Provincial Construction Bureau in January 2001, the following conditions shall be fulfiled for pre-completion sale of commodity properties in Guangdong: (a) the property developer has obtained a real property development qualification certificate and a business license; (b) the construction

263 -

SUMMARY OF PRC LAWS

APPENDIX VI

quality and safety monitoring procedures have been performed; (c) the structural construction and the toping-out must have been completed in respect of properties of not more than seven stories (including seven stories), and at least two-third of the structural construction must have been completed in respect of properties of more than seven stories; (d) a special property pre-completion sale account with a commercial bank in the place where the project is located has been opened; and (e) the properties pre-completion sale project and its land use rights are free from any third party rights.

ii. Management of pre-completion sale proceeds of commodity properties

According to the Pre-completion Sale Measures, the proceeds obtained by a property developer from the advance sale of commercial houses must be used for the construction of the relevant projects. The specific measures for the supervision on proceeds from the advance sale of commodity properties shall be formulated by the property administrative departments.

iii. Conditions of the sale of post-completion commodity properties

Under the “Measures for Administration of Sale of Commodity Properties”, commodity properties may be put to post-completion sale only when the following preconditions have been satisfied: (a) The property development enterprise offering to sell the post-completion properties shall have a enterprise legal person business license and a qualification certificate of a property developer; (b) The enterprise has obtained a land use right certificate or other approval documents of land use; (c) The enterprise has the permit for construction project planning and the permit for construction; (d) The commodity commodities have been completed and been inspected and accepted as qualified; (e) The relocation of the original residents has been well settled; (f) The supplementary essential facilities for supplying water, electricity, heating, gas, communication, etc. have been made ready for use, and other supplementary essential facilities and public facilities have been made ready for use, or the schedule of construction and delivery date of have been specified; (g) The property management plan has been completed.

Before the post-completion sale of a commodity building, a property developer shall submit the Property Development Project Manual and other documents showing that the preconditions for post-completion sale have been fulfiled to the property development authority for making a record.

264 -

SUMMARY OF PRC LAWS

APPENDIX VI

iv. Regulations on sale of commodity properties

According to the “Regulations on Administration of Development of Urban Property” and the Pre-completion Sale Measures, for the pre-completion sale of a commodity building, the developer shall sign a contract on the pre-sale of the commodity building with the purchaser. The developer shall, within 30 days upon signing the contract, apply for registration and record of contract for precompletion sale commodity building to the relevant administrative departments governing the property and land administration department of the city or country governments. Property administrative department shall take the initiative to apply network information technology to gradually implement web-based registration of pre-sale contracts.

Pursuant to the “Circular of the General Office of the State Council on Forwarding the Opinion of the Ministry of Construction and Other Department on Doing a Good Job of Stabilising House Prices” on 9 May 2005, there are several regulations concerning commodity properties sale:

The buyer of a commodity building is prohibited from conducting any transfer of the pre-sale of the commodity building that he has bought but is still under construction.
Before completion and delivery of an advance sale commodity building to the advance buyer, and before the advance buyer obtains the individual property ownership certificate, the administrative department of property shall not handle any transfer of the commodity building. If there is discrepancy in the name of the applicant for property ownership and the name of the advance buyer in the advance sales contract, the property ownership registration administration shall not records the application of property ownership;
Apply a real name system for house purchase; carry out an immediate archival filing network system for pre-sale contracts of commodity properties.

On 6 July 2006, the Ministry of Construction, NDRC, and the SAIC jointly enacted a Notice on Reorganising and Regulating Order in the Property Transactions, the details of which are as follows:

The developer should start to sell the commodity properties within 10 days after receiving “Permit for Pre-completion Sale of commodity properties”. Without this permit, the pre-completion sale of commodity properties, as well as subscription (including reservation, registration and number-selecting) and acceptance of the any kind of pre-sale payments, is forbidden;
265 -

SUMMARY OF PRC LAWS

APPENDIX VI

The property administration authority should establish an immediate network system for advance sales contracts of commodity properties and a system for the publication of property transaction information. The basic situation of the commodity building, the schedule of the sale and the rights status should be duly, truly and fully published in the network system and on the locale of sale. The advance buyer of a commodity building is prohibited from conducting any transfer of the advance sale of the commodity building that he has bought but is still under construction;
Without the “Permit for Pre-completion Sale of commodity properties”, no advertisement of the pre-completion sale of commodity properties can be allowed to publish;
Property development enterprises with a record of serious irregularity or enterprises which do not satisfy the requirements of pre-completion sale of commodity properties is not allowed to take part in sale activities;
The property administration authority should strictly carry out the regulations of the pre-completion sale contract registration and records and apply the real name system for property purchase.

(c) Mortgages of Property

Under the “Real Rights Law of the People’s Republic of China” enacted by the National People’s Congress on 16 March 2007 and enforced on 1 October 2007, the “Urban Property Law” and the “The Security Law of the People’s Republic of China” enacted by the Standing Committee of the National People’s Congress on 30 June 1995 and enforced on 1 October 1995, and the “Measures on the Administration of Mortgage of Buildings in Urban Areas” enacted by the Ministry of Construction in May 1997 and revised on 15 August 2001, mortgage refers to the act of a debtor, or a third party, who, without transferring the occupancy of the properties, charge those properties as security for the creditor’s rights; when the debtor fails to pay his debt, the creditor has a right to obtain compensation, in accordance with the stipulations of this law, by converting the properties into money or seek preferential payments from the proceeds from the auction or sale of the concerned properties. The creditor’s rights that the mortgagor mortgaged shall not exceed the value of the properties mortgaged. After being mortgaged, the balance of value of the properties that exceeded the creditor’s rights can be mortgaged for a second time, but the sum of the mortgage shall not exceed the value of the balance. When a mortgage is created on the ownership of a building on state-owned land legally obtained, a mortgage shall be simultaneously created on the land use right of the land on which the building is erected. When the land use rights of State-owned lands acquired through

266 -

SUMMARY OF PRC LAWS

APPENDIX VI

means of assignment is mortgaged, the buildings on the land shall also be mortgaged at the same time. The land use rights of town and village enterprises cannot be mortgaged individually. When the buildings of the town and village enterprises are mortgaged, the land use rights occupied by the buildings shall also be mortgaged at the same time. The mortgager and the mortgagee shall sign a mortgage contract in writing. Within 30 days after a property mortgage contract has been signed, the parties to the mortgage shall register the mortgage with the property administration authority at the location where the property is situated. A property mortgage contract shall become effective on the date of registration of the mortgage. If a mortgage is created on the property in respect of which a property ownership certificate has been obtained legally, the registration authority shall make an entry under the “third party rights” item on the original property ownership certificate and then issue a Certificate of Third Party Rights to Property to the mortgagee. If a mortgage is created on the commodity building put to pre-completion sale or under construction, the registration authority shall record the details on the mortgage contract. If construction of a real property is completed during the term of a mortgage, the parties involved shall re-register the mortgage of the real property after issuance of the certificates evidencing the ownership of the property.

(d) Lease of buildings

Under the “Urban Property Law” and the “Measures for Administration of Leases of Buildings in Urban Areas” enacted by the Ministry of Construction on 28 April 1995 and enforced on 1 June 1995, the parties to a lease of a building shall enter into a lease contract in writing which shall be effective upon signing by both parties. A system which has been adopted for registering leases of buildings. When a lease contract is signed, amended or terminated, the parties shall register the details with the property administration authority under the local government of the city or county in which the building is situated. The term of a leased building and the related land shall not be more than 20 years.

G. Property financing

According to the “Notice of the People’s Bank of China on Regulating Home Financing Business” enacted by the People’s Bank of China (the “PBOC”) on 19 June 2001, all banks must comply with the following requirements before granting residential development loans, individual home mortgage loans and individual commercial flat loans:

(a) Housing development loans from banks shall only be granted to property development enterprises with approved development qualifications and high credit ratings. Such loans shall be offered to residential projects with good market potential. While the borrowing enterprise must have an amount of own capital no less than 30% of the total investment required of the project, the project itself must have been issued with a Land Use Rights Certificates, Construction Land Planning Permit, Construction Work Planning Permit and Permit of Construction Work.
267 -

SUMMARY OF PRC LAWS

APPENDIX VI

(b) In respect of the grant of individual home mortgage loans, the ratio between the loan amount and actual value of the security (the “Mortgage Ratio”) shall never exceed 80%. Where an individual applies for a home purchase loan to buy a precompletion house, the said property must have achieved the stage of “topping-out of the main structure completed” for multi-story buildings or “two-thirds of the total investment completed” for high-rise buildings.
(c) In respect of the grant of individual commercial flat loans, the Mortgage Ratio under the application for commercial flat loans shall not exceed 60% with a maximum loan period of 10 years and the subject commercial properties have already been completed.

The PBOC issued the Circular on Further Strengthening the Management of Loans for Property Business on 5 June 2003 to specify the requirements for banks to provide loans for the purposes of property development and individual home mortgage as follows:

(a) The property loan by commercial banks to property development enterprises shall be granted only under the title of property development loan and it is strictly forbidden to extent such loans as current capital loan for property development project or other loan item. No lending of any type shall be granted for projects which have not obtained the Land Use Right Certificates, Construction Land Permit, Construction Planning Permit and Construction Work Permit.
(b) Commercial banks shall not grant loans to property developers to pay off land premium; and
(c) Commercial banks may only provide mortgage loans to individual buyers when the main structural buildings have been topped out. When a borrower applies for individual home loans for his first residential unit, the down payment remains to be 20%. In respect of his loan application for additional purchase of residential unit(s), the percentage of the first instalment shall be increased.

Pursuant to the Guidance on Risk Management of Property Loans of Commercial Banks issued by China Banking Regulatory Commission on 2 September 2004, any property developer applying for property development loans shall have at least 35% of capital funds required for the development.

According to the “Notice of the People’s Bank of China on the Adjustment of Commercial Bank Housing Loan Policies and the Interest Rate of Excess Reserve Deposit”, enacted by PBOC on 16 March 2005, starting from 17 March 2005, the down payment of individual home increased from 20% to 30% in cities and areas where property prices grow too quickly. The commercial banks can independently determine scope of such property price rise according to specific situations in different cities or areas.

268 -

SUMMARY OF PRC LAWS

APPENDIX VI

On 24 May 2006, the State Council forwarded the “Opinion of the Ministry of Construction and Other Departments on Adjusting the Housing Supply Control Structure and Stabilising the Property Prices. The regulations provide the following:

(a) Tightening the control of advancing loan facilities. The commercial banks are not allowed to advance their loan facilities to property developers who do not have the required 35% or more of the total capital for the construction projects. The commercial banks should be prudent in granting loan facilities and/or revolving credit facilities in any form to the property developers who have a large number of idle lands and unsold commodity properties. The commercial banks shall not accept mortgages of commodity properties remaining unsold for three years or longer, and the commercial banks shall not accept such commodity building as collateral for loans.
(b) From 1 June 2006 and onward, purchasers need to pay a minimum of 30% of the purchase price as down payment. However, if purchasers purchase apartments with a floor area of 90 sq.m. or less for residential purposes, the existing requirement of 20% of the purchase price as down payment remains unchanged.

According to “Circular on Standardising the Admittance and Administration of Foreign Capital in Property Market” enforced on 11 July 2006, foreign-invested property development enterprises which have not paid up their registered capital fully, or failed to obtain a Land Use Right Certificate, or with under 35% of the capital for the project, will not be allowed to obtain a loan in or outside China, and foreign exchange administration departments shall not approve any settlement of foreign loans by such enterprises.

On 27 September 2007, the PBOC, CBRC jointly issued the “Notice on Strengthening the Administration of Commercial Real Estate Credit Loans” (《關於加强商業性房地產信貸管理的通知》), which further stipulates stringent requirements to the grant of loans in respect to the second and subsequent purchases of housing by individuals. For those who has used credit loans to purchase a housing and applied for purchasing the second (inclusive) or more housing, the down payment shall not be less than 40% of the total purchase price, while the interest rate of such loan shall not be lower than 1.1 times of the benchmark interest rate of the same grade for the same period as announced by the PBOC. Moreover, the ratio of the down payment and the level of the interest rate of the loan shall be substantially adjusted upwards according to the number of purchases. The specific increase range will be determined by commercial banks at their own discretion based on the relevant principles of credit risk management.

269 -

SUMMARY OF PRC LAWS

APPENDIX VI

H. Insurance of a property project

There are no mandatory provisions in the PRC laws, regulations and government rules which require a property developer to take out insurance policies for its property projects.

In light of the “Construction Law of the People’s Republic of China” enacted by the Standing Committee of the National People’s Congress on 1 November 1997 and enforced on 1 March 1998, construction enterprises must take out accident and casualty insurance for workers engaged in dangerous operations and pay insurance premium. In the “Opinions of the Ministry of Construction on Strengthening the Insurance of Accidental Injury in the Construction Work” by the Ministry of Construction on 23 May 2003, the Ministry of Construction further emphasises the importance of the insurance of accidental injury in the construction work and put forward the detailed opinions of guidance. The “Guidance on the Insurance of Accidental Injury in the Construction Work of Guangdong Province” enacted by construction department of Guangdong Province on 8 September 2004 prescribes the scope, object, term, coverage, amount and premium of insurance for accidental injury. Besides, the Guidance especially emphasises that the persons who have been already insured of work-related injury insurances still need to be insured of accidental injury insurance when he or she takes part in the on-site construction work. According to the common practice of the property industry in Guangdong, except for the accidental injury insurance, construction companies are usually required to submit insurance proposals in the course of tendering and bidding for construction projects. Construction companies shall pay for the insurance premium at their own costs and take out various types of insurance to cover their liabilities, such as property risks, third party’s liability risk, performance guarantee in the course of construction and all-risks associated with the construction and installation work throughout the construction period. The insurance cover for all the aforementioned risks shall cease immediately after the completion and acceptance upon inspection of construction.

I. Measures on Adjusting the Structure of Housing Supply and Stabilising Housing Price

The General Office of the State Council enacted the “Circular on Stabilising Housing Price” on 26 March 2005, requiring measures to be taken to restrain the housing price from increasing too fast and to promote the healthy development of the property market. On 9 May 2005, the General Office of the State Council issued the Opinion of the Ministry of Construction and other Departments on Doing a Good Job of Stabilising House Prices, the opinion provides that:

(a) Intensifying the planning and control and improving the supply structure of houses

Where the housing price is in excessive growth and where the supply of ordinary commodity houses with medium or low price and economical houses is insufficient, construction of residential properties should mainly involve projects of ordinary commodity

270 -

SUMMARY OF PRC LAWS

APPENDIX VI

houses with medium or low price and economical houses. The construction of low-density, upmarket houses shall be strictly controlled. With respect to construction projects of medium-or low-price ordinary commodity houses, before any grant of land, the municipal planning authority shall, according to the level of control required, set out conditions for planning and design such as height of buildings, plot ratio and green space. The property authority shall, in collaboration with other relevant authorities, set forth such controlling requirements as sale price, type and apartment sizes. Such conditions and requirements will be set out as preconditions of land assignment to ensure an effective supply of small or medium-sized houses at moderate and low prices. The local government must intensify the supervision of planning permit for property development projects. Housing projects that have not been commenced within two years must be examined again, and those that turn out to be not in compliance with the planning permits will be revoked.

(b) Intensifying the control over the supply of land and rigorously enforcing the administration of land

Where the price of land for residential use and residential properties grows too fast, the proportion of land for residential use to the total land supply should be appropriately raised, and the land supply for the construction of ordinary commodity houses with medium or low price and economical house should be emphatically increased. Land supply for villa construction shall continue to be suspended, and land supply for up-market housing property construction shall be strictly restricted.

(c) Adjusting the policies of business tax on residential property house transfer and strictly regulating the collection and administration of tax

From 1 June 2005, business tax on transfer of a residential property by an individual within two years from purchase will be levied on the basis of the full amount of the sale proceeds. Transfer of an ordinary residential property by an individual two years or more after purchase shall be exempted for business tax. For transfer of a house other than ordinary residential property by an individual two years or more after purchase, the business tax will be levied on the basis of the balance between the proceeds from selling the property and the purchase price.

(d) Strictly Rectifying and Regulating the Market Order and Seriously Investigating into and Punishing Any Irregular and Rule-breaking Sales

The buyer of a pre-completion commodity property is prohibited from conducting any transfer of the pre-sale commodity property that he has bought but is still under construction. A real name system for property purchase should be applied, and an immediate archival filing network system for advance sales contracts of commodity properties should be carried out.

271 -

SUMMARY OF PRC LAWS

APPENDIX VI

On 24 May 2006, the State Council forwarded the “Opinion on Adjusting the Housing Supply Structure and Stabilising Property Prices 《關於調整住房供應結構穩定住房價格的意見》 (the “Opinion”) of the Ministry of Construction and other relevant government authorities. The Opinion provides the following:

i. Adjusting the Housing Supply Structure
Developers must focus on providing small to medium sized ordinary commodity properties at low to mid-level prices to cater to the demands of local residents;
As of 1 June 2006, newly approved and newly commenced building construction projects must have at least 70% of the total construction work area designated for small apartments with floor areas of 90 sq.m. or below (including economically affordable apartments). If municipalities directly under the Central Government, cities listed on state plans (省會城市) and provincial capital cities (計劃單列市) have special reasons to adjust such prescribed ratio, they must obtain special approval from the Ministry of Construction. Construction projects that have been approved but have not yet obtained a construction permit must follow the prescribed ratio.
ii. Further adjustments by tax, loan and land policies
From 1 June 2006, business tax will be levied on the full amount of the sale proceeds on conveyance of residential properties within a period of five years from the date of purchase. If an individual sells his ordinary standard apartment after five or more years from the date of purchase, business tax will normally be exempted. If an individual sells his non-ordinary apartment after five or more years from the date of purchase, business tax will be levied on the balance between the selling price and the purchase price;
Commercial banks are not allowed to advance loan facilities to property developers who do not have the required 35% or more of the total capital for the construction projects. The commercial banks should be prudent in granting loan facilities and/or revolving credit facilities in any form to the property developers who have a large number of idle lands and unsold commodity apartments. Banks shall not accept mortgages of commodity apartments remaining unsold for three years or more;
272 -

SUMMARY OF PRC LAWS

APPENDIX VI

From 1 June 2006 and onward, purchasers need to pay a minimum of 30% of the purchase price as down payment. However, if purchasers buy apartments of 90 sq.m. or less for residential purposes, the existing requirement of 20% of the purchase price as down payment remains unchanged;
At least 70% of the total land supply for residential property development must be used for developing small-to-medium-sized low-cost public housing. Based on the restrictions of residential property size ratio and residential property price, land supply will be granted by way of auction to the property developer who offers the highest bid. Land supply for villa construction shall continue to be suspended, and land supply for low-density and large-area housing property construction shall be strictly restricted;
The relevant authorities will levy a higher surcharge against those property developers who have not commenced the construction work for longer than one year from the commencement date stipulated in the construction contract and will order them to set a date for commencing the construction work and a date of completion. The relevant authorities will confiscate without compensation the land from those property developers who have not commenced the construction work beyond two years from the commencement date stipulated in the construction contract without proper reasons. The relevant authorities will dispose of the idle land of those property developers who have suspended the construction work consecutively for one year without an approval, have invested less than one-fourth of the total proposed investment and have developed less than one-third of the total proposed construction area.
iii. Reasonably Monitoring the Scope and Progress of Demolition of Urban Housing

The management and reasonable control of the scope and progress of the demolition of urban housing should be strengthened to halter the excessive property growth triggered by passive means.

273 -

SUMMARY OF PRC LAWS

APPENDIX VI

iv. Further Rectifying and Regulating the Order of Property Properties Market
In order to ensure that the prescribed ratio regarding types and sizes is followed, the relevant authorities will need to re-examine the approval of those construction projects which have been granted planning permit but have not been commenced. The relevant authorities will ensure that no Planning Permit (規劃許可證), Construction Permit (施工許可證) or Permit for Pre-Sale of Commodity Properties (商品房預售許可證) is issued to those construction projects which do not satisfy the controlling requirements, in particular, the prescribed ratio requirement. If the property developers, without an approval, alter the architectural design, the construction items, and exceed the prescribed ratio, the relevant authorities have the power to dispose of the property and to confiscate the property in accordance with the law;
The property administration authority and the administration of industry and commerce will investigate illegal dealings such as contract fraud cases in accordance with the law. The illegal conduct of pre-completion sale of commodity apartments without satisfying all the conditions will be ordered to stop and be imposed a proper administrative penalty in accordance with the law. For those property developers who maliciously manipulate the supply of commodity housing, the relevant authorities will imposed a proper administrative penalty including revoking the business licenses of those serious offenders and will pursue personal liability for those concerned.
v. Gradually relieving the housing demands for low-income families

To expedite the establishment of low-cost public housing supply system in various cities and counties; to monitor and regulate the construction of economically affordable apartments; to aggressively develop the second-hand property market and property rental market.

vi. Improving information disclosure system and system for collecting property statistics

On 6 July 2006, the Ministry of Construction promulgated a supplemental Opinion on Carrying Out the Residential Property Size Ratio in Newly-Built Residential Buildings (Jianzhufang [2006] No. 165) 《關於落實新建住房結構比例要求的若干意見》 (“the Supplemental Opinion”). The Supplemental Opinion provides the following:

274 -

SUMMARY OF PRC LAWS

APPENDIX VI

As of 1 June 2006, of the newly approved and newly commenced construction projects in different cities including town and counties (from 1 June 2006 and onward), at least 70% of the total construction area must be used for building small apartments with unit floor area of 90 sq.m. or below (including economically affordable apartments);
The relevant authorities in different localities must strictly follow the prescribed ratio requirement in their respective locality. The relevant authorities must ensure the conditions of newly built commodity apartments including the planning and the design, and must ensure that the property size ratio is adhered to. If a property developer has not followed the ratio requirement without providing proper reasons, the town planning authorities will not issue a Planning Permit. If the property developer has not followed the requirements of the Planning Permit, the relevant authority censoring the planning documents will not issue a certification, the construction authority will not issue a Construction Permit, and the property authority will not issue a Permit for pre-completion sale of the commodity apartments.

In the case of construction projects that were granted approval before 1 June 2006 but that were not granted a construction work permit by that date, the relevant local governments in different localities should ascertain the details of the projects and ensure that the prescribed residential property size ratio requirement is complied with.

J. Circular on Facilitating the Stable and Healthy Development of Property Market

In January 2010, the General Office of the State Council issued a Circular on Facilitating the Stable and Healthy Development of Property Market《關於促進房地產市場平穩健康發展的通知》, which adopted a series of measures to strengthen and improve the regulation of the property market, stabilize market expectation and facilitate the stable and healthy development of the property market. These include, among others, measures to increase the supply of affordable housing and ordinary commodity housing, provide guidance for the purchase of property, restrain speculation of properties, and strengthen risk prevention and market supervision. Additionally, it explicitly requires each family (including a borrower, his or her spouse and children under 18), that has already purchased a residence through mortgage financing and have applied to purchase a second or more residences through mortgage financing, to pay a minimum downpayment of 40% of the purchase price on the second of more residences.

275 -

SUMMARY OF PRC LAWS

APPENDIX VI

K. Notification on Issues Relating to Strengthening the Supply and Regulation of the Land for Real Estate Development

On March 8, 2010, the Ministry of Land and Resources promulgated the Notification on Issues Relating to Strengthening the Supply and Regulation of the Land for Real Estate Development《關於加強房地產用地供應和監管的有關問題的通知》to introduce new measures on land supply, including:

Implement the PRC government’s latest land supply plans and prioritize land supply;
The local governments must allocate 70% of new land supply to the construction of “supportive housing and self-use small-to-medium size housing”; and
Local governments must closely monitor developers’ implementation of the terms regarding the date for commencement of construction and completion of construction in land transaction contracts, and in the case of any violations, local governments must investigate and punish them.

L. Circular on Facilitating the Stable and Healthy Development of Property Market

In January 2010, the General Office of the State Council issued a Circular on Facilitating the Stable and Healthy Development of Property Market 《關於促進房地產市場平穩健康發展的通知》, which adopted a series of measures to strengthen and improve the regulation of the property market, stabilize market expectation and facilitate the stable and healthy development of the property market. These include, among others, measures to increase the supply of affordable housing and ordinary commodity housing, provide reasonable guidance for the purchase of property, restrain speculation of properties, and strengthen risk prevention and market supervision. Additionally, it explicitly requires a family (including a borrower, his or her spouse and children under 18), who have already purchased a house by mortgage and have applied to purchase a second or more houses, to pay a minimum down payment of 40% of the purchase price.

276 -

SUMMARY OF PRC LAWS

APPENDIX VI

M. Notification on the Determination to Restrain the Overly Rapid Increase in Real Estate Price in Some Cities

The State Council has promulgated the Notification on the Determination to Contain the Overly Rapid Increase in Real Estate Price in Some Cities (Guo Fa [2010] No.10) on 17 April 2010 with requirements as follows:

All regions and relevant departments must be fully aware of the hazardous nature of the overly rapid increase in real estate prices; consciously implement real estate market control policies as determined by the central government; and adopt resolute measures to restrain the overly rapid increase in real estate prices to promote livelihood improvement and economic development;
A more stringent differentiation housing credit policies shall be implemented. For families (which includes the loan borrower, his/her spouse and minor children”) purchasing their first housing unit with a total floor area of 90 square meters or above for own living purpose, the proportion of downpayment for housing loans shall not be less than 30%. For families purchasing their second housing unit on borrowed loans, the proportion of downpayment for the loans shall not be less than 50% and the loan rate shall not be lower than 1.1 times of the benchmark rate. For those purchasing their third or more housing units, the downpayment proportion and loan rate shall be substantially increased, with specific details to be determined by individual commercial banks in accordance with the principles of risk management. The People’s Bank of China (“PBOC”) and the China Banking Regulatory Commission (“CBRC”) shall instruct and supervise commercial banks in implementing strict management of housing loans. Together with PBOC and CBRC, the Ministry of Housing and Urban-Rural Development (“MOHURD”) shall stringently formulate standards in relation to identification of purchase of second housing unit. All forms of real estate speculation and speculators’ purchase of properties shall be strictly controlled for regions where commercial housing prices are too expensive and have been surging too rapidly coupled with tight supply. Commercial banks may, based on their risk conditions temporarily terminate the granting of loans for the purchase of third or more housing units as well as housing loans to non-local citizens not capable of producing proofs of payment of local tax or social insurance for one year or more. The local government may, based on actual conditions, adopt temporary measures to restrict the number of housing units purchased within a certain period. Relevant policies shall be strictly implemented for the purchase of real estates by foreign institutions and individuals. Tax departments shall consciously implement the collection and management of land value-added tax in strict accordance with the taxation laws and relevant policies and regulations and shall carry out major clearing and inspection of real estate development projects with over-high pricing or overly rapid increase in prices;
277 -

SUMMARY OF PRC LAWS

APPENDIX VI

The total supply of residential land shall be increased in cities with an overly rapid increase in real estate prices. The handling of idle real estates sites shall be accelerated in accordance with the law. For recovered idle sites, priority shall be given to construction of general housing. Alongside the persistence and improvement of the land auction system, most of sales such as “comprehensive evaluation”, “onetime auction” and “two-way auction” shall be explored to restrain the irrational surge in selling prices of residential land. The structure of housing supply shall be adjusted. All regions shall prepare and release housing construction plans as soon as possible in which the quantity and proportion of low-income and medium-tosmall-sized general commercial housing are to be clearly defined. The MOHURD shall accelerate its approval process in relation to planning, commencement of construction and pre-sale applications for general commodity housing to create an effective supply as quickly as possible. Land for low-income housing and shanty town with construction and medium-to-small-sized general commodity housing shall not be less than 70% of the total housing land supply and shall be given the priority in land supply. Department in charge of urban-rural planning and real estate shall actively coordinate with the land and resources department in incorporating items such as housing prices, unit quantity, floor area, proportion of low-income housing, project commencement and completion time, as well as penalty clauses on breach of contract into the land transfer agreements in order to ensure the structure and proportion of the supply of medium-to-small-sized housing units are in strict accordance with relevant regulations. For regions where there is an over-high pricing and overly rapid increase in real estate prices, the supply of public rental, economically affordable as well as price-restricted commodity housing shall be substantially increased.
Based on the principle of governmental organization and social participation, the development of public rental housing shall be accelerated and all levels of the local governments shall increase their input with the central government providing appropriate funding support. State-owned real estate enterprises shall participate actively in the construction of low-income housing and the reconstruction of shanty towns.
The supervision on land purchase and financing of real estate developers shall be strengthened. Departments of the Ministry of Land and Resources shall increase their special remediation and clearance efforts; investigate idle land and land speculation in strict accordance with the law; and restrict new purchase of land by enterprises having violated the laws and regulations. Shareholders of real estate developers are prohibited to provide loans, on-landing loans, guarantees or other relevant financing facilities to the enterprises during participation in land bidding and development and construction process. State-owned and State-controlled enterprises which are not primarily engaged in real estate business shall be strictly prohibited to take part in commercial land development and real estate businesses. Departments in
278 -

SUMMARY OF PRC LAWS

APPENDIX VI

charge of State-owned assets and financial supervision shall increase their strength in investigation. Commercial banks shall strengthen pre-loan review and postloan management of loans to real estate developers. Commercial banks shall not grant loans to new projects of real estate developers having idle land and making land speculations and that the securities regulatory departments shall temporarily suspend their listing, re-financing and restructuring of major assets applications. Supervision on trading discipline shall be increased. Real estate development projects which have obtained pre-sale permit or having applied for the sales of real estates shall make public all of the housing units for sale at one time within a specified period and carry out external sales in strict accordance with prices clearly set and declared. Departments of the MOHURD shall implement clearance of commercial housing projects with pre-sale permit; increase exposure and punishment on real estate developers engaging in activities such as accumulation of housing sources and building up of real estate prices; cancel business qualifications of developers in serious cases; and investigate the accountabilities of relevant persons violating the laws and regulations. All provincial governments (autonomous regions and municipalities) shall implement an investigation of the business activities of all local real estate developers; timely rectify and swiftly handle any unlawful practices; and report the investigation results to the State Council by the end of June 2010.

II. MAJOR TAXES APPLICABLE TO PROPERTY DEVELOPERS

A. Income tax

According to the “Income Tax Law of The People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises” enacted by National People’s Congress on 9 April 1991 and enforced on 1 July 1991 and its detailed rules enacted by the State Council on 30 June 1991, the rate of enterprise income tax for foreign investment enterprises and enterprise income tax for entities and premises engaged in production and operation by foreign enterprises in China shall be 30%, and the rate of local income tax shall be 3%.

According to the PRC Enterprise Tax Law enacted by the National People’s Congress on 16 March 2007 and enforced from 1 January 2008 onwards, a uniform income tax rate of 25% will be applied towards foreign investment enterprise and foreign enterprises which have set up production and operation facilities in the PRC as well as PRC enterprises.

279 -

SUMMARY OF PRC LAWS

APPENDIX VI

B. Business tax

Pursuant to the “Interim Regulations of the People’s Republic of China on Business Tax” enacted by the State Council on 13 December 1993 and enforced on 1 January 1994 and its “Detailed Implementation Rules on the Provisional Regulations of The People’s Republic of China on Business Tax” issued by the Ministry of Finance on 25 December 1993, the tax rate on transfer of immovable properties, their superstructures and attachments is 5%.

C. Land appreciation tax

According to the requirements of the Provisional Regulations of The People’s Republic of China on Land Appreciation Tax (the “Land Appreciation Provisional Regulations”) which was enacted on 13 December 1993 and effected on 1 January 1994, and the Detailed Implementation Rules on the Provisional Regulations of The People’s Republic of China on Land Appreciation Tax (the “Land Appreciation Detailed Implementation Rules”) which was enacted on 27 January 1995 and enforced back to 1 January 1994, any appreciation amount gained from taxpayer’s transfer of property shall be subject to land appreciation tax. Land appreciation tax shall be subject to a regime of four level progressive rates: 30% on the appreciation amount not exceeding 50% of the sum of deductible items; 40% on the appreciation amount exceeding 50% but not exceeding 100% of the sum of deductible items; 50% on the appreciation amount exceeding 100% but not exceeding 200% of the sum of deductible items; and 60% on the appreciation amount exceeding 200% of the sum of deductible items. The related deductible items aforesaid include the following:

amount paid for obtaining the land use right;
costs and expenses for development of land;
costs and expenses of new buildings and ancillary facilities, or estimated prices of old buildings and constructions;
related tax payable for transfer of property;
other deductible items as specified by MOF.
280 -

SUMMARY OF PRC LAWS

APPENDIX VI

According to the requirements of the Land Appreciation Provisional Regulations, the Land Appreciation Detailed Implementation Rules and the Notice issued by the MOF in respect of the Levy and Exemption of Land Appreciation Tax for Development and Transfer Contracts signed before 1 January 1994 which was announced by the MOF and State Administration of Taxation on 27 January 1995, Land Appreciation Tax shall be exempted under any one of the following circumstances:

Taxpayers building ordinary standard residential properties for sale (i.e. residential properties built in accordance with the local standard for general civilian residential properties. Deluxe apartments, villas, resorts etc. are not under the category of ordinary standard residential properties), where the appreciation amount does not exceed 20% of the sum of deductible items;
Property taken over and repossessed according to laws due to the construction requirements of the State;
Due to redeployment of work or improvement of living standard, individuals transfer originally self-used residential property, of which they have been living there for 5 years or more, and after obtaining tax authorities’ approval;
For property transfer contract which were signed before 1 January 1994, whenever the properties are transferred, the Land Appreciation Tax shall be exempted;
If the property assignments were signed before 1 January 1994 or the project proposal has been approved and that capital was injected for development in accordance with the conditions agreed, the Land Appreciation Tax shall be exempted if the properties are transferred within 5 years after 1 January 1994 for the first time. The date of signing the contract shall be the date of signing the Sale and Purchase Agreement. Particular property projects which are approved by the Government for the development of the whole piece of land and long-term development, of which the properties are transferred for the first time after the 5-year tax-free period, after auditing being conducted by the local financial and tax authorities, and approved by MOF and the State Administration of Taxation, the tax-free period would then be appropriately prolonged.

After the issuance of the “Land Appreciation Provisional Regulations” and the “Land Appreciation Detailed Implementation Rules”, due to the relatively long period required for property development and transfer, many districts, while they were implementing the regulations and rules, did not mandatorily require the property development enterprises to declare and pay the Land Appreciation Tax. Therefore, in order to assist the local tax authorities in the collection of Land Appreciation Tax, the MOF, State Administration of Taxation, the Ministry of Construction and the Ministry of Land and Resource had separately and jointly issued several notices to restate the following: After the assignments are signed, the taxpayers should

281 -

SUMMARY OF PRC LAWS

APPENDIX VI

declare the tax to the local tax authorities where the properties are located, and pay the Land Appreciation Tax in accordance with the amount as calculated by the tax authority and within the specified time limit. For those who fail to acquire proof of tax payment or tax exemption from the tax authorities, the property administration authority shall not process the relevant title change procedures, and shall not issue the property title certificate.

State Administration of Taxation also issued the “Notice issued by State Administration of Taxation in respect of the Serious Handling of Administration Work in relation to the Collection of Land Appreciation Tax” on 10 July 2002 to request local tax authorities to modify the management system of Land Appreciation Tax collection and operation procedures, to build up a proper tax return system for Land Appreciation Tax, to improve the methods of pre-levying for the pre-sale of properties. That notice also pointed out that the preferential policy of Land Appreciation Tax exemption for first time transfer of properties under property development contracts signed before 1 January 1994 or project proposal that has been approved and capital was injected for development, is expired, and that such tax shall be levied again.

State Administration of Taxation issued the “Notice of State Administration of Taxation in respect of the Strengthening of Administration Work in relation to the Collection of Land Appreciation Tax” on 2 August 2004 and the “Notice of State Administration of Taxation in respect of the Further Strengthening of Administration Work in relation to the Collection of Land Appreciation Tax and Land Use Tax in Cities and Towns” on 5 August 2004. The aforesaid notices point out that the administration work in relation to the collection of land appreciation tax should be further strengthened. The preferential policy of Land Appreciation Tax exemption for first time transfer of properties under property development contracts signed before 1 January 1994 is expired and such tax shall be levied again. Where such taxes were still not levied, the situation should be corrected immediately. Also, the notice required that the system of tax declaration and tax sources registration in relation to the land appreciation tax should be further improved and perfected.

On 2 March 2006, the MOF and State Administration of Taxation issued the “Notice of Certain Issues Regarding Land Appreciation Tax”. The notice clarifies the relevant issues regarding land appreciation tax as follows:

(i) As to the Tax Collection and Exemption in the Sale of Ordinary Standard Residential Properties Built by Taxpayer

The notice sets out the recognised standards for ordinary standard residential properties. Where any developers build ordinary standard residential properties as well as other commercial properties, the value of land appreciation shall be assessed separately. In respect of ordinary standard residential properties for which application for tax exemption has been filed with the tax authority at the locality of the property before the notice is issued and for which land appreciation tax exemption has been granted by the tax authority on the basis of the standards of ordinary residential properties originally set down by the people’s government of the province, autonomous region or municipality directly under the Central Government, no adjustment shall be retroactively made.

282 -

SUMMARY OF PRC LAWS

APPENDIX VI

(ii) As to the Advance Collection of Land Appreciation Tax as well as the Settlement

All regions shall further improve the measures for the advance collection of land appreciation tax, and decide the advance collection rate in a scientific and reasonable manner, and adjust it at a proper time according to the level of value appreciation in the property industry and market conditions within the region and on the basis of the specific property categories, namely, ordinary standard residential properties, non-ordinary standard residential properties and commercial properties. After a project is completed, the relevant settlement shall be handled in a timely manner, with any overpayment refunded or any underpayment being made up;

If any tax pre-payment is not paid within the advance collection period, an overdue fines shall be imposed additionally as of the day following the expiration of the prescribed advance collection period, according to the relevant provisions of the Tax Collection and Administration Law and its detailed rules for implementation;

As to any property project that has been completed and gone through the acceptance as well, where the floor area of the property as transferred makes up 85% or more in the salable floor area, the tax authority may require the relevant taxpayer to conduct the settlement of land appreciation tax on the transferred property according to the matching principles regarding the proportion between the income as generated from the transfer of property and the amount under the item of deduction. The specific method of settlement shall be prescribed by the local tax authority of a province, autonomous region, municipality directly under the Central Government, or a city under separate state planning;

On 28 December 2006, the State Administration of Taxation issued the Notice on the Administration of the Settlement of Land Appreciation Tax of Property Development Enterprises, which came into effect on 1 February 2007. The notice set our further provisions concerning the settlement of land appreciation tax by property developers by clarifying details regarding units responsible for settlement of land appreciation tax, requirements, materials to be submitted, auditing and verification, recognition of revenue of indirect sale and self-use properties, deductible items and handling of transfer after tax is imposed and settled etc. Local provincial tax authorities can formulate their own implementation rules according to the notice and local situation.

283 -

SUMMARY OF PRC LAWS

APPENDIX VI

D. Deed tax

Pursuant to the “Interim regulations of the People’s Republic of China on Deed Tax” enacted by the State Council on 7 July 1997 and enforced on 1 October 1997, the transferee, whether an entity or individual, of the title to a land site or building in the PRC shall have to pay deed tax. The rate of deed tax is 3%-5%. The governments of provinces, autonomous regions and municipalities directly under the central government may, within the foresaid range, determine and report their effective tax rates to the MOF and the State Administration of Taxation for the record. Pursuant to the “Implementation Provisions on Deed Tax in Guangdong Province” enacted by the People’s Government of Guangdong on 10 June 1998, and enforced on 1 October 1997, the rate of deed tax within Guangdong is 3%.

E. Urban land use tax

Pursuant to the “Provisional Regulations of the People’s Republic of China Governing Land Use Tax in Cities and Towns” enacted by the State Council on 27 September 1988 and enforced on 1 November 1988, the land use tax in respect of urban land is levied according to the area of relevant land. The annual tax shall be between RMB0.2 and RMB10 per sq.m. of urban land collected according to the tax rate determined by local tax authorities. According to the “Notice on Land Use Tax Exemption of Foreign Investment Enterprises and Institutions of Foreign Enterprises in China” enacted by the MOF on 2 November 1988 and the “Approval on Land Use Tax Exemption of Foreign Investment Enterprises” issued by the State Administration of Taxation on 27 March 1997, land use fee instead of land use tax shall be collected from a foreign investment enterprise. However, the Provisional Regulations of the People’s Republic of China Governing Land Use Tax in Cities and Towns was revised by the State Council on 31 December 2006. As of 1 January 2007, land use tax shall be collected from foreign investment enterprise. The annual tax shall be between RMB0.6 and RMB30.0 per sq.m. of urban land.

F. Buildings tax

Under the “Interim Regulations of the People’s Republic of China on Buildings Tax” enacted by the State Council on 15 September 1986 and enforced on 1 October 1986, buildings tax shall be 1.2% if it is calculated on the basis of the residual value of a building, and 12% if it is calculated on the basis of the rental.

G. Stamp duty

Under the “Interim regulations of the People’s Republic of China on Stamp Duty” enacted by the State Council on 6 August 1988 and enforced on 1 October 1988, for property rights transfer instruments, including those in respect of property ownership transfer, the rate of stamp duty shall be 0.05% of the amount stated therein; for permits and certificates relating to rights, including property title certificates and land use rights certificates, stamp duty shall be levied on an item basis of RMB5 per item.

284 -

SUMMARY OF PRC LAWS

APPENDIX VI

H. Municipal maintenance tax

Under the “Interim Regulations of the People’s Republic of China on Municipal Maintenance Tax” enacted by the State Council on 8 February 1985, any taxpayer, whether an entity or individual, of product tax, value-added tax or business tax shall be required to pay municipal maintenance tax. The tax rate shall be 7% for a taxpayer whose domicile is in an urban area, 5% for a taxpayer whose domicile is in a county and a town, and 1% for a taxpayer whose domicile is not in any urban area or county or town. Under the “Circular Concerning Temporary Exemption from Municipal Maintenance Tax and Education Surcharge For Enterprises with Foreign Investment and Foreign Enterprises” and the “Approval on Exemption of Municipal Maintenance Tax and Education Surcharge in Foreign-Invested Freightage Enterprises” issued by State Administration of Taxation on 25 February 1994 and on 14 September 2005 respectively, whether foreign investment enterprises are subject to municipal maintenance tax shall be determined in accordance with notices issued by the State Council; and such tax is not applicable to enterprises with foreign investment for the time being, until further explicit stipulations are issued by the State Council.

I. Education surcharge

Under the “Interim Provisions on Imposition of Education Surcharge” enacted by the State Council on 28 April 1986 and revised on 7 June 1990 and 20 August 2005, a taxpayer, whether an entity or individual, of product tax, value-added tax or business tax shall pay an education surcharge, unless such obliged taxpayer is instead required to pay a rural area education surcharge as provided by the “Notice of the State Council on Raising Funds for Schools in Rural Areas”. Under the supplementary Notice Concerning Imposition of Education Surcharge” issued by the State Council on 12 October 1994, the “Circular Concerning Temporary Exemption from Municipal Maintenance Tax and Education Surcharge For Enterprises with Foreign Investment and Foreign Enterprises” and the “Reply on Exemption of Municipal Maintenance Tax and Education Surcharge in Foreign-Invested Freightage Enterprises” issued by State Administration of Taxation on 25 February 1994 and on 14 September 2005 respectively, whether foreign investment enterprises are subject to the education surcharge shall be determined in accordance with notices issued by the State Council; and such tax is not applicable to enterprises with foreign investment for the time being, until further explicit stipulations are issued by the State Council.

III. LEGAL SUPERVISION RELATING TO THEME PARK OPERATION IN THE PRC

In terms of planning, design and construction, the laws and regulations applicable to theme park development are similar to those applicable to the hotel and residential developments.

285 -

SUMMARY OF PRC LAWS

APPENDIX VI

In the course of operation, the operator of theme parks shall comply with the Fire Prevention Law of the People’s Republic of China and the Administrative Rules on Fire Safety of Public Entertainment Premises. These regulations mainly provide that:

(1) the design and construction in relation to fire safety of the construction projects shall comply with the state technical standards on fire control for construction projects. For public entertainment premises that are newly constructed, renovated or expanded or any change in the internal decoration of the public entertainment premises, the developer or operator shall file the fire safety layout with the local public security and fire prevention authority for review and approval and construction shall only commence after obtaining the consent from such authority. Upon completion of construction, the construction project have to pass the acceptance inspection conducted by the public security and fire prevention authority. Commencement of operation is prohibited if no acceptance inspection is carried out or the acceptance inspection has failed.
(2) prior to the commencement of production or operation of public assembly premises, the developer or operator shall apply for fire prevention and safety inspection from the public security and fire prevention authority under the local people’s government above the county level. Commencement of production or operation is prohibited if no fire prevention and safety inspection is carried out or it fails to meet the fire safety requirements.
(3) the operator shall formulate a fire safety system, a set of operating procedures for fire safety and fire fighting and emergency evacuation plan in performance of the fire safety obligations; equip with fire safety facilities and devices, set up fire safety signs and regularly arrange for inspection and maintenance in accordance with the State standards and industry standards to ensure their effectiveness; conduct a comprehensive inspection of the construction fire safety facilities at least once a year to ensure their effectiveness, maintain an accurate and complete set of inspection records and filing records for inspection; ensure smooth passage of evacuation routes, safety exits and fire lanes, ensure delineated zones for fire fighting and smoke fighting and ensure that fire separation is in compliance with fire safety technical standards; arrange for fire safety inspection to eliminate the fire risks in a timely manner; organize specific fire drills.
(4) the public fire liability insurance for public assembly premises is encouraged and directed by the State.

In the course of operation, the operator of theme parks shall also comply with the Production Safety Law of the People’s Republic of China and the Regulations on Safety Supervision for Special Equipment. These regulations mainly provide that:

(1) any special equipment that involves life safety or higher level of danger used by the operator shall, according to the laws of the PRC, be produced by specialized production bodies and prior to the commencement of use of such equipment, it shall be approved by inspection or detection bodies granted with professional technical qualifications and be granted with a certificate for safety use or a safety mark.
286 -

SUMMARY OF PRC LAWS

APPENDIX VI

(2) the manufacturer and user of any special equipment shall establish a comprehensive safety and energy-saving management system for special equipment and a safety and energy-saving accountability system for various positions.
(3) the manufacturer and user of any special equipment and the inspection and detection body of any special equipment shall be subject to the special equipment safety supervision by the special equipment safety supervision and administration department in accordance with the laws. Prior to or within 30 days after the use of the special equipment, the user of special equipment shall register with the special equipment safety supervision and administration department of the municipality or city divided into districts. The registration mark shall be placed at or attached to a prominent place or such special equipment.
(4) The user of the special equipment shall carry out self inspection of the special equipment in use at least once a month and make relevant records. If any anomalies are discovered during self inspection or daily repairs and maintenance of the special equipment in use, the user of the special equipment shall fix the problem in a timely manner.
(5) The user of the special equipment shall carry out regular checks, inspection and repairs of the safety attachments, safety protection devices, testing and control devices and relevant ancillary devices meters of the special equipment in use, and make relevant records.
(6) The operating user of any special equipment who provides services to the public such as large-scale amusement facilities shall establish a special equipment safety management authority or form a specialized team of safety management officers.

If sale of food and beverages is involved in the operations, the operator of theme parks shall also comply with the Food Safety Law of the People’s Republic of China and obtain the food operation permit granted by the food supervision and administration department of the PRC government.

287 -

GENERAL INFORMATION

APPENDIX VII

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. SHARE CAPITAL

The authorized and issued share capital of the Company as at the Latest Practicable Date were, and immediately following the issue and allotment of the Placing Shares and the Subscription Shares will be, as follows:

Amount

Authorised share capital:

2,000,000,000 Shares as at the Latest Practicable Date Issued and fully paid share capital: 346,750,000 Shares as at the Latest Practicable Date 91,800,000 Subscription Shares to be issued and allotted upon completion of the Subscription 60,000,000 Placing Shares to be issued and allotted upon completion of the Placing Shares 498,550,000	HK$200,000,000 HK$34,675,000 HK$9,180,000 HK$6,000,000
	HK$49,855,000

All of the Shares in issue and the Subscription Shares and the Placing Shares to be issued rank pari passu in all respects with each other, including in particular as to dividends, voting rights and capital.

As at the Latest Practicable Date, the Company has 11,240,000 outstanding share options (exercisable at HK$1.41 per Share) under the share option scheme adopted by the Company on 12 October 2005. Save as disclosed, the Company does not have any other outstanding derivatives, options, warrants and conversion rights or similar rights or securities in issue which are convertible or exchangeable into Shares. The Shares in issue are listed on the Stock Exchange. No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares or any other securities of the Company to be listed or dealt in on any other stock exchange except for the Placing Shares and the Subscription Shares. There is no arrangement under which future dividends are waived or agreed to be waived.

288 -

GENERAL INFORMATION

APPENDIX VII

3. 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 Ordinary Shares of the Company

				Approximate % of
	Number			issued share
	of ordinary			capital of
Name of Directors	shares held	Capacity	Nature of interest	the Company
Ni Zheng	600,000	Beneficial owner	Personal	0.17%
Zhou Guangneng	510,000	Beneficial owner	Personal	0.15%

Long Positions in Underlying Shares of the Company

				Approximate % of
	Number			issued share
	of ordinary			capital of
Name of Directors	shares held	Capacity	Nature of interest	the Company
Ni Zheng_(Note 1)_	1,400,000	Beneficial owner	Personal	0.40%
Zhou Guangneng	1,190,000	Beneficial owner	Personal	0.34%
(Note 2)

Notes:

(1) Ni Zheng is taken to be interested as a grantee of options to subscribe for 1,400,000 Shares under the share option scheme of the Company.
(2) Zhou Guangneng is taken to be interested as a grantee of options to subscribe for 1,190,000 Shares under the share option scheme of the Company.
289 -

GENERAL INFORMATION

APPENDIX VII

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 2009, 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 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 Shares

Name of			Approximate
Substantial		No. of	shareholding
Shareholders	Capacity/Nature	Shares held	percentage
Pacific Climax	Beneficial owner	288,420,000	83.18%
(Note 1)
OCT HK	Interest of a controlled	288,420,000	83.18%
(Note 2)	corporation
OCT Holding	Interest of a controlled	288,420,000	83.18%
(Note 3)	corporation
OCT Group	Interest of a controlled	288,420,000	83.18%
(Note 4)	corporation
Others
UBS AG	Interest of a controlled	27,732,000	7.99%
	corporation
	(Note 5)

290 -

GENERAL INFORMATION

APPENDIX VII

Notes:

(1) Mr. Ni Zheng and Mr. Zhou Guangneng, both of them are Directors, are also directors of Pacific Climax. The above reference to 288,420,000 Shares comprise (i) 196,620,000 Shares, representing approximately 56.70% of the issued share capital of the Company as at the Latest Practicable Date, held by Pacific Climax; and (ii) 91,800,000 Subscription Shares, representing approximately 26.48% of the issued share capital of the Company as at the Latest Practicable Date, to be issued and allotted to Pacific Climax upon completion of the Subscription.
(2) OCT HK is the beneficial owner of all the issued share capital in Pacific Climax. Therefore, OCT HK is deemed, or taken to be interested in those Shares for the purpose of the SFO. Mr. Hou Songrong, Mr. Zheng Fan and Mr. Ni Zheng, all of them are Directors, are also directors of OCT HK.
(3) OCT Holding is the beneficial owner of all the issued share capital in OCT HK. Therefore, OCT Holding is deemed, or taken to be, interested in the 196,620,000 Shares and the long positions of 91,800,000 Shares which are beneficially owned by Pacific Climax. OCT Holding is a company incorporated in the PRC, the shares of which are listed on the Shenzhen Stock Exchange. As advised by OCT Group, OCT Holding is a non-wholly owned subsidiary of OCT Group. Mr. Zheng Fan, a Director, is also a director of OCT Holding.
(4) OCT Group is the beneficial owner of 56.36% of the issued shares in OCT Holding and therefore OCT Group is deemed, or taken to be, interested in the 196,620,000 Shares and the long positions of 91,800,000 Shares which are beneficially owned by Pacific Climax for the purposes of the SFO.
(5) The interest of UBS AG is derived from the interests in 17,588,000 Shares, 3,542,000 Shares and 6,200,000 Shares (total: 27,330,000 Shares) held by UBS Fund Services (Luxembourg) SA, UBS Global Asset Management (Hong Kong) Ltd and UBS Global Asset Management (Singapore) Ltd., respectively, which are 100% directly owned by UBS AG and therefore UBS AG is deemed, or taken to be, interested in the total of 27,732,000 Shares 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.

4. 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.

5. SERVICE CONTRACT

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

291 -

GENERAL INFORMATION

APPENDIX VII

6. INTEREST IN THE GROUP’S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, save as disclosed in this circular, none of the Directors or the expert as named in the paragraph headed “Experts and Consents” in this appendix had any interest in any assets which have been, since 31 December 2009 (being the date to which the latest published audited accounts of the Company where made up), acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement, subsisting at the date of this circular, which is significant in relation to the business of the Enlarged Group.

7. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, the Enlarged Group was not 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 Enlarged Group.

8. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Enlarged Group within the two years preceding the date of this circular and are or may be material:

(A) an agreement dated 2 June 2008 entered into between the Company and OCT HK, pursuant to which the Company agreed to acquire 51% equity interest in OCT Investments Limited and the shareholder’s loan owned by OCT Investments Limited to OCT HK from OCT HK at an aggregate consideration of HK$170 million (“Share Transfer Agreement”).
(B) a supplemental agreement dated 4 June 2008 entered into between the Company and OCT HK to amend and supplement certain terms of the Share Transfer Agreement (“Supplemental Agreement”);
(C) a loan agreement dated 25 November 2008 entered into between the Company and OCT HK for a term of two years starting from the date of completion of the Share Transfer Agreement (as referred to and defined in item (A) above), which had been amended and supplemented by the Supplemental Agreement (as referred to and defined in item (B) above, pursuant to which OCT HK agreed to grant a loan in the sum of HK$83,000,000 to the Company);
292 -

GENERAL INFORMATION

APPENDIX VII

(D) a joint venture agreement dated 14 September 2009 entered into between OCT Properties and Bantix to establish Overseas Chinese Town (Xi’an) Industry Company Limited (“OCT Xi’an”) and pursuant to which OCT Properties and Bantix agreed to contribute RMB75,000,000 and RMB25,000,000 in cash in OCT Xi’an respectively (“OCT Xi’an Joint Venture Agreement”);
(E) a placing and subscription agreement dated 12 November 2009 entered into between the Company, Pacific Climax and the Placing Agent in relation to a placing and subscription of an aggregate of 57,000,000 Shares at a placing price of HK$2.8 per placing share, by which the Placing Agent would receive a placing commission of 2.50% on the gross proceeds of the said placing;
(F) an agreement dated 7 December 2009 entered into between Bantix, OCT Holding and OCT Properties in relation to the increase in registered capital of 武漢華僑城實業發展有限公司 (Wuhan OCT Industrial Development Ltd.) (“OCT Wuhan”) and pursuant to which OCT Holding, OCT Properties and Bantix conditionally agreed to contribute RMB50,000,000, RMB100,000,000 and RMB250,000,000, respectively, in cash in OCT Wuhan (“Wuhan Capital Injection”), whereby the equity interest of OCT Wuhan would be owned as to 50%, 25% and 25% respectively by OCT Holding, OCT Properties and Bantix (“Wuhan Capital Increase Agreement”);
(G) a joint venture agreement dated 7 December 2009 entered into between OCT Holding, OCT Properties and Bantix in relation to the Wuhan Capital Injection (as referred to and defined in item (F) above) (“Wuhan Joint Venture Agreement”);
(H) an agreement dated 7 December 2009 entered into between Bantix and OCT Properties in relation to the increase in the registered capital of 西安華僑城投資有限公司 (Xi’an OCT Investment Ltd.) (“Xi’an OCT”) from RMB100,000,000 to RMB200,000,000 and pursuant to which each of Bantix and OCT Properties conditionally agreed to contribute RMB50,000,000 in cash in Xi’an OCT (“Xi’an Capital Injection”), whereby the equity interest of Xi’an OCT would be owned as to 75% and 25% respectively by OCT Properties and Bantix;
(I) a joint venture agreement dated 7 December 2009 entered into between Bantix and OCT Properties in relation to the Xi’an Capital Injection (as referred to and defined in item (H) above);
(J) a termination agreement dated 7 December 2009 entered into between OCT Properties and Bantix in relation to the termination of the OCT Xi’an Joint Venture Agreement (as referred to and defined in item (D) above);
293 -

GENERAL INFORMATION

APPENDIX VII

(K) a termination agreement dated 14 December 2009 entered into between OCT Holding, OCT Properties and Bantix in relation to the termination of the Wuhan Capital Increase Agreement (as referred to and defined in item (F) above) and the Wuhan Joint Venture Agreement (as referred to and defined in item (G) above);
(L) the Subscription Agreement entered into between the Company and Pacific Climax pursuant to which Pacific Climax agreed to subscribe for 91,800,000 Subscription Shares at the subscription price of HK$5.0 per Subscription Share;
(M) the Placing Agreement entered into between the Company and the Placing Agent pursuant to which the Placing Agent agreed to act as agent for the Company to procure placee(s) for 60,000,000 Placing Shares at the placing price of HK$5.0 per Placing Share on a fully underwritten basis, by which the Placing Agent would receive a placing commission of 2.50% on the gross proceeds of the Placing; and
(N) the Capital Increase Agreement dated 8 April 2010 entered into Bantix, OCT Properties and OCT Holding in relation to the increase in the registered capital of Chengdu OCT from RMB400 million to RMB612 million and pursuant to which Bantix agreed to contribute, in cash, RMB588 million into Chengdu OCT, whereby Bantix’s interest in Chengdu OCT would increase from 25% to approximately 51% with the additional registered capital contribution of RMB212 million and the remaining RMB376 million would be booked as capital reserve of Chengdu OCT.

9. EXPERTS AND CONSENTS

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

Name

Qualification

KPMG (“KPMG”) Certified Public Accountants Savills Valuation and Professional Property Valuer Services Limited (“Savills”)

China Everbright

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

294 -

GENERAL INFORMATION

APPENDIX VII

(b) As at the Latest Practicable Date, none of KPMG, Savills and China Everbright had 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) Each of KPMG, Savills and China Everbright has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included.
(d) As at the Latest Practicable Date, none of KPMG, Savills and China Everbright had 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 2009, being the date to which the latest published audited consolidated financial statements of the Company were made up.
(e) The letter given by each of KPMG, Savills and China Everbright is given as of the date of this circular for incorporation herein.

10. 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.
295 -

GENERAL INFORMATION

APPENDIX VII

11. DOCUMENTS AVAILABLE FOR INSPECTION

A copy 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 the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for the two years ended 31 December 2009;
(c) the letter from China Everbright to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 55 to 87 of this circular;
(d) the accountant’s report of Chengdu OCT, the text of which is set out in Appendix I of this circular;
(e) the unaudited pro forma financial information of the Englarged Group, the text of which is set out in Appendix IV of this circular;
(f) the property valuation report, the text of which is set out in Appendix V of this circular;
(g) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix;
(h) the written consents referred to in the paragraph headed “Experts and Consents” in this appendix; and
(i) the circulars of the Company which have been issued since 31 December 2009.
296 -

NOTICE OF EGM

==> picture [213 x 54] intentionally omitted <==

Overseas Chinese Town (Asia) Holdings Limited 華僑城（亞洲）控股有限公司 (Incorporated in the Cayman Islands with limited liability)

(Stock Code: 03366)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “Meeting”) of Overseas Chinese Town (Asia) Holdings Limited (the “Company”) will be held at Function Room-Cypress, InterContinental Hong Kong, 18 Salisbury Road, Kowloon, Hong Kong on 31 May 2010 at 10:30 a.m. for considering and, if thought fit, passing, with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT
(a) the capital increase agreement entered into between Bantix International Limited (“Bantix”), 深圳華僑城控股股份有限公司(Shenzhen Overseas Chinese Town Holding Company) (“OCT Holding”) and 深圳華僑城房地產有限公司(Overseas Chinese Town Real Estate Company Limited) (“OCT Properties”) dated 1 April 2010 (the “Capital Increase Agreement”) in relation to the increase in the registered capital of 成都天府華僑城實業發展有限公司 (Chengdu Tianfu OCT Industry Development Company Limited) (“Chengdu OCT”) from RMB400 million to RMB612 million and pursuant to which Bantix agreed to contribute, in cash, RMB588 million into Chengdu OCT (a copy of which has been produced to the Meeting marked “A” and initialled by the Chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) 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 Capital Increase Agreement and the transactions contemplated thereunder.”
297 -

NOTICE OF EGM

“ THAT
(a) the subscription agreement entered into between the Company and Pacific Climax Limited (“Pacific Climax”) dated 1 April 2010 pursuant to which Pacific Climax agreed to subscribe for 91,800,000 new shares (the “Subscription Shares”) of HK$0.10 each in the share capital of the Company at the subscription price of HK$5.00 per Subscription Share (the “Subscription Agreement”) (a copy of which has been produced to the Meeting marked “B” and initialled by the Chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder and all other matters of and incidental thereto or in connection therewith be and are hereby approved, confirmed and ratified;
(b) the board of directors of the Company be and is hereby generally and specifically authorized to allot and issue the Subscription Shares upon and subject to the terms and conditions of the Subscription Agreement;
(c) 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 Subscription Agreement and the transactions contemplated thereunder”
“ THAT
(a) the placing agreement entered into between the Company and China Merchants Securities (HK) Co., Limited (the “Placing Agent”) dated 1 April 2010 pursuant to which the Placing Agent has agreed to act as placing agent for the Company to procure placee(s) for 60,000,000 new shares (the “Placing Shares”) of par value HK$0.10 each in the share capital of the Company at the placing price of HK$5.00 per Placing Share on a fully underwritten basis (the “Placing Agreement”) (a copy of which has been produced to the Meeting marked “C” and initialled by the Chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder and all other matters of and incidental thereto or in connection therewith be and are hereby approved, confirmed and ratified;
(b) the board of directors of the Company be and is hereby generally and specifically authorized to allot and issue the Placing Shares pursuant to the Placing Agreement;
298 -

NOTICE OF EGM

(c) 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 Placing Agreement and the transactions contemplated thereunder.”

By Order of the Board FONG Fuk Wai Company Secretary

Hong Kong, 13 May 2010

Notes:

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.
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.
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 Suites 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.
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.
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.
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.
As at the date of this notice of EGM, the board of directors of the Company comprises eight Directors, namely: Mr. Hou Songrong, Mr. Ni Zheng, Ms. Xie Mei and Mr. Zhou Guangneng as executive Directors; Mr. Zheng Fan as non-executive Director; Ms. Wong Wai Ling, Mr. Xu Jian and Mr. Lam Sing Kwong Simon as independent non-executive Directors.
299 -

AI assistant

RemeGen Co., Ltd. — Proxy Solicitation & Information Statement 2010

51206_rns_2010-05-12_33407437-d7a0-4c96-8956-8489f5cfe5cf.pdf

Overseas Chinese Town (Asia) Holdings Limited 華僑城（亞洲）控股有限公司

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION, PLACING OF NEW SHARES UNDER THE SPECIFIC MANDATE AND SUBSCRIPTION OF NEW SHARES UNDER THE SPECIFIC MANDATE

Financial adviser to the Company

DEFINITIONS

DEFINITIONS

DEFINITIONS

Overseas Chinese Town (Asia) Holdings Limited 華僑城（亞洲）控股有限公司

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION, PLACING OF NEW SHARES UNDER THE SPECIFIC MANDATE AND SUBSCRIPTION OF NEW SHARES UNDER THE SPECIFIC MANDATE

A. INTRODUCTION

LETTER FROM THE BOARD

B. THE CAPITAL INCREASE AGREEMENT DATED 1 APRIL 2010

Parties

Conditions

C. INFORMATION OF CHENGDU OCT GROUP

LETTER FROM THE BOARD

Development Plan

The Commercial Property Project

Chengdu Happy Valley

D. BUSINESS MODEL OF CHENGDU OCT GROUP

Management Structure

Opportunity Identification and Feasibility Study

Due diligence

Construction

Construction

Pre-sale, sales and marketing

Marketing

After sales services

Management

Opportunity Identification and Feasibility Study

Due Diligence

Preparation

Planning and design (Property Development)

Construction (Property Development)

Pre-sale, sales and marketing (Property Development)

After-sales services (Property Development)

Planning and design (Tourism)

Construction (Tourism)

Marketing (Tourism)

Management (Tourism)

Customers and Suppliers

Taxation

LETTER FROM THE BOARD

Laws and regulations

E. MANAGEMENT DISCUSSION AND ANALYSIS OF CHENGDU OCT GROUP

LETTER FROM THE BOARD

Business Overview

Segment information

Significant investment, material acquisition and disposal

Prospects and futures plans

Liquidity, financial resources, gearing ratio and capital structure

Charge on assets

Treasury policies and foreign currency exposure

Capital commitment

Employees and Remuneration Policy

Contingent liabilities

F. THE MANAGEMENT TEAM OF CHENGDU OCT GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

G. REASONS FOR AND BENEFIT OF THE CAPITAL INJECTION

LETTER FROM THE BOARD

H. THE PLACING AGREEMENT DATED 1 APRIL 2010

Issuer

Placing Agent

Placee(s)

Independence of the Placing Agent and placee(s)

Number of Placing Shares

Placing Price

Ranking of the Placing Shares

Conditions of the Placing Agreement

Completion

Rescission

I. THE SUBSCRIPTION AGREEMENT DATED 1 APRIL 2010

Issuer

Subscriber

Subscription Shares

Subscription price

Mandate to issue the Subscription Shares

RemeGen Co., Ltd. Proxy Solicitation & Information Statement 2010