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, 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 with the accompanying form of proxy to the purchaser or transferee, or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong 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.

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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: THE CAPITAL INVESTMENT AGREEMENT

Financial adviser to the Company

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 38 of this circular. A letter from China Everbright Capital Limited, the independent financial adviser, containing its advice to the independent board committee and the independent shareholders of the Company is set out on pages 39 to 58 of this circular.

A notice convening the extraordinary general meeting of the Company to be held at Tang Room II, 3/F, Sheraton Hong Kong Hotel, 20 Nathan Road, Kowloon, Hong Kong on Thursday, 12 April 2012 at 11:00 a.m. is set out on pages EGM-1 to EGM-2 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 Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited at 17M Floor, 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.

23 March 2012

CONTENTS

	Page
Definitions	1
Letter from the Board 4
Introduction 4
The Capital Investment Agreement 5
Reasons for and benefits of entering into the Capital Investment Agreement	7
The Loan Agreement	7
Reasons for and benefits of entering into the Loan Agreement 9
Information of OCT Shanghai Land and the Suhewan Project	10
Business model of OCT Shanghai Land	13
Human resources and management expertise	17
Management discussion and analysis of OCT Shanghai Land	18
Financial effect of the Capital Injection	22
Financial and trading prospects of the Enlarged Group 22
Industry overview	23
Risk factors 27
Implications under the Listing Rules	35
Independent Board Committee and Independent Financial Adviser	36
EGM	36
Recommendations	37
Additional information	37

Letter from the Independent Board Committee 38	Letter from the Independent Board Committee 38
Letter from China Everbright 39
Appendix I – Accountants’ report of OCT Shanghai Land	I-1
Appendix II – Financial information of the Group II-1
Appendix III – Management discussion and analysis of the Group III-1
Appendix IV – Unaudited pro forma financial information of the Enlarged Group	IV-1
Appendix V – Property valuation of the Suhewan Project V-1
Appendix VI – Summary of PRC Laws in relation to property sector	VI-1
Appendix VII – General Information	VII-1
Notice of EGM EGM-1

ii -

DEFINITIONS

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

“associate(s)” has the meaning ascribed thereto in the Listing Rules “Board” the board of Directors “Capital Injection” the capital injection of RMB2,232,000,000 into OCT Shanghai Land to be made by Great Tec pursuant to the Capital Investment Agreement
“Capital Investment Agreement” the conditional capital investment agreement entered into between OCT Properties and Great Tec on 5 January 2012 in relation to the Capital Injection
“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
“Completion” completion of the Capital Injection pursuant to the Capital Investment Agreement when the entire amount of RMB2,232,000,000 has been fully contributed to OCT Shanghai Land
“connected person(s)” has the meaning ascribed thereto in the Listing Rules
“controlling shareholder(s)” has the meaning ascribed thereto in the Listing Rules
“Director(s)” the director(s) of the Company “EGM” the extraordinary general meeting of the Company to be convened on 12 April 2012 for considering and, if thought fit, approving, among other things, the Capital Investment Agreement and the transactions contemplated thereunder
“Enlarged Group” the Group as enlarged by the Capital Injection
“Great Tec” Great Tec Investment Limited, a company incorporated in Hong Kong with limited liability, and an indirect wholly-owned subsidiary of the Company
“Group” the Company and its subsidiaries
1 -

DEFINITIONS

“Hong Kong”
“Independent Board Committee”
“Independent Financial Adviser” or “China Everbright”
“Independent Shareholders”
“Latest Practicable Date”
“Listing Rules”
“Loan Agreement”
“OCT (HK)”
“OCT Ltd.”
“OCT Properties”
“OCT Shanghai Land”
the Hong Kong Special Administrative Region of the People’s Republic of China
the independent board committee of the Company comprising all the independent non-executive Directors, namely, Ms. Wong Wai Ling, Mr. Xu Jian and Mr. Lam Sing Kwong Simon, which was established to advise the Independent Shareholders in respect of the Capital Investment Agreement and the transactions contemplated thereunder
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
Shareholders other than Pacific Climax and its associates
21 March 2012, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
the Rules Governing the Listing of Securities on the Stock Exchange
the conditional loan agreement entered into between OCT (HK) (as lender) and the Company (as borrower) on 5 January 2012, details of which are set out in the announcement of the Company dated 13 January 2012
Overseas Chinese Town (HK) Company Limited, a company incorporated in Hong Kong with limited liability, and whollyowned by OCT Ltd.
Shenzhen Overseas Chinese Town Company Limited (深圳華僑城股份有限公司), a company established in the PRC, the shares of which are listed on the Shenzhen Stock Exchange
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 Ltd.
華僑城(上海)置地有限公司 (Overseas Chinese Town (Shanghai) Land Company Limited), a company established in the PRC with limited liability
2 -

DEFINITIONS

“Pacific Climax”	Pacific Climax Limited, a company incorporated in the British
	Virgin Islands with limited liability, which is a controlling
	shareholder of the Company and is wholly-owned by OCT
	(HK)
“PRC”	the People’s Republic of China, excluding, for the purpose of
	this circular only, Hong Kong, the Macau Special Administrative
	Region of the People’s Republic of China and Taiwan
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong)
“Share(s)”	existing ordinary share(s) of HK$0.10 each in the issued share
	capital of the Company
“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“subsidiary(ies)”	has the meaning ascribed thereto in the Listing Rules
“Suhewan Project”	the comprehensive uses property project comprising three parcels
	of land with a total site area of approximately 70,979.60 sq.
	m.
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“sq. ft.”	square feet
“sq. m.”	square meter
“V&T”	V&T (Shezhen) Law Firm (萬商天勤深圳律師事務所), the
	Company’s PRC legal adviser
“%”	per cent.

In this circular, the English names of the PRC entities or enterprises are translation of their Chinese names solely for the purpose of illustration. In the event of any inconsistency, the Chinese names shall prevail.

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 RMB0.81: HK$1.

LETTER FROM THE BOARD

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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: Registered Office: Ms. Wang Xiaowen (Chairman) PO Box 1350 GT Ms. Xie Mei (Chief Executive Officer) 75 Fort Street Mr. Zhou Guangneng Grand Cayman Cayman Islands

Non-executive Director:

Mr. He Haibin

Mr. He Haibin Head Office and Principal Place of Business: Independent Non-executive Directors: Suites 3203-3204, Tower 6 Ms. Wong Wai Ling The Gateway, Harbour City Mr. Xu Jian Canton Road Mr. Lam Sing Kwong Simon Tsim Sha Tsui Kowloon Hong Kong 23 March 2012

To the Shareholders,

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION: THE CAPITAL INVESTMENT AGREEMENT

INTRODUCTION

References are made to the announcement of the Company dated 13 January 2012.

On 5 January 2012, Great Tec, an indirect wholly-owned subsidiary of the Company, entered into the Capital Investment Agreement with OCT Properties, pursuant to which Great Tec conditionally agreed to make capital contribution of RMB2,232,000,000 to OCT Shanghai Land. Upon Completion, the registered capital of OCT Shanghai Land would be RMB3,030,000,000 and the equity interest of OCT Shanghai Land would be owned as to 50.5% by Great Tec and as to 49.5% by OCT Properties, respectively.

LETTER FROM THE BOARD

The purpose of this circular is to provide Shareholders with (i) further details of the Capital Investment Agreement and the transactions contemplated thereunder; (ii) the recommendation from the Independent Board Committee; (iii) the advice from China Everbright; (iv) a notice of the EGM; and (v) information as required by the Listing Rules.

THE CAPITAL INVESTMENT AGREEMENT

Date

5 January 2012

Parties

(1) Great Tec
(2) OCT Properties

OCT Properties is a wholly-owned subsidiary of OCT Ltd. It is principally engaged in property development and operation on self-owned land, leasing of self-owned property and investment in industry. OCT Ltd. and its subsidiaries (apart from the Group), as a whole, are strategically positioned as a developer and operator on the tourism and cultural business, and a property developer with cultural and tourism features. OCT Properties is a connected person of the Company under the Listing Rules.

Capital Injection

Pursuant to the Capital Investment Agreement, Great Tec will make capital contribution of RMB2,232,000,000 (or the equivalent thereof) (equivalent to approximately HK$2,755,555,556) in cash to OCT Shanghai Land, out of which RMB1,530,000,000 will be included as new registered capital of OCT Shanghai Land, and RMB702,000,000 will be included as capital reserve of OCT Shanghai Land.

As advised by the legal advisers of the Company as to PRC laws, under the relevant laws, regulations and financial regulations of the PRC, any premium over the equity interest (meaning investment amounts by investor exceeding the investor’s corresponding interests in the registered capital) shall be included in the capital reserve account of the enterprise. Based on the registered capital already paid-up by OCT Properties of RMB1,500,000,000 in OCT Shanghai Land and its equity interest of 49.5% in OCT Shanghai Land upon Completion, the corresponding registered capital to be held by Great Tec would be RMB1,530,000,000. The said amount of RMB702,000,000 out of the total capital contribution of RMB2,232,000,000, being the surplus over Great Tec’s interest in the corresponding registered capital of RMB1,530,000,000, would be included as capital reserve of OCT Shanghai Land.

LETTER FROM THE BOARD

capital of OCT Shanghai Land will increase from RMB1,500,000,000 (equivalent to approximately HK$1,851,851,852) to RMB3,030,000,000 (equivalent to approximately HK$3,740,740,741) upon Completion. Following Completion, the equity interest of OCT Shanghai Land will be owned as to 50.5% by Great Tec and as to 49.5% by OCT Properties, respectively.

The Capital Injection shall be contributed by Great Tec by phases within 2 years from the date of the approval of the joint venture contract pursuant to the Capital Investment Agreement, and the first phase of RMB900,000,000 (equivalent to approximately HK$1,111,111,111) shall be contributed by Great Tec within 30 days from the date of the approval of the joint venture contract pursuant to the Capital Investment Agreement.

The Group intends to finance the capital contribution through internal resources, the advance under the Loan Agreement, bank borrowing and/or external financing.

Prior to Completion, dividend declared by OCT Shanghai Land shall be distributed between Great Tec and OCT Properties in the ratio of (i) actual amount contributed to OCT Shanghai Land by Great Tec at the relevant time, to (ii) the mutually agreed net assets value of RMB2,188,000,000 (equivalent to approximately HK$2,701,234,568) as at 31 December 2011 of OCT Shanghai Land prior to the Capital Injection. The said mutually agreed net assets value of RMB2,188,000,000 of OCT Shanghai Land was agreed with reference to, among other things, the initial estimation of the property value of OCT Shanghai Land of approximately RMB11,000,000,000 as at 31 December 2011 by an independent professional valuer, by market approach to carry the valuation, with the Company also taking into account the value of non-property assets of OCT Shanghai Land and deducting the liability of OCT Shanghai Land, together with the favourable location, development prospects of OCT Shanghai Land, etc.

Pursuant to the Capital Investment Agreement, the board of directors of OCT Shanghai Land will comprise three directors upon Completion, out of which two directors (including the chairman to the board of directors) are to be appointed by Great Tec, and one director is to be appointed by OCT Properties. Following Great Tec having made any part of the Capital Injection but prior to Completion, Great Tec will be entitled to appoint one director of OCT Shanghai Land and OCT Properties will be entitled to appoint the remaining two directors (including the chairman to the board of directors), respectively. Each of Great Tec and OCT Properties shall be entitled to recommend one supervisor of OCT Shanghai Land.

As the Group has the power to govern the financial and operating policies of OCT Shanghai Land by being able to control the board of directors anytime through making the full capital contribution, OCT Shanghai Land is considered to be a subsidiary of the Group in accordance with Hong Kong Accounting Standard 27, Consolidated and Separate Financial Statements, when the Capital Investment Agreement becomes binding and unconditional.

Conditions Precedent to the Capital Investment Agreement

The Capital Injection is conditional upon, among other things, fulfillment of the following conditions:

(1) having obtained all necessary or appropriate approval, authorisation, consent and licence by the Company as a company whose shares are listed on the Stock Exchange (including without limitation, approval from Shareholders at general meeting approving the Capital Investment Agreement); and
6 -

LETTER FROM THE BOARD

(2) having obtained approval from the Ministry of Commerce of the PRC or its authorised approval authorities, and all necessary approval, consents, authorisation and licences and having fulfilled all statutory requirements (if any).

If any of the above conditions is not fulfilled on or before 30 September 2012 (or such later date as the parties may agree in writing), the Capital Investment Agreement shall be automatically terminated and cease to have any effect, and neither party shall be held responsible under the Capital Investment Agreement (save for antecedent breach).

REASONS FOR AND BENEFITS OF ENTERING INTO THE CAPITAL INVESTMENT AGREEMENT

In addition to its continual development in the business of design and manufacture of quality paperbased packaging containers and material, including corrugated paperboard and printed cartons for customers, the Group is also principally engaging in the development and operation of commercial complex. The Suhewan Project of OCT Shanghai Land is a large-scale comprehensive uses project possessing distinctive features. The Board believes that the Suhewan Project is capable of deriving attractive return, and is confident in the prospects of the Suhewan Project. The Company wishes the investment in OCT Shanghai Land would bring positive return, enhance the revenue, profit and scale of the Group as a whole, and become a milestone of the Group in achieving its strategic goals. OCT Ltd. and its subsidiaries (apart from the Group), as a whole, are strategically positioned as a developer and operator on the tourism and cultural business, and a property developer with cultural and tourism features. The Directors consider that the positioning of the Group on one hand, and OCT Ltd. and its subsidiaries (apart from the Group) on the other hand, are different. The Directors therefore consider that there exist no potential competition between the Group and OCT Ltd. and its subsidiaries.

The amount of contribution to be made by Great Tec under the Capital Investment Agreement was determined on normal commercial terms and arrived at after arm’s length negotiation between Great Tec and OCT Properties, taking into consideration: (i) land pieces of the Suhewan Project held by OCT Shanghai Land, which is located in the heart of Shanghai along Suzhou River, having a long history of culture and humanities. In particular, the adjacent areas of the Suhewan Project have been planned as high-end business and residential areas. The Company expects that such favourable location would bring sizeable income to OCT Shanghai Land in the short run by selling its properties in the Suhewan Project and stable rental income in the long run by its holding of properties in the Suhewan Project; (ii) that the Capital Injection will enable the Group to broaden its income base, in particular, it is expected that the sale of properties would commence in the fourth quarter of 2012, thereby contributing relatively speedy return to investment to the Group; (iii) the potential economic growth in Shanghai; and (iv) the initial estimation of the property value of OCT Shanghai Land by an independent professional valuer, and the liability of OCT Shanghai Land.

THE LOAN AGREEMENT

Date:

5 January 2012

LETTER FROM THE BOARD

Parties:

(1) Lender: OCT (HK)
(2) Borrower: the Company

OCT (HK) is an investment holding company, which is wholly-owned by OCT Ltd., and it holds 100% equity interest in Pacific Climax, which is a controlling shareholder of the Company. It is a connected person of the Company under the Listing Rules.

Principal terms:

Loan amount : RMB900,000,000 (or the equivalent thereof) (equivalent to approximately HK$1,111,111,111)
Term : 5 years from the date on which all conditions precedent to the Loan Agreement as set out in the paragraph headed “Conditions precedent to the Loan Agreement” below having been fulfilled
Interest : 3.62% per annum and payable every six months from the date of drawdown
Repayment : All outstanding amounts under the Loan Agreement shall be repaid in full not later than the repayment date being the 5th anniversary from the date on which all conditions precedent to the Loan Agreement as set out in the paragraph headed “Conditions precedent to the Loan Agreement” below having been fulfilled
Subject to all necessary or appropriate approval, authorisation, consent and licence having been obtained, the Company may, subject to the entering into of separate agreement(s), repay the facility through allotment and issue of Shares or securities of the Company
Prepayment : The Company may voluntarily prepay the whole or any part of the loan outstanding under the Loan Agreement, provided that such prepayment shall be an integral multiple of RMB1,000,000 (or such other amount as the parties may agree), and any amounts prepaid may not be reborrowed under the Loan Agreement
Purpose : The loan shall be used for the Capital Injection and/or as general working capital of the Company
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LETTER FROM THE BOARD

Conditions precedent to the Loan Agreement

: The Loan Agreement is conditional upon, among other things, fulfillment of the following conditions:

(1) having obtained all necessary or appropriate approval, authorisation, consent and licence by the Company as a company whose shares are listed on the Stock Exchange (including without limitation, approval from Independent Shareholders at general meeting approving the Loan Agreement, where required);
(2) having obtained all necessary or appropriate consents, authorisations and licence and other approval for the entering into of the Loan Agreement and the transactions contemplated thereunder, and the satisfaction of all statutory requirements (if any); and
(3) satisfaction of all of the conditions of the Capital Investment Agreement

If any of the above conditions is not fulfilled on or before 30 September 2012 (or such later date as the parties may agree in writing), the Loan Agreement shall be automatically terminated and cease to have any effect, and neither party shall be held responsible under the Loan Agreement (save for antecedent breach)

The Loan Agreement is conditional upon, among other things, satisfaction of all of the conditions of the Capital Investment Agreement. The Capital Investment Agreement is not conditional upon any aspect of the Loan Agreement.

The terms of the Loan Agreement were arrived at after arm’s length negotiation between OCT (HK) and the Company with reference to the prevailing market interest rates and practices.

REASONS FOR AND BENEFITS OF ENTERING INTO THE LOAN AGREEMENT

The facility to be obtained by the Company under the Loan Agreement will be applied in the contribution to the first phase of the Capital Injection in the amount of RMB900,000,000 (equivalent to approximately HK$1,111,111,111) pursuant to the Capital Investment Agreement. By comparing other financing resources in the market, the Company believes that in light of the current market condition with limited funding, the Loan Agreement allows the Company to arrange for the relatively large sum of funding within a short period, while the terms are more favourable to the Company when compare to normal commercial terms in the market.

LETTER FROM THE BOARD

The alternative repayment of the loan under the Loan Agreement by allotment or issue of Shares or securities of the Company is only available subject to (i) the entering into of separate agreement(s) concerning such allotment or issue; and (ii) having obtaining all necessary or appropriate approval, authorisation, consent and licence as set out in the sub-paragraph beside “Repayment” above, and until fulfillment of such, would not constitute a mandatory provision on the Company or OCT (HK) under the Loan Agreement. If such alternative arrangement is adopted and therefore separate agreement(s) having entered into, the Company will comply with all applicable Listing Rules as and when appropriate based on the circumstance at relevant time.

The Directors consider that the terms of the Loan Agreement are fair and reasonable, and that the Loan Agreement and the transactions contemplated thereunder are in the interest of the Company and the Shareholders as a whole.

INFORMATION OF OCT SHANGHAI LAND AND THE SUHEwAN PROjECT

OCT Shanghai Land was established in the PRC with limited liability on 1 March 2010. It is principally engaged in the development, operation, leasing, property management of commercial properties, residential properties, office premises, and culture and entertainment projects of land pieces in Shanghai, together with the management of related parking lots.

OCT Shanghai Land is currently engaged in the Suhewan Project (蘇河灣項目) in Shanghai and held three pieces of land with a total site area of approximately 70,979.60 sq. m. (764,024 sq. ft.) in the north coast of Suzhou River (蘇州河), Shanghai, the PRC. The Suhewan Project is a largerscale comprehensive uses project possessing distinctive features, which is currently planed to include high-end residential properties, low-rise residential by the shore, apartments for small office/home office (“Soho”), boutique business premises and grand hotel upon completion of the constructions. The Suhewan Project is located in the city centre of Shanghai with a total site area of approximately 70,979.60 sq. m. and a planned total floor area of approximately 282,168.55 sq. m. (above ground) and approximately 146,671.05 sq. m. (underground), the details of which are as follows:

Use Hotel Commercial Office Residential Ancillary facilities Total	Approximate gross floor area (sq. m.) (sq. ft.) 33,180.00 357,150 93,148.02 1,002,645 94,659.53 1,018,915 59,849.00 644,215 148,003.05 1,593,105 428,839.60 4,616,030	Approximate gross floor area (sq. m.) (sq. ft.) 33,180.00 357,150 93,148.02 1,002,645 94,659.53 1,018,915 59,849.00 644,215 148,003.05 1,593,105 428,839.60 4,616,030
		4,616,030

The Suhewan Project comprises of three land parcels, namely 1 Jiefang, 41 Jiefang and 42 Jiefang. The land use rights of 1 Jiefang have been granted for terms of 40 years, 50 years and 70 years commencing from 10 March 2011 for (i) commercial; (ii) office and cultural entertainment; and (iii) residential uses, respectively, whilst the land use rights of 41 & 42 Jiefang have been granted for terms of 40 years and 50 years commencing from the delivery date for (i) commercial; and (ii) office and cultural entertainment uses, respectively.

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LETTER FROM THE BOARD

Pursuant to the legal opinion on the title to the property issued by V&T:

i. OCT Shanghai Land had fully paid the land grant fee of the three land parcels;
ii. OCT Shanghai Land has obtained the Shanghai Certificate of Real Estate Ownership for 1 Jiefang, 41 Jiefang and 42 Jiefang with site area of approximately 35,560.50 sq.m., 11,262.60 sq.m. and 8,457.20 sq.m. respectively while the Shanghai Certificate of Real Estate Ownership for the remaining parts of 41 & 42 Jiefang with a total site area of 15,699.30 sq.m. is being applied for and outstanding yet as at the Latest Practicable Date. However there will be no legal impediment for OCT Shanghai Land to obtain the Shanghai Certificate of Real Estate Ownership for the remaining parts of 41 & 42 Jiefang as OCT Shanghai Land has fully paid the land grant fee;
iii. the aforesaid land use rights held by OCT Shanghai Land was not transferred, leased, mortgaged or seized by legal authority as at the Latest Practicable Date;
iv. OCT Shanghai Land has obtained the land use rights of Granted Land Nos. 20090817842370493, 20090817842670459 and 20090817842570472 and is entitled to occupy and use the aforesaid three land parcels; and
v. once OCT Shanghai Land has complied with the development conditions including plot ratio, building height, building density and greenery ratio as specified in the relevant State-owned Construction Land use Rights Grant Contracts and then obtained such official approvals as Construction Projects Planning Permits and Construction Works Commencement Permits, it is entitled to develop the aforesaid land parcels and to own, occupy, use, transfer and lease the property upon completion.
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LETTER FROM THE BOARD

The location of the three parcels of land of the Suhewan Project is illustrated below:

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The total construction cost of Suhewan Project is estimated at RMB4.9 billion.

The Suhewan Project will be constructed and completed in phases such that all necessary permits will be obtained for the construction and sale of properties. It is contemplated that a certain properties in the Suhewan Project will be sold, starting from the fourth quarter of 2012 and thereby deriving revenue to OCT Shanghai Land in the same year. The development of the Suhewan Project is expected to complete in 2016, and certain properties will be held by OCT Shanghai Land, thereby bringing sustainable income in the future.

As OCT Shanghai Land was newly established in the PRC in 2010 and is still in the early stage of development, there were no profits for the period from 1 March 2010 (date of establishment) to 31 December 2010 and for the year ended 31 December 2011 and it recorded a net loss of approximately RMB31,283,000 for the period from 1 March 2010 (date of establishment) to 31 December 2010 and RMB21,863,000 for the year ended 31 December 2011. As at 31 December 2011, the net asset value of OCT Shanghai Land was approximately RMB1,446,854,000.

As the Suhewan Project will be developed in phases and currently expected to be ready for sale or lease before the entire project’s completion in 2016, OCT Shanghai Land will derive its revenue from sales of properties and rental income of business premises held as investment properties. The revenue recognition policy is in accordance with the Hong Kong Financial Reporting Standards.

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LETTER FROM THE BOARD

OCT Shanghai Land will become an indirect subsidiary of the Company upon the Capital Investment Agreement becomes unconditional. The Group’s percentage of interest in OCT Shanghai Land will be based on the actual capital injection amount and OCT Shanghai Land’s net asset value of RMB2,188,000,000 as at 31 December 2011.

Great Tec and OCT Properties also entered into a joint venture contract and the articles of association in respect of OCT Shanghai Land with OCT Shanghai Land on the same date, which major terms are to reflect the Capital Injection. Set out below are the principal terms of such joint venture contract and articles of association, in addition to those set out in the Capital Investment Agreement:

Rights of first refusal

Where an existing shareholder of OCT Shanghai Land proposes to transfer all or any part of its capital contribution in OCT Shanghai Land to a third party, it shall first obtain the consent of other shareholder(s) of OCT Shanghai Land, who will have a pre-emption right to acquire such capital contribution on the same terms and conditions

No encumbrance

No part of the equity interest of OCT Shanghai Land may be charged, pledged, or no encumbrance may be created thereon unless written consents have been obtained from other shareholder(s) of OCT Shanghai Land

Matters requiring

unanimous approval by all directors
Unanimous approval from all directors of OCT Shanghai Land shall be obtained for matters in relation to, among other things, termination and dissolution of OCT Shanghai Land, adjustment to its registered capital, pledge of assets of OCT Shanghai Land, pledge of equity interest of shareholder and merger and demerger of OCT Shanghai Land

BUSINESS MODEL OF OCT SHANGHAI LAND

By leveraging on (i) the brand name of “Overseas Chinese Town”; and (ii) the advanced design concept and experience in comprehensive property development, OCT Shanghai Land has been successful in obtaining lands. Through the overall development of real estate, hotel and commercial properties, OCT Shanghai Land is able to (i) enhance the surrounding living environment and leisure facilities; and (ii) improve the overall quality of its property development projects, thereby resulting in mutual benefit to the businesses of OCT Shanghai Land.

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

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LETTER FROM THE BOARD

(1) Opportunity identification and feasibility study • Strategic planning • Market analysis • Resources analysis • Preliminary feasibility study • Preliminary review and approval
(2) Due diligence • Due diligence • Set out terms for negotiation • Preliminary design and planning • In-depth feasibility study • Final review and approval
(3) Preparation • Establishment of the project working • Financial arrangement team • Obtain relevant approval
• Negotiation and execution of contract
(4) Property development – Planning and design • Conceptual design • Construction plan • Architectural and construction design
(5) Construction • Outsource of contractors • Construction supervision • Procurement of supplies • Quality and budget control • Completion inspection
(6) Pre-sale, sales and marketing • Preparation of pre-sales • Marketing and promotional activities
(7) After sales services • Property management • Customer services • Handling of customers’ feedback and complaints

(1) 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.

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LETTER FROM THE BOARD

(2) 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.

(3) 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.

(4) Property development – Planning and design

Upon granting of the land use right of the land, OCT Shanghai Land has already appointed 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 in the PRC. Upon approval of preliminary design, OCT Shanghai Land will appoint the design department to proceed with the design of the project (including revision). OCT Shanghai Land will also submit 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.

(5) Construction

Upon obtaining the construction works planning permit, OCT Shanghai Land will outsource the construction works to 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 OCT Shanghai Land. A management engineer from the project team will be assigned to monitor quality, costs and construction progress closely during the construction period. OCT Shanghai Land, 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.

(6) Pre-sale, sales and marketing

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 to 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 development 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, OCT Shanghai Land 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 OCT Shanghai Land to potential customers.

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(7) After-sales services

OCT Shanghai Land endeavours to provide good after-sales services by assisting customers who purchase the residential properties of OCT Shanghai Land 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 arranging for and supervising the repair and maintenance of its developed properties in a timely manner.

Contractors

The development construction works in related to the Suhewan Project has been subcontracted by OCT Shanghai Land to contractors. The five largest contractors of OCT Shanghai Land accounted for approximately 19% and 91.73% of the total contract sum of the OCT Shanghai Land for the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011 respectively.

Taxation

PRC Corporate Income Tax (“CIT”) is provided at the rate of 25% and 25% for the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011 respectively 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.

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. OCT Shanghai Land 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.

Laws and regulations

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

Due Diligence

The Company conducted a careful assessment of OCT Shanghai Land. In considering the Capital Injection and determining its terms of consideration, the Board placed lots of emphasis on the financial performance and legal compliance of OCT Shanghai Land.

As part of the due diligence works performed by the Company, the Company has reviewed the management accounts and audited financial statements of OCT Shanghai Land for the period from 1 March 2010 (date of establishment) to 31 December 2010 and for the year ended 31 December 2011. Apart from reviewing the audited financial statements of OCT Shanghai Land for the period from 1

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March 2010 (date of establishment) to 31 December 2010 and for the year ended 31 December 2011, as part of the due diligence work performed on OCT Shanghai Land, the Company has also reviewed the latest unaudited management accounts of OCT Shanghai Land prepared for the period after the year 2011 (which had not been taken into account by the Directors before entering into the Capital Investment Agreement on 5 January 2012). In addition, the Company has also carried out site visit to land under the Project Suhewan.

The Board has appointed V&T to perform legal due diligence works on OCT Shanghai Land. The PRC lawyer has examined the validity of the title certificates and also investigated various legal compliance issues of OCT Shanghai Land.

HUMAN RESOURCES AND MANAGEMENT EXPERTISE

As at 31 December 2010 and 2011, OCT Shanghai Land had a total of approximately 18 and 50 full-time staff members respectively. The human resources deployment of OCT Shanghai Land as at the Latest Practicable Date can be illustrated as follow:

Department Number Senior management Design department Engineering Department Sales and Marketing Department Administration Department Accounting and Finance Department Total	of employee 4 12 8 9 10 7
	50

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 OCT Shanghai Land 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, OCT Shanghai Land also provides discretionary bonuses based upon its business results and the individual performance of the staff. OCT Shanghai Land 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.

Below are the biographies of the management expertise in OCT Shanghai Land who will be responsible for the development and management of the Suhewan Project:

袁靜平 Yuan Jingping (“ Mr. Yuan ”), aged 47, is the managing director of OCT Shanghai Land. Mr. Yuan has extensive experience in real estate and construction industries. Since joining Overseas Chinese Town Enterprises Company being the ultimate holding company of OCT Shanghai Land, in

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1999, Mr. Yuan has been the general manager of 深圳招商華僑城投資有限公司 (Shenzhen CMOCT Investment Limited) and Shanghai Highpower OCT Investment Inc.. Before joining the Group, Mr. Yuan served as a chief architect in an architectural design institute. In 1989, Mr. Yuan attained his master degree of architecture from Southeast University.

汪莎莎 Wang Shasha (“ Ms. wang ”), aged 55, is the deputy general manager of OCT Shanghai Land. Ms. Wang has extensive experience in financial management and corporate management experience. Since joining Overseas Chinese Town Enterprises Company being the ultimate holding company of OCT Shanghai Land, in 1998, Ms. Wang has been the senior manager in finance department of OCT Properties and the chief financial officer and deputy general manager of Shenzhen OCT East Co., Ltd. respectively.

楊凡 Yang Fan (“ Mr. Yang ”), aged 46, is the deputy general manager of OCT Shanghai Land. Mr. Yang has extensive experience in real estate and construction industries. Since joining Overseas Chinese Town Enterprises Company being the ultimate holding company of OCT Shanghai Land, in 2008, Mr. Yang has been the chief engineer in engineering department of OCT Properties and the deputy general manager of Shanghai Highpower OCT Investment Inc. respectively. Before joining the Group, Mr. Yang has been the architect, senior designer, vice president and PRC representatives of various architectural design firms in the PRC and overseas. Mr. Yang attained his master degree of architecture from McGill University in 2001.

唐紅春 Tang Hongchun (“ Mr. Tang ”), aged 45, is the assistant general manager of OCT Shanghai Land and is in charge of the engineering department. Since joining Overseas Chinese Town Enterprises Company being the ultimate holding company of OCT Shanghai Land, in 1993, Mr. Tang has been the director in engineering department of Shenzhen Merchant OCT Investment Limited. Mr. Tang has also served as the engineer, deputy chief engineer of various design firms. In 1988, Mr. Tang attained his bachelor degree of economics from Tongji University.

MANAGEMENT DISCUSSION AND ANALYSIS OF OCT SHANGHAI LAND

Financial Highlights

As OCT Shanghai Land which was only established in the PRC in 2010 is still in the early stage of development, no profits were recorded for the period from 1 March 2010 (date of establishment) to 31 December 2010 and for the year ended 31 December 2011, and a net loss of approximately RMB31,283,000 (audited) and RMB21,863,000 was recorded, respectively. As at 31 December 2011, the audited net assets of OCT Shanghai Land were approximately RMB1,446,854,000.

The Directors confirm that the accounting policies applied in the accountants’ report of OCT Shanghai Land are consistent with those adopted by the Group in all material respects. Set out below are selected financial information data derived from the audited financial statements OCT Shanghai Land for the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011, the full text of which is set out in Appendix I to this circular:

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	Period from
	1 March
	2010 (date of
establishment) to		Year ended
	31 December	31 December
	2010	2011
	RMB’000	RMB’000
Turnover	–	–
Gross profit	–	–
Loss before taxation	(41,582 )	(28,977 )
Loss for the period/year	(31,283 )	(21,863 )
	At 31	December
	2010	2011
	RMB’000	RMB’000
Non-current assets
Property and equipment	2,699	3,512
Deferred tax assets	10,299	17,413
	12,998	20,925
Current assets
Inventories	3,587,921	10,021,389
Other receivables	358,018	2,925
Restricted cash	–	3,600
Cash and cash equivalents	11,918	13,607
	3,957,857	10,041,521
Current liabilities
Loans from a related party	388,000	2,898,000
Trade and other payables	104,138	606,592
	492,138	3,504,592

Net current assets	3,465,719	6,536,929

Total assets less current liabilities	3,478,717	6,557,854

Non-current liabilities
Loans from a related party	2,010,000	5,111,000
Net assets	1,468,717	1,446,854

Capital and reserves
Paid-in capital	1,500,000	1,500,000
Reserves	(31,283 )	(53,146 )
Total equity	1,468,717	1,446,854

Current ratio (based on current assets over current liabilities)	8.04	2.87
Gearing ratio (based on total liabilities over total assets)	0.63	0.86

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Segment Information

As OCT Shanghai Land is still in its early stage of development, there is no turnover classified by business segments.

Significant Investment, Material Acquisition and Disposal

OCT Shanghai Land did not have any significant investment, material acquisition and disposal for the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011.

Prospects and Future Plans

OCT Shanghai Land is currently engaged in the Suhewan Project in Shanghai and holds three pieces of land in the north coast of Suzhou River (蘇州河), Shanghai, the PRC. The Suhewan Project is a large-scale comprehensive uses project possessing distinctive features, which will include high-end residential properties, low-rise residential buildings by the shore, Soho, boutique business premises and grand hotels upon completion of the construction. Details of the Suhewan Project are set out in the above section headed “Information of OCT Shanghai Land and the Suhewan Project” of this Letter from the Board.

Liquidity, Financial Resources, Gearing Ratio and Capital Structure

OCT Shanghai Land generally finances its operations with interest bearing bank loans and related party loans.

As at 31 December 2010, OCT Shanghai Land had no bank loan but had interest bearing loans obtained from a related party, OCT Properties, of RMB2,398.0 million with effective interest rate of 4.92% per annum and approximately RMB388.0 million out of the total borrowing as at 31 December 2010 was repayable within one year.

As at 31 December 2011, OCT Shanghai Land had no bank loan but had interest bearing loans obtained from a related party, OCT Properties, of RMB8,009 million with effective interest rate of 5.99% per annum. Approximately RMB2,898 million out of the total borrowing as at 31 December 2011 was repayable within one year.

Please refer to the table as set out on page 19 of this circular for the information of the nature of major assets and liabilities, gearing ratio (based on total liabilities over total assets) and liquidity of OCT Shanghai Land for the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011.

Charge on Assets

OCT Shanghai Land did not pledge any assets as at 31 December 2010 and 31 December 2011.

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Treasury Policies and Foreign Currency Exposure

For the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011, there were no formal treasury policies for OCT Shanghai Land. The transactions and monetary assets of OCT Shanghai Land are principally denominated in RMB. OCT Shanghai Land has not experienced any material difficulties or effects on its operations or liquidity as a result of fluctuations in currency exchange rates during the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011. OCT Shanghai Land did not employ any material financial instrument for hedging purposes.

Capital Commitment

For the construction of projects, OCT Shanghai Land had capital commitment of approximately RMB10.3 billion and RMB4.8 billion as at 31 December 2010 and 31 December 2011, respectively.

Employees and Remuneration Policy

As at 31 December 2010 and 31 December 2011, OCT Shanghai Land had a total of approximately 18 and 50 full-time staff members, respectively. The basic remuneration of the employees is determined with reference to the industry’s remuneration benchmark, the individual experience and performance of employees. It is the policy of OCT Shanghai Land to maintain salaries of employees at a competitive level and to review salaries annually, with close reference to the relevant conditions of the labour market and economic situation. Directors’ remuneration is determined based on a variety of factors such as market conditions and respective responsibilities assumed by directors of OCT Shanghai Land. Apart from the basic remuneration and statutory benefits required by laws, OCT Shanghai Land also provides discretionary bonuses based upon its business results and the individual performance of the staff.

For the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011 and as at the Latest Practicable Date, OCT Shanghai Land 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

OCT Shanghai Land did not have any contingent liabilities as at 31 December 2010 and 31 December 2011. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, OCT Shanghai Land was not involved in any litigation or arbitration of material importance and no litigation or arbitration of material importance was known to the Directors to be pending or threatened against OCT Shanghai Land.

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FINANCIAL EFFECT OF THE CAPITAL INjECTION

Upon Completion and based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV of this circular (i) the unaudited pro forma total assets would be increased from approximately RMB6.2 billion to approximately RMB19.6 billion; (ii) the unaudited pro forma total liabilities would be increased from approximately RMB3.9 billion to approximately RMB15.1 billion; (iii) the unaudited pro forma adjusted net asset value attributable to the equity holders of the Company would remained unchanged; and (iv) the unaudited pro forma consolidated profit for the year of the Group would be decreased from approximately RMB269.0 million to approximately RMB214.5 million.

The Directors consider that the Capital Injection will contribute to the earning base of the Enlarged Group. However, the overall effects of the Capital Injection on the future earnings of the Enlarged Group will depend on, amongst other matters, the deliveries and performance of OCT Shanghai Land.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

For the year ended 31 December 2011, the Group’s turnover was RMB2,559 million, representing an increase of 34.3% over 2010. Profit attributable to the Shareholders for the year was RMB159 million, representing an increase of approximately 138.7% over 2010. Gross profit margin was approximately 30.2%, representing an increase of 16.6% over 2010. Total assets and total equity amounted to RMB6.2 billion and RMB2.3 billion, representing an increase of 2.9% and 12.0% over 2010 respectively.

For the paper packaging business, the Group aims to speed up its efforts to expand sales through building a strategic alliance with important customers. At the same time, the Group will promote product diversification, further strengthen the creative elements of the Group’s products, and maintain a steady development of its paper packaging business.

For the comprehensive development business, Chengdu Happy Valley will take various measures to enhance its capabilities to receive visitors on a 24/7 basis and expand the “family” consumer group in 2012. Phase II of Chengdu Happy Valley, which comprises large scale hi-tech indoor entertainment projects, is scheduled to complete its major structure in 2012, aiming to open to public in May 2013. For residential property projects, Chengdu Tianfu OCT Industry Development Company Limited (“Chengdu OCT”) will take advantage of its comprehensive development business to fully present an image of high quality projects through various marketing measures. Phase V of the high-level residential properties are to be launched in 2012, with an area of approximately 169,000 sq.m.. Meanwhile, Chengdu OCT plans to improve the general planning of the commercial sector so as to speed up commercial development. The Company is confident about the future prospect of Chengdu OCT and believes that it will strive for growth while maintaining stability and once again deliver impressive results in 2012.

Overseas Chinese Town (Xi’an) Industry Company Limited (“Xi’an OCT”) plans to launch residential properties with an area of approximately 37,000 sq.m. in 2012. In light of the possible tough market environment, Xi’an OCT will implement a proactive marketing strategy to promote project popularity and to establish a high-end image, and will build boutique premises to improve the overall quality of the project.

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Looking forward to 2012, the outlook of the global economy remains uncertain. The Group will continue to improve its operational management and strengthen its leading position in all its businesses through constantly innovating and actively exploring markets.

The Group expects that the PRC government will continue to implement control measures on the real estate industry adopted last year. However, leveraging on our unique overall planning and market positioning, and benefiting from the advantages of the brand image of “OCT” and its abundant resources, the Company will make active moves to expand our projects and the scale of the Company and enhance our growth potential, with an aim to become an outstanding developer and operator of commercial complex and develop into a sizable Hong Kong-listed company within five years.

INDUSTRY OVERVIEw

The Overview of the PRC Property Market

Driven by (i) increasing urbanization; (ii) increasing per capita disposal income for urban household; and (iii) robust economic development, the PRC property market has undergone a remarkable growth in the recent years. According to the statistics published by National Bureau of Statistic of China, the PRC’s urbanization increased from approximately 41.8% in 2004 to 50.0% in 2010, and the per capita disposable income for urban household rose from approximately RMB9,421.6 in 2004 to RMB19,109 in 2010, representing CAGR of approximately 12.51%.

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	2010	(2004-2010)
Urban year-end population
(in million)	542.8	562.1	582.9	606.3	624.0	645.1	669.8	3.57%
Total year-end population
(in million)	1,299.9	1,307.6	1,314.5	1,321.3	1,328.0	1,334.5	1,340.9	0.52%
Urbanization rate (%)(Note)	41.8	43.0	44.3	45.9	47.0	48.3	50.0	3.03%
Per capita disposable income
for urban household	9,421.6	10,493.0	11,759.5	13,785.8	15,780.8	17,175.0	19,109.0	12.51%

Sources: China Statistical Yearbook 2011

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

Demand for real estates in the PRC has been, in general, riding on an upward trend over the years. According to the statistics published by National Bureau of Statistic of China, the GFA of commodity properties, comprising (i) residential buildings; (ii) office buildings; (iii) houses for business use; and (iv) others, sold in 2004 was approximately 382.3 million sq.m. in 2004 to 1,047.6 million sq.m. in 2010. The average selling price of commodity properties in 2010 was approximately RMB5,032 per sq.m., increasing from approximately RMB2,778.0 per sq.m. in 2004, representing a CAGR of approximately 10.41% during the period.

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The followings are the PRC’s properties sales in terms of GFA and the average selling prices from 2004 to 2010:

								CAGR
	2004	2005	2006	2007	2008	2009	2010	(2004-2010)
GFA of commodity properties sold
(sq.m. in million)	382.3	554.9	618.6	773.5	659.7	947.6	1,047.6	18.29%
GFA of residential properties sold
(sq.m. in million)	338.2	495.9	554.2	701.4	592.8	861.8	933.8	18.44%
GFA of villas, high-grade apartment
sold (sq.m. in million)	23.2	28.2	36.7	45.8	28.7	46.3	42.2	10.49%
GFA of office building sold
(sq.m. in million)	6.9	11.0	12.3	14.7	11.6	15.4	18.9	18.29%
Average selling price of commodity
properties (in RMB per sq.m.)	2,778.0	3,168.0	3,367.0	3,864.0	3,800.0	4,681.0	5,032.0	10.41%
Average selling price of residential
properties (in RMB per sq.m.)	2,608.0	2,937.0	3,119.0	3,645.0	35,760.0	4,459.0	4,725.0	10.41%
Average selling price of villas,
high-grade apartment
(in RMB per sq.m.)	5,576.0	5,834.0	6,585.0	7,471.0	7,801.0	9,662.0	10,934.0	11.88%
Average selling price of office
building (in RMB per sq.m.)	5,744.0	6,923.0	8,053.0	8,667.0	8,378.0	10,608.0	11,406.0	12.11%

Sources: China Statistical Yearbook 2011

The prosperous development in the PRC has seen a rapid growth in total revenue for the property developers with a CAGR of approximately 21.58% during the period from 2004 to 2010. In the corresponding period, the total operating profit for the property developer advanced from approximately RMB85.8 billion in 2004 to RMB611.1 billion in 2010, representing a CAGR of approximately 38.71%.

Total revenue and operating profit for property developers in the PRC from 2004 to 2010:

								CAGR
	2004	2005	2006	2007	2008	2009	2010	(2004-2010)
Total revenue for the property
developers (in RMB billion)	1,331.4	1,476.9	1,804.7	2,339.7	2,669.7	3,460.6	4,299.6	21.58%
Total operating profit for the
property developers
(in RMB billion)	85.8	110.9	167.0	243.7	343.2	472.9	611.1	38.71%

Sources: China Statistical Yearbook 2011

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Key Real Estate Markets

Shanghai

Overview

Shanghai has long been established as one of the most important financial and trading centres of the PRC and the location of choice for a vast number of multinational corporations seeking to establish headquarters in the PRC. It is a global city with important influence over commerce, finance, and culture. The Shanghai economy has been growing rapidly since the 1990s. Shanghai’s gross domestic product (GDP) increased from RMB1,057.2 billion in 2006 to RMB1,687.2 billion in 2010, representing a CAGR of approximately 12.4% over the same period. Per capita GDP grew from RMB58,837 in 2006 to RMB73,297 in 2010, representing a CAGR of 5.6% over the same period. Shanghai is expected to continue to benefit from foreign investment, further strengthening its position as the leading economic and financial centre of the nation. The table below sets out selected economic statistics for Shanghai for the years indicated.

	2006	2007	2008	2009	2010
GDP (RMB billion)	1,057.2	1,249.4	1,407.0	1,504.6	1,687.2
Per capita GDP (RMB)	58,837	68,024	75,109	78,989	73,297
GDP per capita growth rate (%)	12.0	15.6	10.4	5.2	(7.2 )
Year-end resident
population (millions)	18.2	18.6	18.9	19.2	23.01
Per capita disposable income
of urban households (RMB)	20,668	23,623	26,675	28,838	31,838

Source: Shanghai Statistical Yearbook 2006-2010 and Shanghai Statistical Communique 2010

Note 1: Based on the 6th national population census of Shanghai as of 1 November 2010

Shanghai property market

According to Bureau of Statistics of Shanghai, amount of real estate investments increased by 35.3% to approximately RMB198.1 billion in 2010 from RMB146.4 billion in 2009. The gloss floor area (GFA) of completed residential properties increased by approximately 11.2% to 16.9 million square meters (sq.m.) in 2010 from 15.2 million sq.m. 2009. However, although completed GFA of residential properties increased, total residential GFA sold in Shanghai in 2010 recorded a sharp decrease of approximately 42.4% from 29.3 million sq.m. in 2009 to 16.9 million sq.m. in 2010. The average price of residential GFA sold increased by 15% to RMB14,213 per sq.m. in 2010 from RMB12,364 per sq.m. in 2009.

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The table below sets out selected statistics relating to the property market in Shanghai for the years indicated.

	2006	2007	2008	2009	2010
Real Estate Investment
(RMB billion)	127.6	130.8	136.7	146.4	198.1
GFA of residential properties
completed (million sq.m.)	27.5	28.4	19.0	15.2	16.9
GFA of residential properties
sold (million sq.m.)	26.2	32.8	19.7	29.3	16.9
Sales revenue from residential
properties (RMB billion)	184.1	270.6	160.8	362.0	239.5
Average selling price
for residential properties
(RMB/sq.m.)	7,039	8,253	8,182	12,364	14,213

Source: Shanghai Statistical Yearbook 2007-2010; Shanghai Statistical Communique 2010; and Bureau of Statistics of Shanghai

As discussed in the China Residential Market Watch, Q4 2011 issued by Knight Frank, the primary residential market remained quiet in the fourth quarter of 2011, amid the PRC government’s home-purchase restrictions and the wait-and-see attitude adopted by potential buyers. The total transacted area of primary residential properties in 20 major cites dropped 6.4% quarter on quarter, or a significant 45.4% year on year. Only few PRC cities registered year-on-year growth in total transacted area while others witnessed drops of 20% to 73% with Shanghai recording falls of over 50%. China’s Central Economic Work Conference, an event that indicates the direction of the PRC economic policies over the coming year, was held in early December 2011. During the conference, the central government announced that it would ‘maintain its property-tightening policies, promote the return of home prices to reasonable levels and promote the healthy development of the property market’. Meanwhile, local governments including Shanghai announced that austerity measures, including home-purchase restrictions, would be maintained throughout 2012. Knight Frank expects sentiment in the PRC’s residential market to remain weak in 2012. Increased inventory and funding pressure will force more developers to cut prices to promote sales, until sentiment improves. Meanwhile, the central government is expected to continue to implement tightening policies on the property market. Unless the PRC’s economy worsens or property prices fall significantly, the central government will continue to strictly regulate the property market. However, taking into account the contribution of the property industry to the local economy, some cities may fine-tune current policies to promote demand for owner-occupied homes. Furthermore, property tax may be extended to other cities from Shanghai and Chongqing, which could further regulate and promote healthy development of the market.

In February 2011, Shanghai released the latest announcement relating to the home purchase policy. Registered residents and non-residents in Shanghai who are able to show evidence of income tax or social security payments for one year can only purchase one additional flat. Non-residents who are unable to show proof of tax payments, non-residents who own more than one flat or residents who own two or more flats are not allowed to purchase additional flats.

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In August 2011, Shanghai’s Banking Regulatory Commission banned individual consumer loans from being spent on purchasing commercial properties, while bank loans for commercial purposes will now only be granted after the completion of the projects. As discussed in its 4th quarterly report, Knight Frank considered that the policies had no significant impact on investors, as they did not impose restrictions on the qualifications of buyers as had been imposed in the residential sector. However, for developers trying to enter the commercial development market, the policies did lift the investment threshold and could add to financing difficulties.

As discussed in its 2011 yearly review, despite uncertainties in the global economy, Knight Frank maintained a positive outlook about the PRC’s economic growth which will lift demand for quality commercial properties in the PRC. Amid the rapid expansion of international and local corporations with a shortage of Grade-A offices and prime retail properties, the Directors concur with Knight Frank that the uptrend of rents and prices of commercial properties in first-tier cities will continue in 2012. The rents and prices of Grade-A offices could outperform and grow 15% and 10% respectively in Shanghai. In the residential market, sluggish sales and high inventory levels will further increase funding pressure on developers and force them to cut prices in order to stimulate sales. Now that residential prices have started to appear under control, the Directors concur with Knight Frank that the government is unlikely to launch further tightening policies. However, current policies are not expected to be relaxed in 2012. Residential property prices will only adjust slightly this year, as local governments fine-tune their policies based on each city’s situation. Although the transaction volumes of luxury flats will decline significantly, rents and prices in Shanghai are expected to increase slightly.

RISK FACTORS

The investment in the OCT Shanghai Land is subject to a number of risks.

OCT Shanghai Land is subject to legal and business risks if the Suhewan Project fails to obtain the related certificate of real estate ownership

The Directors were aware that the Shanghai Certificates of Real Estate Ownership (土地使用權屬登記證) of parts of the two parcels of land named 41 & 42 Jiefang of the Suhewan Project with aggregate site area of approximately 15,699.30 sq.m. are under application and has not yet been issued as at the Latest Practicable Date. The PRC legal advisers of the Company is of the opinion that there will be no legal impediment for OCT Shanghai Land to obtain the Shanghai Certificate of Real Estate Ownership for such parts of 41 & 42 Jiefang as OCT Shanghai Land has fully paid the land grant fee. The Directors will closely monitor the progress of obtaining The Shanghai Certificate of Real Estate Ownership (土地使用權屬登記證) of the two parcels of land named 41 & 42 Jiefang of the Suhewan Project as part of the Company’s due diligence work. Nevertheless, there is no assurance that these relevant certificate of real estate ownership in respect of the aforesaid parts of the aforesaid parts of the two parcels of land named 41 & 42 Jiefand of the Suhewan Project will be successfully obtained as planned.

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Delay in completion of the Suhewan Project

The completion of the Suhewan Project could be delayed due to development and construction risks, such that it would delay the opening or otherwise affect the commencement of business of the Suhewan Project. As such, revenue and cashflow from such new businesses may become uncertain. In addition, delays in generating revenues could affect the financial and business performance of OCT Shanghai Land and the Group.

Volatility in the price of construction materials

The results of operations and financial performance of the Enlarged 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 the Suhewan Project, thus any rise in the cost of construction materials may result in higher fees charged by the construction contractors of the Enlarged Group. Given that the costs of the aforesaid construction materials have been fluctuating in the PRC, it is challenging for the Enlarged Group to maintain a consistent gross profit margin for the properties of the Enlarged Group. In the event that the Enlarged 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 Enlarged Group without affecting the quantity demanded, the profitability of the Enlarged Group may be adversely affected.

Fluctuation of interest rates

The Enlarged 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 Enlarged 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 Enlarged Group. In the event that the PBOC raises lending rates in the future, the business, financial condition or results of operations of the Enlarged Group may be materially and adversely affected.

Reliance on key management personnel

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

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

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Natural disaster or bad weather that may disrupt operations and damage the properties in the Suhewan Project

In the event of any natural disaster or bad weather in Shanghai, the Suhewan Project may be disrupted and the Enlarged Group’s 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 the Suhewan Project or other damage to the infrastructure or economy of Shanghai as a result of such events.

The Enlarged Group may have insufficient financing to fund its property developments

Property development is capital intensive and may require a high level of debt financing. The Enlarged 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 Enlarged 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 Enlarged 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 Enlarged Group. There is no assurance that the Enlarged 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 Enlarged Group to arrange adequate financing for land acquisitions and property development depends on a number of factors that are beyond control of the Enlarged 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 Enlarged Group to use bank loans to finance the property development of the Enlarged Group and therefore may require the Enlarged Group to maintain a relatively high level of internally generated cash. As a result, the Enlarged Group may not have adequate resources to fund land acquisitions or property developments, or to service the financing obligations of the Enlarged Group and the business, financial condition and results of operations of the Enlarged Group may be materially and adversely affected.

Upon completion of the Capital Injection, the Enlarged Group will depend heavily on the performance of the property market in the PRC, particularly in Shanghai

The Suhewan Project of OCT Shanghai Land is located in Shanghai, the PRC. Its success is largely dependent on the performance of the property market in the PRC, particularly in Shanghai. Any property market downturn in the PRC in general or particularly in Shanghai could adversely affect OCT Shanghai Land’s business, results of operations and financial condition. The property market in the PRC is considered to be a volatile market. It cannot be assured that the property market in

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the PRC in particular Shanghai will grow at historical rates, or at all, or that OCT Shanghai Land, upon completion of the Capital Injection, will be able to benefit from the future growth, if any, of the property market in the PRC in general or in Shanghai. It is not possible to predict with certainty whether property demand in the PRC will continue to grow in the future, as many social, political, economic, legal and other factors may affect the development of the property market.

Also, the property market of the PRC (including Shanghai) is easily affected by the policies of the PRC government. Market demand for properties in the PRC (including Shanghai) has been affected and will continue to be affected by the macro-economic austerity measures of the PRC government from time to time. These measures may reduce market demand for properties as well as the demand for furnishing products in complying with such measures. The Group cannot assure that the PRC government will not adopt additional or more stringent measures which could further slow down the property market in the PRC and/or Shanghai, thereby affecting the Enlarged Group’s business and prospects.

Risks Relating to the Enlarged Group

The Enlarged Group relies on the performance of external contractors and suppliers to deliver its projects on time and up to its specified quality standards.

Neither the Group nor OCT Shanghai Land carries out construction work on its projects. They engage external construction contractors, certified engineering supervisory companies, service providers and suppliers to provide them with construction and related services and various types of construction materials as well as other services such as design and interior decoration which the Group and the OCT Shanghai Land monitors through their construction department in each project company. In general, contractors are selected through tender by invitation.

There is no assurance that the services rendered or materials supplied by any of these external contractors and suppliers will always be satisfactory or meet the quality requirements of the Enlarged Group. In the event that the performance of the external contractors and suppliers falls short of the standards, or any of such contractors or suppliers encounters financial, operational or managerial difficulties and/or results in any actual or potential dispute, this may disrupt the construction progress of the Enlarged Group’s property developments and the Enlarged Group may incur additional costs in respect of remedial actions to be taken (including the replacement of such contractors or suppliers) as well as potential compensation payable to the customers for delay in completion and delivery of property developments. Moreover, the Enlarged Group may suffer damage to reputation and additional financial costs as a result of such delay to its property developments. Please also refer to the risk factor headed “Risks Relating to the Property Development in the PRC” below.

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Risks Relating to Property Development in the PRC

The Enlarged Group’s business is subject to extensive governmental regulation.

The Enlarge Group is engaged in property development in the PRC. Property development in the PRC is subject to extensive governmental regulation. As with other PRC property developers, the Enlarged Group must comply with various requirements mandated by the PRC laws and regulations, including the policies and procedures established by local authorities designed to implement such laws and regulations. Should the Enlarged Group be involved in any incidents of non-compliance, the Enlarged Group could be subject to various regulatory or administrative penalties and such incidents may have material adverse impacts on the Enlarged Group’s business, results of operations and financial condition.

In particular, the PRC government exerts considerable direct and indirect influence on the development of the PRC property sector by imposing industry policies and other economic measures, such as control over the supply of land for property development and restriction or other regulation of foreign exchange, property financing, taxation and foreign investment. Through these policies and measures, the PRC government may restrict or reduce land available for property development, raise benchmark interest rates of commercial banks, place additional limitations on the ability of commercial banks to make loans to property developers and property purchasers, impose additional taxes, such as property tax, and levies on property sales, and restrict foreign investment in the PRC property sector. Many of the policies in the property industry carried out by the PRC government are unprecedented and are expected to be refined and improved over time. Changes in political, economic and social factors may also lead to further adjustments of such policies. This refining and adjustment process may not necessarily have a positive effect on the Enlarged Group’s operations or future business development. There is no assurance that the PRC government will not adopt additional and more stringent industry policies, regulations and measures in the future. If the Enlarged Group fails to adapt its operations to new policies, regulations and measures that may come into effect from time to time with respect to the property industry, such policy changes may disrupt the Enlarged Group’s business or cause it to incur additional costs, and the Enlarged Group’s business prospects, results of operations and financial condition may be materially and adversely affected.

PRC government policies, regulations and measures intended to discourage property speculation may affect the business of the Enlarged Group. Furthermore, the PRC government may in the future adopt other measures to slow down the rate of growth in the property development sector.

As a property developer, the Enlarged Group is subject to extensive government regulation in virtually every aspect of its operations and is highly susceptible to changes in regulatory measures and policy initiatives implemented by the PRC government. In the past, the PRC government has introduced an array of policies and measures intended to curtail the overheating of property development and discourage speculation in the residential property market. These measures include, among others, the following:

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tightening lending requirements for property developers;
requiring at least 70% of the land supply approved by a local government for residential property development in any given year to be used for developing low to medium-cost and small to medium-size units and low-cost rental properties;
adopting the “70/90 rule” which requires at least 70% of the total GFA of a residential project approved or constructed on or after 1 June 2006 to consist of units with a GFA of less than 90 sq.m. per unit;
increasing the minimum down payment to 30% of the purchase price of the underlying property for primary residence buyers, which may make the Enlarged Group’s properties less affordable to its customers;
increasing (i) the minimum amount of down payment to 60% of the purchase price of the underlying property; and (ii) the minimum mortgage loan interest rate to 110% of the relevant PBOC benchmark lending interest rate for secondary residence buyers; if a member of a family (including the buyer, and his/her spouse and their children under 18) has financed the purchase of a residential unit with loans from banks, any member of the family that buys another residential unit will be regarded as a secondary residence buyer;
suspending loans for the purchase of third or subsequent residences;
suspending loans for purchase of local residences for non-local residents who are unable to provide certificates evidencing their payment of local taxes or social insurance for more than one year;
for a commercial property buyer, (i) prohibiting banks from financing any purchase of pre-sold properties, (ii) increasing the minimum amount of down payment to 50% of the purchase price of the underlying property, (iii) increasing the minimum mortgage loan interest rate to 110% of the relevant PBOC benchmark lending interest rate, and (iv) limiting the terms of such bank loans to no more than 10 years, although commercial banks are allowed flexibility based on their risk assessment;
for a buyer of commercial/residential dual-purpose properties, increasing the minimum amount of down payment to 45% of the purchase price of the underlying property, with the other terms similar to those for commercial properties;
requiring property developers to provide a down payment of no less than 50% of the land grant fee and, generally, requiring them to pay the remaining balance in instalments within one year;
imposing a business tax levy on the entire sales proceeds from re-sale of properties if the holding period is shorter than five years;
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imposing a ban on onward transfer of uncompleted properties;
limiting the monthly mortgage payment to 50% of an individual borrower’s monthly income and limiting all monthly debt service payments of an individual borrower to 55% of his or her monthly income;
imposing an idle land fee for land which has not been developed for one year starting from the commencement date stipulated in the land use rights grant contract and cancelling the land use rights for land being idle for two years or more;
revoking the approvals for projects not in compliance with the planning permits; and
banning the land grant for villa construction and restricting the land provision for highend residential property construction.

On 26 January 2011, the State Council issued 《 國務院辦公廳關於進一步做好關於房地產市場調控工作有關問題的通知 》 (Notice of the State Council on Further Regulating the Real Estate Market), which provides for stricter management of housing land supply. On 28 January 2011, Shanghai and Chongqing commenced trials in levying property tax. 34 cities, including Beijing, Shanghai, Chengdu and Wuxi, have promulgated local measures to restrict housing purchases.

The Enlarged Group faces intense competition from other real estate developers.

In recent years, a large number of property developers, including a number of leading Hong Kong property developers and other overseas developers, have begun undertaking property development and investment projects primarily in the first and second tier cities in the PRC. Some of these developers may have better track records and greater financial, land and other resources, broader name recognition and greater economies of scale than the Enlarged Group. In the past, the PRC government has introduced various policies and measures in order to limit the growth and to prevent the overheating of the property development sector, which has further increased competition for land amongst property developers.

Competition among property developers may result in an increase in land acquisition costs, an increase in construction costs, an oversupply of properties, a decrease in property prices in certain parts of the PRC or an inability to sell such properties, a slow down in the rate at which new property developments are approved or reviewed by the relevant PRC government authorities and an increase in administrative costs for hiring or retaining qualified personnel, any of which may adversely affect the Enlarged Group’s business, financial position and results of operations. If the Enlarged Group cannot respond to changes in market conditions in the markets in which it operates more effectively than its competitors, the Enlarged Group’s business, financial position and results of operations may be materially and adversely affected.

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The recent deterioration of the PRC’s economic growth and the global financial crisis may affect the Enlarged Group’s business. It could limit the Enlarged Group’s ability to continue to finance its working capital and to meet its liquidity requirements and materially and adversely affect its financial position and results of operations.

The Group operate in a capital intensive industry and have historically financed, and expect to continue to finance in the future, their working capital and liquidity requirements primarily through proceeds from the pre-sale and sale of properties, rental income, borrowings from financial institutions and capital contributions and advances from shareholders. However, the PRC property market has experienced significant volatility in recent years as a result of market conditions and fluctuations in property sales volumes and prices, especially as a result of the recent deterioration in PRC’s economic growth, the PRC credit environment and the global economic and financial crisis, which has reduced demand for the properties that the Enlarged Group sell. These factors have also resulted in banks and other financial institutions becoming less willing to make credit available to property purchasers and companies in the property development industry. In particular, during economic downturns or market slowdown’s as has been the case for the PRC property market recently, potential purchasers or purchasers of properties tend to become more prudent and act more cautiously out of concern for further declines of property prices and may even terminate or defer their decisions to purchase property.

The outbreak of any severe communicable disease in the PRC, if uncontrolled, may materially and adversely affect the Enlarged Group’s results of operations.

The outbreak of any severe communicable disease in the PRC, if uncontrolled, could have an adverse effect on the overall business sentiment and environment in the PRC, which in turn may have an adverse impact on domestic consumption and, possibly, on the overall GDP growth of the PRC. As all of the Enlarged Group’s revenue is derived from its operations in the PRC, any contraction or slowdown in the growth of domestic consumption or slowdown in the growth of GDP of the PRC may materially and adversely affect the financial condition, results of operations and future growth of the Enlarged Group. In addition, if the employees are affected by a severe communicable disease, the Enlarged Group may be required to institute measures to prevent the spread of the disease, which may materially and adversely affect or disrupt its operations, resulting in an adverse effect on the Enlarged Group’s results of operations. The spread of any severe communicable disease in the PRC may also affect the operations of the Enlarged Group’s general contractors and construction companies, which again, may potentially have an adverse effect on the progress of the Enlarged Group’s projects and thus the business and results of operations of the Enlarged Group.

Government control in foreign currency conversion may materially and adversely affect the financial condition, results of operations and ability to meet foreign exchange requirements of the Enlarged Group.

Renminbi is not a freely convertible currency. The Company receives all of its revenue in RMB and will need to convert RMB into foreign currencies for payment of dividends to the Shareholders and to service its debts. The exchange rates of the RMB against the US dollar and other foreign currencies fluctuate and are affected by, among other things, the policies of the PRC government and changes in the PRC’s and international political and economic conditions. There are

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significant international pressure on the PRC government to adopt a more flexible currency policy, which, together with domestic policy considerations, could result in a further and more significant appreciation of RMB against the US dollar or other foreign currencies. As the Enlarged Group needs to convert future financing into RMB for the Enlarged Group’s operations, the continued appreciation of RMB against the relevant foreign currencies would reduce the RMB amount the Enlarged Group would receive from the conversion. On the other hand, dividends on the Shares, if any, and interest payment on certain debts of the Enlarged Group are paid in foreign currencies, any devaluation of RMB against the relevant foreign currencies would adversely affect the Enlarged Group’s results of operations and financial condition, which may reduce the amount of any cash dividends on the Shares in terms of such other relevant foreign currencies. In addition, the conversion of RMB into other currencies is subject to a number of foreign exchange control rules, regulations and notices issued by the PRC government. In general, foreign investment enterprises are permitted to convert RMB to foreign currencies for current account transactions (including, for example, distribution of profits and payment of dividends to foreign investors) through designated foreign exchange banks following prescribed procedural requirements. Control over conversion of RMB to foreign currencies for capital account transactions (including, for example, direct investment, loan and investment in securities) is more stringent and such conversion is subject to a number of limitations. The requirement for the Company to pay dividends in a currency other than RMB to the Shareholders may expose the Company to foreign exchange risk. Under the current foreign exchange control system, there is no assurance that the Company will be able to obtain sufficient foreign currency to pay dividends or satisfy other foreign exchange requirements in the future.

Risk relating to this circular

Certain statistics and other information relating to the economy and the PRC property development industry contained in this circular were derived from various official sources and government publications and have not been independently verified and may not be reliable.

Statistics, industry data and other information relating to the economy and the PRC property development industry contained in this circular have been derived from various official government publications with information provided by the PRC and other government agencies. Although the Company believes that the sources of the information and statistics are appropriate sources for such information and statistics and have taken reasonable care in extracting and reproducing such information and statistics, and has no reason to believe that such information and statistics is false or misleading or that any fact has been omitted that would render such information and statistics false or misleading, the Company or its Directors, agents and advisers cannot assure you or make any representation as to the accuracy or completeness of such information and statistics. Shareholders should give careful consideration as to how much weight or importance the Shareholders should attach or place on such statistics, projected industry data and other information relating to the economy and the industry.

Any of the above factors could have a material adverse effect on the business, financial condition and results of operations of the Enlarged Group.

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IMPLICATIONS UNDER THE LISTING RULES

As the relevant applicable percentage ratios calculated pursuant to the Listing Rules in respect of the Capital Investment Agreement exceed 100%, the Capital Investment Agreement and the transactions contemplated thereunder constitute a very substantial acquisition of the Company and is subject to, among other things, the Shareholders’ approval requirement under Chapter 14 of the Listing Rules.

OCT Properties is a wholly-owned subsidiary of OCT Ltd. OCT Ltd. owns 100% interest in OCT (HK), which in turn owns the entire issued share capital of Pacific Climax. As at the Latest Practicable Date, Pacific Climax is a controlling shareholder of the Company owning 292,142,000 Shares, representing approximately 57.38% of the issued share capital of the Company. Therefore, each of OCT Properties and OCT (HK) is a connected person to the Company under the Listing Rules. Accordingly, the Capital Investment Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules, and is subject to, among other things, the Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules.

No Director is materially interested in the Capital Investment Agreement and the transactions contemplated thereunder and are required to abstain from voting on the Board in relation to resolutions to approve the Capital Investment Agreement and the transactions contemplated thereunder.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

An Independent Board Committee comprising Ms. Wong Wai Ling, Mr. Xu Jian and Mr. Lam Sing Kwong Simon, being all independent non-executive Directors, has been established to advise the Independent Shareholders in respect of the Capital Investment Agreement and the transactions contemplated thereunder. None of the members of the Independent Board Committee has any material interest in the Capital Investment Agreement and the transactions contemplated thereunder. The letter from the Independent Board Committee is set out on page 38 of this circular.

The Company has also appointed China Everbright as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Capital Investment Agreement and the transactions contemplated thereunder. The letter from China Everbright is set out on pages 39 to 58 of this circular.

EGM

A notice convening the EGM at which resolution will be proposed to consider, and if thought fit, to approve the Capital Investment Agreement and the transactions contemplated thereunder, to be held at Tang Room II, 3/F, Sheraton Hong Kong Hotel, 20 Nathan Road, Kowloon, Hong Kong on Thursday, 12 April 2012 at 11:00 a.m. is set out on pages EGM-1 to EGM-2 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 Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited at 17M Floor, 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 EGM should you so wish.

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LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, save and except for Pacific Climax and its associates, who were interested in and control or are entitled to exercise control over 292,142,000 Shares, representing approximately 57.38% of the total issued share capital of the Company as at the Latest Practicable Date, are required to and will abstain from voting on the resolution in respect of the Capital Investment Agreement and transactions contemplated thereunder, no other Shareholders are required to abstain from voting on the said resolution at the EGM.

Shareholders and potential investors are reminded that the Capital Investment Agreement is subject to, among other things, fulfillment of certain conditions set out in the paragraphs headed “Conditions Precedent to the Capital Investment Agreement” above. There is no assurance by the Company that any of the conditions to the Capital Investment Agreement will be fulfilled, and the Capital Investment Agreement may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the Shares.

RECOMMENDATIONS

The Board (including the independent non-executive Directors) considers that the terms of the Capital Investment Agreement are fair and reasonable and that the Capital Investment Agreement and the transactions contemplated thereunder are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the resolution in relation to the Capital Investment Agreement and the transactions contemplated thereunder to be proposed at the EGM.

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

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 wang Xiaowen Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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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)

23 March 2012

To the Independent Shareholders,

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION: THE CAPITAL INVESTMENT AGREEMENT

We refer to this circular dated 23 March 2012 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 Investment Agreement and the transaction contemplated thereunder and to advise you as to whether, in our opinion, the terms of the Capital Investment Agreement and the transactions contemplated thereunder 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 and the Independent Shareholders in respect of the terms of the Capital Investment Agreement and the transactions contemplated thereunder.

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 Investment Agreement and the transactions contemplated thereunder, 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 39 to 58 of this circular, we consider that the terms of the Capital Investment Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Company and the Independent Shareholders are concerned, and the Capital Investment Agreement and the transactions contemplated thereunder are in the interests of the Company and the Independent Shareholders. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Capital Investment Agreement and the transactions contemplated thereunder.

Yours faithfully,

For and on behalf of

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

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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.

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23 March 2012

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION: CAPITAL INVESTMENT AGREEMENT

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 Capital Investment Agreement, pursuant to which the Group conditionally agreed to make capital contribution of RMB2,232,000,000 to OCT Shanghai Land. The details of the Capital Injection are set out in the letter from the Board (“ Letter from the Board ”) contained in the circular to the Shareholders dated 23 March 2012 (“ Circular ”), 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.

As the relevant applicable percentage ratios calculated pursuant to the Listing Rules in respect of the Capital Investment Agreement exceed 100%, the Capital Investment Agreement and the transactions contemplated thereunder constitute a very substantial acquisition of the Company and is subject to, among other things, the shareholders’ approval requirement under Chapter 14 of the Listing Rules.

OCT Properties is a wholly-owned subsidiary of OCT Ltd. OCT Ltd. owns 100% interest in OCT (HK), which in turn owns the entire issued share capital of Pacific Climax. As at the Latest Practicable Date, Pacific Climax is a controlling shareholder of the Company owning 292,142,000 Shares, representing approximately 57.38% of the issued share capital of the Company. Therefore, each of OCT Properties and OCT (HK) is a connected person to the Company under the Listing Rules. Accordingly, the Capital Investment Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules, and is subject to, among other things, the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.

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 Capital Injection, 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.

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LETTER FROM CHINA EVERBRIGHT

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 Capital Injection is (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 we will receive any fees and benefits from the Group, OCT Ltd. or any of their respective associates. We are independent from and not connected with the Group and OCT Ltd. 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 Capital Injection.

BASIS OF OUR OPINION

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 Group and OCT Shanghai Land. 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 that 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 CONSIDERED

In formulating our views in relation to the entering into of the Capital Injection, 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.

(a) Background of and reasons for the Capital Injection

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

In addition to its continual development in the business of design and manufacture of quality paper-based packaging containers and material, including corrugated paperboard and printed cartons for customers, the Group is also principally engaging in the development and operation of commercial complex.

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LETTER FROM CHINA EVERBRIGHT

As at the Latest Practicable Date, the Group was interested in 51% and 25% equity interest in Chengdu Tianfu OCT Industry Development Company Limited (“ Chengdu OCT ”) and Overseas Chinese Town (Xi’an) Industry Company Limited (“ Xi’an OCT ”).

In September 2010, the Group increased its equity interest in Chengdu OCT from 25% to 51% by making capital contribution of RMB588 million to Chengdu OCT. Chengdu OCT owns parcels of land located in Jinniu District, Chengdu City, Sichuan Province, the PRC which are to be developed into a composite project, comprising a theme park, residential and commercial properties, occupying a gross floor area of approximately 2,250,000 sq.m.. Chengdu Happy Valley, a theme park of Chengdu OCT, is one of the most influential theme parks in the southwestern part of China. In 2011, Chengdu OCT recorded a turnover of approximately RMB1,740 million, representing an increase of approximately 5.5% over the same period of 2010. The residential property project of Chengdu OCT has a gross saleable floor area of approximately 1,260,000 sq.m.. The high-level portion of Phase III and Phase IV of the residential property project is currently on sale. In 2011, the contract sales area and revenue of the residential property project reached approximately 132,000 sq.m. and approximately RMB1,652 million respectively.

The development project of Xi’an OCT is located in Qujiang New District, Xi’an City, Shaanxi Province. It adjoins several famous scenic spots and comprises mainly low-density residential properties. This project began to bring in positive contributions to the Group’s investment income in 2011. In 2011, part of the project has been launched, including duplex, compound and detached buildings, and the market reaction to the pre-sale was very positive. The contract sales area and revenue reached approximately 41,800 sq.m. and approximately RMB810 million respectively.

Set out below are (i) the audited consolidated financial statements of the Group for the three years ended 31 December 2011; and (ii) breakdown of the Group’s total turnover:

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
(RMB’000)	2009	2010	2011
	(Audited)	(Audited)	(Audited)
Turnover	622,063	1,905,792	2,558,860
Gross profit	85,826	259,374	772,670
Profit attributable to equity
holders of the Company	23,810	66,713	159,236

As illustrated above, the Group’s turnover increased from approximately RMB622 million in 2009 to approximately RMB1,906 million in 2010, and further increased to approximately RMB2,559 million in 2011.

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(RMB’000) Sales of paper cartons and products Comprehensive development business Total Turnover	For the year ended 31 December 2009 2010 2011 (Audited) (Audited) (Audited) 622,063 777,415 814,890 – 1,128,377 1,743,970 622,063 1,905,792 2,558,860	For the year ended 31 December 2009 2010 2011 (Audited) (Audited) (Audited) 622,063 777,415 814,890 – 1,128,377 1,743,970 622,063 1,905,792 2,558,860
		2,558,860

As illustrated above, benefited from increasing contributions from Chengdu OCT during the two years ended 31 December 2011, the turnover generated from comprehensive development business has become the major source of turnover of the Group after the Group increased its equity interest in Chengdu OCT from 25% to 51% in September 2010 and it represented approximately 59.2% and 68.2% of the Group’s total turnover in 2010 and 2011, respectively.

After discussion with the Management, we understand that the Group is confident about the future prospects of real estate business in the PRC, and the Group is positioned to be an excellent developer and operator of commercial complex. 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.

(ii) Information on OCT Shanghai Land and its land use rights

As stated in the Letter from the Board, OCT Shanghai Land was established in the PRC with limited liability on 1 March 2010. It is principally engaged in the development, operation, leasing, property management of commercial properties, residential properties, office premises, and culture and entertainment projects of land pieces in Shanghai, together with the management of related parking lots.

OCT Shanghai Land is currently engaged in the Suhewan Project (蘇河灣項目) in Shanghai and held three pieces of land in the north coast of Suzhou River, Shanghai. The Suhewan Project is a comprehensive commercial project possessing distinctive features, which will include high-end residential properties, low-rise residential by the shore, apartments for Small Office/ Home Office (“ Soho ”), boutique business premises and grand hotels upon completion of the constructions. The Suhewan Project is located in the city centre of Shanghai with a planned total floor area of approximately 282,168 sq. m. (above ground) and approximately 146,671 sq. m. (underground) upon the completion of its construction. The Suhewan Project will be constructed and completed in phases such that all necessary permits will be obtained for the construction and sale of properties. It is contemplated that a certain properties in the Suhewan Project will be sold, starting from the fourth quarter of 2012 and thereby deriving revenue to OCT Shanghai Land in the same year. The development of the Suhewan Project is expected to complete in 2016, and certain properties will be held by OCT Shanghai Land, thereby bringing sustainable income in the future.

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LETTER FROM CHINA EVERBRIGHT

As at the Latest Practicable Date, equity interest of OCT Shanghai Land was wholly-owned by OCT Properties. As the Group has the power to govern the financial and operating policies of OCT Shanghai Land by being able to control the board of directors anytime through making the full capital contribution, OCT Shanghai Land is considered to be a subsidiary of the Group in accordance with Hong Kong Accounting Standard 27, Consolidated and Separate Financial Statements, when the Capital Investment Agreement becomes binding and unconditional. The Group should therefore consolidate OCT Shanghai Land from that date.

Set out below is selective audited financial information of OCT Shanghai Land as extracted from Appendix I to the Circular:

(RMB’000) Turnover Net loss Total assets Total liabilities Net assets	Period from 1 March 2010 (date of incorporation) to Year ended 31 December 2010 31 December 2011 – – (31,283 ) (21,863) As at 31 December 2010 2011 3,970,855 10,062,446 2,502,138 8,615,592 1,468,717 1,446,854

We note that OCT Shanghai Land has yet to generate any revenue since its incorporation. There are no sales of properties by OCT Shanghai Land from 1 March 2010 (date of incorporation) to the year ended 31 December 2011 as site formation work for all properties represented as inventory was just commenced. As a result, it recorded audited net loss of approximately RMB31.3 million in 2010 and approximately RMB21.9 million in 2011 in accordance with the Hong Kong Financial Reporting Standard, respectively. Such net losses were mainly attributable to the administrative cost, finance costs incurred during the period.

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LETTER FROM CHINA EVERBRIGHT

Suhewan Project is a large scale comprehensive commercial project erected on three parcels of land, namely 1 Jiefang, 41 Jiefang and 42 Jiefang, with a total site area of approximately 70,979.60 sq.m., the breakdown of which is as follows:

Use Hotel Commercial Office Residential Ancillary facilities Total	Approximate gross floor area (sq. m.) 33,180.00 93,148.02 94,659.53 59,849.00 148,003.05
	428,839.60

As advised by the Management, OCT Shanghai Land has obtained the Shanghai Certificate of Real Estate Ownership for 1 Jiefang with a site area of 35,560.50 sq.m. and the Shanghai Certificate of Real Estate Ownership for portions of 41 & 42 Jiefang, with a site area of 19,719.80 sq.m.. As advised by the PRC legal adviser to the Company, there would be no legal impediment for OCT Shanghai Land for obtaining the Shanghai Certificate of Real Estate Ownership for the remaining portions of 41 & 42 Jiefang with a site area of 15,699.30 sq.m. as OCT Shanghai Land has fully paid the relevant land grant fee.

(iii) Real estate market in Shanghai

The PRC economy has achieved substantial growth since the PRC government introduced economic reforms and adopted an open door policy in the late 1970s. Fast growth was further boosted by the country’s accession to the World Trade Organisation in 2001 as a result of increasing inflow of foreign investment across all sectors of the economy. China’s gross domestic product, or GDP, increased from approximately RMB21,631.4 billion in 2006 to approximately RMB39,798.3 billion in 2010 at a compound annual growth rate, or CAGR, of approximately 16.5%, making China one of the fastest growing economies in the world.

During the year 2006 and 2010, China’s GDP per capita grew at a CAGR of 15.2% from RMB16,500 to RMB29,039. Per capita disposable income of urban households in China reached up to RMB19,109 in 2010, representing an increase of approximately 11.3% over 2009. Strong increase in GDP per capita and disposable income per capita demonstrate a significant increase in purchasing power of the PRC population.

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Supply and demand for real estate in China has seen a steady increase over the years. According to National Bureau of Statistics of China, total supply of commodity properties increased from 558.3 million sq.m. in 2006 to 759.6 million sq.m. in 2010, representing a CAGR of 8.0%. Total revenue from commodity property sales in China has increased dramatically from approximately RMB298.8 billion in 1999 to approximately RMB5,247.9 billion in 2010, representing a remarkable CAGR of 30%. During the same period, total GFA sold in China increased from approximately 145.6 million sq.m. in 1999 to approximately 1,043.5 million sq.m. in 2010, representing a CAGR of 19.6%. Of the 1,043.5 million sq.m. of the total GFA sold in 2010, approximately 930.5 million sq.m. were residential properties, representing an increase of approximately 8.0% from 2009.

Total amount of real estate investment more than doubled from RMB1,933.3 billion in 2006 to RMB4,826.7 billion in 2010, representing a CAGR of 25.7% during the same time period. Total GFA sold increased from 618.6 million square meters in 2006 to 1,043.5 million square meters in 2010, representing a CAGR of 14.0%. of total GFA sold, total GFA of residential properties sold makes up to an average of 90% during the year 2006 to 2010. The average selling price of commodity properties in China increased from RMB3,367 per sq.m. in 2006 to RMB5,029 per sq.m. in 2010, while the average selling price of residential properties increased from RMB3,119 per sq.m. to RMB4,725 per sq.m. during the same period. The average selling price of commodity properties sold in China in 2010 was calculated by dividing total sales proceeds by the total GFA sold.

Shanghai has long been established as one of the most important financial and trading centers of China and the location of choice for a vast number of multinational corporations seeking to establish headquarters in China. It is a global city with important influence over commerce, finance, and culture. The Shanghai economy has been growing rapidly since the 1990s. Shanghai’s GDP increased from RMB1,407.0 billion in 2008 to RMB1,687.2 billion in 2010. Shanghai is expected to continue to benefit from foreign investment, further strengthening its position as the leading economic and financial centre of the nation. The table below sets out selected economic statistics for Shanghai for the years indicated.

	2008	2009	2010
GDP (RMB billion)	1,407.0	1,504.6	1,687.2
Per capita GDP (RMB)	75,109	78,989	73,297
Year-end resident
population (millions)	18.9	19.2	23.0
Per capita disposable income
of urban households (RMB)	26,675	28,838	31,838

Source: Shanghai Statistical Yearbook 2008-2010; Shanghai Statistical Communique 2010

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LETTER FROM CHINA EVERBRIGHT

According to Bureau of Statistics of Shanghai, amount of real estate investments increased by 35.3% to approximately RMB198.1 billion in 2010 from RMB146.4 billion in 2009. The GFA of completed residential properties increased by approximately 11.2% to 16.9 million sq.m. in 2010 from 15.2 million sq.m. 2009. However, although completed GFA of residential properties increased, total residential GFA sold in Shanghai in 2010 recorded a sharp decrease of approximately 42.4% from 29.3 million sq.m. in 2009 to 16.9 million sq.m. in 2010. The average price of residential GFA sold increased by 15% to RMB14,213 per sq.m. in 2010 from RMB12,364 per sq.m. in 2009.

The table below sets out selected statistics relating to the property market in Shanghai for the years indicated.

	2008	2009	2010
Real estate investment (RMB billion)	136.7	146.4	198.1
GFA of residential properties
completed (million sq.m.)	19.0	15.2	16.9
GFA of residential properties
sold (million sq.m.)	19.7	29.3	16.9
Sales revenue from residential
properties (RMB billion)	160.8	362.0	239.5
Average selling price for residential
properties (RMB/sq.m.)	8,182	12,364	14,213

Source: Shanghai Statistical Yearbook 2007-2010; Shanghai Statistical Communique 2010; Bureau of Statistics of Shanghai

Our view:

Having considered the above, in particular:

(i) Benefited from its investment in the PRC real estate business, the Group achieved a significant growth in revenue and net profit during the past few years. The Group’s share of revenue and realized gain from comprehensive development business increased from approximately RMB1,128.4 million and RMB42.7 million in 2010 to approximately RMB1,744.0 million and RMB129.6 million in 2011, respectively. As a result, the Group’s revenue and profit attributable to equity holders of the Company increased from approximately RMB1,905.8 million and RMB66.7 million in 2010 to approximately RMB2,558.9 million and RMB159.2 million in 2011, respectively;
(ii) the turnover generated from comprehensive development business has become the major source of turnover of the Group since 2010 and it represented approximately 59.2% and 68.2% of the Group’s total turnover in 2010 and 2011, respectively;
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LETTER FROM CHINA EVERBRIGHT

(iii) Suhewan Project, which is located in the city centre of Shanghai, represents a landmark comprehensive development project in Shanghai with distinctive features. Through the investment in Suhewan Project, it will not only broaden the revenue bases of the Group, but also allow the Group to strengthen and further develop its real estate business and reputation in the PRC;
(iv) Suhewan Project will be jointly developed by the Group and OCT Ltd., which is strategically positioned as a developer and operator on the tourism and cultural business, and property developer with cultural and tourism features. Leveraging on the extensive experience of OCT Ltd. in property development and property management in the PRC, the Group can obtain assistance from OCT Ltd. in developing and managing Suhewan Project, which will reduce the investment and execution risk of the Group accordingly;
(v) As at the Latest Practicable Date, Suhewan Project was at advanced planning stage, which is expected to derive revenue from sales of properties starting from the fourth quarter of 2012 and the whole project will be completed by 2016. As a result, it enables the Group to shorten its investment cycle and generate higher investment return by the Group over the long term with a manageable investment risk; and
(vi) the promising business opportunities in the real estate market in Shanghai as illustrated by economic and property market statistics of Shanghai 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 OCT Shanghai Land

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.

As stated in the Valuation Report, the property is held for development by OCT Shanghai Land. In valuing the property, the Valuer has adopted the Direct Comparison Approach by making reference to the comparable sales transactions as available in the market and the latest development scheme of the OCT Shanghai Land supplied by the Group. It also has taken into account the construction costs of approximately RMB294 million expended as at 31 December 2011 for the valuation purpose. We have discussed with the Property Valuer on the valuation approach and understand that the income approach, which focuses on the economic benefit generated from completed properties, is inapplicable for valuing the properties. In addition, the properties comprise three parcels of land with site formation work just commenced and the comparable sales transactions were available in the market, the Direct Comparison Approach is more appropriate to reflect the market value of the properties. Upon review and discussion with the Property Valuer, we are of the view that the Direct Comparison Approach is a reasonable approach in establishing the open market value of the properties.

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LETTER FROM CHINA EVERBRIGHT

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.

According to the Valuation Report as set out in the Appendix V to the Circular, the market value of the Properties as at 31 December 2011 was RMB11,074,000,000.

(c) Major terms of the Capital Investment Agreement

(i) The amount of the Capital Injection

As advised by the legal advisers of the Company as to PRC laws, under the relevant laws, regulations and financial regulations of the PRC, any premium over the equity interest (meaning investment amounts by investor exceeding the investor’s corresponding interests in the registered capital) shall be included in the capital reserve account of the enterprise. Based upon the registered capital already paid-up by OCT Properties of RMB1,500,000,000 in OCT Shanghai Land and its equity interest of 49.5% in OCT Shanghai Land upon Completion, the corresponding registered capital to be held by Great Tec would be RMB1,530,000,000. The said amount of RMB702,000,000 out of the total capital contribution RMB2,232,000,000, being the surplus over Great Tec’s interest in the corresponding registered capital of RMB1,530,000,000, would be included as capital reserve of OCT Shanghai Land.

As at the Latest Practicable Date and immediately before the Capital Injection, the registered capital of OCT Shanghai Land is RMB1,500,000,000, and the equity interest of OCT Shanghai Land is wholly-owned by OCT Properties. According to the Capital Investment Agreement, the registered capital of OCT Shanghai Land will increase from RMB1,500,000,000 (equivalent to approximately HK$1,851,851,852) to RMB3,030,000,000 (equivalent to approximately HK$3,740,740,741) upon Completion. Following Completion, the equity interest of OCT Shanghai Land will be owned as to 50.5% by Great Tec and as to 49.5% by OCT Properties, respectively.

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LETTER FROM CHINA EVERBRIGHT

As advised by the Management, the Group intends to finance the capital contribution through internal resources, the advance under the Loan Agreement, bank borrowing and/or external financing.

As stated in the Letter from the Board, a 5-year loan of RMB900,000,000 (or the equivalent thereof) will be borrowed by the Company from OCT (HK) at annual interest rate of 3.62% under the Loan Agreement. Given that (i) the interest rate under the Loan Agreement is lower than the market interest rate (as at the Latest Practicable Date, the current benchmark RMB lending rate of loan for a term of one-year offered by The People’s Bank of China is 6.56%); (ii) the borrowings under the Loan Agreement will be solely used to finance the first phase of Capital Injection; and (iii) unless separate agreement is signed by both parties, the Company is not obliged to issue Shares or securities to repay the borrowing under the Loan Agreement, we are of the view that the terms of the Loan Agreement are fair and reasonable.

(ii) The basis of the contribution amount ( “ Consideration ” )

As stated in the Letter from the Board, the amount of contribution to be made by Great Tec under the Capital Investment Agreement was determined on normal commercial terms and arrived at after arm’s length negotiation between Great Tec and OCT Properties, taking into consideration: (i) land pieces of the Suhewan Project held by OCT Shanghai Land, which is located in the heart of Shanghai along Suzhou River, having a long history of culture and humanities. In particular, the adjacent areas of the Suhewan Project have been planned as high-end business and residential areas. The Company expects that such favourable location would bring sizeable income in the short run by OCT Shanghai Land selling its properties in the Suhewan Project and stable rental income in the long run by its holding of properties in the Suhewan Project; (ii) that the Capital Injection will enable the Group to broaden its income base, in particular, it is expected that the sale of properties would commence in the fourth quarter of 2012, thereby contributing relatively speedy return to investment to the Group; (iii) the potential economic growth in Shanghai; and (iv) the initial estimation of the property value of OCT Shanghai Land by an independent professional valuer, and the liability of OCT Shanghai Land.

For the purpose of assessing the fairness and reasonableness of the Consideration, we have identified 39 Hong Kong listed companies (the “ Comparable Companies ”) (i) 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 (ii) with the market capitalization higher than HK$500 million.

Based on the financial information of OCT Shanghai Land 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 50.5% of the sum of (i) the audited consolidated net assets value of OCT Shanghai Land as at 31 December 2011 (approximately RMB1,446.9 million); and (ii) the capital injection to be paid by the Group (approximately RMB2,232 million), to be of approximately 1.20 times.

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LETTER FROM CHINA EVERBRIGHT

As OCT Shanghai Land incurred net loss in 2011, it is not feasible to calculate the implied price earnings ratios (“ PER ”) of the Capital Injection.

We have reviewed and compared the P/Bs of the Comparable Companies with the implied P/B of the Capital Injection. The valuation multiples of the Comparable Companies have been computed on a historical basis, using the financial data obtained from Bloomberg, or 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.

			Market
			Capitalisation
	Company (Stock code)	Principal activities	(HK$ million)	P/B
1	Overseas Chinese Town	(i) Manufacturing and sale of paper	1,284	0.81
	(Asia) Holdings Limited	carton and products; and (ii) the
	(3366)	development and operation of
		commercial complex
2	Country Garden	Property development, construction,	42,985	1.42
	Holdings Co. Ltd. (2007)	fitting and decoration, property
		management and hotel operation
		and theme park
3	Guangzhou R&F Properties	Development of quality residential	23,626	1.05
	Co., Ltd. (2777)	and commercial properties for
		sale in China, also develops
		hotels, office buildings and
		shopping malls in Guangzhou,
		Beijing and other cities
4	Agile Property Holdings	Property development, property	24,729	1.14
	Ltd. (3383)	management, hotel management
		and decoration service
5	Sino-Ocean Land Holdings	Real estate development,	17,092	0.49
	Ltd. (3377)	construction, reparation and
		decoration, property investment,
		property management and hotel
		operation businesses
6	Shui On Land Ltd. (272)	Property development and	14,315	0.51
		investment
7	SOHO China Ltd. (410)	Investment in real estate	23,560	1.08
		development
8	Beijing North Star	Property investment, property	8,630	0.30
	Co. Ltd. (588)	leasing, land and property
		development, retail operation,
		hotel operation and the provision
		of food and beverage services

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LETTER FROM CHINA EVERBRIGHT

			Market
			Capitalisation
	Company (Stock code)	Principal activities	(HK$ million)	P/B
9	Greentown China Holdings	Develop quality residential	7,021	0.67
	Ltd. (3900)	properties targeting middle to
		higher income residents in China
10	KWG Property Holding	Property development, property	10,430	0.77
	Ltd. (1813)	investment, and provision of
		property management services
11	Zhong An Real Estate Ltd.	Property development, leasing and	2,044	0.43
	(672)	hotel operation
12	Beijing Capital Land Ltd.	Property development and hotel	3,720	0.72
	(2868)	investment and operation
13	SPG Land (Holdings) Ltd.	Property and hotel development,	1,411	0.32
	(337)	property investment, property
		management and education
14	Central China Real Estate	Residential property development in	3,695	0.87
	Ltd. (832)	Henan Province, the PRC
15	China Overseas Land &	Property development and	121,117	1.72
	Investment Ltd. (688)	investment, real estate agency
		and management, and treasury
		operations
16	China Resources Land Ltd.	Property development, investment	74,585	1.24
	(1109)	and management and construction
		and decoration services
17	Shimao Property Holdings	Property development, property	22,286	0.78
	Ltd. (813)	investment and hotel operation in
		the PRC
18	Hopson Development	Investment holding and property	8,263	0.20
	Holdings Ltd. (754)	development, investment, property
		management and hotel operations
19	Poly (Hong Kong)	Property development, property	13,929	0.62
	Investments Ltd. (119)	investment and management,
		hotel operations and its related
		services, securities investment
		and construction services
20	New World China Land	Property development and	16,253	0.34
	Ltd. (917)	investment in the PRC
21	Shenzhen Investment Ltd.	Property development, investment	5,729	0.38
	(604)	and management, provision
		of transportation services,
		manufacture and sale of industrial
		and commercial products

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LETTER FROM CHINA EVERBRIGHT

			Market
			Capitalisation
	Company (Stock code)	Principal activities	(HK$ million)	P/B
22	Yuexiu Property Co. Ltd.	Development, selling and	11,636	0.57
	(123)	management of properties,
		holding of investment properties,
		development, operation and
		management of toll highways and
		bridges
23	Tian An China Investments	Property development and	5,665	0.43
	Co. Ltd. (28)	investment, property management
		and hotel operation
24	Sinolink Worldwide	Property development, property	2,479	0.35
	Holdings Ltd. (1168)	management and property
		investment
25	Tomson Group Ltd. (258)	Property development and	2,504	0.24
		investment, hospitality and leisure
		activities, manufacturing of PVC
		pipes, securities trading and
		investment holding
26	China Properties Group	Property development and	4,161	0.12
	Ltd. (1838)	investment, provision of building
		management and construction
		consultancy services
27	Shanghai Zendai Property	Construction of commercial and	1,915	0.38
	Ltd. (755)	residential properties 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. (1207)	Real estate development in the PRC	2,082	0.19
29	China Aoyuan Property	Property development and property	2,150	0.36
	Group Ltd. (3883)	investment
30	Glorious Property	Development and sale of high	8,370	0.57
	Holdings Ltd. (845)	quality properties in key
		economic cities in the PRC
31	Mingfa Group	Property development primarily on	10,988	1.96
	(International) Co. Ltd.	large-scale, mixed use commercial
	(846)	complexes and integrated
		residential properties in Fujian
		and Jiangsu Provinces

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LETTER FROM CHINA EVERBRIGHT

			Market
			Capitalisation
	Company (Stock code)	Principal activities	(HK$ million)	P/B
32	Powerlong Real Estate	Development and operation of	4,348	0.33
	Holdings Ltd. (1238)	high-quality, large-scale, multi-
		functional commercial complexes
		in China
33	Yuzhou Properties Co. Ltd.	Development of high-quality	3,164	0.69
	(1628)	residential, retail and commercial
		properties, and provision of
		property management for both
		residential and commercial
		properties
34	Evergrande Real Estate	Development of quality residential	50,778	1.87
	Group Ltd. (3333)	property projects in different
		cities across China
35	Longfor Properties Co.	Property development, property	45,555	2.08
	Ltd. (960)	investment and property
		management businesses in China
36	Fantasia Holdings Group	Property development business, and	3,856	0.75
	Co., Ltd. (1777)	provision of property operation
		services, property agency services
		and hotel services
37	Kaisa Group Holdings Ltd.	Principally engaged in the property	6,466	0.54
	(1638)	development, property investment,
		property management and project
		consultancy businesses
38	China SCE Property	Principally engaged in property	4,133	1.13
	Holdings Ltd. (1966)	development, property investment
		and property management
39	Franshion Properties	Principally engaged in real estate	16,766	0.67
	(China) Ltd. (817)	investment and development in
		China
40	China Overseas Grand	Property investment and	14,135	2.75
	Oceans Group Ltd. (81)	development, property leasing and
		investment holding.
		Average		0.80
		Maximum		2.75
		Minimum		0.12
		The Capital Injection		1.20

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LETTER FROM CHINA EVERBRIGHT

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 0.12 time to approximately 2.75 times, with an average of approximately 0.80 times.

The implied P/B of the Capital Injection is approximately 1.20 times, which is (i) within the range of the P/Bs of the Comparable Companies; and (ii) higher than the average of the P/Bs of the Comparable Companies calculated based on the closing price of shares as at the Latest Practicable Date.

However, taking into consideration of the below factors and reasons:

(i) the expected positive outlook of the real estate market and tourism industry in Shanghai;
(ii) Suhewan Project, which is located in the city centre of Shanghai, represents a comprehensive commercial project in Shanghai with distinctive features. Through the investment on Suhewan Project, it will not only broaden the revenue bases of the Group, but also allow the Group to strengthen and further develop its travel, property and its related business and reputation in the PRC;
(iii) the Group can obtain assistance from OCT Ltd. in developing and managing Suhewan Project, which will reduce the investment and execution risk of the Group accordingly; and
(iv) it is expected to derive revenue from sales of properties in the Suhewan Project starting from the fourth quarter of 2012 and the whole project will be developed in phases and is expected to be complete in 2016. As a result, it enables the Group to shorten its investment cycle and generate higher investment return over the long term with a manageable investment risk.

We consider the terms of the Capital Investment Agreement are fair and reasonable, on normal commercial terms and in the interests of both the Company and the Shareholders as a whole.

(iii) Profit sharing and management of OCT Shanghai Land

As the Group has the power to govern the financial and operating policies of OCT Shanghai Land by being able to control the board of directors anytime through making the full capital contribution, OCT Shanghai Land is considered to be a subsidiary of the Group in accordance with Hong Kong Accounting Standards 27, Consolidated and Separate Financial Statements, when the Capital Investment Agreement becomes binding and unconditional. The Group should therefore consolidate OCT Shanghai Land from that date.

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LETTER FROM CHINA EVERBRIGHT

Prior to Completion, dividend declared by OCT Shanghai Land shall be distributed between Great Tec and OCT Properties in the ratio of (i) actual amount contributed to OCT Shanghai Land by Great Tec at the relevant time, to (ii) the mutually agreed net assets value of RMB2,188,000,000 (equivalent to approximately HK$2,701,234,568) as at 31 December 2011 of OCT Shanghai Land prior to the Capital Injection. The said mutually agreed net assets value of RMB2,188,000,000 of OCT Shanghai Land was agreed with reference to, among other things, the initial estimation of the property value of OCT Shanghai Land of approximately RMB11,000,000,000 as at 31 December 2011 by an independent professional valuer, by market approach to carry the valuation, with the Company also taking into account the value of nonproperty assets of OCT Shanghai Land and deducting the liability of OCT Shanghai Land, together with the favourable location, development prospects of OCT Shanghai Land, etc.

In addition, Great Tec and OCT Properties entered into a joint venture contract and the articles of association in respect of OCT Shanghai Land with OCT Shanghai Land on 5 January 2012. Under the joint venture contract and the articles of association, unanimous approval from all directors of OCT Shanghai Land shall be obtained for matters in relation to, among other things, termination and dissolution of OCT Shanghai Land, adjustment to its registered capital, pledge of assets of OCT Shanghai Land, pledge of equity interest of shareholder and merger and demerger of OCT Shanghai Land.

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

(d) The possible financial effects of the Capital Injection on the Group

As the Group has the power to govern the financial and operating policies of OCT Shanghai Land by being able to control the board of directors anytime through making the full capital contribution,

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LETTER FROM CHINA EVERBRIGHT

OCT Shanghai Land is considered to be a subsidiary of the Group in accordance with Hong Kong Accounting Standards 27, Consolidated and Separate Financial Statements, when the Capital Investment Agreement becomes binding and unconditional. The Group should therefore consolidate OCT Shanghai Land from that date.

(i) Effects on net assets value

According to the audited consolidated financial statements of the Group (the “ Audited Financial Information ”) for the three years ended 31 December 2011, the net asset value attributable to the equity holder of the Company as at 31 December 2011 was approximately RMB1,577.9 million. As shown in the unaudited pro forma combined financial information of the Enlarged Group as at 31 December 2011 contained in Appendix IV to the Circular (the “ Pro Forma Financial Information ”), the unaudited pro forma adjusted net asset value attributable to the equity holder of the Company would remain unchanged, assuming Completion took place on 31 December 2011.

(ii) Effects on earnings

Based on the Pro Forma Financial Information, the unaudited pro forma adjusted net profit attributable to the equity shareholders of the Enlarged Group would be approximately RMB115.6 million representing a decrease of approximately 27.4%. Such decrease is mainly attributable to the loss in OCT Shanghai Land as it was still in the early stage of development during the period between 2010 and 2011.

However, we are advised by the Management that OCT Shanghai Land will derive revenue from sales of properties from the fourth quarter of 2012 and the whole project will be developed in phases and is expected to complete in 2016. As expected by the Management, future earnings potential of OCT Shanghai Land 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.

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

(iii) Effects on gearing

As at 31 December 2011, the gearing ratio of the Group, which is calculated based on total bank loans and related parties’ loans divided by the total assets at the end of the year, was approximately 19.6%. Upon completion of the Capital Injection, the gearing ratio of the Enlarged Group would be 51.8%. Such increase mainly reflects (i) the current related party loan of approximately RMB2.9 billion of OCT Shanghai Land; and (ii) non-current related party loan of approximately RMB5.1 billion of OCT Shanghai Land.

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LETTER FROM CHINA EVERBRIGHT

However, the unaudited pro forma adjusted net current assets of the Enlarged Group would increase to approximately RMB8,817.3 million, from audited net current assets of the Company of RMB327.7 million as at 31 December 2011 as set out in the Audited Financial Information.

Taking into account that:–

the unaudited pro forma adjusted net current assets of the Enlarged Group will be increased;
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;
the increase in the Enlarged Group’s gearing ratio mainly reflect the OCT Shanghai Land’s non-current related party loan of approximately RMB5.1 billion which will be payable over 1 year but less than 2 years; and
as estimated by the Management, OCT Shanghai Land will start to record revenue in the fourth quarter of 2012 when certain properties in the Suhewan Project will be sold by the end of 2012. Such sales proceeds to be received by OCT Shanghai Land during the two years ending 31 December 2013 is expected to cover significant percentage of its outstanding related party loan as at 31 December 2011.

we consider that (i) the increase of the Enlarged Group’s gearing ratio is acceptable and will not have any material adverse impact on the Enlarged Group; and (ii) the Capital Injection is in the interest of the Enlarged Group and the Shareholders as a whole in spite of the increase in the Enlarged Group’s gearing ratio.

(iv) Effects on working capital

According to the Capital Investment Agreement, the Capital Injection shall be contributed by Great Tec by phases within 2 years from the date of the approval of the joint venture contract, and the first phase of RMB900,000,000 (“ First Phase Payment ”) (equivalent to approximately HK$1,111,111,111) shall be contributed by Great Tec within 30 days from the date of the approval of the joint venture contract pursuant to the Capital Investment Agreement.

As advised by the Management, the First Phase Payment will be financed by OCT (HK) according to the Loan Agreement. Given that (i) the Group is allowed to pay the remaining capital contribution amount of approximately RMB1.33 billion by phases within 2 years from the date of the approval of the joint venture contract; (ii) the Group’s existing packaging business and its investment in Chengdu OCT and Xi’an OCT is expected by the Management to contribute stable profit and cashflow to the Group over the next few years; (iii) OCT Shanghai Land will start to record revenue in fourth quarter of 2012 when certain properties in the Suhewan Project will be sold by the end of 2012; and (iv) subject to all necessary or appropriate approval, authorization, consent and licence having been obtained, the Company may, subject to entering

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LETTER FROM CHINA EVERBRIGHT

into of separate agreement(s), repay the whole or part of borrowing under the Loan Agreement through allotment and issue of Shares or securities of the Company which will prevent the cash outflow of the Group, we are of the view that the Capital Investment Agreement will not have any material long-term adverse impact on the Enlarged Group’s working capital position.

The Directors are of the opinion that, following the Capital Injection, taking into account the financial resources available to the Enlarged Group, including (i) the internally generated funds from the Group’s existing business and the Suhewan Project; and (ii) 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.

OUR RECOMMENDATIONS

Having considered the above principal factors and reasons, we are of the opinion that the Capital Investment Agreement is 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 resolution to approve the Capital Investment Agreement 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

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

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.

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

23 March 2012

The Directors

Overseas Chinese Town (Asia) Holdings Limited

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Overseas Chinese Town (Shanghai) Land Company Limited (“OCT Shanghai Land”) including the statements of comprehensive income, the statements of changes in equity and the cash flow statements of OCT Shanghai Land for the period from 1 March 2010 (date of establishment) to 31 December 2010 and for the year ended 31 December 2011 (the “Relevant Period”), and the balance sheets of OCT Shanghai Land as at 31 December 2010 and 2011, together with the notes thereto (the “Financial Information”), for inclusion in the circular of Overseas Chinese Town (Asia) Holdings Limited (the “Company”) dated 23 March 2012 (the “Circular”) in connection with the proposed acquisition of a 50.5% equity interest in OCT Shanghai Land by Great Tec Investment Limited (“Great Tec”), an indirectly wholly owned subsidiary of the Company, pursuant to an capital investment agreement dated 5 January 2012 entered into between Great Tec and Overseas Chinese Town Real Estate Company Limited (“OCT Properties”). As at the date of this report, the equity interest of OCT Shanghai Land is wholly-owned by OCT Properties. Upon completion of the proposed capital contribution by Great Tec to OCT Shanghai Land, the equity interest of OCT Shanghai Land would be owned as to 50.5% by Great Tec and as to 49.5% by OCT Properties, respectively.

OCT Shanghai Land was incorporated in the People’s Republic of China (the “PRC”) on 1 March 2010.

OCT Shanghai Land has adopted 31 December as their financial year end date. The statutory financial statements were prepared in accordance with relevant accounting rules and regulations applicable to enterprises in the PRC.

The statutory financial statement of OCT Shanghai Land for the period from 1 March 2010 (date of establishment) to 31 December 2010 were audited by RSM International Certified Public Accountants.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

The directors of OCT Shanghai Land have prepared the financial statements of OCT Shanghai Land for the Relevant Period in accordance with the accounting policies set out in Section B below (the “Underlying Financial Statements”). The Underlying Financial Statements 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 OCT Shanghai Land 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 OCT SHANGHAI LAND AND REPORTING ACCOUNTANTS

The directors of OCT Shanghai Land are responsible for the preparation of the Financial Information that gives a true and fair view 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, and for such internal control as the directors of OCT Shanghai Land determine is necessary to enable the preparation of the Financial Information that is free from material misstatement, whether due to fraud or error.

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

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 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

We have not audited any financial statements of OCT Shanghai Land in respect of any period subsequent to 31 December 2011.

OPINION

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of OCT Shanghai Land’s results and cash flows for the Relevant Period and the state of affairs OCT Shanghai Land as at 31 December 2010 and 2011.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

A FINANCIAL INFORMATION
1 Statements of comprehensive income for the period from 1 March 2010 (date of establishment) to 31 December 2010 and for the year ended 31 December 2011

Period from
1 March
2010 (date of
establishment)
to 31 December
2010
Section B
RMB’000
Note
Turnover
–
Cost of sales
–
Gross profit
–
Other income
4(a)
484
Selling and marketing costs
(4,344 )
Administrative expenses
(7,586 )
Loss from operations
(11,446 )
Finance costs
4(b)
(30,136 )
Loss before taxation
(41,582 )
Income tax expense
5
10,299
Loss for the period/year
(31,283 )
Other comprehensive income for the
period/year, net of income tax
–
Total comprehensive income
for the period/year
(31,283 )

Year ended
31 December
2011
RMB’000
–
–
–
1,170
(9,114 )
(21,033 )
(28,977 )
–
(28,977 )
7,114
(21,863 )
–
(21,863 )

The accompanying notes form part of the Financial Information.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

2 Balance sheets as at 31 December 2010 and 2011

Section B
Note
Non-current assets
Property and equipment
8
Deferred tax assets
14
Current assets
Inventories
9
Other receivables
10
Restricted cash
11
Cash and cash equivalents
11
Current liabilities
Loans from a related party
12
Trade and other payables
13
Net current assets
Total assets less current liabilities
Non-current liabilities
Loans from a related party
12
Net assets
Capital and reserves
Paid-in capital
15(a)
Reserves
Total equity

At 31 December
2010
2011
RMB’000
RMB’000
2,699
3,512
10,299
17,413
12,998
20,925
3,587,921
10,021,389
358,018
2,925
–
3,600
11,918
13,607
3,957,857
10,041,521
388,000
2,898,000
104,138
606,592
492,138
3,504,592
3,465,719
6,536,929
3,478,717
6,557,854
2,010,000
5,111,000
1,468,717
1,446,854
1,500,000
1,500,000
(31,283 )
(53,146 )
1,468,717
1,446,854

The accompanying notes form part of the Financial Information.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

3 Statements of changes in equity for the period from 1 March 2010 (date of establishment) to 31 December 2010 and for the year ended 31 December 2011

Section B Note Balance at 1 March 2010 (date of establishment) Capital injection upon incorporation 15(a) Total comprehensive income for the period Balance at 31 December 2010 and 1 January 2011 Total comprehensive income for the year Balance at 31 December 2011	Paid-in Accumulated capital losses RMB’000 RMB’000 – – 1,500,000 – – (31,283 ) 1,500,000 (31,283 ) – (21,863 ) 1,500,000 (53,146 )	Total RMB’000 – 1,500,000 (31,283) 1,468,717 (21,863) 1,446,854

The accompanying notes form part of the Financial Information.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

4 Cash flow statements for the period from 1 March 2010 (date of establishment) to 31 December 2010 and year ended 31 December 2011

Period from
1 March
2010 (date of
establishment)
to 31 December
2010
Section B
RMB’000
Note
Operating activities
Cash used in operations
11(b)
(3,797,329 )
Tax paid
–
Interest paid
(86,418 )
Net cash used in operating activities
(3,833,747 )
Investing activities
New loans to a related party
100,000
Loans repaid by a related party
(100,000 )
Interest received
4(a)
484
Acquisition of property and equipment
(2,819 )
Net cash used in investing activities
(2,335 )
Financing activities
Proceeds from capital injection
15
1,500,000
Proceeds from new loans from
a related party
12
2,398,000
Net cash received from
financing activities
3,898,000
Net increase in cash and cash equivalents
11,918
Cash and cash equivalents at the
beginning of the period/year
–
Cash and cash equivalents at the
end of the period/year
11(a)
11,918

Year ended
31 December
2011
RMB’000
(5,206,149 )
–
(401,272 )
(5,607,421)
50,000
(50,000 )
1,170
(3,060 )
(1,890)
–
5,611,000
5,611,000
1,689
11,918
13,607

The accompanying notes form part of the Financial Information.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

B NOTES TO THE FINANCIAL INFORMATION

1 PRINCIPAL PLACE OF BUSINESS

Overseas Chinese Town (Shanghai) Land Company Limited (“OCT Shanghai Land”) is a company incorporated on 1 March 2010 and domiciled in Shanghai, the People’s Republic of China (“the PRC”). Its registered office and principal place of business is Room 401-23, No.311 Guangfu Road, Zhabei District, Shanghai, the PRC.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes individual HKFRSs, Hong Kong Accounting Standards (“HKASs”) and related interpretations, promulgated by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Further details of the significant accounting policies adopted are set out in the remainder of this Section B.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing the Financial Information, OCT Shanghai Land has adopted all these new and revised HKFRSs to the Relevant Period, except for any new standards or interpretation that are not yet effective for the accounting period ended 31 December 2011. The revised and new accounting standards and interpretations issued but not yet effective for the accounting year ended 31 December 2011 are set out in Note 22.

The Financial Information also complies with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

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

(b) Basis of preparation of the Financial Information

(i) Basis of measurement

The Financial Information is presented in Renminbi (“RMB”) which is the functional and presentation currency of OCT Shanghai Land, rounded to the nearest thousand. It is prepared on a historical cost basis.

(ii) Use of estimates and judgments

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.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

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 21.

(c) Investment property

Investment properties are land and/or buildings which are owned or held under a leasehold interest 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(f)). 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.

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

(d) Property and equipment

(i) Property and equipment

Property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see note 2(f)). 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.

OCT Shanghai Land 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.

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:

– Motor vehicles 5 years – 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.

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.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(ii) Construction in progress

Construction in progress is stated at cost less impairment losses (see note 2(f)). Cost comprises direct costs of construction and borrowing costs during the period 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.

(e) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if OCT Shanghai Land 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 OCT Shanghai Land

Assets held under leases which transfer to OCT Shanghai Land 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 OCT Shanghai Land are classified as operating leases.

(ii) Operating lease charges

Where OCT Shanghai Land 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(c)) or properties for sale (see note 2(g)).

(f)

Impairment of assets

(i) Impairment of other receivables

Other 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 OCT Shanghai Land 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;
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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

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 other receivables 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.

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 OCT Shanghai Land 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; and
land use rights.

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

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

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.

– 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.

(g) 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(p)). 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 OCT Shanghai Land, 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.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(h) Other receivables

Other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 2(f)), except where the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

(i) 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.

(j) 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.

(k) 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.

(l) 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.

(m) 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.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

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.

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 OCT Shanghai Land 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, OCT Shanghai Land 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.

(n) Provisions and contingent liabilities

Provisions are recognised for other liabilities of uncertain timing or amount when OCT Shanghai Land 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.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(o) 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 OCT Shanghai Land 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 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.

(iii) Interest income

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

(iv) Government grants

Government grants are recognised in the balance sheet initially when there is reasonable assurance that they will be received and that OCT Shanghai Land will comply with the conditions attaching to them. Grants that compensate OCT Shanghai Land 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 OCT Shanghai Land 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.

(p) 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.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(q) Related parties

For the purpose of the Financial Information,

(a) A person, or a close member of that person’s family, is related to OCT Shanghai Land if that person:
(i) has control or joint control over OCT Shanghai Land;
(ii) has significant influence over OCT Shanghai Land; or
(iii) is a member of the key management personnel of OCT Shanghai Land or OCT Shanghai Land’s parent.
(b) An entity is related to OCT Shanghai Land if any of the following conditions applies:
(i) The entity and OCT Shanghai Land are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of OCT Shanghai Land or an entity related to OCT Shanghai Land.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

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.

3 TURNOVER

OCT Shanghai Land is principally engaged in the development and sales of properties. There are no sales of properties during the Relevant Period as all properties represented as inventory were not available for sale yet.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

4 LOSS BEFORE TAXATION

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

(a) Other income

Period from 1 March 2010 (date of establishment) to 31 December 2010 RMB’000 Interest income from bank deposits (255 ) Interest income from loans to a related party (229 ) (484 ) *(b)* *Finance costs* Interest expense on loans from a related party 89,970 Less: interest expense capitalised (59,834 ) Net interest expense 30,136*	Year ended 31 December 2011 RMB’000 (355 ) (815 )
	(1,170 )

	413,116 (413,116 )
	–

The borrowing costs have been capitalised at rates of 4.85% and 5.99% per annum for the period from 1 March 2010 (date of establishment) to 31 December 2010 and year ended 31 December 2011 respectively.

(c) Staff costs

Salaries and other emoluments Contributions to defined contribution plan	1,839 314 2,153	5,077 877
		5,954

Employees of OCT Shanghai Land in the PRC are required to participate in defined contribution retirement schemes which are administered and operated by the local municipal government. OCT Shanghai Land 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.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(d) Other items

	Period from
	1 March 2010
	(date of establishment)	Year ended
	to 31 December 2010	31 December 2011
	RMB’000	RMB’000
Depreciation and amortisation –
Property and equipment	107	637

5 INCOME TAX IN THE STATEMENT OF COMPREHENSIVE INCOME

(a) Taxation in the statement of comprehensive income:

Period from 1 March 2010 (date of establishment) to 31 December 2010 RMB’000 Current tax – Deferred tax (10,299 ) (10,299 )	Year ended 31 December 2011 RMB’000 – (7,114 )
	(7,114 )

PRC Corporate Income Tax (“CIT”) is provided at the rate of 25% for the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011 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.

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

Period from 1 March 2010 (date of establishment) to 31 December 2010 RMB’000 Loss before taxation 41,582 Notional tax on loss before taxation (10,395 ) Tax effect of non-deductible expenses 96 Actual tax expense (10,299 )	Year ended 31 December 2011 RMB’000 28,977

	(7,244 ) 130
	(7,114 )

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

6 DIRECTORS’ REMUNERATION

There is no directors’ remuneration throughout the Relevant Period, which is required to be disclosed pursuant

to section 161 of the Hong Kong Companies Ordinance.

7 INDIVIDUALS wITH HIGHEST EMOLUMENTS

The aggregate of the emoluments in respect of the remaining individuals are as follows:

Period from 1 March 2010 (date of establishment) Year ended to 31 December 2010 31 December 2011 RMB’000 RMB’000 Salaries and other emoluments 826 2,820 The emoluments of these individuals are within the following band: Number of individuals Period from 1 March 2010 (date of establishment) Year ended to 31 December 2010 31 December 2011 Nil to Hong Kong Dollar 1,000,000 5 5

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

8 PROPERTY AND EqUIPMENT

Motor vehicle RMB’000 Cost At 1 March 2010 (date of establishment) – Additions 1,777 At 31 December 2010 1,777 Accumulated depreciation At 1 March 2010 (date of establishment) – Charged (85 ) At 31 December 2010 (85 ) Net book value: At 31 December 2010 1,692 Cost At 1 January 2011 1,777 Additions 485 At 31 December 2011 2,262 Accumulated depreciation At 1 January 2011 (85 ) Charged (361 ) At 31 December 2011 (446 ) Net book value: At 31 December 2011 1,816	Fixtures, fittings and equipment RMB’000 – 1,029 1,029 – (22 ) (22 ) 1,007 1,029 981 2,010 (22 ) (292 ) (314 ) 1,696	Total RMB’000 – 2,806 2,806 – (107 ) (107 ) 2,699 2,806 1,466 4,272 (107 ) (653 ) (760 ) 3,512

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

9 INVENTORIES

Properties under development

Balance at 1 March (date of establishment)/1 January Cost capitalised Balance at 31 December Interest capitalisation included in the above: Balance at 1 March (date of establishment)/1 January Cost capitalised Balance at 31 December	2010 RMB’000 – 3,587,921 3,587,921 2010 RMB’000 – 59,834 59,834	2011 RMB’000 3,587,921 6,433,468
		10,021,389

		2011 RMB’000 59,834 413,116
		472,950

The properties under development are located in the PRC.

The weighted average capitalisation rates of borrowings for the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011 are 4.85% and 5.99% respectively.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

10 OTHER RECEIVABLES

Advance deposits for acquisition of land use rights Non-trade receivables	At 31 December 2010 2011 RMB’000 RMB’000 358,000 – 18 2,925 358,018 2,925	At 31 December 2010 2011 RMB’000 RMB’000 358,000 – 18 2,925 358,018 2,925
		2,925

11 CASH AND CASH EqUIVALENTS/RESTRICTED CASH

(a) An analysis of the balance of cash and cash equivalents is set out below:

Cash at bank and cash in hand Less: restricted cash *	At 31 December 2010 2011 RMB’000 RMB’000 11,918 17,207 – (3,600 ) 11,918 13,607	At 31 December 2010 2011 RMB’000 RMB’000 11,918 17,207 – (3,600 ) 11,918 13,607
		13,607

Pursuant to relevant regulations, there are restrictions on OCT Shanghai Land’s ability to withdraw cash from certain specified bank accounts for uses other than the purchase of construction materials or payment of development costs.
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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(b) Reconciliation of loss before taxation to cash used in operation:

			Period from
			1 March 2010
			(date of establishment)	Year ended
			to 31 December 2010	31 December 2011
		Note	RMB’000	RMB’000
	Loss for the period/year		(31,283 )	(21,863 )
	Adjustments for:
	Depreciation	4(d)	107	637
	Other income	4(a)	(484 )	(1,170 )
	Finance costs	4(b)	30,136	–
	Income tax expense	5	(10,299 )	(7,114 )
			(11,823 )	(29,510 )
	Changes in working capital:
	Increase in restricted cash	11(a)	–	(3,600 )
	(Increase)/decrease in other receivables		(358,005 )	356,687
	Increase in inventory		(3,528,087 )	(6,020,336 )
	Increase in trade and other payables		100,586	490,610
	Net cash used in operating activities		(3,797,329 )	(5,206,149 )

12	LOANS FROM A RELATED PARTY
			At 31 December
			2010	2011
			RMB’000	RMB’000
	Current
	Designated loans from a related party_(note 18)_		388,000	888,000
	Current portion of non-current loans		–	2,010,000
			388,000	2,898,000

	Non-current
	Designated loans from a related party_(note 18)_		2,010,000	7,121,000
	Less: current portion of non-current loans		–	(2,010,000 )
			2,010,000	5,111,000

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

As at 31 December 2010 and 2011, all outstanding loans are unsecured.

Non-current loans were repayable as follows:

Within 1 year Over 1 year but less than 2 years	2010 RMB’000 – 2,010,000 2,010,000	2011 RMB’000 2,010,000 5,111,000
		7,121,000

The effective interest rate for the period from 1 March 2010 (date of establishment) to 31 December 2010 and the year ended 31 December 2011 are as follows:

	2010	2011
Loans from a related party	4.92%	5.99%

The carrying amounts of current and non-current loans approximate their fair value.

13 TRADE AND OTHER PAYABLES

Trade payable Due to related parties (non-trade)(note 18(d)) Non-trade payables and accruals Balance at 31 December	At 31 December 2010 2011 RMB’000 RMB’000 – 73,704 100,000 3,024 4,138 529,864 104,138 606,592	At 31 December 2010 2011 RMB’000 RMB’000 – 73,704 100,000 3,024 4,138 529,864 104,138 606,592
		606,592

Note:

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

			2010	2011
			RMB’000	RMB’000
Within	1	year	–	73,704

(b) Non-trade payables and accruals mainly consist of the advance received from local government authority regarding the improvement and maintenance work for certain heritage structures located in the construction premise of Suhewan Project, which is the main project OCT Shanghai Land operates. To date, OCT Shanghai Land has received a total sum of RMB511,000,000. As at 31 December 2011, the accumulated expenditure on improvement and maintenance work amounted to RMB10,267,000.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

14 INCOME TAX IN THE BALANCE SHEET

(a) Current taxation

As the Company has accumulated tax losses since incorporation, no current income tax was recognised.

(b) Deferred tax

The deferred tax assets were recognised from tax losses and the movements during the Relevant Period are as follows:

Balance at 1 March (date of establishment)/1 January Additions	2010 RMB’000 – 10,299 10,299	2011 RMB’000 10,299 7,114
		17,413

15 CAPITAL AND RESERVES

(a) Paid-in capital

OCT Shanghai Land was established in the PRC on 1 March 2010 by OCT Properties. The registered capital of OCT Shanghai Land is RMB 1,500,000,000.

(b) Capital management

OCT Shanghai Land’s primary objectives when managing capital are to safeguard OCT Shanghai Land’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.

Consistent with industry practice, OCT Shanghai Land 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 OCT Shanghai Land. Total debt is calculated as total loans from a related party.

Loans from a related party – Current – Non-current Total debt Total equity Debt to equity ratio	At 31 December 2010 2011 RMB’000 RMB’000 388,000 2,898,000 2,010,000 5,111,000 2,398,000 8,009,000 1,468,717 1,446,854 1.637 5.535	At 31 December 2010 2011 RMB’000 RMB’000 388,000 2,898,000 2,010,000 5,111,000 2,398,000 8,009,000 1,468,717 1,446,854 1.637 5.535
		8,009,000 1,446,854 5.535

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

16 FINANCIAL RISk MANAGEMENT AND FAIR VALUES

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

(a) Credit risk

OCT Shanghai Land’s credit risk is primarily attributable to other receivables. Further quantitative disclosures in respect of the company’s exposure to credit risk arising from other receivables are set out in note 10. Cash and cash equivalents are placed with a group of banks and financial institutions which management considers have good credit ratings.

(b) Liquidity risk

OCT Shanghai Land’s management reviews the liquidity position of OCT Shanghai Land 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 OCT Shanghai Land’s liquidity requirements in the short and longer terms.

The following tables show the remaining contractual maturities at the balance sheet date of OCT Shanghai Land’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 OCT Shanghai Land can be required to pay.

Loans from a related party_(note 12) Trade and other payables(note 13)_	At 31 December 2010 More than Total 1 year contractual within 1 but less Carrying undiscounted year or on than 2 amount cash flow demand years RMB’000 RMB’000 RMB’000 RMB’000 2,398,000 2,518,901 490,970 2,027,931 104,138 104,138 104,138 – 2,502,138 2,623,039 595,108 2,027,931	More than 2 years but less than 5 years RMB’000 – –
		–

Loans from a related party_(note 12) Trade and other payables(note 13)_	At 31 December 2011 More than Total 1 year contractual within 1 but less Carrying undiscounted year or on than 2 amount cash flow demand years RMB’000 RMB’000 RMB’000 RMB’000 8,009,000 8,478,795 3,287,206 5,191,589 606,592 606,592 606,592 – 8,615,592 9,085,387 3,893,798 5,191,489	More than 2 years but less than 5 years RMB’000 – –
		–

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(c) Interest rate risk

OCT Shanghai Land’s interest rate risk arises primarily from loans from a related party disclosed in note 12 to the Financial Information. OCT Shanghai Land does not carry out any hedging activities to manage its interest rate exposure.

A change of 100 basis points in interest rates, with all other variables held constant, would increase/ (decrease) OCT Shanghai Land’s loss and decrease/(increase) its total equity by approximately RMB7,335,000 and nil for the period from 1 March 2010 (date of establishment) to 31 December 2010 and year ended 31 December 2011 respectively.

(d) Fair values

The fair values of the other financial assets and liabilities are considered to approximate their carrying amounts.

17 COMMITMENTS

	At 31 December
	2010	2011
	RMB’000	RMB’000
Capital commitments	10,268,912	4,788,938

18 MATERIAL RELATED PARTY TRANSACTIONS

During the Relevant Period, transactions with the following parties are considered as related party transactions.

(a) Key management personnel remuneration

Remuneration for key management personnel of OCT Shanghai Land, including certain of the highest paid employees as disclosed in note 7, is as follows:

		Period from
		1 March 2010
	(date of establishment)		Year ended
	to	31 December 2010	31 December 2011
		RMB’000	RMB’000
Salaries and other emoluments		826	2,820

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(b) OCT Shanghai Land has a related party relationship with the following parties:

	Relationship with
Name of party	OCT Shanghai Land
Overseas Chinese Town Enterprises	Ultimate holding company
Corporation (“OCT Group”)
OCT Properties	Immediate holding company
Overseas Chinese Town (Asia) Holdings Limited	Fellow subsidiary
(“OCT Asia”)
Overseas Chinese Town Property Management Limited	Fellow subsidiary
(“OCT PM”)

(c) Transactions with related parties

	Period from
	1 March 2010
	(date of establishment)	Year ended
	to 31 December 2010	31 December 2011
	RMB’000	RMB’000
Loans provided to OCT Properties	100,000	50,000
Loans repaid by OCT Properties	100,000	50,000
Interest income
– OCT Properties_(note 4(a))_	229	815
Loans obtained from OCT Properties_(note 12)_	2,398,000	5,611,000
Interest expenses
– OCT Properties_(note 4(b))_	89,970	413,116
Receipt of services
– OCT PM	–	2,337
*Balances with related parties*
	At 31	December
	2010	2011
	RMB’000	RMB’000
Amount due to related parties (note 13)
OCT Properties	100,000	268
OCT PM	–	2,756
	100,000	3,024

(d) Balances with related parties
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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

19 NON-ADjUSTING POST BALANCE SHEET EVENTS

On 5 January 2012, Great Tec, an indirect wholly-owned subsidiary of the Company, entered into a capital investment agreement with OCT Properties pursuant to which Great Tec conditionally agreed to make capital contribution of RMB2,232,000,000 to OCT Shanghai Land. Upon completion, the registered capital of OCT Shanghai Land would be RMB3,030,000,000 and the equity interest of OCT Shanghai Land would be owned as to 50.5% by Great Tec and as to 49.5% by OCT Properties, respectively.

20 IMMEDIATE AND ULTIMATE CONTROLLING PARTY

As at 31 December 2011, the directors consider the immediate controlling party and the ultimate controlling party of OCT Shanghai Land to be OCT Properties and OCT Group, respectively, which are incorporated in the Shenzhen Nanshan District.

21 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. OCT Shanghai Land 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) Provision for properties under development

As explained in note 2(g), OCT Shanghai Land’s properties under development are stated at the lower of cost and net realisable value. Based on OCT Shanghai Land’s recent experience and the nature of the subject properties, OCT Shanghai Land 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.

(b) 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 OCT Shanghai Land 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 assets to be recognised and hence the net profit in future years.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

(c) 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 OCT Shanghai Land based on management’s best estimate.

When developing properties, OCT Shanghai Land 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.

22 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
Amendments to HKFRS 7,Financial instruments:	1 July 2011
Disclosures – Transfers of financial assets
Amendments to HKAS 12,Income taxes – Deferred tax:	1 January 2012
Recovery of underlying assets
Amendments to HKAS 1,Presentation of financial	1 July 2012
statements – Presentation of items of other comprehensive income
HKFRS 10,Consolidated financial statements	1 January 2013
HKFRS 11,Joint arrangements	1 January 2013
HKFRS 12,Disclosure of interests in other entities	1 January 2013
HKFRS 13,Fair value measurement	1 January 2013
HKAS 27,Separate financial statements (2011)	1 January 2013
HKAS 28,Investments in associates and joint ventures	1 January 2013
Revised HKAS 19,Employee benefits	1 January 2013
Amendments to HKFRS 7,Financial instruments: Disclosures	1 January 2013
Amendments to HKAS 32,Financial instruments: Presentation	1 January 2014
HKFRS 9,Financial instruments (2010)	1 January 2015
Amendments to HKFRS 9,_Financial instruments_and	1 January 2015
HKFRS 7_Financial instruments: Disclosures_

OCT Shanghai Land 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 OCT Shanghai Land’s results of operations and financial position.

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ACCOUNTANTS’ REPORT OF OCT SHANGHAI LAND

APPENDIX I

C SUBSEqUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by OCT Shanghai Land in respect of any period subsequent to 31 December 2011.

Yours faithfully kPMG

Certified Public Accountants Hong Kong

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP

The Company is required to set out in this circular the financial information for the last three financial years with respect to the profits and losses, financial record and position, set out as a comparative table and the latest published audited statement of financial position together with the notes on the annual accounts for the last financial year for the Group.

The audited consolidated financial statements of the Group for the year ended 31 December 2011 has been set out in pages 43 to 124 of the annual report 2011 of the Company which was posted on 7 March 2012 on the Stock Exchange’s website (http://www.hkexnews.hk).

The audited consolidated financial statements of the Group for the year ended 31 December 2010 has been set out in pages 42 to 122 of the annual report 2010 of the Company which was posted on 4 March 2011 on the Stock Exchange’s website (http://www.hkexnews.hk).

The audited consolidated financial statements of the Group for the year ended 31 December 2009 has been set out in pages 39 to 106 of the annual report 2009 of the Company which was posted on 23 April 2010 on the Stock Exchange’s website (http://www.hkexnews.hk).

2. 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 January 2012, 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* 171,900 95,366 981 9,153,250	*HK$’000* Equivalent 212,222

		117,736

		1,211

		11,300,309

Among the above outstanding bank loans, approximately RMB131.40 million (equivalent to approximately HK$162.22 million) were guaranteed by subsidiaries of the Enlarged Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The above bills payable, approximately RMB95.37 million (equivalent to approximately HK$117.74 million), were guaranteed by subsidiaries of the Enlarged Group and secured by approximately RMB42.69 million (equivalent to approximately HK$52.70 million) cash deposits.

The above letter of credit of approximately RMB0.98 million (equivalent to approximately HK$1.21 million) was guaranteed by subsidiaries of the Enlarged Group.

The above related party loans of approximately RMB9,153.25 million (equivalent to approximately HK$11,300.31 million) were all unsecured.

Contingent liabilities

As at 31 January 2012, the Enlarged Group had no significant contingent liabilities.

Available banking facilities

As at 31 January 2012, the Enlarged Group’s total credit facilities provided by the banks and related parties were approximately RMB10.43 billion (equivalent to approximately HK$12.88 billion), of which approximately RMB1,008.20 million (equivalent to approximately HK$1,244.69 million) are available for future borrowing.

For the purpose of this circular, all amounts in RMB are translated into HK$ at an exchange rate of RMB0.81: 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 January 2012.

The Directors are not aware of any material changes in the indebtedness or contingent liabilities of the Enlarged Group since 31 January 2012.

3. 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.

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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 2011:

For the year ended 31 december 2011

OPERATING RESULTS

During the period under review, the Group achieved satisfactory operating results leveraging on its extensive experience and quality products under sluggish economic environment and weak market demand. As of 31 December 2011, the Group recorded a turnover of approximately RMB2,559 million, representing an increase of approximately 34.3% over the same period of 2010; profits attributable to the Shareholders were approximately RMB159 million, representing an increase of approximately 138.7% over the same period of 2010.

SEGMENT INFORMATION

Comprehensive development Business

The equity interests of Chengdu OCT and Xi’an OCT were held as to 51% and 25% respectively by the Group. Chengdu OCT Project is located in Jinniu District, Chengdu City, Sichuan Province, the PRC which is to be developed into a composite project, comprising a theme park, residential and commercial properties, occupying a gross floor area of approximately 2,250,000 sq.m.. During the period under review, Chengdu OCT recorded a turnover of approximately RMB1,740 million, representing an increase of approximately 5.5% over the same period of 2010. The residential property project of Chengdu OCT has a gross saleable floor area of approximately 1,260,000 sq.m.. The highlevel portion of Phase III and Phase IV of the residential property project is currently on sale. In 2011, the contract sales area and revenue of the residential property project reached approximately 132,000 sq.m. and approximately RMB1,652 million respectively, while the settled area and revenue recorded were approximately 140,000 sq.m. and approximately RMB1,595 million respectively. By the end of 2011, the contracted but not settled area and revenue amounted to approximately 82,000 sq.m. and approximately RMB860 million respectively. In February 2011, the government of Chengdu Municipality promulgated a series of house purchase limit policies. In response to the new market condition, Chengdu OCT had expanded promotion network and adjusted its sales policy in a timely manner which resulted in an increase of approximately 13% in contract sales volume over the same period of 2010. The current rentable area of the commercial properties of Chengdu OCT is approximately 47,000 sq.m., of which 99% have been occupied. Chengdu Happy Valley, a theme park of Chengdu OCT, is one of the most influential theme parks in the southwestern part of China. It has attracted approximately 2.44 million visitors throughout the period under review, representing an increase of approximately 10% over the same period of 2010. With the adjustment to the entrance fee of Chengdu Happy Valley from May 2011, it recorded a turnover of approximately RMB218 million during the period under review, representing an increase of approximately 8% over the same period of 2010.

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Xi’an OCT Project is located in Qujiang New District, Xi’an City, Shanxi Province. It adjoins several famous scenic spots and comprises mainly low-density residential properties. This project began to bring in positive contributions to the Group’s investment income in 2011. During the period under review, part of the project has been launched, including duplex, compound and detached buildings, and the market reaction to the pre-sale was very positive. The contract sales area and revenue reached approximately 41,800 sq.m. and approximately RMB810 million respectively. The settled area and revenue were approximately 40,600 sq.m. and approximately RMB776 million respectively, while the contracted but not settled area and revenue amounted to approximately 1,200 sq.m. and approximately RMB34 million respectively. At the end of June 2011, Xi’an OCT acquired two more parcels of land neighbouring the original land, adding the total site area to approximately 137,000 sq.m..

Paper Packaging Business

The Group has over 20 years of experience in the packaging and printing industry. It has set up four manufacturing bases and several branches in Pearl River Delta and Yangtze River Delta, the most developed areas in the PRC, and has created the brand of “Huali” with solid customer base and good market reputation. During the period under review, our paper packaging business recorded a turnover of RMB815 million, representing an increase of approximately 4.9% over the same period of 2010. Profits attributable to the Shareholders amounted to approximately RMB29.64 million, representing an increase of approximately 23.4% over the same period of 2010.

During the period under review, despite the earthquake in Japan and the fluctuation in the economy of Europe and the United States of America, the Group still achieved an annual production of approximately 152,000 tonnes by adopting a number of strategies. The average selling price for the products had been stable throughout the year. Our manufacturing base in Huizhou city, the PRC continued to explore famous brand clients and had rapidly achieved relatively stable sales volume. Meanwhile, the two new branches located in Wuhan city, Hubei Province and Kunshan city, Jiangsu Province also sped up their efforts in exploring markets in the neighbouring regions, actively expanding our business reach. At the same time of launching new products, the Group had enhanced the integration with the creative culture sector to strengthen the creative elements of our products, and our paper culture creative products were elected as one of the key projects under the “12th Five Year Plan” for the culture sector of Guangdong Province. In addition, the Group launched trial run for the VMI (Vendor Managed Inventory) management model in some plants to improve its customer services and enhance its competitiveness.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

The total equity of the Group as at 31 December 2011 was RMB2,290 million (31 December 2010: RMB2,044 million). As at 31 December 2011, the Group had current assets of RMB3,064 million (31 December 2010: RMB2,953 million) and current liabilities of RMB2,736 million (31 December 2010: RMB2,799 million). The current ratio was 1.12 times as at 31 December 2011 as compared to 1.06 times as at 31 December 2010. The Group generally finances its operations with internally generated funds and credit facilities provided by banks.

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

As at 31 December 2011, the Group had outstanding bank loans of RMB173 million, without any fixed-rate loans (31 December 2010: outstanding bank loans of RMB72.67 million; without any fixed-rate loans). As at 31 December 2011, the bank loan interest rates of the Group ranged from 0.99% to 2.33% per annum (while for the year ended 31 December 2010, the bank loan interest rates of the Group ranged from 0.95% to 1.52% per annum). Some of those bank loans were secured by corporate guarantees provided by certain subsidiaries of the Company. The Group’s gearing ratio (being the total borrowings including bills payable and loans divided by total assets) was approximately 20% as at 31 December 2011, which decreased by approximately 7% as compared with 27% as at 31 December 2010.

As at 31 December 2011, 100% of the total amount of outstanding bank loans of the Group was in Hong Kong Dollars (31 December 2010: approximately 100% in Hong Kong Dollars). As at 31 December 2011, approximately 91% of the total amount of cash and cash equivalents of the Group was in Renminbi (31 December 2010: 98%), approximately 8% of its cash and cash equivalents was in Hong Kong Dollars (31 December 2010: 2%) and approximately 1% of its cash and cash equivalents was in United States Dollars (31 December 2010: 0%).

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. 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 2011. During the year ended 31 December 2011, 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.

Treasury policies and 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 2011. During the year ended 31 December 2011, 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.

Charge on assets

As at 31 December 2011, the bank loans of the Group were guaranteed by its subsidiaries, namely Huali Holdings Company Limited, Wantex Investment Limited, Excel Founder Limited, Hanmax Investment Limited, Barwin Development Limited, Forever Galaxies Limited, Fortune Crown International Limited and Miracle Stone Development Limited of an aggregate amount of RMB124,874,000 to the Group.

Capital commitment

As at 31 December 2011, the Group had capital commitments outstanding but not provided for in the consolidated financial statements of approximately RMB2,276,485,000 which represented the capital commitment contracted for and authorised but not contracted for.

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2011, the Group employed approximately 2,800 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, and equal opportunities will be offered to all staff. Salaries of employees are maintained at a competitive level and are reviewed annually, with 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, 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.

CONTINGENT LIABILITIES

The Group has no contingent liabilities as at 31 December 2011.

INTEREST EXPENSES

The interest expenses of the Group were approximately RMB55.49 million for the year ended 31 December 2011 (2010: approximately RMB26.26 million), representing an increase of approximately 111.3% over the same period in 2010. Of them, the interest expenses of the comprehensive development business were approximately RMB53.56 million, representing an increase of approximately 118.8% over the same period in 2010, mainly because Chengdu OCT became a non-wholly-owned subsidiary of the Group on 21 September 2010 and only about three months’ expenses were included in the consolidated financial statements for last year; and the interest expenses of the paper packaging business were approximately RMB1.93 million, representing an increase of approximately RMB150,000 over the same period in 2010.

DIVIDENDS

The Board has resolved to recommend the payment of a final dividend of HK$7.30 cents per Share for the year ended 31 December 2011 (2010: HK$3.00 cents per Share).

For the year ended 31 december 2010

OPERATING RESULTS

As at 31 December 2010, the Group’s total assets amounted to RMB6,028 million. Total equity amounted to RMB2,044 million, representing an increase of approximately 194.1% over that as at 31 December 2009. The Group realized sales of RMB1,906 million in 2010, representing an increase of approximately 206.4% over 2009. Profits attributable to the Shareholders were RMB66.71 million, representing an increase of approximately 180.2% over 2009. The basic earnings per Share for the year were RMB0.15, as compared to RMB0.08 for 2009.

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

During the period under review, gross profit margin of the Group was approximately 13.6% (2009: approximately 13.8%), representing a decrease of 0.2% over the same period in 2009. The gross profit margin of Chengdu OCT was approximately 14.2%. Excluding such factor, the gross profit margin of the paper packaging business was approximately 12.7%, representing a decrease of 1.1% over the same period in 2009. The decrease was mainly attributable to the increase in the average price of raw materials compared to that in the same period in 2009, resulting in an increase in the cost of sales. Net profit margin attributable to the Shareholders was approximately 3.5% (2009: approximately 3.8%). Net profit margin attributable to equity holders of the Company decreased by 0.3% over 2009.

SEGMENT INFORMATION

Travel, property and its related business

For the year ended 31 December 2010, the development and operation of tourism theme park, developed and sold residential properties, and development and management of properties brought the Group revenue of RMB1,128,377,000 with segment net profit of RMB42,693,000. The increase in revenue and profit was mainly due to the capital increase in Chengdu OCT and Xi’an OCT.

Manufacture and sale of paper carton and products

Revenue and profit from the manufacture and sale of paper cartons and products amounted to RMB777,415,000 and RMB24,020,000 respectively during the year ended 31 December 2010. The revenue grew steadily was due to the increase in demand for packaging business in the PRC and the rising selling price of products.

SIGNIFICANT INVESTMENT, MATERIAL ACQUISITION AND DISPOSAL

The Group did not have any significant investment and material acquisition and disposal for the year ended 31 December 2010.

PROSPECTIVE AND FUTURE PLANS

Looking forward, the Directors expect that the global economy will continue to recover at a steady pace, alongside with growing demand for packaging products amid certain uncertainties in the global economic landscape. The Group will continue to strengthen the market share and competitiveness of the Group in the paper packaging industry through enhancing internal control, stepping up the development of high-value products and sales strategies as well as actively expanding customer base.

In 2011, Chengdu OCT will continue to advance various business segments. For residential property projects, the low-density residentials of Phase III will be launched successively; whereas Phase II of the theme park of Chengdu OCT, which is under active preparation, is expected to be opened for sale in 2012. In view of rising disposable income and increasing consumption, the Group is also considering to raise the entrance fee for the tickets of the theme park. The Company is very positive about the long-term prospects of the projects of Chengdu OCT, and believes that such project

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

is able to generate promising returns to the Company. Meanwhile, Xi’an OCT will also commence construction on the parcel of land as scheduled and completion is expected to be in 2011, therefore generating investment gain to the Group.

The Company will endeavour to seek for other projects that are in line with the strategic planning of the Company while maintaining steady growth of its paper packaging business. The management believes that, leveraging on the extensive experience of the Company, brand image of “OCT” and its abundant resources, the Group can effectively strengthen its market competitiveness, which in turn can steadily increase the Company’s value and bring long-term and stable returns to its Shareholders.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

The total equity of the Group as at 31 December 2010 was RMB2,044 million (31 December 2009: RMB695 million). As at 31 December 2010, the Group had current assets of RMB2,953 million (31 December 2009: RMB546 million) and current liabilities of RMB2,799 million (31 December 2009: RMB349 million). The current ratio was 1.06 times as at 31 December 2010 as compared to 1.56 times as at 31 December 2009. Of which Chengdu OCT’s current ratio was 1.07 times. Excluding such factor, the current ratio of the paper packaging business was 1.46 times.

The decrease in current ratio was mainly due to the increase in investing activities during the period. The Group generally finances its operations with internally generated funds and credit facilities provided by banks. As at 31 December 2010, the Group had outstanding bank loans of RMB72.67 million, without any fixed-rate loans (31 December 2009: outstanding bank loans of RMB127 million; of which fixed-rate loan amounted to RMB6.40 million). As at 31 December 2010, the bank loan interest rates of the Group ranged from 0.95% to 1.52% per annum (while for the year ended 31 December 2009, the bank loan interest rates of the Group ranged from 0.95% to 5.4% per annum). Some of those bank loans were secured by corporate guarantees provided by certain subsidiaries of the Company. The Group’s gearing ratio (being the total borrowings including bills payable and loans divided by total assets) was approximately 27% as at 31 December 2010, which was basically the same as approximately 27% as at 31 December 2009.

As at 31 December 2010, 100% of the total amount of outstanding bank loans of the Group was in Hong Kong Dollars (31 December 2009: approximately 95% in Hong Kong Dollars and approximately 5% in Renminbi). As at 31 December 2010, approximately 98% of the total amount of cash and cash equivalents of the Group was in Renminbi (31 December 2009: 40%), approximately 2% of its cash and cash equivalents was in Hong Kong Dollars (31 December 2009: 56%) and approximately 0% of its cash and cash equivalents was in United States Dollars (31 December 2009: 4%).

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.

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Treasury policies and 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 2010. During the year ended 31 December 2010, 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.

Charge on assets

As at 31 December 2010, the bank loans of the Group were guaranteed by its subsidiaries, namely Huali Holdings Company Limited, Wantex Investment Limited, Excel Founder Limited, Hanmax Investment Limited, Barwin Development Limited, Forever Galaxies Limited, Fortune Crown International Limited and Miracle Stone Development Limited of an aggregate amount of RMB1,534,299,000 to the Group.

Capital commitment

As at 31 December 2010, the Group had capital commitments outstanding but not provided for in the consolidated financial statements of RMB2,286,299,000 which represented the capital commitment contracted for and authorised but not contracted for.

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2010, the Group employed approximately 2,900 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, and equal opportunities will be offered to all staff. Salaries of employees are maintained at a competitive level and are reviewed 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, 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 1 March 2011, the Company granted a total of 19,300,000 share options under the scheme, of which 6,810,000 share options had been exercised during 2010.

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

CONTINGENT LIABILITIES

The Group had no contingent liabilities as at 31 December 2010.

INTEREST EXPENSES

The interest expenses of the Group were approximately RMB26.26 million for the year ended 31 December 2010, as compared to RMB3.20 million for the year ended 31 December 2009. Of which, the interest expenses of Chengdu OCT amounted to approximately RMB24.48 million. Excluding such expenses, the interest expenses of the paper packaging business decreased by approximately RMB1.42 million, mainly due to the decrease in the balance of average loan during the period.

DIVIDENDS

The Board has resolved to recommend the payment of a final dividend of HK$3 cents per Share for the year ended 31 December 2010 (2009: HK$2.36 cents per Share).

For the year ended 31 december 2009

OPERATING RESULTS

As at 31 December 2009, the Group’s total assets amounted to RMB1.177 billion. Total equity amounted to RMB695 million, representing an increase of 29.4% over that as at 31 December 2008. The Group realized sales of RMB622 million in 2009, representing a decrease of 18.5% over 2008. Profits attributable to the Shareholders 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.

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

THE PLACING AND SUBSCRIPTION

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 Limited (“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.

SIGNIFICANT INVESTMENT, MATERIAL ACQUISITION AND DISPOSAL ACQUISITION AND DISPOSAL

Capital Increase of Xi’an OCT – On 7 December 2009, Bantix International Limited (“Bantix”), a wholly-owned subsidiary of the Company, entered into a capital increase agreement with OCT Properties, whereby each of Bantix and OCT Properties conditionally agreed to contribute RMB50 million in cash to 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.). 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 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% 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.

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

PROSPECTIVE AND FUTURE PLANS

In spite of the nascent recovery of the global economy and the intensification of industry competition, as the economic development in the PRC progresses steadily and the domestic consumption power picks up rapidly, the Directors are still optimistic about the prospects of the paper packaging industry in the PRC 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 2010, Phase I of the theme park of Chengdu OCT will launch a number of entertainment projects, while Phase II of the theme park of Chengdu OCT will complete its project planning and designing stage. As for property projects, the high-rise apartments of Phase II will be launched in the first half of 2010, while some of the buildings of Phase III are expected to be launched in the second half of 2010. The Company is confident about the long-term prospects of Chengdu OCT, which the Directors believe is likely to generate attractive returns for the Company. Bantix International Limited, the Company’s wholly owned subsidiary, intended to increase its investment in Chengdu OCT by solely contributing, in cash, RMB588,000,000 into Chengdu OCT. After completion of the capital injection, Bantix International Limited’s interest in Chengdu OCT will increase from 25% to 51%, and Chengdu OCT will become a non-wholly owned subsidiary of the Company. 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 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 times as at 31 December 2009 as compared to 1.49 times as at 31 December 2008. The increase in liquidity ratio was mainly due to the increase in the working capital during the period. The Group generally finances its operations with internally generated funds and credit facilities provided by banks.

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

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APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

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. 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.

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.

Treasury policies and 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.

Charge on assets

As at 31 December 2009, the bank loans of the Group were guaranteed by its subsidiaries, namely Forever Galaxies Limited, Fortune Crown International Limited and Miracle Stone Development Limited of an aggregate amount of RMB126,670,000 to the Group.

Capital commitment

As at 31 December 2009, the Group had capital commitments outstanding but not provided for in the consolidated financial statements of RMB128,768,000 which represented the capital commitment contracted for and authorised but not contracted for.

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2009, the Group employed nearly 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, and equal opportunities will be offered to all staff. Salaries of employees are maintained at a competitive level and are reviewed annually,

III-11 -

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

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, 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 30 March 2010, 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.

INTEREST EXPENSES

The interest expenses of the Group were approximately RMB3.20 million for the year ended 31 December 2009, as compared to RMB3.30 million for the year ended 31 December 2008. The decrease was mainly attributable to the decrease of loan interest rates during the year.

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).

III-12 -

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 to show the effect of the Capital Injection as if it had been completed at the relevant dates which is prepared for the purpose of incorporated in this circular.

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 of RMB2,230,000,000 into Overseas Chinese Town (Shanghai) Land Company Limited (“OCT Shanghai Land”) had been completed on 31 December 2011 for the unaudited pro forma consolidated balance sheet and at the commencement of the year ended 31 December 2011 for the unaudited pro forma consolidated income statement and unaudited 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 OCT Shanghai Land pursuant to the terms of the Capital Investment Agreement (“Capital Injection”). Details of the Capital Injection are set out 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 financial information of the Enlarged Group is based upon the audited consolidated financial statements of the Group as of and for the year ended 31 December 2011 included in the Company’s annual report for the year then ended and the audited financial information of OCT Shanghai Land 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 pro forma adjustments 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 Capital Injection.

The unaudited pro forma financial information of the Enlarged Group is based on a number of assumptions, estimates and uncertainties. Among other key assumptions, the directors of the Company have assumed that the Company would be able to raise sufficient funding through internal resources, advance under the conditional loan agreement entered into between Overseas Chinese Town (HK) Company Limited (“OCT HK”) and the Company on 5 January 2012, placement of new shares to Pacific Climax and independent third party investors, bank borrowing and/or external financing to finance the Capital Injection within two years from the date of the approval of the Capital Investment Agreement.

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.

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 2011 and other financial information included elsewhere in this circular.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(2) Unaudited pro forma consolidated balance sheet as at 31 December 2011

Non-current assets Fixed assets – Investment property – Other property, plant and equipment – Interests in leasehold land held for own use under operating lease Intangible assets Goodwill Interest in an associate Other finance assets Deferred tax assets Current assets Inventories Trade and other receivables Restricted cash Cash and cash equivalents Current liabilities Trade and other payables Receipt in advance Bank loans Related party loans Current taxation Net current assets Total assets less current liabilities	The Group RMB’000 565,953 1,400,463 726,263 2,692,679 221 266,625 80,934 4,320 95,761 3,140,540 2,015,536 300,055 – 748,393 3,063,984 (1,918,981 ) (601,037 ) (92,068 ) – (124,160 ) (2,736,246 ) 327,738 3,468,278	OCT Shanghai Land RMB’000 – 3,512 – 3,512 – – – – 17,413 20,925 10,021,389 2,925 3,600 13,607 10,041,521 (606,592 ) – – (2,898,000 ) – (3,504,592 ) 6,536,929 6,557,854	Total Pro Forma Adjustments RMB’000 RMB’000 RMB’000 RMB’000 Note 1 Note 2(i) Note 2(ii) 565,953 1,403,975 726,263 2,696,191 221 266,625 2,081 80,934 4,320 113,174 3,161,465 12,036,925 1,052,611 302,980 3,600 762,000 2,232,000 13,105,505 (2,525,573 ) (1,332,000 ) (601,037 ) (92,068 ) (2,898,000 ) (124,160 ) (6,240,838 ) 6,864,667 10,026,132	The Enlarged Group RMB’000 565,953 1,403,975 726,263
				2,696,191 221 268,706 80,934 4,320 113,174
				3,163,546
				13,089,536 302,980 3,600 2,994,000
				16,390,116
				(3,857,573 ) (601,037 ) (92,068 ) (2,898,000 ) (124,160 )
				(7,572,838 )
				8,817,278
				11,980,824

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Non-current liabilities Bank loans Related party loans Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Share capital Reserves Total equity attributable to equity shareholders of the Company Non-controlling interests TOTAL EQUITY	The Group RMB’000 (81,070 ) (1,044,548 ) (52,522 ) (1,178,140 ) 2,290,138 (48,274 ) (1,529,627 ) (1,577,901 ) (712,237 ) (2,290,138 )	OCT Shanghai Land RMB’000 – (5,111,000 ) – (5,111,000 ) 1,446,854 (1,500,000 ) 53,146 (1,446,854 ) – (1,446,854 )	Total Pro Forma Adjustments RMB’000 RMB’000 RMB’000 RMB’000 Note 1 Note 2(i) Note 2(ii) (81,070 ) (6,155,548 ) (900,000 ) (52,522 ) (315,783 ) (6,289,140 ) 3,736,992 (1,548,274 ) 1,500,000 (1,476,481 ) (53,146 ) (3,024,755 ) (712,237 ) (2,185,763 ) (3,736,992 )	The Enlarged Group RMB’000 (81,070 ) (7,055,548 ) (368,305 )
				(7,504,923 )
				4,475,901

				(48,274 ) (1,529,627 )
				(1,577,901 ) (2,898,000 ) (4,475,901)

IV-3 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(3) Unaudited pro forma consolidated income statement for the year ended 31 December 2011

Turnover Cost of sales Gross profit Other revenue Other net income Distribution costs Administrative expenses Other operating expenses Profit/(Loss) from operations Finance costs Share of profit from an associate Profit/(Loss) before taxation Income tax Profit/(Loss) for the year Attributable to: Equity shareholders of the Company Non-controlling interests Profit/(Loss) for the year	The Group RMB’000 2,558,860 (1,786,190 ) 772,670 11,676 24,057 (160,648 ) (126,268 ) (1,832 ) 519,655 (55,486 ) 36,366 500,535 (231,582 ) 268,953 159,236 109,717 268,953	OCT Shanghai Land RMB’000 – – – – 1,170 (9,114 ) (21,033 ) – (28,977 ) – – (28,977 ) 7,114 (21,863 ) (21,863 ) – (21,863 )	Total Pro Forma Adjustments RMB’000 RMB’000 RMB’000 Note 1 Note 2(iii) 2,558,860 (1,786,190 ) 772,670 11,676 25,227 (169,762 ) (147,301 ) (1,832 ) 490,678 (55,486 ) (32,580 ) 36,366 471,558 (224,468 ) 247,090 137,373 (32,580 ) 10,822 109,717 (10,822 ) 247,090	The Enlarged Group RMB’000 2,558,860 (1,786,190 )
				772,670 11,676 25,227 (169,762 ) (147,301 ) (1,832 )
				490,678 (88,066 ) 36,366
				438,978 (224,468 )
				214,510

				115,615 98,895 214,510

IV-4 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(4) Unaudited pro forma consolidated cash flow statement for the year ended 31 December 2011

Operating activities Profit/(Loss) before taxation Adjustments for: Depreciation and amortisation Interest income Gain on sale of fixed assets Interest expense Share of profit from an associate Equity settled share-based payment expenses Operating profit/(loss) before changes in working capital Changes in working capital: Increase in restricted cash Increase in inventories (Increase)/decrease in trade and other receivables Decrease in receipts in advance Increase in trade and other payables Cash generated from/(used in) operations PRC tax paid Interest paid Net cash generated from/ (used in) operating activities	The Group RMB’000 500,535 167,710 (10,885 ) (3,431 ) 55,486 (36,366 ) 9,241 682,290 – (396,631 ) (33,661 ) (66,436 ) 451,526 637,088 (241,358 ) (55,675 ) 340,055	OCT Shanghai Land RMB’000 (28,977 ) 637 (1,170 ) – – – – (29,510 ) (3,600 ) (6,020,336 ) 356,687 – 490,610 (5,206,149 ) – (401,272 ) (5,607,421 )	Pro Forma Total adjustments RMB’000 RMB’000 Note 1 471,558 (32,580 ) 168,347 (12,055 ) (3,431 ) 55,486 32,580 (36,366 ) 9,241 652,780 (3,600 ) (6,416,967 ) 323,026 (66,436 ) 942,136 (4,569,061 ) (241,358 ) (456,947 ) (32,580 ) (5,267,366 )	The Enlarged Group RMB’000 438,978 168,347 (12,055 ) (3,431 ) 88,066 (36,366 ) 9,241 652,780 (3,600 ) (6,416,967 ) 323,026 (66,436 ) 942,136 (4,569,061 ) (241,358 ) (489,527 ) (5,299,946 )

IV-5 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Investing activities Payment for purchase of fixed assets New loans to related parties Proceeds from disposal of fixed assets Loans repaid by related party Interest received Net cash used in investing activities Financing activities Net proceeds from issuance of shares Proceeds from new bank loans, related party loans and other borrowings Dividends paid to the equity shareholders of the Company Dividends paid to non-controlling interests Repayment of borrowings Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rate changes Cash and cash equivalents at 31 December	The Group RMB’000 (290,318 ) – 10,071 – 10,885 (269,362 ) 4,374 145,926 (13,190 ) (21,990 ) (442,022 ) (326,902 ) (256,209 ) 1,005,358 (756 ) 748,393	OCT Shanghai Land RMB’000 (3,060 ) (50,000 ) – 50,000 1,170 (1,890 ) – 5,611,000 – – – 5,611,000 1,689 11,918 – 13,607	Pro Forma Total adjustments RMB’000 RMB’000 Note 1 (293,378 ) (50,000 ) 10,071 50,000 12,055 (271,252 ) 4,374 5,756,926 2,232,000 (13,190 ) (21,990 ) (442,022 ) 5,284,098 (254,520 ) 1,017,276 (756 ) 762,000	The Enlarged Group RMB’000 (293,378 ) (50,000 ) 10,071 50,000 12,055 (271,252 ) 4,374 7,988,926 (13,190 ) (21,990 ) (442,022 ) 7,516,098 1,944,900 1,017,276 (756 ) 2,961,420

IV-6 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(5) Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

This adjustment represents the completion of the proposed capital injection of RMB2,232,000,000 into OCT Shanghai Land by the Group in return for 50.5% equity interests in OCT Shanghai Land, as if the Capital Injection had been completed on 31 December 2011 for the unaudited pro forma consolidated balance sheet and on 1 January 2011 for the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement. This adjustment is not expected to have continuing effect on the Enlarged Group’s consolidated cash flow statement.

In funding the capital injection, the Group entered into a conditional loan agreement with OCT (HK) pursuant to which OCT (HK) conditionally agreed to lend RMB900,000,000 at an interest rate of 3.62% per annum to the Company. The annual interest payment of RMB32,580,000 has continuing effect on the Enlarged Group’s consolidated income statement and consolidated cash flow statement.

The Capital Injection shall be contributed by the Group by phases within 2 years from the date of the approval of the joint venture contract, and the first phase of RMB900,000,000 shall be contributed by the Group within 30 days from the date of the approval of the joint venture contract pursuant to the Capital Investment Agreement.

The identifiable assets and liabilities of OCT Shanghai Land acquired by the Company will be accounted for in the consolidated financial statements of the Enlarged Group at fair value under the purchase method of accounting in accordance with Hong Kong Financial Reporting Standards 3, Business Combinations .

For the purposes of the unaudited pro forma financial information, the allocation of the purchase price is determined based on the Directors’ estimates of the fair value of the identifiable assets and liabilities of OCT Shanghai Land as at 31 December 2011 and with reference to an property valuation report dated 23 March 2012 on the fair value of the properties under development for sale as held by OCT Shanghai Land. The property valuation report is prepared with reference to comparable sales transactions available in the market.

IV-7 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The actual fair values of the assets and the liabilities will be determined as of the date of acquisition and may differ materially from the amounts disclosed in the unaudited pro forma financial information because of changes in fair values of the assets and liabilities of the transaction, and as further analysis is completed. Consequently, the actual allocation of the purchase price will likely result in different amounts than those in the unaudited pro forma financial information.

(i) This adjustment represents the consolidation entry to eliminate the Share capital of OCT Shanghai Land and pre-acquisition reserves on consolidation;
(ii) This adjustment relates to the recognition of:
fair value adjustment of RMB1,052,611,000 on properties under development for sale held by OCT Shanghai Land.

	RMB’000
Book value of properties under development for
sale set out in Appendix I to this circular	10,021,389
Market value of properties under development for
sale as set out in Appendix V to this circular	11,074,000
Fair value adjustment	1,052,611

recognition of non-controlling interests of RMB2,185,763,000 and goodwill of RMB2,081,000, being the excess amount of the consideration over the Group’s share of the fair value of the net identifiable assets of OCT Shanghai Land. The amount of non-controlling interests and goodwill would change depending on the fair value of the identifiable net assets of OCT Shanghai Land determined at the date of Completion.
IV-8 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Fair value of consideration
Net assets acquired:
Net assets value of OCT Shanghai Land
before the Capital Injection
Cash injected into OCT Shanghai Land
Fair value adjustments on properties
under development for sale
Effect of deferred tax liabilities estimated
at corporate income tax of 25% and
land appreciation tax of 5%
Total net assets acquired
Non-controlling interests in
OCT Shanghai Land
(being shares of net assets value of
OCT shanghai Land before the capital
injection of RMB716,193,000 and share
of capital injection and fair value
adjustment of RMB1,469,570,000)
Identified assets acquired and liabilities
assumed
Goodwill arising from the Capital Injection

RMB’000
RMB’000
2,232,000
1,446,854
2,232,000
1,052,611
(315,783 )
4,415,682
(2,185,763 )
2,229,919 (2,229,919 )
2,081

(iii) This adjustment represents the non-controlling interests’ share of OCT Shanghai Land’s loss for the year. This adjustment is expected to have continuing effect on the Enlarged Group’s consolidated income statement. RMB’000
Loss of OCT Shanghai Land for the year 21,863,000 Loss shared by the non-controlling interests at 49.5% 10,822,000
No adjustment has been made to the unaudited pro forma financial information for acquisition-related costs (including fees to legal advisers, financial adviser, reporting accountants, valuer, printer and other expenses) as the Directors determined that such costs are insignificant.
No adjustment has been made to the unaudited pro forma financial information to reflect any trading results or other transactions of the Enlarged Group entered into subsequent to 31 December 2011.
IV-9 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

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

23 March 2012

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 23 March 2012 (the “Circular”), which has been prepared by the directors of the Company solely for illustrative purposes to provide information about how the capital injection in Overseas Chinese Town (Shanghai) Land Company Limited might have affected the financial information of the Group presented. The basis of preparation of the unaudited Pro Forma Financial Information is set out in Section A of Appendix IV of the Circular.

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.

IV-10 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Our work did not constitute an audit or review performed 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 Group and that the adjustments are appropriate for the purposes of the unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 4.29(1) of the Listing Rules.

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 2011 or any future date; or
the results and cash flows of the Group for the year ended 31 December 2011 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 Paragraph 4.29(1) of the Listing Rules.

Yours faithfully, KPMG

Certified Public Accountants Hong Kong

IV-11 -

PROPERTY VALUATION OF ThE sUhEwAN PROjEcT

APPENDIX V

The following is the text of a letter and valuation certificate, prepared for the purpose of incorporation in this circular and received from Savills Valuation and Professional Services Limited, an independent property valuer, in connection with their valuation as at 31 December 2011 of the property.

==> picture [72 x 72] intentionally omitted <==

The Directors

Overseas Chinese Town (Asia) Holdings Limited Suites 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

23 March 2012

Dear Sirs,

RE: sUhEwAN PROjEcT EREcTED ON 1 jIEFANG AND 41&42 jIEFANG LOcATED AT ThE NORTh cOAsT OF sUZhOU RIVER, ZhABEI DIsTRIcT shANGhAI, ThE PEOPLE’s REPUBLIc OF chINA (位於中華人民共和國上海市閘北區蘇州河北岸1街坊、41與42 街坊的蘇河灣項目 ) (ThE “PROPERTY”)

In accordance with the instruction from Overseas Chinese Twon (Asia) Holdings Limited (hereinafter referred to as the “Company”) for us to value the property held by 華僑城（上海）置地有限公司(Overseas Chinese Town (Shanghai) Land Company Limited) (hereinafter referred to as the “OCT Shanghai Land”) situated in the People’s Republic of China (the “PRC”), we confirm that we have carried out an inspection, made relevant inquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of value of the property as at 31 December 2011 (the “Date of Valuation”) for public circular purpose.

Our valuation of the property is our opinion of its market 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”.

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, 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.

V-1 -

PROPERTY VALUATION OF ThE sUhEwAN PROjEcT

APPENDIX V

The property is held for development by OCT Shanghai Land. In valuing the property, we have adopted the Direct Comparison Approach by making reference to the comparable sales transactions as available in the market and the latest development scheme supplied to us.

We have been provided with copies of extracts of the title documents relating to the property. However, we have not searched the original documents to verify ownership or to ascertain the existence of any amendments which do not appear on the copies handed to us. We have relied to a considerable extent on information given by the Company and its PRC legal adviser, V&T (Shenzhen) Law Firm, regarding the title and other legal matters to the property. We have also accepted advice given by the Company to us on such matters as planning approvals or statutory notices, easements, tenure, particulars of occupancy, development scheme, estimated completion date, 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. We have had no reason to doubt the truth and accuracy of the information provided to us by the Company, which is material to our valuation. We were also advised by the Company that no material facts have been omitted from the information supplied.

We have inspected the property. 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 property is 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 valuation is prepared on the assumption that these aspects are satisfactory and that no extraordinary expense or delays will be incurred during the construction period.

The site inspection was carried out in late January 2012 by both Mr. Tom Chow, who is a China Registered Real Estate Appraiser and China Land Valuer and Ms. Maria Howe, who is a China Registered Real Estate Appraiser.

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

Our valuation is prepared in compliance with the requirements contained 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 in accordance with The Valuation Standards on Properties (First Edition January 2005) published by The Hong Kong Institute of Surveyors.

V-2 -

PROPERTY VALUATION OF ThE sUhEwAN PROjEcT

APPENDIX V

Unless otherwise stated, all monetary amounts stated in this report are stated in Renminbi (“RMB”).

We enclose herewith our valuation certificate.

Yours faithfully for and on behalf of

savills Valuation and Professional services Limited

Anthony c K Lau

MRICS MHKIS RPS(GP) Director

Note: Mr. Lau is a chartered surveyor and has over 19 years’ experience in the valuation of properties in Hong Kong and the PRC.

V-3 -

PROPERTY VALUATION OF ThE sUhEwAN PROjEcT

APPENDIX V

VALUATION cERTIFIcATE

Property

Suhewan Project erected on 1 Jiefang and 41 & 42 Jiefang located at the North Coast of Suzhou River, Zhabei District, Shanghai, PRC (位於中華人民共和國上海市閘北區蘇州河北岸 1街坊、41與42街坊的蘇河灣項目)

Description and tenure

The property comprises three parcels of land with a total site area of approximately 70,979.60 sq.m. (764,024 sq.ft.).

According to the information provided by the Company, the property is proposed to be developed into a large-scale comprehensive development with a total planned gross floor area (“GFA”) of approximately 282,168.55 sq.m. (3,037,262 sq.ft.) (aboveground) and 146,671.05 sq.m. (1,578,767 sq.ft) (underground), the details of which are as follows:

Market value in existing state as at 31 December 2011

Particulars of occupancy

As at the Date RMB11,074,000,000 of Valuation, site formation work was just commenced.

Use Hotel Commercial Offce Residential Ancillary facilities Total	Approximate gross foor area (sq.m.) (sq.ft.) 33,180.00 357,150 93,148.02 1,002,645 94,659.53 1,018,915 59,849.00 644,215 148,003.05 1,593,105 428,839.60 4,616,030	Approximate gross foor area (sq.m.) (sq.ft.) 33,180.00 357,150 93,148.02 1,002,645 94,659.53 1,018,915 59,849.00 644,215 148,003.05 1,593,105 428,839.60 4,616,030
		4,616,030

As advised by the Company, the property is scheduled to be completed in 2016.

The land use rights of 1 Jiefang have been granted for terms of 40 years, 50 years and 70 years commencing on 10 March 2011 for (i) commercial; (ii) office and cultural entertainment; and (iii) residential uses respectively.

The land use rights of 41 & 42 Jiefang have been granted for terms of 40 years and 50 years commencing on the delivery date for (i) commercial; and (ii) office and cultural entertainment uses respectively.

V-4 -

PROPERTY VALUATION OF ThE sUhEwAN PROjEcT

APPENDIX V

Notes:

Pursuant to the State-owned Construction Land Use Rights Grant Contract No. Hu Zha Gui Tu (2010) Di 8 (Version 1) (沪閘規土(2010)第8號(1.0版)) (“Contract 1”) entered into between Shanghai Planning and Land Administration Bureau, Zhabei Branch (上海市閘北區規劃和土地管理局) (“Party A”) and OCT Shanghai Land on 5 March 2010, Party A agreed to grant the land use rights of a parcel of land with a site area of approximately 35,560.50 sq.m. to OCT Shanghai Land at a total consideration of RMB7,020,000,000. Details of Contract 1 are as follows:

Granted land number	:	20090817842370493
Site area	:	35,560.50 sq.m.
Land use	:	commercial, office, cultural entertainment and residential uses
Total GFA for the	:	132,997 sq.m.
aboveground structure
Plot ratio	:	not more than 3.74 times (including the outstanding historic buildings; the
		residential construction floor area accounting for not more than 45% of the total
		GFA proportion)
Land use term	:	40, 50 and 70 years commencing on the delivery date respectively
Building density	:	not more than 40% (including the land on which the outstanding historic buildings
		are erected)
Greenery ratio	:	not less than 25% (including the land on which the outstanding historic buildings
		are erected)
Building covenant	:	to be completed by 30 September 2015

Pursuant to the State-owned Construction Land Use Rights Grant Contract No. Hu Zha Gui Tu (2010) Di 36 (Version 1) (沪閘規土(2010)第36號(1.0版)) (the “Contract 2”) entered into between Party A and OCT Shanghai Land on 27 December 2010, Party A agreed to grant the land use rights of two parcels of land with a total site area of approximately 35,419.10 sq.m. to OCT Shanghai Land at a total consideration of RMB1,791,000,000. Details of Contract 2 are as follows:

Granted land number	:	20090817842670459 and 20090817842570472
Site area	:	35,419.10 sq.m.
Total GFA for the	:	149,172 sq.m.
aboveground structure
Land use	:	commercial, office, cultural entertainment uses
Plot ratio	:	4.14 times (including the preserved historic buildings); not more than 3.75 times
(commercial and office)		(including the outstanding historic buildings)
Land use term	:	40 and 50 years commencing on the delivery date respectively
Building height	:	not higher than 80 meters
Building density	:	41 Jiefang – not more than 55% (excluding the land on which the preserved
		historic buildings are erected)
	:	42 Jiefang – not more than 60% (including the land on which the outstanding
		historic buildings are erected)
Greenery ratio	:	41 Jiefang – not less than 15% (excluding the land on which the preserved historic
		buildings are erected)
	:	42 Jiefang – not less than 15% (including the land on which the outstanding
		historic buildings are erected)
Building covenant	:	to be completed by 31 December 2016

Pursuant to the Shanghai Certificate of Real Estate Ownership No. Hu Fang Di Zha Zi (2011) Di 015767 (沪房地閘字 (2011)第015767號) issued by Shanghai Planning, Land & Resources Administration Bureau on 6 December 2011, the land use rights of a parcel of land located at 38 Qiu, 1 Jiefang, North Station Road (北站街道1街坊38丘) (“Lot 1”) with a site area of approximately 70.0 sq.m. have been granted to OCT Shanghai Land for terms of 40, 50 and 70 years commencing on 10 March 2011 for commercial, office, cultural entertainment and residential uses respectively.
Pursuant to the Shanghai Certificate of Real Estate Ownership No. Hu Fang Di Zha Zi (2011) Di 015769 (沪房地閘字 (2011)第015769號) issued by Shanghai Planning, Land & Resources Administration Bureau on 6 December 2011, the land use rights of a parcel of land located at 39 Qiu, 1 Jiefang, North Station Road (北站街道1街坊39丘) (“Lot 2”) with a site area of approximately 35,490.50 sq.m. have been granted to OCT Shanghai Land for terms of 40, 50 and 70 years commencing on 10 March 2011 for commercial, office, cultural entertainment and residential uses respectively.

Lots 1 and 2 constitute 1 Jiefang comprising a total site area of approximately 35,560.50 sq.m.

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PROPERTY VALUATION OF ThE sUhEwAN PROjEcT

APPENDIX V

Pursuant to the Shanghai Certificate of Real Estate Ownership No. Hu Fang Di Zha Zi (2012) Di 001683 (滬房地閘字 (2012) 第001683號) issued by Shanghai Planning, Land & Resources Administration Bureau on 8 March 2012, the land use rights of a parcel of land located at 15 Qiu, 41 Jiefang, North Station Road (北站街道41街坊15丘) (“Lot 3”) with a site area of approximately 11,262.60 sq.m. have been granted to OCT Shanghai Land for a term of 40 years for commercial use and a term of 50 years for office and, cultural entertainment uses, both commencing on 1 March 2011 and expiring on 28 February 2061.
Pursuant to the Shanghai Certificate of Real Estate Ownership No. Hu Fang Di Zha Zi (2012) Di 001684 (滬房地閘字 (2012) 第001684號) issued by Shanghai Planning, Land & Resources Administration Bureau on 8 March 2012, the land use rights of a parcel of land located at 11 Qiu, 42 Jiefang, North Station Road (北站街道42街坊11丘) (“Lot 4”) with a site area of approximately 8,457.20 sq.m. have been granted to OCT Shanghai Land for a term of 40 years for commercial use and a term of 50 years for office and, cultural entertainment uses, both commencing on 1 March 2011 and expiring on 28 February 2061.
Lots 3 and 4 constitute portion of 41 & 42 Jiefang comprising a total site area of approximately 19,719.80 sq.m.
As advised by the Company, OCT Shanghai Land is in the process of applying for the Shanghai Certificate of Real Estate Ownership of the remaining portions of 41 & 42 Jiefang with a total site area of approximately 15,699.30 sq.m.
Pursuant to the Construction Land Planning Permit No. Di Zi Di Hu Gui Di (2011) (地字第滬規地(2011)) EA31000020110950 issued by Shanghai Planning, Land & Resources Administration Bureau on 22 June 2011, OCT Shanghai Land is entitled to develop a parcel of land with a site area of approximately 35,560.50 sq.m on which a total GFA for the aboveground structure of approximately 132,997 sq.m. is to be erected.
Pursuant to the Construction Land Planning Permit No. Di Zi Di Hu Gui Di (2011) (地字第滬規地(2011)) EA31000020110976 issued by Shanghai Planning, Land & Resources Administration Bureau on 30 June 2011, OCT Shanghai Land is entitled to develop a parcel of land with a site area of 35,419.10 sq.m on which a total GFA for the aboveground structure of approximately 149,172 sq.m. is to be erected.
As advised by the Company, the estimated total construction cost for the completion of the property is approximately RMB4,900,000,000. The construction cost expended as at the Date of Valuation was approximately RMB294,000,000, which has been taken into account in our valuation.
For reference purpose, the market value of the property as if completed as at the Date of Valuation is in the sum of RMB22,000,000,000.
In the course of our valuation, we have been provided with a legal opinion on the title to the property issued by the Company’s PRC legal adviser, V&T (Shenzhen) Law Firm, which contains, inter alia, the following information:
i. OCT Shanghai Land had fully paid the land grant fee as stated in Notes 1 and 2 before the Date of Valuation;
ii. OCT Shanghai Land has obtained the Shanghai Certificate of Real Estate Ownership for 1 Jiefang with a site area of 35,560.50 sq.m. and the Shanghai Certificate of Real Estate Ownership for portions of 41 & 42 Jiefang with a site area of 19,719.80 sq.m. There will be no legal impediment for OCT Shanghai Land to obtain the Shanghai Certificate of Real Estate Ownership for the remaining portions of 41 & 42 Jiefang with a site area of 15,699.30 sq.m. as OCT Shanghai Land has fully paid the land grant fee according to Contract 2 as stated in Note 2 above;
iii. the aforesaid land use rights held by OCT Shanghai Land was not transferred, leased, mortgaged or seized as at the issuance date of this legal opinion;
iv. OCT Shanghai Land has obtained the land use rights of Granted Land Nos. 20090817842370493, 20090817842670459 and 20090817842570472 and is entitled to occupy and use the aforesaid land parcels as stated in Notes 1 and 2; and
v. once OCT Shanghai Land has complied with the development conditions including plot ratio, building height, building density and greenery ratio as specified in Contract 1 and Contract 2 and then obtained such official approvals as Construction Projects Planning Permits and Construction Works Commencement Permits, it is entitled to develop the aforesaid land parcels and to own, occupy, use, transfer and lease the property upon completion.
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SUMMARY OF PRC LAWS IN RELAtION tO PROPERtY SECtOR

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. Pursuant to the “Notice of the State Council on Adjusting the Portion of Capital for Fixed Assets Investment”(《國務院關於調整固定資產投資項目資本金比例的通知》) issued by the State Council on 25 May 2009, the minimum capital ratio for affordable housing and ordinary commodity housing is adjusted to 20%, and the minimum capital ratio for other real estate development projects is adjusted to 30%.

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.

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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 24 December 2011, the National Development and Reform Commission and the Ministry of Commerce issued the Catalogue of Industries for Guiding Foreign Investment (Revised 2011) 《外商投資產業指導目錄（二零一一年修訂）》which became effective on 30 January 2012. Its major difference with the 2007 edition is that villa construction and management was re-categorised from the Restricted Category to the Prohibited Category for foreign investment.

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 the Circular, foreign investment in the property sector shall comply with certain admittance requirements, including among others, the principle of commercial existence, registered capital requirement, and the Approval Certificate for a Foreign Investment Enterprise and the Business License; foreigninvested property enterprises shall not commence development and operation until obtaining the Approval Certificate for a Foreign Investment Enterprise and the Business License; the foreign exchange of the registered capital of foreign-invested property enterprise shall be more strictly regulated; Chinese and foreign investors shall not reach an agreement including any clause which promises a fixed return; property purchase by foreign institutions and individuals shall be more strictly regulated; foreign institutions and individuals shall not purchase any commodity housing not for their own use or living.

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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 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.
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(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.

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

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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 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

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use. Under the Interim Regulations on Assignment and Transfer and the Urban Property 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.
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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.

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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.

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

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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.

On 26th January 2011, the State Council issued the Notice on Further Improvement of the Regulation and Control of Real Estate Market《國務院辦公廳關於進一步做好房地產市場調控工作有關問題的通知》, pursuant to which the qualification certificates and the sources of capital of real estate enterprises will be censored. If a real estate development enterprise fails to obtain a construction permit two years after the land is provided, the land will be confiscated and fines will be imposed accordingly.

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

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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 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

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must be offered to tender as statutory required or circumvent tender through any other means. 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.

On 30 November 2011, the State Council issued Implementation Regulations of the Tendering and Bidding Law, which will become effective on 1 February 2012. The implementation regulations further detailed the operations of various processes during tendering and bidding.

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.

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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 fulfilled 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 quality and safety monitoring procedures have been performed; (c) the structural construction and the toping-out must have been completed in respect of properties

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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 fulfilled to the property development authority for making a record.

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

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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;
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
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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 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

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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. The Administrative Measures for Commodity House Leasing further strengthen the administration of leasing by stipulating more specific procedural rules of lease registration with local real estate administration authority.

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.
(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.
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(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.

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
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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.

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

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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 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.

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(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.

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
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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;
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
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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.

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.
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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:

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

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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.

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.

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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;
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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 charge of State-owned assets and financial supervision shall increase their strength in investigation. Commercial banks shall strengthen pre-loan review and post-
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loan 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.

N. the “Notice of the General Office of the State Council on Issues Relating to Further Regulation of the Real Estate Market”

The “Notice of the General Office of the State Council on Issues Relating to Further Regulation of the Real Estate Market” (Guo Ban Fa [2011] No. 1) 《國務院辦公廳關於進一步做好房地產市場調控工作有關問題的通知》（國辦發[2011]1號）issued on 26 January 2011 calls for:

1. Further confirmation of the responsibility of local governments on increasing the effective land supply, further increase of the emphasis on building ordinary housing; to perfect the strict policy on differentiated housing loans and taxation, and to further curb on speculative property purchases.

2. Increasing the emphasis of building government subsidized housing

The local People’s Government should implement policies on land supply, capital injection and tax incentives, guiding the real estate developers to actively take part in the construction of government subsidized houses and reconstructing shanty houses and making sure the projects are completed.

To formulate preferential policies to encourage real estate developers to set aside a certain proportion of houses for public rental within ordinary commodity housing projects, to own and operate those houses or sell them to the government.

3. Adjustment and facilitation of relevant taxation policies and improvement on tax levying and management

To adjust the policy on business taxes on individuals for transferring property, a uniform business tax is levied on the entire sale proceeds of any property sold within five years of purchase.

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4. Reinforcement of the policy of differentiated housing loans

For families purchasing a second house on loan, the down-payment proportion shall not be lower than 60%, and the interest rate of the loan shall not be less than 1.1 times of the benchmark interest rate. Each of the branches of the People’s Bank of China may, on the basis of the State’s uniform credit policy, raise the downpayment proportion and rate for the loan of second housing in accordance with the local People’s Government’s control target and policy requirement on new housing prices.

5. Strict management on the supply of land for residential use

The effective land supply in the country should be increased. At least 70% of the total land supply arranged for residential property development must be used for developing government subsidized houses and reconstructing shanty houses and small-to-medium size ordinary commodity houses. In the annual plan of new land for residential use, priority should be given to the land supply of government subsidized house construction. The mechanism of land granting should be further optimized and ‘decrease the house price and increase the land premiums ‘should be applied widely so as to guarantee the land supply of low to medium-end ordinary commodity houses. In cities where housing price increases are rampant, local governments should increase the planned supply of price-capped commodity housing.

Stricter scrutiny is imposed on the qualifications of corporations in entering the land market and their source of funds. Units or individuals participating in the land bidding shall explain the source of fund and provide relevant evidence. Altering the nature of the land for government housing without authorisation shall be resolutely rectified and punished. If the developer does not obtain the Permit for Commencement of Construction to commence construction of the granted real estate land in over two years, the land use right shall be forfeited in time and the developer shall be fined for leaving land idle for more than one year. Illegal transfer of land use right shall be investigated and punished according to law. The land and the land development project agreed in the contract cannot be transferred in any ways on the conditions that the investment percentage of real estate development and construction represents less than 25% of the total investment (not including land fees).

6. Direct housing needs in a reasonable manner

Municipalities, independently planned cities, provincial capitals and the cities in which housing prices rise too rapidly are to formulate and implement purchase limitation measures during a certain period. As for families owning local household registration and holding on set of housing and families without local household registration but can provide certification for local tax payment or social security payment, they shall purchase only one set of housing (including newly built commodity houses and second-hand houses);

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As for families owning local household registration and owning two or more residential properties and families without local household registration and owning at least one residential property or who cannot provide a local tax payment certificate or a social security certificate are prohibited from purchasing an additional residential properties in the local district.

Should cities which have imposed purchase limitation measures have any inconsistency with this Notice, adjustments on the relevant implementation regulations must be made immediately and to increase scrutiny on the qualifications of the house buyers to ensure the policy is properly implemented. Municipalities, independently planned cities, provincial capitals and the cities in which housing prices rise too rapidly and have not yet imposed purchase limitation measures must issue implementation regulations for purchase limitation by mid-February. Other cities are to timely carry out purchase limitation measures in response to the situation in the local real estate market.

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.

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

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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.

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;
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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 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

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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.

(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;

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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.

On 25 May 2010, the State Administration of Taxation issued the “Notice on Strengthening the Administration of Collection of Land Value-added Tax” (《關於加強土地增值稅征管工作的通知》). The Notice stipulates that in order to fully implement the “Notice of the State Council on Resolutely Curbing the Soaring of Housing Prices in Some Cities” (Guo Fa [2010] No. 10) (《國務院關於堅決遏制部分城市房價過快上漲的通知》(國發[2010]10號)), the administration of the collection of the land value-added tax shall be strengthened with a view to bring land value-added tax into full play, enhance the system of advance collection and settlement of land value-added tax, carry out advance collection in a scientific manner and thoroughly implement the settlement. As for the advance collection of land value-added tax, the prevailing rates for advance collection adopted by local taxation authorities shall be adjusted. Except for affordable housing, the minimum rates for advance collection applied in the provinces of the eastern region, central and north eastern region and western region shall be 2%, 1.5% and 1% respectively. An appropriate rate for advance collection shall be set in line with the varied types of the real estate projects (the geographical delineation shall comply with relevant provisions under the administrative regulations of the State Council). As for the system of settlement, the taxation authorities at all levels shall formulate specific implementation rules in the light of local conditions based on the “Rules on the Administration of the Settlement of Land Value-added Tax” (《土地增值稅清算管理規程》) so as to optimize the settlement process, scrutinize the income and deduction items of the real estate projects, request relevant enterprises to settle tax payment timely in accordance with laws and fulfill the reporting obligation in accordance with the provisions and timeframe stipulated under the “Rules on the Administration of the Settlement of Land Value-added Tax”. For tax payers who fail to settle the tax payment timely in accordance with laws and regulations on taxation, appropriate penalty shall be imposed in accordance with laws. Any substantial doubts raised during the examination shall be transferred to tax audit authorities promptly for further investigation. For cases involving serious tax evasion, competent taxation authorities shall make available to the public the investigation progress from time to time. The Notice also regulates verification collection of tax and provides that the minimum rate of verification collection shall be 5% in principle. The taxation authorities at provincial level shall determine specific verification collection rates for different types of real estate projects in the light of their local conditions.

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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 “Opinions Regarding Implementing the Provisional Regulations of the PRC on the Deed Tax in Shanghai”《關於本市貫徹《中華人民共和國契稅暫行條例》的若干意見》 issued by the Shanghai Municipal Finance Bureau and approved by the Shanghai Municipal People’s Government on 31 December 1997, the applicable rate of the deed tax in Shanghai is 3%.

Pursuant to the “Notice of Deed Tax on the Adjustment of Personal Income Tax Preferential Policies Applicable to Real Estate Transactions” (《關於調整房地產交易環節契稅個人所得稅優惠政策的通知》) jointly issued by the Ministry of Finance, State Administration of Taxation and Ministry of Housing and Urban-Rural Development on 29 September 2010 and became effective on 1 October 2010, for the purchases of ordinary housing by individuals which is also the only housing for the family (including the buyer, his/her spouse and their minor children), a 50% deduction in the deed tax is applicable. For purchases of ordinary housing with area of 90 sq.m or below by individuals which is also the only housing of the family, the deed tax is levied at the reduced rate of 1%.

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.

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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.

H. Urban maintenance and construction tax

Under the “Interim Regulations of the People’s Republic of China on Urban Maintenance and Construction 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 urban maintenance and construction 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 Urban and Construction Maintenance Tax and Education Surcharge For Enterprises with Foreign Investment and Foreign Enterprises” and the “Approval on Exemption of Urban Maintenance and Construction Tax and Education Surcharge in ForeignInvested 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 urban maintenance and construction 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.

Pursuant to the “Circular of the State Council on Unifying the System of Urban Maintenance and Construction Tax and Education Surcharge Paid by Domestic and Foreign-Invested Enterprises and Individuals” (Guo Fa [2010] No.35)《國務院關於統一內外資企業和個人城市維護建設稅和教育費附加制度的通知》(國發[2010]35號) issued by the State Council on 18 October 2010, the “Provisional Regulations of the PRC on Urban Maintenance and Construction Tax”《中華人民共和國城市維護建設稅暫行條例》and the “Tentative Rules on Levy of Education Surcharge”《徵收教育費附加的暫行規定》issued by the State Council in 1985 and 1986, respectively, became applicable to foreign-invested enterprises, foreign enterprises and foreign individuals from 1 December 2010 onwards. The regulations, rules and policies issued by the State Council and its administrative divisions regulating fiscal and taxation matters since 1985 and 1986 that are related to urban maintenance and construction tax and education surcharge are also applicable

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to foreign-invested enterprises, foreign enterprises and foreign individuals. Therefore, foreigninvested enterprises, foreign enterprises and foreign individuals ceased to enjoy the preferential policy on urban maintenance and construction tax and education surcharge since then.

The “Notice on Relevant Issues for Urban Maintenance and Construction Tax and Education Surcharge Imposed on Foreign-invested Enterprises”《關於對外資企業徵收城市維護建設稅和教育費附加有關問題的通知》issued by the Ministry of Finance and the State Administration of Taxation on 4 November 2010 further specify that foreign-invested enterprises shall pay urban maintenance and construction tax and education surcharge in relation to the valued-added tax, sales tax and business tax (the “Three Taxes”) payable by them since 1 December 2010 (the day inclusive), whereas no urban maintenance and construction tax and education surcharge is charged on the foreign-invested enterprises for the Three Taxes payable prior to 1 December 2010.

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 Urban Maintenance and Construction Tax and Education Surcharge For Enterprises with Foreign Investment and Foreign Enterprises” and the “Reply on Exemption of Urban Maintenance and Construction 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.

VI-36 -

SUMMARY OF PRC LAWS IN RELAtION tO PROPERtY SECtOR

APPENDIX VI

VI-37 -

GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(i) Directors’ and chief executives’ interests and 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) of 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 Shares

				Approximate%
				of issued share
Name of	Number of		Nature of	capital of the
Directors	Shares held	Capacity	interest	Company
Zhou Guangneng	1,200,000	Beneficial owner	Personal	0.24%

Long Positions in Underlying Shares of the Company

				Approximate%
	Number of			of issued share
Name of	underlying		Nature of	capital of the
Directors	Shares	Capacity	interest	Company
Zhou Guangneng	800,000	Beneficial owner	Personal	0.16%
(Note 1)
He Haibin_(Note 2)_	400,000	Beneficial owner	Personal	0.08%

VII-1 -

GENERAL INFORMATION

APPENDIX VII

Notes:

Mr. Zhou Guangneng is taken to be interested as a grantee of options to subscribe for 800,000 Shares under the share option scheme of the Company.
Mr. He Haibin is taken to be interested as a grantee of options to subscribe for 400,000 Shares under the share option scheme of the Company.

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.

(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

			Approximate
			%of issued share
Name of Substantial		Number of	capital of
Shareholders	Capacity/Nature	Shares held	the Company
Pacific Climax_(Note 1)_	Beneficial owner	292,142,000	57.38%
OCT (HK)(Note 2)	Interest of a	292,142,000	57.38%
	controlled
	corporation
OCT Ltd.(Note 3)	Interest of a	292,142,000	57.38%
	controlled
	corporation
Overseas Chinese Town	Interest of a	292,142,000	57.38%
Enterprices Company	controlled
(“OCT Group”)(Note 4)	corporation
Others
UBS AG_(Note 5)_	Interest of a	35,592,000	6.99%
	controlled
	corporation

VII-2 -

GENERAL INFORMATION

APPENDIX VII

Notes:

(1) Ms. Xie Mei and Mr. Zhou Guangneng, both being the executive Directors, are also directors of Pacific Climax.
(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 these Shares for the purpose of the SFO. Ms. Wang Xiaowen and Ms. Xie Mei, both being executive Directors, are also directors of OCT (HK).
(3) OCT Ltd. is the beneficial owner of all the issued share capital in OCT (HK). Therefore, OCT Ltd. is deemed, or taken to be interested in all the Shares which are beneficially owned by Pacific Climax for the purpose of the SFO. OCT Ltd. is a company incorporated in the PRC, the shares of which are listed on the Shenzhen Stock Exchange. OCT Ltd. is a subsidiary of OCT Group.
(4) OCT Group is the beneficial owner of 56.52% of the issued shares in OCT Ltd., which is the beneficial owner of all the issued share capital in OCT (HK) and in turn, the beneficial owner of all the issued share capital in Pacific Climax. Therefore, OCT Group is deemed, or taken to be interested in all the Shares which are beneficially owned by Pacific Climax for the purpose of the SFO.
(5) The interest of UBS AG is derived from the interests in 27,916,000 Shares, 3,892,000 Shares and 3,534,000 Shares (total: 35,592,000 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 directly wholly-owned by UBS AG. Therefore, UBS AG is deemed, or taken to be interested in the total of 35,592,000 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 as at the Latest Practicable Date.

3. COMPETING INTERESTS

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

4. 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 statutory compensation).

VII-3 -

GENERAL INFORMATION

APPENDIX VII

5. INTEREST IN THE ENLARGED 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 experts as named in the paragraph headed “Experts and Consents” in this appendix had any interest, direct or indirect, in any assets which have been, since 31 December 2011 (being the date to which the latest published audited accounts of the Company were 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 businesses of the Enlarged Group.

6. 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.

7. 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) the subscription agreement dated 1 April 2010 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;
(B) the placing agreement dated 1 April 2010 entered into between the Company and China Merchants Securities (HK) Co., Limited (“CMS”) pursuant to which CMS 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 CMS would receive a placing commission of 2.50% on the gross proceeds of the placing;
(C) the capital increase agreement dated 1 April 2010 entered into among Bantix International Limited (“Bantix”), OCT Properties and Shenzhen Overseas Chinese Town Holding Company (深圳華僑城控股股份有限公司) 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, 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;
VII-4 -

GENERAL INFORMATION

APPENDIX VII

(D) the Capital Investment Agreement; and
(E) the Loan Agreement.

8. 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 Enlarged Group since 31 December 2011 (being the date to which the latest published audited accounts of the Company were made up)

9. EXPERTS AND CONSENTS

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

Name Qualification

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

KPMG

Certified Public Accountants

Savills Valuation and Independent Property Valuer Professional Services Limited (“Savills”)

V&T

PRC legal advisers

(b) As at the Latest Practicable Date, none of China Everbright, KPMG, Savills or V&T had any shareholding in any member of the Enlarged 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 Enlarged Group.
(c) Each of China Everbright, KPMG, Savills and V&T has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter, opinion, report and references to its name in the form and context in which they are included.
VII-5 -

GENERAL INFORMATION

APPENDIX VII

(d) As at the Latest Practicable Date, none of China Everbright, KPMG, Savills or V&T had any interest, direct or indirect, in any assets which have been since 31 December 2011 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to any member of the Enlarged Group, or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.
(e) The letter, opinion and report given by each of China Everbright, KPMG, Savills and V&T is given as of the date of this circular for incorporation in this circular.

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, Tsimshatsui, Kowloon, Hong Kong.
(c) The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited 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.

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 office of the Company in Hong Kong at Suites 3203-3204, Tower 6, The Gateway, Harbour City, Canton Road, Tsimshatsui, Kowloon, Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the Capital Investment Agreement;
(b) the Loan Agreement;
(c) the memorandum and articles of association of the Company;
(d) the articles of association of OCT Shanghai Land;
(e) the letter from the Board, the text of which is set out on pages 4 to 37 of this circular;
(f) the letter from the Independent Board Committee, the text of which is set out on page 38 of this circular;
VII-6 -

GENERAL INFORMATION

APPENDIX VII

(g) the letter from China Everbright to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 39 to 58 of this circular;
(h) the annual reports of the Company for the three years ended 31 December 2011;
(i) the accountants’ report of OCT Shanghai Land, the text of which is set out in Appendix I of this circular;
(j) the report on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix IV of this circular;
(k) the property valuation report, the text of which is set out in Appendix V of this circular;
(l) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix;
(m) the written consents referred to in the paragraph headed “Experts and Consents” in this appendix;
(n) the circulars of the Company which have been issued since 31 December 2011; and
(o) this circular.
VII-7 -

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 Tang Room II, 3/F, Sheraton Hong Kong Hotel, 20 Nathan Road, Kowloon, Hong Kong on Thursday, 12 April 2012 at 11:00 a.m. for considering and, if thought fit, passing, with or without amendments, the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT

(a) the capital investment agreement entered into between Great Tec Investment Limited (“Great Tec”) and 深圳華僑城房地產有限公司 (Overseas Chinese Town Real Estate Company Limited) (“OCT Properties”) dated 5 January 2012 (the “Capital Investment Agreement”) in relation to the capital contribution to 華僑城（上海）置地有限公司 (Overseas Chinese Town (Shanghai) Land Company Limited) (“OCT Shanghai Land”) and pursuant to which Great Tec will make capital contribution of RMB2,232,000,000 (or the equivalent thereof) in cash to OCT Shanghai Land (a copy of which has been produced to the Meeting marked “A” and initialed 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 Investment Agreement and the transactions contemplated thereunder.”

By Order of the Board Overseas Chinese Town (Asia) Holdings Limited Wang Xiaowen Chairman

Hong Kong, 23 March 2012

EGM-1 -

NOTICE OF EGM

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 provided that if more than one proxy is so appointed the appointment shall specify the number of Shares in respect of which each such proxy is so appointed. 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 common seal or under the hand of an officer, attorney or other person duly authorised to sign the same.
To be valid, the instrument appointing a proxy and (if required by the board of directors) 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 Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, 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 was 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 Company comprises seven directors, namely: Ms. Wang Xiaowen, Ms. Xie Mei and Mr. Zhou Guangneng as executive directors; Mr. He Haibin as non-executive director; Ms. Wong Wai Ling, Mr. Xu Jian and Mr. Lam Sing Kwong Simon as independent non-executive directors.
EGM-2 -

AI assistant

RemeGen Co., Ltd. — Proxy Solicitation & Information Statement 2012

51206_rns_2012-03-22_4fc08477-442a-40fb-90ad-a44a31c47ddf.pdf

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

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION: THE CAPITAL INVESTMENT AGREEMENT

CONTENTS

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: THE CAPITAL INVESTMENT AGREEMENT

INTRODUCTION

THE CAPITAL INVESTMENT AGREEMENT

Date

Parties

Capital Injection

Conditions Precedent to the Capital Investment Agreement

REASONS FOR AND BENEFITS OF ENTERING INTO THE CAPITAL INVESTMENT AGREEMENT

THE LOAN AGREEMENT

Date:

Parties:

Principal terms:

REASONS FOR AND BENEFITS OF ENTERING INTO THE LOAN AGREEMENT

LETTER FROM THE BOARD

INFORMATION OF OCT SHANGHAI LAND AND THE SUHEwAN PROjECT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

BUSINESS MODEL OF OCT SHANGHAI LAND

(1) Opportunity identification and feasibility study

(2) Due diligence

(3) Preparation

(4) Property development – Planning and design

(5) Construction

(6) Pre-sale, sales and marketing

(7) After-sales services

Contractors

Taxation

Laws and regulations

Due Diligence

HUMAN RESOURCES AND MANAGEMENT EXPERTISE

MANAGEMENT DISCUSSION AND ANALYSIS OF OCT SHANGHAI LAND

Financial Highlights

Segment Information

Significant Investment, Material Acquisition and Disposal

Prospects and Future 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

FINANCIAL EFFECT OF THE CAPITAL INjECTION

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

INDUSTRY OVERVIEw

The Overview of the PRC Property Market

LETTER FROM THE BOARD

Key Real Estate Markets

Shanghai

Overview

Shanghai property market

LETTER FROM THE BOARD

LETTER FROM THE BOARD

RISK FACTORS

OCT Shanghai Land is subject to legal and business risks if the Suhewan Project fails to obtain the related certificate of real estate ownership

Delay in completion of the Suhewan Project

Volatility in the price of construction materials

Fluctuation of interest rates

Reliance on key management personnel

Natural disaster or bad weather that may disrupt operations and damage the properties in the Suhewan Project

The Enlarged Group may have insufficient financing to fund its property developments

Upon completion of the Capital Injection, the Enlarged Group will depend heavily on the performance of the property market in the PRC, particularly in Shanghai

LETTER FROM THE BOARD

Risks Relating to the Enlarged Group

Risks Relating to Property Development in the PRC

The Enlarged Group’s business is subject to extensive governmental regulation.

PRC government policies, regulations and measures intended to discourage property speculation may affect the business of the Enlarged Group. Furthermore, the PRC government may in the future adopt other measures to slow down the rate of growth in the property development sector.

The Enlarged Group faces intense competition from other real estate developers.

The outbreak of any severe communicable disease in the PRC, if uncontrolled, may materially and adversely affect the Enlarged Group’s results of operations.

Government control in foreign currency conversion may materially and adversely affect the financial condition, results of operations and ability to meet foreign exchange requirements of the Enlarged Group.

LETTER FROM THE BOARD

Risk relating to this circular

RemeGen Co., Ltd. Proxy Solicitation & Information Statement 2012