THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Shimao Property Holdings Limited, you should at once hand this circular together with the accompanying form of proxy to the purchaser or other transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

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

This circular is for information purposes only and is not an offer to sell or a solicitation of an offer to buy any securities.

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SHIMAO PROPERTY HOLDINGS LIMITED 世茂房地產控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 813)

MAJOR AND CONNECTED TRANSACTION

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

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A letter from the Board (as defined herein) is set out on pages 8 to 43 of this circular. A letter from DBS Asia Capital Limited to the Independent Board Committee is set out on pages 46 to 74 of this circular. A letter from the Independent Board Committee to Independent Shareholders is set out on pages 44 to 45 of this circular.

A notice convening an extraordinary general meeting of Shimao Property Holdings Limited to be held at The Harbour Room, Level 3, The Ritz-Carlton, 3 Connaught Road Central, Hong Kong on Friday, 30 November 2007 at 11:00 a.m. is set out on pages 316 to 318 of this circular. Whether or not you are able to attend such meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrar and transfer office in Hong Kong of Shimao Property Holdings Limited, Tricor Investor Services Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the meeting or any adjourned meeting (as the case may be) should you so wish.

15 November 2007


Definitions. . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the	Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Letter from the	Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Letter from DBS Asia Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Appendix I	—	Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Appendix II.A	—	Accountant’s Report on Shanghai Shimao. . . . . . . . . . . . . . . . . . . . . . . . 130
Appendix II.B	—	Accountant’s Report on Shimao Enterprises. . . . . . . . . . . . . . . . . . . . . . . 200
Appendix III	—	Unaudited Pro forma Financial Information
		of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Appendix IV.A	—	Property Valuation Report of the Target Assets
		and the Property Interests held by the Target Companies. . . . . . . . . . . 246
Appendix IV.B	—	Property Valuation Report of the Property Interests
		held by Shaoxing Project Companies. . . . . . . . . . . . . . . . . . . . . . . . . . 277
Appendix IV.C	—	Property Valuation Report of the Property Interests
		held by Shanghai Shimao. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
Appendix V	—	General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303
Notice of EGM	. . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316

– i –

DEFINITIONS

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

“Amendment to the Hong Kong Non-competition Agreement”
: an agreement entered into on 22 October 2007 pursuant to which the Hong Kong Non-competition Agreement is amended to reflect the effect of the Deed of Release, the Shimao International Deed of Release, the PRC Non-competition Agreement and certain other amendments to the Hong Kong Non-competition Agreement;
“Announcement” : the announcement issued by the Company on 22 October 2007 pursuant to Rule 14.34 of the Listing Rules setting out the details of the Proposed Transaction, the Share Subscription and Asset Transfer Agreement, the PRC Non-competition Agreement, the Deed of Release, and the Amendment to the Hong Kong Non-competition Agreement and the transactions contemplated thereunder;
“Appraisal Date” : 31 August 2007;
“Asset Transfer”
: the injections by Peak Gain of its 100% interests in each of the Target Companies and by Beijing Shimao of the Target Asset into Shanghai Shimao, respectively;
“Beijing Shimao”
: Beijing Shimao Investment and Development Co. Ltd. (北京世茂投資發展有限公司), a company established under the laws of the PRC and a wholly-owned subsidiary of the Company;
“Board”
: the board of Directors;
“Capital Injection” : a capital injection by the Company of RMB750.0 million in Shimao Enterprises, pursuant to which Shimao Enterprises will become a 50.9%-owned subsidiary of the Company based on the net asset value of Shimao Enterprises determined by an independent valuation report prepared by Shanghai Yinxinhuiye Appraisal Co. Ltd. (上海銀信滙業資產評估有限公司) as at 30 April 2007;
“CBRC” : the China Banking Regulatory Commission;
“China Everbright Mortgage” : a mortgage of RMB437.5 million granted by Beijing Shimao to China Everbright Bank for the purposes of securing a loan by China Everbright Bank to Beijing Shimao and the rights and liabilities of such mortgage will be assigned to Shanghai Shimao upon Completion;
“Commercial Property(ies)” : building(s) developed on construction land and used for commercial, financial and commercial services purposes (including but not limited to shops, shopping centres, wholesale and retail markets, commercial and other offices), and relevant ancillary facilities. For the purpose of this circular, Commercial Property(ies) shall not include Hotel and Residential Property;

– 1 –

DEFINITIONS

“Company”

: Shimao Property Holdings Limited, a company incorporated in the Cayman Islands, the shares of which are listed on the Stock Exchange;
“Completion”
: completion of the Proposed Transaction, further details of which are set out in the section headed “Completion”;
“Completion Date”
: the date of Completion;
“Conditions”
: the conditions to Completion;
“CSRC”
: the China Securities and Regulatory Commission of the PRC;
“DBS Asia Capital”
: DBS Asia Capital Limited, a licensed corporation under the SFO to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities and the independent financial adviser appointed to advise the Independent Board Committee and Independent Shareholders in respect of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-Competition Agreement;
“Deed of Release” : the deed of release entered into on 22 October 2007 by the Company pursuant to which the Company releases, subject to Independent Shareholders’ approval, Mr. Xu Shiyong and Shimao Enterprises’ undertakings under the Hong Kong Noncompetition Agreement;
“Directors” : the directors of the Company;
“DTZ” : DTZ Debenham Tie Leung;
“DTZ Valuation Reports” : (i) an independent valuation in respect of the value of the property interests held by the Target Companies and the Target Asset as at the Appraisal Date; and (ii) an independent valuation in respect of the value of the property interests held by the Shaoxing Project Companies as at the Appraisal Date, both prepared by DTZ;
“EGM”
: the extraordinary general meeting of the Company to be convened for the Shareholders to consider and, if thought fit, to approve the Proposed Transaction, the Share Subscription and Asset Transfer Agreement, the PRC Non-competition Agreement, the Deed of Release, and the Amendment to the Hong Kong Non-competition Agreement and the transactions contemplated thereunder;
“Enlarged Group” : the Group, Shanghai Shimao and Shimao Enterprises;

– 2 –

DEFINITIONS

“Existing Projects” : all existing property projects (whether completed, under or pending development) as held by (1) the Company and its subsidiaries, and (2) Mr. Hui and Mr. Hui’s Associates, as at the Completion Date and which comprise of Commercial Property, but excluding the Target Shares and the Target Asset;
“Gemfair” : Gemfair Investments Limited, a company incorporated under the laws of the British Virgin Islands and wholly-owned by Mr. Hui;
“GFA” : gross floor area, a standard measurement used in the real estate development industry, which includes saleable GFA, nonsaleable GFA and car parking spaces;
“Grant” : the granting of a right to Mr. Hui under the Amendment to the Hong Kong Non-competition Agreement to undertake any particular Property Business outside Mainland China after the Company has decided that it is not in the Company’s best interests to undertake any such businesses;
“Group” : the Company, its subsidiaries and associates;
“Hong Kong” : the Hong Kong Special Administrative Region of the People’s Republic of China;
“Hong Kong Non-competition : the Non-competition Undertaking dated 19 February 2005 and Agreement” entered into by the Company; Mr. Hui; Overseas Investment; Shimao International; Mr. Xu Shiyong; Shimao Enterprises and Shanghai Shimao;
“Hotel(s)” : hotels, motels, lodgings, vacation buildings and other similar construction developed on construction land, including relevant ancillary facilities;
“INED(s)” : independent non-executive director(s) of the Company;
“Independent Board : the independent board committee of the Company constituted Committee” for the purpose of the Proposed Transaction, the PRC Noncompetition Agreement, the Deed of Release and the Grant, comprising four INEDs;
“Independent Shareholders” : shareholders of the Company other than Mr. Hui and Mr. Hui’s Associates;
“Latest Practicable Date” : 9 November 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information set out in this circular;
“Listing Rules” : The Rules Governing the Listing of Securities on the Stock Exchange;
“MOFCOM” : the Ministry of Commerce of the PRC;

– 3 –

DEFINITIONS

“Mr. Hui”
: Mr. Hui Wing Mau, the chairman, an executive director and controlling shareholder of the Company;
“Mr. Hui’s Associates”
: any of Mr. Hui’s close family members, including (1) his spouse (2) his children aged 18 or above and their spouse (3) such other natural persons as may be deemed appropriate in the relevant circumstances (4) any company (whether directly or indirectly) controlled by any of the persons in (1), (2) or (3) above, or any company in which any of the persons in (1), (2) or (3) above is a director or senior management, but excluding the Company, Shanghai Shimao and their subsidiaries;
“Multiple-Use Projects”
: property projects comprising Commercial Property development, Hotel and/or Residential Property development;
“New A Shares”
: the new RMB-denominated ordinary “A” shares with par value of RMB1.00 each to be issued by Shanghai Shimao in connection with the New A Shares Placings;
“New A Shares Placings”
: the issue by Shanghai Shimao and the subscription by Peak Gain and Beijing Shimao, in consideration for the Asset Transfer, of 558 million and 72 million New A Shares at the New A Share Subscription Price to Peak Gain and Beijing Shimao, respectively, and the Shimao Enterprises New A Share Subscription;
“New A Share Subscription Price”
: RMB12.05 per New A Share;
“Non-separable Hotel Projects”
: two hotel projects ((1) Shanghai Shimao Wonderland (新體驗酒店) and (2) Beijing Sanlitun (北京三里屯酒店)) held by Target Company, Shanghai Shimao Wonderland Property Co., Ltd. (上海世茂新體驗置業有限公司);
“Non-separable Multiple-Use Projects”
: Multiple-Use Projects for which independent land use right cannot be obtained for Commercial Property in such projects, or where such land can only be developed by a single project company, owing to PRC legal, regulatory or policy prohibitions or restrictions;
“Overseas Investment”
: Overseas Investment Group International Limited (海外投資集團國際有限公司), a company incorporated under the laws of the British Virgin Islands on 26 July 2001 which is the trustee of the W.M. Hui Unit Trust. All the units of the unit trust are held by Trident Corporate Services (BVI) Limited as trustee of the W.M. Hui Family Trust, which is a discretionary trust established by Mr. Hui of which his wife and children are discretionary objects;
“PBOC” : the People’s Bank of China;

– 4 –

DEFINITIONS

“Peak Gain”

: Peak Gain International Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company;
“PRC”
: the People’s Republic of China (for the purposes of this circular, excluding Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan);
“PRC Non-competition Agreement”
: the Non-competition Agreement (不競爭協議) dated 22 October 2007 entered into by the Company, Shanghai Shimao and Mr. Hui, the details of which are set out in the section headed “NonCompetition Arrangements” in this circular;
“PRC Valuation Reports” : (1) an independent valuation report in respect of the net asset value of the Target Companies and the value of the Target Asset as at the Appraisal Date, (2) an independent valuation consultation report in respect of the value of the Non-separable Hotel Projects as at the Appraisal Date, and (3) an independent valuation report in respect of the net asset value of the Shaoxing Project Companies as at the Appraisal Date, all prepared by the PRC Valuer;
“PRC Valuer” : Shanghai Certified Asset Valuation Limited (上海上會資產評估有限公司);
“Preliminary Announcement”
: the announcement issued by the Company on 6 June 2007 pursuant to Rule 13.09 of the Listing Rules;
“Private Group” : the private companies (not including the Group) either whollyowned by Mr. Hui or owned jointly by Mr. Hui and/or his spouse and children;
“Property Business” : any of the following:
- (i) acquiring, holding, developing, transferring, disposing or otherwise dealing in, whether directly or indirectly, land, real estate properties, or property-related investments;
- (ii) engaging, having a right or in any way having an economic interest in the promotion or development of or investment in land or real estate properties;
- (iii) acquiring, holding, transferring, disposing or otherwise dealing in any option, right or interest over any of the matters set out in paragraphs (i) or (ii) above; or
- (iv) acquiring, holding, transferring, disposing or otherwise dealing in, directly or indirectly, shares of any company, joint venture, corporation or entity of any nature, whether or not incorporated, with any interest in the matters set out in paragraphs (i) to (iii) above;

– 5 –

DEFINITIONS

“Proposed Transaction”
: the proposed transaction contemplated pursuant to the terms of the Share Subscription and Asset Transfer Agreement;
“RMB” : Renminbi, the lawful currency of the PRC;
“Residential Property(ies)” : buildings developed on construction land and used for residential purposes (but excluding Hotels), and relevant ancillary facilities;
“SAIC”
: the State Administration of Industry and Commerce;
“Separable Multiple-Use : Multiple-Use Projects for which independent land use right Projects” can be obtained for independent development of Commercial Property, Hotels or Residential Property, and for which separate project companies can be set up for development of separate projects;
“SFO” : Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);
“Shanghai Shimao” : Shanghai Shimao Co. Ltd. (上海世茂股份有限公司), a company established in the PRC, the shares of which are listed on the Shanghai Stock Exchange, and where the context requires, includes its subsidiaries;
“Shaoxing Project Companies” : 紹興世茂新紀元置業有限公司 (Shaoxing Shimao New Era Property Co., Ltd.) and 紹興世茂新世紀置業有限公司 (Shaoxing Shimao New Century Property Co., Ltd.), two companies established in the PRC;
“Shareholders” : shareholders of the Company;
“Share Subscription and : the Share Subscription and Asset Acquisition Agreement Asset Transfer Agreement” (發行股份購買資產協議) dated 22 October 2007 entered into by the Company, Shanghai Shimao, Peak Gain, Beijing Shimao and Shimao Enterprises, the details of which are set out in the section headed “The Share Subscription and Asset Transfer Agreement” in this circular;
“Shimao Enterprises” : Shanghai Shimao Enterprises Development Co. Ltd. (上海世茂企業發展有限公司), a company established in the PRC, and where the context requires, includes its subsidiaries;
“Shimao Enterprises New : the placing by Shanghai Shimao and the subscription by Shimao A Share Subscription” Enterprises of 62,240,000 New A Shares at the New A Share Subscription Price for an aggregate value of RMB749,992,000;
“Shimao International” : Shimao International Holdings Limited (世茂國際控股有限公司), formerly known as Shimao China Holdings Limited (世茂中國控股有限公司), a company incorporated under the laws of Bermuda on 16 April 1998, the shares of which were previously listed on the Stock Exchange but which has since 27 July 2007 been delisted and is as at the date of this circular a private company wholly-owned by Mr. Hui;

– 6 –

DEFINITIONS

“Shimao International Deed of Release”
: the deed of release entered into on 22 October 2007, pursuant to which Shimao International releases the Company, Overseas Investment and Mr. Hui from their undertakings under the Hong Kong Non-competition Agreement;
“Stock Exchange”
: The Stock Exchange of Hong Kong Limited;
“Subscribers”
: Peak Gain, Beijing Shimao and Shimao Enterprises;
“Target Asset”
: the commercial property described under the paragraph titled “2. The Share Subscription and Asset Transfer Agreement — (c) The Proposed Transaction — (i) The Asset Transfer — (1) Description of the Target Companies and Target Asset” in the letter from the Board in this circular;
“Target Asset Consideration”
: (i) the issue by Shanghai Shimao to Beijing Shimao and the subscription by Beijing Shimao for, 72 million New A Shares (representing approximately 6.2% of the enlarged issued share capital of Shanghai Shimao) at the New A Share Subscription Price, the aggregate value of which is RMB867.6 million; and (ii) the payment by Shanghai Shimao to Beijing Shimao of RMB73.7 million in cash or cash equivalent;
“Target Companies”
: the nine indirectly wholly-owned subsidiaries of the Company, each established in the PRC, holding the ten commercial properties to be injected by Peak Gain into Shanghai Shimao, as described under the heading “2. The Share Subscription and Asset Transfer Agreement — (c) The Proposed Transaction — (i) The Asset Transfer — (1) Description of the Target Companies and Target Asset” in the letter from the Board in this circular and Target Company shall mean any one of the Target Companies;
“Target Shares” : the entire shareholding interest of Peak Gain in the Target Companies; and
“Target Shares Consideration” : 558 million New A Shares (representing approximately 47.7% of the enlarged issued share capital of Shanghai Shimao) to be issued by Shanghai Shimao to Peak Gain as consideration for the transfer of the shares in the Target Companies, at the New A Share Subscription Price, the aggregate value of which is RMB6,723.9 million.

Unless otherwise specified, where financial information in this circular has been converted into Hong Kong dollars, it has been converted at the exchange rate set out below, being the exchange rate prevailing on the Latest Practicable Date. Such conversions have been made solely for the convenience of readers and should not be construed as a representation that such amounts have been, could have been or could be converted into Hong Kong dollars at such rates or any other rates at all.

RMB1.00: HK$1.05

In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

– 7 –

LETTER FROM THE BOARD

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SHIMAO PROPERTY HOLDINGS LIMITED 世茂房地產控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 813)

Executive Directors: Mr. Hui Wing Mau (Chairman) Mr. Hui Sai Tan, Jason Mr. Ip Wai Shing Mr. Tang Ping Fai Ms. Yao Li

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Independent non-executive Directors: Ms. Kan Lai Kuen, Alice Mr. Lu Hong Bing Mr. Gu Yunchang Mr. Lam Ching Kam

Principal place of business in Hong Kong: Units 4307-12, 43/F, Office Tower Convention Plaza 1 Habour Road Wanchai Hong Kong

15 November 2007

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

PROPOSED TRANSFER OF ASSETS AND SUBSCRIPTION OF NEW A SHARES AND NEW NON-COMPETITION ARRANGEMENTS

1. INTRODUCTION

On 6 June 2007, the Board announced in the Preliminary Announcement that it has in principle approved the Proposed Transaction subject to certain conditions. On 22 October 2007, the Board announced in the Announcement that to effect the Proposed Transaction and the matters contemplated thereunder, the Company has entered into the following agreements on 22 October 2007 being the:

(1) Share Subscription and Asset Transfer Agreement;
(2) PRC Non-competition Agreement;

– 8 –

LETTER FROM THE BOARD

(3) Deed of Release; and
(4) Amendment to the Hong Kong Non-competition Agreement.

The Announcement also stated that Shimao International has granted to the Company, Overseas Investment and Mr. Hui, a unilateral release of their undertakings to Shimao International under the Hong Kong Non-competition Agreement.

The Proposed Transaction constitutes a major transaction and a connected transaction of the Company under Chapters 14 and 14A of the Listing Rules, and is subject to (together with the PRC Non-competition Agreement, the Deed of Release and the Grant) Independent Shareholders’ approval. An EGM will be convened and held for the Independent Shareholders to consider and, if thought fit, to approve the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release, the Grant and the matters contemplated thereunder.

The purpose of this circular is to provide you with further information relating to the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant and to give you notice of the EGM at which ordinary resolutions will be proposed and, if thought fit, passed to approve the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant.

DBS Asia Capital has been appointed by the Company as the independent financial adviser to the Independent Board Committee in respect of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant.

2. THE SHARE SUBSCRIPTION AND ASSET TRANSFER AGREEMENT

Set out below is a summary of the principal terms of the Proposed Transaction as set out in the Share Subscription and Asset Transfer Agreement.

(a) Date

The date of the Share Subscription and Asset Transfer Agreement is 22 October 2007.

(b) Parties

The parties to the Share Subscription and Asset Transfer Agreement are:

the Company;
Shanghai Shimao;
Peak Gain;
Beijing Shimao; and
Shimao Enterprises.

– 9 –

LETTER FROM THE BOARD

(c) The Proposed Transaction

The Proposed Transaction involves the injection by the Company in Shanghai Shimao of certain of its retail and commercial properties with an aggregate net asset value of RMB7,666.5 million as at the Appraisal Date, in exchange for the issue by Shanghai Shimao of 630 million New A Shares at the New A Share Subscription Price of RMB12.05 per New A Share and the sum of RMB73.7 million payable in cash or cash equivalent. Shanghai Shimao will also, pursuant to the Capital Injection, issue an additional 62,240,000 New A Shares to Shimao Enterprises.

Accordingly, the Proposed Transaction consists of:

(a) the Asset Transfer;
(b) the New A Shares Placings;
(c) the Capital Injection; and
(d) the Shimao Enterprises New A Share Subscription.

Upon Completion, Shanghai Shimao will become an approximately 64.2% indirectly-owned subsidiary of the Company. The pre- and post-Completion corporate structures are set out in the following charts.

Pre-completion corporate structure chart

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– 10 –

LETTER FROM THE BOARD

Post-completion corporate structure chart

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(i) The Asset Transfer
(1) Description of Target Companies and Target Asset

There are nine Target Companies which together hold ten commercial properties at various stages of development located in Shanghai, Beijing, Jiangsu, Zhejiang, Liaoning, and Anhui provinces in the PRC, with an aggregate planned GFA of approximately 4.0 million square metres. The Target Asset is a commercial property known as Beijing Shimao Tower (formerly known as Beijing Huaping Plaza (北京華平大廈)), located at No. 92 Jia Jianguo Road, Chaoyang District, Beijing, with total GFA of 72,195 square metres.

Upon Completion, all interests the Company has in the Target Companies will be transferred to Shanghai Shimao. The Target Companies will still be subsidiaries of the Company through Shanghai Shimao.

In accordance with the Listing Rules, an independent valuation of the property interests held by the Target Companies and the Target Asset has been conducted by DTZ as at the Appraisal Date. At the same time, another independent valuation of the Target Shares and Target Asset has been conducted by the PRC Valuer for the purpose of determining the consideration of the Asset Transfer according to the requirement of CSRC.

– 11 –

LETTER FROM THE BOARD

Details of the Target Companies and Target Asset are set out below:

Target Companies/Target Asset Location Target Companies 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co., Ltd.)(4) Shanghai Beijing 常熟世茂新發展置業有限公司 (Changshu Shimao New Development Property Co., Ltd.) Changshu, Jiangsu 昆山世茂房地產�發有限公司 (Kunshan Shimao Real Estate Development Co., Ltd.) Kunshan, Jiangsu 常州世茂新城房地產�發有限公司 (Changzhou Shimao New City Real Estate Development Co., Ltd.) Changzhou, Jiangsu 徐州世茂置業有限公司 (Xuzhou Shimao Property Co., Ltd.) Xuzhou, Jiangsu 蘇州世茂投資發展有限公司 (Suzhou Shimao Investment and Development Co., Ltd.) Suzhou, Jiangsu 嘉興世茂新世紀置業有限公司 (Jiaxing Shimao New Century Property Co., Ltd.) Jiaxing, Zhejiang 蕪湖世茂新發展置業有限公司 (Wuhu Shimao New Development Property Co., Ltd.) Wuhu, Anhui 瀋陽世茂新世紀房地產�發有限公司 (Shenyang Shimao New Century Real Estate Development Co., Ltd.) Shenyang, Liaoning Subtotal Target Asset 北京世茂大廈 (Beijing Shimao Tower) Beijing Total	Commercial Site Area sq. m 428,213 29,411 344,579 126,802 60,393 88,594 92,451 135,594 80,310 61,000 1,447,347 7,183 1,454,530	Planned GFA sq. m 391,000 212,000 981,505 191,440 339,600 220,000 256,089 267,000 132,895 967,220 3,958,749 72,195 4,030,944	Land Premium(1) DTZ Asset Valuation(2) RMB million RMB million 333.1 686.0 1,400.0 2,100.0 473.2 2,238.0 137.2 610.0 169.1 411.0 164.7 219.0 288.4 586.0 127.1 213.0 178.8 341.0 587.8 1,200.0 3,859.4 8,604.0 1,082.0(6) 1,450.0 4,941.4 10,054.0		PRC Valuation	PRC Valuation	Book NAV RMB million 390.9 260.0 431.4 177.0 201.4 226.5 (0.0)(5) 49.9 580.7 2,317.8 611.6 2,929.4
				Total Assets(3) RMB million 2,686.6 2,221.2 896.3 348.0 270.8 619.0 282.0 321.0 1,117.7 8,762.8 1,378.8 10,141.6	Total Liabilities RMB million 1,314.1 213.4 127.1 0.1 7.1 111.0 127.1 128.8 8.8 2,037.6 437.5 2,475.1	NAV RMB million 1,372.6 2,007.8 769.3 347.9 263.7 508.0 154.9 192.2 1,108.9 6,725.2 941.3 7,666.5

– 12 –

LETTER FROM THE BOARD

(1) Represents the cost of original acquisition.
(2) In the case of Target Companies, DTZ asset valuation represents the valuation of the property interests held by each Target Company.
(3) In the case of Target Companies, total asset value pursuant to the PRC valuation represents the value of the total assets of each Target Company (including property interests and other assets).
(4) Shanghai Shimao Wonderland Property Co., Ltd. has two project sites, one in Shanghai and another in Beijing. Shanghai Shimao Wonderland Property Co., Ltd. also holds the Non-separable Hotel Projects.
(5) Equals to RMB(5,482).
(6) Represents the cost of original acquisition from 北京天寰房地產�發有限責任公司 (Beijing Tianhuan Real Estate Development Co, Ltd) on 29 December 2006.

The assets attributable to the Target Companies are either undeveloped land or projects under the early stages of development, none of which has yet to generate any profits. Similarly, the Target Asset has not generated any profits either since it is only scheduled to open for operations in December 2007. Accordingly, save for 昆山世茂房地產�發有限公司 (Kushan Shimao Real Estate Development Co., Ltd.) and 上海世茂新體 驗置業有限公司 (Shanghai Shimao Wonderland Property Co., Ltd.), details of the net profits attributable to the Target Companies and Target Asset for the financial years ended 31 December 2005 and 2006 are not available[(7)] .

(7) The net loss attributable to 昆山世茂房地產�發有限公司 (Kushan Shimao Real Estate Development Co., Ltd.) and 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co., Ltd.) for the financial year ended 31 December 2006 was approximately RMB196,000 and RMB339,000 respectively, according to the Company's audited accounts prepared under HKFRS.

As shown in the table above, according to the DTZ Valuation Reports, the total value of the property interests held by the Target Companies as at the Appraisal Date is RMB8,604.0 million. According to the PRC Valuation Reports, the total assets of the Target Companies as at the Appraisal Date amounts to approximately RMB8,762.8 million and the total liabilities of the Target Companies amounts to approximately RMB2,037.6 million. Accordingly, the appraised net asset value of the Target Companies as at the Appraisal Date, as stated in the PRC Valuation Report, is approximately RMB6,725.2 million, representing a 190.2% increase over the book net asset value of the Target Companies in the amount of approximately RMB2,317.8 million. The total liabilities of the Target Companies will be transferred, together with the Target Companies, to Shanghai Shimao.

As at the Appraisal Date, the value of the Target Asset is RMB1,450.0 million, according to the DTZ Valuation Reports and RMB1,378.8 million according to the PRC Valuation Reports. Further, as at the Appraisal Date, the Target Asset is subject to the China Everbright Mortgage in the amount of RMB437.5 million. The China Everbright Mortgage has been assigned to Shanghai Shimao, and the assignment will take effect at Completion.

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LETTER FROM THE BOARD

(2) Consideration for the Asset Transfer

The total consideration of the Asset Transfer amounts to RMB7,665.2 million and comprises:

(a) the Target Shares Consideration in the amount of RMB6,723.9 million which will be entirely paid in the form of New A Shares; and
(b) the Target Asset Consideration in the amount of RMB941.3 million of which RMB867.6 million are to be paid in the form of New A Shares and the remaining RMB73.7 million will be paid in cash or cash equivalent.

The Target Asset Consideration will be adjusted by any subsequent changes to the value of the China Everbright Mortgage during the period between the Appraisal Date and the Completion Date and any such adjustments will be settled by cash or such other assets as agreed.

(ii) New A Shares Placings

The details of the New A Shares Placings are as follows:

Subscriber Number of New A Shares Subscription Price RMB Consideration in form of New A Shares in respect of the Asset Transfer Peak Gain 558,000,000 New A Share Subscription Price Beijing Shimao 72,000,000 New A Share Subscription Price Shimao Enterprises New A Share Subscription Shimao Enterprises 62,240,000 New A Share Subscription Price Total 692,240,000	Subscription Amount RMB 6,723,900,000 867,600,000 749,992,000 8,341,492,000

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LETTER FROM THE BOARD

The New A Share Subscription Price is determined based on the volume weighted average price of Shanghai Shimao’s A share prices for the last 20 consecutive trading days prior to the date of the Preliminary Announcement. The New A Share Subscription Price of RMB12.05 is at a discount of 44% to the average closing price of Shanghai Shimao for the 5 trading days prior to and including the Latest Practicable Date of RMB21.53. Each of the Subscribers is subject to a lock-up period of 36 months from the Completion Date in respect of the New A Shares issued to each of them.

(iii) The Capital Injection and the Shimao Enterprises New A Share Subscription

The Proposed Transaction also contemplates the following transactions:

(a) the Capital Injection; and
(b) the Shimao Enterprises New A Share Subscription.

As at the date of this circular, Shimao Enterprises, a company established in the PRC, is approximately 93.3% owned by Mr. Xu Shiyong, a nephew of Mr. Hui, and 6.7% owned by Ms. Wang Lili, the sister-in-law of Mr. Hui. Prior to the Capital Injection, neither the Company nor Mr. Hui owned any shares in Shimao Enterprises. As at the date of this circular, Shimao Enterprises holds approximately 37.0% of the shares of Shanghai Shimao with the rest of the shares being held by public shareholders. It is envisaged that following the Capital Injection and the Shimao Enterprises New A Share Subscription, Shimao Enterprises will become a 50.9% subsidiary of the Company. The Capital Injection will be wholly funded by the Company’s internal resources.

(iv) Non-separable Hotel Projects

Two parcels of land which form part of the commercial properties to be transferred to Shanghai Shimao are currently planned to be developed into hotels. Due to PRC legal restrictions, the land use rights associated with the Non-separable Hotel Projects may not be separated from that of the Multiple-Use Projects of which they form part. Hence the Non-separable Hotel Projects must be transferred to Shanghai Shimao as part of the Asset Transfer. However, since it is the Company’s strategy to retain all hotel assets going forward, the parties agree that the Non-separable Hotel Projects should be transferred back to the Company in the future at the Appraisal Date value when PRC laws permit such transfer once the construction of the Multiple-Use Projects and the associated Non-separable Hotel Projects are largely completed. As at the Latest Practicable Date, the Company does not foresee any major issues which may prevent the Non-separable Hotel Projects from becoming permitted under existing PRC laws to be transferred back to the Company. Prior to such transfer, Shanghai Shimao will continue to develop the Non-separable Hotel Projects but the relevant development costs shall be borne by the Company.

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LETTER FROM THE BOARD

According to the DTZ Valuation Reports and PRC Valuation Reports, the value of the Non-separable Hotel Projects as at the Appraisal Date is RMB844.0 million and RMB828.0 million, respectively. The latter amount represents the consideration (in the form of New A Shares) Shanghai Shimao will pay to the Company in respect of the Non-separable Hotel Projects as part of the Asset Transfer. In order to lock in the price at which the Nonseparable Hotel Projects will be transferred back to the Company and avoid any future value fluctuations, RMB828.0 million will be accounted for as a prepayment by the Company to Shanghai Shimao in the latter’s accounts.

(v) Shaoxing Project Companies

Two subsidiaries of the Company currently hold certain Commercial Properties located in Shaoxing, Zhejiang province. Due to delay in the restructuring process, they cannot be transferred to Shanghai Shimao as part of the Asset Transfer. Details of the Shaoxing Project Companies are set out below:

Location 紹興世茂新世紀置業有限公司（Shaoxing Shimao New Century Property Co., Ltd.） Shaoxing, Zhejiang 紹興世茂新紀元置業有限公司（Shaoxing Shimao New Era Property Co., Ltd.） Shaoxing, Zhejiang Total	Commercial Site Area sq. m 81,364 36,888 118,252	Planned GFA sq. m 182,439 86,778 269,217	Land Premium RMB million 223.2 106.6 329.8	DTZ Asset Valuation(1) RMB million 468.0 206.0 674.0		PRC Valuation	PRC Valuation
					Total Assets(2) RMB million 416.0 229.5 645.5	Total Liabilities RMB million 45.8 127.8 173.6	NAV RMB million 370.2 101.7 471.9	Book NAV RMB million 177.4 8.6
								186.0

(1) DTZ asset valuation represents the valuation of the property interests held by each Shaoxing Project Company.

(2) Total asset value pursuant to the PRC valuation represents the value of the total assets of each Shaoxing Project Company (including property interests and other assets).

The Shaoxing Project Companies were previously part of the Asset Transfer and were among the portfolio of companies intended to be injected into Shanghai Shimao as disclosed in the Preliminary Announcement dated 6 June 2007. In order to reflect the Company and Shanghai Shimao’s original intentions, the Company agrees, subject to the necessary PRC approvals, to transfer its 100% equity interests in the Shaoxing Project Companies to Shanghai Shimao at a later date. The consideration for such transfer will be paid in cash and determined by reference to the net asset value of the Shaoxing Project Companies as at the Appraisal Date according to the PRC Valuation Reports which amounts to approximately RMB471.9 million, plus any changes in their net asset value in the interim. As and when such transfers take place, the Company will comply with the Listing Rules as applicable.

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LETTER FROM THE BOARD

(d) Conditions

The Proposed Transaction is subject to the following Conditions:

(i) Conditions in relation to the Company

(A) Board approval for the Asset Transfer being obtained;
(B) Board approval for the New A Shares Placings being obtained;
(C) Board approval for the Capital Injection being obtained; and
(D) Approval of the Independent Shareholders for the Proposed Transaction and the Company entering into the Share Subscription and Asset Transfer Agreement, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement.

(ii) Conditions in relation to the Subscribers

(A) Board approval by Peak Gain for the transfer of the Target Companies and subscription of the New A Shares by Peak Gain being obtained;
(B) Board approval by Beijing Shimao for the transfer of the Target Asset and subscription of the New A Shares by Beijing Shimao being obtained; and
(C) Shareholders approval by Shimao Enterprises for the Capital Injection and the Shimao Enterprises New A Share Subscription being obtained.

(iii) Conditions in relation to Shanghai Shimao

(A) Shareholders approval for the New A Shares Placings being obtained; and
(B) Shareholders approval for the Asset Transfer being obtained.

(iv) General Conditions

(A) Approval by MOFCOM for the Proposed Transaction being obtained;
(B) Approval by the Shanghai Foreign Investment Working Committee (上海市外國投資工作委員會) for the Capital Injection being obtained;
(C) Approval by the CSRC for the Proposed Transaction being obtained;
(D) Waiver by the CSRC of the general offer requirements applicable to Peak Gain, Beijing Shimao, Shimao Enterprises, the Company and Mr. Hui in relation to the New A Shares Placings being obtained; and
(E) All other necessary government, regulatory and third party approval (including but not limited to approval from the Stock Exchange) in relation to the Proposed Transaction being obtained.

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LETTER FROM THE BOARD

(e) Completion

(i) Completion of the Proposed Transaction shall take place upon:

(A) completion of examination of registered capital increase in connection with the New A Shares Placings and all relevant SAIC registration; and
(B) completion of all relevant registration in relation to the New A Shares Placings at the Shanghai Branch of China Securities Depository and Clearing Corporation Limited, such that Peak Gain, Beijing Shimao and Shimao Enterprises are duly registered as holders of the New A Shares.

(ii) Upon Completion:

(A) Shimao Enterprises will become a 50.9%-owned subsidiary of the Company, while Mr. Xu Shiyong and Ms. Wang Lili will own the remaining 49.1% of the enlarged issued shares of Shimao Enterprises[(1)] ;
(B) Shimao Enterprises will hold approximately 20.4% of the enlarged issued shares of Shanghai Shimao; and
(C) Shanghai Shimao will become an approximately 64.2% indirectly-owned subsidiary of the Company.
(1) In respect of the remaining shareholding in Shimao Enterprises held by Mr. �u Shiyong and Ms. Wang Lili, the Company intends to acquire them immediately after Completion.

(f) Governing law

The Share Subscription and Asset Transfer Agreement shall be governed by PRC law.

3. INFORMATION ABOUT SHANGHAI SHIMAO AND SHIMAO ENTERPRISES

Shanghai Shimao is a company established in the PRC on 1 July 1992, the shares of which have been listed on the Shanghai Stock Exchange since 1994.

Shanghai Shimao is currently principally engaged in the development of small scale property projects in Mainland China. Prior to the Proposed Transaction, the principal assets held by Shanghai Shimao include 50% of the interests of Nanjing Shimao Real Estate Development Co. Ltd. (南京世茂房地產�發有限公司) and Fujian Shimao Investment and Development Co. Ltd. (福建世茂投資發展有限公司), which hold two of the Company’s existing residential development projects, as well as a few other commercial property projects.

Shimao Enterprises is a company established in the PRC on 22 June 2000 and is approximately 93.3% owned by Mr. Xu Shiyong, a nephew of Mr. Hui, and 6.7% owned by Ms. Wang Lili, the sisterin-law of Mr. Hui. Shimao Enterprises is an investment holding company whose principal investment is its 37.0% shareholding in Shanghai Shimao.

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LETTER FROM THE BOARD

Information regarding Shimao Enterprises and Shanghai Shimao’s net profits for the two financial years ended 31 December 2006 and the book value and market value are set out below:

						Market value
						as at
		Net profits/(loss)			Book value	the Latest
	For the financial year of				as at	Practicable
	2005		2006		31 December 2006	Date
	RMB million		RMB	million	RMB million	RMB million
	Before	After	Before	After
	taxation	taxation	taxation	taxation
Shimao Enterprises(1)	(7.4)	(7.4)	22.8	22.8	259.2	N/A
Shanghai Shimao(2)	47.9	(9.2)	802.7	398.7	1,215.7	9,313.6

(1) Net profits and book value of Shimao Enterprises are extracted from the Accountants’ Report on Shimao Enterprises which is prepared in accordance with HKFRS. Please refer to Appendix II.B of this circular for more details.
(2) Net profits and book value of Shanghai Shimao are extracted from the Accountants’ Report on Shanghai Shimao which is prepared in accordance with HKFRS. Please refer to Appendix II.A of this circular for more details.

4. INFORMATION ABOUT THE COMPANY

The Company is a limited liability company incorporated under the laws of the Cayman Islands on 29 October 2004, the shares of which have been listed on the Stock Exchange since 2006. The Company principally engages in the development of large-scale integrated development projects in the PRC including residential, hotel and commercial properties. As of the Latest Practicable Date, the Company possesses a land bank of approximately 21 million square metres across 19 cities in the PRC.

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF SHANGHAI SHIMAO FOR THE YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006 AND FOR THE SIx MONTHS ENDED 30 JUNE 2007

Six months ended 30 June 2007 compared with the six months ended 30 June 2006

Turnover

Turnover for the six months ended 30 June 2007 was RMB424.4 million compared to RMB67.2 million for the corresponding period in 2006. Shanghai Shimao’s significantly increased turnover for the first six months in 2007 was primarily attributable to the completion and recognition of the sale of residential units in Nanjing Shimao Riviera New City which was still under construction in the corresponding period in 2006.

Cost of sales

Cost of sales for the six months ended 30 June 2007 was RMB224.4 million compared to RMB48.6 million for the corresponding period in 2006. This increase was primarily due to land use rights, construction and development costs relating to units sold of Nanjing Shimao Riviera New City and Fuzhou Shimao Bund Garden being recognized as costs of sales.

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LETTER FROM THE BOARD

Gross profit

Shanghai Shimao recorded a gross profit of RMB200.0 million for the six months ended 30 June 2007 compared to RMB18.6 million for the corresponding period in 2006. The gross profit margin for the six months ended 30 June 2007 was 47.1% compared with 27.7% for the corresponding period in 2006. The higher gross profit margin for the six months ended 30 June 2007 than that for 2006 was mainly due to higher average selling price attained.

Fair value gains on an investment property

Fair value gains on an investment property decreased by 50.8% from RMB12.4 million for the six months ended 30 June 2006 to RMB6.1 million for the corresponding period in 2007.

Other gains

Shanghai Shimao’s other gains increased from RMB2.1 million for the six months ended 30 June 2006 to RMB22.3 million for the corresponding period in 2007, which was primarily due to the government grant of a RMB22.0 million in the six months ended 30 June 2007 which was not present in the corresponding period in 2006.

Selling and marketing costs

Shanghai Shimao’s selling and marketing expenses increased from RMB5.9 million for the six months ended 30 June 2006 to RMB9.7 million for the corresponding period in 2007, which was primarily due to an increase in advertising and exhibition expenses for Nanjing projects in 2007 which was still being under construction in the corresponding period of 2006.

Administrative expenses

Shanghai Shimao’s administrative expenses increased from RMB37.9 million for the six months ended 30 June 2006 to RMB48.1 million for the corresponding period in 2007, which was primarily due to (i) an increase in staff numbers and corresponding staff salaries and welfare costs and (ii) increased provision for car parks included in completed properties for sale.

Other operating expenses

Shanghai Shimao’s other operating expenses increased from RMB1.1 million for the six months ended 30 June 2006 to RMB15.5 million for the corresponding period in 2007, which was primarily attributable to charitable donation of RMB10.4 million for the six months ended 30 June 2007 that was not present in the corresponding period in 2006.

Operating profit

Shanghai Shimao turned from operating loss of RMB11.8 million for the six months ended 30 June 2006 to operating profit of RMB155.1 million for the corresponding period in 2007, primarily as a result of the increased contribution from Nanjing Shimao Riviera New City.

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LETTER FROM THE BOARD

Finance costs

Shanghai Shimao’s finance costs increased from RMB3.2 million for the six months ended 30 June 2006 to RMB7.0 million for the corresponding period in 2007, which was primarily due to an increase in bank borrowings.

Share of results of associated companies

Shanghai Shimao had an insignificant share of profits of associated companies for the six months ended 30 June 2007, compared with an insignificant share of losses in 2006.

Profit before income tax

Profit before tax for the six months ended 30 June 2007 was RMB152.0 million, compared with a loss before tax RMB13.3 million for the corresponding period in 2006. The increase in profit before tax was due to an increase in operating profit.

Income tax expense

Shanghai Shimao’s income tax expense for the six months ended 30 June 2007 increased from the corresponding period in 2006 of RMB0.5 million to RMB81.4 million. The increase in tax expense was due to an increase in profit before tax.

Profit for the period

Profit for the six months ended 30 June 2007 was RMB70.5 million from a loss of RMB13.8 million for the corresponding period in 2006, primarily due to an increase in profit before income tax.

Profit attributable to minority interest

Profit attributable to minority interest for the six months ended 30 June 2007 was RMB26.5 million and loss attributable to minority interest was RMB8.7 million for the corresponding period in 2006.

Profit attributable to equity holders of Shanghai Shimao

Profit attributable to equity holders of Shanghai Shimao for the six months ended 30 June 2007 was RMB44.1 million compared with a loss of RMB5.1 million for the corresponding period in 2006.

2006 compared with 2005

Turnover

Turnover for 2006 was RMB2,430.9 million, compared to RMB652.2 million in 2005. The increase was primarily due to sales recognized from Nanjing Shimao Riviera New City and average selling prices of Fuzhou Shimao Bund Garden was higher in 2006 than 2005.

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LETTER FROM THE BOARD

Cost of sales

Cost of sales in 2006 was RMB1,479.5 million, compared to RMB515.9 million in 2005. This increase was primarily due to an increase in the total GFA of properties sold, which gave rise to a corresponding increase in construction and development costs recognized.

Gross profit

Shanghai Shimao recorded a gross profit of RMB951.4 million for 2006, compared to RMB136.4 million for 2005. The gross profit margin for 2006 was 39.1% compared with 20.9% in 2005. The increase in gross profit margin was due to an increase in the average selling price per sq. m and volume of properties sold in 2006 compared to the average selling price and volume sold in 2005.

Fair value gains on an investment property

Fair value gains on an investment property increased by 7.3% from RMB12.4 million for 2005 to RMB13.3 million for 2006.

Other gains

Shanghai Shimao’s other gains increased by 27.5% from RMB7.6 million in 2005 to RMB9.7 million in 2006, which was primarily due to RMB6.3 million compensation received from a third party for violation of contracts offset by an impairment provision for available-for-sale financial assets of RMB2.7 million in 2005 which was less than the increase in government grant of RMB5.4 million in 2006.

Selling and marketing costs

Shanghai Shimao’s selling and marketing costs increased from RMB42.3 million in 2005 to RMB101.2 million in 2006, which was primarily due to RMB52.5 million mortgage interest and deed tax paid for customers as promotion expenses with respect to Nanjing Shimao Riviera New City in 2006.

Administrative expenses

Shanghai Shimao’s administrative expenses increased by 16.9% from RMB58.6 million in 2005 to RMB68.5 million in 2006, which was primarily due to increased provision for dispute with contractors and customers and housing repair fund.

Other operating expenses

Shanghai Shimao’s other operating expenses increased by 77.4% from RMB1.4 million in 2005 to RMB2.5 million in 2006.

Operating profit

Shanghai Shimao’s operating profit increased from RMB54.1 million in 2005 to RMB802.2 million in 2006, which was mainly attributable to contribution from Nanjing Shimao Riviera New city.

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LETTER FROM THE BOARD

Finance costs

Shanghai Shimao’s finance costs decreased by 36.2% from RMB12.2 million in 2005 to RMB7.8 million in 2006, which was primarily due to an increase in the amount of interest costs capitalized for properties under development and assets under construction.

Share of results of associated companies

Shanghai Shimao had an insignificant share of profits of associated companies for 2006, compared with an insignificant share of losses in 2005.

Profit before income tax

Profit before tax for 2006 was RMB802.7 million, compared with RMB47.9 million in 2005. The increase in profit before tax was primarily attributable to an increase in gross profit in 2006.

Income tax expense

Shanghai Shimao’s income tax expense for 2006 increased to RMB403.9 million from RMB57.0 million in 2005. The increase in income tax expense was primarily due to an increase in profit before tax and PRC land appreciation tax.

Profit for the year

Shanghai Shimao turned from RMB9.2 million loss before income tax in 2005 to a profit RMB398.7 million for the year in 2006.

Profit attributable to minority interest

Profit attributable to minority interest in 2006 was RMB190.8 million from a loss RMB6.8 million in 2005 as a result of increased profits for the year.

Profit attributable to equity holders of Shanghai Shimao

Profit attributable to equity holders of Shanghai Shimao for 2006 was RMB208.0 million compared with a loss RMB2.4 million in 2005.

2005 compared with 2004

Turnover

Turnover for 2005 was RMB652.2 million, a decrease of 45.9%, compared to RMB1,205.0 million in 2004. The decrease was primarily due to the last phase of sales of Shanghai Shimao Lakeside Garden happened in 2004.

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LETTER FROM THE BOARD

Cost of sales

Cost of sales in 2005 was RMB515.9 million, a decrease of 56.3% compared to RMB1,181.2 million in 2004. This decrease was primarily due to (i) lesser GFA sold in 2005 than 2004 as substantial units of Shanghai Shimao Lakeside Garden was sold in 2004 and (ii) average cost of sales per GFA sold of Shanghai Shimao Lakeside Garden was higher than that of Fuzhou Shimao Bund Garden.

Gross profit

Shanghai Shimao recorded a gross profit of RMB136.4 million for 2005, compared to RMB23.8 million for 2004. The gross profit margin for 2005 was 20.9% compared with 2.0% in 2004. The increase in gross profit margin was due in part to an increase in the average selling price per sq. m of properties sold in 2005 over the average selling price in 2004 and a higher margin of Fuzhou Shimao Bund Garden than Shanghai Shimao Lakeside Garden.

Other gains

Shanghai Shimao’s other gains was RMB7.6 million in 2005. Shanghai Shimao suffered an other loss of RMB64.4 million in 2004, which was mainly a loss of disposal of associated companies of RMB54.8 million.

Selling and marketing costs

Shanghai Shimao’s selling and marketing costs decreased by 50.9% from RMB86.1 million in 2004 to RMB42.3 million in 2005, which was primarily due to a decrease in advertising and exhibition expenses with respect to Shanghai Shimao Lakeside Garden.

Administrative expenses

Shanghai Shimao’s administrative expenses increased from RMB28.6 million in 2004 to RMB58.6 million in 2005, which was primarily due to an increase in provision for car parks included in completed properties for sale in 2005.

Other operating expenses

Shanghai Shimao’s other operating expenses decreased by 57.1% from RMB3.3 million in 2004 to RMB1.4 million in 2005.

Operating profit

Shanghai Shimao’s turned from an operating loss of RMB144.9 million in 2004 to an operating profit RMB54.1 million in 2005. It was mainly due to higher gross profit margin achieved and lesser selling and marketing costs incurred together with no loss of disposal of associated companies interests in 2005.

Finance costs

Shanghai Shimao’s finance costs decreased by 35.6% from RMB19.0 million in 2004 to RMB12.2 million in 2005, which was primarily due to an increase in the amount of interest costs the Company capitalized for properties under development and assets under construction.

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LETTER FROM THE BOARD

Profit before income tax

Profit before income tax for 2005 was RMB47.9 million, compared with a loss RMB199.3 million in 2004. The increase in profit before tax was primarily because higher gross profit margin achieved and lesser selling and marketing costs incurred together with no loss of disposal of associated companies interests in 2005.

Income tax expense

Shanghai Shimao’s income tax expense for 2005 was RMB57.0 million while in 2004 a net deferred tax income was RMB2.2 million.

Loss for the year

Loss for the year in 2005 decreased by 95.3% to RMB9.2 million from RMB197.1 million in 2004. The decrease in loss for the year was primarily due to higher gross profit margin achieved and lesser selling and marketing costs incurred together with no loss of disposal of associated companies interests in 2005.

Loss attributable to minority interest

Loss attributable to minority interest in 2005 decreased by 73.8% to RMB6.8 million from RMB25.8 million in 2004 primarily as the result of decrease in loss in 2005.

Loss attributable to equityholders of Shanghai Shimao

Loss attributable to equity holders of Shanghai Shimao for 2005 was RMB2.4 million, a decrease of 98.6%, compared with RMB171.4 million in 2004.

Liquidity and Financial Resources

As at 31 December 2004, 2005, 2006 and 30 June 2007, borrowings of RMB150.3 million, RMB80.0 million, RMB375.0 million and RMB396.2 million respectively were secured by a building, an investment property, land use rights and a completed property held for sale.

As at 31 December 2004, 2005, 2006 and 30 June 2007, borrowings of RMB195.0 million, RMB160.0 million, RMB nil and RMB100.0 million respectively were secured by Shimao Enterprises, a shareholder of Shanghai Shimao.

The gearing ratio 31 December 2004, 2005, 2006 and 30 June 2007 calculated as net debt divided by total capital were 52.1%, 59.3%, 25.8%, 19.9% respectively.

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LETTER FROM THE BOARD

The maturity of the borrowings is as follows:

Due within 1 year Between 1 and 2 years	As at 31 December 2004 2005 2006 RMB million RMB million RMB million 509 240 275 — — 100 509 240 375	As at 30 June 2007 RMB million 233 263
		496

Financial Guarantees

Shanghai Shimao had financial guarantees of RMB695.0 million, RMB397.0 million, RMB1,089.0 million RMB1,122.0 million as at 31 December 2004, 2005, 2006 and 30 June 2007 respectively. Shanghai Shimao provided guarantees in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of Shanghai Shimao’s properties.

Pledges of Assets

As at 31 December 2004, 2005, 2006 and 30 June 2007, the following properties were pledged for Shanghai Shimao’s borrowings.

Self-use buildings An investing property Land use rights Completed properties held for sale	As at 31 December 2004 2005 2006 RMB million RMB million RMB million 17.9 0 15.9 172.1 184.5 197.8 0 102.4 502.1 0 0 0 190.0 286.9 715.8	As at 30 June 2007 RMB million 0 203.9 372.3 58.8
		635.0

Foreign Exchange Risks

Shanghai Shimao’s businesses are principally conducted in RMB. Foreign exchange risk arises mainly from certain receipts of proceeds from sales of properties which are in other foreign currencies. The exposure to foreign exchange risk is low as most cash and bank balances and all borrowings are denominated in RMB during the years ended 31 December 2004, 2005 and 2006 and six months ended 30 June 2007.

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LETTER FROM THE BOARD

Significant Investments

As at 31 December 2004, 2005, 2006 and 30 June 2007, financial assets available-for-sale was RMB11.1 million, RMB8.4 million, RMB22.3 million and RMB465.4 million, respectively. These financial assets represent the equity shares in Haitong Securities Co., Ltd, a securities company incorporated in the PRC. The shares were listed on the Shanghai Stock Exchange on 29 June 2007 with a non-tradable period until 28 December 2008. The share suffered an impairment loss of RMB11.0 million and RMB2.7 million for the two years ended 31 December 2004 and 2005, and a gain of RMB13.9 million and RMB443.1 million for the year ended 31 December 2006 and six months ended 30 June 2007.

Material Disposal

In 2004, Shanghai Shimao disposed of its 34% interest in Shanghai Shimao Jianshe Co. Ltd and 25% interest in Shanghai Shimao North Bund Development and Construction Co., Ltd at cash consideration of RMB142.5 million and RMB111.8 million respectively, resulting in a loss of RMB88.0 million and a gain of RMB33.3 million. There was no acquisition and disposal of equity interests during the two years ended 2005 and 2006 and the six months ended 30 June 2007.

Segment Analysis

Shanghai Shimao is principally engaged in property development, property investment and hotel operation. The property and hotel projects undertaken by Shanghai Shimao were all located in the PRC.

A breakdown of revenue for the years ended 31 December 2004, 2005, 2006 and the six months ended 30 June 2007 can be analysed as following:

Sale of properties Others	Year 2004 RMB million 1,203.6 1.4 1,205.0	ended 31 December 2005 2006 RMB million RMB million 646.3 2,427.8 5.9 3.1 652.2 2,430.9	Six months ended 30 June 2006 2007 RMB million RMB million (unaudited) 65.1 422.6 2.1 1.8 67.2 424.4	Six months ended 30 June 2006 2007 RMB million RMB million (unaudited) 65.1 422.6 2.1 1.8 67.2 424.4
				424.4

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LETTER FROM THE BOARD

Employees

Staff costs (including directors’ emoluments) of Shanghai Shimao comprise of the following:

Wages and salaries Pension costs — statutory pension Other allowances and benefits	Year 2004 RMB million 10.0 1.3 4.3 15.6	ended 31 December 2005 2006 RMB million RMB million 9.5 11.4 1.2 1.5 2.7 2.6 13.5 15.5	Six months ended 30 June 2006 2007 RMB million RMB million (unaudited) 5.3 7.1 0.7 0.7 0.6 1.8 6.5 9.6

PRC employees in Shanghai Shimao are required to participate in a defined contribution retirement scheme administrated and operated by the local municipal government. Shanghai Shimao contribute funds which are calculated on a certain percentage of the average employee salary as agreed by local municipal government to the scheme to fund the retirement benefits of the employees.

The number of employees as at 31 December 2004, 2005, 2006 and 30 June 2007 was 235, 215, 259 and 248 respectively.

Future Plans

Upon the Completion of the Proposed Transaction, Shanghai Shimao will engage in the development of commercial property. Shanghai Shimao expects to fund such development with its internally generated cash flow as well as external financing channels.

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LETTER FROM THE BOARD

6. PROPERTY INTERESTS OF THE TARGET COMPANIES AND SHANGHAI SHIMAO AND THE TARGET ASSET

The property interests of the Target Companies and the Target Asset have been valued at approximately RMB10,054.0 million as at the Appraisal Date by DTZ. The text of the letter with a summary of the valuation and valuation certificates of these prepared by DTZ are set out in Appendix IV.A to this circular.

The following shows a reconciliation of the value of the property interests of the Target Companies and the Target Asset as at the Appraisal Date to their net book value as at 30 June 2007:

Valuation of properties held by Target Companies and Target Asset
as at 31 August 2007 as set out in the property valuation report
included in Appendix IV.A
Net book value of properties held by Target Companies and Target Asset as
at 30 June 2007_(Note 1)
Land use rights
Properties under development
Investment properties
Non-current assets—prepayment
Movement during the period from 1 July 2007 to
31 August 2007 (unaudited)
Additions(Note 2)_
Net book value of properties held by Target Companies and Target Asset
as at 31 August 2007
Revaluation surplus, before income taxes and land appreciation tax

RMB million
10,054.0
(128.2)
(760.1)
(1,450.0)
(2,165.4)
(4,503.7)
(805.7)
(5,309.4)
4,744.6

Note 1: The net book value of properties held by the Target Companies and the Target Asset as at 30 June 2007 was based on unaudited internal records.

Note 2: Additions were based on unaudited internal records.

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LETTER FROM THE BOARD

The property interests of Shanghai Shimao have been valued at approximately RMB4,387.0 million as at the Appraisal Date by DTZ. The text of the letter with a summary of the valuation and valuation certificates of these property interests prepared by DTZ are set out in Appendix IV.C to this circular.

The following shows a reconciliation of the value of the property interests of the Shanghai Shimao as disclosed above to the net book value as reflected in the audited accounts of Shanghai Shimao as at 30 June 2007 set out in Appendix II.A to this circular:

Valuation of properties held by Shanghai Shimao as at
31 August 2007 as set out in the property valuation report
included in Appendix IV.C
Less:
Valuation of properties sold and delivered but
legal titles transfer yet to complete
Valuation of properties held by Shanghai Shimao as at
31 August 2007 adjusted
Net book value of properties held by Shanghai Shimao as at
30 June 2007
Asset under construction, self-use buildings and
improvements (included in property, plant and equipment)
Investment properties
Land use rights
Properties under development for sale
Completed properties held for sale
Movement during the period from 1 July 2007 to
31 August 2007 (unaudited)
Additions
Net book value of properties held by Shanghai Shimao as at
31 August 2007
Revaluation surplus, before income taxes and land appreciation tax

RMB million
4,387.0
(1,876.2)
2,510.8
(158.0)
(203.9)
(538.8)
(541.6)
(242.3)
(1,684.6)
(99.0)
(1,783.6)
727.2

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LETTER FROM THE BOARD

7. PROSPECTS OF THE ENLARGED GROUP

The PRC economy continues to exhibit strong growth, with GDP growth in the third quarter of 2007 reaching 11.5% as reported by the National Bureau of Statistics on 24 October 2007. Rapid economic growth achieved by the PRC in the past several years has been accompanied by, and has been contributing to, rapid urbanization, rising disposable incomes, and increasing demand for real estate of all types, including residential, hotel, office and retail properties. Nevertheless, since 2004, with a view to preventing the PRC’s economy from overheating and to achieving more balanced and sustainable economic growth, the PRC government has taken various measures to control money supply, credit availability and fixed assets investment. In particular, the PRC government has taken various measures to discourage speculation in the residential property market and has increased the supply of affordable housing. According to regulations issued by the CBRC, purchasers of homes equal to or smaller than 90 square meters are required to pay a minimum of 20% of the purchase price as down payment. If the purchased home is larger than 90 square meters, a minimum of 30% of the purchase price as down payment is required, pursuant to a regulation from 1 June 2006. Furthermore, on 27 September 2007 the PBOC and the CBRC increased the minimum down payment for purchasers of second homes from 30% to 40% of the purchase price regardless of the size of the second home, if the purchaser obtained his or her first home through a mortgage. Moreover, the mortgage loan rates for subsequent mortgages are required to be not less than 1.1 times the corresponding PBOC benchmark lending rates, and monthly mortgage payments are limited to 50% of an individual borrower’s monthly income. It is anticipated that the PRC government will continue to monitor the PRC real estate sector closely, and potentially introduce further policy measures from time to time so as to regulate and moderate the growth of the industry. However, the Company believes the real estate industry will continue to be a key pillar of the PRC economy, and the objective of any policy initiatives by the PRC government is to bring about healthy and sustainable growth for the sector in the long term, and continue to view such initiatives as positive.

The Company is a leading developer of high quality real estate projects in the PRC, with a broad and diversified portfolio of residential, retail, office, and hotel properties in prime locations. Upon Completion, the Company will continue to develop residential and hotel properties while it will continue to develop commercial properties through its new consolidated subsidiary, Shanghai Shimao. With the PRC economy and in particular the real estate sector expected to sustain rapid growth for the observable future, the Company believes that the underlying demand for residential, commercial and hotel properties, whether for sale or long-term investment, to remain strong. As such, the Company believes business prospects of the Group is strong and healthy.

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LETTER FROM THE BOARD

8. REASONS FOR AND BENEFITS OF THE PROPOSED TRANSACTION

The reasons for the Proposed Transaction are twofold:

(a) Stand-alone fund raising capability for the Company’s commercial properties business

In light of the favourable long-term outlook of the PRC economy and the rapid increase in the disposable income of PRC consumers, the Company is strongly of the view that the development of retail and commercial properties and the subsequent retention of such properties for long term investment purposes are attractive business opportunities and represent an important part of the Company’s long-term development strategy. However, the Company also recognizes that the successful pursuit of the commercial properties business also requires sufficient capital and professional management resources on an ongoing basis. The Proposed Transaction will enable the Company to own a stand-alone and professional commercial property company that not only focuses its resources on developing the commercial properties business, but also has an independent platform that enables it to raise capital more efficiently through the domestic A share market. Furthermore, provided that the A share market continues to trade at or near current levels, where the average 2007 price earning ratio of the companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange are approximately 43 and 45 times, respectively as at the Latest Practicable Date, the Company believes it will be able to raise funds at a lower cost of capital for its commercial properties business. The Proposed Transaction also enables the Company to concentrate and focus its financial and management resources on the residential and hotel development businesses in the PRC, which continue to experience rapid growth.

(b) Enhance corporate structure

The Proposed Transaction rationalises the business structure within the Company by allowing different entities and management teams to specialize in different lines of business. After Completion, the Company will primarily engage in the Residential Properties and Hotel business, while Shanghai Shimao will primarily engage in the Commercial Properties business. Please see “Non-competition Arrangements” below for a more detailed discussion on the future business delineation arrangements between Shanghai Shimao and the Company.

The Directors believe that the terms of the Proposed Transaction are fair and reasonable and in the interests of the shareholders of the Company as a whole.

9. FINANCIAL IMPLICATIONS OF THE PROPOSED TRANSACTION

Upon Completion, Shanghai Shimao will be accounted for as a consolidated subsidiary of the Company, and the Company’s interests in the Target Companies and Target Asset will be effectively reduced from 100% to approximately 64.2% which represents the Company’s interests in Shanghai Shimao upon Completion. The reduction of the interests in the Target Companies and Target Asset, approximately 35.8%, is regarded as a disposal. The Company will record a gain on the disposal calculated as the excess of the fair value of interests in the Target Companies and Target Asset given up over the corresponding carrying amounts at the Completion Date. The gain is estimated to be RMB1,170.7 million by reference to the fair value of the Target Companies and Target Asset according to the PRC Valuation Reports as at the Appraisal Date and related carrying amounts in the unaudited financial statements of the Company as at the same date, and assuming that the Proposed Transaction was completed on the Appraisal Date.

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LETTER FROM THE BOARD

The actual gain resulting from the disposal will be determined at the Completion Date. Since the fair value of interests in the Target Companies and Target Asset as at the Completion Date may be substantially different from their fair value as at the Appraisal Date and their corresponding carrying amounts will also vary, the final amount of the gain will be different from that as shown above.

The Group had an unaudited total assets, total liabilities and net assets of approximately RMB33,746.6 million, RMB16,560.2 million and RMB17,186.4 million, respectively as at 30 June 2007. Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group, the total assets, total liabilities and net assets of the Enlarged Group would have been approximately RMB40,033.9 million, RMB19,514.2 million and RMB20,519.7 million assuming that Completion had taken place on 30 June 2007. Please refer to Appendix III to this circular for the unaudited pro forma financial information of the Enlarged Group for details.

10. NON-COMPETITION ARRANGEMENTS

The Hong Kong Non-competition Agreement was entered into by the parties thereto on 19 February 2005 for the purposes of delineating the respective businesses of (1) the Group, (2) Mr. Hui, (3) Overseas Investment, (4) Shimao International, (5) Mr. Xu Shiyong, (6) Shimao Enterprises and (7) Shanghai Shimao by geographic location and/or size of projects on the terms and conditions set out therein.

The following table summarizes how the businesses among the parties to the Hong Kong Noncompetition Agreement are delineated:

	The Group	Overseas Investment	Mr. Hui	Mr. xu Shiyong
Shareholding Interests		Shimao International	Companies under the	Shimao Enterprises
		and the voting	Private Group	and Shanghai
		rights attributable		Shimao
		to Gemfair’s
		shareholding
		interests in the
		Company(1)
Principal Business	Large scale property	Property	Continue to hold a	Smaller scale
	development of	development outside	number of property	property
	projects in Mainland	Mainland China	development projects	development of
	China exceeding		in Mainland China	projects in Mainland
	200,000 sq. m in		undertaken by the	China up to 200,000
	GFA		Private Group prior	sq. m in GFA to
			to the Hong Kong	be undertaken only
			Non-competition	through Shanghai
			Agreement, details of	Shimao
			which are disclosed
			in the Company’s
			prospectus dated 22
			June 2006
Delineation with the		Geographical	No new competing	Delineation by size of
Group		delineation	business with the	projects in Mainland
			Group and Shimao	China
			International

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LETTER FROM THE BOARD

Carve-outs

The Group

Overseas Investment Mr. Hui Mr. xu Shiyong Shimao Private Group’s Shimao Enterprises’ International’s existing projects in existing projects in existing projects in Mainland China Mainland China and Mainland China, and certain personal Shanghai Shimao’s details of which interests existing projects in are disclosed in Mainland China, the Company’s details of which prospectus dated 22 are disclosed in June 2006 the Company’s prospectus dated 22 June 2006, as well as certain personal interests

(1) Pursuant to a deed dated 12 June 2006 between Gemfair and Overseas Investment, Overseas Investment was assigned the right to vote on behalf of Gemfair as a shareholder at general meetings of the Company.

Upon Completion, the relationship among the parties to the Hong Kong Non-competition Agreement will be changed to the following:

(A) Shanghai Shimao will become an approximately 64.2% indirectly-owned subsidiary of the Company;
(B) Shimao Enterprises will become an approximately 50.9%-owned subsidiary of the Company; and
(C) Mr. Xu Shiyong will no longer be a controlling shareholder of Shimao Enterprises.

Further, Shimao International was delisted from the Stock Exchange since 27 July 2007 and had become a member of the Private Group. In order to reflect the new commercial circumstances, the relevant parties entered into the following agreements on 22 October 2007 to modify the existing non-competition arrangements under the Hong Kong Non-competition Agreement:

	Agreement	Subject Matter	Governing Law	Effective Date	Reasons
(i)	Each of the	Non-competition	PRC law	Upon Completion	After Completion,
	Company,	undertakings		and subject to	the Company will
	Mr. Hui and	previously given by		approval by the	primarily engage
	Shanghai Shimao	the Company and		Independent	in the Residential
	entered into	Shanghai Shimao		Shareholders	Properties and Hotel
	the PRC Non-	to each other will			business, whereas
	competition	be substituted with			Shanghai Shimao
	Agreement	the arrangements			will primarily engage
		contemplated			in the Commercial
		under the PRC			Properties business
		Non-competition			(only in the PRC)
		Agreement (details as
		described below)

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LETTER FROM THE BOARD

Agreement

Subject Matter

Governing Law

Effective Date

Reasons

(ii) The Company The Company grants Hong Kong law entered into the in favour of Mr. Deed of Release Xu Shiyong and Shimao Enterprises a unilateral release of their undertakings under the Hong Kong Non-competition Agreement

Upon Completion Interests of the and subject to Company and approval by the Shimao Enterprises Independent as one of its Shareholders subsidiaries are aligned and any benefits arising from the use of the “Shimao” brand by Shimao Enterprises will be attributable to the Group. Further, Mr. Xu Shiyong’s previous undertaking to the Company is only relevant as a result of his capacity as the controlling shareholder of Shimao Enterprises. In view of the fact that Mr. Xu Shiyong will no longer be a controlling shareholder of Shimao Enterprises, Mr. Xu Shiyong’s undertaking under the Hong Kong Non-competition Agreement will no longer be relevant

(iii) Shimao Shimao International Hong Kong law International grants to the entered into Company, Overseas the Shimao Investment and Mr. International Hui, a unilateral Deed of Release release of their undertakings to Shimao International under the Hong Kong Non-competition Agreement

Upon signing

Shimao International was delisted from the Stock Exchange since 27 July 2007 and had become a member of the Private Group. Accordingly, any concerns Shimao International’s shareholders have regarding any competition from Mr. Hui’s Private Group, Overseas Investment and the Company are no longer relevant

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LETTER FROM THE BOARD

Agreement Subject Matter Governing Law Effective Date Reasons (iv) Parties to the To reflect the effect Hong Kong law Upon Completion The effect of the Hong Kong of (i), (ii) and (iii) for the purpose of Shimao International Non-competition above, and the reflecting changes Deed of Release is Agreement Company also grants as a result of (i), that the Company entered into the to Mr. Hui the Grant (ii) and (iii) above will be able to Amendment to and upon approval undertake property the Hong Kong by the Independent development outside Non-competition Shareholders for the Mainland China. Agreement purpose of the Grant However, in the under (iv) event the Company decides that it is not in its best interests to undertake any particular Property Business outside Mainland China, then subject only to the approval of the INEDs, the Company would be able to grant to Mr. Hui (for arm’s length consideration), the right to enter into such business

The following sets out the principal terms of the PRC Non-competition Agreement, the Deed of Release, the Grant and the Amendment to the Hong Kong Non-competition Agreement.

(a) The PRC Non-competition Agreement

Date:

The date of the PRC Non-competition Agreement is 22 October 2007.

Parties:

The parties to the PRC Non-competition Agreement are:

the Company;
Shanghai Shimao; and
Mr. Hui.

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LETTER FROM THE BOARD

Terms:

The principal terms of the PRC Non-competition Agreement are as follows:

(1) General Principles

Upon Completion:

(i) Shanghai Shimao shall primarily engage in Commercial Property investment, development and operation (including but not limited to sales, leasing and property management) in the PRC; and
(ii) The Company shall primarily engage in Residential Property and Hotel investment, development and operation in the PRC.
(2) Existing Projects
(i) For completed Existing Projects, the Company, its subsidiaries, Mr. Hui and Mr. Hui’s Associates shall be entitled to transfer the Commercial Properties of such projects, provided that Shanghai Shimao shall have a right of priority to acquire the same. The Company, its subsidiaries, Mr. Hui and Mr. Hui’s Associates shall not operate (whether by sale, leasing or otherwise) any Commercial Property of completed Existing Projects, and shall appoint Shanghai Shimao in priority to third parties (provided that equal terms are offered by Shanghai Shimao and such third parties) as agent to conduct such operation and pay Shanghai Shimao relevant agency fees. In the event that a third party agent has already been appointed to operate any Commercial Property of the completed Existing Projects, Shanghai Shimao shall be appointed in priority to third parties (provided that equal terms are offered by Shanghai Shimao and such third parties) as agent upon expiry of the relevant agency agreement.
(ii) For Existing Projects which are under or pending development, the Commercial Properties of such projects shall continue to be developed by the existing project company(ies). Upon completion of development, the Company, its subsidiaries, Mr. Hui and Mr. Hui’s Associates shall be entitled to transfer the Commercial Properties of such projects, provided that Shanghai Shimao shall have a right of priority to acquire the same. The Company, its subsidiaries, Mr. Hui and Mr. Hui’s Associates shall not operate (whether by sale, leasing or otherwise) any Commercial Property of such projects, and shall appoint Shanghai Shimao in priority to third parties (provided that equal terms are offered by Shanghai Shimao and such third parties) as agent to conduct such operation and pay Shanghai Shimao relevant agency fees.
(iii) All necessary third party consent required for undertaking the measures set out in (i) and (ii) above shall be duly obtained.

The Company will comply with the Listing Rules as applicable, in respect of any future agency and buy/sale arrangements in respect of any Existing Project.

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LETTER FROM THE BOARD

(3) Future Projects

Each party to the PRC Non-competition Agreement shall undertake the following measures to avoid competition after Completion:

(i) Shanghai Shimao undertakes not to engage in the investment, development and operation of Residential Property and Hotel projects. The Company, Mr. Hui and Mr. Hui’s Associates undertake not to engage in the investment, development and operation of Commercial Property projects.
(ii) For Separable Multiple-Use Projects, the Company and Shanghai Shimao shall bid for or acquire (as applicable) such projects on a joint basis (for which each party shall bear their own expenses). Upon successful bidding or acquisition, Shanghai Shimao shall be responsible for the investment, development and operation of the Commercial Properties component, and the Company shall be responsible for the investment, development and operation of the Residential Properties and Hotels, of such projects.

(iii) For Non-separable Multiple-Use Projects:

(A) if the relevant project comprises mainly Commercial Property development, Shanghai Shimao shall bid for or acquire (as applicable), and develop such project. Upon completion of development, Shanghai Shimao shall not operate (whether by sale, leasing or otherwise) any Residential Property or Hotel of such project and shall appoint the Company in priority to third parties (provided that equal terms are offered by the Company and such third parties) as agent to conduct any sale or leasing or other operations, and pay the Company the relevant agency fees; and
(B) if the relevant project comprises mainly Residential Property or Hotel development, the Company shall bid for or acquire (as applicable), and develop such project. Upon completion of development, the Company shall not operate (whether by sale, leasing or otherwise) any Commercial Property of such project and shall appoint Shanghai Shimao in priority to third parties (provided that equal terms are offered by Shanghai Shimao and such third parties) as agent to conduct any sale or leasing or other operations, and pay Shanghai Shimao the relevant agency fees.

All agency fees payable by the Company or Shanghai Shimao in relation to paragraphs 2(i) and (ii) and 3(iii)(A) and (B) above shall be calculated according to prevailing market rates.

(b) The Deed of Release

Date:

The date of the Deed of Release is 22 October 2007.

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LETTER FROM THE BOARD

Parties:

The Deed of Release is entered into unilaterally by the Company.

Terms:

Pursuant to the Deed of Release, with effect from Completion and subject to approval by the Independent Shareholders at the EGM, the Company releases Mr. Xu Shiyong and Shimao Enterprises from all of their undertakings to the Company pursuant to the Hong Kong Non-competition Agreement, being:

an undertaking by Mr. Xu Shiyong not to engage in any Property Business except through his shareholding interest in Shimao Enterprises and interest in properties acquired and held for his own use, provided that such activities do not involve any commercial property development;
an undertaking by Mr. Xu Shiyong and Shimao Enterprises that Shimao Enterprises, among others, shall not engage in any PRC Property Business except that Shimao Enterprises may continue to undertake certain specified existing PRC interests; and
an undertaking by Mr. Xu Shiyong and Shimao Enterprises to procure that Shimao Enterprises shall not engage in any PRC Property Business except as permitted under the Hong Kong Non-competition Agreement.

(c) The Amendment to the Hong Kong Non-competition Agreement – the Grant

Date:

The date of the Amendment to the Hong Kong Non-competition Agreement is 22 October 2007.

Parties:

The parties to the Amendment to the Hong Kong Non-competition Agreement are as follows:

the Company;
Mr. Hui;
Overseas Investment;
Shimao International;
Mr. Xu Shiyong;
Shimao Enterprises; and
Shanghai Shimao.

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LETTER FROM THE BOARD

Terms:

The Amendment to the Non-competition Agreement sets out the amendments to the Hong Kong Non-competition Agreement required to reflect the effects of:

the Shimao International Deed of Release, with effect from its signing;
the PRC Non-competition Agreement, with effect from Completion and subject to approval by Independent Shareholders; and
the Deed of Release, with effect from Completion and subject to approval by Independent Shareholders.

In addition, the Amendment to the Non-competition Agreement further sets out the terms of the Grant. Upon Completion and subject to Independent Shareholders’ approval, the Amendment to the Non-competition Agreement provides that the Company shall have a right to engage in any Property Business outside Mainland China but in the event the Board comes to the view that it is not in the best interest of the Company to undertake any particular Property Business outside Mainland China (“Subject Business”), subject to approval by the INEDs, the Company may grant to Mr. Hui the right to undertake such Subject Business.

(d) New Non-competition Arrangements upon Completion

The new non-competition arrangements upon Completion are set out below:

	The Group	Shanghai Shimao	Mr. Hui
Shareholding Interests		Approximately 64.2%	Companies under the
		indirectly-owned by the	Private Group, including
		Company	Shimao International
Principal Business	Residential Property and	Commercial Property	Continue to hold a
	Hotel projects	projects	number of property
			development projects
			in Mainland China
			undertaken by the Private
			Group prior to the Hong
			Kong Non-competition
			Agreement
Delineation with the Group		Delineation by the nature	No new competing
		of the development	business with the Group
		projects
Carve-outs		Shanghai Shimao’s	Private Group’s existing
		existing projects in	projects in Mainland
		Mainland China prior	China and certain
		to the PRC Non- competition Agreement	personal interests
			Mr. Hui has the right
			to engage in Property
			Business outside
			Mainland China in the
			event that the Company
			decides not to pursue
			such business

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LETTER FROM THE BOARD

11. EGM

A notice convening the EGM to be held at the The Harbour Room, Level 3, The Ritz-Carlton, 3 Connaught Road Central, Hong Kong on Friday, 30 November 2007 at 11:00 a.m. is set out on pages 316 to 318 of this circular at which ordinary resolutions will be proposed and, if thought fit, passed to approve the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant.

As at the Latest Practicable Date, Mr. Hui and Mr. Hui’s Associates together control or is entitled to exercise control over approximately 58.07% of the voting rights of the Company. As a connected person having interest in the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant, Mr. Hui and Mr. Hui’s Associates will abstain from voting on the ordinary resolutions regarding each of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant at the EGM.

To the best of the knowledge, information and belief of the Directors after having made all reasonable enquiries, none of the Independent Shareholders has a material interest in the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant who will be required to abstain from voting at the EGM.

A form of proxy for use by the Shareholders at the EGM is enclosed. Whether or not you are able to attend the EGM in person, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting (as the case may be) should you so wish.

Pursuant to article 66 of the articles of association of the Company, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is required under the Listing Rules or (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(i) by the Chairman of such meeting; or
(ii) by at least three members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
(iii) by a member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or
(iv) by a member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right; or

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LETTER FROM THE BOARD

(v) if required by the rules of the Designated Stock Exchange (as defined in the articles of association of the Company), by any Director or Directors who, individually or collectively, hold proxies in respect of shares representing five percent (5%) or more of the total voting rights at such meeting.

As required under Rule 13.39(4)(b) of the Listing Rules, voting on resolutions to be proposed at the EGM will be taken by poll.

12. CONNECTED PERSONS AND CONNECTED TRANSACTIONS

Mr. Xu Shiyong is a nephew of Mr. Hui, the Chairman, an executive director and controlling shareholder of the Company. Accordingly, Mr. Xu Shiyong is a connected person of the Company by virtue of Rule 14A.11(4)(c) of the Listing Rules. As at the Latest Practicable Date, Mr. Xu Shiyong is the controlling shareholder of Shimao Enterprises holding approximately 93.3% of its issued share capital. Shimao Enterprises in turn hold, as at the Latest Practicable Date, approximately 37.0% in Shanghai Shimao. Mr. Xu Shiyong’s investment in Shanghai Shimao was funded by a loan from Mr. Hui, and Mr. Xu Shiyong generally consults Mr. Hui for his opinion before casting his votes as an indirect shareholder through Shimao Enterprises. Hence each of Shimao Enterprises and Shanghai Shimao constitutes an associate of Mr. Hui under Rule 1.01(a)(v) of the Listing Rules and is a connected person of the Company.

The Proposed Transaction, which involves transactions between the Company and its subsidiaries, Peak Gain and Beijing Shimao, and Shanghai Shimao and Shimao Enterprises, is therefore subject to the approval of the Independent Shareholders in the EGM. Since each of relevant percentage ratios as defined in Rule 14A.10 of the Listing Rules is not less than 2.5%, the Proposed Transaction and matters contemplated thereunder are subject to Independent Shareholders’ approval requirement pursuant to Rule 14A.17.

13. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 44 to 45 of this circular which contains its advice to Independent Shareholders regarding the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant. We further draw your attention to the letter from DBS Asia Capital set out on pages 46 to 74 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders regarding the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant as well as the principal factors and reasons taken into consideration in arriving at its advice.

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LETTER FROM THE BOARD

Taking into account the reasons set out above, the Directors (including the INEDs) consider that the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant are fair and reasonable and in the interests of the Company and its Shareholders as a whole, and therefore recommend the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the EGM to approve each of the Proposed Transaction, the PRC Noncompetition Agreement, the Deed of Release and the Grant. You are advised to read the letter from the Independent Board Committee and the letter from DBS Asia Capital mentioned above before deciding as to how to vote at EGM.

14. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendices to this circular.

Yours faithfully, On behalf of the Board Shimao Property Holdings Limited Hui Wing Mau Chairman

– 43 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SHIMAO PROPERTY HOLDINGS LIMITED 世茂房地產控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 813)

Independent Board Committee Ms. Kan Lai Kuen, Alice Mr. Lu Hong Bing Mr. Gu Yunchang Mr. Lam Ching Kam

15 November 2007

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

PROPOSED TRANSFER OF ASSETS AND SUBSCRIPTION OF NEW A SHARES AND NEW NON-COMPETITION ARRANGEMENTS

We refer to the circular (the “Circular”) dated 15 November 2007 issued by the Company to its Shareholders of which this letter forms part. Terms defined in the Circular shall have the same meanings when used in this letter, unless the context otherwise requires.

On 22 October 2007, the Board announced that the Company had entered into the Proposed Transaction, the Share Subscription and Asset Transfer Agreement, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement.

The Independent Board Committee was formed on 22 October 2007 to make a recommendation to the Independent Shareholders as to whether, in its view, the terms of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant are fair and reasonable and whether the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant are in the interest of the Company and its Shareholders. DBS Asia Capital has been appointed as independent financial adviser to advise the Independent Board Committee and Independent Shareholders on the fairness and reasonableness of the terms of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The terms and the reasons for the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant are described in the letter from the Board set out on pages 8 to 43 of the Circular.

We also draw your attention to the letter from DBS Asia Capital in the Circular containing the advice of DBS Asia Capital in respect of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant.

As your Independent Board Committee, we have discussed with the management of the Company the reasons for entering into the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant and the basis upon which their terms have been determined. We have also considered the key factors taken into account by DBS Asia Capital in arriving at its opinion regarding the terms of the said agreements as set out in the letter from DBS Asia Capital on pages 46 to 74 of the Circular, which we urge you to read carefully.

The Independent Board Committee, after taking into account, amongst other things, the advice of DBS Asia Capital, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, considers that the terms of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Grant, to be in the best interest of the Company and to be fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favor of ordinary resolutions set out in the notice of the EGM at the end of the Circular.

Yours faithfully, For and on behalf of the Independent Board Committee Ms. Kan Lai Kuen, Alice Mr. Lu Hong Bing Mr. Gu Yunchang Mr. Lam Ching Kam Independent non-executive Directors

– 45 –

LETTER FROM DBS ASIA CAPITAL

The following is the text of the letter of advice from DBS Asia Capital, the independent financial adviser to the Independent Board Committee and Independent Shareholders, in respect of a major and connected transaction for Shimao Property Holdings Limited, which has been prepared for the purpose of inclusion in this circular.

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15 November 2007

To the Independent Board Committee and Independent Shareholders of Shimao Property Holdings Limited

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION

INTRODUCTION

We refer to the Proposed Transaction, which involves, inter alia, (1) the injection by the Company in Shanghai Shimao of certain of its retail and commercial properties in exchange for the issue by Shanghai Shimao of certain New A Shares through the Share Subscription and Asset Transfer Agreement, (2) the PRC Non-competition Agreement, (3) the Deed of Release, and (4) the Amendment to the Hong Kong Non-competition Agreement, details of which are set out in the letter from the Board (the “ Letter from the Board ”) in the circular of the Company to its shareholders dated 15 November 2007 (the “ Circular ”), of which this letter forms part. DBS Asia Capital is engaged as the independent financial adviser to the Independent Board Committee and Independent Shareholders in respect of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

While the percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the disposal of the Target Companies and Target Asset by the Company are less than 25%, the revenue ratio in respect of the acquisition of Shanghai Shimao by the Company is more than 25%. Accordingly, the Proposed Transaction constitutes a major transaction by the Company for purposes of the Listing Rules, and is subject to Shareholders’ approval.

Mr. Xu Shiyong is a nephew of Mr. Hui, the Chairman, an executive director and the controlling shareholder of the Company. Accordingly, Mr. Xu Shiyong is a connected person of the Company by virtue of Rule 14A.11(4)(c) of the Listing Rules. As at the Latest Practicable Date, Mr. Xu Shiyong is the controlling shareholder of Shimao Enterprises holding approximately 93.3% of its issued share capital. Shimao Enterprises in turn holds, as at the Latest Practicable Date, approximately 37.0% in Shanghai Shimao. Mr. Xu Shiyong’s investment in Shimao Enterprises was funded by a loan from Mr. Hui, and Mr. Xu Shiyong generally consults Mr. Hui for his opinion before casting his votes as an indirect shareholder through Shimao Enterprises. Hence each of Shimao Enterprises and Shanghai Shimao constitutes an associate of Mr. Hui under Rule 1.01(a)(v) of the Listing Rules and is a connected person of the Company.

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LETTER FROM DBS ASIA CAPITAL

The Independent Shareholders will be asked to consider and, if thought fit, approve by poll the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement in the EGM.

In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion as to whether the terms of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and its Shareholders as a whole, and to advise the Independent Shareholders on how to vote on the resolutions to be proposed in the EGM in respect of the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement.

BASIS OF OUR OPINION

In arriving at our opinion, we have relied on the information, opinions and facts supplied, and representations made to us, by the Directors, advisers and/or representatives of the Company, including those contained or referred to in the Circular. We have also assumed that all data, information, opinions and representations contained or referred to in the Circular were true, accurate and complete in all respects at the time they were made and continue to be so at the date of despatch of the Circular. We have been advised by the Directors that no material facts have been omitted, and we are not aware of any facts or circumstances which would render the data provided and the representations made to us untrue, inaccurate or misleading. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company and/or its advisors and representatives. The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which will make any statement in the Circular misleading. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable, and we have not independently verified the accuracy of such information. We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained or referred to in the Circular and to provide a reasonable basis for our opinion. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses, affairs, or other prospects of the Company or any of its respective subsidiaries or associates. We have not relied on the profit forecast issued by Shanghai Shimao in our analysis of the Proposed Transaction.

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LETTER FROM DBS ASIA CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Proposed Transaction

The Proposed Transaction involves the injection by the Company into Shanghai Shimao of certain of the Company’s retail and commercial properties with an aggregate net asset value of RMB7,666.5 million as at the Appraisal Date, in exchange for the issue by Shanghai Shimao of 630 million New A Shares at the New A Share Subscription Price of RMB12.05 per New A Share and the sum of RMB73.7 million payable in cash or cash equivalent. Shanghai Shimao will also, pursuant to the Capital Injection, issue an additional 62,240,000 New A Shares to Shimao Enterprises. Accordingly, the Proposed Transaction consists of:

the Asset Transfer;
the New A Shares Placings;
the Capital Injection; and
the Shimao Enterprises New A Share Subscription.

In arriving at our recommendation to the Independent Board Committee and Independent Shareholders in respect of the Proposed Transaction, we have considered the following principal factors:

a. Background of and reasons for the Proposed Transaction

The Company is principally engaged in the development of large-scale integrated development projects in the PRC including residential, hotel and commercial properties. As of the Latest Practicable Date, the Company possesses a land bank of approximately 21 million square metres across 19 cities in the PRC. Shanghai Shimao is principally engaged in the development of small-scale property projects in Mainland China.

As stated in the Circular in the section entitled “Letter from the Board”, the reasons for the Proposed Transaction are:

i. Stand-alone fund raising capability for the Company’s commercial properties business

In light of the favourable long-term outlook of the PRC economy and the rapid increase in the disposable income of PRC consumers, the Company is strongly of the view that the development of retail and commercial properties and the subsequent retention of such properties for long term investment purposes are attractive business opportunities and represent an important part of the Company’s long-term development strategy. However, the Company also recognizes that the successful pursuit of the commercial properties business also requires sufficient capital and professional management resources on an ongoing basis. The Proposed Transaction will enable the Company to own a stand-alone and professional commercial property company that not only focuses its resources on developing the commercial properties business, but also has an independent platform that enables it to raise capital more efficiently through the domestic A share market. Furthermore, provided that the A share market continues to trade at or near current levels, the Company believes it will be able to raise funds at a lower cost of capital for its commercial properties business.

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LETTER FROM DBS ASIA CAPITAL

The Proposed Transaction also enables the Company to concentrate and focus its financial and management resources on the residential and hotel development businesses in the PRC, which continue to experience rapid growth.

ii. Enhance corporate structure

Given the above reasons, the Directors believe that the terms of the Proposed Transaction are fair and reasonable and in the interests of the shareholders of the Company as a whole.

In addition to the above reasons, we have also analysed the recent trend of the property market in the PRC as follows:

iii ． Property Market in the PRC

We notice that all Target Companies and Target Asset are located in Beijing, Shanghai, Jiangsu, Anhui, Zhejiang and Liaoning provinces. According to the China Statistical Yearbook, Beijing has an area of approximately 16,410.54 square kilometers and a population of 11,976,000 in 2006. GDP of Beijing amounted to approximately RMB787 billion in 2006, representing an increase of 14.3% over the previous year. According to China market research reports issued by CB Richard Ellis Group, Inc. (“ CB Richard Ellis ”), one of the world’s largest commercial real estate services firms, the Beijing prime office market enjoyed an increase in both overall rental and take-up in the second quarter of 2007. Overall rent remained stable, reaching RMB183.2 per square meter per month, representing a 1.3% increase quarter-on-quarter. The 2008 Olympic Games is driving the rapid development of the serviced apartment market, leading the average rent of serviced apartments to reach RMB213.8 per square meter per month, a 2.8% increase quarter-on-quarter.

According to the China Statistical Yearbook, Shanghai has an area of approximately 6,340.50 square kilometers with a population of 18,150,800 in 2006. According to the Quarterly Update issued by Colliers International, a commercial real estate consultant, Shanghai’s economic growth momentum remained strong in the first half of 2007, buoyed by robust fixed asset investment and domestic consumption. GDP of Shanghai amounted to approximately RMB1,036.6 billion in 2006, representing an increase of 13% over the previous year. Fixed asset investment in real estate development increased 6.2% year-onyear. According to CB Richard Ellis, the second quarter of 2007 saw continued growth in Shanghai’s office market with average rents increasing by 1.4% to RMB219.3 per square meter per month. The Grade A office market saw stronger than average growth, with rents increasing by 1.5% quarter-on-quarter due to demand from new foreign investors for their expansion and relocation needs. The strong local consumption was supported by sharp rise in residents’ income, which saw a 14.7% year-on-year growth in the first half of 2007.

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LETTER FROM DBS ASIA CAPITAL

According to the China Statistical Yearbook, Jiangsu province has a population of 75,495,000 in 2006. GDP of Jiangsu province amounted to approximately RMB2,164.5 billion in 2006, representing an increase of 13.2% over the previous year. Anhui is an important province of the Greater Yangtze River Delta and a core province of centraleastern China, covering an area of approximately 130,000 square kilometers with a population of 65,935,000 in 2006. GDP of Anhui province amounted to approximately RMB614.1 billion in 2006, representing an increase of 12.9% over the previous year. According to the China Statistical Bulletin, annual provincial real estate development investment in Zhejiang in 2006 reached RMB157.3 billion, equivalent to an increase of 8% over the previous year. Liaoning province has a population of 42,710,000 in 2006. GDP of Liaoning province amounted to approximately RMB925.7 billion in 2006, representing an increase of 13.8% over the previous year. According to the China Statistical Bulletin, annual provincial real estate development investment in Liaoning in 2006 reached RMB114.2 billion, equivalent to an increase of 30.6% over the previous year.

In view of the double digit growth in GDP, increasing investment from foreign investors, the 2008 Olympic Game and the strong local consumption, we concur with the Company that the underlying demand for residential, commercial and hotel properties, whether for sale or long-term investment, particularly in the provinces where the Target Companies and Target Assets are located, will remain strong.

b. Description of the Target Companies and the Target Asset

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LETTER FROM DBS ASIA CAPITAL

Details of the Target Companies and Target Asset are set out below:

Target Companies/Target Asset Location Commercial Site Area Planned GFA Land Premium1 DTZ Asset Valuation2 sq. m sq. m RMB million RMB million Target Companies 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co., Ltd.)4,5 Shanghai 428,213 391,000 333.1 686.0 Beijing 29,411 212,000 1,400.0 2,100.0 常熟世茂新發展置業有限公司 (Changshu Shimao New Development Property Co., Ltd.) Changshu, Jiangsu 344,579 981,505 473.2 2,238.0 昆山世茂房地產�發有限公司 (Kunshan Shimao Real Estate Development Co., Ltd.)5 Kunshan, Jiangsu 126,802 191,440 137.2 610.0 常州世茂新城房地產 �發有限公司 (Changzhou Shimao New City Real Estate Development Co., Ltd.) Changzhou, Jiangsu 60,393 339,600 169.1 411.0 徐州世茂置業有限公司 (Xuzhou Shimao Property Co., Ltd) Xuzhou, Jiangsu 88,594 220,000 164.7 219.0 蘇州世茂投資發展有限公司 (Suzhou Shimao Investment and Development Co., Ltd.) Suzhou, Jiangsu 92,451 256,089 288.4 586.0 嘉興世茂新世紀置業有限公司 (Jiaxing Shimao New Century Property Co., Ltd.) Jiaxing, Zhejiang 135,594 267,000 127.1 213.0 蕪湖世茂新發展置業有限公司 (Wuhu Shimao New Development Property Co., Ltd.) Wuhu, Anhui 80,310 132,895 178.8 341.0 瀋陽世茂新世紀房地產 �發有限公司 (Shenyang Shimao New Century Real Estate Development Co., Ltd.) Shenyang, Liaoning 61,000 967,220 587.8 1,200.0 Subtotal 1,447,347 3,958,749 3,859.4 8,604.0 Target Asset 北京世茂大厦 (Beijing Shimao Tower) Beijing 7,183 72,195 1,082.07 1,450.0 Total 1,454,530 4,030,944 4,941.4 10,054.0	PRC Valuation
	Total Assets3 Total Liabilities NAV Book NAV RMB million RMB million RMB million RMB million 2,686.6 1,314.1 1,372.6 390.9 2,221.2 213.4 2,007.8 260.0 896.3 127.1 769.3 431.4 348.0 0.1 347.9 177.0 270.8 7.1 263.7 201.4 619.0 111.0 508.0 226.5 282.0 127.1 154.9 (0.0)6 321.0 128.8 192.2 49.9 1,117.7 8.8 1,108.9 580.7 8,762.8 2,037.6 6,725.2 2,317.8 1,378.8 437.5 941.3 611.6 10,141.6 2,475.1 7,666.5 2,929.4

Target Companies/Target Asset
Location
Commercial
Site Area
Planned
GFA
Land
Premium1
DTZ Asset
Valuation2
sq. m
sq. m
RMB
million
RMB
million
Target Companies
上海世茂新體驗置業有限公司
(Shanghai Shimao
Wonderland Property
Co., Ltd.)4,5
Shanghai
428,213
391,000
333.1
686.0
Beijing
29,411
212,000
1,400.0
2,100.0
常熟世茂新發展置業有限公司
(Changshu Shimao New
Development Property
Co., Ltd.)
Changshu,
Jiangsu
344,579
981,505
473.2
2,238.0
昆山世茂房地產�發有限公司
(Kunshan Shimao Real
Estate Development Co.,
Ltd.)5
Kunshan,
Jiangsu
126,802
191,440
137.2
610.0
常州世茂新城房地產
�發有限公司
(Changzhou Shimao
New City Real Estate
Development Co., Ltd.)
Changzhou,
Jiangsu
60,393
339,600
169.1
411.0
徐州世茂置業有限公司
(Xuzhou Shimao Property
Co., Ltd)
Xuzhou,
Jiangsu
88,594
220,000
164.7
219.0
蘇州世茂投資發展有限公司
(Suzhou Shimao
Investment and
Development Co., Ltd.)
Suzhou,
Jiangsu
92,451
256,089
288.4
586.0
嘉興世茂新世紀置業有限公司
(Jiaxing Shimao New
Century Property Co.,
Ltd.)
Jiaxing,
Zhejiang
135,594
267,000
127.1
213.0
蕪湖世茂新發展置業有限公司
(Wuhu Shimao New
Development Property
Co., Ltd.)
Wuhu,
Anhui
80,310
132,895
178.8
341.0
瀋陽世茂新世紀房地產
�發有限公司
(Shenyang Shimao
New Century Real Estate
Development Co., Ltd.)
Shenyang,
Liaoning
61,000
967,220
587.8
1,200.0
Subtotal
1,447,347
3,958,749
3,859.4
8,604.0
Target Asset
北京世茂大厦
(Beijing Shimao Tower)
Beijing
7,183
72,195
1,082.07
1,450.0
Total
1,454,530
4,030,944
4,941.4
10,054.0

PRC Valuation

Total
Assets3
Total
Liabilities
NAV
Book
NAV
RMB
million
RMB
million
RMB
million
RMB
million
2,686.6
1,314.1
1,372.6
390.9
2,221.2
213.4
2,007.8
260.0
896.3
127.1
769.3
431.4
348.0
0.1
347.9
177.0
270.8
7.1
263.7
201.4
619.0
111.0
508.0
226.5
282.0
127.1
154.9
(0.0)6
321.0
128.8
192.2
49.9
1,117.7
8.8
1,108.9
580.7
8,762.8
2,037.6
6,725.2
2,317.8
1,378.8
437.5
941.3
611.6
10,141.6
2,475.1
7,666.5
2,929.4

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LETTER FROM DBS ASIA CAPITAL

Notes :

1. Represents the costs of original acquisition.

2. In the case of Target Companies, DTZ asset valuation represents the valuation of the property interests held by each Target Company.

3. In the case of Target Companies, total asset value pursuant to the PRC valuation represents the value of the total assets of each Target Company (including property interests and other assets).

4. Shanghai Shimao Wonderland Property Co., Ltd has two project sites, one in Shanghai and another in Beijing. Shanghai Shimao Wonderland Co., Ltd also holds the Non-separable Hotels Projects.

5. The net loss attributable to Kunshan Shimao Real Estate Development Co., Ltd. ( 昆山世茂房地產�發有限公司) and Shanghai Shimao Wonderland Property Co., Ltd. ( 上海世茂新體驗置業有限公司 ) for the financial year ended 31 December 2006 was approximately RMB196,000 and RMB339,000 respectively, according to the Company’s audited accounts prepared under HKFRS.

6. Equals to RMB(5,482).

7. Represents the cost of original acquisition from 北京天寰房地產�發有限責任公司 ( Beijing Tianhuan Real Estate Development Co., Ltd. ) on 29 December 2006.

The assets attributable to the Target Companies are either undeveloped land or projects under the early stages of development, none of which has yet to generate any profits. Similarly, the Target Asset has not generated any profits either since it is only scheduled to open for operations in December 2007. Accordingly, save for Kunshan Shimao Real Estate Development Co., Ltd. (昆山世茂房地產�發有限公司) and Shanghai Shimao Wonderland Property Co., Ltd. (上海世茂新體驗置業有限公司), details of the net profits attributable to the Target Companies and Target Asset for the financial years ended 31 December 2005 and 2006 are not available.

As shown in the table above, according to the DTZ Valuation Reports, the total value of the property interests held by the Target Companies as at the Appraisal Date is RMB8,604.0 million. According to the PRC Valuation Reports, the total assets of the Target Companies as at the Appraisal Date amounts to RMB8,762.8 million and the total liabilities of the Target Companies as at the Appraisal Date amounts to RMB2,037.6 million. Accordingly, the appraised net asset value of the Target Companies as at the Appraisal Date, as stated in the PRC Valuation Report, is RMB6,725.2 million, representing a 190.2% increase over the book net asset value of the Target Companies in the amount of approximately RMB2,317.8 million. The total liabilities of the Target Companies will be transferred, together with the Target Companies, to Shanghai Shimao.

As at the Appraisal Date, the value of the Target Asset is RMB1,450.0 million according to the DTZ Valuation Reports and RMB1,378.8 million according to the PRC Valuation Reports. Further, as at the Appraisal Date, the Target Asset is subject to the China Everbright Mortgage in the amount of RMB437.5 million. The China Everbright Mortgage has been assigned to Shanghai Shimao, and the assignment will take effect at Completion.

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LETTER FROM DBS ASIA CAPITAL

c. Consideration for the Asset Transfer

As stated in the Circular in the section entitled “Letter from the Board”, the total consideration of the Asset Transfer amounts to RMB7,665.2 million and comprises:

i. the Target Shares Consideration in the amount of RMB6,723.9 million which will be entirely paid in the form of New A Shares; and
ii. the Target Asset Consideration in the amount of RMB941.3 million of which RMB867.6 million are to be paid in the form of New A Shares and the remaining RMB73.7 million will be paid in cash or cash equivalent.

The Target Shares Consideration will be adjusted by any subsequent changes in the net asset value of the Target Companies during the period between the Appraisal Date and the Completion Date. Such adjustments will be determined by a special audit of the Target Companies to be performed by such qualified accountants as agreed between Peak Gain and Shanghai Shimao based on accounting standards that are usually adopted by Shanghai Shimao. Any adjustments to the Target Shares Consideration will be settled by cash or such other assets as agreed. The Target Asset Consideration will be adjusted by any subsequent changes to the value of the China Everbright Mortgage during the period between the Appraisal Date and the Completion Date and any such adjustments will be settled by cash or such other assets as agreed.

d. Analysis of the consideration for the Asset Transfer

In analysing the reasonableness of the consideration of the Asset Transfer, we have considered comparing the Target Shares Consideration and Target Asset Consideration based on the following approaches:

i ． Price-to-earning

As the assets attributable to the nine Target Companies are either undeveloped land or projects under the early stages of development, none of these assets has yet to generate any profits. Similarly, the Target Asset has not generated any profits either since it is only scheduled to commence operations in December 2007. As a result, it is not possible to assess the Target Shares Consideration and Target Asset Consideration based on historical priceto-earning multiples. Accordingly, we do not consider the price-to-earning approach as an appropriate measure of valuation for the purpose of our advice to the Independent Board Committee and Independent Shareholders.

ii ． Price-to-book

The Target Companies are all private companies and the assets attributable to the Target Companies and the Target Asset are either undeveloped land or projects under the early stages of development. Price-to-book multiple is based on listed companies’ book values which may or may not fully reflect the fair market value of property interests, depending on whether the property interests are held by the listed companies under development or for investment. Therefore, we do not consider appropriate to use the priceto-book multiple as a measure of valuation for the purpose of our advice to the Independent Board Committee and Independent Shareholders.

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LETTER FROM DBS ASIA CAPITAL

iii ． Independent professional valuations

We believe that an assessment of the Target Shares Consideration and Target Asset Consideration by way of comparison with the fair value, valued by independent professional valuers, of the net assets of the Target Companies and the Target Asset respectively is the most appropriate approach.

An independent valuation of (a) the property interests held by the Target Companies, (b) the Target Asset and (c) the property interests held by the Shaoxing Project Companies has been prepared by DTZ as at the Appraisal Date. DTZ is an independent property valuation firm with the necessary professional qualifications and experience in the valuation of properties in the PRC. Please refer to Appendices IV.A, IV.B and IV.C of this Circular for the DTZ Valuation Reports.

Separately, the PRC Valuation Reports consist of (1) an independent valuation report in respect of the net asset value of the Target Companies and the value of the Target Asset, (2) an independent valuation consultation report in respect of the value of the Non-separable Hotel Projects, and (3) an independent valuation report in respect of the net asset value of the Shaoxing Project Companies, all prepared by the PRC Valuer as at the Appraisal Date. We have discussed with the PRC Valuer who have confirmed that they have a qualification certificate issued by the State-owned Assets Supervision and Administration Commission of the Shanghai Municipal Government (上海市國有資產監督管理委員會), permitting the PRC Valuer to perform, within the PRC, valuation services on assets, companies and projects, and other valuations services as required by the market. The PRC Valuer also has a permit issued by the CSRC and the State-owned Assets Supervision and Administration Commission of the State Council (國務 �國有資產監督管理委員會 ) to perform asset valuation related to the securities business. The PRC Valuation Reports were published in the PRC in the Shanghai Securities News and on the official website of the Shanghai Stock Exchange on the date of the Announcement.

Valuation methodologies used by DTZ and the PRC Valuer

As set out in the DTZ Valuation Reports in Appendices IV.A, IV.B and IV.C of this Circular and based on our discussions with DTZ, we understand that DTZ has valued the property interests held by the Target Companies and the Target Asset using two approaches respectively:

In respect of the Target Asset, DTZ has adopted a market approach by making reference to comparable sales transactions available in the relevant market or, where appropriate, by capitalizing the rental income derived from the existing tenancy with due provision for any reversionary income potential of the property interests; and

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LETTER FROM DBS ASIA CAPITAL

In respect of the Target Companies, DTZ has valued the properties on the basis that they will be developed and completed in accordance with the Group’s latest development proposals provided to DTZ (assuming that approvals for the proposals have been obtained). The direct comparison approach has been adopted by making reference to comparable sales evidence available in the relevant market and taking into account the expended construction costs and the estimated construction costs remaining outstanding for completing the development. As stated in the DTZ Valuation Reports in Appendix IV.A of this Circular, DTZ has complied with the requirements set out in Chapter 5 and Practice Note 12 of the Listing Rules and the HKIS Valuation Standards on Properties (First Edition 2005) of the Hong Kong Institute of Surveyors.

As set out in the PRC Valuation Reports and based on our discussions with the PRC Valuer, we understand that the PRC Valuer has adopted different approaches in valuing (1) the Target Companies, (2) the Target Asset, (3) the Non-separable Hotel Projects and (4) the Shaoxing Project Companies in accordance to the situation of the subject matter under valuation:

For the Target Companies which own major assets comprising either undeveloped land or projects under the early stages of development and the Non-separable Hotel Projects, with regard to such major assets (i.e. land in the inventory), the PRC Valuer has adopted (1) the market method (by making reference to comparable sales transactions available in the relevant market to value the land use rights), and (2) the residual income method (假設�發法) by making reference to the gross development values of the properties ( �發完成房地價值) and the estimated costs including development costs, management fees, profits and interest accrued on capital borrowed over the development period and sales tax. The PRC Valuer then arrived at the value of the land, by averaging the valuation results derived from the two methods respectively. Subsequently, the PRC Valuer arrived at the net asset value of the Target Companies by taking into account the other assets and liabilities of the Target Companies using the cost method; and
For the Target Asset, the PRC Valuer has adopted the cost method (by reference to the replacement cost of the building and the comparable sales evidence available in the relevant market to value the land use right) and income method (by reference to the income derived from the property interest, the duration and the capitalisation rate) to value the Target Asset separately. The PRC Valuer then arrived at the value of the Target Asset by averaging the results derived from the two methods respectively; and
For the Shaoxing Project Companies, the PRC Valuer has adopted the same valuation approach as valuing the Target Companies.

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LETTER FROM DBS ASIA CAPITAL

We have discussed with both DTZ and the PRC Valuer respectively on the assumptions and methodologies used as set out in the DTZ Valuation Reports and PRC Valuation Reports, and we are of the view that the valuations performed by DTZ and the PRC Valuer have been conducted after due and careful consideration, the assumptions and methodologies used by DTZ and the PRC Valuer are in line with market practices in the PRC, and we have no reason to doubt the assumptions and methodologies applied by DTZ and the PRC Valuer in preparing their respective valuation reports. Accordingly, we have used the valuations performed by DTZ and the PRC Valuer as benchmarks in our evaluation of the consideration for the Target Shares Consideration, Target Asset Consideration and the consideration in relation to the Shaoxing Project Companies.

Valuations by DTZ and the PRC Valuer

According to the DTZ Valuation Reports, the total value of the property interests held by the Target Companies as at the Appraisal Date amounted to RMB8,604.0 million. According to the PRC Valuation Reports, the total assets of the Target Companies as at the Appraisal Date amounted to RMB8,762.8 million. We have discussed with the PRC Valuer who confirmed that within the total assets of the Target Companies, the major assets are property interests held by the Target Companies. Hence, the valuations performed by DTZ and the PRC Valuer are largely in line with each other. Based on the PRC Valuation Reports, the total liabilities of the Target Companies as at the Appraisal Date amounted to RMB2,037.6 million. Accordingly, the net asset value of the Target Companies as at the Appraisal Date, based on the PRC Valuation Reports, would be approximately RMB6,725.2 million. We have also discussed with the PRC Value and the management of the Company who confirmed that the total asset (other than the property interests) and total liability figures in the PRC Valuation Reports are the respective book values of the Target Companies.

As at the Appraisal Date, the value of the Target Asset is RMB1,450.0 million, according to the DTZ Valuation Reports and RMB1,378.8 million according to the PRC Valuation Reports. Hence, the valuations of the Target Asset performed by DTZ and the PRC Valuer are generally in line with each other. Further, as set out in the Circular in the section entitled “Letter from the Board”, the Target Asset is subject to the China Everbright Mortgage amounting to RMB437.5 million as at the Appraisal Date.

As stated in the Circular in the section entitled “Letter from the Board”, for the purpose of determining the consideration of the Asset Transfer, the independent valuation of the Target Companies and Target Asset conducted by the PRC Valuer has to be adopted in compliance with the requirements of CSRC. We have discussed with the management of the Company as well as both DTZ and the PRC Valuer respectively on the valuations as set out in the DTZ Valuation Reports and PRC Valuation Reports, and we are of the view that the valuations of the Target Companies and the Target Asset performed by the PRC Valuer are in line with (1) the valuation of property interests of the Target Companies and the valuation of the Target Asset performed by DTZ, and (2) the respective book values of the Target Companies and Target Asset according to the management of the Company. Accordingly, we believe that for the purpose of determining the consideration of the Asset Transfer, the independent valuation of the Target Companies and Target Asset conducted by the PRC Valuer was appropriate.

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LETTER FROM DBS ASIA CAPITAL

e. Non-separable Hotel Projects

Two parcels of land which form part of the commercial properties to be transferred to Shanghai Shimao are currently planned to be developed into hotels. Due to PRC legal restrictions, the land use rights associated with the Non-separable Hotel Projects may not be separated from that of the Multiple-Use Projects of which they form part. Hence the Non-separable Hotel Projects must be transferred to Shanghai Shimao as part of the Asset Transfer. However, since it is the Company’s strategy to retain all hotel assets going forward, the parties agree that the Nonseparable Hotel Projects should be transferred back to the Company in the future at the Appraisal Date value when PRC laws permit such transfer once the construction of the Multiple-use Projects and the associated Non-separable Hotel Projects are largely completed. Prior to such transfer, Shanghai Shimao will continue to develop the Non-separable Hotel Projects but the relevant development costs shall be borne by the Company. According to the DTZ Valuation Reports and PRC Valuation Reports, the value of the Non-separable Hotel Projects as at the Appraisal Date amounted to RMB844.0 million and RMB828.0 million, respectively. The latter amount represents the consideration (in the form of New A Shares) Shanghai Shimao will pay to the Company in respect of the Non-separable Hotel Projects as part of the Asset Transfer. In order to lock in the price at which the Non-separable Hotel Projects will be transferred back to the Company and avoid any future value fluctuations, RMB828.0 million will be accounted for as a prepayment by the Company to Shanghai Shimao in the latter’s accounts.

Reasons for the arrangement relating to the Non-separable Hotel Projects

As stated in the Circular in the section entitled “Letter from the Board”, one of the reasons for the Proposed Transaction was to enhance corporate structure by having the Company to engage primarily in the Residential Properties and Hotel business, while having Shanghai Shimao to focus primarily on the development and operation of the Commercial Properties business. Accordingly, Shanghai Shimao has agreed to transfer the Non-separable Hotel Projects back to the Company in the future when the PRC laws permit such transfer, once the construction of the Multi-use Projects and the associated Non-separable Hotel Projects are largely completed. Since the management of the Company, as at the Latest Practicable Date, does not foresee any major issues which may prevent the Non-separable Hotel Projects from becoming permitted under existing PRC laws to be transferred back to the Company and it is the intention of the Company and Shanghai Shimao to transfer back the Non-separable Hotel Projects to the Company, we are of the view that the arrangement for the Company to bear the relevant development costs of the Non-separable Hotel Projects is appropriate and reasonable.

As stated in the Circular in the section entitled “Letter from the Board”, for the purpose of determining the consideration of the Asset Transfer, the independent valuation of the Target Companies and Target Asset conducted by the PRC Valuer has to be adopted in compliance with the requirements of CSRC. We have discussed with both DTZ and the PRC Valuer respectively on the valuations of the Non-separable Hotel Projects as set out in the DTZ Valuation Reports and PRC Valuation Reports, and we are of the view that the valuation performed by the PRC Valuer are in line with the valuation performed by DTZ. Accordingly, we believe that for the purpose of determining the consideration of the Nonseparable Hotel Projects, the independent valuation of the Non-separable Hotel Projects conducted by the PRC Valuer was appropriate.

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LETTER FROM DBS ASIA CAPITAL

f. Shaoxing Project Companies

The Shaoxing Project Companies are two subsidiaries of the Company which currently hold certain Commercial Properties located in Shaoxing, Zhejiang province. Due to delay in the restructuring process, they cannot be transferred to Shanghai Shimao as part of the Asset Transfer at this time. Details of the Shaoxing Project Companies are set out below:

Location 紹興世茂新世紀置業有限公司 (Shaoxing Shimao New Century Property Co., Ltd) Shaoxing, Zhejiang 紹興世茂新紀元置業有限公司 (Shaoxing Shimao New Era Property Co., Ltd) Shaoxing, Zhejiang Total	Commercial Site Area sq. m 81,364 36,888 118,252	Planned GFA sq. m 182,439 86,778 269,217	Land Premium RMB million 223.2 106.6 329.8	DTZ Asset Valuation1 RMB million 468.0 206.0 674.0		PRC Valuation	PRC Valuation
					Total Assets2 RMB million 416.0 229.5 645.5	Total Liabilities RMB million 45.8 127.8 173.6	NAV RMB million 370.2 101.7 471.9	Book NAV RMB million 177.4 8.6
								186.0

Notes :

1. DTZ asset valuation represents the valuation of the property interests held by the Shaoxing Project Companies.

2. The total asset value pursuant to the PRC valuation represents the value of the total assets of each Shaoxing Project Companies (including property interests and other assets).

The consideration for such transfer will be paid in cash and determined by reference to the net asset value of the Shaoxing Project Companies as at the Appraisal Date, which amounts to approximately RMB471.9 million according to the PRC Valuation Reports, plus any changes in their net asset value in the interim. As and when such transfers take place, the Company will comply with the Listing Rules as applicable.

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LETTER FROM DBS ASIA CAPITAL

Reasons for the arrangement relating to the Shaoxing Project Companies

As stated in the Circular in the section entitled “Letter from the Board”, the Shaoxing Project Companies were previously part of the Asset Transfer and were among the portfolio of companies intended to be injected into Shanghai Shimao as disclosed in the Preliminary Announcement dated 6 June 2007. In order to reflect the Company and Shanghai Shimao’s original intentions, the Company has agreed to transfer the Shaoxing Project Companies on the same basis and principle as with the Asset Transfer, but at a later date when the necessary PRC approvals are obtained. Thus, the consideration for the Shaoxing Project Companies will be with reference to their net asset values as at the Appraisal Date according to the PRC Valuation Reports, plus any changes in their net asset value in the interim.

Similar to the consideration of Asset Transfer, we have discussed the consideration in relation to the Shaoxing Project Companies with the management of the Company who highlighted that in compliance with the requirements of CSRC to effect the transfer of the Shaoxing Project Companies, the independent valuation conducted by the PRC Valuer has to be adopted. We have also discussed with (i) DTZ on the valuation of the property interests of the Shaoxing Project Companies as set out in the DTZ Valuation Reports; (ii) PRC Valuer on the valuation of the Shaoxing Project Companies as set out in the PRC Valuation Reports; and (iii) the PRC Valuer and the management of the Company on the book value of the Shaoxing Project Companies. We are of the view that the valuation of Shaoxing Project Companies performed by the PRC Valuer is in line with (i) the valuation of the property interests of the Shaoxing Project Companies performed by DTZ, and (ii) the book value of the Shaoxing Project Companies according to the management of the Company. Accordingly, we believe that for the purpose of determining the consideration of the Shaoxing Project Companies, the independent valuation of the Shaoxing Project Companies conducted by the PRC Valuer was appropriate.

g. The Capital Injection and the Shimao Enterprises New A Share Subscription

The Proposed Transaction also contemplates the following transactions:

(i) the Capital Injection by the Company of RMB750.0 million in Shimao Enterprises, pursuant to which Shimao Enterprises will become a 50.9% subsidiary of the Company; and
(ii) the Shimao Enterprises New A Share Subscription, pursuant to the placing by Shanghai Shimao to, and the subscription by Shimao Enterprises of 62,240,000 New A Shares for an aggregate value of RMB749,992,000.

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LETTER FROM DBS ASIA CAPITAL

As at the Latest Practicable Date, Shimao Enterprises, a company established in the PRC, is approximately 93.3% owned by Mr. Xu Shiyong, a nephew of Mr. Hui. Prior to the Capital Injection, neither the Company nor Mr. Hui owned any shares in Shimao Enterprises. As at the Latest Practicable Date, Shimao Enterprises holds approximately 37.0% of the shares of Shanghai Shimao with the rest of the shares being held by public shareholders. It is envisaged that following the Capital Injection and the Shimao Enterprises New A Share Subscription, Shimao Enterprises will become a 50.9% subsidiary of the Company. The Capital Injection will be wholly funded by the Company’s internal resources.

As set out in the Circular in the section entitled “Letter from the Board” and in Appendix II.B, information regarding the net profits of Shimao Enterprises prepared in accordance with HKFRS for the two financial years ended 31 December 2006 and the book value as at 31 December 2006 and 30 June 2007 are set out below:

	Net profits/(loss)	Net profits/(loss)		Book value	Book value
	For the financial year		of	as at
	2005	2006		31 December 2006	30 June 2007
	RMB million	RMB	million	RMB million	RMB million
	Before After	Before	After
	taxation taxation	taxation	taxation
Shimao Enterprises	(7.4) (7.4)	22.8	22.8	259.2	409.1

Reasons for the Capital Injection and the Shimao Enterprises New A Share Subscription

As stated in the Circular in the section entitled “Letter from the Board”, one of the reasons for the Proposed Transaction was to enhance corporate structure and rationalise the business structure within the Company. Accordingly, it is envisaged that following the Capital Injection and the Shimao Enterprises New A Share Subscription, Shimao Enterprises will become a 50.9% subsidiary of the Company.

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LETTER FROM DBS ASIA CAPITAL

As set out in the table above, the net asset value of Shimao Enterprises as at 30 June 2007 was approximately RMB409.1 million of which the major asset holding was approximately 37.0% equity interest in Shanghai Shimao. To adjust the net asset value of Shimao Enterprises for the market value of the 37% equity interest in Shanghai Shimao as at 30 June 2007, the following adjustments were made:

ne 2007, the following adjustments were made:
	(RMB ‘000)
Net asset value of Shimao Enterprises as at 30 June 2007 as stated	409,057
in Appendix II.B of this Circular
Subtract: Total asset value attributable to the 37.0% equity	(530,197)
interest in Shanghai Shimao held by Shimao Enterprises
as stated in Appendix II.B of this Circular
Add: Market value of the 37.0% equity interest in Shanghai	4,637,648
Shimao held by Shimao Enterprises as stated in
Appendix II.B of this Circular
Adjusted net asset value of Shimao Enterprises as at 30 June 2007	4,516,508
(“Adjusted Shimao Enterprises Net Asset Value”)
50.9% of Adjusted Shimao Enterprises Net Asset Value	2,298,903
Adjusted Shimao Enterprises Net Asset Value plus Capital Injection	5,266,508
of RMB750 million
50.9% of Adjusted Shimao Enterprises Net Asset Value plus Capital	2,680,653
Injection of RMB750 million

Therefore, the Capital Injection of RMB750 million represents approximately 67.4% discount to 50.9% of the Adjusted Shimao Enterprises Net Asset Value of RMB2,298.9 million as set out in the table above. After the Capital Injection, 50.9% of the Adjusted Shimao Enterprises Net Asset Value including the Capital Injection of RMB750.0 million would amount to RMB2,680.7 million, to which the Capital Injection represents approximately 72% discount.

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LETTER FROM DBS ASIA CAPITAL

h. New A Share Placings

Details of the New A Share Placings are as follows:

Subscriber Number of New A Shares Subscription Price RMB Consideration in form of New A Shares in respect of the Asset Transfer Peak Gain 558,000,000 New A Share Subscription Price Beijing Shimao 72,000,000 New A Share Subscription Price Shimao Enterprises New A Share Subscription Shimao Enterprises 62,240,000 New A Share Subscription Price Total 692,240,000	Subscription Amount RMB 6,723,900,000 867,600,000 749,992,000 8,341,492,000

The New A Share Subscription Price of RMB12.05 is determined based on the volume weighted average price of Shanghai Shimao’s A share prices for the last 20 consecutive trading days prior to the date of the Preliminary Announcement. The New A Share Subscription Price of RMB12.05 is at a discount of 44% to the average closing price of Shanghai Shimao for the 5 trading days prior to and including the Latest Practicable Date of RMB21.53. Each of the Subscribers is subject to a lock-up period of 36 months from the Completion Date in respect of the New A Shares issued to each of them.

Reasons for the New A Share Placings

Shanghai Shimao is a company established in the PRC on 1 July 1992, the shares of which are listed on the Shanghai Stock Exchange since 1994. Shanghai Shimao is currently principally engaged in the small-scale property projects in Mainland China. Prior to the Proposed Transaction, the principal assets held by Shanghai Shimao include 50% of the interests of Nanjing Shimao Real Estate Development Co. Ltd. (南京世茂房地產�發有限公司) and Fujian Shimao Investment and Development Co. Ltd. (褔建世茂投資發展有限公司), which hold two of the Company’s existing residential development projects, as well as a few other commercial property projects.

As stated in the Circular in the section entitled “Letter from the Board”, one of the reasons for the Proposed Transaction was to enable the Company to own a stand-alone and professional commercial property company that not only focuses its resources on developing the commercial properties business, but also has an independent platform that enables it to raise capital more efficiently through the domestic A share market. Furthermore, provided that the A share market continues to trade at or near current levels, the Company believes it will be able to raise funds at a lower cost of capital for its commercial properties business. Accordingly, it is envisaged that upon Completion, Shanghai Shimao, as a 64.2% subsidiary of the Company, would enable the Company to realize the aforementioned benefits.

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LETTER FROM DBS ASIA CAPITAL

Analysis on the New A Share Placings

The chart below illustrates the movement in historical daily closing market price and trading volume of Shanghai Shimao’s A share for the period since January 2006 to the Latest Practicable Date (the “Review Period”):

Share prices and trading volumes of Shanghai Shimao from the period of 4 January 2006 to the Latest Practicable Date

==> picture [331 x 143] intentionally omitted <==

==> picture [53 x 38] intentionally omitted <==

Source: Bloomberg

Notes:

1. 24 May 2007, being the last trading day prior to the Preliminary Announcement

2. 7 June 2007, being the first trading day after the Preliminary Announcement.

During the Review Period, the closing price of Shanghai Shimao’s A share increased from about RMB3.13 in 4 January 2006 to a high of RMB34.85 in 6 August 2007. Share price of Shanghai Shimao’s A share increased from RMB16.15 the last transacted price on the date immediately prior to the date of the Preliminary Announcement, to RMB 17.77, the last transacted price on the date immediately after the release of the Preliminary Announcement. The New A Share Subscription Price has been consistently below the trading price range since the Preliminary Announcement on 6 June 2007 up until the Latest Practicable Date, and the closing price of Shanghai Shimao’s A share was RMB19.47 as at the Latest Practicable Date. Independent Shareholders should note that past trading performance of Shanghai Shimao’s shares should not in any way be relied upon as an indication of its future trading performance, and there is no certainty that the robustness of Shanghai Shimao’s share price and the general A share market will sustain.

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LETTER FROM DBS ASIA CAPITAL

The following table illustrates New A Share Subscription Price statistics:

		New A Share
		Subscription Price
	Average daily	premium/(discount) to
	closing price	average closing price
	(RMB)	(%)
10-day average price prior to the date of	13.04	(7.6)%
Preliminary Announcement
5-day average price prior to the date of	14.07	(14.4)%
Preliminary Announcement
Last transacted price on the date immediately	16.15	(25.4)%
prior to the date of the Preliminary
Announcement
10-day average price for the period prior to and	22.20	(45.7)%
including the Latest Practicable Date
5-day average price for the period prior to and	21.53	(44.0)%
including the Latest Practicable Date
Last transacted price on the	19.47	(38.1)%
Latest Practicable Date

Source: Bloomberg

As shown in the above table, we noted that the New A Share Subscription Price presents a discount of approximately 25.4% to the closing price on 24 May 2007, being the last trading day prior to the Preliminary Announcement. In addition, the New A Share Subscription Price presents a discount of approximately 14.4% and approximately 7.6% to the average closing price of the periods 5 days and 10 days prior to the Preliminary Announcement, respectively. The New A Share Subscription Price presents at a deep discount of approximately 38.1% to the last transacted price of RMB19.47 on the Latest Practicable Date, and approximately 44.0% and approximately 45.7% to the average closing price of the period 5 days and 10 days prior to and including the Latest Practicable Date, respectively.

Based on the valuation conducted by the PRC Valuer, the net asset value of the Target Companies was RMB6,725.2 million, which represented a premium of 0.02% over RMB6,723.9 million, being the subscription amount for Peak Gain. However, based on the share price of Shanghai Shimao A-share as at the Latest Practicable Date, the New A Shares subscribed by Peak Gain pursuant to the New A Share Placings would have a market value of RMB10,864.26 million as at the Latest Practicable Date, which represented a premium of approximately 61.5% over the net asset value of the Target Companies valued by the PRC Valuer.

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LETTER FROM DBS ASIA CAPITAL

Based on the valuation conducted by the PRC Valuer, the net asset value of the Target Asset was RMB941.3 million, which is equal to the subscription amount for Beijing Shimao RMB867.6 million plus the cash or cash equivalent consideration of RMB73.7 million. Based on the share price of Shanghai Shimao A-share as at the Latest Practicable Date, the New A Shares subscribed by Beijing Shimao pursuant to the New A Share Placings would have a market value of RMB1,401.84 million as at the Latest Practicable Date, together with the cash consideration of RMB73.7 million, the consideration of RMB1,475.54 million would represent a premium of approximately 56.8% over the net asset value of the Target Asset valued by the PRC Valuer.

i. Financial effects of the Proposed Transaction

This section sets out various analyses on the potential financial impact of the Proposed Transaction on the Company, which were prepared based on the audited financial information and accountant’s report of the Company for the financial year ended 31 December 2006, and the unaudited financial statements of the Company as at 30 June 2007.

Consolidation of financial statements

Upon Completion, Shanghai Shimao and Shimao Enterprises will be accounted for as consolidated subsidiaries of the Company, and the Company’s interests in the Target Companies and Target Asset will be effectively reduced from 100% to approximately 64.2% which represents the Company’s interests in Shanghai Shimao upon Completion.

Earnings

The reduction of the interests in the Target Companies and Target Asset, approximately 35.8%, is regarded as a disposal. The Company will record a gain on the disposal calculated as the excess of the fair value of interests in the Target Companies and Target Asset given up over the corresponding carrying amounts at the Completion Date. The gain is estimated to be RMB1,170.7 million by reference to the fair value of the Target Companies and Target Asset according to the PRC Valuation Reports as at the Appraisal Date and related carrying amounts in the unaudited financial statements of the Company as at the same date, and assuming that the Proposed Transaction was completed on the Appraisal Date. The actual gain resulting from the disposal will be determined at the Completion Date. Since the fair value of interests in the Target Companies and Target Asset as at the Completion Date may be substantially different from their fair value as at the Appraisal Date and their corresponding carrying amounts will also vary, the final amount of the gain will be different from that as shown above.

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LETTER FROM DBS ASIA CAPITAL

We would also like to highlight that the Company has been informed by Shanghai Shimao that Shanghai Shimao has made disclosures regarding its profit forecast for the years 2007 and 2008 pro forma the effect of the Proposed Transaction. Such disclosure was made in the PRC as at the date of the Announcement in the Shanghai Securities News and on the official website of the Shanghai Stock Exchange. As stated in the Circular in the section entitled “Letter from the Board”, neither the Company nor Mr. Hui has provided any assistance or information for or participated in the preparation or compilation of the profit forecast issued by Shanghai Shimao. The Company has not independently verified such profit forecast and takes no responsibility and liability for the contents of the profit forecast and makes no representation as to its accuracy. Accordingly, we have not taken into consideration the contents of the profit forecast issued by Shanghai Shimao in our analysis of the financial effects of the Proposed Transaction.

Net asset

The Group had an unaudited total assets, total liabilities and net asset value of approximately RMB33,746.6 million, RMB16,560.2 million and RMB17,186.4 million, respectively as at 30 June 2007. Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group, the total assets, total liabilities and net asset value of the Enlarged Group would have been approximately RMB40,033.9 million, RMB19,514.2 million and RMB20,519.7 million assuming that Completion had taken place on 30 June 2007. Therefore, the pro forma net asset value of the Enlarged Group would increase by approximately RMB3,333.3 million, representing approximately 19.4% accretion to the Group’s net asset value as at 30 June 2007.

Cash position

The consideration of RMB750.0 million pursuant to the Capital Injection will be wholly funded by the Company’s internal resources. According to unaudited financial information of the Group as at 30 June 2007 as stated in the Appendix III of the Circular, cash and cash equivalent amounted to approximately RMB4,213.3 million, of which the consideration pursuant to the Capital Injection represented approximately 17.8%. Nevertheless, upon Completion, both Shanghai Shimao and Shimao Enterprises will become consolidated subsidiaries of the Company. As stated in the Appendix III of the Circular, the unaudited pro forma cash and cash equivalents balance of the Enlarged Group as at 30 June 2007 amounted to RMB5,070.6 million.

2. Non-competition Arrangements

As stated in the Circular in the section entitled “Letter from the Board”, the Hong Kong Noncompetition Agreement was entered into by the parties thereto on 19 February 2005 for the purposes of delineating the respective businesses of (1) the Group, (2) Mr. Hui, (3) Overseas Investment, (4) Shimao International, (5) Mr. Xu Shiyong, (6) Shimao Enterprises and (7) Shanghai Shimao by geographic location and/or size of projects on the terms and conditions set out therein.

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LETTER FROM DBS ASIA CAPITAL

Upon Completion, the relationship among the parties to the Hong Kong Non-competition Agreement will be changed to the following:

a. Shanghai Shimao will become an approximately 64.2% indirectly-owned subsidiary of the Company;
b. Shimao Enterprises will become an approximately 50.9% owned subsidiary of the Company; and
c. Mr. Xu Shiyong will no longer be a controlling shareholder of Shimao Enterprises.

Of the non-competition arrangements pursuant to the Proposed Transaction, the Independent Shareholders are asked to consider and, if thought fit, approve by poll at the EGM the PRC Noncompetition Agreement, the Deed of Release, and the Amendment to the Hong Kong Non-competition Agreement only.

In arriving at our recommendation to the Independent Board Committee and Independent Shareholders in respect of the PRC Non-competition Agreement, the Deed of Release, and the Amendment to the Hong Kong Non-competition Agreement, we have considered the following principal factors:

a. The PRC Non-competition Agreement

Each of the Company, Mr. Hui and Shanghai Shimao entered into the PRC Noncompetition Agreement, pursuant to which the non-competition undertakings previously given by the Company and Shanghai Shimao to each other under the Hong Kong Non-competition Agreement will be substituted with the arrangements contemplated under the PRC Noncompetition Agreement. The PRC Non-competition Agreement shall be governed by the PRC laws, subject to approval by the Independent Shareholders and become effective upon Completion.

Details of the PRC Non-competition Agreement are set out as follow:

Existing Projects

The PRC Non-competition Agreement sets out the terms, subject to all necessary third party consent required, for completed Existing Projects, under which the Company, its subsidiaries, Mr. Hui and Mr. Hui’s Associates shall be entitled to transfer the Commercial Properties of such projects, provided that Shanghai Shimao shall have a right of priority to acquire the same. The Company, its subsidiaries, Mr. Hui and Mr. Hui’s Associates shall not operate (whether by sale, leasing or otherwise) any Commercial Property of completed Existing Projects, and shall appoint Shanghai Shimao in priority to third parties (provided that equal terms are offered by Shanghai Shimao and such third parties) as agent to conduct such operation and pay Shanghai Shimao relevant agency fees. In the event that a third party agent has already been appointed to operate any Commercial Property of the completed Existing Projects, Shanghai Shimao shall be appointed in priority to third parties (provided that equal terms are offered by Shanghai Shimao and such third parties) as agent upon expiry of the relevant agency agreement.

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LETTER FROM DBS ASIA CAPITAL

The PRC Non-competition Agreement also sets out the terms, subject to all necessary third party consent required, for Existing Projects which are under or pending development, the Commercial Properties of such projects shall continue to be developed by the existing project company(ies). Upon completion of development, the Company, its subsidiaries, Mr. Hui and Mr. Hui’s Associates shall be entitled to transfer the Commercial Properties of such projects, provided that Shanghai Shimao shall have a right of priority to acquire the same. The Company, its subsidiaries, Mr. Hui and Mr. Hui’s Associates shall not operate (whether by sale, leasing or otherwise) any Commercial Property of such projects, and shall appoint Shanghai Shimao in priority to third parties (provided that equal terms are offered by Shanghai Shimao and such third parties) as agent to conduct such operation and pay Shanghai Shimao relevant agency fees.

Under the PRC Non-competition Agreement, the Company will comply with the Listing Rules as applicable, in respect of any future agency and buy/sale arrangements in respect of any Existing Project.

Future Projects

The PRC Non-competition Agreement sets out the terms each party to the PRC Noncompetition Agreement shall undertake to avoid competition after Completion:

(i) Shanghai Shimao undertakes not to engage in the investment, development and operation of Residential Property and Hotel projects. The Company, Mr. Hui and Mr. Hui’s Associates undertake not to engage in the investment, development and operation of Commercial Property projects.
(ii) For Separable Multiple-Use Projects, the Company and Shanghai Shimao shall bid for or acquire (as applicable) such projects on a joint basis (for which each party shall bear their own expenses). Upon successful bidding or acquisition, Shanghai Shimao shall be responsible for the investment, development and operation of the Commercial Properties component and the Company shall be responsible for the investment, development and operation of the Residential Properties and Hotels, of such projects.

(iii) For Non-separable Multiple-Use Projects:

(a) if the relevant project comprises mainly of Commercial Property development, Shanghai Shimao shall bid for or acquire (as applicable), and develop such project. Upon completion of development, Shanghai Shimao shall not operate (whether by sale, leasing or otherwise) any Residential Property or Hotel of such project and shall appoint the Company in priority to third parties (provided that equal terms are offered by the Company and such third parties) as agent to conduct any sale or leasing or other operations and pay the Company the relevant agency fees; and

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LETTER FROM DBS ASIA CAPITAL

(b) if the relevant project comprises mainly of Residential Property or Hotel development, the Company shall bid for or acquire (as applicable), and develop such project. Upon completion of development, the Company shall not operate (whether by sale, leasing or otherwise) any Commercial Property of such project and shall appoint Shanghai Shimao in priority to third parties (provided that equal terms are offered by Shanghai Shimao and such third parties) as agent to conduct any sale or leasing or other operations and pay Shanghai Shimao the relevant agency fees.

All agency fees payable by the Company or Shanghai Shimao in relation to paragraphs above shall be calculated according to prevailing market rates.

Reasons for the PRC Non-competition Agreement

We have discussed the background and rationale of the PRC Non-competition Agreement with the management of the Company, who highlighted that under the Hong Kong Non-competition Agreement dated 19 February 2005, the Company undertook to Shanghai Shimao that it shall not engage in the development of Smaller Residential Projects[1] and Smaller Multiple-Use Projects[2] , while Shanghai Shimao undertook to the Company that it shall only engage in the development of Smaller Residential Projects[1] and Smaller Multiple-Use Projects[2] . As set out in the Circular in the section entitled “Letter from the Board”, one of the reasons for the Proposed Transaction is to rationalise the business structure within the Company by allowing different entities and management teams to specialise in different lines of business. Upon Completion, the Company shall engage primarily in Residential Property and Hotel investment, development and operation in the PRC, as well as all property investment, development and operation outside the PRC; while Shanghai Shimao shall engage primarily in Commercial Property investment, development and operation (including but not limited to sales, leasing and property management) in the PRC. The new undertakings under the PRC Non-competition Agreement will effect such new business delineation arrangements.

b. The Deed of Release

Pursuant to the Deed of Release, the Company grants in favour of Mr. Xu Shiyong and Shimao Enterprises a unilateral release of their undertakings under the Hong Kong Noncompetition Agreement. The Deed of Release will be subject to approval by Independent Shareholders and will become effective upon Completion. The Deed of Release is governed by Hong Kong law.

1 Meaning property project developments in Mainland China where: (1) the total planned construction GFA of the relevant development (or the aggregate planned GFA of all phases where the development is to take place in phases), determined on the basis of master plans, is estimated to be less than 200,000 square meters, and (2) not more than 30% of total planned construction GFA, determined on the basis of master plans, are to be constructed for non-residential use.
2 Meaning property project developments in Mainland China where: (1) the total planned construction GFA of the relevant development (or the aggregate planned GFA of all phases where the development is to take place in phases), determined on the basis of master plans, is estimated to be less than 100,000 square meters, and (2) over 30% of total planned construction GFA, determined on the basis of master plans, are to be constructed for non-residential use.

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LETTER FROM DBS ASIA CAPITAL

Reasons for the Deed of Release

We have discussed the background and rationale of the Deed of Release with the management of the Company, who highlighted that the Hong Kong Non-competition Agreement dated 19 February 2005 required that so long as Overseas Investment and/or its Affiliates, directly or indirectly, holds 30% or more of the issued share capital of the Company (or controls the exercise of the voting rights in respect thereof), Mr. Xu Shiyong and Shimao Enterprises undertook not to engage in any Property Business except through his shareholding interests in Shimao Enterprises and interests in properties acquired and held for his own use, including for the use of his family, provided that such activities do not involve any commercial property development. As stated in the Circular in the section entitled “Letter from the Board”, the reason for the Company entering into the Deed of Release is that as a result of the Proposed Transaction, the interests of the Company and subsidiaries are aligned and any benefits arising from the use of the “Shimao” brand by Shanghai Shimao or Shimao Enterprises will be attributable to the Group. Further, we have discussed with the management of the Company who explained that Mr. Xu Shiyong was a party to the Hong Kong Non-competition Agreement in 2005 because the agreement was to govern the non-competition arrangements between the Company and Shanghai Shimao, thus Mr. Xu Shiyong being the controlling shareholder of Shimao Enterprises, which in turn controls Shanghai Shimao, was required to enter into the agreement. In view of the fact that Shimao Enterprises will become a subsidiary of the Company after the Proposed Transaction and Mr. Xu Shiyong will no longer be a controlling shareholder of Shimao Enterprises, Mr. Xu Shiyong’s undertaking under the Hong Kong Non-competition Agreement should no longer be relevant.

c. Amendment to the Hong Kong Non-competition Agreement — the Grant

Parties to the Hong Kong Non-competition Agreement entered into the Amendment to the Hong Kong Non-competition Agreement, so to allow for (1) the new non-competition arrangements effected by the PRC Non-competition Agreement, the Deed of Release, and the Shimao International Deed of Release, and (2) the Company to grant to Mr. Hui a right to undertake any particular Property Business outside of Mainland China after the Company had decided that it is not in the Company’s best interests to undertake any such businesses. The Amendment to the Hong Kong Non-competition Agreement shall be governed by Hong Kong law, and become effective (1) upon Completion for the purpose of reflecting changes as a result of the PRC Non-competition Agreement and the Deed of Release, and (2) upon approval by the Independent Shareholders for the purposes of the Grant.

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LETTER FROM DBS ASIA CAPITAL

Reasons for the Amendment to the Hong Kong Non-competition Agreement

We have discussed the background and rationale of the Amendment to the Hong Kong Non-competition Agreement with the management of the Company, who highlighted that:

(i) the Hong Kong Non-competition Agreement dated 19 February 2005 required that so long as Overseas Investment and/or its Affiliates, directly or indirectly, holds 30% or more of the issued share capital of the Company (or controls the exercise of the voting rights in respect thereof), Mr. Hui has undertaken that he shall not, and shall procure that the members of the Private Group shall not engage in any Property Business except:
(a) that the Private Group may continue to engage in existing projects already undertaken by the Private Group at the time of the Hong Kong Noncompetition Agreement;
(b) through their interests in the Company and Shimao International; and
(c) interests in properties acquired and held for his own use, including for the use of his family, provided that such activities do not involve any commercial property development.
(ii) Mr. Hui’s undertaking in relation to the Company will continue to be effective after Completion.

As stated in the Circular in the Section entitled “Letter from Board”, the effect of the Shimao International Deed of Release is to allow the Company to undertake property development outside Mainland China. However, in the event the Company decides that it is not in its best interests to undertake any particular Property Business outside Mainland China, then subject only to the approval of the INEDs, the Company would be able to grant Mr. Hui (for arm’s length consideration), the right to enter into such business.

Based on the background of the new non-competition arrangements, we have analysed their effect on the Company as follows:

Mr. Hui’s undertaking to the Company: Both the existing and proposed new non-competition arrangements require that Mr. Hui undertakes to the Company that he and his Private Group (including Shimao International) shall not engage in new competing businesses with the Group, with the exception of Private Group’s existing projects in Mainland China and certain personal interests. In addition, the proposed Amendment to the Hong Kong Non-competition Agreement includes the Grant under which Mr. Hui has the right to engage in Property Business outside Mainland China, but only in the event that the Company decides not to pursue such business and subject to approval by the INEDs. Since Mr. Hui’s undertaking to the Company is largely unchanged, and any exercise of the Grant requires INEDs’ approval, we believe the proposed new non-competition arrangements governing Mr. Hui’s undertaking to the Company are appropriate and reasonable.

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LETTER FROM DBS ASIA CAPITAL

Mr. xu Shiyong and Shimao Enterprises’ undertaking to the Company: Pursuant to the proposed Deed of Release, the Company releases Mr. Xu Shiyong and Shimao Enterprises from all their undertakings to the Company pursuant to the Hong Kong Non-competition Agreement. As Mr. Xu Shiyong and Shimao Enterprises were bound by the Hong Kong Non-competition Agreement as a result of their control over Shanghai Shimao (Shimao Enterprises being a controlling shareholder of Shanghai Shimao and Mr. Xu Shiyong being a controlling shareholder of Shimao Enterprises), pursuant to the Proposed Transactions the Company will become the controlling shareholder of Shanghai Shimao and Mr. Xu Shiyong will cease to be a controlling shareholder of Shimao Enterprises, therefore we concur with the Company’s view that Mr. Xu Shiyong and Shimao Enterprises’ undertaking under the Hong Kong Non-competition Agreement will no longer be relevant. We would, however, like to highlight that as a result of the Deed of Release, Mr. Xu Shiyong will not be bound by any non-competition arrangements with the Company and Mr. Xu Shiyong may or may not enter into competing businesses with the Company in the future. Nevertheless, we are of the view that the release of Mr. Xu Shiyong under the Deed of Release is an appropriate and reasonable arrangement since the Deed of Release, one of the Conditions to Completion, constitutes an integral part of the Proposed Transaction which we believe on the whole is in the interests of the Company and Independent Shareholders (please refer to the “Summary” section of this letter).

Shanghai Shimao’s undertaking to the Company: Under the Hong Kong Non-competition Agreement, Shanghai Shimao undertakes not to engage in any PRC property business except for Smaller Residential Projects and Smaller Multiple-Use Projects, but under the proposed new noncompetition arrangements, the PRC Non-competition Agreement requires that Shanghai Shimao undertakes to focus on Commercial Property projects (subject to carve-outs of existing projects in Mainland China prior to the PRC Non-competition Agreement). Therefore, in light of the new delineation of business focus, we believe the proposed new non-competition arrangements governing Shanghai Shimao’s undertaking to the Company is appropriate and reasonable.

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LETTER FROM DBS ASIA CAPITAL

SUMMARY

Having considered the above principal factors and reasons, we draw your attention to the following key factors in arriving at our conclusions:

a. The Proposed Transaction enables the Company to rationalise the business structure within the Company by allowing different entities and management teams to specialise in different lines of business. In addition, the Proposed Transaction also enables the Company to own a stand-alone and professional commercial property company that not only focuses its resources on developing the commercial properties business, but also has an independent platform that enables it to raise capital more efficiently through the domestic A share market.
b. Total consideration of the Asset Transfer amounts to RMB7,665.2 million, of which RMB7,591.5 million will be entirely paid in the form of New A Shares (at the New A Share Subscription Price of RMB12.05 per New A Share) and the remaining RMB73.7 million will be paid in cash or cash equivalent:
(i) Based on the valuation conducted by the PRC Valuer, the net asset value of the Target Companies represented a premium of 0.02% over the subscription amount for Peak Gain. However, the market value of the New A Shares has risen substantially from the New A Share Subscription Price, resulting in the subscription amount by Peak Gain amounting to RMB10,864.26 million as at the Latest Practicable Date, representing a premium of approximately 61.5% over the net asset value of the Target Companies valued by the PRC Valuer.
(ii) Based on the valuation conducted by the PRC Valuer, the net asset value of the Target Asset is equal to the subscription amount for Beijing Shimao plus the cash or cash equivalent consideration of RMB73.7 million. Similar to the case of Peak Gain, the market value of the New A Shares subscribed by Beijing Shimao has risen substantially amounting to RMB1,401.84 million as at the Latest Practicable Date, together with the cash consideration of RMB73.7 million, the consideration of RMB1,475.54 million would represent a premium of approximately 56.8% over the net asset value of the Target Asset valued by the PRC Valuer.
c. Shimao Enterprises will become a 50.9% subsidiary of the Company following the Capital Injection by the Company of RMB750.0 million in Shimao Enterprises. The Capital Injection of RMB750 million represents approximately 67.4% discount to 50.9% of the Adjusted Shimao Enterprises Net Asset Value of RMB2,298.9 million. After the Capital Injection, 50.9% of the Adjusted Shimao Enterprises Net Asset Value including the capital injection of RMB750.0 million would amount to RMB2,680.7 million, to which the Capital Injection represents approximately 72% discount.
d. The transfers of Non-separable Hotel Projects and the Shaoxing Project Companies are in line with the Company’s intention to delineate business focus between the Company and Shanghai Shimao.

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LETTER FROM DBS ASIA CAPITAL

e. The Group had unaudited net assets of approximately RMB17,186.4 million as at 30 June 2007. Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group, the net assets of the Enlarged Group would have been approximately RMB20,519.7 million, assuming that Completion had taken place on 30 June 2007. Pursuant to the Proposed Transaction, the Company will record an estimated gain on the disposal of RMB1,170.7 million being the excess of the fair value of interests in the Target Companies and Target Asset given up over the corresponding carrying amounts at the Completion Date.
f. The non-competition arrangements pursuant to the Proposed Transaction enable (1) the Company and Shanghai Shimao to effect the new business delineation arrangements according to the Company’s strategy, (2) the undertakings among the parties to the noncompetition arrangements to reflect the new shareholding structure following Completion, and (3) the Company to enter into smaller scale property development of hotel and residential projects in Mainland China and property development outside Mainland China, both of which were excluded businesses under the Hong Kong Non-competition Agreement.

RECOMMENDATION

Taking into consideration the above principal factors and reasons, we are of the opinion that the terms of Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement are fair and reasonable, and the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement are in the interests of the Company and its shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Proposed Transaction, the PRC Non-competition Agreement, the Deed of Release and the Amendment to the Hong Kong Non-competition Agreement.

Yours faithfully, For and on behalf of

DBS ASIA CAPITAL LIMITED

George Hongchoy Managing Director

Yip Wei Mun Senior Vice President

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

The following is the summary of the consolidated balance sheets and consolidated income statements of the Group for the years ended 31 December 2004, 2005 and 2006, after taking into consideration of the changes set out below:

1 BASIS OF PREPARATION

To prepare for the listing of the Company’s shares on the Main Board of The Stock Exchange of Hong Kong Limited, the Group has undertaken a reorganisation (the “Reorganisation”). Pursuant to the Reorganisation, which was completed on 26 January 2006, the Company acquired the entire equity interests in Shimao Property Holdings (BVI) Limited (“SPHL(BVI)”) by issuing 1,787,439,612 ordinary shares to their common shareholder, Gemfair Investment Limited (“Gemfair”), and became the holding company of the Group. Details of the Reorganisation are set out in the prospectus of the Company dated 22 June 2006.

The Reorganisation involved companies under common control, and the Group resulting from the Reorganisation is regarded as a continuing group. Accordingly, the Reorganisation has been accounted for under the Accounting Guideline No. 5 “Merger Accounting for Common Control Combinations” issued by the Hong Kong Institute of Certified Public Accountants, using the principles of merger accounting, under which the consolidated financial statements have been prepared as if the Reorganisation had been completed on 1 January 2004, the beginning of the earliest period presented herein, and business of SPHL(BVI) and its then subsidiaries had always been carried out by the Group.

The share capital presented in the consolidated balance sheets as at 31 December 2004 and 2005 below represents the share capital of the Company, arising on incorporation and from the Reorganisation transaction described above. The shares issued for the Reorganisation were deemed to have been in issue throughout the accounting periods presented in these financial statements in accordance with the basis of preparation referred above. The difference between the nominal value of these shares, being HK$178,743,961 and the nominal value of shares, being US$1 (equivalent to HK$8) of the subsidiary purchased pursuant to the Reorganisation is accounted for as merger reserve as at 31 December 2004 and 2005. Other than crediting the share capital and debiting the merger reserve with an amount of RMB185,787,000 (being translated from HK$178,743,953), there has been no adjustment arising from the adoption of merger accounting for the Reorganisation which affects the net assets and net profit or loss of the combining entities or the consolidated reserves.

2 PRESENTATION OF LAND APPRECIATION TAx AND RECLASSIFICATION

Within the figures stated in the consolidated income statements below, land appreciation tax expenses of RMB56,777,000, RMB162,204,000 and RMB355,306,000 previously included in cost of sales for the years ended 31 December 2004, 2005 and 2006 respectively, were reclassified as income tax expense. Within the figures stated in the consolidated balance sheets below, provision for land appreciation tax of RMB833,918,000, RMB996,122,000 and RMB1,343,972,000 previously included in other payables as at 31 December 2004, 2005 and 2006 respectively, were reclassified as income tax payable.

The above reclassification are made so as to conform to current presentation as the Company’s directors are of the view that it would be more appropriate to reflect the land appreciation tax as an income tax expense and the outstanding provision as income tax payable, after a reassessment of the nature of land appreciation tax and a study of the market practices.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

CONSOLIDATED BALANCE SHEETS — ADJUSTED

ASSETS Non-current assets Property, plant and equipment Investment property Land use rights Intangible assets Associated companies Jointly controlled entities Deferred income tax assets Other non-current assets Current assets Land use rights under development Properties under development Completed properties held for sale Trade and other receivables and prepayments Prepaid income taxes Amounts due from related companies Amounts due from minority shareholders Restricted cash Cash and cash equivalents Total assets OWNERS’ EQUITY Capital and reserves attributable to the equity holders of the Company Share capital Reserves Minority interest Total equity	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 2,007,526 3,254,452 4,609,870 969,861 1,883,000 4,000,000 2,238,264 1,695,939 1,349,192 181,743 607,291 475,023 91,035 150,220 311,247 — 500 487 — 76,484 123,725 — 577,087 3,013,981 5,488,429 8,244,973 13,883,525 1,978,149 2,300,593 3,007,728 2,430,376 3,403,545 2,384,511 105,944 302,640 1,785,438 548,660 482,575 576,468 87,935 96,737 34,766 187 111 601 559,430 — — 44,014 29,129 73,501 1,088,126 704,680 5,949,589 6,842,821 7,320,010 13,812,602 12,331,250 15,564,983 27,696,127 185,787 185,787 317,521 1,728,528 2,324,431 11,210,848 1,914,315 2,510,218 11,528,369 535,154 — — 2,449,469 2,510,218 11,528,369	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 2,007,526 3,254,452 4,609,870 969,861 1,883,000 4,000,000 2,238,264 1,695,939 1,349,192 181,743 607,291 475,023 91,035 150,220 311,247 — 500 487 — 76,484 123,725 — 577,087 3,013,981 5,488,429 8,244,973 13,883,525 1,978,149 2,300,593 3,007,728 2,430,376 3,403,545 2,384,511 105,944 302,640 1,785,438 548,660 482,575 576,468 87,935 96,737 34,766 187 111 601 559,430 — — 44,014 29,129 73,501 1,088,126 704,680 5,949,589 6,842,821 7,320,010 13,812,602 12,331,250 15,564,983 27,696,127 185,787 185,787 317,521 1,728,528 2,324,431 11,210,848 1,914,315 2,510,218 11,528,369 535,154 — — 2,449,469 2,510,218 11,528,369
		13,883,525
		3,007,728 2,384,511 1,785,438 576,468 34,766 601 — 73,501 5,949,589
		13,812,602
		27,696,127
		317,521 11,210,848
		11,528,369 —
		11,528,369

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APPENDIx I

FINANCIAL INFORMATION OF THE GROUP

LIABILITIES Non-current liabilities Borrowings Deferred income tax liabilities Current liabilities Trade and other payables Advanced proceeds received from customers Amounts due to related companies Amounts due to minority shareholders Income tax payable Borrowings Total liabilities Total equity and liabilities Net current assets/(liabilities) Total assets less current liabilities	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 738,000 1,913,404 6,470,680 714,179 967,982 1,216,802 1,452,179 2,881,386 7,687,482 1,217,310 2,947,596 3,800,392 4,134,325 4,132,430 1,065,310 934,267 1,266,965 249,850 126,790 — — 928,929 1,102,094 1,712,415 1,087,981 724,294 1,652,309 8,429,602 10,173,379 8,480,276 9,881,781 13,054,765 16,167,758 12,331,250 15,564,983 27,696,127 (1,586,781) (2,853,369) 5,332,326 3,901,648 5,391,604 19,215,851	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 738,000 1,913,404 6,470,680 714,179 967,982 1,216,802 1,452,179 2,881,386 7,687,482 1,217,310 2,947,596 3,800,392 4,134,325 4,132,430 1,065,310 934,267 1,266,965 249,850 126,790 — — 928,929 1,102,094 1,712,415 1,087,981 724,294 1,652,309 8,429,602 10,173,379 8,480,276 9,881,781 13,054,765 16,167,758 12,331,250 15,564,983 27,696,127 (1,586,781) (2,853,369) 5,332,326 3,901,648 5,391,604 19,215,851
		7,687,482
		3,800,392 1,065,310 249,850 — 1,712,415 1,652,309
		8,480,276
		16,167,758
		27,696,127
		5,332,326
		19,215,851

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

CONSOLIDATED INCOME STATEMENTS — ADJUSTED

Turnover Cost of sales Gross profit Fair value gains on an investment property Other gains Selling and marketing costs Administrative expenses Other operating expenses Operating profit Finance costs Share of results of: —Associated companies —Jointly controlled entities Profit before income tax Income tax expense Profit for the year Attributable to: Equity holders of the Company Minority interest Dividends	Year 2004 RMB’000 1,699,221 (1,330,084) 369,137 83,551 148,211 (124,672) (110,371) (3,281) 362,575 (21,355) (13,742) — 327,478 (113,990) 213,488 184,450 29,038 213,488 53,000	ended 31 December 2005 2006 RMB’000 RMB’000 2,500,430 6,913,442 (1,741,188) (4,077,436) 759,242 2,836,006 902,639 1,000,831 106,447 157,378 (106,388) (207,576) (189,270) (460,008) (7,343) (143,853) 1,465,327 3,182,778 (8,696) (44,719) 17,741 201,027 — (13) 1,474,372 3,339,073 (488,064) (1,060,323) 986,308 2,278,750 907,993 2,278,750 78,315 — 986,308 2,278,750 312,090 615,859

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

The following is an extract of the audited financial statements of the Group from the annual report of the Company for the year ended 31 December 2006, without taking into consideration of the changes set out below:

PRESENTATION OF LAND APPRECIATION TAx AND RECLASSIFICATION

Based on the current presentation of land appreciation tax, the cost of sales for the years ended 31 December 2006 and 2005 stated in the consolidated income statement below included land appreciation tax of RMB355,306,000 and RMB162,204,000 respectively which will be reclassified to income tax expense in the financial statements of the Group for the year ending 31 December 2007; and other payables as at 31 December 2006 and 2005 included provision for land appreciation tax of RMB1,343,972,000 and RMB996,122,000 respectively which will be reclassified to income tax payable in the financial statements of the Group for the year ending 31 December 2007.

The above reclassification is to conform to current presentation as the Company’s Directors are of the view that it would be more appropriate to reflect the land appreciation tax as an income tax expense and the outstanding provision as income tax payable, after a reassessment of the nature of land appreciation tax and a study of the market practices.

CONSOLIDATED BALANCE SHEET — UNADJUSTED

Note ASSETS Non-current assets Property, plant and equipment 6 Investment properties 7 Land use rights 8 Intangible assets 9 Associated companies 13 Jointly controlled entity 14 Deferred income tax assets 21 Other non-current assets 8 Current assets Land use rights under development 8 Properties under development 10 Completed properties held for sale 11 Trade and other receivables and prepayments 15 Prepaid income taxes Amounts due from related companies 16 Restricted cash 17 Cash and cash equivalents 17 Total assets	As at 31 December 2006 2005 RMB’000 RMB’000 4,609,870 3,254,452 4,000,000 1,883,000 1,349,192 1,695,939 475,023 607,291 311,247 150,220 487 500 123,725 76,484 3,013,981 577,087 13,883,525 8,244,973 3,007,728 2,300,593 2,384,511 3,403,545 1,785,438 302,640 576,468 482,575 34,766 96,737 601 111 73,501 29,129 5,949,589 704,680 13,812,602 7,320,010 27,696,127 15,564,983	As at 31 December 2006 2005 RMB’000 RMB’000 4,609,870 3,254,452 4,000,000 1,883,000 1,349,192 1,695,939 475,023 607,291 311,247 150,220 487 500 123,725 76,484 3,013,981 577,087 13,883,525 8,244,973 3,007,728 2,300,593 2,384,511 3,403,545 1,785,438 302,640 576,468 482,575 34,766 96,737 601 111 73,501 29,129 5,949,589 704,680 13,812,602 7,320,010 27,696,127 15,564,983
		8,244,973
		2,300,593 3,403,545 302,640 482,575 96,737 111 29,129 704,680
		7,320,010
		15,564,983

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

Note
OWNERS’ EQUITY
Capital and reserves attributable to the equity holders
of the Company
Share capital
18
Reserves
— Proposed final dividend
19
— Others
19
Total equity
LIABILITIES
Non-current liabilities
Borrowings
20
Deferred income tax liabilities
21
Current liabilities
Trade and other payables
22
Advanced proceeds received from customers
Amounts due to related companies
23
Income tax payable
Borrowings
20
Total liabilities
Total equity and liabilities
Net current assets/(liabilities)
Total assets less current liabilities

As at 31 December
2006
2005
RMB’000
RMB’000
317,521
185,787
615,859
—
10,594,989
2,324,431
11,528,369
2,510,218
6,470,680
1,913,404
1,216,802
967,982
7,687,482
2,881,386
5,144,364
3,943,718
1,065,310
4,132,430
249,850
1,266,965
368,443
105,972
1,652,309
724,294
8,480,276
10,173,379
16,167,758
13,054,765
27,696,127
15,564,983
5,332,326
(2,853,369)
19,215,851
5,391,604

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

CONSOLIDATED INCOME STATEMENT — UNADJUSTED

For the year ended 31 December 2006

Note
Turnover
5
Cost of sales
25
Gross profit
Fair value gains on investment properties
7
Other gains
24
Selling and marketing costs
25
Administrative expenses
25
Other operating expenses
25
Operating profit
Finance costs
26
Share of results of:
— Associated companies
13
— Jointly controlled entity
14
Profit before income tax
Income tax expense
28
Profit for the year
Attributable to:
Equity holders of the Company
Minority interests
Dividends
29
Earnings per share for profit attributable to
the equity holders of the Company
— basic (RMB cents)
31
— diluted (RMB cents)
31

Year ended 31 December
2006
2005
RMB’000
RMB’000
6,913,442
2,500,430
(4,432,742)
(1,903,392)
2,480,700
597,038
1,000,831
902,639
157,378
106,447
(207,576 )
(106,388)
(460,008 )
(189,270)
(143,853 )
(7,343)
2,827,472
1,303,123
(44,719 )
(8,696)
201,027
17,741
(13 )
—
2,983,767
1,312,168
(705,017 )
(325,860)
2,278,750
986,308
2,278,750
907,993
—
78,315
2,278,750
986,308
615,859
312,090
85.5
50.8
85.1
—

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY — UNADJUSTED

For the year ended 31 December 2006

Note Balance at 1 January 2006 — Issue of shares for the Reorganisation 18(ii) — Others Profit for the year Issue of shares for settlement of debts 18(iii) Issue of shares to financial investors 18(iv) Issue of shares in connection with the listing 18(v) Share issuing expenses Employee share option scheme — value of employee services Balance at 31 December 2006 Balance at 1 January 2005 — Issue of shares for the Reorganisation 18(ii) — Others Acquisition of additional interests in subsidiaries Profit for the year Dividends 29 Balance at 31 December 2005	Attributable to the equity holders of the Company Share capital Reserves RMB’000 RMB’000 (Note 19) 185,787 (185,787) — 2,510,218 185,787 2,324,431 — 2,278,750 22,093 892,578 39,429 1,592,922 70,212 4,318,027 — (233,879) — 38,019 317,521 11,210,848 185,787 (185,787) — 1,914,315 185,787 1,728,528 — — — 907,993 — (312,090) 185,787 2,324,431	Minority interests RMB’000 — — — — — — — — — — — 535,154 535,154 (478,969) 78,315 (134,500) —	Total RMB’000 — 2,510,218
	Share capital RMB’000 185,787 — 185,787 — 22,093 39,429 70,212 — — 317,521 185,787 — 185,787 — — — 185,787
			2,510,218
			2,278,750 914,671 1,632,351 4,388,239 (233,879) 38,019
			11,528,369
			— 2,449,469
			2,449,469
			(478,969) 986,308 (446,590)
			2,510,218

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2006

Note
Operating activities
Net cash (used in)/generated from operations
30
Interest received
Interest paid
PRC income tax paid
Net cash (used in)/generated from operating
activities
Investing activities
Additions of property, plant and equipment and
investment properties
Sales of property, plant and equipment
Additions of land use rights
Consideration paid for acquisition of a subsidiary
in prior year
Dividend received from an associated company
Decrease in amounts due from related companies
Acquisitions of subsidiaries, net of cash acquired
Acquisition of additional interests in subsidiaries
Capital injection to associated companies
Net cash used in investing activities
Financing activities
Proceeds from borrowings
Repayments of borrowings
Decrease in amounts due to related companies
Issue of senior notes
Issue of new shares
Decrease in amounts due to minority shareholders
Dividends paid to minority shareholders
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the year
17

Year ended 31 December
2006
2005
RMB’000
RMB’000
(4,001,165)
1,062,352
77,665
6,830
(222,500)
(116,279)
(178,998)
(144,357)
(4,324,998)
808,546
(1,520,566)
(1,241,720)
27,542
13,136
(32,000)
(4,643)
(82,236)
—
40,000
—
—
76
—
(114,390)
—
(217,481)
—
(41,944)
(1,567,260)
(1,606,966)
1,745,486
2,682,217
(821,183)
(1,870,500)
(101,312)
(108,877)
4,590,087
—
5,786,711
—
—
(153,366)
—
(134,500)
11,199,789
414,974
5,307,531
(383,446)
704,680
1,088,126
(62,622)
—
5,949,589
704,680

– 83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

Notes to the Consolidated Financial Statements

1 GENERAL INFORMATION

Shimao Property Holdings Limited (the “Company”) was incorporated in the Cayman Islands on 29 October 2004 as an exempted company with limited liability under the Cayman Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The address of its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY 1-1111 Cayman Islands. The Company is principally engaged in investment holding. The principal activities of the Company and its subsidiaries (together, the “Group”) are property development, property investment and hotel operation in the People’s Republic of China (the “PRC”).

To prepare for the listing of the Company’s shares on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the Group has undertaken a reorganisation (the “Reorganisation”). Pursuant to the Reorganisation, which was completed on 26 January 2006, the Company acquired the entire entity interests in Shimao Property Holdings (BVI) Limited (“SPHL (BVI)”) by issuing shares to their common shareholder, Gemfair Investments Limited (“Gemfair”), and became the holding company of the Group. Details of the Reorganisation are set out in the prospectus of the Company dated 22 June 2006.

The Company’s shares were listed on the Stock Exchange on 5 July 2006.

These consolidated financial statements are presented in thousands of Renminbi (RMB’000), unless otherwise stated.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to both years presented, unless otherwise stated.

(a) Basis of preparation

The Reorganisation involved companies under common control, and the Group resulting from the Reorganisation is regarded as a continuing group. Accordingly, the Reorganisation has been accounted for under the Accounting Guideline No. 5 “Merger Accounting for Common Control Combination”, using the principles of merger accounting, under which the consolidated financial statements have been prepared as if the Reorganisation had been completed on 1 January 2005, the beginning of the earliest period presented, and business of SPHL (BVI) and its then subsidiaries had always been carried out by the Group.

These consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”). They have been prepared under the historical cost convention, as modified by the revaluation of investment properties which are carried at fair value.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4.

In 2006, the Group adopted the following amendments and interpretation of HKFRS, which are effective in 2006 and are relevant to the Group’s operations:

Amendments to HKAS 39 and HKFRS 4 “Financial Guarantee Contracts”. The Group regards its financial guarantee contracts provided in respect of mortgage facilities for certain property purchasers and financial guarantee contracts provided to its related parties as insurance contracts, and the Group has made the assertion prior to the implementation of the amendments. Consequently the adoption of the amendments does not have any significant impact on the Group’s consolidated financial statements.
HK(IFRIC)-Int 4 “Determining whether an Arrangement contains a Lease”. The Group has reviewed its contracts. The adoption of this interpretation does not have any significant impact on classification of the leases of the Group and on the expenses recognised in respect of them.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

The Group chose to early adopt the following interpretation which is not effective in 2006:

HK(IFRIC)-Int 11 “HKFRS 2 — Group and Treasury Share Transactions” (effective for annual periods beginning on or after 1 March 2007). HK(IFRIC)-Int 11 clarifies that certain types of transaction are accounted for as equity-settled or cash-settled transactions under HKFRS 2. It also addresses the accounting for share-based payment transactions involving two or more entities within one group. The early adoption does not have any significant impact on the Group’s consolidated financial statements.

Certain new standards, amendments and interpretations to existing standards of HKFRS have been published but are not yet effective for annual period beginning on 1 January 2006 and have not been early adopted by the Group. Those that are relevant to the Group’s operations are as follows:

HKFRS 7 “Financial Instruments: Disclosures”, and a complementary amendment to HKAS 1 “Presentation of Financial Statements — Capital Disclosures” (effective for annual periods beginning on or after 1 January 2007). HKFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces HKAS 30 “Disclosures in the Financial Statements of Banks and Similar Financial Institutions”, and disclosure requirements in HKAS 32 “Financial Instruments: Disclosure and Presentation”. It is applicable to all entities that report under HKFRS. The amendment to HKAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The Group assessed the impact of HKFRS 7 and the amendment to HKAS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of HKAS 1. The Group will apply HKFRS 7 and the amendment to HKAS 1 for annual period beginning on 1 January 2007.
HK(IFRIC)-Int 8 “Scope of HKFRS 2” (effective for annual periods beginning on or after 1 May 2006). HK(IFRIC)-Int 8 requires consideration of transactions involving the issuance of equity instruments — where the identifiable consideration received is less than the fair value of the equity instruments issued — to establish whether or not they fall within the scope of HKFRS 2. The Group will apply HK(IFRIC)-Int 8 from 1 January 2007, but it is not expected to have any significant impact on the Group’s consolidated financial statements.
HK(IFRIC)-Int 10 “Interim Financial Reporting and Impairment” (effective for annual periods beginning on or after 1 November 2006). HK(IFRIC)-Int 10 prohibits the impairment losses recognised in an interim period on goodwill, investments in equity instruments and investments in financial assets carried at cost to be reversed at a subsequent balance sheet date. The Group will apply HK(IFRIC)-Int 10 from 1 January 2007, but it is not expected to have any significant impact on the Group’s consolidated financial statements.
HKFRS 8 “Operating Segments” (effective for annual periods beginning on or after 1 January 2009). HKFRS 8 supersedes HKAS 14, under which segments were identified and reported on risk and return analysis. Items were reported on the accounting policies used for external reporting. Under HKFRS 8, segments are components of an entity regularly reviewed by an entity’s chief operating decision-maker. Items are reported based on the internal reporting.

The Group has assessed the other recently published new standards, amendments and interpretations to existing standards of HKFRS, and concluded that they are not relevant to the Group’s operations. These are set out as follows:

HK(IFRIC)-Int 7 “Applying the Restatement Approach under HKAS29, Financial Reporting in Hyperinflationary Economies” (effective for annual periods beginning on or after 1 March 2006).
HK(IFRIC)-Int 9 “Reassessment of Embedded Derivatives” (effective for annual periods beginning on or after 1 June 2006).
HK(IFRIC)-Int 12 “Service Concession Arrangement” (effective for annual periods beginning on or after 1 January 2008).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

(b) Consolidation

The consolidated financial statements include the financial statements of the Company and all of its subsidiaries made up to 31 December.

(i) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group, except for those acquisitions which qualify as a common control combination and are therefore accounted for using the merger accounting.

Under the purchase method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (see Note 2(i)). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference being negative goodwill is recognised directly in the consolidated income statement.

Inter-company transactions, balances and unrealised gains on transactions between the companies now comprising the Group are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

(ii) Transactions with minority interests

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the consolidated income statement. Purchases from minority interests generally result in goodwill, being the excess of any consideration paid over the relevant share acquired of the carrying value of net assets of the subsidiary. If the cost of acquisition is less than the relevant interest acquired of the carrying value of net assets of the subsidiary, the difference being negative goodwill is recognised directly in the consolidated income statement.

(c) Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the companies now comprising the Group are measured using the currency of the primary economic environment in which the company operates (the “functional currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the functional and presentation currency of the Company.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement.

Translation differences on non-monetary financial assets and liabilities are reported as part of their fair value gain or loss.

(iii) Group companies

The results and financial positions of all the companies now comprising the Group (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

Assets and liabilities are translated at the closing rate;
Income and expenses are translated at average exchange rates; and
All resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to owners’ equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(e) Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Buildings comprise hotel buildings and self-use buildings.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the consolidated income statement during the financial period in which they are incurred.

– 87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs less their residual values over their estimated useful lives, as follows:

Buildings 50 years or the remaining lease period of the land use rights, whichever is shorter Furniture and equipment 5 years Motor vehicles 10 years Building improvements 10 to 20 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are recorded in the consolidated income statement.

(f) Assets under construction

Assets under construction are stated at historical cost less impairment losses. Historical cost includes expenditure that is directly attributable to the development of the assets which comprises construction costs, amortisation of land use rights, borrowing costs and professional fees incurred during the development period. On completion, the assets are transferred to buildings within property, plant and equipment or to investment properties.

No depreciation is provided for assets under construction. The carrying amount of an asset under construction is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

(g) Investment property

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the companies now comprising the Group, is classified as investment property.

Investment property comprises land held under operating leases and buildings owned by the Group. Land held under operating leases are classified and accounted for as investment property when the rest of the definition of investment property is met. The operating lease is accounted for as if it were a finance lease.

Investment property is measured initially at its cost, including related transaction costs.

After initial recognition, investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. These valuations are performed at each balance sheet date by external valuers. Investment property that is being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be measured at fair value.

The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions.

The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. Some of those outflows are recognised as a liability, including finance lease liabilities in respect of land (if any) classified as investment property; others, including contingent rent payments, are not recognised in the financial statements.

Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the consolidated income statement during the financial period in which they are incurred.

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

Changes in fair values of investment property are recognised in the consolidated income statement.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment, and its fair value at the date of reclassification becomes its cost for accounting purposes. Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property.

If an item of property, plant and equipment becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is recognised in equity as a revaluation of property, plant and equipment under HKAS 16. However, if a fair value gain reverses a previous impairment loss, the gain is recognised in the consolidated income statement.

Investment property held for sale without redevelopment is classified within non-current assets held for sale, under HKFRS 5.

(h) Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are at least tested annually for impairment and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating unit). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

(i) Intangible assets — goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associated company/jointly controlled entity at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associated companies/ jointly controlled entities is included in investments in associated companies/jointly controlled entities. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

(j) Associated companies

Associated companies are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associated companies are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s investment in associated companies includes goodwill identified on acquisition (see Note 2(i)), net of any accumulated impairment losses.

The Group’s share of its associated companies’ post-acquisition profits or losses are recognised in the consolidated income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative postacquisition movements are adjusted against the carrying amount of the investments. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company, including any other long-term interests that, in substance, form part of the investor’s net investment in the associated company, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associated company.

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associated companies have been changed where necessary to ensure consistency with the policies adopted by the Group.

(k) Jointly controlled entities

A jointly controlled entity is a joint venture established as a corporation, partnership or other entity in which the venturers have their respective interests and establish a contractual arrangement among them to define their joint control over the economic activity of the entity.

Investment in a jointly controlled entity is accounted for using the equity method of accounting. The consolidated income statement includes the Group’s share of the results of jointly controlled entities for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the jointly controlled entities and goodwill, if any, on acquisition.

(l) Properties under development

Properties under development are stated at the lower of cost and net realisable value. Net realisable value takes into account the price ultimately expected to be realised, less applicable variable selling expenses and the anticipated costs to completion.

Development cost of properties comprises construction costs, amortisation of land use rights, borrowing costs and professional fees incurred during the development period. On completion, the properties are transferred to completed properties held for sale.

Properties under development are classified as current assets unless the construction period of the relevant property development project is expected to complete beyond normal operating cycle.

(m) Completed properties held for sale

Completed properties held for sale are stated at the lower of cost and net realisable value.

Cost comprises development costs attributable to the unsold properties.

Net realisable value is determined by reference to the sale proceeds of properties sold in the ordinary course of business, less applicable variable selling expenses, or by management estimates based on prevailing marketing conditions.

(n) Trade and other receivables

Trade and other receivables are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets.

(o) Cash and cash equivalents

Cash and cash equivalents include cash in hand and at banks and deposits held at call with banks.

– 90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

(p) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are recognised as an expense in the period in which they are incurred.

(q) Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using the tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associated companies and jointly controlled entities, except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

(r) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Retirement benefits

In accordance with the rules and regulations in the PRC, the PRC based employees of the Group participate in various defined contribution retirement benefit plans organised by the relevant municipal and provincial governments in the PRC under which the Group and the PRC based employees are required to make monthly contributions to these plans calculated as a percentage of the employees’ salaries.

The municipal and provincial governments undertake to assume the retirement benefit obligations of all existing and future retired PRC based employees payable under the plans described above. Other than the monthly contributions, the Group has no further obligation for the payment of retirement and other post retirement benefits of its employees. The assets of these plans are held separately from those of the Group in independently administrated funds managed by the PRC government.

The Group also participates in a pension scheme under the rules and regulations of the Mandatory Provident Fund Scheme Ordinance (“MPF Scheme”) for all employees in Hong Kong. The contributions to the MPF Scheme are based on minimum statutory contribution requirement of 5% of eligible employees’ relevant aggregate income. The assets of this pension scheme are held separately from those of the Group in independently administered funds.

The Group’s contributions to the defined contribution retirement schemes are expensed as incurred.

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

(iii) Share-based compensation

The Group operates an equity-settled Pre-IPO share option scheme. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

The subsidiaries measure the service received from its employees in accordance with the requirements applicable to equity-settled share-based payment transactions, and record expense in the financial statements of the subsidiaries, with a corresponding increase recognised in equity as a contribution from the Company.

(s) Provisions and contingent liabilities

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the consolidated financial statements. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

(t) Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sales of properties and services in the ordinary course of the Group’s activities, net of returns and discounts. Revenues are recognised as follows:

(i) Sales of properties

Revenue from sales of properties is recognised when the risks and rewards of the properties are transferred to the purchasers, which is when the construction of relevant properties has been completed and the properties have been delivered to the purchasers pursuant to the sales agreement and collectibility of related receivables is reasonably assured. Deposits and installments received on properties sold prior to the date of revenue recognition are included in the consolidated balance sheet under current liabilities.

(ii) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

(iii) Rental income

Rental income from properties letting under operating leases is recognised on a straight line basis over the lease terms.

(iv) Hotel operating income

Hotel operating income which includes rooms rental, food and beverage sales and other ancillary services is recognised when the services are rendered.

(v) Dividend income

Dividend income is recognised when the right to receive payment is established.

(u) Government grants

Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the consolidated income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the consolidated income statement on a straight line basis over the expected lives of the related assets.

(v) Leases

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

(i) The Group is the lessee other than operating lease of land use rights

Payments made under operating leases (net of any incentives received from the lessor), are charged to the consolidated income statement on a straight-line basis over the period of the lease.

(ii) The Group is the lessee under operating lease of land use rights

The Group made upfront payments to obtain operating leases of land use rights on which properties will be developed. The upfront payments of the land use rights are recorded as assets and amortised over the lease periods. The amortisation during the period of construction of the properties is capitalised as the cost of properties under development and assets under construction. The amortisation during the period before the commencement and after the completion of the construction of the properties is expensed in the consolidated income statement. The unamortised upfront payments are recognised as cost of sales when the relevant properties are sold or transferred to the cost of investment properties upon completion of the relevant properties (Note 2(f)).

(w) Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders.

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APPENDIx I

(x) Insurance contracts

An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Insurance risk is a pre-existing risk transferred from the policyholder to the insurer, and is significant only if an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance (i.e. have no discernible effect on the economics of the transaction).

The Group assesses at each reporting date whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its insurance liabilities is inadequate in the light of the estimated future cash flows, the entire deficiency is recognised in the consolidated income statement.

The Group regards its financial guarantee contracts provided in respect of mortgage facilities for certain property purchasers and financial guarantee contracts provided to its related parties as insurance contracts.

3. FINANCIAL RISK MANAGEMENT

The Group conducts its operations in the PRC and accordingly is subject to special considerations and significant risks. These include risks associated with, among others, the political, economic and legal environment, influence of national authorities over pricing regulation and competition in the industry.

(a) Financial risk factors

(i) Foreign exchange risk

The Group’s businesses are principally conducted in RMB, except that certain receipts of proceeds from sales of properties, public share offerings and notes offerings are in other foreign currencies. The major non-RMB items are HK dollar and US dollar bank borrowings and unused bank deposits in HK dollar and US dollar received from public share offerings and notes offerings. Fluctuation of the exchange rates of RMB against foreign currencies could affect the Group’s results of operations. With the usage of the funds in the purchase and development of the assets in the PRC, most of the Group’s foreign exposures are attributable to borrowings in US dollar and HK dollar. Given the general expectations about the strengthening of RMB, the Group has not entered into any forward exchange contracts to hedge its exposure to foreign exchange risk.

(ii) Interest rate risk

The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets. The Group’s exposure to changes in interest rates is mainly attributable to its long term borrowings. Borrowings at variable rates expose the Group to cash flow interest-rate risk. The Group has a policy to place surplus funds with creditable financial institutions which offer the best return for the Group on a short-term basis.

The Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

(iii) Credit risk

The Group has no concentrations of credit risk. Cash transactions are limited to high-credit-quality institutions. The Group has policies in place to ensure that sales of properties are made to buyers with an appropriate financial strength and appropriate percentage of down payment. Other receivables mainly comprise deposits made to government agencies for property development purposes.

(iv) Liquidity risk

Management of the Group aims to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its operation needs and commitments in respect of property projects.

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APPENDIx I

(b) Fair value estimation

The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values due to short-term maturities of these assets and liabilities. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that may have a significant effect on the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Income taxes and deferred taxation

The Group is subject to income taxes in different jurisdictions. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers it to be probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome of their actual utilisation may be different.

(b) Land appreciation tax

The Group is subject to land appreciation tax in the PRC. However, the implementation and settlement of the tax varies among different tax jurisdictions in various cities of the PRC, and the Group has not finalised its land appreciation tax calculation and payments with any local tax authorities in the PRC. Accordingly, significant judgement is required in determining the amount of the land appreciation and its related tax. The Group recognised the land appreciation tax based on management’s best estimates according to the understanding of the tax rules. The final tax outcome could be different from the amounts that were initially recorded, and these differences will impact the costs of sales and deferred income tax provisions in the periods in which such tax is finalised with local tax authorities.

(c) Impairment of goodwill

The Group tests at least annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2(i). The recoverable amounts of cash-generating units have been determined based on the higher of the fair value (less cost to sell) and value in use calculation of the underlying assets, mainly properties. The fair value is determined by independent valuer. These valuations and calculations require the use of estimate.

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APPENDIx I

(d) Estimated fair value of investment properties

The best evidence of fair value is current prices in an active market for the properties with similar lease and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable fair value estimates. In making its judgement, the Group considers information from a variety of sources including:

(i) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;
(ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
(iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The Group assesses the fair value of its investment properties based on valuations determined by independent professional qualified valuers.

5 SEGMENT INFORMATION

The Group is principally engaged in the property development, property investment and hotel operation. The property and hotel projects undertaken by the Group were all located in the PRC. As majority of the Group’s consolidated turnover and results are attributable to the market in the PRC and most of the Group’s consolidated assets are located in the PRC, no geographical segment information is presented.

Turnover for the year ended 31 December 2006 consists of the following:

Sale of properties Hotel operating income Rental income from an investment property	Year ended 31 December 2006 2005 RMB’000 RMB’000 6,735,820 2,462,796 146,194 9,738 31,428 27,896 6,913,442 2,500,430	Year ended 31 December 2006 2005 RMB’000 RMB’000 6,735,820 2,462,796 146,194 9,738 31,428 27,896 6,913,442 2,500,430
		2,500,430

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APPENDIx I

Segment information is as follows:

Primary reporting format — business segments

Year ended 31 December 2006

Segment turnover Segment results Finance costs Share of results of — associated companies — jointly controlled entity Profit/(loss) before income tax Income tax expense Profit for the year Segment assets Associated companies Jointly controlled entity Deferred income tax assets Total assets Segment liabilities Corporate borrowings Deferred income tax liabilities Total liabilities Capital and property development expenditure Depreciation Amortisation of land use rights as expenses Impairment of goodwill Fair value gains on investment properties	Property development RMB’000 6,735,820 2,005,071 (2,281) 201,027 — 2,203,817 12,655,792 311,247 — 12,967,039 7,272,014 — 7,272,014 6,951,598 8,814 1,487 132,268 —	Hotel RMB’000 146,194 (97,379) (1,668) — — (99,047) 5,247,972 — — 5,247,972 1,842,531 — 1,842,531 789,292 61,595 7,917 — —	Property investment RMB’000 31,428 1,016,067 — — — 1,016,067 4,693,359 — — 4,693,359 769,759 — 769,759 1,737,430 179 — — 1,000,831	Unallocated RMB’000 — (96,287) (40,770) — (13) (137,070) 4,663,545 — 487 4,664,032 83,657 4,982,995 5,066,652 5,477 1,539 — — —	Total RMB’000 6,913,442
					2,827,472 (44,719) 201,027 (13)
					2,983,767 (705,017)
					2,278,750
					27,260,668 311,247 487
					27,572,402 123,725
					27,696,127
					9,967,961 4,982,995
					14,950,956 1,216,802
					16,167,758
					9,483,797 72,127 9,404 132,268 1,000,831

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APPENDIx I

FINANCIAL INFORMATION OF THE GROUP

Year ended 31 December 2005

Segment turnover Segment results Finance costs Share of results of associated companies Profit/(loss) before income tax Income tax expense Profit for the year Segment assets Associated companies Jointly controlled entity Deferred income tax assets Total assets Segment liabilities Deferred income tax liabilities Total liabilities Capital and property development expenditure Depreciation Amortisation of land use rights as expenses Bad debt recovered Fair value gains on an investment property	Property development RMB’000 2,462,796 392,518 (2,162) 17,741 408,097 8,552,881 150,220 — 8,703,101 9,351,518 2,676,354 5,799 12 — —	Hotel RMB’000 9,738 (6,196) (24) — (6,220) 4,160,709 — — 4,160,709 1,253,744 832,622 2,754 296 — —	Property investment RMB’000 27,896 951,457 — — 951,457 2,438,283 — — 2,438,283 34,246 251,548 304 — 25,000 902,639	Unallocated RMB’000 — (34,656) (6,510) — (41,166) 185,906 — 500 186,406 1,447,275 2,078 420 — — —	Total RMB’000 2,500,430 1,303,123 (8,696) 17,741 1,312,168 (325,860) 986,308 15,337,779 150,220 500 15,488,499 76,484 15,564,983 12,086,783 967,982 13,054,765 3,762,602 9,277 308 25,000 902,639

Unallocated costs mainly represent corporate expenses.

Segment assets consist primarily of property, plant and equipment, investment properties, land use rights, properties under development, receivables and cash balances. They also include goodwill recognised arising from acquisition of equity interests in subsidiaries relating to respective segments. They exclude deferred income tax assets.

Segment liabilities comprise operating liabilities. They exclude corporate borrowings and deferred income tax liabilities.

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APPENDIx I

6 PROPERTY, PLANT AND EQUIPMENT — GROUP

Cost At 1 January 2006 Additions Amortisation of land use rights Disposals Transfer upon completion At 31 December 2006 Accumulated depreciation At 1 January 2006 Charge for the year Disposals At 31 December 2006 Net book value At 31 December 2006 Cost At 1 January 2005 Acquisition of subsidiaries Additions Amortisation of land use rights Disposals Transfer upon completion At 31 December 2005 Accumulated depreciation At 1 January 2005 Acquisition of subsidiaries Charge for the year Disposals At 31 December 2005 Net book value At 31 December 2005	Assets under construction RMB’000 2,432,525 1,360,512 24,977 — (1,973,864) 1,844,150 — — — — 1,844,150 Assets under construction RMB’000 1,989,784 — 1,219,453 34,023 — (810,735) 2,432,525 — — — — — 2,432,525	Hotel buildings and improvements RMB’000 607,848 60,027 — — 1,852,612 2,520,487 2,272 60,916 — 63,188 2,457,299 Hotel buildings and improvements RMB’000 — — — — — 607,848 607,848 — — 2,272 — 2,272 605,576	Furniture and equipment RMB’000 16,209 5,153 — (998) — 20,364 6,846 2,867 (669) 9,044 11,320 Furniture and equipment RMB’000 12,325 479 3,782 — (377) — 16,209 4,660 98 2,266 (178) 6,846 9,363	Motor vehicles RMB’000 22,756 5,642 — (1,337) — 27,061 7,641 3,687 (362) 10,966 16,095 Motor vehicles RMB’000 14,771 — 7,985 — — — 22,756 4,694 — 2,947 — 7,641 15,115	Self-use buildings RMB’000 193,388 — — (27,987) 121,252 286,653 1,515 4,657 (525) 5,647 281,006 Self-use buildings RMB’000 — — — — (9,499) 202,887 193,388 — — 1,792 (277) 1,515 191,873	Total RMB’000 3,272,726 1,431,334 24,977 (30,322) — 4,698,715 18,274 72,127 (1,556) 88,845 4,609,870 Total RMB’000 2,016,880 479 1,231,220 34,023 (9,876) — 3,272,726 9,354 98 9,277 (455) 18,274 3,254,452

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APPENDIx I

Depreciation charge of RMB72,127,000 for the year ended 31 December 2006 (2005: RMB9,277,000) has been recorded in cost of sales and administrative expenses in the consolidated income statement.

As at 31 December 2006, assets under construction and buildings of the Group with a total carrying amount of RMB3,986,899,000 (2005: RMB2,196,351,000) were pledged as collateral for certain bank borrowings of the Group (Note 20).

As at 31 December 2006, interest capitalised in assets under construction amounted to RMB157,263,000 (2005: RMB318,291,000).

The capitalisation rate of borrowings was 6.58% for the year ended 31 December 2006 (2005: 5.95%).

7 INVESTMENT PROPERTIES — GROUP

Opening balance Additions Fair value gains Ending balance	Year ended 31 December 2006 2005 RMB’000 RMB’000 1,883,000 969,861 1,116,169 10,500 1,000,831 902,639 4,000,000 1,883,000	Year ended 31 December 2006 2005 RMB’000 RMB’000 1,883,000 969,861 1,116,169 10,500 1,000,831 902,639 4,000,000 1,883,000
		1,883,000

On 29 December 2006, the Group acquired an office building in Beijing at a total cost of RMB1,082,025,000.

The investment properties were revalued on an open market value and existing use basis at each balance sheet date by DTZ Debenham Tie Leung Limited, an independent professional qualified valuer. The valuations were based on current prices in an active market for similar properties.

As at 31 December 2006, the Group’s investment properties were held in the PRC on leases of between 10 to 50 years. An investment property with a carrying amount of RMB2,550,000,000 (2005: RMB1,883,000,000) was pledged as collateral for the Group’s borrowings (Note 20).

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APPENDIx I

8 LAND USE RIGHTS/OTHER NON-CURRENT ASSETS — GROUP

Opening balance of land use rights Additions Amortisation — Capitalised in property, plant and equipment — Capitalised in properties under development — Recognised as expenses_(Note 25)_ Transfer to cost of sales Disposals Ending balance of land use rights Land use rights under development included under current assets Land use rights included under non-current assets Land use rights — relating to property, plant and equipment — relating to properties to be developed for sale Outside Hong Kong, held on leases of: Over 50 years Between 10 to 50 years	Year ended 31 December 2006 2005 RMB’000 RMB’000 3,996,532 4,216,413 1,130,613 246,539 (24,977) (34,023) (48,844) (36,690) (9,404) (308) (682,066) (394,672) (4,934) (727) 4,356,920 3,996,532 (3,007,728) (2,300,593) 1,349,192 1,695,939 1,349,192 1,214,443 3,007,728 2,782,089 4,356,920 3,996,532 2,516,668 2,782,089 1,840,252 1,214,443 4,356,920 3,996,532	Year ended 31 December 2006 2005 RMB’000 RMB’000 3,996,532 4,216,413 1,130,613 246,539 (24,977) (34,023) (48,844) (36,690) (9,404) (308) (682,066) (394,672) (4,934) (727) 4,356,920 3,996,532 (3,007,728) (2,300,593) 1,349,192 1,695,939 1,349,192 1,214,443 3,007,728 2,782,089 4,356,920 3,996,532 2,516,668 2,782,089 1,840,252 1,214,443 4,356,920 3,996,532
		3,996,532 (2,300,593)
		1,695,939
		1,214,443 2,782,089
		3,996,532
		2,782,089 1,214,443
		3,996,532

Land use rights comprise cost of acquiring rights to use certain land, which are all located in the PRC, for property development over fixed periods.

As at 31 December 2006, land use rights of RMB2,699,341,000 (2005: RMB1,813,330,000) were pledged as collateral for the Group’s bank borrowings (Note 20).

As at 31 December 2006, the Group had made prepayments of RMB3,013,981,000 (2005: RMB577,087,000) for certain land use rights, the ownership certificates of which have not been obtained. The amounts are included in other non-current assets.

9 INTANGIBLE ASSETS — GROUP

Intangible assets comprise goodwill arising from acquisitions:

Opening balance Goodwill on acquisition of subsidiaries Goodwill on acquisition of additional interests in subsidiaries Impairment of goodwill recognised as expenses_(Note 25)_ Ending balance	Year ended 31 December 2006 2005 RMB’000 RMB’000 607,291 181,743 — 414,321 — 11,227 (132,268) — 475,023 607,291	Year ended 31 December 2006 2005 RMB’000 RMB’000 607,291 181,743 — 414,321 — 11,227 (132,268) — 475,023 607,291
		607,291

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APPENDIx I

Impairment tests for goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to business segment. A segment level summary of the goodwill is presented below:

Property development Hotel operations Property investment	As at 31 December 2006 2005 RMB’000 RMB’000 303,946 436,214 130,928 130,928 40,149 40,149 475,023 607,291	As at 31 December 2006 2005 RMB’000 RMB’000 303,946 436,214 130,928 130,928 40,149 40,149 475,023 607,291
		607,291

The recoverable amount of a CGU is determined based on the higher of the fair value (less cost to sell) of the related properties, determined by independent professional qualified valuers, or its value-in-use estimate.

Under property development CGU, certain underlying properties were completed and sold during the year, and the attributable goodwill totalling RMB132,268,000 cannot be substantiated and therefore is considered impaired.

The goodwill impairment was included in other operating expenses in the consolidated income statement.

10 PROPERTIES UNDER DEVELOPMENT — GROUP

Properties under development comprises: Construction costs and capitalised expenditures Interests capitalised Interest capitalised Opening balance Additions Transfer to cost of sales Transfer to completed properties held for sale Ending balance	As at 31 December 2006 2005 RMB’000 RMB’000 2,312,188 3,282,885 72,323 120,660 2,384,511 3,403,545 Year ended 31 December 2006 2005 RMB’000 RMB’000 120,660 93,650 109,532 53,476 (103,440) (20,813) (54,429) (5,653) 72,323 120,660	As at 31 December 2006 2005 RMB’000 RMB’000 2,312,188 3,282,885 72,323 120,660 2,384,511 3,403,545 Year ended 31 December 2006 2005 RMB’000 RMB’000 120,660 93,650 109,532 53,476 (103,440) (20,813) (54,429) (5,653) 72,323 120,660
		120,660

The properties under development are all located in the PRC.

As at 31 December 2006, properties under development of approximately RMB1,328,094,000 (2005: RMB648,738,000) were pledged as collateral for the Group’s bank borrowings (Note 20).

The capitalisation rate of borrowings was 6.29% for the year ended 31 December 2006 (2005: 5.61%).

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APPENDIx I

11 COMPLETED PROPERTIES HELD FOR SALE — GROUP

All completed properties held for sale are located in the PRC on leases of between 40 to 70 years.

As at 31 December 2006, completed properties held for sale of approximately RMB930,340,000 (2005: RMB33,538,000) were pledged as collateral for the Group’s bank borrowings (Note 20).

12 INVESTMENT IN SUBSIDIARIES — COMPANY

Unlisted shares, at cost Amounts due from subsidiaries	As at 31 December 2006 2005 RMB’000 RMB’000 223,805 — 7,846,913 —	As at 31 December 2006 2005 RMB’000 RMB’000 223,805 — 7,846,913 —
		—

The amounts due from subsidiaries were interest-free, unsecured and have no specific repayment terms.

Details of the subsidiaries of the Group as at 31 December 2006 are set out in Note 33.

13 ASSOCIATED COMPANIES — GROUP

Opening balance Capital injection Share of results — Profit before income tax — Income tax expense Dividend received Ending balance	Year ended 31 December 2006 2005 RMB’000 RMB’000 150,220 91,035 — 41,444 309,095 29,126 (108,068) (11,385) (40,000) — 311,247 150,220	Year ended 31 December 2006 2005 RMB’000 RMB’000 150,220 91,035 — 41,444 309,095 29,126 (108,068) (11,385) (40,000) — 311,247 150,220
		150,220

The extracts of the financial information of the Group’s associated companies are as follows:

Name 2006 Fuzhou Shimao Investment Development Co., Ltd. (“Fuzhou Project JV”) Nanjing Shimao Real Estate Development Co., Ltd. (“Nanjing Project JV”) 2005 Fuzhou Project JV Nanjing Project JV	Assets RMB’000 687,751 1,420,358 2,108,109 962,627 1,518,104 2,480,731	Liabilities RMB’000 396,709 1,088,906 1,485,615 744,231 1,354,016 2,098,247	Turnover RMB’000 1,287,812 1,093,505 2,381,317 497,454 — 497,454	Profit/(loss) % of interest held by the Group RMB’000 236,235 50% 165,818 50% 402,053 56,979 50% (21,498) 50% 35,481

Details of the associated companies of the Group as at 31 December 2006 are set out in Note 33.

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APPENDIx I

14 JOINTLY CONTROLLED ENTITY — GROUP

Opening balance Capital injection Share of results — Loss for the year Ending balance	Year ended 31 December 2006 2005 RMB’000 RMB’000 500 — — 500 (13) — 487 500	Year ended 31 December 2006 2005 RMB’000 RMB’000 500 — — 500 (13) — 487 500
		500

Details of the jointly controlled entity of the Group as at 31 December 2006 are set out in Note 33.

15 TRADE AND OTHER RECEIVABLES AND PREPAYMENTS

Group Trade receivables_(note)_ Deposits for resettlement costs Other receivables Prepayments for construction costs Prepaid business tax and land appreciation tax on pre-sale proceeds Company Other receivables and prepayments	As at 31 December 2006 2005 RMB’000 RMB’000 250,861 3,046 103,450 146,650 119,562 27,253 45,226 103,056 57,369 202,570 576,468 482,575 As at 31 December 2006 2005 RMB’000 RMB’000 16,668 26

Note: Trade receivables are mainly arisen from sales of properties. Consideration in respect of properties sold are paid in accordance with the terms of the related sales and purchase agreements. All trade receivables at each of the balance sheet dates were aged less than one year.

As at 31 December 2006, the fair value of trade receivables, deposits for resettlement costs, and other receivables of the Group and the Company approximate their carrying amounts.

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APPENDIx I

16 AMOUNTS DUE FROM RELATED COMPANIES — GROUP

Common directors Shanghai Shimao Co., Ltd. (“A Share Company”) Shimao International Holdings Limited (“Shimao International”) Shanghai Shimao Enterprise Co., Ltd. Associated company Nanjing Project JV Jointly controlled entity Shanghai Shimao Savills Property Management Co., Ltd. (“Shimao First Pacific”)	As at 31 December 2006 2005 RMB’000 RMB’000 150 — 151 — 150 — 150 — — 111 601 111	As at 31 December 2006 2005 RMB’000 RMB’000 150 — 151 — 150 — 150 — — 111 601 111
		111

As at 31 December 2006, amounts due from related companies were arisen from the transactions set out in Note 36(a)(i). The balances are unsecured, interest-free and have no fixed repayment terms.

The carrying amounts of amounts due from related companies approximate their fair values

17 CASH AND CASH EQUIVALENTS

Group Bank balances and cash Less: Restricted cash Company Bank balances and cash — unrestricted	As at 31 December 2006 2005 RMB’000 RMB’000 6,023,090 733,809 (73,501) (29,129) 5,949,589 704,680 As at 31 December 2006 2005 RMB’000 RMB’000 4,100,786 —

As at 31 December 2006, the Group’s cash of approximately RMB73,501,000 (2005: RMB29,129,000) was restricted and deposited in certain banks as guarantee deposits for the benefit of mortgage loan facilities granted by the banks to the purchasers of the Group’s properties.

The conversion of RMB denominated balances into foreign currencies and the remittance of the foreign currencies out of the PRC are subject to relevant rules and regulations of foreign exchange control promulgated by the PRC government.

The effective interest rate on bank deposits as at 31 December 2006 was 1.04% (2005: 0.90%).

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APPENDIx I

18 SHARE CAPITAL

Details of share capital of the Company are as follows:

Note Par value HK$ Authorised: At 1 January 2005 and 31 December 2005 (i) 0.1 Increase in share capital on 26 January 2006 (i) 0.1 Increase in share capital on 30 March 2006 (i) 0.1 At 31 December 2006 Issued and fully paid: At 1 January 2005 and 31 December 2005 — Issue of shares for the Reorganisation (ii) 0.1 Issue of shares for settlement of debts (iii) 0.1 Issue of shares to financial investors (iv) 0.1 New issues of shares (v) 0.1 At 31 December 2006	Number of shares ’000 3,800 2,996,200 2,000,000 5,000,000 1,787,440 212,560 380,495 684,393 3,064,888	Nominal value of ordinary shares HK$’000 RMB’000 380 299,620 200,000 500,000 178,744 185,787 21,256 22,093 38,050 39,429 68,439 70,212 306,489 317,521	Nominal value of ordinary shares HK$’000 RMB’000 380 299,620 200,000 500,000 178,744 185,787 21,256 22,093 38,050 39,429 68,439 70,212 306,489 317,521
			317,521

Notes:

(i) The Company was incorporated on 29 October 2004 with an authorised share capital of HK$380,000 divided into 3,800,000 shares of HK$0.1 each, with 1 share issued at HK$0.1 to Gemfair, which is the holding company of the Company. Pursuant to special resolutions passed on 26 January 2006 and 30 March 2006, the authorised share capital of the Company was increased to 3,000,000,000 shares of HK$0.1 each and 5,000,000,000 shares of HK$0.1 each respectively.
(ii) Pursuant to an agreement entered into between Gemfair and the Company on 26 January 2006, the Company issued 1,787,439,612 ordinary shares, credited as fully paid up, to Gemfair, in consideration for the acquisition of the entire share capital of SPHL (BVI). The shares issued for the Reorganisation were deemed to have been issued on 1 January 2005, see note (vi) below.
(iii) On 26 January 2006, two novation agreements were entered by the Company and Gemfair with Peak Castle Assets Limited (“Peak Castle”) and SPHL (BVI) respectively, in which the Company agreed to assume the debts of Peak Castle and SPHL (BVI) owing to Gemfair, totalling HK$880,000,000 (equivalent to RMB914,671,000). The Company repaid the debt by issuing 212,560,387 ordinary issues to Gemfair.
(iv) Pursuant to agreements entered by the Company with third party financial investors, an aggregate of 380,494,664 ordinary shares of the Company, representing about 16% of the then enlarged capital of the Company, were subscribed by these investors at a total consideration of approximately HK$1,575,300,000 (equivalent to RMB1,632,351,000). These subscriptions were fully settled by 7 March 2006.
(v) On 5 July 2006, the Company issued 595,124,000 ordinary shares of HK$0.1 each at HK$6.25 per share in connection with the listing, and raised gross proceeds of approximately HK$3,719,525,000. In addition, on 12 July 2006, pursuant to the exercise of the overallotment option of the listing, additional 89,268,500 ordinary shares of HK$0.1 each were issued at HK$6.25 per share and gross proceeds of HK$557,928,000 were raised.

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APPENDIx I

FINANCIAL INFORMATION OF THE GROUP

(vi) The share capital presented in the consolidated balance sheet as at 1 January 2005 and 31 December 2005 represents the share capital of the Company, arising on incorporation and from the Reorganisation transaction described in notes (i) and (ii) above. The shares issued for the Reorganisation were deemed to have been in issue throughout the accounting periods presented in these financial statements in accordance with the basis of preparation referred to in Note 2(a). The difference between the nominal value of these shares, being HK$178,743,961 and the nominal value of shares, being US$1 (equivalent to HK$8) of the subsidiary purchased pursuant to the Reorganisation is accounted for as merger reserve as at 1 January 2005 and 31 December 2005 (Note 19). Other than crediting the share capital and debiting the merger reserve with an amount of RMB185,787,000 (being translated from HK$178,743,953), there has been no adjustment arising from the adoption of merger accounting for the Reorganisation which affects the net assets and net profit or loss of the combining entities or the consolidated reserves.

(a) Pre-IPO Share Option Scheme

Pursuant to the shareholders’ resolution passed on 9 June 2006 for approval of the Pre-IPO Share Option Scheme, options for a total of 63,920,000 ordinary shares of the Company have been conditionally granted to directors and selected employees. The exercise price of HK$5.625 per share under the Pre-IPO Share Option Scheme is determined at a 10% discount to the global offering price, which was HK$6.25 per share, excluding brokerage, Securities and Futures Commission transaction levy and the Stock Exchange trading fee. Each option has 6-year exercise period from the date of grant, with 30% vesting on 31 March 2007, another 30% vesting on 31 March 2008 and the remaining 40% vesting on 31 March 2009. Options are conditional on the employee completing the services up to the respective vesting dates and evaluation of performance as specified in the scheme, and become exercisable immediately after each vesting date. The Group has no legal or constructive obligation to repurchase or settle the options in cash. These options will expire on 8 June 2012.

As at 31 December 2006, 63,920,000 outstanding options were not exercisable as they have not yet been vested.

The fair value of the options granted determined using the binomial model was HK$92,324,000. The significant inputs to the model were share price of HK$6.25 at the grant date, exercise price of HK$5.625, volatility of 30.5%, expected dividend yield of 3.3%, an expected option life of 6 years and an annual riskfree interest rate of 4.7%. The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the past one year of similar listed companies.

(b) Share Option Scheme

Pursuant to the shareholders’ resolution passed on 9 June 2006, another share option scheme (“Share Option Scheme”) was conditionally approved. Pursuant to the terms of the Share Option Scheme, the Company may grant options at its discretion, to any eligible person (including directors, employees, officers of any member of the Group, advisors, consultants, distributors, contractors, contract manufactures, agents, customers, business partners, joint venture partners and service providers of any members of the Group). The total number of shares which may be issued upon exercise of all options (the “Share Option”) granted and yet to be exercised under the Share Option Scheme or any other share option schemes adopted by the Company must not exceed 30% of the Company’s shares in issue from time to time.

No options may be granted under the Share Option Scheme after 10 years since the adoption. The vesting periods, exercise periods and vesting conditions may be specified by the Company at the time of the grant, and the options expire no later than 10 years from the relevant date of grant. The exercise price of the option under the Share Option Scheme shall be no less than the higher of (i) the closing price of the Company’s shares as stated in the daily quotation sheet issued by the Stock Exchange on the date of grant; (ii) the average closing price of the Company’s shares as stated in the daily quotation sheets issued by the Stock Exchange for the five Stock Exchange business days immediately preceding the date of grant; (iii) the nominal value of a share of the Company on the date of grant.

No option has been granted under the Share Option Scheme since its adoption.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

19 RESERVES

Group Balance at 1 January 2006 — Issue of shares for the Reorganisation_(Note 18(ii)) — Others Profit for the year attributable to the equity holders of the Company Issue of shares for settlement of debts (Note 18(iii)) Issue of shares to financial investors (Note 18(iv)) Issue of shares in connection with the listing(Note 18(v)) Share issuing expenses Employee share option scheme — value of employee services Balance at 31 December 2006 Representing: Final dividend proposed Others Balance at 1 January 2005 — Issue of shares for the Reorganisation(Note 18(ii))_ — Others Profit for the year attributable to the equity holders of the Company Dividends Balance at 31 December 2005 Representing: Final dividend proposed Others	Merger reserve RMB’000 (Note (i)) (185,787) — (185,787) — — — — — — (185,787) (185,787) — (185,787) — — (185,787)	Share premium RMB’000 — — — — 892,578 1,592,922 4,318,027 (233,879) — 6,569,648 — — — — — —	Share based compensation reserve RMB’000 (Note (ii)) — — — — — — — — 38,019 38,019 — — — — — —	Retained earnings RMB’000 — 2,510,218 2,510,218 2,278,750 — — — — — 4,788,968 615,859 4,173,109 4,788,968 — 1,914,315 1,914,315 907,993 (312,090) 2,510,218 — 2,510,218 2,510,218	Total RMB’000 (185,787) 2,510,218 2,324,431 2,278,750 892,578 1,592,922 4,318,027 (233,879) 38,019 11,210,848 615,859 10,594,989 11,210,848 (185,787) 1,914,315 1,728,528 907,993 (312,090) 2,324,431 — 2,324,431 2,324,431

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

Company Balance at 1 January 2006 Profit for the year attributable to the equity holders of the Company Issue of shares for settlement of debts_(Note 18(iii)) Issue of shares to financial investors(Note 18(iv)) Issue of shares in connection with the listing(Note 18(v))_ Share issuing expenses Employee share option scheme — value of employee services Balance at 31 December 2006 Representing: Final dividend proposed Others Balance at 1 January 2005 Loss for the year attributable to the equity holders of the Company Balance at 31 December 2005 Representing: Final dividend proposed Others	Share premium RMB’000 — — 892,578 1,592,922 4,318,027 (233,879) — 6,569,648 — — —	Share based compensation reserve RMB’000 (Note (ii)) — — — — — — 38,019 38,019 — — —	Retained earnings RMB’000 (5) 637,539 — — — — — 637,534 615,859 21,675 637,534 — (5) (5) — (5) (5)	Total RMB’000 (5) 637,539 892,578 1,592,922 4,318,027 (233,879) 38,019 7,245,201 615,859 6,629,342 7,245,201 — (5) (5) — (5) (5)

Notes:

(i) Merger reserve of the Group represents the difference between the nominal value of the shares of the subsidiary purchased pursuant to the Reorganisation and the nominal value of the shares of the Company issued in exchange as set out in Note 1.
(ii) Share based compensation reserve represents value of employee services in respect of share options granted under the Pre-IPO Share Option Scheme (Note 18(a)).
(iii) The distributable reserve of the Company as at 31 December 2006 amounted to RMB7,245,201,000 (2005: Nil).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

20 BORROWINGS

Group
Borrowings included in non-current liabilities:
Bank borrowings — secured
Bank borrowings — unsecured
Senior notes — secured
Less: Amounts due within one year
Borrowings included in current liabilities:
Bank borrowings — secured
Bank borrowings — unsecured
Current portion of long-term borrowings
Company
Borrowings included in non-current liabilities:
Senior notes — secured

As at 31 December
2006
2005
RMB’000
RMB’000
2,884,994
2,462,698
170,000
—
4,572,995
—
7,627,989
2,462,698
(1,157,309)
(549,294)
6,470,680
1,913,404
185,000
175,000
310,000
—
1,157,309
549,294
1,652,309
724,294
As at 31 December
2006
2005
RMB’000
RMB’000
4,572,995
—

As at 31 December 2006, the Group’s total secured bank borrowings of RMB3,069,994,000 (2005: RMB2,547,698,000) were secured by its assets under construction and buildings (Note 6), an investment property (Note 7), land use rights (Note 8) and properties under development (Note 10).

As at 31 December 2005, RMB30,000,000 of bank borrowings were secured by the properties of a related company of the Group, and the security was released after repayment of borrowings in March 2006. RMB60,000,000 of bank borrowings was secured by a related company by its equity interests in A Share Company, and the security was released in April 2006. Among secured bank borrowings, RMB1,254,697,000 were additionally guaranteed by the Chairman of the Company, Mr. Hui Wing Mau, of which RMB890,000,000 was released in April 2006 and RMB364,697,000 was released upon listing of the Company.

On 29 November 2006, the Company issued a total of US$600,000,000 senior notes, including US$250,000,000 at a floating rate of interest due 1 December 2011 and US$350,000,000 at a fixed rate of interest due 1 December 2016. The Company may at its option redeem the notes, in whole or in part, by certain dates based on the terms of the notes. The notes are senior obligations guaranteed by certain subsidiaries other than those organised under the laws of the PRC (“Subsidiary Guarantors”), and secured by the shares of these Subsidiary Guarantors.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates or maturity whichever is the earlier date is as follows:

	6 months
	or less	6–12 months	1–5 years	Over 5 years	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Group
Borrowings included in non-current
liabilities:
At 31 December 2006	2,391,400	1,411,700	—	2,667,580	6,470,680
At 31 December 2005	150,000	1,448,000	315,404	—	1,913,404
Borrowings included in current liabilities:
At 31 December 2006	1,174,009	478,300	—	—	1,652,309
At 31 December 2005	320,264	404,030	—	—	724,294
Company
Borrowings included in non-current
liabilities:
At 31 December 2006	1,905,415	—	—	2,667,580	4,572,995
At 31 December 2005	—	—	—	—	—

The maturity of the borrowings included in non-current liabilities is as follows:

Group Bank borrowings: Between 1 and 2 years Between 2 and 5 years Over 5 years Senior notes: Between 2 and 5 years Over 5 years Company Senior notes: Between 2 and 5 years Over 5 years	As at 31 December 2006 2005 RMB’000 RMB’000 353,345 728,000 1,060,146 795,404 484,194 390,000 1,905,415 — 2,667,580 — 6,470,680 1,913,404 1,905,415 — 2,667,580 — 4,572,995 —	As at 31 December 2006 2005 RMB’000 RMB’000 353,345 728,000 1,060,146 795,404 484,194 390,000 1,905,415 — 2,667,580 — 6,470,680 1,913,404 1,905,415 — 2,667,580 — 4,572,995 —
		1,913,404
		— —
		—

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

The effective interest rates at the balance sheet date were as follows:

	As at 31	December
	2006	2005
Group
Bank borrowings — RMB	6.49%	6.08%
Bank borrowings — US dollar	7.02%	6.04%
Bank borrowings — HK dollar	5.97%	5.85%
Senior notes — US dollar	7.93%	—
Company
Senior notes — US dollar	7.93%	—
The carrying amounts and fair values of non-current borrowings are as follows:
	Carrying
	amounts	Fair values
	RMB’000	RMB’000
Group
At 31 December 2006	6,470,680	6,468,714
At 31 December 2005	1,913,404	1,906,296
Company
At 31 December 2006	4,572,995	4,572,995
At 31 December 2005	—	—

The fair values are based on cash flows discounted using rates based on weighted average borrowing rates of 6.81% as at 31 December 2006 (2005: 6.24%).

The carrying amounts of short-term borrowings approximate their fair value.

The carrying amounts of the borrowings are denominated in the following currencies:

Group RMB HK dollar US dollar Company US dollar	As at 31 December 2006 2005 RMB’000 RMB’000 3,158,000 2,273,000 79,646 104,030 4,885,343 260,668 8,122,989 2,637,698 4,572,995 —	As at 31 December 2006 2005 RMB’000 RMB’000 3,158,000 2,273,000 79,646 104,030 4,885,343 260,668 8,122,989 2,637,698 4,572,995 —
		2,637,698
		—

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

21 DEFERRED INCOME TAx — GROUP

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset and when the deferred income taxes relate to the same tax authority. The net deferred income tax balances after offsetting are as follows:

Deferred income tax assets — to be recovered after more than 12 months — to be recovered within 12 months Deferred income tax liabilities — to be recovered after more than 12 months — to be recovered within 12 months The net movement on the deferred taxation is as follows: Beginning of the year Acquisition of a subsidiary Charged to the consolidated income statement_(Note 28)_ End of the year	As at 31 December 2006 2005 RMB’000 RMB’000 64,273 29,612 59,452 46,872 123,725 76,484 1,190,447 869,043 26,355 98,939 1,216,802 967,982 1,093,077 891,498 Year ended 31 December 2006 2005 RMB’000 RMB’000 891,498 714,179 — (2,025) 201,579 179,344 1,093,077 891,498	As at 31 December 2006 2005 RMB’000 RMB’000 64,273 29,612 59,452 46,872 123,725 76,484 1,190,447 869,043 26,355 98,939 1,216,802 967,982 1,093,077 891,498 Year ended 31 December 2006 2005 RMB’000 RMB’000 891,498 714,179 — (2,025) 201,579 179,344 1,093,077 891,498
		891,498

Movement in deferred income tax assets and liabilities for the year ended 31 December 2006, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred income tax assets

At 1 January 2005 Acquisition of a subsidiary Credited to the consolidated income statement At 31 December 2005 Credited to the consolidated income statement At 31 December 2006	Temporary differences on recognition of sales and related cost of sales RMB’000 182,523 — 29,209 211,732 8,780 220,512	Temporary differences on recognition of expenses RMB’000 9,229 2,025 36,797 48,051 27,217 75,268	Total RMB’000 191,752 2,025 66,006
			259,783 35,997
			295,780

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

Deferred income tax liabilities

At 1 January 2005 Charged/(credited) to the consolidated income statement At 31 December 2005 Charged/(credited) to the consolidated income statement At 31 December 2006	Fair value gains on investment properties RMB’000 26,929 297,871 324,800 330,274 655,074	Fair value adjustments on assets and liabilities upon acquisition RMB’000 879,002 (52,521) 826,481 (92,698) 733,783	Total RMB’000 905,931 245,350
			1,151,281 237,576
			1,388,857

Deferred income tax arose as a result of differences in timing of recognising certain revenues, costs and expenses between the tax based financial statements and the HKFRS financial statements. This constitutes temporary differences, being the differences between the carrying amounts of the assets or liabilities in the consolidated balance sheets and their tax bases in accordance with HKAS 12.

Deferred income tax assets are recognised for tax losses carry-forwards to the extent that the realisation of the related benefit through the future taxable profits is probable. The Group did not recognise deferred income tax assets of RMB24,556,000 (2005: RMB22,918,000) in respect of accumulated losses amounting to RMB139,693,000 (2005: RMB129,181,000). Accumulated losses amounting to RMB30,299,000, RMB66,285,000, RMB32,597,000 and RMB10,512,000 as at 31 December 2006 will expire in 2010, 2011, 2012 and 2013 respectively.

22 TRADE AND OTHER PAYABLES

Group

Trade payables_(note (a)) Other payables(note (b))_ Accrued expenses Other taxes payable Company Other payables and accruals	As at 31 December 2006 2005 RMB’000 RMB’000 3,502,628 2,697,337 1,417,738 1,127,609 111,685 29,343 112,313 89,429 5,144,364 3,943,718 As at 31 December 2006 2005 RMB’000 RMB’000 52,455 —

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

Notes:

(a) The ageing analysis of trade payables is as follows:

Within 90 days Over 90 days and within 180 days	As at 31 December 2006 2005 RMB’000 RMB’000 3,140,316 2,238,690 362,312 458,647 3,502,628 2,697,337	As at 31 December 2006 2005 RMB’000 RMB’000 3,140,316 2,238,690 362,312 458,647 3,502,628 2,697,337
		2,697,337

(b) Other payables comprise:

Deposits and advances from constructors Acquisition consideration payable Excess proceeds received from customers Provision for land appreciation tax Fees collected from customers on behalf of government agencies Miscellaneous	As at 31 December 2006 2005 RMB’000 RMB’000 6,495 20,338 4,764 87,000 37,443 12,579 1,343,972 996,122 13,209 2,663 11,855 8,907 1,417,738 1,127,609	As at 31 December 2006 2005 RMB’000 RMB’000 6,495 20,338 4,764 87,000 37,443 12,579 1,343,972 996,122 13,209 2,663 11,855 8,907 1,417,738 1,127,609
		1,127,609

23 AMOUNTS DUE TO RELATED COMPANIES

Group Common directors: Gemfair Associated companies: Nanjing Project JV Fuzhou Project JV Company Common directors: Perfect Zone International Limited	As at 31 December 2006 2005 RMB’000 RMB’000 — 1,234,760 — 22,093 249,850 10,112 249,850 1,266,965 As at 31 December 2006 2005 RMB’000 RMB’000 — 31

The balances are non-trade in nature, unsecured, interest-free and have no fixed repayment terms. The amount of RMB249,850,000 due to Fuzhou Project JV was repaid in January 2007.

The carrying amounts of amounts due to related companies approximate their fair values.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

24 OTHER GAINS

Government grants received_(note (a)) Income tax refund on reinvestment(note (b)) Temporary rental and advertising income Interest income Net exchange gain Bad debt recovered Gain on disposal of property, plant and equipment Compensation from a third party for violation of contracts(note (c))_ Trademark income Miscellaneous	Year ended 31 December 2006 2005 RMB’000 RMB’000 10,000 10,000 20,428 23,225 1,872 5,801 83,753 6,830 — 31,088 — 25,000 26,373 2,988 10,219 — 750 — 3,983 1,515 157,378 106,447	Year ended 31 December 2006 2005 RMB’000 RMB’000 10,000 10,000 20,428 23,225 1,872 5,801 83,753 6,830 — 31,088 — 25,000 26,373 2,988 10,219 — 750 — 3,983 1,515 157,378 106,447
		106,447

Notes:

(a) RMB10,000,000 (2005: RMB10,000,000) received during the year represents the subsidy from City of Harbin to encourage enterprises development in the local area.
(b) According to the tax regulations of the PRC, income tax refund on reinvestment is available to foreign investors when they reinvest their profits from invested entities in the PRC to the same or other invested entities in the PRC, instead of remitting outside the PRC. The amount represented the income tax refund received by the Group for its reinvestment of profit from a PRC subsidiary into its other PRC subsidiaries.
(c) Pursuant to a final court verdict on 13 January 2006, a third party is ordered to compensate the Group for its violation of selling contracts relating to a piece of land. The compensation was received in May 2006.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

25 ExPENSES BY NATURE

Expenses included in cost of sales, selling and marketing costs, administrative expenses and other operating expenses are analysed as follows:

Staff costs — including directors’ emoluments_(note (a)) Auditors’ remuneration Depreciation(Note 6) Amortisation of land use rights(Note 8) Advertising, promotion and commission costs Cost of properties sold Business taxes and other levies on sales of properties(note (b)) Land appreciation tax incurred, net of the related accruals already made upon acquisition of subsidiaries(note (c)) Impairment of goodwill(Note 9)_ Charitable donations Direct outgoings arising from investment properties that generate rental income Operating lease rental expenses Hotel operating expenses Net exchange loss Office expenses Other expenses Total cost of sales, selling and marketing costs, administrative expenses and other operating expenses	Year ended 31 December 2006 2005 RMB’000 RMB’000 223,303 95,428 3,141 2,722 72,127 9,277 9,404 308 193,954 86,240 3,640,088 1,607,773 339,975 124,024 355,306 162,204 132,268 — 8,120 6,174 9,087 8,893 23,252 13,674 68,765 2,061 30,572 — 23,883 13,362 110,934 74,253 5,244,179 2,206,393	Year ended 31 December 2006 2005 RMB’000 RMB’000 223,303 95,428 3,141 2,722 72,127 9,277 9,404 308 193,954 86,240 3,640,088 1,607,773 339,975 124,024 355,306 162,204 132,268 — 8,120 6,174 9,087 8,893 23,252 13,674 68,765 2,061 30,572 — 23,883 13,362 110,934 74,253 5,244,179 2,206,393
		2,206,393

(a) Staff costs (including directors’ emoluments) comprise:

Wages and salaries Pension costs — statutory pension_(Note 32)_ Employee share option scheme Other allowances and benefits	Year ended 31 December 2006 2005 RMB’000 RMB’000 144,886 74,250 11,516 6,207 38,019 — 28,882 14,971 223,303 95,428	Year ended 31 December 2006 2005 RMB’000 RMB’000 144,886 74,250 11,516 6,207 38,019 — 28,882 14,971 223,303 95,428
		95,428

(b) Business tax

The PRC companies of the Group are subject to business taxes of 5% and other levies on their revenues from sale of properties.

(c) Land appreciation tax

PRC land appreciation tax is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds from sales of properties less deductible expenditures including land use rights, borrowing costs, business taxes and all property development expenditures. The tax is incurred upon transfer of property ownership.

Upon acquisition of subsidiaries which are engaged in property development, an accrual for land appreciation tax is made based on the fair value of the properties being developed by the subsidiaries for sale before arriving at the goodwill/ negative goodwill on the acquisition.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

26 FINANCE COSTS

Interest on bank borrowings — wholly repayable within five years — not wholly repayable within five years Interest on senior notes — wholly repayable within five years — not wholly repayable within five years Interest on borrowing from a related company Less: interest capitalised	Year ended 31 December 2006 2005 RMB’000 RMB’000 195,882 75,878 27,601 43,868 13,164 — 20,739 — — 4,543 257,386 124,289 (212,667) (115,593) 44,719 8,696	Year ended 31 December 2006 2005 RMB’000 RMB’000 195,882 75,878 27,601 43,868 13,164 — 20,739 — — 4,543 257,386 124,289 (212,667) (115,593) 44,719 8,696
		124,289 (115,593)
		8,696

27 EMOLUMENTS FOR DIRECTORS AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ emoluments

The remuneration of each of the directors of the Company for the year ended 31 December 2006 is set out as follows:

		Basic salaries,
		allowances			Retirement	Employee
		and benefits		Inducement	benefit	share option
Name of director	Fees	in kind	Bonuses	fee	contributions	scheme	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive directors
Mr. Hui Wing Mau	6,149	—	512	—	12	—	6,673
Mr. Hui Sai Tan, Jason	1,047	709	689	—	12	1,815	4,272
Mr. Ip Wai Shing	344	1,205	689	574	12	1,760	4,584
Mr. Tang Ping Fai	295	1,033	590	492	12	1,815	4,237
Ms. Yao Li	418	947	590	—	12	1,815	3,782
Independent non-executive
directors
Ms. Kan Lai Kuen, Alice	195	—	—	—	—	—	195
Mr. Lu Hong Bing	246	—	—	—	—	—	246
Mr. Gu Yunchang	176	—	—	—	—	—	176
Mr. Lam Ching Kam	143	—	—	—	—	—	143

The executive directors of the Company did not receive any remuneration in respect of their services rendered to the Group for the year ended 31 December 2005. No emolument was paid to any independent non-executive directors for the year ended 31 December 2005.

No directors of the Company waived or agreed to waive any remuneration during the years ended 31 December 2005 and 2006.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year ended 31 December 2006 are all directors. For the year ended 31 December 2005, none of the five highest paid individuals is director of the Company. The aggregate amounts of emoluments of the five highest paid individuals is set out below:

Fees Basic salaries and allowances Bonuses Retirement scheme contributions Employee share option scheme The emoluments fell within the following bands: Nil to RMB1,000,000 RMB1,000,001 – RMB1,500,000 RMB3,500,001 – RMB4,000,000 RMB4,000,001 – RMB4,500,000 RMB4,500,001 – RMB5,000,000 RMB6,500,001 – RMB7,000,000	Year ended 31 December 2006 2005 RMB’000 RMB’000 8,253 — 3,894 4,635 4,136 620 60 58 7,205 — 23,548 5,313 Number of individuals 2006 2005 — 2 — 3 1 — 2 — 1 — 1 —	Year ended 31 December 2006 2005 RMB’000 RMB’000 8,253 — 3,894 4,635 4,136 620 60 58 7,205 — 23,548 5,313 Number of individuals 2006 2005 — 2 — 3 1 — 2 — 1 — 1 —
		5,313
		individuals 2005 2 3 — — — —

(c) During the year, no emolument was paid or is payable by the Group to any of the above directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office apart from those disclosed above.

28 INCOME TAx ExPENSE

PRC enterprise income tax Current income tax Deferred income tax_(Note 21)_	Year ended 31 December 2006 2005 RMB’000 RMB’000 503,438 146,516 201,579 179,344 705,017 325,860	Year ended 31 December 2006 2005 RMB’000 RMB’000 503,438 146,516 201,579 179,344 705,017 325,860
		325,860

Share of income tax expense of associated companies of RMB108,068,000 (2005: RMB11,385,000) (Note 13) is included in the consolidated income statement under share of results of associated companies.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

The income tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the enacted tax rate of the home country of the companies within the Group as follows:

Profit before income tax Less: share of results of associated companies and a jointly controlled entity Calculated at PRC enterprise income tax rate of 33% Tax saving due to preferential rate Effect of different tax rates in other countries Expenses not deductible for income tax purposes_(note (a)) Income not subject to tax(note (b))_ Tax losses not recognised Tax losses utilised Tax charge	Year ended 31 December 2006 2005 RMB’000 RMB’000 2,983,767 1,312,168 (201,014) (17,741) 2,782,753 1,294,427 918,308 427,161 (273,389) (77,372) (2,087) (625) 91,810 3,170 (31,263) (22,868) 1,638 3,414 — (7,020) 705,017 325,860

Notes:

(a) For the year ended 31 December 2006, expenses not deductible for income tax purposes mainly resulted from the impairment of goodwill of RMB132,268,000, exchange loss of RMB46,099,000, employee share options of RMB38,019,000 and expenses incurred in the Company and its subsidiaries established in the British Virgin Islands, and certain donation expenses which are not deductible for tax purposes.
(b) For the year ended 31 December 2006, income not subject to tax arose mainly from interest income of RMB74,310,000 from the Company and its subsidiaries established in the British Virgin Islands, and income tax refund on reinvestment of RMB20,428,000; whereas the amount for the year ended 31 December 2005 arose mainly from exchange gains of RMB46,072,000 and income tax refund on reinvestment of RMB23,225,000.

Hong Kong profits tax

No Hong Kong profits tax has been provided for as the Group has no assessable profit in Hong Kong for the year ended 31 December 2006 (2005: Nil).

PRC enterprise income tax

PRC enterprise income tax is provided for at 33% of the profits for the PRC statutory financial reporting purpose, adjusted for those items, which are not assessable or deductible for the PRC enterprise income tax purpose. Two subsidiaries established in the Shanghai Pudong New Area of the PRC are entitled to a preferential tax rate of 15% for the years ended 31 December 2006 and 2005. In addition, another two subsidiaries established in other areas enjoy preferential tax rates of 27% and 30% respectively for both years ended 31 December 2006 and 2005.

A new PRC enterprise income tax law has been enacted subsequent to the year end, see Note 37(c).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

29 DIVIDENDS

Special dividend, declared, per share_(note (a)) Proposed final dividend of HK20 cents per ordinary share(note (b))_	Year ended 31 December 2006 2005 RMB’000 RMB’000 — 312,090 615,859 — 615,859 312,090	Year ended 31 December 2006 2005 RMB’000 RMB’000 — 312,090 615,859 — 615,859 312,090
		312,090

Notes:

(a) On 31 December 2005, a special dividend of HK$300,000,000 (equivalent to RMB312,090,000) per share was declared by SPHL (BVI). The amount was included in amounts due to Gemfair, a related company, as at 31 December 2005 (Note 23).
(b) At a meeting held on 27 March 2007, the directors proposed a final dividend of HK20 cents per ordinary share. This proposed dividend is not reflected as a dividend payable in these financial statements, but will be reflected as an appropriation of retained earnings for the year ending 31 December 2007.

30 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

Net cash (used in)/generated from operations:

Profit for the year Adjustments for: Income tax expense Interest income Finance costs Depreciation Gain on disposal of property, plant and equipment Share of results of associated companies Share of results of a jointly controlled entity Amortisation of land use rights Fair value gains on investment properties Staff costs — employee share option scheme Impairment of goodwill Exchange loss Changes in working capital: Properties under development and completed properties held for sale Land use rights Restricted cash Trade and other receivables and prepayments Trade and other payables Advanced proceeds received from customers Net cash (used in)/generated from operations	Year ended 31 December 2006 2005 RMB’000 RMB’000 2,278,750 986,308 705,017 325,860 (83,753) (6,830) 44,719 8,696 72,127 9,277 (26,373) (2,988) (201,027) (17,741) 13 — 9,404 308 (1,000,831) (902,639) 38,019 — 132,268 — 62,622 — 2,030,955 400,251 (294,171) (738,503) (2,974,888) (241,896) (44,372) 14,885 (51,831) (225,713) 400,262 1,855,223 (3,067,120) (1,895) (4,001,165) 1,062,352	Year ended 31 December 2006 2005 RMB’000 RMB’000 2,278,750 986,308 705,017 325,860 (83,753) (6,830) 44,719 8,696 72,127 9,277 (26,373) (2,988) (201,027) (17,741) 13 — 9,404 308 (1,000,831) (902,639) 38,019 — 132,268 — 62,622 — 2,030,955 400,251 (294,171) (738,503) (2,974,888) (241,896) (44,372) 14,885 (51,831) (225,713) 400,262 1,855,223 (3,067,120) (1,895) (4,001,165) 1,062,352
		400,251 (738,503) (241,896) 14,885 (225,713) 1,855,223 (1,895)
		1,062,352

– 121 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

31 EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. In determining the weighted average number of ordinary shares in issue, a total of 1,787,439,612 ordinary shares issued for the Reorganisation were deemed to have been issued on 1 January 2005.

Profit attributable to the equity holders of the Company_(RMB’000) Weighted average number of ordinary shares in issue(thousands) Basic earnings per share(RMB cents)_	Year ended 31 December 2006 2005 2,278,750 907,993 2,664,890 1,787,440 85.5 50.8	Year ended 31 December 2006 2005 2,278,750 907,993 2,664,890 1,787,440 85.5 50.8
		1,787,440
		50.8

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue for the potential dilutive effect caused by the share options granted under the Pre-IPO Share Option Scheme (Note 18(a)) assuming they were exercised.

Profit attributable to the equity holders of the Company_(RMB’000) Weighted average number of ordinary shares in issue(thousands) Adjustment for share options granted under the Pre-IPO Share Option Scheme(thousands) Weighted average number of ordinary shares for diluted earnings per share(thousands) Diluted earnings per share(RMB cents)_	Year ended 31 December 2006 2,278,750
	2,664,890 14,096
	2,678,986
	85.1

No disclosure of diluted earnings per share for the year ended 31 December 2005 has been made as there was no potential dilutive ordinary share outstanding during that year.

32 PENSIONS — DEFINED CONTRIBUTION PLANS

Employees in the Group’s PRC subsidiaries are required to participate in a defined contribution retirement scheme administrated and operated by the local municipal government. The Group’s PRC subsidiaries contribute funds which are calculated on certain percentage of the average employee salary as agreed by local municipal government to the scheme to fund the retirement benefits of the employees.

The Group also participates in a pension scheme under the rules and regulations of the MPF Scheme for all employees in Hong Kong. The contributions to the MPF Scheme are based on minimum statutory contribution requirement of 5% of eligible employees’ relevant aggregate income.

Details of the retirement scheme contributions for the employees, which have been dealt with in the consolidated income statement of the Group for the year ended 31 December 2006, are as follows:

	Year ended 31 December	Year ended 31 December
	2006	2005
	RMB’000	RMB’000
Gross scheme contributions	11,516	6,207

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

33 SUBSIDIARIES, ASSOCIATED COMPANIES AND A JOINTLY CONTROLLED ENTITY

Particulars of the subsidiaries, associated companies and a jointly controlled entity of the Group as at 31 December 2006 are as follows:

	Date of			Effective interest
	incorporation/		Issued/registered	held as at 31
Company name	establishment	Legal status	capital	December 2006	Principal activities
Subsidiaries — established and operation conducted in		the PRC
上海世茂房地產有限公司	15 March 2000	Foreign	Registered capital	100%	Property
(Shanghai Riviera		investment	USD25,000,000		development
Project Co)		enterprise
上海世茂國際廣場有限責任公司	15 September 1994	Foreign	Registered capital	100%	Property
(International Plaza		investment	RMB400,000,000		development
Project Co)		enterprise
上海世茂建設有限公司	16 March 2001	Foreign	Registered capital	100%	Investment
(Shimao Jianshe)		investment	RMB540,000,000		holding
		enterprise
上海世莊茂園置業有限公司	19 June 2002	Foreign	Registered capital	100%	Property
(Shimao Sheshan		investment	USD18,400,000		development
Project Co)		enterprise
上海世茂北外灘�發建設有限公司	17 May 2002	Foreign	Registered capital	100%	Property
(North Bund Project Co)		investment	HKD650,000,000		development
		enterprise
北京世茂投資發展有限公司	26 December 2000	Foreign	Registered capital	100%	Property
(Beijing Project Co)		investment	RMB378,000,000		development
		enterprise
哈爾濱世茂濱江新城	24 March 2004	Foreign	Registered capital	100%	Property
�發建設有限公司		investment	HKD500,000,000		development
(Harbin Shimao Riviera		enterprise
New City Development and
Construction Co., Ltd.)
常熟世茂房地產�發有限公司	24 December 2004	Foreign	Registered capital	100%	Property
(Changshu Shimao Real		investment	HKD700,000,000		development
Estate Development		enterprise
Co., Ltd.)
昆山世茂蝶湖灣�發建設有限公司	10 November 2003	Foreign	Registered capital	100%	Property
(Kunshan Butterfly		investment	RMB412,410,000		development
Project Co)		enterprise
武漢世茂錦繡長江房	6 June 2005	Foreign	Registered capital	100%	Property
地產�發有限公司		investment	USD80,000,000		development
(Wuhan Shimao Splendid		enterprise
River Real Estate
Development Co., Ltd.)
昆山世茂房地產�發有限公司	24 December 2003	Foreign	Registered capital	100%	Property
(Kunshan Shimao Real		investment	USD20,000,000		development
Estate Co., Ltd.)		enterprise

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

	Date of			Effective interest
	incorporation/		Issued/registered	held as at 31
Company name	establishment	Legal status	capital	December 2006	Principal activities
嘉興世茂新城房地產�發有限公司	28 September 2006	Foreign	Registered capital	100%	Property
(Jiaxing Shimao		investment	USD46,300,000		development
New City Real Estate		enterprise
Development Co., Ltd.)
上海世茂新體驗	6 March 2006	Foreign	Registered capital	100%	Property
置業有限公司		investment	USD50,000,000		development
(Shanghai Shimao		enterprise
Wonderland Real
Estate Co. Ltd.)
紹興世茂新城房地產�發有限公司	11 July 2006	Foreign	Registered capital	100%	Property
(Shaoxing Shimao		investment	USD44,800,000		development
New City Real Estate		enterprise
Development Co., Ltd)
紹興世茂置業有限公司	11 July 2006	Foreign	Registered capital	100%	Property
(Shaoxing Shimao Real		investment	USD44,800,000		development
Estate Co., Ltd)		enterprise
蕪湖世茂房地產�發有限公司	8 September 2006	Foreign	Registered capital	100%	Property
(Wuhu Shimao Real Estate		investment	USD37,500,000		development
Development Co., Ltd.)		enterprise
煙台世茂置業有限公司	6 September 2006	Foreign	Registered capital	100%	Property
(Yantai Shimao Real		investment	USD48,500,000		development
Estate Co., Ltd.)		enterprise
常州世茂房地產�發有限公司	27 November 2006	Foreign	Registered capital	100%	Property
(Changzhou Shimao Real		investment	USD126,500,000		development
Estate Co., Ltd.)		enterprise
沈陽世茂新發展置業有限公司	5 December 2006	Foreign	Registered capital	100%	Property
(Shenyang Shimao New		investment	USD99,900,000		development
Development Co., Ltd.		enterprise
杭州世茂置業有限公司	13 December 2006	Foreign	Registered capital	100%	Property
(Hangzhou Shimao Real		investment	USD35,000,000		development
Estate Co., Ltd.		enterprise
Subsidiaries — incorporated and	operation conducted	in the British Virgin	Islands
Shimao Property Holdings	23 August 2002	Limited liability	1 ordinary share of	100%(note)	Investment
(BVI) Limited		company	USD1		holding
Advance Assets Holdings	22 June 2001	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding
Best Empire Investments	2 July 2002	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding
Best Whole Investments	8 September 2006	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding
Double Achieve Assets Limited	31 January 2002	Limited liability	1 ordinary share of	100%	Investment
		company	USD1		holding

– 124 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

	Date of			Effective interest
	incorporation/		Issued/registered	held as at 31
Company name	establishment	Legal status	capital	December 2006	Principal activities
East Light Group Limited	12 May 2006	Limited liability	1 ordinary share of	100%	Investment
		company	USD1		holding
Everactive Properties Limited	2 May 2001	Limited liability	1 ordinary share of	100%	Investment
		company	USD1		holding
Keen View Limited	10 May 2006	Limited liability	1 ordinary share of	100%	Dormant
		company	USD1
Keenrich Holdings Limited	18 December 2002	Limited liability	1 ordinary share of	100%	Holding of
		company	USD1		trademarks
Mega Universe Limited	10 July 2001	Limited liability	1 ordinary share of	100%	Investment
		company	USD1		holding
Multivision Profits Limited	26 August 2002	Limited liability	1 ordinary share of	100%	Investment
		company	USD1		holding
Peak Castle	2 July 2002	Limited liability	1 ordinary share of	100%	Investment
		company	USD1		holding
Precise Choice Investments	18 October 2001	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding
Prime Master Holdings	2 July 2002	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding
Profit Eagle Enterprises	31 January 2002	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding
Shimao Management	18 December 2002	Limited liability	1 ordinary share of	100%	Management
(Overseas) Limited		company	USD1		services
Significant Asset Group	2 July 2002	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding
Vicking International Ltd.	19 January 1994	Limited liability	50,000 ordinary	100%	Investment
		company	share of USD1		holding
Value Ahead Investment	5 July 2001	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding
Wickfair Investment Limited	8 October 2004	Limited liability	1 ordinary share of	100%	Investment
		company	USD1		holding
Widely Known Limited	6 December 2005	Limited liability	1 ordinary share of	100%	Investment
		company	USD1		holding
Wise Atlantic Holdings	8 October 2001	Limited liability	1 ordinary share of	100%	Dormant
Limited		company	USD1
Year Grant Investments	3 September 2001	Limited liability	1 ordinary share of	100%	Investment
Limited		company	USD1		holding

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

	Date of			Effective interest
	incorporation/		Issued/registered	held as at 31
Company name	establishment	Legal status	capital	December 2006	Principal activities
Subsidiaries — incorporated and	operation conducted	in Hong Kong
Brilliant Architectural and	28 July 2006	Limited liability	100,000 ordinary	100%	Dormant
Construction Professional		company	shares of HKD1
Consultancy Limited
Fine Tune Investments Limited	5 June 2006	Limited liability	1 ordinary share of	100%	Holding of
		company	HKD1		trademarks
Modern Professional	28 July 2006	Limited liability	100,000 ordinary	100%	Dormant
Architectural Design		company	shares of HKD1
Limited
Shimao Holdings Company	3 February 1994	Limited liability	100 million	100%	Investment
Limited		company	ordinary shares of		holding
			HKD1
Topwise Limited	29 March 2005	Limited liability	1 ordinary share of	100%	Management
		company	HKD1		services
Associated companies — established and operation conducted in the PRC
福建世茂房地產有限公司	14 May 2003	Foreign	RMB200,000,000	50%	Property
(Fuzhou Project JV)		investment			development
		enterprise
南京世茂房地產�發有限公司	23 July 2004	Foreign	RMB200,000,000	50%	Property
(Nanjing Project JV)		investment			development
		enterprise
Jointly controlled entity — established and operation		conducted in the PRC
上海世茂第一太平物業有限公司	16 September 2005	Foreign	RMB1,000,000	50%	Property
(Shimao First Pacific)		investment			management
		enterprise

Note: Directly held by the Company.

34 FINANCIAL GUARANTEES — GROUP

The Group had the following financial guarantees as at 31 December 2006.

	As at 31	December
	2006	2005
	RMB’000	RMB’000
Guarantees in respect of mortgage facilities for certain purchasers	882,872	1,450,222

The Group provided guarantees in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of the Group’s properties. Pursuant to the terms of the guarantees, upon default in mortgage payments by these purchasers, the Group is responsible to repay the outstanding mortgage principals together with accrued interest and penalty owed by the defaulted purchasers to the banks and the Group is entitled to take over the legal title and possession of the related properties. The Group’s guarantee period starts from the dates of grant of the relevant mortgage loans and ends when the Group obtained the “property title certificate” for the mortgagees, or when the Group obtained the “master property title certificate” upon completion of construction. The directors consider that in case of default in payments, the net realisable value of the related properties can cover the repayment of the outstanding mortgage principals together with the accrued interest and penalty and therefore no provision has been made in the financial statements for the guarantees.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

35 COMMITMENTS — GROUP

(a) Commitments for capital and property development expenditure

Authorised but not contracted for Contracted but not provided for — Property, plant and equipment — Investment properties — Land use rights — Properties being developed by the Group for sale	As at 31 December 2006 2005 RMB’000 RMB’000 — — 235,162 346,884 23,384 170,917 6,867,627 4,095,111 1,286,482 2,272,983 8,412,655 6,885,895	As at 31 December 2006 2005 RMB’000 RMB’000 — — 235,162 346,884 23,384 170,917 6,867,627 4,095,111 1,286,482 2,272,983 8,412,655 6,885,895
		346,884 170,917 4,095,111 2,272,983
		6,885,895

(b) Operating lease commitments

The future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings are as follows:

Within one year Between two to five years	As at 31 December 2006 2005 RMB’000 RMB’000 12,874 12,530 4,742 13,039 17,616 25,569	As at 31 December 2006 2005 RMB’000 RMB’000 12,874 12,530 4,742 13,039 17,616 25,569
		25,569

(c) Operating lease rentals receivable

The future aggregate minimum lease rentals receivable under non-cancellable operating leases in respect of land and buildings are as follows:

Within one year Between two to five years After five years	As at 31 December 2006 2005 RMB’000 RMB’000 70,000 27,672 280,000 280,000 904,167 974,167 1,254,167 1,281,839	As at 31 December 2006 2005 RMB’000 RMB’000 70,000 27,672 280,000 280,000 904,167 974,167 1,254,167 1,281,839
		1,281,839

In 2003, the Group entered into a long-term rental agreement with a third party, Shanghai Brilliance (Group) Co., Ltd. (“Brilliance”) for a period of 20 years, whereby a shopping mall is leased to Brilliance who acts as the head tenant and the Group is entitled to a minimum fixed annual rental income. On 8 February 2007, it is mutually agreed to terminate the long-term rental agreement with effect from 1 May 2007 and replaced by a management agreement with Brilliance (Note 37). The operating lease rental receivable as at 31 December 2006 included an amount of RMB1,244,947,000 from Brilliance in respect of period after 1 May 2007 which was no longer receivable following the termination of the rental agreement with Brilliance.

– 127 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

36 RELATED PARTY TRANSACTIONS

(a) Other than those disclosed in Notes 16, 20 and 23, the Group had entered into the following major related party transactions during the year ended 31 December 2006.

Continuing transactions Trademark fee earned from related companies_(note (i)) Operating lease rental expenses charged by a related company(note (ii)) Property management fee and reimbursement of staff costs charged by a related company(note (iii)) Discontinuing transactions Interest expense on amount due to a related company (Note 26 and note (iv)) _Notes:	Year ended 31 December 2006 2005 RMB’000 RMB’000 750 — 1,206 — 2,012 — — 4,543	Year ended 31 December 2006 2005 RMB’000 RMB’000 750 — 1,206 — 2,012 — — 4,543
		4,543

(i) On 12 June 2006, the Group entered into a trademark framework agreement with certain related companies, namely Shanghai Shimao Enterprises Co. Ltd., Shanghai Shimao Co. Ltd , Shimao International and Mr. Hui Wing Mau, the Chairman of the Company, to use the “Shimao” trademarks and devices. Pursuant to the agreement, the Group agrees to grant non-exclusive licenses to these related companies at an annual royalty fee of HK$300,000 per project from 5 July 2006 to 31 December 2008. For the year ended 31 December 2005, the Group provided the trademark of “Shimao” to certain related companies at nil consideration.
(ii) On 12 June 2006, the Group entered into a lease agreement with a wholly-owned subsidiary of Shimao International, a company listed on the Stock Exchange and of which certain directors of the Company are also the directors, to lease part of office premises of Shimao International in Hong Kong. The Group had been using the office premises at nil consideration for the year ended 31 December 2005.
(iii) Shimao First Pacific, a jointly controlled entity of the Group, provided property management service to certain properties of the Group.
(iv) The interest for the year ended 31 December 2005 was related to balance due to a related party which was interest bearing at rates ranging from 5.04% to 5.31% per annum. The balance was repaid by 31 December 2005.
(v) During the year ended 31 December 2005, certain staff of the Group had rendered project management and administrative services to a wholly-owned subsidiary of Shimao International, at nil consideration. The transaction discontinued after May 2005.
(vi) A subsidiary of the Group had provided Shanghai Mason Club Co., Ltd., of which certain directors of the Company are also the directors, with the right to operate one of its clubhouses at a consideration based upon certain percentage of net profit of the clubhouse when it has achieved an accumulated net profit. During the year ended 31 December 2006, the clubhouse was loss making and therefore no consideration had been charged (2005: Nil).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIx I

(b) Key management compensation

Fees Emoluments — Salaries and other short-term employee benefits — Retirement scheme contributions — Employee share option scheme	Year ended 31 December 2006 2005 RMB’000 RMB’000 8,253 — 16,967 3,808 164 62 11,546 — 36,930 3,870	Year ended 31 December 2006 2005 RMB’000 RMB’000 8,253 — 16,967 3,808 164 62 11,546 — 36,930 3,870
		3,870

37 SUBSEQUENT EVENTS

(a) The Group has successfully acquired certain land use rights in Suzhou, Xuzhou and Hangzhou on 17 January 2007, 4 February 2007 and 6 February 2007, at a total consideration of RMB1,704,000,000, RMB1,200,000,000 and RMB816,000,000, respectively.
(b) The Group entered into a management agreement with Brilliance to replace the former long-term rental agreement in respect of a shopping mall of the Group. According to the management agreement, Brilliance will cease to be the head tenant from 1 May 2007, and will act as the operation manager for the shopping mall for a period of 10 years starting from 1 May 2007 with remuneration calculated based on the rentals received in respect of the shopping mall. Following the termination of the rental agreement with Brilliance, the Group is entitled to and is in the process of identifying and negotiating the terms of tenancy agreements with individual tenants directly.
(c) The National People’s Congress of the PRC has approved the new PRC enterprise income tax law on 16 March 2007. The tax rate will be unified for both domestic and foreign investment enterprises at 25% and the previous preferential tax treatments will be changed, with certain grandfathering provisions with effect from 1 January 2008. The Company’s management is in the process of assessing its impact to the Group.

38 APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on 27 March 2007.

– 129 –

ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

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

15 November 2007

The Directors Shimao Property Holdings Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Shanghai Shimao Co., Ltd. (“Shanghai Shimao”) and its subsidiaries (together, the “Shanghai Shimao Group”) set out in Sections I to III below, for inclusion in the circular of Shimao Property Holdings Limited (the “Company”) dated 15 November 2007 (the “Circular”) in connection with the proposed acquisition of Shanghai Shimao and Shanghai Shimao Enterprises Development Co., Ltd., and the proposed disposal of certain retail and commercial properties to Shanghai Shimao by the Company. The Financial Information comprises the consolidated balance sheets of the Shanghai Shimao Group and the balance sheets of Shanghai Shimao as at 31 December 2004, 2005 and 2006 and 30 June 2007, and the consolidated income statements, the consolidated statements of changes in equity and the consolidated cash flow statements of the Shanghai Shimao Group for each of the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory notes.

Shanghai Shimao was incorporated in the People’s Republic of China (“PRC”) on 22 December 1993 as a limited liability company under the Company Law of the PRC and is listed on the Shanghai Stock Exchange.

As at 30 June 2007, Shanghai Shimao has effective interests in the subsidiaries, and associated companies as set out in Note 33 of Section II below. All of these companies are private companies established in the PRC. Shanghai Shimao, its subsidiaries and associated companies have adopted 31 December as their financial year end date.

The statutory financial statements of Shanghai Shimao, its subsidiaries and associated companies are prepared in accordance with the applicable PRC accounting principles and regulations (“PRC GAAP”). The statutory financial statements of Shanghai Shimao including its consolidated PRC GAAP accounts for the Relevant Periods were audited by Shanghai Shang Kuai CPAs Limited Company. The statutory financial statements of its subsidiaries and associated companies were audited by PRC certified public accountants as disclosed in Note 33 of Section II below.

– 130 –

ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

For the purpose of this report, the directors of the Company have prepared consolidated financial statements of the Shanghai Shimao Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have audited the HKFRS financial statements of the Shanghai Shimao Group for each of the years ended 31 December 2004, 2005 and 2006 and for the six months ended 30 June 2007 in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information has been prepared based on the consolidated HKFRS financial statements of the Shanghai Shimao Group for the Relevant Periods with no adjustment made thereon.

DIRECTORS’ RESPONSIBILITY

The directors of Shanghai Shimao during the Relevant Periods are responsible for the preparation and the true and fair presentation of the consolidated PRC GAAP accounts of the Shanghai Shimao Group for the Relevant Periods in accordance with PRC GAAP. The directors of the Company are responsible for the preparation and the true and fair presentation of the consolidated HKFRS financial statements of the Shanghai Shimao Group for the Relevant Periods and the Financial Information in accordance with HKFRS. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the financial statements and the Financial Information that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

REPORTING ACCOUNTANT’S RESPONSIBILITY

For the financial information for each of the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, our responsibility is to express an opinion on the financial information based on our examination and to report our opinion to you. We examined the audited consolidated HKFRS financial statements of the Shanghai Shimao Group, and carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

For the financial information for the six months ended 30 June 2006, our responsibility is to express a conclusion on the financial information based on our review and to report our conclusion to you. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of the financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

– 131 –

ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

OPINION AND REVIEW CONCLUSION

In our opinion, the financial information for each of the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, for the purpose of this report, gives a true and fair view of the state of affairs of Shanghai Shimao and of the Shanghai Shimao Group as at 31 December 2004, 2005 and 2006 and 30 June 2007 and of the Shanghai Shimao Group’s results and cash flows for the years and period then ended.

Based on our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the financial information for the six months ended 30 June 2006 does not give a true and fair view of the financial performance of the Shanghai Shimao Group and its cash flows for the six months ended 30 June 2006 in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the HKICPA.

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APPENDIx II.A

I CONSOLIDATED FINANCIAL STATEMENTS OF THE SHANGHAI SHIMAO GROUP

Consolidated Balance Sheets

Note ASSETS Non-current assets Property, plant and equipment 6 Investment property 7 Land use rights 8 Associated companies 13 Jointly controlled entity 14 Available-for-sale financial assets 9 Deferred income tax assets 21 Prepayment for land use rights 8 Current assets Land use rights under development 8 Properties under development 10 Completed properties held for sale 11 Inventory Trade and other receivables and prepayments 15 Prepaid income taxes Amounts due from related companies 16 Restricted cash 17 Cash and cash equivalents 17 Total assets	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 28,196 84,758 132,234 172,100 184,500 197,800 129,757 126,845 124,001 591 289 298 — — — 11,138 8,418 22,316 49,556 48,335 41,928 — 80,080 80,080 391,338 533,225 598,657 751,212 710,453 486,507 713,058 473,089 448,521 32,686 340,731 253,511 611 — — 83,449 253,751 124,593 6,341 24,395 3,591 452,000 32,205 249,850 11,204 — — 203,793 402,669 576,996 2,254,354 2,237,293 2,143,569 2,645,692 2,770,518 2,742,226	As at 30 June 2007 RMB’000 162,264 203,900 121,312 319 — 465,374 80,636 80,080 1,113,885 417,465 541,582 242,322 — 99,877 35,714 — — 847,632 2,184,592 3,298,477

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APPENDIx II.A

Note EQUITY Capital and reserves attributable to the equity holders of Shanghai Shimao Share capital 18 Reserves 19 Minority interest Total equity LIABILITIES Non-current liabilities Borrowings 20 Deferred income tax liabilities 21 Current liabilities Trade and other payables 22 Advanced proceeds received from customers Amounts due to related companies 23 Income tax payable 28 Borrowings 20 Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 354,667 354,667 478,355 372,379 352,232 425,040 727,046 706,899 903,395 326,618 161,573 312,353 1,053,664 868,472 1,215,748 — — 100,000 8,191 5,300 13,842 8,191 5,300 113,842 370,307 450,669 615,197 470,864 979,417 9,728 11,737 — 300 221,677 226,660 512,411 509,252 240,000 275,000 1,583,837 1,896,746 1,412,636 1,592,028 1,902,046 1,526,478 2,645,692 2,770,518 2,742,226 670,517 340,547 730,933 1,061,855 873,772 1,329,590	As at 30 June 2007 RMB’000 478,355 774,843 1,253,198 209,835 1,463,033 263,100 122,132 385,232 552,801 163,169 37,825 463,277 233,140 1,450,212 1,835,444 3,298,477 734,380 1,848,265

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APPENDIx II.A

Balance Sheets of Shanghai Shimao

Note ASSETS Non-current assets Property, plant and equipment 6 Investment property 7 Land use rights 8 Associated companies 13 Jointly controlled entity 14 Investments in subsidiaries 12 Available-for-sale financial assets 9 Current assets Inventory Trade and other receivables and prepayments 15 Prepaid income taxes Amounts due from subsidiaries 12 Amounts due from related companies 16 Cash and cash equivalents 17 Total assets	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 20,233 19,134 18,073 172,100 184,500 197,800 6,648 6,473 6,298 591 289 298 — — — 361,369 299,999 301,000 11,138 8,418 22,316 572,079 518,813 545,785 611 — — 15,827 767 2,078 — — 946 430,849 422,150 308,950 176 — 88 78,067 18,532 128,525 525,530 441,449 440,587 1,097,609 960,262 986,372	As at 30 June 2007 RMB’000 17,501 203,900 6,210 319 — 301,000 465,374
		994,304
		— 1,785 842 441,745 264 56,347
		500,983
		1,495,287

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APPENDIx II.A

Note EQUITY Capital and reserves attributable to the equity holders of Shanghai Shimao Share capital 18 Reserves 19 Total equity LIABILITIES Non-current liabilities Deferred income tax liabilities 21 Current liabilities Trade and other payables 22 Amounts due to subsidiaries 12 Amounts due to related parties 23 Income tax payable Borrowings 20 Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 354,667 354,667 478,355 393,765 372,394 290,251 748,432 727,061 768,606 1,031 4,448 13,415 7,174 2,220 1,260 40,000 166,533 77,941 — — 150 720 — — 300,252 60,000 125,000 348,146 228,753 204,351 349,177 233,201 217,766 1,097,609 960,262 986,372 177,384 212,696 236,236 749,463 731,509 782,021	As at 30 June 2007 RMB’000 478,355 736,637
		1,214,992
		121,705
		16,046 33,544 9,000 — 100,000
		158,590
		280,295
		1,495,287
		342,393
		1,336,697

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APPENDIx II.A

Consolidated Income Statements

Note Revenue 5 Cost of sales 25 Gross profit Fair value gains on an investment property 7 Other (losses)/gains 24 Selling and marketing costs 25 Administrative expenses 25 Other operating expenses 25 Operating (loss)/profit Finance income Finance costs 26 Finance costs — net Share of results of: — Associated companies 13 — Jointly controlled entity 14 (Loss)/profit before income tax Income tax expense 28 (Loss)/profit for the year/period Attributable to: Equity holders of Shanghai Shimao Minority interest Dividends 29 (Loss)/earnings per share for attributable to the equity holders of Shanghai Shimao — basic and diluted (RMB cents) 31	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 1,205,014 652,245 2,430,896 (1,181,208) (515,891) (1,479,508) 23,806 136,354 951,388 13,600 12,400 13,300 (64,368) 7,626 9,724 (86,095) (42,260) (101,210) (28,567) (58,607) (68,521) (3,307) (1,420) (2,519) (144,931) 54,093 802,162 10,969 6,316 8,316 (19,011) (12,241) (7,809) (8,042) (5,925) 507 (12,747) (302) 9 (33,589) — — (199,309) 47,866 802,678 2,162 (57,047) (403,930) (197,147) (9,181) 398,748 (171,361) (2,413) 207,968 (25,786) (6,768) 190,780 (197,147) (9,181) 398,748 41,377 17,734 23,917 (35.8) (0.5) 43.5	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 67,236 424,375 (48,626) (224,358) 18,610 200,017 12,400 6,100 2,118 22,336 (5,861) (9,725) (37,942) (48,146) (1,138) (15,485) (11,813) 155,097 1,733 3,822 (3,175) (6,953) (1,442) (3,131) (26) 21 — — (13,281) 151,987 (529) (81,446) (13,810) 70,541 (5,133) 44,084 (8,677) 26,457 (13,810) 70,541 — — (1.1) 9.2

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APPENDIx II.A

Consolidated Statements of Changes in Equity

Note Balance at 1 January 2004 Issue of shares arising from stock dividend 18(ii) Set up of new subsidiaries Jointly controlled entity turn into subsidiary Loss for the year Dividends 29 Balance at 31 December 2004 Balance at 1 January 2005 Set up of new subsidiaries Loss for the year Dividends 29 Balance at 31 December 2005 Balance at 1 January 2006 Fair value gain of available- for-sale financial assets Deferred tax of available-for- sale financial assets Net income recognised directly in equity Issue of shares arising from stock reform plan 18(iii, iv) Profit for the year Share issuing expenses Dividends 29 Balance at 31 December 2006	Attributable to the equity holders of Shanghai Shimao Share capital Reserves RMB’000 RMB’000 (Note 18) (Note 19) 236,445 685,605 118,222 (118,222) — — — — — (171,361) — (23,643) 354,667 372,379 354,667 372,379 — — — (2,413) — (17,734) 354,667 352,232 354,667 352,232 — 13,898 — (4,587) — 9,311 123,688 (123,688) — 207,968 — (3,049) — (17,734) 478,355 425,040	Total RMB’000 922,050 — — — (171,361) (23,643)	Minority interest RMB’000 96,996 — 8,277 247,131 (25,786) — 326,618 326,618 41,723 (6,768) (200,000) 161,573 161,573 — — — — 190,780 — (40,000) 312,353	Total RMB’000 1,019,046 — 8,277 247,131 (197,147) (23,643) 1,053,664 1,053,664 41,723 (9,181) (217,734) 868,472 868,472 13,898 (4,587) 9,311 — 398,748 (3,049) (57,734) 1,215,748
	Share capital RMB’000 (Note 18) 236,445 118,222 — — — — 354,667 354,667 — — — 354,667 354,667 — — — 123,688 — — — 478,355
		727,046
		727,046 — (2,413) (17,734)
		706,899
		706,899 13,898 (4,587) 9,311 — 207,968 (3,049) (17,734) 903,395

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APPENDIx II.A

Attributable to the

Note Balance at 1 January 2006 Fair value gain of available- for-sale financial assets Deferred tax of available-for- sale financial assets Net income recognised directly in equity Loss for the period Dividends 29 Balance at 30 June 2006 (Unaudited) Balance at 1 January 2007 Fair value gain of available- for-sale financial assets Deferred tax of available-for- sale financial assets Net income recognised directly in equity Profit for the period Dividends Balance at 30 June 2007	equity holders of Shanghai Shimao Share capital Reserves RMB’000 RMB’000 (Note 18) (Note 19) 354,667 352,232 — 10,719 — (3,537) — 7,182 — (5,133) — (17,734) 354,667 336,547 478,355 425,040 — 443,058 — (113,422) — 329,636 — 44,084 — (23,917) 478,355 774,843	Total RMB’000 706,899 10,719 (3,537) 7,182 (5,133) (17,734) 691,214 903,395 443,058 (113,422) 329,636 44,084 (23,917) 1,253,198	Minority interest RMB’000 161,573 — — — (8,677) — 152,896 312,353 — — — 26,457 (128,975) 209,835	Total RMB’000 868,472 10,719 (3,537) 7,182 (13,810) (17,734) 844,110 1,215,748 443,058 (113,422) 329,636 70,541 (152,892) 1,463,033
	Share capital RMB’000 (Note 18) 354,667 — — — — — 354,667 478,355 — — — — — 478,355

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APPENDIx II.A

Consolidated Cash Flow Statements

Note Operating activities Net cash generated from operations 30 Interest received Interest paid Income tax paid Net cash generated from operating activities Investing activities Additions of property, plant and equipment and investment properties Sales of property, plant and equipment Additions of land use rights Dividend received from an associated company Jointly controlled entity turn into a subsidiary Disposal of associated companies Net cash generated from/(used in) investing activities Financing activities Proceeds from borrowings Repayments of borrowings Share issuing expenses Increase in amounts due to minority shareholders Dividend paid to the equity holders of Shanghai Shimao Dividend paid to minority interest Net cash (used in)/from financing activities	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 190,598 840,398 113,180 557 1,787 8,316 (19,004) (11,898) (7,458) (9,618) (111,986) (13,894) 162,533 718,301 100,144 (1,993) (4,263) (944) — 16 2,370 (60) (65,800) — 120,000 — — 17,518 — — 254,368 — — 389,833 (70,047) 1,426 294,252 415,000 565,000 (689,327) (684,252) (430,000) — — (3,049) 8,277 41,723 — (20,439) (20,726) (17,802) — (200,000) (40,000) (407,237) (448,255) 74,149	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 164,071 515,633 1,733 3,822 (3,079) (6,948) (11,956) (262,430) 150,769 250,077 (552) (681) — — — — — — — — — — (552) (681) 465,000 408,000 (160,000) (286,760) — — — — — — — (100,000) 305,000 21,240

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APPENDIx II.A

Note Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year/ period Effect of foreign exchange rate changes Cash and cash equivalents at end of the year/period 17	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 145,129 199,999 175,719 58,602 203,793 402,669 62 (1,123) (1,392) 203,793 402,669 576,996	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 455,217 270,636 402,669 576,996 (116) — 857,770 847,632	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 455,217 270,636 402,669 576,996 (116) — 857,770 847,632
			847,632

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APPENDIx II.A

II NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 GENERAL INFORMATION

Shanghai Shimao Company Limited (“Shanghai Shimao”), formerly known as Shanghai Wan Xiang (Group) Co., Ltd., was listed on the Shanghai Stock Exchange in 1994. In 2001, Shanghai Shimao changed its name to Shanghai Shimao Company Limited. The address of its registered office is Room 3008, World Trade Tower, No. 500, Guangdong Road, Shanghai, China. The principal activities of Shanghai Shimao and its subsidiaries are property development and property investment.

The consolidated financial statements are presented in thousands of Renminbi (RMB’000), unless otherwise stated.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all the relevant periods presented, unless otherwise stated.

(a) Basis of preparation

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) and under the historical cost convention, as modified by the revaluation of investment properties and available-for-sale financial assets which are carried at fair value.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Shanghai Shimao Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4.

(i) The following new standards have been issued and relevant to the Shanghai Shimao Group’s operation, but are not effective for the financial year beginning on 1 January 2007 and have not been early adopted:
HKFRS 8 “Operating Segments” (effective for annual periods beginning on or after 1 January 2009). HKFRS 8 supersedes HKAS 14, under which segments were identified and reported on risk and return analysis. Items were reported on the accounting policies used for external reporting. Under HKFRS 8, segments are components of an entity regularly reviewed by an entity’s chief operating decisionmaker. Items are reported based on the internal reporting. It is expected that the adoption of HKFRS 8 from 1 January 2009 will not have material impact on the Shanghai Shimao Group’s consolidated financial statements.
HKAS 23 (Revised) “Borrowing Costs” (effective for annual periods beginning on or after 1 January 2009). It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. It is expected that the adoption of HKAS 23 (Revised) from 1 January 2009 will not have material impact on the Shanghai Shimao Group’s current accounting policies and consolidated financial statements.
HK(IFRIC)-Int 13 “Customer Loyalty Programmes” (effective for annual periods beginning on or after 1 July 2008). HK(IFRIC)-Int 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. It is expected that the adoption of HK(IFRIC)Int 13 from 1 January 2009 will not have material impact on the Shanghai Shimao Group’s consolidated financial statements.

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APPENDIx II.A

(ii) The following recently published but not yet effective new standards, amendments and interpretations to existing standards of HKFRS, and concluded that they are not relevant to the Shanghai Shimao Group’s operations.
HK(IFRIC)-Int 11-HKFRS 2 “Group and Treasury Share Transactions” effective for annual periods beginning on or after March 1, 2007.
HK(IFRIC)-Int 12 “Service Concession Arrangement” (effective for annual periods beginning on or after 1 January 2008).

It applies to companies that participate in service concession arrangements and provides guidance on the accounting by operations in public-to-private service concession arrangements. As none of the group entities have service concession arrangement, HK(IFRIC)-Int 12 is not relevant to the Shanghai Shimao Group’s operations.

HK(IFRIC)-Int 14 “HKAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction” (effective for annual periods on or after 1 January 2008).

HK(IFRIC)-Int 14 provides guidance on assessing the limit in HKAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. HK(IFRIC)-Int 14 is not relevant to the Shanghai Shimao Group’s operations as the Shanghai Shimao Group has no defined benefit plans.

(b) Consolidation

(i) Subsidiaries

Subsidiaries are all entities over which the Shanghai Shimao Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Shanghai Shimao Group controls another entity.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Shanghai Shimao Group.

Under the purchase method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Shanghai Shimao Group. They are de-consolidated from the date that control ceases. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Shanghai Shimao Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference being negative goodwill is recognised directly in the consolidated income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Shanghai Shimao Group.

In Shanghai Shimao’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by Shanghai Shimao on the basis of dividend received and receivable.

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APPENDIx II.A

(ii) Transactions with minority interest

The Shanghai Shimao Group applies a policy of treating transactions with minority interest as transactions with parties external to the Shanghai Shimao Group. Disposals to minority interest result in gains and losses for the Shanghai Shimao Group that are recorded in the consolidated income statement. Purchases from minority interests generally result in goodwill, being the excess of any consideration paid over the relevant share acquired of the carrying value of net assets of the subsidiary. If the cost of acquisition is less than the relevant interest acquired of the carrying value of net assets of the subsidiary, the difference being negative goodwill is recognised directly in the consolidated income statement.

(c) Segment reporting

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the group companies are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Renminbi (“RMB’’), which is the functional and presentation currency of Shanghai Shimao.

(ii) Transactions and balances

Translation differences on non-monetary financial assets and liabilities are reported as part of their fair value gain or loss. Translation differences on non-monetary items such as equity classified as available-for-sale financial assets, are included in the fair value reserve in equity.

(e) Property, plant and equipment

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Shanghai Shimao Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the consolidated income statement during the financial period in which they are incurred.

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APPENDIx II.A

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs less their residual values over their estimated useful lives, as follows:

Buildings 50 years or the remaining lease period of the land use rights, whichever is shorter Furniture and equipment 5 years Motor vehicles 10 years Building improvements 10 to 20 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are recorded in the consolidated income statement.

(f) Assets under construction

(g) Investment property

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Shanghai Shimao Group companies is classified as investment property.

Investment property comprises land held under operating leases and buildings owned by the Shanghai Shimao Group. Land held under operating leases are classified and accounted for as investment property when the rest of the definition of investment property is met. The operating lease is accounted for as if it were a finance lease.

Investment property is measured initially at its cost, including related transaction costs.

After initial recognition, investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Shanghai Shimao Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. These valuations are performed at each balance sheet date by external valuers. Investment property that is being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be measured at fair value.

The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions.

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APPENDIx II.A

Subsequent expenditure is included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Shanghai Shimao Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the consolidated income statement during the financial period in which they are incurred.

Changes in fair values of investment property are recognised in the consolidated income statement.

(h) Intangible assets — goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Shanghai Shimao Group’s share of the net identifiable assets of the acquired subsidiary/associated company/jointly controlled entity at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associated companies/jointly controlled entities is included in investments in associated companies/jointly controlled entities. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

(i) Associated companies

Associated companies are all entities over which the Shanghai Shimao Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associated companies are accounted for using the equity method of accounting and are initially recognised at cost. The Shanghai Shimao Group’s investment in associated companies includes goodwill identified on acquisition (Note 2(h)), net of any accumulated impairment losses.

The Shanghai Shimao Group’s share of its associated companies’ post-acquisition profits or losses are recognised in the consolidated income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investments. When the Shanghai Shimao Group’s share of losses in an associated company equals or exceeds its interest in the associated company, including any other long-term interests that, in substance, form part of the investor’s net investment in the associated company, the Shanghai Shimao Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associated company.

Unrealised gains on transactions between the Shanghai Shimao Group and its associated companies are eliminated to the extent of the Shanghai Shimao Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associated companies have been changed where necessary to ensure consistency with the policies adopted by the Shanghai Shimao Group.

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APPENDIx II.A

Dilution gains and losses arising in investments in associates are recognised in the consolidated income statement.

In Shanghai Shimao’s balance sheet the investments in associated companies are stated at cost less provision for impairment losses (Note 2(k)). The results of associated companies are accounted for by Shanghai Shimao on the basis of dividend received and receivable.

(j) Jointly controlled entities

Investment in a jointly controlled entity is accounted for using the equity method of accounting. The consolidated income statement includes the Shanghai Shimao Group’s share of the results of jointly controlled entities for the year, and the consolidated balance sheet includes the Shanghai Shimao Group’s share of the net assets of the jointly controlled entities and goodwill, if any, on acquisition.

In Shanghai Shimao’s balance sheet the investments in are stated at cost less provision for impairment losses (Note 2(k)). The results of jointly controlled entities are accounted for by Shanghai Shimao on the basis of dividend received and receivable.

(k) Impairment of investments in subsidiaries, associated companies, jointly controlled entities and non-financial assets

(l) Financial assets

The Shanghai Shimao Group classifies its financial assets into loans and receivables and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet (Note 2(o) and Note 2(p)).

(ii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives financial assets that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months from the balance sheet date.

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APPENDIx II.A

Regular purchases and sales of investments are recognised on the trade-date — the date on which the Shanghai Shimao Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Shanghai Shimao Group has transferred substantially all risks and rewards of ownership. Available for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold, the accumulated fair value adjustments are included in the consolidated income statement as gains or losses from investment securities.

Interest on available-for-sale securities calculated using the effective interest method is recognised in the consolidated income statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the consolidated income statement as part of other income when the Shanghai Shimao Group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Shanghai Shimao Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Shanghai Shimao Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss — is removed from equity and recognised in the consolidated income statement. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement.

(m) Properties under development

Properties under development are classified as current assets unless the construction period of the relevant property development project is expected to complete beyond normal operating cycle.

(n) Completed properties held for sale

Completed properties held for sale are stated at the lower of cost and net realisable value.

Cost comprises development costs attributable to the unsold properties.

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APPENDIx II.A

(o) Trade and other receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recognised on the trade date — the date on which the Shanghai Shimao Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Shanghai Shimao Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the provision is recognised in the consolidated income statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the income statement.

Trade and other receivables are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets.

(p) Cash and cash equivalents

Cash and cash equivalents include cash in hand and at banks and deposits held at call with banks.

(q) Borrowings

Borrowings are classified as current liabilities unless the Shanghai Shimao Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(r) Current and deferred income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where Shanghai Shimao’s subsidiaries, jointly controlled entities and associated companies operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associated companies and jointly controlled entities, except where the timing of the reversal of the temporary difference can be controlled by the Shanghai Shimao Group and it is probable that the temporary difference will not reverse in the foreseeable future.

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(s) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(t) Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(u) Employee benefits

(i) Employee leave entitlements

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Retirement benefits

In accordance with the rules and regulations in the PRC, the PRC based employees of the Shanghai Shimao Group participate in various defined contribution retirement benefit plans organised by the relevant municipal and provincial governments in the PRC under which the Shanghai Shimao Group and the PRC based employees are required to make monthly contributions to these plans calculated as a percentage of the employees’ salaries.

The municipal and provincial governments undertake to assume the retirement benefit obligations of all existing and future retired PRC based employees payable under the plans described above. Other than the monthly contributions, the Shanghai Shimao Group has no further obligation for the payment of retirement and other post retirement benefits of its employees. The assets of these plans are held separately from those of the Shanghai Shimao Group in independently administrated funds managed by the PRC government.

(v) Financial guarantee liabilities

Financial guarantee liabilities are recognised in respect of the financial guarantee provided by the Shanghai Shimao Group to the property purchasers.

Financial guarantee liabilities are recognised initially at fair value plus transaction costs that are directly attributable to the issue of the financial guarantee liabilities. After initial recognition, such contracts are measured at the higher of the present value of the best estimate of the expenditure required to settle the present obligation and the amount initially recognised less cumulative amortisation.

Financial guarantee liabilities are derecognised from the balance sheet when, and only when, the obligation specified in the contract is discharged or cancelled or expired.

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(w) Provisions and contingent liabilities

Provisions are recognised when the Shanghai Shimao Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Shanghai Shimao Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

(x) Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sales of properties and services in the ordinary course of the Shanghai Shimao Group’s activities, net of returns and discounts. Revenues are recognised as follows:

(i) Sales of properties

(ii) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Shanghai Shimao Group reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.

(iii) Rental income

Rental income from properties letting under operating leases is recognised on a straight line basis over the lease terms.

(iv) Dividend income

Dividend income is recognised when the right to receive payment is established.

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(y) Government grants

Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Shanghai Shimao Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the consolidated income statement over the period necessary to match them with the costs that they are intended to compensate.

(z) Leases

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

(i) The Shanghai Shimao Group is the lessee other than operating lease of land use rights

Payments made under operating leases (net of any incentives received from the lessor), are charged to the consolidated income statement on a straight-line basis over the period of the lease.

(ii) The Shanghai Shimao Group is the lessee under operating lease of land use rights

The Shanghai Shimao Group made upfront payments to obtain operating leases of land use rights on which properties will be developed. The upfront payments of the land use rights are recorded as assets and amortised over the lease periods. The amortisation during the period of construction of the properties is capitalised as the cost of properties under development and assets under construction. The amortisation during the period before the commencement and after the completion of the construction of the properties is expensed in the consolidated income statement. The unamortised upfront payments are recognised as cost of sales when the relevant properties are sold or transferred to the cost of investment properties upon completion of the relevant properties (Note 2(f)).

(aa) Dividend distribution

Dividend distribution to Shanghai Shimao’s shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by Shanghai Shimao’s shareholders.

3 FINANCIAL RISK MANAGEMENT

(a) Financial risk factors

The Shanghai Shimao Group’s activities expose it to a variety of financial risks: market risk (including currency risk, cash flow and fair value interest risk and price risk), credit risk and liquidity risk. The Shanghai Shimao Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Shanghai Shimao Group’s financial performance.

(i) Foreign exchange risk

The Shanghai Shimao Group’s businesses are principally conducted in RMB. Foreign exchange risk arises mainly from certain receipts of proceeds from sales of properties which are in other foreign currencies (Note 17). The Shanghai Shimao Group currently does not have a foreign currency hedging policy as the exposure in cash and cash equivalents in foreign currencies is not significant.

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(ii) Cash flow and fair value Interest rate risk

The Shanghai Shimao Group’s income and operating cash flows are substantially independent of changes in market interest rates. Except for bank deposits and certain entrusted loan to related parties, the Shanghai Shimao Group has no significant interest-bearing assets. The Shanghai Shimao Group’s exposure to changes in interest rates is mainly attributable to its borrowings. Borrowings at variable rates expose the Shanghai Shimao Group to cash flow interest rate risk. Borrowings at fixed rates expose the Shanghai Shimao Group to fair value interest rate risk. The Shanghai Shimao Group’s current borrowings are issued at fixed rates and therefore exposed to fair value interest rate risk. With the current level of debt, the Shanghai Shimao Group considers the exposure is minimal but will explore ways to reduce the exposure should new borrowings be required to support the Shanghai Shimao Group’s operation.

The Shanghai Shimao Group’s borrowings are denominated in RMB. As at 31 December 2004, 2005, 2006 and 30 June 2007, if interest rate had been 0.5% higher/lower with all other variables held constant, post tax losses for the years ended 31 December 2004 and 2005 would have been RMB1,092,000 and RMB678,000 higher/lower; post tax profits for the year ended 31 December 2006 and the six months ended 30 June 2007 would have been RMB414,000 and RMB350,000 lower/higher.

(iii) Price risk

The Shanghai Shimao Group is exposed to equity securities price risk because investments held by the Shanghai Shimao Group are classified on the consolidated balance sheets as available-for-sale. The Shanghai Shimao Group has not hedged its price risk arising from investments in equity securities financial assets due to lack of hedging instruments (Note 9).

The Shanghai Shimao Group’s equity investments are not public traded or non-tradable listed securities. As at 31 December 2004, 2005 and 2006, the available-for-sale financial assets of the Shanghai Shimao Group were not public traded. The value could be sensitive to the price of similar financial assets. As at 30 June 2007, the availablefor-sale financial assets of the Shanghai Shimao Group obtained listing status but with certain lock-up period, the value of which is sensitive to the market price.

The Shanghai Shimao Group refers comparable price and price to earnings ratio to estimate the price of the available-for-sale financial instruments. If the price to earnings ratio increase/decrease by 10%, the balance of the available-for-sale financial instruments as at 31 December 2004, 2005, 2006 and 30 June 2007 would have been approximately RMB1,000,000, RMB1,000,000, RMB2,000,000 and RMB46,000,000 higher/lower.

(iv) Credit risk

The Shanghai Shimao Group is exposed to credit risk in relation to its trade and other receivables, and cash deposits in banks and amounts due from related parties. To manage the risk, cash transactions are limited to mainly state-owned banks which are all high-credit-quality institutions. The Shanghai Shimao Group has policies in place to ensure that sales of properties are made to purchasers with an appropriate financial strength and appropriate percentage of down payment. It also has other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Other receivables mainly comprise deposits made to government agencies for property development purposes which are be recovered upon completion of the development. The Shanghai Shimao Group has no concentrations of credit risk, with exposure spread over a number of counterparties and customers.

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(v) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents to meet its operation needs and commitments in respect of property projects. The Shanghai Shimao Group aims to maintain flexibility in funding by maintaining committed credit lines.

The table below analyses the Shanghai Shimao Group’s financial liabilities based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flow.

		Between	Between
	Less than 1 year	1 and 2 years	2 and 5 years	Over 5 years
	RMB’000	RMB’000	RMB’000	RMB’000
As at 30 June 2007
Borrowings and interests	258,118	268,128	—	—
Trade and other payables	552,801	—	—	—
Amounts due to related companies	37,825	—	—	—
As at 31 December 2006
Borrowings and interests	288,097	103,452	—	—
Trade and other payables	615,197	—	—	—
Amounts due to related companies	300	—	—	—
As at 31 December 2005
Borrowings and interests	248,633	—	—	—
Trade and other payables	450,669	—	—	—
As at 31 December 2004
Borrowings and interests	518,142	—	—	—
Trade and other payables	370,307	—	—	—
Amounts due to related companies	11,737	—	—	—

(b) Capital risk management

The Shanghai Shimao Group’s objectives when managing capital are to safeguard the Shanghai Shimao Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Shanghai Shimao Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Shanghai Shimao Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings, trade and other payables and advances proceeds received from customers as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as equity as shown in the consolidated balance sheet plus net debt.

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The Shanghai Shimao Group’s strategy is to maintain a reasonable gearing ratio. The gearing ratios at 31 December 2004, 2005 and 2006 and 30 June 2007 were as follows:

Borrowings Trade and other payables Advanced proceeds received from customers Less: cash and cash equivalents Net debt Total equity Total capital Gearing ratio	2004 RMB’000 509,252 370,307 470,864 1,350,423 (203,793) 1,146,630 1,053,664 2,200,294 52.1%	As at 31 December 2005 2006 RMB’000 RMB’000 240,000 375,000 450,669 615,197 979,417 9,728 1,670,086 999,925 (402,669) (576,996) 1,267,417 422,929 868,472 1,215,748 2,135,889 1,638,677 59.3% 25.8%	As at 30 June 2007 RMB’000 496,240 552,801 163,169 1,212,210 (847,632) 364,578 1,463,033 1,827,611 19.9%

The decrease in the gearing ratio as at 31 December 2006 and 30 June 2007 resulted primarily from less reliance on proceeds from presale activities.

(c) Fair value estimation

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Shanghai Shimao Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date.

The face values less any estimated credit adjustments for receivables and payables with a maturity of less than one year approximate their fair values due to short-term maturities of these assets and liabilities. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Shanghai Shimao Group for similar financial instruments.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Shanghai Shimao Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that may have a significant effect on the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Income taxes and deferred taxation

Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

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(b) Land appreciation tax

The Shanghai Shimao Group is subject to land appreciation tax in the PRC. However, the implementation and settlement of the tax varies among different tax jurisdictions in various cities of the PRC, and the Shanghai Shimao Group has not finalised its land appreciation tax calculation and payments with any local tax authorities in the PRC. Accordingly, significant judgement is required in determining the amount of the land appreciation and its related tax. The Shanghai Shimao Group recognise land appreciation tax based on management’s best estimates according to the understanding of the tax rules. The final tax outcome could be different from the amounts that were initially recorded, and these differences will impact the tax provisions in the periods in which such tax is finalised with local tax authorities.

(c) Estimated fair value of investment properties

The best evidence of fair value is current prices in an active market for the properties with similar lease and other contracts. In the absence of such information, the Shanghai Shimao Group determines the amount within a range of reasonable fair value estimates. In making its judgement, the Shanghai Shimao Group considers information from a variety of sources including:

(i) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;
(ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
(iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The Shanghai Shimao Group assesses the fair value of its investment properties based on valuations determined by independent professional qualified valuers.

5 SEGMENT INFORMATION

The Shanghai Shimao Group is principally engaged in the property development, property investment and hotel operation. The property and hotel projects undertaken by the Shanghai Shimao Group were all located in the PRC. As majority of the Shanghai Shimao Group’s consolidated revenue and results are attributable to the market in the PRC and most of the Shanghai Shimao Group’s consolidated assets are located in the PRC, no geographical segment information is presented.

Revenue and turnover for the year ended 31 December 2004, 2005, 2006 and the six months period ended 30 June 2006 and 2007 as following:

Sale of properties Others	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 1,203,603 646,358 2,427,761 1,411 5,887 3,135 1,205,014 652,245 2,430,896	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 65,142 422,585 2,094 1,790 67,236 424,375	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 65,142 422,585 2,094 1,790 67,236 424,375
			424,375

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APPENDIx II.A

Segment information is as follows:

Primary reporting format — business segments

Year ended 31 December 2004

Segment revenue Segment results Finance costs — net Share of results of — associated companies — jointly controlled entity Profit/(loss) before income tax Income tax expense Loss for the year Capital and property development expenditure Depreciation Amortisation of land use rights as expenses Fair value gains on an investment property As at 31 December 2004 Segment assets Cash and cash equivalents Associated companies Available-for-sale financial assets Deferred income tax assets Total assets Segment liabilities Corporate borrowings Income tax payable Deferred income tax liabilities Total liabilities	Property development RMB’000 1,203,603 (137,104) 199 (12,747) (33,589) (183,241) 1,558,007 978 2,078 — 2,055,766 125,726 — — 2,181,492 805,735 209,000 1,014,735	Hotel RMB’000 — — — — — — 124,713 — — — 124,714 — — — 124,714 — — —	Property investment RMB’000 — 13,600 — — — 13,600 — — — 13,600 172,100 — — — 172,100 — — —	Unallocated RMB’000 1,411 (21,427) (8,241) — — (29,668) — 722 — — 28,034 78,067 591 11,138 117,830 47,173 300,252 347,425	Total RMB’000 1,205,014 (144,931) (8,042) (12,747) (33,589) (199,309) 2,162 (197,147) 1,682,720 1,700 2,078 13,600 2,380,614 203,793 591 11,138 2,596,136 49,556 2,645,692 852,908 509,252 1,362,160 221,677 8,191 1,592,028

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Year ended 31 December 2005

Segment revenue Segment results Finance costs — net Share of results of — associated companies — jointly controlled entity Profit/(loss) before income tax Income tax expense Loss for the year Capital and property development expenditure Depreciation Amortisation of land use rights as expenses Fair value gains on an investment property As at 31 December 2005 Segment assets Cash and cash equivalents Associated companies Available-for-sale financial assets Deferred income tax assets Total assets Segment liabilities Corporate borrowings Income tax payable Deferred income tax liabilities Total liabilities	Property development RMB’000 646,358 46,154 (801) — — 45,353 279,307 2,046 175 — 1,799,177 365,864 — — 2,165,041 1,409,359 180,000 1,589,359	Hotel RMB’000 — — — — — — 19,662 — — — 144,376 — — — 144,376 — — —	Property investment RMB’000 — 12,353 — — — 12,353 106,741 — — 12,400 291,240 126 — — 291,366 6,913 — 6,913	Unallocated RMB’000 5,887 (4,414) (5,124) (302) — (9,840) 26 1,365 — — 76,014 36,679 289 8,418 121,400 13,814 60,000 73,814	Total RMB’000 652,245 54,093 (5,925) (302) — 47,866 (57,047) (9,181) 405,736 3,411 175 12,400 2,310,807 402,669 289 8,418 2,722,183 48,335 2,770,518 1,430,086 240,000 1,670,086 226,660 5,300 1,902,046

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Year ended 31 December 2006

Segment revenue Segment results Finance costs — net Share of results of — associated companies — jointly controlled entity Profit/(loss) before income tax Income tax expense Profit for the year Capital and property development expenditure Depreciation Amortisation of land use rights as expenses Fair value gains on an investment property As at 31 December 2006 Segment assets Cash and cash equivalents Associated companies Available-for-sale financial assets Deferred income tax assets Total assets Segment liabilities Corporate borrowings Income tax payable Deferred income tax liabilities Total liabilities	Property development RMB’000 2,427,761 806,519 (361) — — 806,158 1,350,489 5,755 175 — 1,543,736 442,474 — — 1,986,210 603,791 250,000 853,791	Hotel RMB’000 — — — — — — 54,296 — — — 198,196 — — — 198,196 — — —	Property investment RMB’000 — 11,547 — — — 11,547 6,414 — — 13,300 311,379 3,831 — — 315,210 19,209 — 19,209	Unallocated RMB’000 3,135 (15,904) 868 9 — (15,027) 91 1,174 — — 47,377 130,691 298 22,316 200,682 2,225 125,000 127,225	Total RMB’000 2,430,896 802,162 507 9 — 802,678 (403,930) 398,748 1,411,290 6,929 175 13,300 2,100,688 576,996 298 22,316 2,700,298 41,928 2,742,226 625,225 375,000 1,000,225 512,411 13,842 1,526,478

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Six months ended 30 June 2006 (unaudited)

Segment revenue Segment results Finance costs — net Share of results of — associated companies — jointly controlled entity Profit/(loss) before income tax Income tax expense Profit for the period Capital and property development expenditure Depreciation Amortisation of land use rights as expenses Fair value gains on an investment property As at 30 June 2006 Segment assets Cash and cash equivalents Associated companies Available-for-sale financial assets Deferred income tax assets Total assets Segment liabilities Corporate borrowings Income tax payable Deferred income tax liabilities Total liabilities	Property development RMB’000 65,142 (20,377) (162) — — (20,539) 364,017 2,856 88 — 2,582,776 490,432 — — 3,073,208 2,090,832 420,000 2,510,832	Hotel RMB’000 — — — — — — 2,487 — — — 146,863 — — — 146,863 — — —	Property investment RMB’000 — 12,302 — — — 12,302 2,015 — — 12,400 305,667 1,106 — — 306,773 10,018 — 10,018	Unallocated RMB’000 2,094 (3,738) (1,280) (26) — (5,044) — 977 — — 69,219 85,458 263 19,135 174,075 16,000 125,000 141,000	Total RMB’000 67,236 (11,813) (1,442) (26) — (13,281) (529) (13,810) 368,519 3,833 88 12,400 3,104,525 576,996 263 19,135 3,700,919 53,191 3,754,110 2,116,850 545,000 2,661,850 236,258 11,893 2,910,001

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

Six months ended 30 June 2007

Segment revenue Segment results Finance costs — net Share of results of — associated companies — jointly controlled entity Profit/(loss) before income tax Income tax expense Profit for the period Capital and property development expenditure Depreciation Amortisation of land use rights as expenses Fair value gains on an investment property As at 30 June 2007 Segment assets Cash and cash equivalents Associated companies Available-for-sale financial assets Deferred income tax assets Total assets Segment liabilities Corporate borrowings Income tax payable Deferred income tax liabilities Total liabilities	Property development RMB’000 422,585 156,956 (3,175) — — 153,781 300,658 2,637 88 — 1,316,735 744,976 — — 2,061,711 708,675 396,240 1,104,915	Hotel RMB’000 — — — — — — 40,280 — — — 234,823 — — — 234,823 — — —	Property investment RMB’000 — 4,972 — — — 4,972 5,364 — — 6,100 322,776 1,449 — — 324,225 23,253 — 23,253	Unallocated RMB’000 1,790 (6,831) 44 21 — (6,766) — 641 — — 30,182 101,207 319 465,374 597,082 21,867 100,000 121,867	Total RMB’000 424,375 155,097 (3,131) 21 — 151,987 (81,446) 70,541 346,302 3,278 88 6,100 1,904,516 847,632 319 465,374 3,217,841 80,636 3,298,477 753,795 496,240 1,250,035 463,277 122,132 1,835,444

Unallocated costs mainly represent corporate expenses.

Segment assets consist primarily of property, plant and equipment, investment property, land use rights, properties under development and receivables. They exclude deferred income tax assets.

Segment liabilities comprise operating liabilities. They exclude corporate borrowings and deferred income tax liabilities.

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APPENDIx II.A

6 PROPERTY, PLANT AND EQUIPMENT

Shanghai Shimao Group

Cost At 1 January 2004 Jointly controlled entity turn into subsidiary Additions Amortisation of land use rights At 31 December 2004 Accumulated depreciation and impairment At 1 January 2004 Charge for the year At 31 December 2004 Net book value At 31 December 2004 Cost At 1 January 2005 Additions Amortisation of land use rights Disposals At 31 December 2005 Accumulated depreciation and impairment At 1 January 2005 Charge for the year Disposals At 31 December 2005 Net book value At 31 December 2005 Cost At 1 January 2006 Additions Amortisation of land use rights Disposals At 31 December 2006 Accumulated depreciation and impairment At 1 January 2006	Assets under construction RMB’000 349 — — 1,254 1,603 — — — 1,603 1,603 15,598 2,737 — 19,938 — — — — 19,938 19,938 53,821 2,668 — 76,427 —	Furniture and equipment RMB’000 2,082 416 1,412 — 3,910 (843) (481) (1,324) 2,586 4,252 3,197 — (124) 7,325 (1,666) (1,078) 96 (2,648) 4,677 7,325 738 — (827) 7,236 (2,648)	Motor vehicles RMB’000 1,455 2,733 581 — 4,769 (126) (357) (483) 4,286 5,177 567 — — 5,744 (891) (593) — (1,484) 4,260 5,744 385 — (4,001) 2,128 (1,484)	Self-use buildings and improvements RMB’000 26,488 — — — 26,488 (5,905) (862) (6,767) 19,721 26,488 37,902 — — 64,390 (6,767) (1,740) — (8,507) 55,883 64,390 — — — 64,390 (8,507)	Total RMB’000 30,374 3,149 1,993 1,254 36,770 (6,874) (1,700) (8,574) 28,196 37,520 57,264 2,737 (124) 97,397 (9,324) (3,411) 96 (12,639) 84,758 97,397 54,944 2,668 (4,828) 150,181 (12,639)

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APPENDIx II.A

ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

Charge for the year Disposals At 31 December 2006 Net book value At 31 December 2006 Cost At 1 January 2007 Additions Amortisation of land use rights Disposals At 30 June 2007 Accumulated depreciation and impairment At 1 January 2007 Charge for the period Disposals At 30 June 2007 Net book value At 30 June 2007	Assets under construction RMB’000 — — — 76,427 76,427 36,627 2,601 — 115,655 — — — — 115,655	Furniture and equipment RMB’000 (1,189) 679 (3,158) 4,078 7,236 53 — (6) 7,283 (3,158) (588) 6 (3,740) 3,543	Motor vehicles RMB’000 (710) 942 (1,252) 876 2,128 — — — 2,128 (1,252) (175) — (1,427) 701	Self-use buildings and improvements RMB’000 (5,030) — (13,537) 50,853 64,390 — — (5,973) 58,417 (13,537) (2,515) — (16,052) 42,365	Total RMB’000 (6,929) 1,621 (17,947) 132,234 150,181 36,680 2,601 (5,979) 183,483 (17,947) (3,278) 6 (21,219) 162,264

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Shanghai Shimao

Cost At 1 January 2004 and 31 December 2004 Accumulated depreciation and impairment At 1 January 2004 Charge for the year At 31 December 2004 Net book value At 31 December 2004 Cost At 1 January 2005 Additions Disposals At 31 December 2005 Accumulated depreciation and impairment At 1 January 2005 Charge for the year Disposals At 31 December 2005 Net book value At 31 December 2005 Cost At 1 January 2006 Additions Disposals At 31 December 2006 Accumulated depreciation and impairment At 1 January 2006 Change for the year Disposals	Furniture and equipment RMB’000 947 (811) (43) (854) 93 947 26 (20) 953 (854) (68) 19 (903) 50 953 91 (3) 1,041 (903) (31) 2	Motor vehicles RMB’000 622 (123) (74) (197) 425 622 — — 622 (197) (74) — (271) 351 622 — — 622 (271) (74) —	Self-use buildings and improvements RMB’000 26,465 (5,833) (917) (6,750) 19,715 26,465 — — 26,465 (6,750) (982) — (7,732) 18,733 26,465 — — 26,465 (7,732) (1,046) —	Total RMB’000 28,034
				(6,767) (1,034)
				(7,801)
				20,233
				28,034 26 (20)
				28,040
				(7,801) (1,124) 19
				(8,906)
				19,134
				28,040 91 (3)
				28,128
				(8,906) (1,151) 2

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

At 31 December 2006 Net book value At 31 December 2006 Cost At 1 January 2007 Disposals At 30 June 2007 Accumulated depreciation and impairment At 1 January 2007 Charge for the year Disposals At 30 June 2007 Net book value At 30 June 2007	Furniture and equipment RMB’000 (932) 109 1,041 (6) 1,035 (932) (12) 6 (938) 97	Motor vehicles RMB’000 (345) 277 622 — 622 (345) (37) — (382) 240	Self-use buildings and improvements RMB’000 (8,778) 17,687 26,465 — 26,465 (8,778) (523) — (9,301) 17,164	Total RMB’000 (10,055)
				18,073
				28,128 (6)
				28,122
				(10,055) (572) 6
				(10,621)
				17,501

Depreciation charge of RMB1,700,000, RMB3,411,000, RMB6,929,000, RMB3,278,000 for the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2007 respectively have been recorded in administrative expenses in the consolidated income statement.

As at 31 December 2004 and 2006, self-use buildings of the Shanghai Shimao Group with a total carrying amount of RMB17,858,706 and RMB15,887,274 respectively were pledged as collateral for certain bank borrowings of the Shanghai Shimao Group (Note 20).

As at 31 December 2004, 2005, 2006 and 30 June 2007, there were no interests capitalised in assets under construction.

7 INVESTMENT PROPERTY

Shanghai Shimao Group and Shanghai Shimao

At beginning of the year/period Fair value gains At end of the year/period	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 158,500 172,100 184,500 13,600 12,400 13,300 172,100 184,500 197,800	Six months ended 30 June 2007 RMB’000 197,800 6,100
		203,900

The investment property was revalued on an open market value at each balance sheet date by DTZ Debenham Tie Leung Limited, an independent professional qualified valuer. Valuations were based on capitalizing the net rental income derived from the existing tenancies with allowance for the reversionary potential of the properties or where appropriate, by making reference to comparable sales evidences as available in the relevant market.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

As at 31 December 2004, 2005, 2006 and 30 June 2007, the Shanghai Shimao Group’s investment property was held in the PRC on leases of between 10 to 50 years.

As at 31 December 2004, 2005, 2006 and 30 June 2007, the investment property was pledged as collateral for the Shanghai Shimao Group’s bank borrowings (Note 20).

8 LAND USE RIGHTS/PREPAYMENTS FOR LAND USE RIGHTS

(a) Land use rights

Shanghai Shimao Group

Opening balance of land use rights Jointly controlled entity turn into a subsidiary Additions Amortisation — Capitalised in property, plant and equipment — Capitalised in properties under development — Recognised as expenses Transfer to cost of sales Disposals Ending balance of land use rights Land use rights — relating to property, plant and equipment included under non-current assets — relating to properties under development and completed properties for sale included under current assets Outside Hong Kong, held on leases of: Over 50 years Between 10 to 50 years	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 959,893 880,969 837,298 203,735 — — 60 65,800 34,499 (1,254) (2,737) (2,668) (16,482) (13,135) (10,212) (2,078) (175) (175) (262,905) (93,424) (248,234) — — — 880,969 837,298 610,508 129,757 126,845 124,001 751,212 710,453 486,507 880,969 837,298 610,508 751,212 710,453 486,507 129,757 126,845 124,001 880,969 837,298 610,508	Six months ended 30 June 2007 RMB’000 610,508 — — (2,601) (6,655) (88) (62,387) — 538,777 121,312 417,465 538,777 417,465 121,312 538,777

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Shanghai Shimao

Opening balance of land use rights Amortisation — Recognised as expenses Ending balance of land use rights — relating to property, plant and equipment Outside Hong Kong, held on leases of: Between 10 to 50 years	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 6,823 6,648 6,473 (175) (175) (175) 6,648 6,473 6,298 6,648 6,473 6,298 6,648 6,473 6,298	Six months ended 30 June 2007 RMB’000 6,298 (88) 6,210 6,210 6,210

Land use rights comprise cost of acquiring rights to use certain land, which are all located in the PRC, for property development.

As at 31 December 2005, 2006 and 30 June 2007, land use rights of RMB102,406,914, RMB502,103,406 and RMB372,286,130 respectively were pledged as collateral for the Shanghai Shimao Group’s bank borrowings (Note 20).

(b) Prepayment for land use rights

As at 31 December 2005, 2006 and 30 June 2007, the Shanghai Shimao Group’s prepayment for land use rights represent the prepayment for the land use rights located in Nanjing.

9 AVAILABLE-FOR-SALE FINANCIAL ASSETS

Shanghai Shimao Group and Shanghai Shimao

Available-for-sale financial assets are all equity securities.

At beginning of the year/period Impairment provision Gains transfer to equity At ending of the year/period Unlisted Listed	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 22,167 11,138 8,418 (11,029) (2,720) — — — 13,898 11,138 8,418 22,316 11,138 8,418 22,316 — — — 11,138 8,418 22,316	Six months ended 30 June 2007 RMB’000 22,316 — 443,058
		465,374
		— 465,374
		465,374

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

For the year ended 31 December 2004 and 2005, impairment provision of RMB11,029,000 and RMB2,720,000 were provided for available-for-sale financial assets.

All available-for-sale financial assets are denominated in RMB.

The fair values of unlisted securities are estimated by reference to similar securities trade record in the market.

The unlisted securities represent the equity shares in Haitong Securities Co., Ltd., a securities company incorporated in the PRC. The shares of Haitong Securities Co., Ltd. held by Shanghai Shimao were listed on the Shanghai Stock Exchange on 29 June 2007 with a non-tradable period until 28 December 2008.

10 PROPERTIES UNDER DEVELOPMENT

Shanghai Shimao Group

Properties under development comprises: Construction costs and capitalised expenditures Interests capitalised	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 712,342 461,957 434,584 716 11,132 13,937 713,058 473,089 448,521	As at 30 June 2007 RMB’000 524,056 17,526
		541,582

Interest capitalised Opening balance Additions Transfer to cost of sales Transfer to completed properties held for sale Ending balance	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 4,910 716 11,132 19,955 29,860 21,325 (23,730) (16,882) (10,337) (419) (2,562) (8,183) 716 11,132 13,937	Six months ended 30 June 2007 RMB’000 13,937 20,426 (2,959) (13,878)
		17,526

The properties under development are all located in the PRC.

The capitalisation rates of borrowings were 5.25%, 5.85%, 5.97%, 6.25% respectively for the years ended 31 December 2004, 2005, 2006 and the six months ended 30 June 2007.

11 COMPLETED PROPERTIES HELD FOR SALE

All completed properties held for sale of the Shanghai Shimao Group are located in the PRC on leases of between 40 to 70

years.

As at 30 June 2007, completed properties held for sale of RMB58,757,234 were pledged as collateral for the Shanghai Shimao Group’s bank borrowings (Note 20).

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

12 INVESTMENTS IN SUBSIDIARIES — SHANGHAI SHIMAO

Unlisted, at cost less accumulated impairment Amounts due from subsidiaries Amounts due to subsidiaries	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 361,369 299,999 301,001 430,849 422,150 308,950 40,000 166,533 77,941	As at 30 June 2007 RMB’000 301,001
		441,475
		33,544

The amounts due from and due to subsidiaries were interest free, unsecured and have no specific repayment terms.

Details of the subsidiaries of the Shanghai Shimao Group as at 30 June 2007 are set out in Note 33.

Shanghai Shimao has 50% interests in one of its subsidiaries, Shanghai Shimao Lakeside Real Estate Co., Ltd. (“Shimao Lakeside”), which was acquired by Shanghai Shimao in 2003 as a jointly controlled entity (Note 14).

13 ASSOCIATED COMPANIES

Shanghai Shimao Group

Opening balance Share of results — (Loss)/profit before income tax — Income tax expense Disposal of associated companies Ending balance	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 322,461 591 289 (12,747) (302) 9 — — — (309,123) — — 591 289 298	Six months ended 30 June 2007 RMB’000 298 21 — —
		319

Shanghai Shimao

Opening balance Provision for impairment Disposal of associated companies Ending balance	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 181,178 591 289 — (302) 9 (180,587) — — 591 289 298	Six months ended 30 June 2007 RMB’000 298 21 —
		319

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

During 2004, the Shanghai Shimao Group disposed its 34% equity interests in Shanghai Shimao Jianshe Co., Ltd. and 25% equity interests in Shanghai Shimao North Bund Development and Construction Co., Ltd. at cash considerations of RMB142,527,000 and RMB111,841,000 respectively, resulting in a loss of RMB88,009,000 and a gain of RMB33,254,000 respectively.

The Shanghai Shimao Group’s share of assets, liabilities, revenue and results of its associated companies, all of which are unlisted entities established in the PRC are as follows:

Name 31 December 2004 Shanghai Yida E-commerce Co., Ltd. 31 December 2005 Shanghai Yida E-commerce Co., Ltd 31 December 2006 Shanghai Yida E-commerce Co., Ltd 30 June 2007 Shanghai Yida E-commerce Co., Ltd	Assets RMB’000 689 431 529 481	Liabilities RMB’000 53 96 185 117	Revenue RMB’000 90 166 73 19	Profit/(Loss) % of interest held by the Shanghai Shimao Group RMB’000 — 30% (302) 30% 9 30% 21 30%

14 JOINTLY CONTROLLED ENTITY

Shanghai Shimao Group

Opening balance Share of results Dividend received Jointly controlled entity turn into a subsidiary Ending balance Shanghai Shimao Opening balance Dividend received Impairment provision Jointly controlled entity turn into a subsidiary Ending balance	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 400,720 — — (33,589) — — (120,000) — — (247,131) — — — — — Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 368,491 — — (120,000) — — (32,730) — — (215,761) — — — — —	Six months ended 30 June 2007 RMB’000 — — — —
		—
		Six months ended 30 June 2007 RMB’000 — — — —
		—

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Details of the jointly controlled entity of the Shanghai Shimao Group as at 30 June 2007 are set out in Note 33.

Shanghai Shimao acquired 50% of interests in a joint controlled entity, Shimao Lakeside, in 2003. Pursuant to a board resolution dated 25 October 2004, Shanghai Shimao appointed more directors and effectively controlled the board of Shimao Lakeside without change of equity interests. So Shimao Lakeside therefore became a subsidiary of Shanghai Shimao since 25 October 2004.

Details of net assets acquired and goodwill are as follows:

Purchase consideration — cash paid Fair value of the net assets acquired Goodwill	Amount (RMB’000) — —
	—

The assets and liabilities as at the acquisition date are as follows:

Property, plant and equipment Land use rights under development Properties under development Trade and other receivables and prepayments Amounts from related companies Cash and cash equivalents Borrowings Trade and other payables Advanced proceeds received from customers Income tax payable Deferred income tax liabilities Net assets owned by the Shanghai Shimao Group as jointly controlled entity Minority interests (50%) Net assets acquired Purchase consideration settled in cash Cash and cash equivalent acquired Cash inflow on acquisition	Acquiree’s carrying amount RMB’000 3,149 203,735 854,861 48,764 906,995 17,518 (95,000) (104,785) (1,216,985) (99,788) (24,202)
	494,262 (247,131) (247,131)
	—
	— 17,518
	17,518

The fair value of the assets and liabilities acquired approximate its carrying amount.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

15 TRADE AND OTHER RECEIVABLES AND PREPAYMENTS

Shanghai Shimao Group

Trade receivables Other receivables Prepayments for construction costs Prepaid business tax on pre-sale proceeds	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 16,670 181 54,538 28,364 16,232 13,963 5,016 163,739 55,610 33,399 73,599 482 83,449 253,751 124,593	As at 30 June 2007 RMB’000 68,774 9,909 2,083 19,111
		99,877

Shanghai Shimao

Trade receivables Other receivables and prepayments	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 543 181 181 15,284 586 1,897 15,827 767 2,078	As at 30 June 2007 RMB’000 181 1,604
		1,785

Trade receivables are mainly arisen from sales of properties. Consideration in respect of properties sold are paid in accordance with the terms of the related sales and purchase agreements. All trade receivables at each of the balance sheet dates were aged less than six months. There is no material past due or impaired receivables.

As at 31 December 2004, 2005, 2006 and 30 June 2007, the fair value of trade receivables, deposits for resettlement costs, and other receivables of the Shanghai Shimao Group and Shanghai Shimao approximate their carrying amounts.

16 AMOUNTS DUE FROM RELATED COMPANIES

Shanghai Shimao Group

		As at 31 December		As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Common directors
Shimao Property Holdings Limited (“SPHL”)	452,000	32,205	249,850	—
	452,000	32,205	249,850	—
Shanghai Shimao
		As at 31 December		As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Common directors
SPHL	176	—	88	264
	176	—	88	264

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

As at 31 December 2004, the balance of RMB452,000,000 were entrusted loans to two subsidiaries of SPHL bearing interest at a fixed rate of 5.31% per annum, which were repaid in March 2005.

As at 31 December 2005, the balance of RMB32,205,000 was advances to one subsidiary of SPHL, unsecured and interest free, which was repaid in September 2006.

As at 31 December 2006, the balance mainly included RMB250,000,000 paid on behalf of one subsidiary of SPHL to acquire a property in Beijing. The balance was unsecured and interest free, and repaid in January 2007.

The carrying amounts of amounts due from related companies approximate their fair values.

17 CASH AND CASH EQUIVALENTS

Shanghai Shimao Group

Bank balances and cash Less: Restricted cash Denominated in: — RMB — US$ — HK$ Shanghai Shimao Bank balances and cash — unrestricted Denominated in: — RMB	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 214,997 402,669 576,996 (11,204) — — 203,793 402,669 576,996 203,689 368,015 576,859 104 2,856 103 — 31,798 34 203,793 402,669 576,996 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 78,067 18,532 128,525 78,067 18,532 128,525	As at 30 June 2007 RMB’000 847,632 —
		847,632
		847,495 103 34
		847,632
		As at 30 June 2007 RMB’000 56,347
		56,347

As at 31 December 2004, the Shanghai Shimao Group’s cash of approximately RMB11,203,640 was restricted and deposited in certain banks as guarantee deposits for the benefit of mortgage loan facilities granted by the banks to the purchasers of the Shanghai Shimao Group’s properties.

The effective interest rate on bank deposits as at 31 December 2004, 2005, 2006 and 30 June 2007 is 0.72%, 0.72%, 0.72% and 0.81%, respectively.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

18 SHARE CAPITAL

Details of share capital of Shanghai Shimao are as follows:

Note Authorised, issued and fully paid: Ordinary shares of RMB1 each At 1 January 2004 (i) Increase in share capital on 24 September 2004 (ii) At 31 December 2004 and 2005 Increase in share capital on 22 August 2006 (iii) Increase in share capital on 22 October 2006 (iv) At 31 December 2006 and 30 June 2007	Number of shares ’000 236,445 118,222 354,667 43,962 79,726 478,355	Amount RMB’000 236,445 118,222
		354,667
		43,962 79,726
		478,355

Notes:

(i) As at 1 January 2004, share capital represented authorised, issued and fully paid 236,444,777 ordinary shares of par value RMB1 each.
(ii) Pursuant to a resolution approved in shareholders meeting on 24 September 2004, every two issued ordinary shares of Shanghai Shimao received one share with par value RMB1 each as stock dividend, which were transferred from capital reserve of Shanghai Shimao.
(iii) On 26 June 2006, shareholders meeting approved the stock reform plan which would commence from 22 August 2006 to 22 October 2006. In connection with the stock reform plan, every ten tradable shares of Shanghai Shimao received additional 2.59 shares of par value RMB1 each, which were transferred from capital reserve of Shanghai Shimao. The tradable shares of Shanghai Shimao were 169,738,541 shares based on the balance as at 31 December 2005.
(iv) On 15 September 2006, pursuant to a resolution approved in shareholders meeting, every ten issued ordinary shares of Shanghai Shimao, which was based on the total shares upon completion of the stock reform plan on 22 October 2006, received two shares of par value RMB1 each as stock dividend.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

19 RESERVES

Shanghai Shimao Group

Note Balance at 1 January 2004 Issue of shares arising from stock dividend 18(ii) Loss for the year Appropriation of profit Dividends Balance at 31 December 2004 Loss for the year Appropriation of profit Dividends Balance at 31 December 2005 Issue of shares arising from stock reform plan 18(iii, iv) Share issuing expenses Profit for the year Fair value gain of available-for- sale financial assets Deferred tax of available-for-sale financial assets Transfer from profit for the year Dividends Balance at 31 December 2006 Profit for the period Fair value gain of available-for- sale financial assets Deferred tax of available-for-sale financial assets Dividends Balance at 30 June 2007 Balance at 31 December 2005 Loss for the period Fair value gain of available-for- sale financial assets Deferred tax of available-for-sale financial assets Dividends Balance at 30 June 2006	Retained earnings RMB’000 443,055 — (171,361) (70,362) (23,643) 177,689 (2,413) (24,205) (17,734) 133,337 (79,726) — 207,968 — — (29,236) (17,734) 214,609 44,084 — — (23,917) 234,776 133,337 (5,133) 10,719 (3,537) (17,734) 117,652	Capital reserve RMB’000 (Note (i)) 185,273 (118,222) — — — 67,051 — — — 67,051 (43,962) (3,049) — — — — — 20,040 — — — — 20,040 67,051 — — — — 67,051	Statutory reserve RMB’000 (Note (ii)) 57,277 — — 70,362 — 127,639 — 24,205 — 151,844 — — — — — 29,236 — 181,080 — — — — 181,080 151,844 — — — — 151,844	Revaluation reserve RMB’000 — — — — — — — — — — — — — 13,898 (4,587) — — 9,311 — 443,058 (113,422) — 338,947 — — — — — —	Total RMB’000 685,605 (118,222) (171,361) — (23,643)
					372,379 (2,413) — (17,734)
					352,232 (123,688) (3,049) 207,968 13,898 (4,587) — (17,734)
					425,040 44,084 443,058 (113,422) (23,917)
					774,843
					352,232 (5,133) 10,719 (3,537) (17,734)
					336,547

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Shanghai Shimao

Note Balance at 1 January 2004 Issue of shares arising from stock dividend 18(ii) Gain for the year Appropriation of profit Dividends Balance at 31 December 2004 Profit for the year Appropriation of profit Dividends Balance at 31 December 2005 Issue of shares a raising from stock reform plan 18(iii, iv) Share issuing expenses Profit for the year Fair value gain of available-for- sale financial assets Deferred tax of available-for-sale financial assets Transfer from profit for the year Dividends Balance at 31 December 2006 Profit for the period Fair value gain of available-for- sale financial assets Deferred tax of available-for-sale financial assets Dividends Balance at 30 June 2007 Balance at 31 December 2005 Loss for the period Fair value gain of available-for- sale financial assets Deferred tax of available-for-sale financial assets Dividends Balance at 30 June 2006	Retained earnings RMB’000 277,305 — 15,775 (37,062) (23,643) 232,375 (3,637) (17,044) (17,734) 193,960 (79,726) — 53,017 — — (12,004) (17,734) 137,513 140,667 — — (23,917) 254,263 229,274 (22,922) 10,719 (3,537) (17,734) 195,800	Capital reserve RMB’000 (Note (i)) 185,273 (118,222) — — — 67,051 — — — 67,051 (43,962) (3,049) — — — — — 20,040 — — — — 20,040 67,051 — — — — 67,051	Statutory reserve RMB’000 (Note (ii)) 57,277 — — 37,062 — 94,339 — 17,044 — 111,383 — — — — — 12,004 — 123,387 — — — — 123,387 111,383 — — — — 111,383	Revaluation surplus RMB’000 — — — — — — — — — — — — — 13,898 (4,587) — — 9,311 — 443,058 (113,422) — 338,947 — — — — — —	Total RMB’000 519,855 (118,222) 15,775 — (23,643) 393,765 (3,637) — (17,734) 372,394 (123,688) (3,049) 53,017 13,898 (4,587) — (17,734) 290,251 140,667 443,058 (113,422) (23,917) 736,637 407,708 (22,922) 10,719 (3,537) (17,734) 374,234

Notes:

(i) Capital reserve of Shanghai Shimao and the Shanghai Shimao Group mainly represents premium arising from issue of A shares net of share issuance expenses.

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APPENDIx II.A

(ii) Statutory reserves represent the reserves of the PRC incorporated companies which are set aside for future development purposes in accordance with the regulations in the PRC. The allocation is based on certain percentages of the companies’ profit of the year, which is allocated on an annual basis. The statutory reserves can only be used to offset previous years’ losses, to expand its production operations, or to increase its capital. The statutory reserves may be converted into share capital, provided the balance of the reserves after such conversion is not less than 25% of the registered capital.

20 BORROWINGS

Shanghai Shimao Group

Borrowings included in non-current liabilities Bank borrowings — secured Less: Amounts due within one year Borrowings included in current liabilities Bank borrowings — secured Bank borrowings — unsecured Current portion of long-term borrowings Shanghai Shimao Borrowings included in non-current liabilities Bank borrowings — secured Less: Amounts due within one year Borrowings included in current liabilities Bank borrowings — secured Current portion of long-term borrowings	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 150,252 — 150,000 (150,252) — (50,000) — — 100,000 195,000 240,000 225,000 164,000 — — 150,252 — 50,000 509,252 240,000 275,000 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 150,252 — — (150,252) — — — — — 150,000 60,000 125,000 150,252 — — 300,252 60,000 125,000	As at 30 June 2007 RMB’000 338,240 (75,140) 263,100 158,000 — 75,140 233,140 As at 30 June 2007 RMB’000 — — — 100,000 — 100,000

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

As at 31 December 2004, 2005, 2006 and 30 June 2007, borrowings of RMB150,252,000, RMB80,000,000, RMB375,000,000 and RMB396,240,000 respectively were secured by a building (Note 6), an investment property (Note 7), land use rights (Note 8) and a completed property held for sale (Note 11).

As at 31 December 2004, 2005, 2006 and 30 June 2007, borrowings of RMB195,000,000, RMB160,000,000, RMBnil, RMB100,000,000 were secured by Shanghai Shimao Enterprises Development Co., Ltd., a shareholder of the Shanghai Shimao Group.

The exposure of the Shanghai Shimao Group’s borrowings to interest rate changes and the contractual repricing dates or maturity whichever is the earlier date is as follows:

	6 months
	or less	6–12 months	1–5 years	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Shanghai Shimao Group
Borrowings included in non-current liabilities:
At 31 December 2004	—	—	—	—
At 31 December 2005	—	—	—	—
At 31 December 2006	100,000	—	—	100,000
At 30 June 2007	203,100	—	60,000	263,100
Borrowings included in current liabilities:
At 31 December 2004	509,252	—	—	509,252
At 31 December 2005	180,000	60,000	—	240,000
At 31 December 2006	275,000	—	—	275,000
At 30 June 2007	175,140	58,000	—	233,140
Shanghai Shimao
Borrowings included in current liabilities:
At 31 December 2004	300,252	—	—	300,252
At 31 December 2005	—	60,000	—	60,000
At 31 December 2006	125,000	—	—	125,000
At 30 June 2007	100,000	—	—	100,000

The maturity of the borrowings included in non-current liabilities is as follows:

Shanghai Shimao Group Bank borrowings: Between 1 and 2 years	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 — — 100,000 — — 100,000	As at 30 June 2007 RMB’000 263,100
		263,100

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

The effective interest rates at the balance sheet date were as follows:

		As at 31 December		As at 30 June
	2004	2005	2006	2007
	%	%	%	%
Shanghai Shimao Group
Bank borrowings — RMB	5.83%	6.05%	6.32%	6.66%
Shanghai Shimao
Bank borrowings — RMB	5.50%	6.70%	6.39%	6.73%

The carrying amounts and fair values of non-current borrowings are as follows:

Shanghai Shimao Group At 31 December 2004 At 31 December 2005 At 31 December 2006 At 30 June 2007	Carrying amounts RMB’000 — — 100,000 263,100	Fair values RMB’000 —
		—
		103,869
		264,166

The fair values are based on cash flows discounted using rates based on weighted average borrowing rates of 6.03% and 6.75% as at 31 December 2006 and 30 June 2007 respectively.

The carrying amounts of short-term borrowings approximate their fair values.

The carrying amounts of the borrowings are all denominated in RMB.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

21 DEFERRED INCOME TAx

Shanghai Shimao Group

As at 31 December
2004
2005
2006
RMB’000
RMB’000
RMB’000
Deferred income tax assets
— to be recovered within 12 months
49,556
48,335
41,928
Deferred income tax liabilities
— to be recovered after more than 12 months
8,191
5,300
13,842
Net deferred tax assets/(liabilities)
41,365
43,035
28,086
Shanghai Shimao
As at 31 December
2004
2005
2006
RMB’000
RMB’000
RMB’000
Deferred income tax liabilities
— to be recovered after more than 12 months
1,031
4,448
13,415
The net movement on the deferred taxation is as follows:

As at 30 June
2007
RMB’000
80,636
122,132
(41,496)
As at 30 June
2007
RMB’000
121,705

Shanghai Shimao Group

At beginning of the year/period Jointly controlled entity turn into a subsidiary Charged to the revaluation reserve Charged to the consolidated income statement (Note 28) At end of the year/period	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 3,180 41,366 43,035 (24,202) — — — — (4,587) 62,388 1,669 (10,362) 41,366 43,035 28,086	Six months ended 30 June 2007 RMB’000 28,086 — (113,422) 43,840
		(41,496)

Shanghai Shimao

At beginning of the year/period Charged to the revaluation reserve Charged to the income statement At end of the year/period	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 220 (1,031) (4,448) — — (4,587) (1,251) (3,417) (4,380) (1,031) (4,448) (13,415)	Six months ended 30 June 2007 RMB’000 (13,415) (113,422) 5,132
		(121,705)

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Movement in deferred income tax assets and liabilities for the years ended 31 December 2004, 2005, 2006 and the six months ended 30 June 2007, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred income tax assets

Shanghai Shimao Group

At 1 January 2004 Credited to the consolidated income statement At 31 December 2004 Credited/(charged) to the consolidated income statement At 31 December 2005 Charged to the revaluation reserve Credited/(charged) to the consolidated income statement At 31 December 2006 Charged to the revaluation reserve Credited to the consolidated income statement At 30 June 2007	Fair value adjustments on available-for- sale financial assets RMB’000 11,008 3,639 14,647 898 15,545 (4,587) — 10,958 (10,958) — —	Temporary differences on recognition of sales and related cost of sales RMB’000 2,960 46,597 49,557 (1,221) 48,336 — (6,407) 41,929 — 38,708 80,637	Other temporary differences RMB’000 1,688 (402) 1,286 (223) 1,063 — 9 1,072 — 488 1,560	Total RMB’000 15,656 49,834 65,490 (546) 64,944 (4,587) (6,398) 53,959 (10,958) 39,196 82,197

Shanghai Shimao

At 1 January 2004 Credited/(charged) to the income statement At 31 December 2004 Credited/(charged) to the income statement At 31 December 2005 Charged to the revaluation reserve Credited to the income statement At 31 December 2006 Charged to the revaluation reserve Credited to the income statement At 30 June 2007	Fair value adjustments on available-for- sale financial assets RMB’000 11,008 3,639 14,647 898 15,545 (4,587) — 10,958 (10,958) — —	Other temporary differences RMB’000 1,688 (402) 1,286 (223) 1,063 — 9 1,072 — 488 1,560	Total RMB’000 12,696 3,237
			15,933 675
			16,608 (4,587) 9
			12,030 (10,958) 488
			1,560

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Deferred income tax liabilities

Shanghai Shimao Group

At 1 January 2004 Jointly controlled entity turn into a subsidiary Charged/(credited) to the consolidated income statement At 31 December 2004 Charged/(credited) to the consolidated income statement At 31 December 2005 Charged/(credited) to the consolidated income statement At 31 December 2006 Charged to the revaluation surplus Charged/(credited) to the consolidated income statement At 30 June 2007 Shanghai Shimao	Fair value gains on investment properties RMB’000 12,476 — 4,488 16,964 4,092 21,056 4,389 25,445 — (4,644) 20,801	Fair value adjustments on available-for- sale financial assets RMB’000 — — — — — — — — 102,464 — 102,464	Fair value adjustments on assets and liabilities upon acquisition RMB’000 — 24,202 (17,042) 7,160 (6,307) 853 (425) 428 — — 428	Total RMB’000 12,476 24,202 (12,554)
				24,124 (2,215)
				21,909 3,964
				25,873 102,464 (4,644)
				123,693

At 1 January 2004 Charged/(credited) to the income statement At 31 December 2004 Charged to the income statement At 31 December 2005 Charged to the income statement At 31 December 2006 Charged to the revaluation reserve Charged to the income statement At 30 June 2007	Fair value gains on investment properties RMB’000 12,476 4,488 16,964 4,092 21,056 4,389 25,445 — (4,644) 20,801	Fair value adjustments on available-for- sale financial assets RMB’000 — — — — — — — 102,464 — 102,464	Total RMB’000 12,476 4,488 16,964 4,092 21,056 4,389 25,445 102,464 (4,644) 123,265

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Deferred income tax assets are recognised for timing differences carry-forwards to the extent that the realisation of the related benefit through the future taxable profits is probable. The Shanghai Shimao Group did not recognise deferred income tax assets of RMB46,201,000, RMB50,627,000 and RMB60,563,000 in respect of accumulated temporary differences amounting to RMB250,961,000, RMB264,373,000 and RMB294,483,000 as at 31 December 2005, 2006 and 30 June 2007.

22 TRADE AND OTHER PAYABLES

Shanghai Shimao Group

Trade payables_(note (i)) Other payables(note (ii))_ Accrued expenses Other taxes payable Shanghai Shimao Trade payables Other payables and accruals	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 293,536 384,462 522,261 68,675 39,954 69,826 6,217 6,202 12,377 1,879 20,051 10,733 370,307 450,669 615,197 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 214 900 361 6,960 1,320 899 7,174 2,220 1,260	As at 30 June 2007 RMB’000 459,215 68,830 11,324 13,432
		552,801
		As at 30 June 2007 RMB’000 360 15,686
		16,046

Notes:

(i) The ageing analysis of trade payables of the Shanghai Shimao Group is as follows:

Shanghai Shimao Group

Within 90 days Over 90 days and within 180 days	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 293,536 383,614 521,929 — 848 332 293,536 384,462 522,261	As at 30 June 2007 RMB’000 458,854 361
		459,215

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

(ii) Other payables comprise:

Shanghai Shimao Group

Deposits and advances from constructors Down-payments from customers Fees collected from customers on behalf of government agencies Dividend payable Salary and welfare payable Miscellaneous AMOUNTS DUE TO RELATED COMPANIES Shanghai Shimao Group Subsidiaries of SPHL Shimao Enterprises Shanghai Shimao Shanghai Shimao Real Estate Co., Ltd., a subsidiary of SPHL Shimao Enterprises	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 440 1,119 1,118 54,232 22,802 16,690 1,964 5,077 44,874 3,356 364 296 1,227 1,460 1,900 7,456 9,132 4,948 68,675 39,954 69,826 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 183 — 300 11,554 — — 11,737 — 300 — — 150 — — — — — 150	As at 30 June 2007 RMB’000 980 25,596 18,879 15,365 2,181 5,829
		68,830
		As at 30 June 2007 RMB’000 28,975 8,850
		37,825
		150 8,850
		9,000

23 AMOUNTS DUE TO RELATED COMPANIES

The balances are non-trade in nature, unsecured, interest-free and have no fixed repayment terms. The amount of RMB28,975,000 and RMB8,850,000 of Shanghai Shimao Group as at 30 June 2007 are dividend due to a subsidiary of SPHL which is a minority interest of Shanghai Shimao and Shimao Enterprises, respectively.

The carrying amounts of amounts due to related companies approximate their fair values.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

24 OTHER (LOSSES)/GAINS

Government grants received (note (i)) Compensation from a third party for violation of contracts (note (ii)) Loss on disposal of associated companies_(Note 13)_ Impairment provision for available- for-sale financial assets Miscellaneous	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 375 3,923 9,356 — 6,312 — (54,755) — — (11,029) (2,720) — 1,041 111 368 (64,368) 7,626 9,724	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 1,874 22,000 — — — — — — 244 336 2,118 22,336	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 1,874 22,000 — — — — — — 244 336 2,118 22,336
			22,336

Notes:

(i) These represent the subsidies received from the city of Fuzhou to encourage enterprises development in the local area.
(ii) Pursuant to a final court verdict on 24 June 2003, a third party is ordered to compensate the Shanghai Shimao Group for its violation of leasing contracts. The compensation was received in May 2005.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

25 ExPENSES BY NATURE

Expenses included in cost of sales, selling and marketing costs, administrative expenses and other operating expenses are analysed as follows:

Staff costs — including directors’ emoluments_(note (i)) Auditors’ remuneration Depreciation(Note 6) Amortisation of land use rights (Note 8) Advertising, promotion and commission costs Cost of properties sold Business taxes and other levies on sales of properties(note (ii))_ Charitable donations Operating lease rental expense Mortgage interest and deed tax paid for customers Provision for car parks included in completed properties for sale Property maintenance fund paid for buyer Provision for dispute with contractors and customers Other expenses	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 15,643 13,458 15,493 927 31 620 1,700 3,411 6,929 2,078 175 175 37,644 18,632 20,432 1,119,321 479,470 1,357,144 60,475 35,782 121,777 — — — 1,468 2,174 6,323 31,021 — 52,490 — 25,085 3,161 7,113 411 25,872 733 184 12,617 21,054 39,365 28,725 1,299,177 618,178 1,651,758	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 6,513 9,596 420 20 3,833 3,278 88 88 7,738 7,152 46,112 202,605 2,229 21,453 — 10,400 3,634 1,451 — — 3,161 25,610 — — 5,874 — 13,965 16,061 93,567 297,714	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 6,513 9,596 420 20 3,833 3,278 88 88 7,738 7,152 46,112 202,605 2,229 21,453 — 10,400 3,634 1,451 — — 3,161 25,610 — — 5,874 — 13,965 16,061 93,567 297,714
			297,714

Notes:

(i) Staff costs (including directors’ emoluments) comprise:

Wages and salaries Pension costs — statutory pension Other allowances and benefits	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 9,992 9,542 11,382 1,279 1,209 1,534 4,372 2,707 2,577 15,643 13,458 15,493	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 5,281 7,103 660 655 572 1,838 6,513 9,596	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 5,281 7,103 660 655 572 1,838 6,513 9,596
			9,596

PRC employees in the Shanghai Shimao Group are required to participate in a defined contribution retirement scheme administrated and operated by the local municipal government. The Shanghai Shimao Group contribute funds which are calculated on certain percentage of the average employee salary as agreed by local municipal government to the scheme to fund the retirement benefits of the employees.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

(ii) Business tax

The PRC companies of the Shanghai Shimao Group are subject to business taxes of 5% and other levies on their revenues from sale of properties.

26 FINANCE COSTS

Interest on bank borrowings — wholly repayable within five years Less: interest capitalised Interest expense	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 38,966 42,101 29,134 (19,955) (29,860) (21,325) 19,011 12,241 7,809	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 13,837 27,379 (10,662) (20,426) 3,175 6,953	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 13,837 27,379 (10,662) (20,426) 3,175 6,953
			6,953

27 EMOLUMENTS FOR DIRECTORS AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ emoluments

The remunerations of each of the directors of Shanghai Shimao for the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2006 and 2007 are set out as follows:

Year ended 31 December 2004

		Basic
		salaries,
		allowances			Retirement
		and benefits		Inducement	benefit
Name of directors	Fees	in kind	Bonuses	fee	contributions	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive director
Ms. Guan Hong Yan	—	240	—	—	—	240
Non-executive directors
Mr. Hui Wing Mau	—	—	—	—	—	—
Mr. Wang Zhuo Xian	—	—	—	—	—	—
Mr. Wang Kai Guo	—	—	—	—	—	—
Ms. Zhuo Ya Lan	—	—	—	—	—	—
Ms. Sun Jun Wei	—	—	—	—	—	—
Mr. Zhou Jin Lun	50	—	—	—	—	50
Mr. Zhang Yu Chen	50	—	—	—	—	50
Mr. Liu Chuan Qiu	50	—	—	—	—	50

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Year ended 31 December 2005

		Basic
		salaries,
		allowances			Retirement
		and benefits		Inducement	benefit
Name of directors	Fees	in kind	Bonuses	fee	contributions	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive director
Ms. Guan Hong Yan	—	282	—	—	2	284
Non-executive directors
Mr. Hui Wing Mau	—	—	—	—	—	—
Mr. Wang Zhuo Xian	—	—	—	—	—	—
Mr. Wang Kai Guo	—	—	—	—	—	—
Ms. Zhuo Ya Lan	—	—	—	—	—	—
Ms. Sun Jun Wei	—	—	—	—	—	—
Mr. Zhou Jin Lun	50	—	—	—	—	50
Mr. Zhang Yu Chen	50	—	—	—	—	50
Mr. Liu Chuan Qiu	50	—	—	—	—	50

Year ended 31 December 2006

		Basic
		salaries,
		allowances			Retirement
		and benefits		Inducement	benefit
Name of directors	Fees	in kind	Bonuses	fee	contributions	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive director
Ms. Guan Hong Yan	—	365	—	—	2	367
Non-executive directors
Mr. Hui Wing Mau	—	—	—	—	—	—
Mr. Xu Shiyong	—	—	—	—	—	—
Mr. Wang Kai Guo	—	—	—	—	—	—
Ms. Zhuo Ya Lan	—	—	—	—	—	—
Ms. Sun Yue Kai	—	—	—	—	—	—
Mr. Zhou Jin Lun	60	—	—	—	—	60
Mr. Zhang Yu Chen	60	—	—	—	—	60
Mr. Liu Chuan Qiu	60	—	—	—	—	60

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Six months ended 30 June 2006 (unaudited)

		Basic
		salaries,
		allowances			Retirement
		and benefits		Inducement	benefit
Name of directors	Fees	in kind	Bonuses	fee	contributions	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive director
Ms. Guan Hong Yan	—	127	—	—	1	128
Non-executive directors
Mr. Hui Wing Mau	—	—	—	—	—	—
Ms. Sun Yue Kai	—	—	—	—	—	—
Mr. Wang Kai Guo	—	—	—	—	—	—
Ms. Zhuo Ya Lan	—	—	—	—	—	—
Ms. Sun Jun Wei	—	—	—	—	—	—
Mr. Zhou Jin Lun	25	—	—	—	—	25
Mr. Zhang Yu Chen	25	—	—	—	—	25
Mr. Liu Chuan Qiu	25	—	—	—	—	25

Six months ended 30 June 2007

		Basic
		salaries,
		allowances			Retirement
		and benefits		Inducement	benefit
Name of directors	Fees	in kind	Bonuses	fee	contributions	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Executive director
Ms. Guan Hong Yan	—	202	—	—	1	203
Non-executive directors
Mr. Hui Wing Mau	—	—	—	—	—	—
Mr. Xu Shiyong	—	—	—	—	—	—
Mr. Wang Kai Guo	—	—	—	—	—	—
Ms. Zhuo Ya Lan	—	—	—	—	—	—
Ms. Sun Yue Kai	—	—	—	—	—	—
Mr. Zhou Jin Lun	35	—	—	—	—	35
Mr. Zhang Yu Chen	35	—	—	—	—	35
Mr. Liu Chuan Qiu	35	—	—	—	—	35

Except for independent non-executive directors, no emolument was paid to other non-executive directors for the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2006 and 2007.

No directors of Shanghai Shimao waived or agreed to waive any remuneration during the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2006 and 2007.

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APPENDIx II.A

(b) Five highest paid individuals

Basic salaries, allowances and bonuses Retirement scheme contributions	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 844 763 895 93 107 116 937 870 1,011	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 385 503 57 59 442 562	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 385 503 57 59 442 562
			562

The emoluments fell within the following bands:

Nil to HK$1,000,000	Number of individuals
	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 (Unaudited) 5 5 5 5 5

Five highest paid individuals are composed of a director, two supervisors and two key management employees for the year ended 31 December 2004, 2005, 2006 and six months ended 30 June 2006 and 2007.

(c) During the year, no emolument was paid or is payable by the Shanghai Shimao Group to any of the above directors or the five highest paid individuals as an inducement to join or upon joining the Shanghai Shimao Group or as compensation for loss of office apart from those disclosed above.

28 INCOME TAx ExPENSE AND INCOME TAx PAYABLE

Income tax expense

Current tax — PRC enterprise income tax — PRC land appreciation tax Deferred income tax_(Note 21)_ — PRC enterprise income tax	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 60,226 58,716 209,742 — — 183,826 60,226 58,716 393,568 (62,388) (1,669) 10,362 (2,162) 57,047 403,930	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 2,328 84,682 — 40,604 2,328 125,286 (1,799) (43,840) 529 81,446	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 2,328 84,682 — 40,604 2,328 125,286 (1,799) (43,840) 529 81,446
			125,286 (43,840)
			81,446

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

The enterprise income tax on the Shanghai Shimao Group’s profit before income tax differs from the theoretical amount that would arise using the enacted tax rate of the PRC as follows:

(Loss)/profit before income tax Less: Land appreciation tax Less: share of results of associated companies and a jointly controlled entity Calculated at PRC enterprise income tax rate of 33% Tax saving due to preferential rate Effect of future tax rate change from 33% to 25% Expenses not deductible for income tax purposes Tax losses not recognised The enterprise income tax (credit)/charge Land appreciation tax	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 (199,309) 47,866 802,678 — — (183,826) 51,268 302 (9) (148,041) 48,168 618,843 (48,854) 15,895 204,218 3,512 (5,923) — — — — 43,180 874 12,134 — 46,201 3,752 (2,162) 57,047 220,104 — — 183,826 (2,162) 57,047 403,930	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (13,281) 151,986 — (40,604) 26 (21) (13,255) 111,361 (4,374) 36,749 — — — (6,657) 2,122 814 2,781 9,936 529 40,842 — 40,604 529 81,446	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (13,281) 151,986 — (40,604) 26 (21) (13,255) 111,361 (4,374) 36,749 — — — (6,657) 2,122 814 2,781 9,936 529 40,842 — 40,604 529 81,446
			111,361 36,749 — (6,657) 814 9,936
			40,842
			40,604
			81,446

Income tax payable

Income tax payable comprises:

Shanghai Shimao Group

Enterprise income tax payable Land appreciation tax payable	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 39,076 44,060 168,099 182,601 182,600 344,312 221,677 226,660 512,411	As at 30 June 2007 RMB’000 91,731 371,546
		463,277

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

PRC enterprise income tax

PRC enterprise income tax is provided for at 33% of the profits for the PRC statutory financial reporting purpose, adjusted for those items, which are not assessable or deductible for the PRC enterprise income tax purpose. Two subsidiaries established in the Shanghai Pudong New Area of the PRC are entitled to a preferential tax rate of 15% for the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2006 and 2007.

The National People’s Congress of the PRC has approved the new PRC enterprise income tax law on 16 March 2007. The tax rate will be unified for both domestic and foreign investment enterprises at 25% and the previous preferential tax treatments will be changed, with certain grandfathering provisions with effect from 1 January 2008.

Land appreciation tax

PRC land appreciation tax is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds from sales of properties less deductible expenditures including amortisation of land use rights, borrowing costs, business taxes and all property development expenditures. The tax is incurred upon transfer of property ownership.

29 DIVIDENDS

	Year	ended 31 December	ended 31 December	Six months ended 30 June	Six months ended 30 June
	2004	2005	2006	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Interim dividend of 2004, paid, at RMB0.1 per
ordinary share	23,643	—	—	—	—
Final dividend of 2004/2005, paid, at RMB0.05
per ordinary share	—	17,734	17,734	17,734	—
Final dividend of 2006, declared, at RMB0.05 per
ordinary share	—	—	—	—	23,917

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

30 NOTE TO THE CONSOLIDATED CASH FLOW STATEMENTS

Net cash generated from operations:

(Loss)/profit for the year/period Adjustments for: Income tax expense Interest income Finance costs Exchange (gain)/loss Depreciation Share of results of associated companies Share of results of a jointly controlled entity Amortisation of land use rights Impairment provision for a jointly controlled entity_(Note_ 14, 25) Loss on disposal of property, plant and equipment Net loss on disposal of associated companies Impairment provision for available-for-sale financial assets Fair value gains on investment properties Changes in working capital: Properties under development and completed properties held for sale Land use rights Inventory Restricted cash Trade and other receivables and prepayments Trade and other payables Advanced proceeds received from customers Amount due from related companies Amount due to related companies Net cash generated from operations	Year 2004 RMB’000 (197,147) (2,162) (557) 19,004 (62) 1,700 12,747 33,589 2,078 — — 54,755 11,029 (13,600) (78,626) 402,160 57,267 (611) (11,204) 426,174 206,070 (737,121) 33 (73,544) 190,598	ended 31 December 2005 2006 RMB’000 RMB’000 (9,181) 398,748 57,047 403,930 (1,787) (8,316) 11,898 7,458 1,123 1,392 3,411 6,929 302 (9) — — 175 175 — — 12 837 — — 2,720 — (12,400) (13,300) 53,320 797,844 (54,941) 122,000 93,424 248,234 611 — 11,204 — (210,182) 21,542 30,351 110,594 508,553 (969,689) 419,795 (217,645) (11,737) 300 840,398 113,180	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (13,810) 70,541 529 81,446 (1,732) (3,822) 3,079 6,948 115 — 3,833 3,278 26 (21) — — 88 88 — — 837 — — — — — (12,400) (6,100) (19,435) 152,358 (312,091) (75,216) (93,100) 62,386 (1,312) — — — (106,598) 30,689 (38,805) (57,575) 704,773 153,441 29,209 249,850 1,430 (300) 164,071 515,633

31. PROFIT ATTRIBUTABLE TO THE EQUITY HOLDERS OF SHANGHAI SHIMAO

The profit/(loss) attributable to the equity holders of Shanghai Shimao is dealt with in the financial statements of Shanghai Shimao to the extent of RMB15,775,000, RMB(3,637,000), RMB53,017,000 and RMB140,667,000 for the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2007.

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

32 LOSS/EARNINGS PER SHARE

Basic (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to equity holders of Shanghai Shimao by the weighted average number of ordinary shares in issue during the year/period.

(Loss)/profit attributable to the equity holders of Shanghai Shimao_(RMB’000) Weighted average number of ordinary shares in issue(thousands) Basic (loss)/earnings per share(RMB cents)_	Year 2004 (171,361) 478,355 (35,8)	ended 31 December 2005 2006 (2,413) 207,968 478,355 478,355 (0.5) 43.5	Six months ended 30 June 2006 2007 (Unaudited) (5,133) 44,084 478.355 478,355 (1.1) 9.2	Six months ended 30 June 2006 2007 (Unaudited) (5,133) 44,084 478.355 478,355 (1.1) 9.2
				478,355
				9.2

There were no dilutive options and other dilutive potential shares in issue during both periods presented.

33 SUBSIDIARIES, ASSOCIATED COMPANIES AND A JOINTLY CONTROLLED ENTITY

Particulars of the subsidiaries, associated companies and a jointly controlled entity of the Shanghai Shimao Group are as follows:

Company name
Date of
incorporation/
establishment
Legal status
Issued/
registered capital
Subsidiaries — established and operation conducted in the PRC
Shimao Lakeside,
上海世茂湖濱房地產
有限公司_(note a)
19 April 2002
Foreign
investment
enterprise
USD18,000,000
Fuzhou Shimao
Investment
Development Co.,
Ltd,
福州世茂投資發展
有限公司(note b)
14 May 2003
Foreign
investment
enterprise
RMB200,000,000
Nanjing Shimao Real
Estate Development
Co., Ltd,
南京世茂房地產�發
有限公司(note c)_
23 July 2004
Foreign
investment
enterprise
RMB200,000,000
Shanghai Shipu
Construction
Materials Co. Ltd.,
上海世浦建材有限公司
31 August 2005
Limited
company
RMB100,000,000
Kunshan East China
Mall Development
Co., Ltd.,
昆山華��城�發
有限公司
16 August 2005
Limited
company
RMB100,000,000

Effective interest held as at
Principal
activities
31 December
30 June
2004
2005
2006
2007
50%
50%
50%
50%
Property
development
50%
50%
50%
50%
Property
development
50%
50%
50%
50%
Property
development
99.5%
99.5%
100%
100%
Sales of
construction
materials
—
99.755%
100%
100%
Property
development

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Associated companies — established and operation conducted in the PRC

Shanghai Shimao Jianshe	16 March 2001	Foreign	RMB300,000,000	34%	—	—	—	Property
Co., Ltd.,		investment						development
上海世茂建設有限公司		enterprise
Shanghai Shimao	17 May 2002	Foreign	HK$300,000,000	25%	—	—	—	Property
North Bund Co., Ltd.,		investment						development
上海世茂北外灘�發		enterprise
建設有限公司
Shanghai Yida Dianzi,	28 May 1999	Limited	RMB4,000,000	30%	30%	30%	30%	Electronic
上海意��務		company						commerce
有限公司

Notes:

(a) Shimao Lakeside was a 50% owned jointly controlled entity of the Shanghai Shimao Group since acquisition on 16 December 2003. In October 2004, Shanghai Shimao appointed more board members into Shimao Lakeside, the Shanghai Shimao Group therefore had more than half of the voting power, and effectively controlled the entity. Shimao Lakeside became into a subsidiary of the Shanghai Shimao Group accordingly.
(b) Fuzhou Shimao Investment Development Co., Ltd. is a 50% owned subsidiary the Shanghai Shimao Group. The Shanghai Shimao Group has more than half of the voting power and has the power to govern its financial and operating policies so as to obtain benefits from its activities.
(c) Nanjing Shimao Real Estate Development Co., Ltd. is a 50% owned subsidiary the Shanghai Shimao Group. The Shanghai Shimao Group has more than half of the voting power and has the power to govern its financial and operating policies so as to obtain benefits from its activities.
(d) No audited accounts are required to be prepared for the above subsidiaries, associated companies and jointly controlled entities except for the following companies:

Companies established in the PRC	Auditors	Year of audit
Shimao Lakeside,	上海��會��務�有限公司	Year ended 31 December 2004
上海世茂湖濱房地產有限公司	(Shanghai Zhonghe Certified
	Public Accountants Co., Ltd.)
	上海上會會��務�	Year ended 31 December 2005
	(Shanghai Shang Kuai
	Certified Public Accountants)
	上海明宇大�會��務�有限公司	Year ended 31 December 2006
	(Shanghai Mingyu-Daya
	Certified Public Accounts Co.,
	Ltd.)
Fuzhou Shimao Investment Development	上海上會會��務�	Year ended 31 December 2004
Co., Ltd.,	(Shanghai Shang Kuai
福州世茂投資發展有限公司	Certified Public Accountants)
	上海上會會��務�	Year ended 31 December 2005
	(Shanghai Shang Kuai
	Certified Public Accountants)
	上海上會會��務�	Year ended 31 December 2006
	(Shanghai Shang Kuai
	Certified Public Accountants)

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

Companies established in the PRC	Auditors	Year of audit
Nanjing Shimao Real Estate Development	上海上會會��務�	Year ended 31 December 2004
Co., Ltd.,	(Shanghai Shang Kuai
南京世茂房地產�發有限公司	Certified Public Accountants)
	上海上會會��務�	Year ended 31 December 2005
	(Shanghai Shang Kuai
	Certified Public Accountants)
	上海上會會��務�	Year ended 31 December 2006
	(Shanghai Shang Kuai
	Certified Public Accountants)
Shanghai Shipu Construction Materials	上海上會會��務�	Year ended 31 December 2005
Co., Ltd.,	(Shanghai Shang Kuai
上海世浦建材有限公司	Certified Public Accountants)
	上海上會會��務�	Year ended 31 December 2006
	(Shanghai Shang Kuai
	Certified Public Accountants)
Kunshan East China Mall Development	上海上會會��務�	Year ended 31 December 2005
Co., Ltd.,	(Shanghai Shang Kuai
昆山華��城�發有限公司	Certified Public Accountants)
	蘇州信�會��務�	Year ended 31 December 2006
	(Suzhou Xinlian Certified
	Public Accounts Co., Ltd)
Shanghai Shimao Jianshe Co., Ltd.,	上海上晟會��務�有限公司	Year ended 31 December 2003
上海世茂建設有限公司	(Shanghai Shangsheng
	Certified Public Accountants
	Co., Ltd.)
Shanghai Shimao North Bund Co., Ltd.,	上海上晟會��務�有限公司	Year ended 31 December 2003
上海世茂北外灘�發建設有限公司	(Shanghai Shangsheng
	Certified Public Accountants
	Co., Ltd.)

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

34 FINANCIAL GUARANTEES

The Shanghai Shimao Group had the following financial guarantees as at 31 December 2004, 2005, 2006 and 30 June 2007.

		As at 31 December		As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Guarantees in respect of mortgage facilities for
certain purchasers	695,000	397,000	1,089,000	1,122,000

The Shanghai Shimao Group provided guarantees in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of the Shanghai Shimao Group’s properties. Pursuant to the terms of the guarantees, upon default in mortgage payments by these purchasers, the Shanghai Shimao Group is responsible to repay the outstanding mortgage principals together with accrued interest and penalty owed by the defaulted purchasers to the banks and the Shanghai Shimao Group is entitled to take over the legal title and possession of the related properties. The Shanghai Shimao Group’s guarantee period starts from the dates of grant of the relevant mortgage loans and ends when the Shanghai Shimao Group obtained the “property title certificate’’ for the mortgagees, or when the Shanghai Shimao Group obtained the “master property title certificate’’ upon completion of construction. The directors consider that in case of default in payments, the net realisable value of the related properties can cover the repayment of the outstanding mortgage principals together with the accrued interest and penalty and therefore no provision has been made in the financial statements for the guarantees.

35 COMMITMENTS

(a) Commitments for capital and property development expenditure

Contracted but not provided for — Land use rights — Properties being developed by the Shanghai Shimao Group for sale	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 1,080,000 1,080,000 1,080,000 623,377 459,826 696,984 1,703,377 1,539,826 1,776,984	As at 30 June 2007 RMB’000 1,080,000 854,281
		1,934,281

(b) Operating lease commitments

The future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings are as follows:

Within one year Between two to five years	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 398 398 398 796 796 796 1,194 1,194 1,194	As at 30 June 2007 RMB’000 398 398
		796

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

(c) Operating lease rentals receivable

The future aggregate minimum lease rentals receivable under non-cancellable operating leases in respect of land and buildings are as follows:

Within one year Between two to five years After five years	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 4,201 2,980 2,961 11,117 9,627 7,768 1,068 423 352 16,386 13,030 11,081	As at 30 June 2007 RMB’000 2,410 4,307 316
		7,033

36 RELATED PARTY TRANSACTIONS

(a) Other than those disclosed in Notes 16, 20 and 23, the Shanghai Shimao Group had entered into the following major related party transactions during the year ended 31 December 2004, 2005, 2006 and six months period ended 30 June 2006 and 2007:

	Year	ended 31 December	ended 31 December	Six months ended 30 June	Six months ended 30 June
	2004	2005	2006	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Continuing transactions
Trademark fee paid to related
companies_(note)_	—	—	450	—	450

On 12 June 2006, the Shanghai Shimao Group entered into a trademark framework agreement with certain related companies, namely SPHL, to use the “Shimao” trademarks and devices. Pursuant to the agreement, SPHL agrees to grant non-exclusive licenses to the Shanghai Shimao Group at an annual royalty fee of HK$300,000 per project from 5 July 2006 to 31 December 2008. For the years ended 31 December 2004, 2005 and six months period ended 30 June 2006, the Shanghai Shimao Group used the trademark of “Shimao’’ at nil consideration.

(b) Key management compensation

Fees Emoluments — Salaries and other short-term employee benefits — Retirement scheme contributions	Year 2004 RMB’000 150 844 93 1,087	ended 31 December 2005 2006 RMB’000 RMB’000 150 180 763 895 107 116 1,020 1,191	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 90 105 385 503 57 59 532 667	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 90 105 385 503 57 59 532 667
				667

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ACCOUNTANT’S REPORT ON SHANGHAI SHIMAO

APPENDIx II.A

37 SUBSEQUENT EVENTS

On 22 October 2007, the Shanghai Shimao Group entered into a Share Subscription and Asset Transfer Agreement with Shimao Enterprises, SPHL, and two subsidiaries of SPHL. The proposed transaction involves the injection by SPHL in the Shanghai Shimao Group of certain commercial property and commercial property development Company with an aggregate net asset value of RMB7,666,500,000, in exchange for the issue by the Shanghai Shimao Group of 630,000,000 New A Shares at RMB12.05 per new A share. Moreover, the Shanghai Shimao Group will issue an additional 62,240,000 new A shares to Shimao Enterprises, a new subsidiary of SPHL pursuant to a proposed capital injection of RMB750,000,000 together with the proposed transaction. Upon completion of the proposed transaction, the Shanghai Shimao Group will become an approximately 64.2% indirectly-owned subsidiary of the SPHL.

III SUBSEQUENT FINANCIAL STATEMENTS

Except for the audited financial statements of Shanghai Shimao for the eight months ended 31 August 2007 prepared under PRC GAAP for management information purposes, no other audited financial statements have been prepared for Shanghai Shimao and its subsidiaries in respect of any period subsequent to 30 June 2007. In addition, no dividend or distribution has been declared, made or paid by Shanghai Shimao or its subsidiaries in respect of any period subsequent to 30 June 2007.

Yours faithfully, PricewaterhouseCoopers Certified Public Accountants Hong Kong

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

15 November 2007

The Directors Shimao Property Holdings Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Shanghai Shimao Enterprises Development Co., Ltd. (“Shimao Enterprises”) and its subsidiaries (together, the “Shimao Enterprises Group”) set out in Sections I to III below, for inclusion in the circular of Shimao Property Holdings Limited (the “Company”) dated 15 November 2007 (the “Circular”) in connection with the proposed acquisition of Shanghai Shimao Co., Ltd. and Shimao Enterprises, and the proposed disposal of certain retail and commercial properties to Shanghai Shimao Co., Ltd. by the Company. The Financial Information comprises the consolidated balance sheets of the Shimao Enterprises Group and the balance sheets of Shimao Enterprises as at 31 December 2004, 2005 and 2006 and 30 June 2007, and the consolidated income statements, the consolidated statements of changes in equity and the consolidated cash flow statements of the Shimao Enterprises Group for each of the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory notes.

Shimao Enterprises was incorporated in the People’s Republic of China (“PRC”) on 22 June 2000 as a limited liability company under the Company Law of the PRC.

As at 30 June 2007, Shimao Enterprises has effective interests in the subsidiaries and associated companies as set out in Note 25 of Section II below. All of these companies are private companies established in the PRC. Shimao Enterprises, its subsidiaries and associated companies have adopted 31 December as their financial year end date.

The statutory financial statements of Shimao Enterprises, its subsidiaries and associated companies are prepared in accordance with the applicable PRC accounting principles and regulations (“PRC GAAP”). The statutory financial statements of Shimao Enterprises, its subsidiaries and associated companies for each of the years ended 31 December 2004, 2005 and 2006 were audited by PRC certified public accountants as disclosed in Note 25 of Section II below.

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APPENDIx II.B

For the purpose of this report, the directors of the Company have prepared consolidated financial statements of the Shimao Enterprises Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have audited the consolidated HKFRS financial statements of the Shimao Enterprises Group for each of the years ended 31 December 2004, 2005 and 2006 and for the six months ended 30 June 2007 in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information has been prepared based on the consolidated HKFRS financial statements of the Shimao Enterprises Group for the Relevant Periods with no adjustment made thereon.

DIRECTORS’ RESPONSIBILITY

The directors of Shimao Enterprises during the Relevant Periods are responsible for the preparation and the true and fair presentation of the PRC GAAP accounts of Shimao Enterprises in accordance with PRC GAAP. The directors of the Company are responsible for the preparation and the true and fair presentation of the consolidated HKFRS financial statements of the Shimao Enterprises Group for the Relevant Periods and the Financial Information in accordance with HKFRS. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the financial statements and the Financial Information that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

REPORTING ACCOUNTANT’S RESPONSIBILITY

For the financial information for each of the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, our responsibility is to express an opinion on the financial information based on our examination and to report our opinion to you. We examined the audited consolidated HKFRS financial statements of the Shimao Enterprises Group and carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by HKICPA.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

OPINION AND REVIEW CONCLUSION

In our opinion, the financial information for each of the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, for the purpose of this report, gives a true and fair view of the state of affairs of Shimao Enterprises and of the Shimao Enterprises Group as at 31 December 2004, 2005 and 2006 and 30 June 2007 and of the Shimao Enterprises Group’s results and cash flows for the years and period then ended.

Based on our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the financial information for the six months ended 30 June 2006 does not give a true and fair view of the financial performance of the Shimao Enterprises Group and its cash flows for the six months ended 30 June 2006 in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by HKICPA.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

I CONSOLIDATED FINANCIAL STATEMENTS OF THE SHIMAO ENTERPRISES GROUP

Consolidated Balance Sheets

Note ASSETS Non-current assets Plant and equipment 5 Associated companies 7 Current assets Other receivables 8 Amounts due from related companies 9 Cash and cash equivalents 10 Total assets EQUITY Capital and reserves attributable to the equity holders of Shimao Enterprises Paid-in capital 11 Reserves 12 Minority interest Total equity	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 959 790 24 216,157 190,832 413,481 217,116 191,622 413,505 41,960 55,413 21,550 162,860 175,561 196,130 29,584 16,330 30,157 234,404 247,304 247,837 451,520 438,926 661,342 200,000 200,000 50,000 190,216 184,009 209,196 390,216 384,009 259,196 13,576 12,390 — 403,792 396,399 259,196	As at 30 June 2007 RMB’000 1 530,197
		530,198
		30 41,457 9,641
		51,128
		581,326
		50,000 359,057
		409,057 —
		409,057

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

Note LIABILITIES Non-current liabilities Borrowings 13 Current liabilities Other payables and accruals 14 Amounts due to related companies 15 Income tax payable 21 Borrowings 13 Total liabilities Total equity and liabilities Net current assets / (liabilities) Total assets less current liabilities	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 — 40,000 50,000 5,712 686 107,222 973 1,841 204,924 1,043 — — 40,000 — 40,000 47,728 2,527 352,146 47,728 42,527 402,146 451,520 438,926 661,342 186,676 244,777 (104,309) 403,792 436,399 309,196	As at 30 June 2007 RMB’000 — 2,399 77,770 2,100 90,000 172,269 172,269 581,326 (121,141) 409,057

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

Balance Sheets of Shimao Enterprises

Note ASSETS Non-current assets Plant and equipment 5 Investment in a subsidiary 6 Associated companies 7 Current assets Other receivables 8 Amounts due from related companies 9 Cash and cash equivalents 10 Total assets	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 3 3 2 35,150 35,150 46,675 24,000 24,000 220,685 59,153 59,153 267,362 10,350 21,851 11,500 184,275 179,075 165,326 8,862 4,206 29,650 203,487 205,132 206,476 262,640 264,285 473,838	As at 30 June 2007 RMB’000 1 46,675 211,708 258,384 1 8,850 141 8,992 267,376

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

Note Equity Capital and reserves attributable to the equity holders of Shimao Enterprises Paid-in capital 11 Reserves 12 Total equity LIABILITIES Non-current liabilities Borrowings 13 Current liabilities Other payables and accruals 14 Amounts due to related companies 15 Income tax payable 21 Borrowings 13 Total liabilities Total equity and liabilities Net current assets/(liabilities) Total assets less current liabilities	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 200,000 200,000 50,000 21,532 23,417 24,713 221,532 223,417 74,713 — 40,000 50,000 — 40,000 50,000 65 — 106,775 — 868 202,350 1,043 — — 40,000 — 40,000 41,108 868 349,125 41,108 40,868 399,125 262,640 264,285 473,838 162,379 204,264 (142,649) 221,532 263,417 124,713	As at 30 June 2007 RMB’000 50,000 49,306 99,306 — — — 75,970 2,100 90,000 168,070 168,070 267,376 (159,078) 99,306

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

Consolidated Income Statements

Note Revenue 27(b) Cost of sales 17 Gross profit Other income 16 Other gains/(losses) 16 Selling and marketing costs 17 Administrative expenses 17 Operating profit/(loss) Finance costs 18 Share of profit/(loss) of associated companies (Loss)/profit before income tax Income tax expense 21 (Loss)/profit for the year/period Attributable to: Equity holders of Shimao Enterprises Minority interest 11 Dividend	Year 2004 RMB’000 3,074 (2,951) 123 13,500 7,882 (143) (5,198) 16,164 (1,798) (45,291) (30,925) (1,062) (31,987) (29,137) (2,850) (31,987) —	ended 31 December 2005 2006 RMB’000 RMB’000 — — — — — — — 29,835 126 (39,576) (10) — (4,567) (3,687) (4,451) (13,428) (2,304) (4,322) (638) 40,505 (7,393) 22,755 — — (7,393) 22,755 (6,207) 23,635 (1,186) (880) (7,393) 22,755 — —	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — — — — — — 87 20,600 — — (3,411) (456) (3,324) 20,144 (1,248) (3,172) (1,357) 10,913 (5,929) 27,885 — (2,100) (5,929) 25,785 (5,053) 25,785 (876) — (5,929) 25,785 — —

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

Consolidated Statements of Changes in Equity

Attributable to the equity holders of Shimao Enterprises

Balance at 1 January 2004 Acquisition of a subsidiary Loss for the year Appropriation to statutory reserve Capitalization of retained earnings Balance at 31 December 2004 Balance at 1 January 2005 Loss for the year Appropriation to statutory reserve Balance at 31 December 2005 Balance at 1 January 2006 Acquisition of additional interest in a subsidiary Profit for the year Capital reduction Revaluation of available-for- sales financial assets of associated companies Other equity change of associated companies Balance at 31 December 2006	Paid-in capital RMB’000 185,000 — — — 15,000 200,000 200,000 — — 200,000 200,000 — — (150,000) — — 50,000	Statutory reserve RMB’000 — — — 5,173 — 5,173 5,173 — 10,308 15,481 15,481 — — — — — 15,481	Share of reserves of associated companies RMB’000 — — — — — — — — — — — — — — 2,700 (1,148) 1,552	Retained earnings RMB’000 234,353 — (29,137) (5,173) (15,000) 185,043 185,043 (6,207) (10,308) 168,528 168,528 — 23,635 — — — 192,163	Subtotal RMB’000 419,353 (29,137) — — 390,216 390,216 (6,207) — 384,009 384,009 — 23,635 (150,000) 2,700 (1,148) 259,196	Minority interest RMB’000 — 16,426 (2,850) — — 13,576 13,576 (1,186) — 12,390 12,390 (11,510) (880) — — — —	Total RMB’000 419,353 16,426 (31,987) — — 403,792 403,792 (7,393) — 396,399 396,399 (11,510) 22,755 (150,000) 2,700 (1,148) 259,196

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APPENDIx II.B

Attributable to the equity holders of Shimao Enterprises

Balance at 1 January 2006 Loss for the period Revaluation of available- for-sale financial assets of associated companies Balance at 30 June 2006 (unaudited) Balance at 1 January 2007 Profit for the period Revaluation of available- for-sale financial assets of associated companies Balance at 30 June 2007	Paid-in capital RMB’000 200,000 — — 200,000 50,000 — — 50,000	Statutory reserve RMB’000 15,481 — — 15,481 15,481 — — 15,481	Share of reserves of associated companies RMB’000 — — 1,898 1,898 1,552 — 124,076 125,628	Retained earnings RMB’000 168,528 (5,053) — 163,475 192,163 25,785 — 217,948	Subtotal RMB’000 384,009 (5,053) 1,898 380,854 259,196 25,785 124,076 409,057	Minority interest RMB’000 12,390 (876) — 11,514 — — — —	Total RMB’000 396,399 (5,929) 1,898 392,368 259,196 25,785 124,076 409,057

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Consolidated Cash Flow Statements

Note Operating activities Net cash (used in)/generated from operations 22 Interest paid Income tax paid Net cash (used in)/generated from operating activities Investing activities Acquisition of a subsidiary, net of cash Cash received from disposal of investment Dividends received Investments in associated companies Net cash generated from /(used in) investing activities Financing activities Proceeds from borrowings Repayments of borrowings Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Cash and cash equivalents at end of the year/period 10	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 (62,318) (34,593) 170,171 (1,798) (2,304) (4,322) (19) (1,043) — (64,135) (37,940) 165,849 (8,107) — (11,509) 34,125 20,000 4,000 19,750 4,686 6,172 — — (200,685) 45,768 24,686 (202,022) 40,000 40,000 50,000 — (40,000) — 40,000 — 50,000 21,633 (13,254) 13,827 7,951 29,584 16,330 29,584 16,330 30,157	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (13,031) (47,369) (1,248) (3,172) — — (14,279) (50,541) — — — 30,025 — — — — — 30,025 50,000 50,000 — (50,000) 50,000 — 35,721 (20,516) 16,330 30,157 52,051 9,641

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II NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 GENERAL INFORMATION

Shanghai Shimao Enterprises Development Co., Ltd. (“Shimao Enterprises”) is an investment holding company. Major investment of Shimao Enterprises is its interest in Shanghai Shimao Co., Ltd. (“Shanghai Shimao”), which is a listed company on the Shanghai Stock Exchange, and mainly engaged in property development and property investment.

Shimao Enterprises and its subsidiaries are collectively referred to as the Shimao Enterprises Group.

Shimao Enterprises is a limited liability company established in the People’s Republic of China (“PRC”). The address of its registered office is Room 203, No 15, Lane 1 West Weifang Road, Pudong New District, Shanghai, the PRC. Shimao Enterprises was established on 22 June 2000 and is owned by two individuals, Mr. Xu Shiyong and Ms. Wang Lili.

Shimao Enterprises is an unlisted company.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all the years and periods presented, unless otherwise stated.

(a) Basis of preparation

The consolidated financial statements of the Shimao Enterprises Group have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) and under the historical cost convention.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Shimao Enterprises Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

(i) The following new standards have been issued and relevant to the Shimao Enterprises Group’s operations, but are not effective for the financial year beginning on 1 January 2007 and have not been early adopted:

HKFRS 8, “Operating Segments” (effective from 1 January 2009). HKFRS 8 replaces HKAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, “Disclosures about segments of an enterprise and related information”. The new standard requires a “management approach”, under which segment information is presented on the same basis as that used for internal reporting purposes. The expected impact on the adoption of HKFRS 8 from 1 January 2009 is still being assessed in detail by management, but it appears likely that the number of reportable segments, as well as the manner in which the segments are reported, will change in a manner that is consistent with the internal reporting provided to the chief operating decision-maker.

HKAS 23 (Revised) “Borrowing Costs” (effective for annual periods beginning on or after 1 January 2009). It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. It is expected that the adoption of HKAS 23 (Revised) from 1 January 2009 will not have a material impact on the current accounting policies and consolidated financial statements.

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(ii) The following recently published but not yet effective new standards, amendments and interpretations to existing standards of HKFRS are not relevant to the Shimao Enterprises Group’s operations.
HK(IFRIC)-Int 11 — HKFRS 2 “Group and Treasury Share Transactions” (effective for annual periods beginning on or after March 1, 2007)
HK(IFRIC)-Int 12 “Service Concession Arrangement” (effective for annual periods beginning on or after 1 January 2008).

HK(IFRIC)-Int 13 “Customer loyalty programmes” (effective for annual periods beginning on or after 1 July 2008). HK(IFRIC)-Int 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement in using fair values. HK(IFRIC)-Int 13 is not relevant to the Shimao Enterprises Group’s operations.
HK(IFRIC)-Int 14 “HKAS 19 — The limit on a defined benefit asset, minimum funding requirements and their interaction” (effective for annual periods on or after 1 January 2008). HK(IFRIC)-Int 14 provides guidance on assessing the limit in HKAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. HK(IFRIC)-Int 14 is not relevant to the Shimao Enterprises Group’s operations as the Shimao Enterprises Group has no defined benefit plans.

(b) Consolidation

(i) Subsidiaries

Subsidiaries are all entities over which the Shimao Enterprises Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Shimao Enterprises Group controls another entity.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Shimao Enterprises Group. Under purchase method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Shimao Enterprises Group. They are de-consolidated from the date that control ceases. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Shimao Enterprises Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference being negative goodwill is recognised directly in the consolidated income statement.

In the Shimao Enterprises’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by Shimao Enterprises on the basis of dividend received and receivable.

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(ii) Transactions with minority interest

The Shimao Enterprises Group applies a policy of treating transactions with minority interest as transactions with parties external to the Shimao Enterprises Group. Disposals to minority interests result in gains and losses for the Shimao Enterprises Group that are recorded in the consolidated income statement. Purchases from minority interest generally result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. If the cost of acquisition is less than the relevant interest acquired of the carrying value of net assets of the subsidiary, the difference being negative goodwill is recognised directly in the consolidated income statement.

(c) Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. As the Shimao Enterprises Group is mainly holding investment in Shanghai Shimao, no segment reporting is represented.

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Shimao Enterprises Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in RMB, which is the functional and presentation currency of Shimao Enterprises.

(ii) Transactions and balances

(e) Plant and equipment

Plant and equipment are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Shimao Enterprises Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the consolidated income statement during the financial period in which they are incurred.

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs less their residual values over their estimated useful lives, as follows:

Furniture and equipment 5 years Motor vehicles 7 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are recorded in the consolidated income statement.

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(f) Intangible assets — goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Shimao Enterprises Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associated companies is included in ‘investments in associated companies’ and is tested for impairment as part of the overall balance. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

(g) Associated companies

Associated companies are all entities over which the Shimao Enterprises Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associated companies are accounted for using the equity method of accounting and are initially recognised at cost. The Shimao Enterprises Group’s investment in associated companies includes goodwill identified on acquisition, net of any accumulated impairment losses.

The Shimao Enterprises Group’s share of its associated companies’ post-acquisition profits or losses is recognised in the consolidated income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Shimao Enterprises Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Shimao Enterprises Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Shimao Enterprises Group and its associated companies are eliminated to the extent of the Shimao Enterprises Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associated companies have been changed where necessary to ensure consistency with the policies adopted by the Shimao Enterprises Group.

Dilution gains and losses arising in investments in associated companies are recognised in the income statement.

In Shimao Enterprises’s balance sheet the investments in associated companies are stated at cost less provision for impairment losses. The results of associated companies are accounted for by Shimao Enterprises on the basis of dividend received and receivable.

(h) Impairment of investments in subsidiaries, associated companies and non-financial assets

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(i) Receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recognised on the trade date — the date on which the Shimao Enterprises Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Shimao Enterprises Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the consolidated income statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the consolidated income statement.

Trade and other receivables are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets.

(j) Cash and cash equivalents

Cash and cash equivalents include cash in hand and at banks and deposits held at call with banks.

(k) Paid-in capital

Paid-in capital are classified as equity. Incremental costs directly attributable to capital raise are recorded as a deduction, net of tax, from the proceeds.

(l) Trade payables

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

(m) Borrowings

Borrowings are classified as current liabilities unless the Shimao Enterprises Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs incurred are charged as an expense in the period in which they are incurred.

(n) Current and deferred income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where Shimao Enterprises’s subsidiaries and associated companies operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

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APPENDIx II.B

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associated companies, except where the timing of the reversal of the temporary difference is controlled by the Shimao Enterprises Group and it is probable that the temporary difference will not reverse in the foreseeable future.

(o) Employee benefits

(i) Employee leave entitlements

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Retirement benefits

In accordance with the rules and regulations in the PRC, the PRC based employees of the Shimao Enterprises Group participate in various defined contribution retirement benefit plans organised by the relevant municipal and provincial governments in the PRC under which the Shimao Enterprises Group and the PRC based employees are required to make monthly contributions to these plans calculated as a percentage of the employees’ salaries.

The municipal and provincial governments undertake to assume the retirement benefit obligations of all existing and future retired PRC based employees payable under the plans described above. Other than the monthly contributions, the Shimao Enterprises Group has no further obligation for the payment of retirement and other post retirement benefits of its employees. The assets of these plans are held separately from those of the Shimao Enterprises Group in independently administrated funds managed by the PRC government.

(p) Provisions and contingent liabilities

Provisions are recognised when the Shimao Enterprises Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Shimao Enterprises Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

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APPENDIx II.B

(q) Revenue recognition

Revenues are recognised as follows:

(i) Sale of goods

Sale of goods are recognized when significant risks and rewards of ownership of the goods are transferred to the buyer and the Shimao Enterprises Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and it is probable that the economic benefit associated with the transaction will flow to the Shimao Enterprises Group and the relevant revenue and costs can be measured reliably.

(ii) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Shimao Enterprises Group reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate.

(iii) Dividend income

Dividend income is recognised when the right to receive payment is established.

(r) Dividend distribution

Dividend distribution to Shimao Enterprises’s shareholders is recognized as a liability in the Shimao Enterprises Group’s financial statements in the period in which the dividends are approved by Shimao Enterprises’s shareholders.

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Shimao Enterprises Group’s activities expose it to a variety of financial risks: market risk (including mainly cash flow interest rate risk), credit risk and liquidity risk. The Shimao Enterprises Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Shimao Enterprises Group’s financial performance.

Risk management is carried out by the finance department of Shimao Enterprises under policies approved by the board of directors.

(i) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the ability to close out the market position.

Management monitors rolling forecasts of the Shimao Enterprises Group’s liquidity reserve on the basis of expected cash flow. Major cash outflow in the coming few years would be the repayment of the loans and amounts due to related parties. Major source of the fund would be:

Dividend from the associated company, Shanghai Shimao Co., Ltd.
Proceeds from sale of investments
Borrowings from banks and related parties

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APPENDIx II.B

The table below analyses the Shimao Enterprises Group’s financial liabilities based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flow.

		Between	Between
	Less than 1 year	1 and 2 years	2 and 5 years	Over 5 years
As at 30 June 2007
Borrowings and interests	93,706	—	—	—
Other payables and accruals	399	—	—	—
As at 31 December 2006
Borrowings and interests	45,082	51,549	—	—
Other payables and accruals	447	—	—	—
As at 31 December 2005
Borrowings and interests	2,536	41,765	—	—
Other payables and accruals	686	—	—	—
As at 31 December 2004
Borrowings and interests	41,629	—	—	—
Other payables and accruals	712	—	—	—

(ii) Cash flow interest rate risk

The Shimao Enterprises Group’s income and operating cash flows are substantially independent of changes in market interest rates. Except for bank deposits, the Shimao Enterprises Group has no significant interestbearing assets. The Shimao Enterprises Group’s exposure to changes in interest rates is mainly attributable to its borrowings. Borrowings at variable rates expose the Shimao Enterprises Group to cash flow interest rate risk. Borrowings at fixed rates expose the Shimao Enterprises Group to fair value interest rate risk. The Shimao Enterprises Group’s current borrowings are at variable rates and therefore exposed to cash flow interest rate risk. With the current level of debt, the Shimao Enterprises Group considers the exposure is minimal but will explore ways to reduce the exposure should new borrowings be required to support the Shimao Enterprises Group’s operation.

The Shimao Enterprises Group’s borrowings are denominated in RMB. As at 31 December 2004, 2005, 2006 and 30 June 2007, if interest rate had been 0.5% higher/lower with all other variables held constant, post tax losses for the years ended 31 December 2004 and 2005 would have been RMB200,000 and RMB200,000 higher/lower; post tax profits for the year ended 31 December 2006 and the six months ended 30 June 2007 would have been RMB325,000 and RMB225,000 lower/higher.

(iii) Credit risk

The Shimao Enterprises Group is exposed to credit risk in relation to its receivables, and cash deposits in banks. To manage the risk, transactions are limited to high-credit-quality institutions. Cash is deposited with only state-owned banks and reputable joint stock commercial banks. Debtors are mainly related parties. The Shimao Enterprises Group also has other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. The Shimao Enterprises Group has no concentrations of credit risk, with exposure spread over a number of counterparties and customers.

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APPENDIx II.B

3.2 Capital risk management

The Shimao Enterprises Group’s objectives when managing capital are to safeguard the Shimao Enterprises Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Shimao Enterprises Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Shimao Enterprises Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and noncurrent borrowings as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as equity as shown in the consolidated balance sheet plus net debt.

The Shimao Enterprises Group’s strategy is to maintain a reasonable gearing ratio. The gearing ratio as at each period end were as follows:

Total borrowings_(Note 13)_ Less: cash and cash equivalents Net debt Total equity Total capital Gearing ratio	31 December 2004 RMB’000 40,000 (29,584) 10,416 403,792 414,208 2.5%	31 December 2005 RMB’000 40,000 (16,330) 23,670 396,399 420,069 5.6%	31 December 2006 RMB’000 90,000 (30,157) 59,843 259,196 319,039 18.8%	30 June 2007 RMB’000 90,000 (9,641) 80,359 409,057 489,416 16.4%

The increase in gearing ratio is mainly due to reduction of paid in capital during 2006 and financing from related companies for investments in associated companies.

3.3 Fair value estimation

The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Shimao Enterprises Group is the current bid price.

The carrying value less impairment provision of receivables and payables approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Shimao Enterprises Group for similar financial instruments.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Shimao Enterprises Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that may have a significant effect on the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Income tax and deferred taxation

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Deferred tax assets relating to certain temporary differences and tax losses are recognized when management considers it probable that future taxable profit will be available against which the temporary differences or tax losses can be utilized. The outcome of their actual utilization may be different.

5 PLANT AND EQUIPMENT

(1) Shimao Enterprises Group

Cost At 1 January 2004 Additions Disposals At 31 December 2004 Accumulated depreciation At 1 January 2004 Charge for the year Disposals At 31 December 2004 Net book value At 31 December 2004 Cost At 1 January 2005 Disposals At 31 December 2005 Accumulated depreciation At 1 January 2005 Charge for the year Disposals At 31 December 2005 Net book value At 31 December 2005	Furniture and equipment RMB’000 173 — — 173 (106) (16) — (122) 51 173 (20) 153 (122) (14) 19 (117) 36	Motor vehicles RMB’000 1,641 571 (195) 2,017 (1,123) (173) 187 (1,109) 908 2,017 — 2,017 (1,109) (154) — (1,263) 754	Total RMB’000 1,814 571 (195) 2,190 (1,229) (189) 187 (1,231) 959 2,190 (20) 2,170 (1,231) (168) 19 (1,380) 790

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	Furniture and
	equipment	Motor vehicles	Total
	RMB’000	RMB’000	RMB’000
Cost
At 1 January 2006	153	2,017	2,170
Disposals	—	(2,017)	(2,017)
At 31 December 2006	153	—	153
Accumulated depreciation
At 1 January 2006	(117)	(1,263)	(1,380)
Charge for the year	(12)	(39)	(51)
Disposals	—	1,302	1,302
At 31 December 2006	(129)	—	(129)
Net book value
At 31 December 2006	24	—	24
Cost
At 1 January 2007	153	—	153
Disposals	(149)	—	(149)
At 30 June 2007	4	—	4
Accumulated depreciation
At 1 January 2007	(129)	—	(129)
Charge for the period	(4)	—	(4)
Disposals	130	—	130
At 30 June 2007	(3)	—	(3)
Net book value
At 30 June 2007	1	—	1

All the depreciation expenses have been included in administrative expenses in the consolidated income statements.

(2) Shimao Enterprises

Plant and equipment held by Shimao Enterprises are furniture and equipment. There’s no significant acquisition or disposal of plant and equipment during the years.

6 INVESTMENT IN A SUBSIDIARY — SHIMAO ENTERPRISES

		31 December		As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Unlisted equity investment, at cost	35,150	35,150	46,675	46,675

Shimao Enterprises acquired 70% and 30% equity interests in Beijing Shimao Real Estate Co., Ltd. (“Beijing Shimao”) in 2004 and 2006, at a consideration of RMB 35,150,000 and RMB 11,525,000 respectively. All the assets and liabilities of Beijing Shimao were monetary items and the consideration was determined based on the net assets of Beijing Shimao as at the acquisition dates. No goodwill arose from the acquisitions. Shimao Enterprises has no amount due to or due from the subsidiary.

Details of the subsidiaries of Shimao Enterprises as at 30 June 2007 are set out in Note 25.

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7 ASSOCIATED COMPANIES

Shimao Enterprises Group

The investments in associated companies are comprised of:

Shanghai Shimao Co., Ltd (“Shanghai Shimao”) Shanghai Meishen Co., Ltd Beijing Shimao Investment and Development Co., Ltd	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 192,157 186,832 413,481 4,000 4,000 — 20,000 — — 216,157 190,832 413,481	As at 30 June 2007 RMB’000 530,197 — —
		530,197

Movements of investments in associated companies are as follows:

Opening balance Acquisitions_(note (a)) Negative goodwill(note (a)) Share of results and reserves — Net profit for the year/period — Available-for-sale financial assets revaluation reserve(note (c)) — Other equity movement Disposals(note (b))_ Dividends Ending balance Including: Goodwill	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 267,698 216,157 190,832 — — 200,685 — — 29,835 (45,291) (638) 40,505 — — 2,699 — — (1,148) — (20,000) (43,755) (6,250) (4,687) (6,172) 216,157 190,832 413,481 — — 18,345	Six months ended 30 June 2007 RMB’000 413,481 — — 10,913 124,075 — (9,422) (8,850)
		530,197
		18,033

(a) Acquisitions

Shimao Enterprises made the following major acquisitions during the period:

(i) On 15 August 2006, Shimao Enterprises acquired 12.69% interests in Shanghai Shimao from Beijing Zhongxin Ruitai Co., Ltd. at a consideration of RMB144,000,000. The acquisition resulted in a negative goodwill of RMB29,834,511, which was recognized as other gains for the year ended 31 December 2006.
(ii) In August and September 2006, Shimao Enterprises acquired an additional 2.83% interests in Shanghai Shimao from the secondary market at a total consideration of RMB56,685,000, resulting in a goodwill of RMB18,345,000.

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APPENDIx II.B

(b) Disposals

(i) The subsidiary, Beijing Shimao disposed of its 20% interests in Beijing Shimao Investment and Development Co., Ltd. at its original acquisition cost of RMB20,000,000 in 2005. Beijing Shimao Investment and Development Co., Ltd. did not have business activities during the period that Beijing Shimao held its equity interests. Accordingly, no share of profit or losses was recognized during the holding period.
(ii) Shimao Enterprises disposed of its 40% interests in Shanghai Meishen Co., Ltd. at its original acquisition cost of RMB4,000,000 in 2006. Shanghai Meishen Co., Ltd. did not have business activities during the period that Shimao Enterprises held its equity interests. Accordingly, no share of profit or losses was recognized during the holding period.
(iii) Associated with the statutory stock reform of Shanghai Shimao in 2006, Shimao Enterprises’s interests in Shanghai Shimao was diluted, which resulted in a loss of RMB39,755,702.
(iv) Shimao Enterprises sold 0.74% interests in Shanghai Shimao during the six months ended 30 June 2007, after writing off the corresponding goodwill of approximately RMB312,000, resulted in a gain of RMB20,600,000.

(c) Share of available-for-sale financial assets revaluation reserve

This represents the Shimao Enterprises Group’s share of the fair value change of the available-for-sale financial assets held by Shanghai Shimao. The Shimao Enterprises Group recognized its share of the reserve into equity directly.

Shanghai Shimao is a listed company. Market value of the shares held by the Shimao Enterprises Group as at the balance sheet dates were as follows:

		December		As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Shanghai Shimao	574,688	345,938	902,183	4,637,648

The Shimao Enterprises Group’s share of the results, assets and liabilities of its principal associated company, Shanghai Shimao which is listed, are as follows:

For the year ended 31 December 2004 For the year ended 31 December 2005 For the year ended 31 December 2006 For the six months ended 30 June 2007	Assets RMB’000 699,255 732,247 1,122,046 1,295,094	Liabilities RMB’000 507,098 545,415 708,565 764,897	Revenue RMB’000 318,485 172,388 914,167 156,495	Profit/(Loss) % of interest held by The Shimao Enterprises Group RMB’000 (45,291) 26.43% (638) 26.43% 45,505 37.64% 10,913 37.00%

Details of the associated companies of the Shimao Enterprises Group as at 30 June 2007 are set out in Note 25.

Apart from the shares pledged as collateral for the loans of Shimao Enterprises as disclosed in Note 13, 55,000,000 shares of Shanghai Shimao with a net book value of RMB111,955,000 were pledged as collateral for bank loans of Shanghai Shimao Construction Co., Ltd. as at 31 December 2005.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

Shimao Enterprises

Opening balance Acquisitions Disposals Ending balance	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 24,000 24,000 24,000 — — 200,685 — — (4,000) 24,000 24,000 220,685	Six months ended 30 June 2007 RMB’000 220,685 — (8,977)
		211,708

8 OTHER RECEIVABLES

Shimao Enterprises Group Other receivables Shimao Enterprises Other receivables	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 41,960 55,413 21,550 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 10,350 21,851 11,500	As at 30 June 2007 RMB’000 30
		As at 30 June 2007 RMB’000 1

The fair values of other receivables approximate their carrying amounts.

The carrying amount of the Shimao Enterprises Group’s other receivables are denominated in RMB.

The Shimao Enterprises Group does not hold any collateral as security for the above receivables.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

9 AMOUNTS DUE FROM RELATED COMPANIES

Shimao Enterprises Group Common directors Shanghai Shimao Group Shanghai Meishen Beijing Songyu Garden Real Estate Co., Ltd. Beijing Bangzhu Real Estate Co., Ltd. Shishi Zhengshi Hotel Co., Ltd. Suifeng River Project Co., Ltd. Shanghai Shimao Real Estate Co., Ltd. Advances to a shareholder — Xu shiyong Shimao Enterprises Common directors Nanjing Shimao Co., Ltd. Shanghai Meishen Beijing Songyu Garden Real Estate Co., Ltd. Beijing Bangzhu Real Estate Co., Ltd. Beijing Zhongxin Ruitai Co., Ltd. Shishi Zhengshi Hotel Co., Ltd. Suifeng River Project Co., Ltd. Shanghai Shimao Co., Ltd. Advances to a shareholder — Xu shiyong	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 11,554 — — 1,478 — — 124,350 154,112 194,981 200 200 200 300 300 — 24,000 — — — 20,000 — 978 949 949 162,860 175,561 196,130 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 11,554 — — 1,478 — — 124,350 154,112 164,177 200 200 200 21,415 23,514 — 300 300 — 24,000 — — — — — 978 949 949 184,275 179,075 165,326	As at 30 June 2007 RMB’000 8,850 — 32,607 — — — — —
		41,457
		As at 30 June 2007 RMB’000 — — — — — — — 8,850 —
		8,850

The carrying amounts of amounts due from related companies approximate their fair values.

Amounts due from related companies has no fixed payment terms.

All amounts due from related companies are dominated in RMB.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

10 CASH AND CASH EQUIVALENTS

Shimao Enterprises Group Bank balances and cash — unrestricted Shimao Enterprises Bank balances and cash — unrestricted	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 29,584 16,330 30,157 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 8,862 4,206 29,650	As at 30 June 2007 RMB’000 9,641
		As at 30 June 2007 RMB’000 141

The effective interest rate on bank deposits as at 31 December 2004, 2005, 2006 and 30 June 2007 is 0.72%, 0.72%, 0.72%, 0.81%, respectively.

Cash and cash equivalents of the Shimao Enterprises Group are all denominated in RMB, and are all current deposits.

11 PAID-IN CAPITAL

Details of registered and paid-in capital of Shimao Enterprises are as follows:

Note As at 1 January 2004 Increase in capital (i) As at 31 December 2004 and 31 December 2005 Capital reduction (ii) As at 31 December 2006 and 30 June 2007	RMB’000 185,000 15,000
	200,000 (150,000)
	50,000

Notes:

(i) Pursuant to the board resolution dated 11 June 2004, Shimao Enterprises increased its capital by capitalisation of retained earnings of RMB15,000,000.
(ii) Pursuant to the board resolution dated 30 April 2006, Shimao Enterprises reduced its capital by RMB150,000,000. The reduction of capital was settled via netting off certain amounts due from related parties.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

12 RESERVES

Shimao Enterprises Group

Balance at 1 January 2004 Profit for the year attributable to the equity holders of Shimao Enterprises Appropriation to statutory reserve Capitalisation of retained earnings Balance at 31 December 2004 Balance at 1 January 2005 Profit for the year attributable to the equity holders of Shimao Enterprises Appropriation to statutory reserve Balance at 31 December 2005 Balance at 1 January 2006 Profit for the year attributable to the equity holders of Shimao Enterprises Revaluation of available-for-sale financial assets of associated companies Other equity change of associated companies Balance at 31 December 2006 Balance at 1 January 2007 Profit for the period attributable to the equity holders of Shimao Enterprises Revaluation of available-for-sale financial assets of associated companies Balance at 30 June 2007	Statutory reserve RMB’000 — — 5,173 — 5,173 5,173 — 10,308 15,481 15,481 — — — 15,481 15,481 — — 15,481	Share of reserve of associated companies RMB’000 — — — — — — — — — — — 2,700 (1,148) 1,552 1,552 — 124,076 125,628	Retained earnings RMB’000 234,353 (29,137) (5,173) (15,000) 185,043 185,043 (6,207) (10,308) 168,528 168,528 23,635 — — 192,163 192,163 25,785 — 217,948	Total RMB’000 234,353 (29,137) — (15,000)
				190,216
				190,216 (6,207) —
				184,009
				184,009 23,635 2,700 (1,148)
				209,196
				209,196 25,785 124,076
				359,057

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

Shimao Enterprises

Balance at 1 January 2004 Profit for the year Appropriation to statutory reserve Balance at 31 December 2004 Balance at 1 January 2005 Profit for the year Appropriation to statutory reserve Balance at 31 December 2005 Balance at 1 January 2006 Profit for the year Balance at 31 December 2006 Balance at 1 January 2007 Profit for the period Balance at 30 June 2007	Statutory reserve RMB’000 — — 5,173 5,173 5,173 — 10,308 15,481 15,481 — 15,481 15,481 — 15,481	Retained earnings RMB’000 10,656 10,876 (5,173) 16,359 16,359 1,885 (10,308) 7,936 7,936 1,296 9,232 9,232 24,593 33,825	Total RMB’000 10,656 10,876 —
			21,532
			21,532 1,885 —
			23,417
			23,417 1,296
			24,713
			24,713 24,593
			49,306

Statutory reserves represent the reserves of the PRC established companies which are set aside for future development purposes in accordance with the regulations in the PRC. The allocation is based on certain percentages of the companies’ profit of the year, which is allocated on an annual basis. The statutory reserves can only be used to offset previous years’ losses, to expand its production operations, or to increase its capital. The statutory reserves may be converted into the paid-in capital, provided the balance of the reserves after such conversion is not less than 25% of the registered capital.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

13 BORROWINGS

Shimao Enterprises Group and Shimao Enterprises Borrowings included in non-current liabilities Bank borrowings — secured Amount due within one year Shimao Enterprises Group and Shimao Enterprises Borrowings included in current liabilities Amount due within one year	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 40,000 40,000 90,000 (40,000) — (40,000) — 40,000 50,000 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 40,000 — 40,000	As at 30 June 2007 RMB’000 90,000 (90,000)
		—
		As at 30 June 2007 RMB’000 90,000

As at 31 December 2004, total bank borrowings of RMB40,000,000 was secured by a pledge of 25,151,000 shares of Shanghai Shimao with carrying amount of RMB57,990,000.

As at 31 December 2005, total bank borrowings of RMB40,000,000 was secured by a pledge of 36,600,000 shares of Shanghai Shimao with carrying amount of RMB74,500,000.

As at 31 December 2006, short-term bank borrowings of RMB40,000,000 was secured by a pledge of 36,600,000 shares of Shanghai Shimao with carrying amount of RMB84,039,000 and long-term borrowing of RMB50,000,000 was secured by 52,400,000 shares of Shanghai Shimao with carrying amount of RMB120,318,000.

As at 30 June 2007, total bank borrowings of RMB90,000,000 was secured by a pledge of 89,000,000 shares of Shanghai Shimao with carrying amount of RMB254,506,000.

The exposure of the borrowings to interest rate changes and the contractual repricing dates or maturity whichever is the earlier date is as follows:

	6 months
	or less	6–12 months	1–5 years	Over 5 years	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Shimao Enterprises Group and Shimao Enterprises
Borrowings included in non-current liabilities:
At 31 December 2004	—	—	—	—	—
At 31 December 2005	40,000	—	—	—	40,000
At 31 December 2006	50,000	—	—	—	50,000
At 30 June 2007	—	—	—	—	—
Borrowings included in current liabilities:
At 31 December 2004	40,000	—	—	—	40,000
At 31 December 2005	—	—	—	—	—
At 31 December 2006	40,000	—	—	—	40,000
At 30 June 2007	90,000	—	—	—	90,000

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

The maturity of the borrowings included in non-current liabilities is as follows:

		As at 31 December		As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Shimao Enterprises Group and Shimao Enterprises
Bank borrowings:
Between 1 and 2 years	—	40,000	50,000	—

The effective interest rates at the balance sheet date were as follows:

		31 December		As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Bank borrowings — RMB	5.841%	5.99%	6.45%	6.50%

The carrying amounts of both short-term borrowings and long-term borrowings approximate their fair value.

All the borrowings are denominated in RMB.

14 OTHER PAYABLES AND ACCRUALS

Shimao Enterprises Group

Other payables Accrued expenses Other taxes payable Shimao Enterprises Other payables and accruals	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 5,111 87 106,879 65 — — 536 599 343 5,712 686 107,222 As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 65 — 106,775	As at 30 June 2007 RMB’000 2,055 — 344
		2,399
		As at 30 June 2007 RMB’000 —

Included in balances as at 31 December 2006, RMB106,775,000 were due to Beijing Zhongxi Ruitai Co., Ltd. for purchases of its shares in Shanghai Shimao.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

15 AMOUNTS DUE TO RELATED COMPANIES

Shimao Enterprises Group

As at 31 December
2004
2005
2006
RMB’000
RMB’000
RMB’000
Shareholders
— Xu Shiyong
—
—
135,995
— Wang Lili
—
—
10,005
Related Companies
— Shanghai Shimao Investment Development
Co., Ltd
—
—
150
— Beijing New Yansha Group
973
973
973
— Perfect Zone International Co., Ltd.
—
868
868
— Shishi Hotel
—
—
45,700
— Beijing Huanyu Co., Ltd.
—
—
8,132
— Beijing Shimao Investment and Development
Co.,Ltd
—
—
1,601
— Beijing Asian Games Real Estate Co., Ltd.
—
—
1,500
973
1,841
204,924
Amounts due to related companies has no fixed payment terms.

As at 30 June
2007
RMB’000
75,970
—
—
200
—
—
—
1,600
—

77,770

All amount due to related companies is dominated in RMB.

Shimao Enterprises

Shareholders — Xu Shiyong — Wang Lili Related Companies — Shanghai Shimao Investment Development Co., Ltd — Perfect Zone International Co., Ltd. — Shishi Hotel — Beijing Huanyu Co., Ltd. — Beijing Asian Games Real Estate Co., Ltd.	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 — — 135,995 — — 10,005 — — 150 — 868 868 — — 45,700 — — 8,132 — — 1,500 — 868 202,350	As at 30 June 2007 RMB’000 75,970 — — — — — —
		75,970

Amounts due to related companies are interest free, unsecured and have no fixed terms of repayment.

The carrying amounts of amounts due to related companies approximate their fair values.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

16 OTHER INCOME AND OTHER GAINS/(LOSSES)

(a) Other income

Dividend income_(Note (ii))_ Negative goodwill	Year 2004 RMB’000 13,500 — 13,500	ended 31 December 2005 2006 RMB’000 RMB’000 — — — 29,835 — 29,835	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — — — — —	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — — — — —
				—

(b) Other gains/(losses)

Gain from disposal of investment_(Note (i)) Loss from deemed disposal(Note 7(b)(iii))_ Others	Year 2004 RMB’000 7,876 — 6 7,882	ended 31 December 2005 2006 RMB’000 RMB’000 — — — (39,756) 126 180 126 (39,576)	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — 20,600 — — 87 — 87 20,600	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — 20,600 — — 87 — 87 20,600
				20,600

Notes:

(i) The Shimao Enterprises Group disposed of its investment in Shanghai Shimao Real Estate Co., Ltd. in which the Shimao Enterprises Group holds an interest of 3% in 2004 with a gain of RMB7,876,000. In 2007, the Shimao Enterprises Group disposed of 0.64% interests in Shanghai Shimao and realised a gain of RMB20,600,000 (Note 7(b)(iv)).

(ii) Shanghai Shimao Real Estate Co., Ltd. paid dividend of RMB13,500,000 to Shimao Enterprises in 2004.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

17 ExPENSES BY NATURE

Expenses included in cost of sales, selling and marketing costs, administrative expenses and other operating expenses are analysed as follows:

Cost of goods sold Staff costs_(note (a)) Auditors’ remuneration Depreciation(Note 6)_ Bad debt expense Other expenses	Year 2004 RMB’000 2,951 2,175 30 189 2,000 947 8,292	ended 31 December 2005 2006 RMB’000 RMB’000 — — 3,393 2,986 33 75 168 51 — — 983 575 4,577 3,687	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — 2,986 9 43 — 50 4 — — 332 443 3,411 456	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — 2,986 9 43 — 50 4 — — 332 443 3,411 456
				456

(a) Staff costs comprise:

Wages and salaries Staff termination expenses Pension costs — statutory pension (Note 23) Other allowances and benefits	Year 2004 RMB’000 1,358 — 456 361 2,175	ended 31 December 2005 2006 RMB’000 RMB’000 1,357 — 1,383 2,813 427 91 226 82 3,393 2,986	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — 2,813 — 91 7 82 2 2,986 9	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — 2,813 — 91 7 82 2 2,986 9
				9

18 FINANCE COSTS

	Year	ended 31 December	ended 31 December	Six months ended 30 June	Six months ended 30 June
	2004	2005	2006	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Interest on bank borrowings
— wholly repayable within five years	1,798	2,304	4,322	1,248	3,172

19 EARNINGS PER SHARE

As Shimao Enterprises is not a company incorporated by issue of shares, no earnings per share information is presented.

20 EMOLUMENTS OF DIRECTORS AND FIVE HIGHEST PAID INDIVIDUALS

(a) Directors’ emoluments

The executive directors of Shimao Enterprises, Mr. Xu Shiyun receive remuneration of RMB60,000 per year in respect of their services rendered to the Shimao Enterprises Group for the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2007.

No directors of Shimao Enterprises waived or agreed to waive any remuneration during the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2007.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Shimao Enterprises Group for the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2006 and 2007 are all directors. The aggregate amounts of emoluments of the five highest paid individuals is set out below:

Fees Basic salaries and allowances Bonuses	Year 2004 RMB’000 60 231 402 693	ended 31 December 2005 2006 RMB’000 RMB’000 60 60 258 69 177 88 495 217	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 30 30 69 — 88 — 187 30	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) 30 30 69 — 88 — 187 30
				30

The emoluments fell within the following bands:

			Number of individuals	Number of individuals	Number of individuals	Number of individuals
		Year	ended 31 December			Six months ended 30 June
		2004	2005		2006	2006	2007
						(Unaudited)
	Nil to HK$1,000,000	5	5		5	5	1
21	INCOME TAx ExPENSE
		Year	ended 31 December			Six months	ended 30 June
		2004	2005		2006	2006	2007
		RMB’000	RMB’000	RMB’000		RMB’000	RMB’000
						(Unaudited)
	PRC enterprise income tax
	— Current income tax	(1,062)	—		—	—	(2,100)

The income tax on the Shimao Enterprises Group’s profit before income tax differs from the theoretical amount that would arise using the enacted tax rate of the home country of the companies within the Shimao Enterprises Group as follows:

(Loss)/profit before income tax Share of profit/(loss) of associated companies Profit/(loss) before income tax, less share of profit/(loss) of associated companies Tax calculated at domestic tax rate applicable Tax of subsidiary subject to different tax rate Tax losses for which deferred tax was not recognized Income not subject to tax_(Note (i))_ Expenses not deductible for tax purposes	Year 2004 RMB’000 (30,925) (45,291) 14,366 (2,515) 1,043 (1,913) 2,963 (640) (1,062)	ended 31 December 2005 2006 RMB’000 RMB’000 (7,393) 22,755 (638) 40,505 (6,755) (17,750) 1,013 2,663 712 522 (1,305) (963) — 4,475 (420) (6,697) — —	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (5,929) 27,885 (1,357) 10,913 (4,572) 16,972 686 (2,546) 526 82 (964) (146) — 510 (248) — — (2,100)	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (5,929) 27,885 (1,357) 10,913 (4,572) 16,972 686 (2,546) 526 82 (964) (146) — 510 (248) — — (2,100)
				16,972 (2,546) 82 (146) 510 —
				(2,100)

– 234 –

ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

As Shimao Enterprises is registered in Pudong Development Zone of Shanghai, the PRC, the PRC enterprise income tax is provided for at 15% of the profits for the PRC statutory financial reporting purpose, adjusted for those items, which are not assessable or deductible for the PRC enterprise income tax purpose. The subsidiary is registered in Beijing and is subject to an enterprise income tax rate of 33%.

The Shimao Enterprise Group did not recognize deferred income tax assets of RMB1,913,000, RMB3,218,000, RMB4,181,000 and RMB4,327,000 in respect of accumulated losses amounting to RMB5,797,000, RMB9,749,000, RMB12,669,000 and RMB13,093,000 as at 31 December 2004, 2005, 2006 and 30 June 2007 respectively. The tax losses can be carried forward for five years.

Notes:

(i) Income not subject to income tax mainly includes dividend income from Shanghai Shimao Real Estate Co., Ltd. which is exempted from enterprise income tax.

22 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

Net cash (used in)/generated from operations:

Profit before income tax Adjustments for: Gain on disposal of investment Finance costs—net Depreciation Loss on disposal of property, plant and equipment Share of results of associated companies Other investment income_(Note 17)_ Change in working capital, excluding the effects of acquisition Other receivables Due from related parties Other payable and accruals Due to related parties Net cash (used in)/generated from operations	Year 2004 RMB’000 (30,925) (21,376) 1,798 189 — 45,291 — 357 (56,323) (1,329) — (62,318)	ended 31 December 2005 2006 RMB’000 RMB’000 (7,393) 22,755 — — 2,304 4,322 168 51 — 715 638 (40,505) — 9,921 (13,453) 33,863 (12,699) (20,569) (5,026) 106,536 868 53,082 (34,593) 170,171	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (5,929) 27,885 — (20,600) 1,248 3,172 30 4 516 17 1,357 (10,913) — — — 278 21,520 (10,452) 163,523 (228) (104,823) 149 (127,154) (13,031) (47,369)

23 PENSIONS — DEFINED CONTRIBUTION PLANS

Employees in the Shimao Enterprises Group’s PRC subsidiaries are required to participate in a defined contribution retirement scheme administrated and operated by the local municipal government. The Shimao Enterprises Group’s PRC subsidiaries contribute funds which are calculated on certain percentage of the average employee salary as agreed by local municipal government to the scheme to fund the retirement benefits of the employees.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

24 BUSINESS COMBINATION

In May 2004, Shimao Enterprises acquired approximately 70% of the capital of Beijing Shimao. The acquired business contributed revenue of nil and net loss of RMB2,947,000 for year 2004. If the acquisition had occurred on 1 January 2004, there would be no change in the Shimao Enterprises Group’s revenue, but net loss would have been increased to RMB25,368,000. These amounts have been calculated using the Shimao Enterprises Group accounting policies.

Details of net assets acquired and goodwill are as follows:

Purchase consideration — cash paid Fair value of the net assets acquired Goodwill	Amount (RMB’000) 35,150 35,150
	—

The assets and liabilities as at the acquisition date are as follows:

Plant and equipment Investment in associated Other receivables Cash Other payables Due to related parties Net assets Minority interest Net assets acquired Purchase consideration settled in cash Cash and cash equivalent acquired Cash outflow on acquisition	Acquiree’s carrying amount RMB’000 1,144 20,000 10,008 27,043 (646) (5,973)
	51,576 51,576 (16,426)
	35,150
	35,150 (27,043)
	8,107

The fair value of the assets and liabilities approximate the carrying amounts.

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

25 SUBSIDIARIES AND ASSOCIATED COMPANIES

Particulars of subsidiaries and associated company of the Shimao Enterprises Group is as follows:

Company name Date of incorporation/ establishment Issued/ registered Capital (‘000) Subsidiaries (note) Beijing Shimao 14 May 1992 RMB50,000 Associated companies Shanghai Meishen Co., Ltd. 23 April 2001 RMB10,000 Beijing Shimao Investment and Development Co., Ltd. 7 June 2004 USD65,000 Shanghai Shimao 29 September 1993 RMB478,335	Effective interest held as at Principal activities 31 December 30 June 2004 2005 2006 2007 70% 70% 100% 100% Property development 40% 40% — — Operation of clubhouse 20% — — — Property development 26.43% 26.43% 37.64% 37% Property development and investment

Note:

Apart from the entities listed above, Shimao Enterprises is also the officially registered owner of Beijing Hengshi Construction Co., Ltd. (“Beijing Hengshi”). Pursuant to an agreement entered into an individual third party, Mr. Zhang Quisheng, dated 30 September 2004, the equity interests in Beijing Hengshi by Shimao Enterprises are held on behalf of Mr. Zhang Quisheng and the related risks and benefits in Beijing Hengshi belong to Mr. Zhang Quisheng. Considering the fact that Shimao Enterprises did not control Beijing Hengshi and that Shimao Enterprises is not entitled to the profits or subject to the losses of Beijing Hengshi, Beijing Hengshi is not consolidated into the financial statements.

No audited accounts are required to be prepared for Shimao Enterprises, its subsidiaries and associated companies except for the following companies:

Companies established in the PRC	Auditors	Year of audit
Shimao Enterprises	上海上晟會��務�	Year ended 31 December 2004
	(Shanghai Shangsheng
	Certified Public Accountants)
	上海��會��務�	Year ended 31 December 2005
	(Shanghai Zhonghe Certified
	Public Accountants)
	上海��會��務�	Year ended 31 December 2006
	(Shanghai Zhonghe Certified
	Public Accountants)
Beijing Shimao Real Estate Co., Ltd.	北京京都會��務�	Year ended 31 December 2004
	(Beijing Jingdu Certified Public
	Accountants)
	北京�明會��務�	Year ended 31 December 2005
	(Beijing Zheming Certified
	Public Accountants)
	北京��會��務�	Year ended 31 December 2006
	(Beijing Keenchoice Certified
	Public Accountants)

– 237 –

ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

Companies established in the PRC

Auditors

Year of audit

Shanghai Shimao

上海上 會會��務� Year ended 31 December 2004 (Shanghai Shang Kuai Certified Public Accountants)

上海上 會會��務� Year ended 31 December 2005 (Shanghai Shang Kuai Certified Public Accountants)

上海上 會會��務� Year ended 31 December 2006 (Shanghai Shang Kuai Certified Public Accountants)

26 FINANCIAL GUARANTEES

The Shimao Enterprises Group provides the financial guarantees:

Bank loans of Shanghai Shimao from Ming Sheng Bank Bank loans of Shimao Lakeside from Hua Xia Bank Bank loans of Shanghai Shimao from Shenzhen Development Bank Bank loans of Fujian Shimao Investment and Development Co., Ltd. from Everbright Bank	As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 150,000 — — 45,000 — — — 60,000 — — 100,000 — 195,000 160,000 —	As at 30 June 2007 RMB’000 100,000 — — —
		100,000

Management assessed the financial guarantee and concluded that the amount was not material and hence no financial guarantee liability was recognized.

27 RELATED PARTY TRANSACTIONS

(a) The balances of due to and due from related companies ( Note 9 and Note 16 ) are mainly resulted from the fund transfer among entities.
(b) For the year ended 31 December 2004, Shimao Enterprises sold construction materials to Shimao International Plaza Project Co. , a subsidiary of Shimao Property Holdings Limited, at RMB3,074,000.
(c) Key management compensation

Fees Emoluments — Salaries and other short-term employee benefits — Retirement scheme contributions	Year 2004 RMB’000 — 60 — 60	ended 31 December 2005 2006 RMB’000 RMB’000 — — 60 60 — — 60 60	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — 30 30 — — 30 30	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) — — 30 30 — — 30 30
				30

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ACCOUNTANT’S REPORT ON SHIMAO ENTERPRISES

APPENDIx II.B

28 PROFIT ATTRIBUTABLE TO THE EQUITY HOLDERS OF SHIMAO ENTERPRISES

The profit attributable to the equity holders of Shimao Enterprises is dealt with in the financial statements of Shimao Enterprises to the extent of RMB10,876,000, RMB1,885,000, RMB1,296,000 and RMB24,593,000 for the years ended 31 December 2004, 2005, 2006 and six months ended 30 June 2007.

29 SUBSEQUENT EVENTS

(a) On 13 October 2007, Shimao Enterprises disposed its interests in its subsidiary, Beijing Shimao to Mr. Xu Shiyong at a consideration of RMB50,000,000. On 8 October 2007, the officially registered owner of Beijing Hengshi was changed to Mr. Zhang Qiusheng.
(b) On 22 October 2007, Shimao Enterprise entered into a Share Subscription and Asset Transfer Agreement with Shanghai Shimao, SPHL, and two subsidiaries of SPHL. The proposed transaction involves the injection by SPHL in the Shanghai Shimao Group of certain of its retail and commercial properties with an aggregate net asset value of RMB7,666,500,000 as at the appraisal date, in exchange for the issue by the Shanghai Shimao Group of 630,000,000 new A shares at RMB12.05 per new A share. Moreover, the Shanghai Shimao Group will issue an additional 62,240,000 New A Shares to Shimao Enterprises, a new subsidiary of SPHL pursuant to the Capital Injection. Upon completion of the proposed transaction, the Shanghai Shimao Group will become an approximately 64.2% indirectly-owned subsidiary of SPHL and the Shimao Enterprises Group will become an approximately 50.9% subsidiary of SPHL.

III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for Shimao Enterprises and its subsidiaries in respect of any period subsequent to 30 June 2007. In addition, except for those as disclosed in section II of this report, no dividend or distribution has been declared, made or paid by Shimao Enterprises or its subsidiaries in respect of any period subsequent to 30 June 2007.

Yours faithfully, PricewaterhouseCoopers Certified Public Accountants Hong Kong

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIx III

A. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

For illustrative purpose only, set out below is the unaudited pro forma statement of assets and liabilities of the Enlarged Group to show the effect of Proposed transaction on the assets and liabilities of the Enlarged Group as if it had taken place on 30 June 2007. The Enlarged Group referred to hereinafter include the Company and its subsidiaries (the “Group”), Shanghai Shimao and its subsidiaries (the “Shanghai Shimao Group”) and Shimao Enterprises and its subsidiaries (the “Shimao Enterprises Group”).

The unaudited pro forma statement of assets and liabilities of the Enlarged Group has been prepared using accounting policies materially consistent with that of the Group and based on the unaudited consolidated balance sheet of the Group as at 30 June 2007 as per the published interim financial statements and after making certain pro forma adjustments as set out in notes 1 to 3 below. They have been prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the financial position of the Group had the above acquisition been completed as at 30 June 2007 or any further date.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIx III

ASSETS Non-current assets Property, plant and equipment Investment properties Land use rights Intangible assets Associated companies Jointly controlled entity Available-for-sale financial assets Deferred income tax assets Other non-current assets Current assets Land use rights under development Properties under development Completed properties held for sale Trade and other receivables and prepayments Prepaid income taxes Amounts due from related companies Amounts due from minority interests Restricted cash Cash and cash equivalents Total assets LIABILITIES Non-current liabilities Borrowings Deferred income tax liabilities	Pro forma adjustments The Group The Shanghai Shimao Group The Shimao Enterprises Group Other pro forma adjustments Note As at 30 June 2007 (unaudited) (audited) (audited) RMB’000 RMB’000 RMB’000 RMB’000 (note 1) (note 2) (note 3) 4,347,681 162,264 1 5,757,000 203,900 — 1,420,979 121,312 — 95,872 4 426,636 — — 1,842,375 4 196,472 319 530,197 (726,669) 4 2,487 — — — 465,374 — 139,432 80,636 — 564,607 4 6,532,502 80,080 — 18,823,189 1,113,885 530,198 4,758,593 417,465 — 631,303 4 2,471,212 541,582 — 1,807,870 242,322 — 686,863 99,877 30 76,318 35,714 — 58,402 — 41,457 505,456 — — 345,385 — — 4,213,305 847,632 9,641 14,923,404 2,184,592 51,128 33,746,593 3,298,477 581,326 7,606,047 263,100 — 1,164,930 122,132 — 138,135 4 8,770,977 385,232 —	Pro forma adjustments	Unaudited Pro forma balance of the Enlarged Group (unaudited) RMB’000 4,509,946 5,960,900 1,638,163 2,269,011 319 2,487 465,374 784,675 6,612,582
			22,243,457
			5,807,361 3,012,794 2,050,192 786,770 112,032 99,859 505,456 345,385 5,070,578
			17,790,427
			40,033,884
			7,869,147 1,425,197
			9,294,344

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIx III

Current liabilities Trade and other payables Advanced proceeds received from customers Amounts due to related companies Income tax payable Borrowings Total liabilities Net assets	Pro forma adjustments The Group The Shanghai Shimao Group The Shimao Enterprises Group Pro forma adjustments Note As at 30 June 2007 (unaudited) (audited) (audited) RMB’000 RMB’000 RMB’000 RMB’000 2,885,770 552,801 399 68,900 4 1,262,243 163,169 — — 37,825 79,770 1,846,368 463,277 2,100 739,241 4 1,794,859 233,140 90,000 7,789,240 1,450,212 172,269 16,560,217 1,835,444 172,269 17,186,376 1,463,033 409,057	Pro forma adjustments	Unaudited Pro forma balance of the Enlarged Group (unaudited) RMB’000 3,507,870 1,425,412 117,595 3,050,986 2,117,999
			10,219,862
			19,514,206
			20,519,678

Notes:

The balances are extracted from the unaudited condensed consolidated balance sheet of the Group as at 30 June 2007 as set out in the Group’s interim report for the six months ended 30 June 2007.
The balances are extracted from the accountant’s report on Shanghai Shimao as set out in Appendix II.A to this circular.
The balances are extracted from the accountant’s report on Shimao Enterprises as set out in Appendix II.B to this circular.
The Proposed Transaction involves the acquisition of 64.2% effective interests in Shanghai Shimao and 50.9% interest in Shimao Enterprises (collectively referred as to the “Acquisition”) and the deemed disposal of 35.8% effective interests in the Target Companies and Target Asset (the “Partial Disposal”) by the Group.

The pro forma adjustments relating to the Acquisition and the partial disposal include principally:

(i) The identifiable assets and liabilities of the Shanghai Shimao Group and the Shimao Enterprises Group will be accounted for in the consolidated financial statements of the Group at fair value under the purchase method of accounting in accordance with Hong Kong Financial Reporting Standard 3 “Business Combinations” (“HKFRS 3”). Investment in Shanghai Shimao of RMB530,197,000 recorded in the financial statements of Shimao Enterprises and investment in Fuzhou Shimao and Nanjing Shimao of RMB196,472,000 recorded in the financial statements of the Company is eliminated with the equity for the consolidated financial statements of the Enlarged Group.
(ii) Purchase consideration of approximately RMB2,939,000,000, being 35.8% of the fair value of the Target Companies and Target Assets of RMB7,666,500,000 and cash to Shimao Enterprises of RMB750,000,000, less an amount of approximately RMB73,700,000 payable by Shanghai Shimao upon completion.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIx III

(iii) Based on a valuation performed by DTZ Debenham Tie Leung, an independent valuer in Hong Kong, as at 31 August 2007,
- there is an increase of RMB727,175,000 in the value of Shanghai Shimao’s properties as compared to their book value as at 30 June 2007;
- land appreciation tax of RMB174,634,000 would have arisen arising from such revaluation surplus and the related additional deferred tax liabilities of RMB138,135,000 calculated at 25% of the increase in fair value less the land appreciation tax, as if the acquisition had taken place on 30 June 2007.
(iv) Fair value of the assets and liabilities of Shimao Enterprises approximates their book value as assessed by the directors of the Company.
(v) Goodwill, which represents the excess of the total purchase consideration over the Group’s share of the estimated fair value of the identifiable assets and liabilities of Shanghai Shimao and Shimao Enterprises, is RMB1,842,375,000.
(vi) Business tax of approximately RMB68,900,000 arose from the Proposed Transaction has been accrued and included in other payables. Apart from accrued land appreciation tax of RMB174,634,000 relating to the fair value above, income taxes totalling at approximately RMB564,607,000 arose from the transaction, including (a) withholding tax of RMB440,607,000 calculated at 10% of gain from transfer of the shares of the nine companies to Shanghai Shimao and (b) income tax of RMB 35,000,000 calculated at 25% of fair value gain less land appreciation tax of the property to be injected into Shanghai Shimao and (c) relevant land appreciation tax of RMB89,000,000 on the fair value change over the property to be injected into Shanghai Shimao.
- Since the fair values of the net assets of the Target Companies and Target Asset and the identifiable assets and liabilities of Shanghai Shimao and Shimao Enterprises as at the date of completion may be different from the respective fair values used in the preparation of the above unaudited pro forma financial information, the actual amount of goodwill may be different from the estimated amount shown in this unaudited pro forma financial information.
No adjustment has been made to reflect any trading result or other transaction of the Group entered into subsequent to 30 June 2007. In particular, during the period from 1 July 2007 to 31 August 2007, some of the Target Companies made additional cash payments totalling approximately RMB875,584,000 for the remaining land premium based on the land use rights agreements with local land authorities, to complete the transfer and registration of the certificates. The corresponding prepayments as at 30 June 2007 amounting to approximately RMB2,165,392,000 are reclassified from prepayments to land use rights upon receipts of land use rights certificates. The payables of approximately RMB69,952,000 as at 30 June 2007 which are related to the construction of properties of these companies are also settled at the same time. Upon the completion of these processes, the land use rights and property, plant and equipment of the Group are increased by approximately RMB2,961,527,000 and RMB9,497,000 respectively. These transactions were not reflected in the pro forma financial information.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIx III

B. REPORT FROM THE REPORTING ACCOUNTANT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

REPORT FROM REPORTING ACCOUNTANT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF SHIMAO PROPERTY HOLDINGS LIMITED

We report on the unaudited pro forma financial information set out on pages 240 to 243 under the heading of “Unaudited pro forma statement of assets and liabilities of the Enlarged Group” (the “Unaudited Pro Forma Financial Information”) in Appendix III of the circular dated 15 November 2007 (the “Circular”) of Shimao Property Holdings Limited (the “Company”), in connection with the proposed acquisition of Shanghai Shimao Co., Ltd. and Shanghai Shimao Enterprises Development Co., Ltd. and the proposed disposal of certain retail and commercial properties to Shanghai Shimao Co., Ltd. (the “Transaction”) by the Company. The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Transaction might have affected the relevant financial information of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages 244 to 245 of the Circular.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANT

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and 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 rule 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.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIx III

BASIS OF OPINION

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unaudited consolidated balance sheet of the Group as at 30 June 2007 with the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2007, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.

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 rule 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, 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 30 June 2007 or any future date.

OPINION

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to rule 4.29(1) of the Listing Rules.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 15 November 2007

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

The following is the text of a letter, summary of valuations and valuation certificates issued by DTZ Debenham Tie Leung Limited, an independent property valuer, prepared for the purpose of incorporation in this circular in connection with its valuations of the properties held by the Group as at 31 August 2007.

==> picture [75 x 70] intentionally omitted <==

10th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong

15 November 2007

The Directors Shimao Property Holdings Limited Units 4307–12 43rd Floor, Office Tower Convention Plaza 1 Harbour Road, Wanchai, Hong Kong

Dear Sirs,

Instructions, Purpose & Date of Valuation

In accordance with your instructions for us to value the properties in which Shimao Property Holdings Limited (referred to as the “Company”) and its subsidiaries (together referred to as the “Group”) have interests in the People’s Republic of China (the “PRC”). We confirm that we have inspected the properties, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the values of such properties as at 31 August 2007 (the “Date of Valuation”).

Definition of Market Value

Our valuation of each of the properties represents its market value which in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

Valuation Basis and Assumptions

Our valuation excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangement, special considerations or concessions granted by anyone associated with the sale, or any element of special value.

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

We have relied on the information given by the Group regarding the title to the property interests in the PRC and the interests of the Group in the property in the PRC. The status of titles and grant of major approvals and licences, in accordance with the information provided by the Group are set out in the notes in the valuation certificates.

No allowance has been made in our valuations of the property interests for any charges, mortgages or amounts owing on the property interests 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 any onerous nature which could affect its value.

In valuing the properties, we have complied with the requirements set out in Chapter 5 and Practice Note 12 of the Listing Rules of The Stock Exchange of Hong Kong Limited and the HKIS Valuation Standards on Properties (First Edition 2005) of The Hong Kong Institute of Surveyors.

Method of Valuation

In valuing the property in Group I, which is held by the Group for investment in the PRC, we have valued the property on a market basis by making reference to comparable sales transactions as available in the relevant market or where appropriate by capitalizing the rental income derived from the existing tenancy with due provision for any reversionary income potential of the property.

In valuing the properties in Groups II and III which are held by the Group under development or for future development in the PRC, we have valued the properties on the basis that the properties will be developed and completed in accordance with the Group’s latest development proposals provided to us. We have assumed that approvals for the proposals have been obtained. In arriving at our opinion of value, we have adopted the direct comparison approach by making reference to comparable sales evidence as available in the relevant market and have also taken into account the expended construction costs and the estimated construction costs remaining outstanding for completing the development. The “capital value when completed” represents our opinion of the aggregate selling prices of the developments assuming that they were completed as at the date of valuation.

Source of Information

In the course of our valuation, we have relied to a very considerable extent on the information given by the Group and its legal adviser on PRC law, Commerce & Finance Law Offices, and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, completion date of buildings, identification of buildings, development schemes, construction costs, site and floor areas and all other relevant matters.

Dimensions, measurements and areas included in the valuation certificates are based on information provided to us and are therefore only approximations. We have no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to the valuation. We were also advised by the Group that no material facts have been omitted from the information provided.

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

Title Investigation

In respect of the properties in the PRC, we have been provided with extracts of documents in relation to the title to the properties. However, we have not inspected the original documents to ascertain any amendments which may not appear on the copies handed to us.

Site Inspection

We have inspected the exterior and, wherever possible, the interior of the properties. However, we have not carried out investigations on site to determine the suitability of the soil conditions and the services etc. for any development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not able to report that the properties are free of rot, infestation or any other structural defects, nor were any tests carried out to any of the services. Unless otherwise stated, we have not been able to carry out detailed on-site measurements to verify the site and floor areas of the properties and we have assumed that the areas shown on the documents handed to us are correct.

Currency

Unless otherwise stated, all sums stated in our valuation certificate are in Renminbi, the official currency of the PRC.

The valuation certificates and summary of values are attached.

Yours faithfully, for and on behalf of DTZ Debenham Tie Leung Limited Andrew K. F. Chan Registered Professional Surveyor (GP) China Real Estate Appraiser Msc., M.H.K.I.S., M.R.I.C.S Director

Notes: Mr. Andrew Chan is a Registered Professional Surveyor who has over 19 years’ of experience in the valuation of properties in the PRC.

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

SUMMARY OF VALUATIONS

				Capital value in
				existing state
		Capital value in	Interest	attributable to
		existing state as at	attributable	the Group as at
	Property	31 August 2007	to the Group	31 August 2007
		RMB	%	RMB
Group I — Property held by the Group for investment in the PRC
1.	Shimao Tower,	1,450,000,000	100	1,450,000,000
	(formerly known as Huaping
	International Plaza)
	No. 92 Jia Jianguo Road,
	Chaoyang District,
	Beijing,
	the PRC
		Sub-total of Group I:		1,450,000,000
Group II — Properties held by the Group under development in the PRC
2.	A proposed commercial	1,200,000,000	100	1,200,000,000
	development situated on the west
	side of Qingnian Street,
	Heping District,
	Shenyang City,
	Liaoning Province,
	the PRC
3.	A proposed composite	2,238,000,000	100	2,238,000,000
	development situated
	on the east of Taishan Road
	and north of Zhujiang Road,
	Changshu City,
	Jiangsu Province,
	the PRC
		Sub-total of Group II:		3,438,000,000
Group III — Properties held by the Group for future development in			the PRC
4.	A parcel of land situated at	686,000,000	100	686,000,000
	Lot No. 2, Chenhua Road,
	Songjiang District,
	Shanghai,
	the PRC

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

				Capital value in
				existing state
		Capital value in	Interest	attributable to
		existing state as at	attributable	the Group as at
	Property	31 August 2007	to the Group	31 August 2007
		RMB	%	RMB
5.	Land Lot Nos. 0604-3 and	341,000,000	100	341,000,000
	0604-4-1,
	Binjiang Park,
	Jinghu District,
	Wuhu City,
	Anhui Province,
	the PRC
6.	A parcel of land on east side of	610,000,000	100	610,000,000
	Xiajia River and south of
	Qianjin East Road,
	Kunshan Economic and Technology
	Development Area,
	Kunshan City,
	Jiangsu Province,
	the PRC
7.	A parcel of land on the west side of	219,000,000	100	219,000,000
	East 3rd Ring Road and south of
	Bingmayong Road,
	Yunlong District,
	Xuzhou City,
	Jiangsu Province,
	the PRC
8.	A parcel of land on the east of	213,000,000	100	213,000,000
	Jiayu Highway and west of
	Middle Ring Road (E.),
	Yuxin Town,
	Jiaxing City,
	Zhejiang Province,
	the PRC
9.	A parcel of land	586,000,000	100	586,000,000
	on the south side of
	Baodai West Road,
	Suzhou City,
	Jiangsu Province,
	the PRC

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

				Capital value in
				existing state
		Capital value in	Interest	attributable to
		existing state as at	attributable	the Group as at
	Property	31 August 2007	to the Group	31 August 2007
		RMB	%	RMB
10.	A parcel of land on the south of	411,000,000	100	411,000,000
	East Hehai Road and on the east of
	Zaojiang River,
	Changzhou City,
	Jiangsu Province,
	the PRC
11.	A parcel of land located	2,100,000,000	100	2,100,000,000
	at No.1 Xingfu Village,
	Gongti North Road,
	Beijing,
	the PRC
		Sub-total	of Group III:	5,166,000,000
			Grand total:	10,054,000,000

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

VALUATION CERTIFICATE

Group I — Property held by the Group for investment in the PRC

Capital value in existing state as at 31 August 2007

Property Description and tenure Particulars of occupancy 31 August 2007 1. Shimao Tower (formerly The property comprises a high-rise The Property is currently RMB1,450,000,000 known as Huaping commercial/office building known as vacant. International Plaza), Shimao Tower erected on a parcel of land No. 92 Jia Jianguo Road, with site area of approximately 7,183.35 Chaoyang District, sq. m. Beijing, The PRC Levels 1 to 4 of the building are used as commercial podium. Levels 5 to 24 of the building are used as office. The 2-level basements are used as car parking spaces and other ancillary facilities. Completed in about 2006, the property has a total gross floor area of approximately 72,194.67 sq. m with details as follows:

Use Office Commercial Ancillary Basements Others Total:	Approximate Gross Floor area (sq. m) 45,491.55 12,955.45 753.63 10,974.27 2,019.77
	72,194.67

The land use rights of the property have been granted to the Group for a land use term expiring on 9 August 2053 for composite and basement car park use.

Notes:

According to Certificate for the Use of State-owned Land No. (2005) 0482 issued by the Beijing Municipal People’s Government (北京市人民政府) on 16 March 2007, the land use rights of the property have been granted to北京世茂投資發展有限公司 (Beijing Shimao Investment and Development Co., Ltd.) with details as follows:
(i) Land user : 北京世茂投資發展有限公司 (Beijing Shimao Investment and Development Co., Ltd.)
(ii) Location : No.92 Jia, Jianguo Road, Chaoyang District (朝陽區建國路甲92號) (iii) Uses : Composite, Basement Car Park (iv) Site area : 7,183.35 sq. m (v) Land use term : Due to expire on 9 August 2053

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

According to Building Ownership Certificate No. (06) 002143 issued by the Beijing Construction Bureau (北京市建設委員會) on 29 December 2006, the building ownership of the property have been vested in 北京世茂投資發展有限公司 (Beijing Shimao Investment and Development Co., Ltd.) with details as follows:
(i) Owner : 北京世茂投資發展有限公司 (Beijing Shimao Investment and Development Co., Ltd.) (ii) Location : No.92 Jia, Jianguo Road, Chaoyang District (朝陽區建國路甲92號) (iii) Gross floor area : 72,194.67 sq. m (iv) Use : Composite, Basement Car Park
According to Business Licence No.019910, 北京世茂投資發展有限公司 (Beijing Shimao Investment and Development Co., Ltd.) was established on 7 June 2004 with a registered capital of RMB378,000,000 for a valid operation period from 7 June 2004 to 6 June 2024.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 7,183.35 sq. m, have been granted to 北京世茂投資發展有限公司 (Beijing Shimao Investment and Development Co., Ltd.)
(ii) The building ownership of the property, comprising a total gross floor area of 72,194.67 sq. m, has been vested in 北京世茂投資發展有限公司 (Beijing Shimao Investment and Development Co., Ltd.).
(iii) The property is subject to charges in favour of 中國光大銀行股份有限公司天寧寺支行 (Tianningsi Branch of China Everbright Bank Company Limited).
(iv) 北京世茂投資發展有限公司 (Beijing Shimao Investment and Development Co., Ltd.) Is entitled to transfer, lease, mortgage or dispose of the land use rights and building ownership of the property subject to the existing charges.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Building Ownership Certificate Yes Business Licence Yes

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APPENDIx IV.A

Group II — Properties held by the Group under development in the PRC

Property Description and tenure
1. A proposed commercial The property comprises a proposed development situated commercial development erected upon on the west side of a parcel of land with a total site area of Qingnian Street, approximately 61,000 sq. m. Heping District, Shenyang City, As advised by the Group, the property Liaoning Province, is planned to be developed into a the PRC commercial development including office and shopping center.

Capital value in existing state as at 31 August 2007

Particulars of occupancy

The property is currently RMB1,200,000,000 under construction.

The details of the development scheme are summarized as follows:

	Approximate
Use	Gross Floor area
	(sq. m)
Office	674,875.5
Retail	124,343.80
Retail (under	41,875.7
ground)
Car parking spaces	126,125.0
(under ground)
Total:	967,220.0
The proposed development is scheduled
to be completed by 2012.

The land use rights of the property have been granted to the Group for a land use term expiring on 9 August 2047 for commercial use.

Notes:

According to Certificate for the Use of State-owned Land No. (2007) 0279 issued by Shenyang People of Government on 9 August 2007, the land use rights of the property with Lot No. 0107200–1 and site area of 61,000.1 sq. m have been granted to 瀋陽 世茂新世紀房地產�發有限公司 (Shenyang Shimao New Century Real Estate Development Co. Ltd.) for a land use term expiring on 9 August 2047 for commercial use.

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APPENDIx IV.A

According to Grant Contract of State-owned Land Use Rights No. (2007) 0106 entered into between Shenyang Planning and State-owned Land Resources Bureau (瀋陽市規劃�國土資源局) (the Grantor) and 瀋陽世茂新世紀房地產 �發有限公司 (Shenyang Shimao New Century Real Estate Development Co. Ltd.) (the Grantee) on 9 August 2007, The Grantor has agreed to grant the land use rights of the property to the Grantee with details as follows:

Location : West side of Qingnian Street, Heping District, Shenyang Site Area : 61,000.1 sq. m Land Use : Commercial Land Premium : RMB 556,686,912.6 Land use term : 40 years from 9 August 2007 to 9 August 2047 Plot ratio : not more than 13 Greenery ratio : not less than 30%

According to Planning Permit for Construction Use of Land No. (2007) 0162 issued by Shenyang Planning Bureau (瀋陽市城鄉規劃局), the construction site of a parcel of land with an area of 61,000 sq. m is in compliance with the requirements of urban planning.
The capital value when completed under the development scheme as described above and which can be freely transferred in the market, as at 31 August 2007 was RMB8,068,000,000.
According to the information provided by the Group and the Qualified Quantity Surveyors’ Report provided by the Group, the total expended construction cost as at the date of valuation was approximately RMB8,825,796 and the estimated outstanding construction cost for completion was approximately RMB4,856,000,000.
According to Business Licence No. 111804959, 瀋陽世茂新世紀房地產�發有限公司 (Shenyang Shimao New Century Real Estate Development Co. Ltd.) was established on 24 May 2007 for an operation period of 30 years from 24 May 2007 to 23 May 2037.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 61,000.10 sq. m, have been granted to 瀋陽世茂新世紀房地產�發有限公司 (Shenyang Shimao New Century Real Estate Development Co. Ltd.).
(ii) 瀋陽世茂新世紀房地產�發有限公司 (Shenyang Shimao New Century Real Estate Development Co. Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Grant Contract of State-owned Land Use Rights Yes Planning Permit for Construction Use of Land Yes Business Licence Yes

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APPENDIx IV.A

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

A proposed composite The property comprises a proposed development situated composite development erected upon four on the east of Taishan parcels of land with a total site area of Road and north of approximately 344,579 sq. m. Zhujiang Road, Changshu City, As advised by the Group, the property Jiangsu Province, is planned to be developed into a the PRC commercial development including retail and office with a planned total gross floor area of approximately 981,505 sq. m.

The property is currently RMB2,238,000,000 under construction.

The proposed development is scheduled to be completed in 2011.

The land use rights of the property have been granted for commercial use.

Notes:

According to four Certificates for the Use of State-owned Land issued by Changshu State-owned Land Resources Bureau (常熟市國土資源局) on 31 August 2007, the land use rights of the property have been granted to 常熟世茂新發展置業有限公司 (Changshu Shimao New Development Property Co., Ltd) with details as follows:

Certificate No. Lot No. (2007) 001835 2007001835 (2007) 001836 2007001836 (2007) 001861 2007001861 (2007) 001862 2007001862 Total:	Site Area Usage Land Use Term expiring on (sq. m) 34,049 Residential and Commercial 29 August 2046 (Commercial use) 112,995 Residential 27 January 2047 (Commercial use) 86,418 Residential 29 August 2047 (Commercial use) 111,117 Residential 29 August 2047 (Commercial use) 344,579

According to Grant Contract of State-owned Land Use Rights No. (2004A) G057 entered into between Changshu State-owned Land Resources Bureau (常熟市國土資源局) (the Grantor) and 常熟世茂房地產�發有限公司 (Changshu Shimao Real Estate Development Co., Ltd.) (the Grantee) on 28 December 2002, the Grantor has agreed to grant the land use rights of the property to the Grantee with details as follows:

Site Area : 692,609 sq. m Land Use : Residential and commercial (in which the percentage of site area for commercial use shall not be less than 40% of the whole site area) Land use term : 70 years for residential use, 40 years for commercial use commencing from the date of delivery of land from the Grantor Land Premium : RMB914,250,000 Plot Ratio : 2.4 to 2.6 (not inclusive of the under ground gross floor area, in which the percentage of gross floor area for commercial use shall not be less than 40% of the total gross floor area)

According to Planning Permit for Construction Use of Land No. 20060068 issued by Changshu Urban and Rural Planning Bureau (常熟市城鄉規劃局) on 20 October 2006, the construction site of a parcel of land with an area of 526,442 sq. m is in compliance with the requirements of urban planning.

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APPENDIx IV.A

According to Planning Permit for Construction Works No. 20070061 issued by Changshu Urban and Rural Planning Bureau (常熟市城鄉規劃局) on 23 May 2007, the property has been permitted for the construction of commercial buildings with a gross floor area of approximately 59,851 sq. m.
According to Permit for Commencement of Construction Works No. 320581200707030101 issued by Changshu Construction Bureau (常熟市建設局) on 3 July 2007, the construction works of the property, with a gross floor area of approximately 15,000 sq. m, are in compliance with the requirements for works commencement and have been approved.
The capital value when completed under the development scheme as described above and which can be freely transferred in the market, as at 31 August 2007 was RMB9,250,000,000.
According to the information provided by the Group and the Qualified Quantity Surveyors’ Report provided by the Group, the total expended construction cost as at the date of valuation was approximately RMB4,022,600 and the estimated outstanding construction cost for completion was approximately RMB2,879,000,000.
According to Business Licence No. 000736 dated 11 October 2007, 常熟世茂新發展置業有限公司 (Changshu Shimao New Development Property Co., Ltd) was established on 24 August 2007 with a registered capital of HK$260,000,000 for a valid operation period from 24 August 2007 to 23 August 2047.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) 常熟世茂新發展置業有限公司 (Changshu Shimao New Development Property Co., Ltd) and常熟世茂房地產�發有限公司 (Changshu Shimao Real Estate Development Co., Ltd.) have entered agreement to assign the property to 常熟世茂新發展置業有限公司 (Changshu Shimao New Development Property Co., Ltd).
(ii) The land use rights of the property, comprising a total site area of 344,579 sq. m, have been granted to 常熟世茂新發展置業有限公司 (Changshu Shimao New Development Property Co., Ltd).
(iii) 常熟世茂新發展置業有限公司 (Changshu Shimao New Development Property Co., Ltd) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iv) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificates for the Use of State-owned Land	Yes
Grant Contract of State-owned Land Use Rights	Yes
Planning Permit for Construction Use of Land	Yes
Planning Permit for Construction Works	Yes
Permit for Commencement of Construction Works	Yes
Business Licence	Yes

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

Group III — Properties held by the Group for future development in the PRC

Property Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

A parcel of land situated The property comprises a parcel of land at Lot No. 2, with a total site area of approximately Chenhua Road, 428,213 sq. m. Songjiang District, Shanghai, As advised by the Group, a proposed the PRC commercial development is planned to be developed on the property including hotels, service apartment and experience center with a total gross floor area of approximately 391,000 sq. m.

The property is currently RMB686,000,000 a bare land under the works of demolition and resettlement and pending future development.

The proposed development is scheduled to be completed by 2010.

The details of the proposed development scheme are summarized as follows:

Use 5 Star Hotel 3 Star Hotel Service Apartment Experience Center Ancillary Total:	Approximate Gross Floor area (sq. m) 48,000 30,000 30,000 273,000 10,000
	391,000

The land use rights of the property have been granted to the Group for a term of 40 years from 14 March 2006 to 13 March 2046 for public facilities use.

Notes:

According to Shanghai Certificate of Real Estate Ownership No. (2006)007319 issued by Shanghai Municipal Housing and Land Resources Administration Bureau (上海市房屋土地資源管理局) on 25 April 2006, the land use rights of the property, comprising a site area of 428,213 sq. m, have been granted to 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co. Ltd.) for a term of 40 years from 14 March 2006 to 13 March 2046 for public facilities use.

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APPENDIx IV.A

According to Grant Contract of State-owned Land Use Rights No. (2006)12 entered into between Shanghai Municipal Songjiang District Housing and Land Resources Administration Bureau (上海市松江區房屋土地管理局) (the Grantor) and 上海世茂建設有限公司 (Shanghai Shimao Jianse Co. Ltd.) (the Grantee) on 13 January 2006, the Grantor has agreed to grant the land use rights of the property to the Grantee with details as follows:

Site Area : 428,213 sq. m Land Use Term : 40 years Land Usage : Public Facilities (approval for construction of a 5-star hotel and 3-star hotel) Land Premium : RMB96, 000,000 Plot Ratio : not more than 0.47 (above ground gross floor area shall not be more than 201,260 sq. m)

According to Supplementary Contract No. (2006)001 entered into between Shanghai Songjiang District Land Management Development Canter (上海市松江區土地整理發展中心) (Party A) and 上海世茂建設有限公司 (Shanghai Shimao Jianshe Co. Ltd.) (Party B) on 23 January 2006, Party B shall pay an additional demolishment, resettlement and infrastructure fee to Party A in a sum of RMB224,000,000.
According to Supplementary Grant Contract of State-owned Land Use Rights No. (2006)20 dated 24 April 2006, the Grantor and the Grantee agreed to change the name of the grantee to 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co. Ltd.).
According to Business License No. 310000400458506 dated 22 August 2007, 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co. Ltd.) was established on March 2006 as a wholly foreign-owned company with a registered capital of USD50,000,000 (with a paid-up capital of USD50,000,000) for a valid operation period from 6 March 2006 to 5 March 2046.
As instructed by the Group, we are required to make a hypothetical apportionment of the site value for the portion of proposed hotels and service apartment from the whole site value for internal reference by the Group. According to the development scheme provided by the Group, the site area occupied by the proposed hotels and service apartment is approximately 118,000 sq. m. As at the date of valuation, the apportioned capital value of this portion of site value was RMB252,000,000.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 428,213 sq. m, have been granted to 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co. Ltd.).
(ii) 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co. Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Shanghai Certificate of Real Estate Ownership Yes Grant Contract of State-owned Land Use Rights Yes Supplementary Grant Contract of State-owned Land Use Rights Yes Supplementary Contract Yes Business Licence Yes

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APPENDIx IV.A

Description and tenure

Property

Land Lot Nos. 0604-3 The property comprises two parcels of and 0604-4-1, contiguous land with a total site area of Binjiang Park, 80,310 sq. m. Jinghu District, Wuhu City, As advised by the Group, a proposed Anhui Province, composite development including the PRC

As advised by the Group, a proposed composite development including commercial street, cultural and art centre and car parking spaces is planned to be developed on the property with a total gross floor area of approximately 132,895 sq. m. The proposed development is an ancillary facilities for an adjoining proposed large scale residential development.

Capital value in existing state as at 31 August 2007

Particulars of occupancy

The property is bare RMB341,000,000 land pending future development.

As advised by the Group, the proposed development is scheduled to be completed in 2009. The details of the development scheme are summarized as follows:

Use Retail Basement Car parking spaces Other Total:	Approximate Gross Floor area (sq. m) 82,012 18,560 32,323
	132,895

The land use rights of Land Lot No. 0604–3 have been granted for a term of 50 years commencing on 16 November 2006 for cultural and art uses.

The land use rights of Land Lot No. 0604-4-1 have been granted for a term of 40 years commencing on 18 June 2006 for commercial use.

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APPENDIx IV.A

Notes:

According to two Certificates for the Use of State-owned Land Nos. (2007)107 and (2007)108 issued by the People’s Government of Wuhu (蕪湖市人民政府) on 14 June 2007 and 1 September 2007 respectively, the land use rights of the property, comprising a total site area of 80,310 sq. m have been granted to 蕪湖世茂新發展置業有限公司 (Wuhu Shimao New Development Property Co., Ltd.) with details as follows:

Certificate No. Lot No. Site Area Usage Land Use Term (sq. m) (2007) 107 0604-4-1 39,950 Commercial 40 years from 19 June 2006 (2007) 108 0604-3 40,360 Cultural and art uses 50 years from 18 November 2006 Total: 80,310

According to Grant Contract of State-owned Land Use Rights No. WHGT06P04 entered into between State-owned Land Resources Bureau of Wuhu City (蕪湖市國土資源局) (“the Grantor’’) and Shimao Property Holdings (BVI) Limited (世茂房地產控股(BVI)有限公司) (“the Grantee”) on 18 May 2006, the Grantor has agreed to grant the land use rights of the 5 parcels of land to the Grantee with the details as follows:

(i) Location : Binjiang Park, Wuhu (ii) Lot No. : Lot Nos. 0604-1 to 0604-5 (iii) Total Site area : 187,556 sq. m (iv) Uses : Residential/Cultural and art/Commercial/Composite (hotel) (v) Land use term : 70 years for residential use, 40 years for commercial use and 50 years for cultural and art use, and composite use commencing from the date of delivery of land from the Grantor (vi) Land premium : RMB401,000,000

According to the Supplementary Agreement of the Grant Contract of State-owned Land Use Rights No. WHGT06P04 entered into between the Grantor and the Grantee on 18 May 2006, the total gross floor area permitted to be developed above ground should not be more than 550,000 sq. m. The proposed above ground and under ground car parking spaces of the proposed cultural and art center is prohibited from transfer and sale and must be open to the public in the future at a parking fee fixed by the Price Authority of Wuhu.
According to the Amendment Agreement of the Supplementary Agreement and the Grant Contract of State-owned Land Use Rights No. WHGT06P04 entered into between the Grantor and the Grantee on 16 February 2007, the total gross floor area permitted to be developed above ground has been changed to not more than 565,000 sq. m. Upon completion of the proposed residential development on Land Lot No. 0604–1, the Grantee should hand over residential gross floor area of 43,000 sq. m to the department specified by Wuhu Government without consideration.
According to Business Licence No. 779 dated 5 July 2007, 蕪湖世茂新發展置業有限公司 (Wuhu Shimao New Development Property Co., Ltd.) was established on 16 May 2007 with a registered capital of RMB50,000,000 for a valid operation period from 16 May 2007 to 16 May 2047. The scope of business comprises development, construction and operation of the land granted.
As advised by the Group, 蕪湖世茂新發展置業有限公司 (Wuhu Shimao New Development Property Co., Ltd) is a fellow subsidiary of Shimao Property Holdings (BVI) Limited.

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APPENDIx IV.A

We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 80,310 sq. m, have been granted to Wuhu Shimao New Development Property Co., Ltd. (蕪湖世茂新發展置業有限公司).
(ii) Wuhu Shimao New Development Property Co., Ltd. (蕪湖世茂新發展置業有限公司) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Grant Contract of State-owned Land Use Rights Yes Business Licence Yes

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APPENDIx IV.A

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

The property comprises a parcel of land with a total site area of approximately 126,802 sq. m.

A parcel of land, The property comprises a parcel of land on the east side of with a total site area of approximately Xiajia River and 126,802 sq. m. south of Qianjin East Road, Kunshan As advised by the Group, a proposed Economic and Technology commercial development is planned to Development Area, be developed on the property with a total Kunshan City, gross floor area of approximately 191,440 Jiangsu Province, sq. m. the PRC

The property is a bare RMB610,000,000 land pending future development.

The proposed development is scheduled to be completed in 2010.

The details of the proposed development scheme are summarized as follows:

Use Retail Total:	Approximate Gross Floor area (sq. m) 191,440
	191,440

The land use rights of the property have been granted for a term of 40 years due to expire on 19 August 2044 for commercial and services uses.

Notes:

According to Certificate for the Use of State-owned Land No. (2006)120061002037 issued by the People’s Government of Kunshan (昆山市人民政府) on 23 March 2006, the land use rights of the property with Lot No. 1009835013, comprising a total site area of 126,802 sq. m have been granted to 昆山世茂房地產�發有限公司 (Kunshan Shimao Real Estate Development Co., Ltd.) for commercial and services uses. The land use term is due to expire on 19 August 2044.
According to Grant Contract of State-owned Land Use Rights No. (2004) 116 entered into between State-owned Land Resources Bureau of Kunshan City (昆山市國土資源局) (the Grantor) and 昆山天盛偉業建設�發有限公司 (Kunshan Tiansheng Weiye Development Co. Ltd.) (the Grantee) on 20 May 2004 (the “Grant Contract’’), the grantor has granted the land use rights of a parcel of land extending to Xiajia River at its west and Qianjing East Road at its north, with a site area of approximately 833,333 sq. m to the Grantee for commercial and residential uses. The salient points are summarized as follows:

Site Area : 833,333 sq. m Land Use : Commercial and residential uses Land Use Term : 70 years for residential and 40 years for commercial use Land Premium : RMB833,333,000

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APPENDIx IV.A

According to the Amendment Agreement for the Grant Contract of State-owned Land Use Rights No. (2004) 116 entered into between State-owned Land Resources Bureau of Kunshan City (Party A), 昆山天盛偉業建設�發有限公司 (Kunshan Tiansheng Weiye Development Co. Ltd.) (Party B) who has been permitted to be changed to the name as 昆山世茂房地產�發有限公司 (Kunshan Shimao Real Estate Development Co., Ltd.), 昆山華��城�發有限公司 (Kunshan Huadong Shangcheng Development Company Limited) (Party C) who has been permitted to be changed to the name as 昆山世茂華��城�發有限公司 (Kunshan Shimao East China Mall Development Company Limited) and 昆山經濟技術�發區管理委員會 (Kunshan Economic and Technology Development Administrative Committee) (Party D) on 10 March 2006, Party B has agreed to transfer the land use rights of a portion of land with a site area of 65,800 sq. m from the whole land to Party C. As a result, the remaining site area granted to Party B is 767,533 sq. m.
According to Business Licence No. 001789 dated 17 September 2007, 昆山世茂房地產�發有限公司 (Kunshan Shimao Real Estate Development Co., Ltd.) was established on 24 December, 2003 with a registered capital of USD70,000,000 and paid-up capital of USD54,546,734.05 for a valid operation period from 24 December 2003 to 23 December 2043.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 126,802 sq. m, have been granted to 昆山世茂房地產�發有限公司 (Kunshan Shimao Real Estate Development Co., Ltd.).
(ii) 昆山世茂房地產�發有限公司 (Kunshan Shimao Real Estate Development Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Grant Contract of State-owned Land Use Rights Yes Business Licence Yes

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APPENDIx IV.A

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

A parcel of land on the west side of East 3rd Ring Road and south of Bingmayong Road, Yunlong District, Xuzhou City, Jiangsu Province, the PRC

The property comprises a parcel of bare land with a total site area of approximately 88,594.70 sq. m.

As advised by the Group, a proposed composite development including retail and residential is planned to be developed on the property with a total gross floor area of approximately 220,000 sq. m.

The property is currently RMB219,000,000 a bare land under the works of demolition and is pending future development.

The proposed development is scheduled to be completed in 2010.

The details of the proposed development scheme are summarized as follows:

Use Retail Service Apartment Total:	Approximate Gross Floor area (sq. m) 150,000 70,000
	220,000

The land use rights of the property have been granted for a term expiring on 28 August 2077 for residential and commercial use.

Notes:

According to Certificate for the Use of State-owned Land No. (2007)47453 issued by People’s Government of Xuzhou (徐州市人民政府) on 28 August 2007, the land use rights of the property with Lot No. 02-10-09-0039, comprising a site area of 88,594.7 sq. m, have been granted to 徐州世茂置業有限公司 (Xuzhou Shimao Property Co., Ltd.) for a term expiring on 28 August 2077 for residential and commercial use.

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APPENDIx IV.A

According to Grant Contract of State-owned Land Use Rights No. (2007) 9 entered into between Xuzhou Stateowned Land Resources Bureau (徐州市國土資源局) (the Grantor) and 徐州世茂置業有限公司 (Xuzhou Shimao Property Co., Ltd.) (the Grantee A) and 徐州世茂新城房地產�發有限公司 (Xuzhou Shimao New City Real Estate Development Co., Ltd.) (the Grantee B) on 17 February 2007, the Grantor has agreed to grant the land use rights of seven parcels of land with a total site area of 674,566 sq. m to Grantee A and Grantee B. The salient details of the land granted to the Grantee A are summarised as follow:

Land Lot No. : Lot No. G and F Site Area : 24,938 sq. m (Lot No. G) 211,439 sq. m (Lot No. F) Land Use : Tourism (Lot No. G) Commercial and residential (Lot No. F) Land Use Term : 70 years for residential use, 40 years for commercial use, 40 years for tourism use and 50 years for composite use Plot Ratio : not more than 0.2 (Lot No. G) not more than 1.9 (Lot No. F)

According to Business Licence No. 001725 dated 29 June 2007, 徐州世茂置業有限公司 (Xuzhou Shimao Property Co., Ltd.) was established on 14 February 2007 with a registered capital of USD26,000,000 for a valid operation period from 14 February 2007 to 13 February 2008.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 88,594.70 sq. m, have been granted to 徐州世茂置業有限公司 (Xuzhou Shimao Property Co., Ltd.).
(ii) 徐州世茂置業有限公司 (Xuzhou Shimao Property Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Grant Contract of State-owned Land Use Rights Yes Business Licence Yes

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APPENDIx IV.A

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

A parcel of land The property comprises a parcel of land on the east of with a total site area of approximately Jiayu Highway and west 135,594 sq. m. of Middle Ring Road (E.), Yuxin Town, As advised by the Group, a proposed Jiaxing City, commercial development is planned to be Zhejiang Province, developed on the property with a planned the PRC

As advised by the Group, a proposed commercial development is planned to be developed on the property with a planned total gross floor area of approximately 267,000 sq. m.

The property is bare RMB213,000,000 land pending future development.

The development is scheduled to be completed in 2011.

The details of the proposed development scheme are summarised as follows:

Use Retail Office Total:	Approximate Gross Floor area (sq. m) 131,000 136,000
	267,000

The land use rights of the property have been granted for a term expiring on 8 January 2047 for commercial and office use.

Notes:

According to Certificate for the Use of State-owned Land No. (2007)1003258, the land use rights of the property, comprising a site area of 135,594 sq. m, have been granted to 嘉興世茂新世紀置業有限公司 (Jiaxing Shimao New Century Property Co., Ltd.) for a term expiring on 8 January 2047 for commercial and office use.
According to Grant Contract of State-owned Land Use Rights No. (2006)181 entered into between Jiaxing Stateowned Land Resources Bureau (嘉興市國土資源局) (the Grantor) and 嘉興世茂新城房地產�發有限公司 (Jiaxing Shimao New City Real Estate Development Co., Ltd.) (the Grantee) on 10 October 2006, the Grantor has agreed to grant the land use rights of the property to the Grantee with details as follows:

Site Area	:	532,057 sq. m
Land Use	:	Residential, commercial and office
Land Premium	:	RMB484,171,870
Plot Ratio	:	1.25 to 2.0 (for various land parcels)

According to the Amendment Agreement for the Grant Contract of State-owned Land Use Rights No. (2006) 181 entered into between State-owned Land Resources Bureau of Jiaxing City (Party A) and嘉興世茂新城房地產�發有限公司 (Jiaxing Shimao New City Real Estate Development Co., Ltd.) and 嘉興世茂新世紀置業有限公司 (Jiaxing Shimao New Century Property Co., Ltd.) (collectively as Party B) on 3 August 2007, both parties have agreed to transfer the land use rights of a portion of land known as Site B2 with a site area of 135,594 sq. m from the whole land to 嘉興世茂新世紀置業有限公司 (Jiaxing Shimao New Century Property Co., Ltd.).

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

According to Business Licence No. 330400400000339 dated 14 September 2007, 嘉興世茂新世紀置業有限公司 (Jiaxing Shimao New Century Property Co., Ltd.) was established on 6 July 2007 with a registered capital of RMB5,000,000 for a valid operation period from 6 July 2007 to 5 July 2047.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 135,594 sq. m, have been granted to 嘉興世茂新世紀置業有限公司 (Jiaxing Shimao New Century Property Co., Ltd.).
(ii) 嘉興世茂新世紀置業有限公司 (Jiaxing Shimao New Century Property Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Grant Contract of State-owned Land Use Rights Yes Business Licence Yes

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

Property interest

A parcel of land on the south side of Baodai West Road, Suzhou City, Jiangsu Province, the PRC

Description and tenure

The property comprises a parcel of land with a total site area of approximately 92,450.90 sq. m.

As advised by the Group, a proposed commercial development is planned to be developed on the property with a total gross floor area of approximately 256,089 sq. m.

Capital value in existing state as at 31 August 2007

Particulars of occupancy

The property is a bare RMB586,000,000 land pending future development.

The development is scheduled to be completed in 2011.

The details of the proposed development scheme are summarised as follows:

Use Retail Office Total:	Approximate Gross Floor Area (sq. m) 154,900 101,189
	256,089

The land use rights of the property have been granted to the Group for a term of 40 years due to expire on 12 March 2047 for commercial use.

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

Notes:

According to 12 Certificates for the Use of State-owned Land issued by Suzhou Municipal Government (蘇州市人民政府) on 31 August 2007, the land use rights of the property, located on the south side of Baodai West Road, comprising a total site area of 92,450.90 sq. m, have been granted to 蘇州世茂投資發展有限公司 (Suzhou Shimao Investment and Development Co. Ltd.) for a term of due to expire on 12 March 2047 for commercial use with details as follows:

Certificate No. Lot No. (2007)05006499 004-0322-042 (2007)05006500 004-0322-048 (2007)05006501 004-0322-047 (2007)05006502 004-0322-046 (2007)05006503 004-0321-007 (2007)05006504 004-0322-043 (2007)05006505 004-0322-044 (2007)05006506 004-0322-049 (2007)05006507 004-0322-050 (2007)05006508 004-0322-045 (2007)05006509 004-0313-078 (2007)05006510 004-0322-041 Total:	Site Area (sq. m) 8,639.50 6,898.60 4,508.70 7,841.60 6,224.00 12,298.00 6,100.40 8,241.10 2,043.40 7,639.20 13,135.10 8,881.30
	92,450.90

According to Grant Contract of State-owned Land Use Rights No. (2007)072 entered into between Suzhou Stateowned Land Resources Bureau (蘇州市國土資源局) (the Grantor) and 麥杰克投資有限公司 (Magic Dynasty Investment Company Ltd.) (the Grantee) on 13 March 2007, the Grantor has agreed to grant the land use rights of the 3 parcels of land to the Grantee with details as follow:

Lot No.	:	Lot No. 2006-G-61
Site Area	:	490,339.4 sq. m in which 297,275.8 sq. m (residential use), 92,450.9 sq. m
		(commercial use) and 100,612.7 sq. m (commercial/residential).
Land Use	:	Residential, commercial and commercial/residential
Land Use Term	:	70 years for residential and 40 years for commercial
Land Premium	:	RMB1,703,714,538

According to the Supplementary Agreement for the Grant Contract of State-owned Land Use Rights No. (2007) 072 dated 31 May 2007, Suzhou State-owned Land Resources Bureau (蘇州市國土資源局) has agreed to transfer the land use rights of the 3 parcels of land from 麥杰克投資有限公司 (Magic Dynasty Investment Company Ltd.) to 蘇州世茂投資發展有限公司 (Suzhou Shimao Investment and Development Co. Ltd.) and 蘇州世茂置業有限公司 (Suzhou Shimao Property Co. Ltd.).

The parcel of land with site area of 92,450.9 sq. m for commercial use has been granted to 蘇州世茂投資發展有限公司 (Suzhou Shimao Investment and Development Co. Ltd.) while the remaining 2 parcels of land have been granted to 蘇州世茂置業有限公司 (Suzhou Shimao Property Co. Ltd.).

According to Business Licence No. 017265 dated 18 September 2007, Suzhou Shimao Investment and Development Co. Ltd. (蘇州世茂投資發展有限公司) was established on 2 March 2007 with a registered capital of USD29,900,000 for a valid operation period from 2 March 2007 to 1 March 2008.

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APPENDIx IV.A

We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 92,450.90 sq. m, have been granted to 蘇州世茂投資發展有限公司 (Suzhou Shimao Investment and Development Co. Ltd.).
(ii) 蘇州世茂投資發展有限公司 (Suzhou Shimao Investment and Development Co. Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificates for the Use of State-owned Land Yes Grant Contract of State-owned Land Use Rights Yes Business Licence Yes

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

The property comprises a parcel of land with a total site area of approximately 60,392.60 sq. m.
A parcel of land on the The property comprises a parcel of land south side of Hehai East with a total site area of approximately Road and on the east 60,392.60 sq. m. side of Zaojiang River, Changzhou, As advised by the Group, a proposed Jiangsu Province, commercial development is planned to the PRC be developed on the property with a total gross floor area of approximately 339,600 sq. m.

The property is a bare RMB411,000,000 land pending future development.

The proposed development is scheduled to be completed in 2010.

The details of the proposed development scheme are summarised as follows:

Use Retail Office Service Apartment Total:	Approximate Gross Floor Area (sq. m) 99,600 175,000 65,000
	339,600

The land use rights of the property have been granted to the Group for a term of 40 years due to expire on 19 December 2046 for commercial use and a term of 70 years due to expire on 19 December 2076 for residential use

Notes:

According to Grant Contract of State-owned Land Use Rights No. (2006)08 entered into between Changzhou Stateowned Land Resources Bureau (常州市國土資源局) (the Grantor) and 常州世茂房地產有限公司 (Changzhou Shimao Real Estate Company Ltd.) (the Grantee) on 20 December 2006, the Grantor has agreed to grant the land use rights of a parcel of land to the Grantee with details as follows:

Site Area : 896,100 sq. m Land Use : Residential, commercial and office Land Premium : RMB2,408,000,000

According to Certificate for the Use of State-owned Land No. (2007) 0227907 issued by Changzhou Municipal Government (常州市人民政府) on 31 August 2007, the land use rights of the property located on the south side of Hehai East Road and on the east side of Zaojiang River, comprising a total site area of 60,392.6 sq. m, have been granted to 常州世茂新城房地產�發有限公司 (Changzhou Shimao New City Real Estate Development Co. Ltd.) for a term of 40 years due to expire on 19 December 2046 for commercial use and a term of 70 years due to expire on 19 December 2076 for residential use.

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

According to Business Licence No. 004835 dated 12 September 2007, 常州世茂新城房地產�發有限公司 (Changzhou Shimao New City Real Estate Development Co. Ltd.) was established on 12 February 2007 with a registered capital of USD29,900,000 for a valid operation period from 12 February 2007 to 11 February 2008.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 60,392.6 sq. m, have been granted to 常州世茂新城房地產�發有限公司 (Changzhou Shimao New City Real Estate Development Co. Ltd.).
(ii) 常州世茂新城房地產�發有限公司 (Changzhou Shimao New City Real Estate Development Co. Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Grant Contract of State-owned Land Use Rights Yes Business Licence Yes

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

A parcel of land located The property comprises a parcel of bare at No.1 Xingfu Village, land with a total site area of 29,411.46 Gongti North Road, sq. m. Beijing, The PRC The property will comprise a composite building with the gross floor area of 212,000 sq. m. It is proposed to be developed into a hotel and commercial development comprising 22 floors above ground.

The property is a bare RMB2,100,000,000 land pending future development.

The planned gross floor area of the Property is set forth as follows:

Use Hotel Commercial Office Underground Commercial Underground Car Park Others Total:	Approximate Gross Floor Area (sq. m) 82,903.00 48,583.00 3,417.00 10,729.00 29,579.00 36,789.00
	212,000.00

In addition, the property will provide 900 basement car park spaces. The land use rights of the property have been granted for a term due to expire on 9 January 2053 for composite use.

Notes:

According to Certificate for the Use of State-owned Land No. (2005) 0222 issued by Beijing Municipal People’s Government on 24 July 2006, the land use rights of the property have been granted to 北京財富時代置業有限公司 (Beijing Fortune Times Property Co., Ltd.) with details as follows:

(i) Land user : 北京財富時代置業有限公司 (Beijing Fortune Times Property Co., Ltd.) (ii) Location : Composite Building, No.1 Xingfu Village, Gongti North Road, Chaoyang District (朝陽區工體北路幸福一村綜合樓) (iii) Use : Composite (iv) Site area : 30,112.82 sq. m (v) Land use term : Due to expire on 9 January 2053

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

According to Grant Contract of State-owned Land Use Rights No. (2003) 092 entered into between Beijing Stateowned Land Resources and Building Administration Bureau (北京市國土資源�房屋管理局) (the Grantor) and 北京天鴻集團公司 (Beijing Tianhong Group Company) (the Grantee) on 10 January 2003, the Grantor has agreed to grant the land use rights of a parcel of land to the Grantee with details as follows:

Location : Composite Building, No.1 Xingfu Village, Gongti North Road, Chaoyang District Site Area : 30,000 sq. m Land Use : composite Gross floor area : 135,000 sq. m (above ground) Land Premium : RMB209,250,000

According to the Supplementary Agreement of Grant Contract of State-owned Land Use Rights No. (2003) 092 entered into between Beijing Land Resources Bureau (北京市國土資源局) (the Grantor) and 北京財富時代置業有限公司 (Beijing Fortune Times Property Co., Ltd.) (the Grantee) on 29 March 2007, the land use rights of the parcel of land has been transferred to the Grantee with details and amendment as follows:

(i) Site area : 29,411.46 sq. m (ii) Uses : Commercial, office, basement car park and basement commercial (iii) Gross floor area : 212,000.00 sq. m (iv) Land premium : RMB259,690,020

According to the Planning Permit for Construction Use of Land No. (2006) 0254 issued by Beijing Planning Committee on 12 December 2006, the construction site of a parcel of land with an area of 29,411.46 sq. m is in compliance with the requirements of urban planning.
According to the Reply of Planning Opinion No. (2007) 0068 issued by Beijing Planing Committee on 15 February 2007, the planning details of the composite project located in No.1 Xinfu Village owned by Beijing Fortune Times Property Co., Ltd. is as follows:

(i)	Construction Site Area	:	29,411.46 sq. m
(ii)	Gross Floor Area	:	Above Ground:	135,000 sq. m
			Under Ground:	77,000 sq. m
			Total:	212,000 sq. m
(iii)	Floor Level	:	Above Ground: 22 floors
			Under Ground: 4 levels
(iv)	Carpark spaces	:	900

As instructed by the Group, we are required to make a hypothetical apportionment of the site value for the portion of proposed hotel from the whole site value for the Group internal reference. As at the date of valuation, the apportioned capital value of this portion of site value was RMB592,000,000.
According to Business Licence No. 110000003287113 dated 30 May 2007, 北京財富時代置業有限公司 (Beijing Fortune Times Property Co., Ltd.) was established on 18 September 2001 with a registered capital of RMB80,000,000 for a valid operation period from 18 September 2001 to 17 September 2021.
As advised by the Group, 北京財富時代置業有限公司 (Beijing Fortune Times Property Co., Ltd.) is a wholly-owned subsidiary of 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co., Ltd.).

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PROPERTY VALUATION REPORT OF THE TARGET ASSETS AND THE PROPERTY INTERESTS HELD BY THE TARGET COMPANIES

APPENDIx IV.A

We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 29,411.46 sq. m, have been granted to 北京財富時代置業有限公司 (Beijing Fortune Times Property Co., Ltd.).
(ii) 北京財富時代置業有限公司 (Beijing Fortune Times Property Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights of the property subject to the conditions imposed by the relevant laws of the PRC.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificate for the Use of State-owned Land Yes Grant Contract of State-owned Land Use Rights Yes Planning Permit for Construction of Land Use Yes Business Licence Yes

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APPENDIx IV.B PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHAOxING PROJECT COMPANIES

==> picture [75 x 70] intentionally omitted <==

10th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong

15 November 2007

The Directors Shimao Property Holdings Limited Units 4307–12 43rd Floor, Office Tower Convention Plaza 1 Harbour Road, Wanchai, Hong Kong

Dear Sirs,

Re: A commercial development under construction situated at Lot A1, A2 and A3, Didang New Town, Shaoxing City, Zhejiang Province, the PRC

Instructions, Purpose & Date of Valuation

In accordance with your instructions for us to value the property in which Shimao Property Holdings Limited (referred to as the “Company”) and its subsidiaries (together referred to as the “Group”) have interests in the People’s Republic of China (the “PRC”). We confirm that we have inspected the property, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the value of the property as at 31 August 2007 (the “Date of Valuation”).

Definition of Market Value

Our valuation of the property represents its market value which in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

Valuation Basis and Assumptions

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APPENDIx IV.B

No allowance has been made in our valuation of the property interests for any charges, mortgages or amounts owing on the property interests 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 any onerous nature which could affect its value.

In valuing the property, we have complied with the requirements set out in Chapter 5 and Practice Note 12 of the Listing Rules of The Stock Exchange of Hong Kong Limited and the HKIS Valuation Standards on Properties (First Edition 2005) of The Hong Kong Institute of Surveyors.

Method of Valuation

In valuing the property which is held by the Group under development in the PRC, we have valued the property on the basis that the property will be developed and completed in accordance with the Group’s latest development proposals provided to us. We have assumed that approvals for the proposals have been obtained. In arriving at our opinion of value, we have adopted the direct comparison approach by making reference to comparable sales evidence as available in the relevant market and have also taken into account the expended construction costs and the estimated construction costs remaining outstanding for completing the development. The “capital value when completed” represents our opinion of the aggregate selling prices of the developments assuming that they were completed as at the date of valuation.

Source of Information

Dimensions, measurements and areas included in the valuation certificate are based on information provided to us and are therefore only approximations. We have no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to the valuation. We were also advised by the Group that no material facts have been omitted from the information provided.

Title Investigation

In respect of the property in the PRC, we have been provided with extracts of documents in relation to the title to the property. However, we have not inspected the original documents to ascertain any amendments which may not appear on the copies handed to us.

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PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHAOxING PROJECT COMPANIES

APPENDIx IV.B

Site Inspection

We have inspected the exterior and, wherever possible, the interior of the property. However, we have not carried out investigations on site to determine the suitability of the soil conditions and the services etc. for any development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period. Unless otherwise stated, we have not been able to carry out detailed on-site measurements to verify the site and floor areas of the property and we have assumed that the areas shown on the documents handed to us are correct.

Currency

Unless otherwise stated, all sums stated in our valuation certificate are in Renminbi, the official currency of the PRC.

The valuation certificate is attached.

Yours faithfully, for and on behalf of DTZ Debenham Tie Leung Limited Andrew K. F. Chan Registered Professional Surveyor (GP) China Real Estate Appraiser Msc., M.H.K.I.S., M.R.I.C.S Director

Notes: Mr. Andrew Chan is a Registered Professional Surveyor who has over 19 years’ of experience in the valuation of properties in the PRC.

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PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHAOxING PROJECT COMPANIES

APPENDIx IV.B

VALUATION CERTIFICATE

Property held by the Group under development in the PRC

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

A commercial development The property comprises a commercial under construction situated development under construction erected upon at Lot A1, A2 and A3, three parcels of land with a total site area of Didang New Town, approximately 118,252 sq. m. Shaoxing City, Zhejiang Province, As advised by the Group, the property is the PRC

As advised by the Group, the property is planned to be developed into a commercial development with a total gross floor area of approximately 269,217 sq. m and is scheduled to be completed in 2009.

The property is currently RMB674,000,000 under construction.

The details of the development scheme are summarized as follows:

Lot A1

Use Shopping Mall Retail Car Parks Ancillary Total: Lot A2 & A3	Approximate Gross Floor Area (sq. m) 55,000 11,800 10,000 9,978
	86,778

Use Shopping Mall Retail Car Parks Ancillary Total:	Approximate Gross Floor Area (sq. m) 82,307 53,369 32,158 14,605
	182,439

The land use rights of the property have been granted to the Group for a term of 40 years due to expire on 11 May 2046 for commercial use.

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APPENDIx IV.B

Notes:

According to 3 Certificates for the Use of State-owned Land issued by Shaoxing Municipal Government (紹興市人民政府) all on 4 August 2006, the land use rights of the property, comprising a total site area of 118,252 sq. m, have been granted to the Group for a term of 40 years due to expire on 11 May 2046 for commercial use with details as follows:

Certificate No.
Location
Land User
(2006)9075
Lot A1 Didang New Town
紹興世茂置業有限公司
(Shaoxing Shimao Real Estate Co. Ltd)
(2006)9072
Lot A2 Didang New Town
紹興世茂新城房地產�發有限公司
(Shaoxing Shimao New City
Real Estate Development Co. Ltd)
(2006)9074
Lot A3 Didang New Town
紹興世茂新城房地產�發有限公司
(Shaoxing Shimao New City
Real Estate Development Co. Ltd)
Total:

Site Area
(sq. m)
36,888
34,295
47,069

118,252

According to the two Statements for the Change of the name of Land User for Lot A1, A2 and A3, Didang New Town issued by Zhejiang Shaoxing Economic Development Zone Administrative Committee (浙江紹興經濟�發區管理委員會) on 4 September 2007, the name of land user of Lot A1 Didang New Town has been agreed to be changed to 紹興世茂新紀元置業有限公司 (Shaoxing Shimao New Era Property Co. Ltd.) and the name of land user of Lot A2 and A3 Didang New Town have been agreed to be changed to 紹興世茂新世紀置業有限公司 (Shaoxing Shimao New Century Property Co. Ltd.) As advised by the Group, the process of changes of the name of land user in the Certificates for the Use of State-owned Land are being applied in progress. In the course of valuation, we have assumed that the process of changes of name have been completed.

According to Grant Contract of State-owned Land Use Rights No. (2006) 11-2 entered into between Shaoxing Stateowned Land Resources Bureau (紹興市國土資源局) (the Grantor) and 紹興世茂置業有限公司 (Shaoxing Shimao Real Estate Co. Ltd) (the Grantee A) on 3 August 2006, The Grantor has agreed to grant the land use rights of Lot A1 Didang New Town to the Grantee A with details as follows:

Site Area : 36,888 sq. m Land Use : Commercial Land Premium : RMB106,150,000 Land Use Term : 40 years from 12 May 2006 to 11 May 2046

According to Grant Contract of State-owned Land Use Rights No. (2006) 11-1 entered into between Shaoxing State-owned Land Resources Bureau (紹興市國土資源局) (the Grantor) and 紹興世茂新城房地產�發有限公司 (Shaoxing Shimao New City Real Estate Development Co. Ltd) (the Grantee B) on 3 August 2006, The Grantor has agreed to grant the land use rights of Lot A2 and A3 Didang New Town to the Grantee B with details as follows:

Site Area : 81,363 sq. m Land Use : Commercial Land Premium : RMB205,170,000 Land Use Term : 40 years from 12 May 2006 to 11 May 2046

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APPENDIx IV.B

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHAOxING PROJECT COMPANIES

According to 3 Planning Permits for Construction Use of Land Nos. (2006)14, (2006)15 and (2006)16 all issued by Shaoxing Municipal Planning Bureau (紹興市規劃局) on 25 September 2006, the construction site of three parcels of land with a total site area of approximately 118,252 sq. m is in compliance with the requirements of urban planning.
As at the date of valuation, the Group has not obtained the Planning Permit for Construction Work and Permit for Commencement of Construction Works for the property. As advised by the Group, the relevant title documents are being applied in progress.
The capital value when completed of the proposed development is approximately RMB2,553,000,000.
According to the information provided by the Group and the Qualified Quantity Surveyors’ Report provided by the Group, the total expended construction cost as at the date of valuation was approximately RMB28,042,214 and the estimated outstanding construction cost for completion was approximately RMB995,000,000.
According to Business License No. 330600400000724 dated 13 July 2007, Shaoxing Shimao New Era Property Co. Ltd. (紹興世茂新紀元置業有限公司) was established as a foreign-owned enterprise with a registered capital of USD1,250,000 (with a paid-up capital of USD1,250,000) for a valid operation period from 13 July 2007 to 12 July 2047.

According to Business License No. 330600400000708 dated 13 July 2007, Shaoxing Shimao New Century Property Co. Ltd. (紹興世茂新世紀置業有限公司) was established as a foreign-owned enterprise with a registered capital of USD22,430,000 (with a paid-up capital of USD22,430,000) with a valid operation period from 13 July 2007 to 12 July 2047.

As advised by the Group, 紹興世茂置業有限公司 (Shaoxing Shimao Real Estate Co. Ltd) and 紹興世茂新城房地產�發有限公司 (Shaoxing Shimao New City Real Estate Development Co. Ltd) are fellow subsidaries of Shaoxing Shimao New Era Property Co. Ltd and Shaoxing Shimao New Century Property Co Ltd.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of Lot A1 Didang New Town, comprising a total site area of 36,888 sq. m, have been granted to 紹興世茂置業有限公司 (Shaoxing Shimao Real Estate Co. Ltd).
(ii) 紹興世茂置業有限公司 (Shaoxing Shimao Real Estate Co. Ltd) is entitled to transfer, lease, mortgage or dispose of the land use rights of Lot A1 Didang New Town.
(iii) The land use rights of Lot A2 and A3 Didang New Town, comprising a total site area of 81,363 sq. m, have been granted to 紹興世茂新城房地產�發有限公司 (Shaoxing Shimao New City Real Estate Development Co. Ltd).
(iv) 紹興世茂新城房地產�發有限公司 (Shaoxing Shimao New City Real Estate Development Co. Ltd) is entitled to transfer, lease, mortgage or dispose of the land use rights of Lot A2 and A3 Didang New Town.
(v) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group and the aforesaid legal opinion are as follows:

Certificates for the Use of State-owned Land Yes Grant Contracts of Land Use Rights Yes Planning Permits for Construction Use of Land Yes Planning Permits for Construction Works No Permit for Commencement of Construction Works No Business Licences Yes

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APPENDIx IV.C PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

==> picture [75 x 70] intentionally omitted <==

10th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong

15 November 2007

The Directors Shimao Property Holdings Limited Units 4307–12, 43[rd ] Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong

Dear Sirs,

Instructions, Purpose & Date of Valuation

In accordance with your instructions for us to value the properties in which Shanghai Shimao Company Limited (referred to as the “Company”) and its subsidiaries (together referred to as the “Group”) have interests in the People’s Republic of China (the “PRC”). We confirm that we have inspected the properties, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the values of the properties as at 31 August 2007 (the “Date of Valuation”).

Definition of Market Value

Valuation Basis and Assumptions

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Method of Valuation

In valuing the properties in Group I, which are held by the Group for investment in the PRC, we have valued the property interests on a market basis by making reference to comparable sales transactions as available in the relevant market or where appropriate by capitalizing the rental income derived from the existing tenancy with due provision for any reversionary income potential of the property interests. Properties which are held and occupied by the Group have been valued on vacant possession basis.

Source of Information

In the course of our valuation, we have relied to a very considerable extent on the information given by the Group and its legal adviser on PRC law, Commerce & Finance Law Office, and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, completion date of buildings, identification of buildings, development schemes, construction costs, site and floor areas and all other relevant matters.

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Title Investigation

Site Inspection

Currency

Unless otherwise stated, all sums stated in our valuation certificate are in Renminbi, the official currency of the PRC.

The valuation certificates and summary of values are attached.

Yours faithfully, for and on behalf of DTZ Debenham Tie Leung Limited Andrew K. F. Chan Registered Professional Surveyor (GP) China Real Estate Appraiser Msc., M.H.K.I.S., M.R.I.C.S Director

Notes: Mr. Andrew Chan is a Registered Professional Surveyor who has over 19 years’ of experience in the valuation of properties in the PRC.

– 285 –

APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

SUMMARY OF VALUATION

				Capital value in
				existing state
		Capital value in	Interest	attributable to
		existing state as at	attributable	the Group as at
	Property	31 August 2007	to the Group	31 August 2007
		RMB	%	RMB
Group I — Properties held by the Group for investment in the PRC
1.	645 car parking spaces	135,450,000	50	67,725,000
	in the basement of
	Shimao Lakeside Garden,
	Lane 188 Mingyue Road,
	Pudong New Area,
	Shanghai,
	the PRC
2.	A block of detached villa in	No Commercial	50 No Commercial Value
	Shimao Lakeside Garden,	Value
	No. 97 Lane 188 Mingyue Road,
	Pudong New Area,
	Shanghai,
	the PRC
3.	A shopping mall situated at	207,600,000	100	207,600,000
	Nos. 258–280 Nanjing Road West
	and an office building situated at
	Nos. 2 and 4 Lane 270
	Nanjing Road West,
	Huangpu District,
	Shanghai,
	the PRC
4.	An office building situated at	24,500,000	100	24,500,000
	Nos. 79–85 Guizhou Road,
	Huangpu District,
	Shanghai,
	the PRC
5.	Unit 711, No. 118 Xinling Road,	420,000	100	420,000
	Waigaoqiao Free Trade Zone,
	Pudong New Area,
	Shanghai,
	the PRC

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

				Capital value in
				existing state
		Capital value in	Interest	attributable to
		existing state as at	attributable	the Group as at
	Property	31 August 2007	to the Group	31 August 2007
		RMB	%	RMB
6.	Various residential units	641,000,000	50	320,500,000
	in Block Nos. 1, 2, 3, 4,
	various commercial units along
	Jiangbin Avenue, an underground
	commercial premises,
	various commercial units along
	Paiwei Road, and various car
	parking spaces in basement carport,
	Fuzhou Shimao Bund Garden,
	Jiangbin Avenue, Taijiang District,
	Fuzhou, Fujian Province,
	the PRC
			Sub-total:	620,745,000
Group II — Properties held by the Group under development in the PRC
7.	Shimao Riviera New City Phase 1	3,054,000,000	50	1,527,000,000
	situated at No. 99 Nantong Road,
	Xiaguan District, Nanjing,
	Jiangsu Province,
	the PRC
8.	Shimao East China Shopping Mall	324,000,000	100	324,000,000
	situated at No. 199 Qianjin East
	Road, Economic Development
	Zone, Kunshan, Jiangsu Province,
	the PRC
			Sub-total:	1,851,000,000
Group III — Properties held by the Group		for future development in the PRC
9.	Proposed Shimao Riviera New City	No commercial value	50	No commercial value
	Phase 2 situated at
	No. 99 Nantong Road,
	Xiaguan District,
	Nanjing, Jiangsu Province,
	the PRC
			Sub-total:	No Commercial Value
			Grand total:	2,471,745,000

– 287 –

APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

VALUATION CERTIFICATE

Group I — Properties held by the Group for investment in the PRC

Capital value in existing state as at Property Description and tenure Particulars of occupancy 31 August 2007 1. 645 car parking spaces Completed in 2003, Shimao Lakeside As advised by the Group, RMB135,450,000 in the basement of Garden is a large scale residential 172 car parking spaces Shimao Lakeside Garden, development. As advised by the Group, have been leased and 50% interest Lane 188 Mingyue Road, the property comprises 645 car parking the remaining spaces are attributable Pudong New Area, spaces in the basement of Shimao vacant. to the Group: Shanghai, Lakeside Garden. RMB67,725,000 the PRC The land use rights of the property have been granted for a term from 28 June 2002 to 27 June 2072 for residential use.

Notes:

According to Shanghai Certificate of Real Estate Ownership No. (2007) 066528 issued by Shanghai Municipal Housing and Land Resources Administration Bureau (上海市房屋土地 資源管理局 ) on 26 July 2007, the land use rights of the property comprising a total site area of 137,425 sq. m and building ownership of the property comprising a total gross floor area of 20,130.13 sq. m have been vested in上海世茂湖 濱房地產有限公司 (Shanghai Shimao Lakeside Real Estate Co., Ltd.) for a land use term from 28 June 2002 to 27 June 2072 for residential use.
According to Business Licence No. 315223 dated 11 June 2007, 上海世茂湖 濱房地產有限公司 (Shanghai Shimao Lakeside Real Estate Co., Ltd.) was established as a limited company with a registered capital of USD18,000,000 (with a paid-up capital of USD18,000,000) for an operating period from 19 April 2002 to 18 April 2022.
As advised by the Group, 上海世茂湖濱房地產有限公司 (Shanghai Shimao Lakeside Real Estate Co. Ltd.) is a subsidiary of Shanghai Shimao Company Ltd.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property have been transferred to 上海世茂湖 濱房地產有限公司 (Shanghai Shimao Lakeside Real Estate Co., Ltd.).
(ii) The building ownership of the property, comprising a total gross floor area of 20,130.13 sq. m, has been vested in 上海世茂湖 濱房地產有限公司 (Shanghai Shimao Lakeside Real Estate Co., Ltd.).
(iii) 上海世茂湖 濱房地產有限公司 (Shanghai Shimao Lakeside Real Estate Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights and building ownership of the property.
The status of title and grant of major certificates, approvals and licences in accordance with the information provided by the Group are as follows:

Shanghai Certificate of Real Estate Ownership Yes Business Licence Yes

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

A block of detached villa in Completed in 2003, Shimao Lakeside Shimao Lakeside Garden, Garden is a large scale residential No. 97 Lane 188 development. The property comprises a Mingyue Road, 3-storey detached villa with a basement. Pudong New Area, Shanghai, The property has a gross floor area of the PRC approximately 536.94 sq. m.

The Property is currently No Commercial Value vacant. Please see Note (1)

Notes:

As advised by the Group, Shanghai Certificate of Real Estate Ownership of the property has not been obtained yet and we usually ascribe no commercial value to the property. Had a valid Shanghai Certificate of Real Estate Ownership been issued to the property, the capital value of the property as at 31 August 2007 would be RMB16,430,000.
According to Business Licence No. 315223 dated 11 June 2007, 上海世茂湖濱房地產有限公司 (Shanghai Shimao Lakeside Real Estate Co., Ltd.) was established as a limited company with a registered capital of USD18,000,000 (with a paid-up capital of USD18,000,000) for an operating period from 19 April 2002 to 18 April 2022.
As advised by the Group and according to a legal opinion on the title to the property issued by the Group’s PRC legal advisors, Shanghai Certificate of Real Estate Ownership is in the course of application and it is expected that the Shanghai Certificate of Real Estate Ownerships of the property can be granted in the end of 2007.
The status of title and grant of major certificates, approvals and licences in accordance with the information provided by the Group are as follows:

Shanghai Certificate of Real Estate Ownership No Business Licence Yes

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

A shopping mall situated at Nos. 258–280 Nanjing Road West and an office building situated at Nos. 2 and 4 Lane 270 Nanjing Road West, Huangpu District, Shanghai, the PRC

The property comprises a 7-storey The office building RMB207,600,000 shopping mall plus a basement and a was leased to three 3-storey office building which were all independent third parties competed in 1996. for various terms with the latest expiry on The property has a total gross floor area 31 December 2017 at a of 9,584.51 sq. m. total monthly rent of RMB4,860, exclusive of The land use rights of the property have utility charges. been granted for a term from 11 December 2002 to 10 December 2042 The shopping mall is for commercial use. currently vacant.

Notes:

According to Shanghai Certificate of Real Estate Ownership No. (2002)011456 issued by Shanghai Municipal Housing and Land Resources Administration Bureau (上海市房屋土地資源管理局) on 25 December 2002, the land use rights of the property comprising a total site area of 1,748 sq. m and building ownership of the property comprising a total gross floor area of 9,584.51 sq. m have been vested in 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.) for a land use term from 11 December 2002 to 10 December 2042 for commercial use with details as follows:

Block No. Portion Address No. of Storey 1 Shopping Mall Nos. 258–280 Nanjing Road West 7 2 Office Building Nos. 2 and 4 Lane 270 Nanjing Road West 3 Total:	Gross Floor Area (sq. m) 8,705.66 878.85
	9,584.51

According to Business Licence No. 3100001000812 dated 15 February 2007, 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.) was established as a limited company with a registered capital of RMB478,355,338 (with a paid-up capital of RMB478,355,338) for an operating period from 1 July 1992.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 1,748 sq. m, have been granted to 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.).
(ii) The building ownership of the property, comprising a total gross floor area of 9,584.51 sq. m, has been vested in 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.).
(iii) 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights and building ownership of the property subject to the agreement of the existing mortgagee.
The status of title and grant of major certificates, approvals and licences in accordance with the information provided by the Group are as follows:

Shanghai Certificate of Real Estate Ownership Yes Business Licence Yes

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Capital value in existing state as at 31 August 2007

Property Description and tenure Particulars of occupancy 31 August 2007 4. An office building The property comprises a 6-storey office Levels 3–5 of the property, RMB24,500,000 situated at Nos. 79–85 building (including a basement) which comprising a gross floor Guizhou Road, was completed in 1995. area of 1,259.17 was Huangpu District, leased to a connected Shanghai, The property has a total gross floor area party from 1 January the PRC of 2,900.26 sq. m. 2007 to 30 October 2007 at a monthly rent of The land use rights of the property have RMB88,089.04, exclusive been granted for a term from 10 October of utility charges. 2002 to 9 October 2042 for commercial use. The remaining portion of the property is currently vacant.

Notes:

According to Shanghai Certificate of Real Estate Ownership No. (2002)009251 issued by Shanghai Municipal Housing and Land Resources Administration Bureau (上海市房屋土地資源管理局) on 31 October 2002, the land use rights of the property comprising a total site area of 429.10 sq. m and building ownership of the property comprising a total gross floor area of 2,900.26 sq. m have been vested in 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.) for a land use term from 10 October 2002 to 9 October 2042 for commercial use.
According to Business Licence No. 3100001000812 dated 15 February 2007, 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.) was established as a limited company with a registered capital of RMB478,355,338 (with a paid-up capital of RMB478,355,338) for an operating period from 1 July 1992.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 429.10 sq. m, have been granted to 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.).
(ii) The building ownership of the property, comprising a total gross floor area of 2,900.26 sq. m, has been vested in 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.).
(iii) 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights and building ownership of the property subject to the agreement of the existing mortgagee.
The status of title and grant of major certificates, approvals and licences in accordance with the information provided by the Group are as follows:

Shanghai Certificate of Real Estate Ownership Yes Business Licence Yes

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

Unit 711, The property comprises a unit on Level 7 The property was leased RMB420,000 No. 118 Xinling Road, of a 18-storey office building which was to two independent third Waigaoqiao Free completed in about 2001. parties at an annual rent Trade Zone, of RMB50,000, exclusive Pudong New Area, The property has a total gross floor area of utility charges. Shanghai, of 96.63 sq. m. the PRC

The land use rights of the property have been granted for a term from 16 April 2001 to 5 May 2044 for office use.

Notes:

According to Shanghai Certificate of Real Estate Ownership No. (2002)005706 issued by Shanghai Municipal Housing and Land Resources Administration Bureau (上海市房屋土地資源管理局) on 17 June 2002, the land use rights of the property comprising an apportioned site area of 21.40 sq. m and building ownership of the property comprising a total gross floor area of 96.63 sq. m have been vested in 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.) for a land use term from 16 April 2001 to 5 May 2044 for office use.
According to Business Licence No. 3100001000812 dated 15 February 2007, Shanghai Shimao Co., Ltd. (上海世茂股份有限公司) was established as a limited company with a registered capital of RMB478,355,338 (with a paid-up capital of RMB478,355,338) for an operating period from 1 July 1992.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property with apportioned site area of 21.40 sq. m have been granted to 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.).
(ii) The building ownership of the property, comprising a total gross floor area of 96.63 sq. m, has been vested in 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.).
(iii) 上海世茂股份有限公司 (Shanghai Shimao Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights and building ownership of the property.
The status of title and grant of major certificates, approvals and licences in accordance with the information provided by the Group are as follows:

Shanghai Certificate of Real Estate Ownership Yes Business Licence Yes

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Property

Various residential units in Block Nos. 1, 2, 3 & 4, various commercial units along Jiangbin Avenue, in an underground commercial premises, various commercial units along Paiwei Road, and various car parking spaces in basement carport, Fuzhou Shimao Bund Garden, Jiangbin Avenue, Taijiang District, Fuzhou City, Fujian Province, the PRC

Description and tenure

Fuzhou Shimao Bund Garden is a medium-scale residential estate with a shopping arcade, clubhouses, car parking spaces and other ancillary facilities.

The property comprises various unsold units and pre-sold units in Fuzhou Shimao Bund Garden, which were completed during the period between 2005 and 2006.

The unsold units comprise the following:

	No.	Gross
Block No.	of unit	floor area
		(sq. m)
2	2	421.25
3	6	1,198.72
Commercial units	35	6,356.10
along Jiangbin
Avenue
Commercial units	13	1,190.54
in underground
premises
Commercial units	3	377.94
along Paiwei Road
Car parking	249
spaces in basement
carport

Particulars of occupancy

The unsold portion of the property is vacant whilst the remaining portion of the property has been pre-sold.

Capital value in existing state as at 31 August 2007

RMB641,000,000

(50% interest attributable to the Group: RMB320,500,000)

The pre-sold units comprise the following:

	No.	Gross
Block No.	of unit	floor area
		(sq. m)
1	5	871.78
2	32	6,909.88
3	66	13,351.96
4	3	383.89
Commercial units	39	2,745.95
along Jiangbin
Avenue
Commercial units	5	483.21
in underground
premises
Commercial units	12	1,312.81
along Paiwei Road
Car parking	446
spaces in basement
carport

The land use rights of the property have been granted for a term expiring on 15 July 2073 for residential use, 15 July 2053 for office use and 15 July 2043 for commercial use.

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PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

APPENDIx IV.C

Notes:

(i) According to Grant Contract of Land Use Rights No. (2002)132 and a Supplementary Agreement both entered into between State-owned Land Resources Bureau of Fuzhou (福州市國土資源局) (‘‘the Grantor’’) and Shanghai Shimao Construction Co. Ltd (上海世茂建設有限公司) (‘‘the Grantee’’) on 31 December 2002 and 6 January 2003 respectively, the Grantor has agreed to grant the land use rights of the property, comprising a site area of 77,357 sq. m to the Grantee with details as follows:

Usage : Residential/Commercial/Office Maximum Plot Ratio : 2.5

(ii) According to the Supplementary Contract No. 1–2003 dated 14 July 2003, the Grantor and Grantee have agreed to change the name of the Grantee from Shanghai Shimao Jianshe Co. Ltd. to 福建世茂投 資發展有限公 司 (Fujian Shimao Investment and Development Co. Ltd.).
(iii) According to the Supplementary Contract No. 2–2006 dated 5 December 2006, the plot ratio and the gross floor area above ground of the property have been agreed to change to 2.7906 and 215,870.6 sq. m respectively.
According to Certificate for the Use of State-owned Land No. (2003)00344300155 issued by State-owned Land Resources Bureau of Fuzhou on 6 July 2003, the land use rights of the property, comprising a site area of 77,357 sq. m has been vested in 福建世茂投資發展有限公司 (Fujian Shimao Investment and Development Co. Ltd.) for land use terms to be expired on 15 July 2073 for residential use, 15 July 2053 for office use and 15 July 2043 for commercial use.
According to Planning Permit for Construction Use of Land No. (2003)168 issued by Town and Country Planning Bureau of Fuzhou City (福州市城 鄉規劃局 ) on 26 May 2003, the construction site of a parcel of land with an area of 77,357 sq. m is in compliance with the urban planning requirements.
According to eight Planning Permits for Construction Works Nos. (2003)319, (2003)398, (2004)10146, (2004)00023, (2005)00178, (2005)00071, (2005)00124 and (2006)00043 all issued by Town and Country Planning Bureau of Fuzhou City (福州市城鄉規劃局 ) on 25 September 2003, 21 November 2003, 16 September 2004, 30 November 2004, 29 June 2005, 21 July 2005, 24 November 2005 and 28 March 2006 respectively, the pipe and construction works of the Fuzhou Shimao Bund Garden with a total gross floor area of 278,902.1 sq. m are in compliance with the urban construction requirements and are approved.
According to Ten Permits for Commencement of Construction Works, all issued by Construction Bureau of Fuzhou City (福州市建設局 ), the foundation and construction works of Fuzhou Shimao Bund Garden are in compliance with the requirements for works commencement and are permitted.
Pursuant to six Commodity Housing Pre-sale Permits Nos. (2003)1688, (2004)1777, (2004)1896, (2004)1918, (2005)2011 and (2006)2293 all issued by Fuzhou Real Estate Administration Bureau (福州市房地 產管理局 ) on 1 December 2003, 8 March 2004, 13 October 2004, 29 December 2004, 21 April 2005 and 21 July 2006 respectively, Furzhou Shimao The Bund Garden (Block Nos. 1, 2, 3, 4, commercial unit along Jiangbin Road, underground commercial premises, commercial unit along Paiwei Road and basement carpark) with a total gross floor area of 216,003 sq. m were permitted to be pre-sold.
Pursuant to eight Permits for Completion and Acceptance all issued by Fuzhou Construction Bureau (福州市建設局) on 29 April 2005, 23 May 2005, 22 July 2005, 2 December 2005, 23 October 2006, 1 November 2006 and 22 December 2006, Furzhou Shimao The Bund Garden (Block Nos. 1, 2, 3, 4, commercial unit along Jiangbin Road, underground commercial premises, commercial unit along Paiwei Road and basement carpark) with a total gross floor area of 348,428.7 sq. m were accepted as completion.
A total of 106 residential units, with a total gross floor area of approximately 21,517.51 sq. m, 56 commercial units, with a total gross floor area of approximately 4,541.97 sq. m and 446 car parking spaces in the property are subject to various agreements for sale and purchase for a total consideration of RMB397,291,753. The total consideration aforesaid in respect of this portion of the property is reflected and included in our valuation shown above.

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APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

According to the information by the Group and the Qualified Quantity Surveyors’ Report provided by the Group, there is no outstanding construction cost.
According to Business Licence No. 05091 dated 14 December 2006, 福建世茂投資發展有限公司 (Fujian Shimao Investment and Development Co. Ltd.) was established as a joint-venture company with a registered capital of RMB200,000,000 (with a paid-up capital of RMB200,000,000) for an operating period from 17 November 2003 to 16 November 2053.

As advised by the Group, 福建世茂投資發展有限公司 (Fujian Shimao Investment and Development Co. Ltd.) is a subsidiary of Shanghai Shimao Co. Ltd.

We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights and building ownership rights of the property are vested in 福建世茂投資發展有限公司 (Fujian Shimao Investment and Development Co. Ltd.).
(ii) 福建世茂投資發展有限公司 (Fujian Shimao Investment and Development Co. Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights and building ownership of the unsold portion of the property but is not entitled to transfer, lease, mortgage or dispose of the land use rights and building ownership of the pre-sold portion of the property unless the sale and purchase contracts have been rescinded.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of the title and grant of major approvals and licences in accordance with the information provided by the Group is as follows:

Grant Contract of Land Use Rights	Yes
Certificate for the Use of State-owned Land	Yes
Planning Permit for Construction Use of Land	Yes
Planning Permits for Construction Works	Yes
Permits for Commencement of Construction Works	Yes
Commodity Housing Presale Permits	Yes
Permits for Completion and Acceptance	Yes
Business Licence	Yes

– 295 –

APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Group II — Properties held by the Group under development in the PRC

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

Shimao Riviera New City Phase 1 situated at No. 99 Nantong Road, Xiaguan District, Nanjing, Jiangsu Province, the PRC

The property comprises a large-scale composite development named as Shimao Riviera New City Phase 1 erected upon nine parcels of land with a total site area of approximately 183,229.5 sq. m.

As advised by the Group, the property is planned to be developed into a composite development including residential, hotel, shopping mall, retail, club house and etc.

Residential Blocks Nos.1, RMB3,054,000,000 2, 5, and shopping mall No.1 were completed. (50% interest attributable The remaining portion to the Group: of the property is under RMB1,527,000,000) construction.

The details of the development scheme are summarized as follows:

Use Residential Block Nos. 1–5 A 5 Star Hotel Shopping Mall No. 1 Shopping Mall No. 2 Club House Kid Garden Underground Car Park Total:	Approximate GFA (sq. m) 376,517 75,231 9,890 96,250 6,129 2,400 40,996
	607,413

Construction works of the development has been commenced in 2004 and is scheduled to be completed by the end of 2009.

The land use rights of the property have been granted for 40 years for commercial and office uses and 70 years for residential use from 15 April 2004

– 296 –

APPENDIx IV.C PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Notes:

According to Grant Contract of Land Use Rights No. (2003)61 entered into between Nanjing Municipal Land Resources Administration Bureau (南京市國土資源局) (the Grantor) and 福建世茂投資發展有限公司 (Fujian Shimao Investment and Development Co., Ltd.) (the Grantee) on 7 July 2007, the Grantor has agreed to grant the land use rights of Baoshan village (寶善小區) to the Grantee in four phases with details as follows:

Site Area : 484,899.30 sq. m Location : East of the Yangtze river South of Zhongshan Road North West of Huimin Avenue North of the Sancha River Land Use Term : Residential for 70 years; Commercial and Office for 40 years Land Usage : Residential; Commercial; Office Land Premium : RMB1,800,000,000

According to the Statement No. (2004)512 issued by Nanjing Municipal Land Resources Administration Bureau (南京市國土資源局) on 13 September 2004, the Grantor and Grantee have agreed to change the name of the Grantee from 福建世茂投 資發展有限公司 (Fujian Shimao Investment and Development Co. Ltd.) to 南京世茂房地 產�發有限公司 (Nanjing Shimao Real Estate Development Co., Ltd.).

According to 9 Certificates for The Use of State-owned Land issued by Nanjing Municipal Government (南京市人民政府), the land use rights of the property comprising a total site area of 183,229.50 sq. m have been vested in (Nanjing Shimao Real Estate Development Co., Ltd.) 南京世茂房地產�發有限公司 for residential, commercial and office use with details as follows:

Certificate No. Date of issue (2004)09256 27 September 2004 (2004)09931 18 October 2004 (2005)04604 30 April 2005 (2005)04605 30 April 2005 (2005)07725 3 August 2005 (2005)07726 3 August 2005 (2005)07727 3 August 2005 (2006)03519 27 April 2006 (2006)03520 27 April 2006 Total:	Site Area Land Use Term (sq. m) 10,620.7 Commercial and office for 40 years and residential for 70 years from 15 April 2004 5,274.9 21,014.4 4,209.3 33,733.5 19,573.5 53,534.5 17,555.7 17,713.0 183,229.50

According to Planning Permits for Construction Use of Land No. (2003)0098 issued by Nanjing Municipal Planning Bureau (南京市規劃局) on 24 April 2003, the construction site with a total site area of approximately 488,750 sq. m is in compliance with the requirements of urban planning.
According to Planning Permit for Construction Works No. (2004)0068 issued by Nanjing Municipal Planning Bureau (南京市 規劃局 ), the property has been permitted for the construction of 4 blocks of residential buildings (Blocks Nos. 1,2,4 and 5) and a shopping mall No. 1 with a gross floor area of approximately 256,446.47 sq. m.
According to six Permits for Commencement of Construction Works Nos. (2004)334, (2005)94, (2007)067, (2007)068, (2007)069 and (2006)072 issued by Nanjing Construction Commission (南京市建 設委員會 ), the construction works of the property, with a gross floor area of approximately 254,287.18 sq. m, are in compliance with the requirements for works commencement and have been approved.

– 297 –

APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

According to five Pre-sale Permits for Commodity House No. 0003202, 0003209, 0003441, 200700031 and 200700035 issued by Nanjing Municipal Housing Administration Bureau (南京市房管局), 4 blocks of residential buildings (Blocks Nos. 1,2,4 and 5) and a shopping mall No. 1 were permitted to be pre-sold.
According to Building Ownership Certificate No. 242313 issued by Nanjing Municipal Housing Administration Bureau (南京市房管局) on 27 July 2005, the building ownership of the shopping mall No. 1, comprising a total gross floor area of 9,889.51 sq. m, has been vested in Nanjing Shimao Real Estate Development Co., Ltd. (南京世茂房地產 �發 有限公司 ) for non-residential use.
The capital value when completed under the development scheme as described above and which can be freely transferred in the market, as at 31 August 2007 was RMB6,672,000,000.
According to the information provided by the Group and the Qualified Quantity Surveyors’ Report provided by the Group, the total expended construction cost as at the date of valuation was approximately RMB1,189,348,000 and the estimated outstanding construction cost for completion was approximately RMB1,300,442,000.
As advised by the Group, a total of 1,397 residential units, with a total gross floor area of approximately 203,243.30 sq. m, of the property have been pre-sold and subject to various agreements for sale and purchase for a total consideration of RMB2,096,595,024.26. The total consideration aforesaid in respect of this portion of the property is reflected and included in our valuation shown above.
According to Business Licence No. 007213 dated 14 April 2005, 南京世茂房地產�發有限公司 (Nanjing Shimao Real Estate Development Co., Ltd.) was established as a joint-venture company with a registered capital of RMB200,000,000 (with a paid-up capital of RMB200,000,000) for an operating period from 23 July 2004 to 21 July 2054.
As advised by the Group, 南京世茂房地產開發有限公司 (Nanjing Shimao Real Estate Development Co. Ltd.) is a subsidiary of Shanghai Shimao Co. Ltd.
We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a total site area of 183,229.50 sq. m, have been granted to 南京世茂房地產�發有限公司 (Nanjing Shimao Real Estate Development Co., Ltd.).
(ii) The building ownership of the shopping mall No. 1, comprising a total gross floor area of 9,889.51 sq. m, has been vested in 南京世茂房地產�發有限公司 (Nanjing Shimao Real Estate Development Co., Ltd.).
(iii) 南京世茂房地產�發有限公司 (Nanjing Shimao Real Estate Development Co., Ltd.) is entitled to pre-sell the portion of the property with Pre-sale Permits.
(iv) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of title and grant of major certificates, approvals and licences in accordance with the information provided by the Group are as follows:

Grant Contract of Land Use Rights Yes Certificate for The Use of State-owned Land Yes Planning Permits for Construction Use of Land Yes Planning Permit for Construction Works Yes Permit for Commencement of Construction Works Yes Building Ownership Certificate Yes (only for the shopping mall No.1) Pre-sale Permits for Commodity House Yes Business Licence Yes

– 298 –

APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2007

The proposed Shimao East China Shopping Mall situated at No. 199 Qianjin East Road, Economic Development Zone, Kunshan, Jiangsu Province, the PRC
The property comprises a parcel of land with a total site area of approximately 65,800 sq. m.
As advised by the Group, a proposed commercial development named as Shimao East China Shopping Mall is planned to be erected upon the property and is scheduled to be completed at the end of 2008.

The property is currently RMB324,000,000 under construction. Foundation works has been commenced.

Use Retail Power Room Others Underground Car Parks Total:	Approximate GFA (sq. m) 82,180 5,129 1,610 8,127
	97,046

The land use rights of the property have been granted for commercial use expiring on 19 August 2044.

Notes:

According to Grant Contract of Land Use Rights No. (2004) 116 entered into between Kunshan Municipal Land Resources Administration Bureau (昆山市國土資源局) (the Grantor) and 昆山天盛 偉業建設�發有限公司 (Kunshan Tiansheng-Weiye Development Co., Ltd.) (the Grantee) on 20 May 2004, the Grantor has agreed to grant the land use rights to the Grantee with details as follows:

Site Area : 833,333 sq. m Location : East of Xiajia River South of Qianjin East Road Land Use Term : Commercial for 40 years; Residential for 70 years Land Usage : Commercial; Residential Land Premium : RMB833,333,000

According to the Supplementary Amendments to Grant Contract of Land Use Rights No. (2004) 116 dated 10 March 2006, the Grantor and Grantee have agreed to change the name of the Grantee from 昆山天盛 偉業建設�發有 限公司 (Kunshan Tiansheng-Weiye Development Co., Ltd.) to 昆山世茂 華��城�發有限公司 (Kunshan Shimao East China Mall Development Co., Ltd.).

According to Certificate for the Use of State-owned Land issued by Kunshan Municipal Government (昆山市人民政府) dated 23 March 2006, the land use rights of the property comprising a total site area of 65,800 sq. m have been vested in 昆山世茂 華��城�發有限公司 (Kunshan Shimao East China Mall Development Co., Ltd.) for commercial use.

– 299 –

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

APPENDIx IV.C

According to Planning Permits for Construction Use of Land No. (06) 139 issued by Kunshan Municipal Planning Bureau (昆山市規劃局) on 17 October 2006, the construction site with a total site area of approximately 65,800 sq. m is in compliance with the requirements of urban planning.
According to Planning Permit for Construction Works No. (07) 273 issued by Kunshan Municipal Planning Bureau (昆山市規劃局) on 16 June 2007, the property has been permitted for the construction with a gross floor area of approximately 97,046 sq. m.
The capital value when completed under the development scheme as described above and which can be freely transferred in the market, as at 31 August 2007 was RMB1,002,000,000.
According to the information provided by the Group and the Qualified Quantity Surveyors’ Report provided by the Group, the total expended construction cost as at the date of valuation was approximately RMB13,559,000 and the estimated outstanding construction cost for completion was approximately RMB376,633,000.
According to Business Licence No. 320583000200607180111 dated 18 July 2006, 昆山世茂 華��城�發有限公 司 (Kunshan Shimao East China Mall Development Co., Ltd.) was established with a registered capital of RMB100,000,000 (with a paid-up capital of RMB100,000,000) for an operating period from 24 August 2005 to 23 August 2045.

As advised by the Group, 昆山世茂華東商城開發有限公司 (Kunshan Shimao East China Mall Development Co. Ltd.) is a subsidiary of Shanghai Shimao Co. Ltd.

We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
(i) The land use rights of the property, comprising a site area of 65,800 sq. m have been granted to 昆山世茂華� �城�發有限公司 (Kunshan Shimao East China Mall Development Co., Ltd.).
(ii) 昆山世茂華��城�發有限公司 (Kunshan Shimao East China Mall Development Co., Ltd.) is entitled to transfer, lease, mortgage or dispose of the land use rights and building ownership of the property.
(iii) All the land premium stated in the Grant Contract of State-owned Land Use Rights has been duly paid and settled.
The status of title and grant of major certificates, approvals and licences in accordance with the information provided by the Group are as follows:

Grant Contract of Land Use Rights	Yes
Certificate for The Use of State-owned Land	Yes
Planning Permits for Construction Use of Land	Yes
Planning Permit for Construction Works	Yes
Permit for Commencement of Construction Works	Yes
Business Licence	Yes

– 300 –

APPENDIx IV.C

PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Group III — Properties held by the Group for future development in the PRC

Property

Proposed Shimao Riviera New City Phase 2 situated at No. 99 Nantong Road, Xiaguan District, Nanjing, Jiangsu Province, the PRC

Description and tenure

The property comprises a parcel of land with a total site area of approximately 266,401.2 sq. m.

As advised by the Group, a proposed large-scale composite development including residential flats and the facilities of retail shops, club house, school and clinic named as Shimao Riviera New City Phase 2 is planned to be erected upon the property.

Particulars of occupancy

The property are bare land with structures pending demolishment and resettlement.

Capital value in existing state as at 31 August 2007

No Commercial Value Please see Note (2 )

The details of the development scheme are summarized as follows:

Use Residential Block Nos. 6–17 Club House School Retail Clinic Sports Court Post Office Power Room Others Underground Car Parks Total:	Approximate GFA (sq. m) 838,480 8,400 27,144 16,000 3,600 5,280 720 4,000 1,160 146,880
	1,051,664

Construction works of the development is scheduled to be commenced in 2008 and to be completed by the end of 2012.

The land use rights of the property have been agreed to be granted for residential, commercial and office use.

– 301 –

APPENDIx IV.C PROPERTY VALUATION REPORT OF THE PROPERTY INTERESTS HELD BY SHANGHAI SHIMAO

Notes:

According to Grant Contract of Land Use Rights No. (2003)61 entered into between Nanjing Municipal Land Resources Administration Bureau (南京市國土資源局) (the Grantor) and 福建世茂投資發展有限公司 (Fujian Shimao Investment and Development Co., Ltd.) (the Grantee) on 7 July 2007, the Grantor has agreed to grant the land use rights of Baoshan village (寶 善小區 ) to the Grantee in four phases with details as follows:

According to the Statement No. (2004)512 issued by Nanjing Municipal Land Resources Administration Bureau (南京市國土資源局) on 13 September 2004, the Grantor and Grantee have agreed to change the name of the Grantee from 福建世茂投 資發展有限公司 (Fujian Shimao Investment and Development Co. Ltd.) to 南京世茂房地產�發有限公司 (Nanjing Shimao Real Estate Development Co., Ltd.).

As advised by the Group, the State-owned Land Use Rights Certificate of the property has not been obtained yet and we usually ascribe no commercial value to the property. Had a valid State-owned Land Use Rights Certificate been issued to the property, all land premium, related fees for the grant of the certificate and costs necessary to render the site ready for immediate development been fully settled, the capital value of the property as a vacant cleared site as at 31 August 2007 would be RMB3,122,000,000 subject to further assumptions as described in Note (2) below.
According to Business Licence No. 007213 dated 14 April 2005, 南京世茂房地產�發有限公司 (Nanjing Shimao Real Estate Development Co., Ltd.) was established as a joint-venture company with a registered capital of RMB200,000,000 (with a paid-up capital of RMB200,000,000) for an operating period from 23 July 2004 to 21 July 2054.

As advised by the Group, 南京世茂房地產開發有限公司 (Nanjing Shimao Real Estate Development Co. Ltd.) is a subsidiary of Shanghai Shimao Co. Ltd.

We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal advisors, which contains, inter alia, the following information:
南京世茂房地產�發有限公司 (Nanjing Shimao Real Estate Development Co., Ltd.) is entitled to develop the property.
As advised by the Group, the land premium stated in the Grant Contract of Land Use Rights has yet to be settled.
The status of title and grant of major certificates, approvals and licences in accordance with the information provided by the Group are as follows:

Grant Contract of Land Use Rights Yes Certificate for The Use of State-owned Land No Business Licence Yes

– 302 –

GENERAL INFORMATION

APPENDIx V

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. INDEBTEDNESS STATEMENT

As at 30 September 2007, the Enlarged Group had outstanding borrowings (including a senior notes of USD 600 milion) of approximately RMB10,967.1 million which were secured by the respective project companies’ assets under construction, investment properties, land use rights and properties under development. The Enlarged Group also had provided guarantees for RMB2,677.1 million in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of our properties, which arose from the ordinary course of business carried out by the Company. These figures are prepared based on unaudited management accounts.

Save as aforesaid and apart from intra group liabilities, the Enlarged Group did not have any outstanding loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities, borrowings or other similar indebtedness, liabilities under acceptance (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance leases, hire purchase commitments, guarantees or other material contingent liabilities as at 30 September 2007.

3. DISCLOSURE OF INTERESTS AND SHORT POSITION OF THE DIRECTORS AND CHIEF ExECUTIVE OF THE COMPANY IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY

As at the Latest Practicable Date, the interests or short position of the Directors and chief executive of the Company 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) which (i) were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short position which they are taken or deemed to have under such provisions of the SFO), or (ii) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as contained in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

(1) Shares[(1) ]

Shares(1)
				Approximate
				percentage of
		Number of		issued share
Name of Director	Capacity/nature of interest	ordinary shares held	Long/Short position	capital
Mr. Hui Wing Mau	Interest of controlled	1,914,115,500(2)	Long position	58.05%
	corporation
Mr. Hui Sai Tan, Jason	Beneficial owner	792,000	Long position	0.02%
Mr. Ip Wai Shing	Beneficial owner	438,000	Long position	0.01%
Mr. Tang Ping Fai	Beneficial owner	392,000	Long position	0.01%
Ms. Yao Li	Beneficial owner	792,000	Long position	0.02%

– 303 –

GENERAL INFORMATION

APPENDIx V

(1) The total number of issued ordinary shares of the Company as at the Latest Practicable Date was 3,297,592,964.
(2) These 1,914,115,500 shares represent the interest in the Company held by Gemfair.

(2) Options

Options
			Total	Price to be
		Period during	consideration	paid per share
		which option	paid for share	on exercise of	Number of	Long/Short
Name of Director	Date of grant	is exercisable	options	options	options held	position
			(HK$)	(HK$)
Mr. Hui Sai Tan, Jason	9/6/2006	1/4/2007 –	1	5.625	1,848,000	Long position
		8/6/2012
Mr. Ip Wai Shing	9/6/2006	1/4/2007 –	1	5.625	1,792,000	Long position
		8/6/2012
Mr. Tang Ping Fai	9/6/2006	1/4/2007 –	1	5.625	2,248,000	Long position
		8/6/2012
Ms. Yao Li	9/6/2006	1/4/2007 –	1	5.625	1,848,000	Long position
		8/6/2012

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had or deemed to have any interests or short position in any Shares, underlying Shares or debentures of, the Company or any associated corporations (within the meaning of Part XV of the SFO) which (i) would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short position which they are taken or deemed to have under such provisions of the SFO), or (ii) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as contained in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company or their respective spouses and children under 18 years of age had been granted by the Company or had exercised any right to subscribe for Shares or debentures of the Company or any of its associated corporations.

As at the Latest Practicable Date, none of the Directors has an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

– 304 –

GENERAL INFORMATION

APPENDIx V

4. INTERESTS AND SHORT POSITION OF SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS IN THE SHARES AND THE UNDERLYING SHARES

As at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, the following substantial shareholders (being persons who are entitled to exercise, or control the exercise of, 5% or more of the voting power at any general meeting of the Company) and other persons had interests or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or was, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Enlarged Group or held any option in respect of such capital:

Long/short position in the Shares[(1)]

			Number of
			ordinary shares/	Approximate
			underlying shares	percentage of issued
Name	Nature of interest		held	share capital
Long position
Gemfair	Beneficial owner		1,914,115,500(2)	58.05%
Overseas Investment	—		1,914,115,500(3)	58.05%
JPMorgan Chase & Co.	Beneficial owner/Investment		296,546,216(4)	8.99%
		manager/Custodian
		corporation/Approved
		lending agent
Short position
JPMorgan Chase & Co.	Beneficial owner		2,500,000(5)	0.08%

(1) The total number of issued ordinary shares of the Company as at the Latest Practicable Date was 3,297,592,964.
(2) The interests disclosed represent the interests in the Company held by Mr. Hui. Mr. Hui is also a director of Gemfair.
(3) The interests disclosed represent the right of Overseas Investment to vote on behalf of Gemfair as a shareholder at general meetings of the Company, pursuant to a deed dated 12 June 2006 between Gemfair and Overseas Investment, as long as Mr. Hui or his associates (directly or indirectly) hold not less than 30% interest in the Company. Overseas Investment is the trustee of W.M. Hui Unit Trust, all the units of which are held by W.M. Hui Family Trust of which Mr. Hui and his immediate family are discretionary objects. Mr. Hui and Mr. Hui Sai Tan, Jason are also directors of Overseas Investment.
(4) It included 72,895,216 shares in the lending pool.
(5) It included interests in 141,000 underlying shares held through certain unlisted physically settled equity derivatives.

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APPENDIx V

Name of subsidiaries of the Company

Approximate percentage of Name of substantial issued share shareholders capital Long/short position

武漢世茂錦綉長江房地產�發有限公司 (Wuhan Shimao Splendid River Real Estate Development Co., Ltd*)

武漢世茂錦綉長江房地產�發有限公司 Jade VIII, Inc. 29.99% Long position (Wuhan Shimao Splendid River Real Estate Development Co., Ltd*)

咸陽世茂房地產�發有限公司 Smooth Wealth 30% Long position (Xianyang Shimao Real Estate Development International Limited Co., Ltd*)

陝西金富洲投資發展 10% Long position 有限公司 (Shaanxi Golden Land Investment & Development Co., Ltd) 上海碧橙房地產有限公司上海信興企業發展有限公司 10% Long position (Shanghai Bicheng Real Estate Co. Ltd ) (Shanghai Xinxing Enterprise Development Co. Ltd*)

denotes English translation of the name of the company and is provided for identification only.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company were aware of any other person who had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly interested in 10 per cent. or more of the nominal value of any class of share capital (including options in respect of such capital) carrying rights to vote in all circumstances at general meetings of any other member of the Enlarged Group or held any option in respect of such capital.

5. WORKING CAPITAL

Taking into account the financial resources available to the Enlarged Group, including internally generated funds and the available banking facilities, the Directors after due and careful inquiry, are of the opinion that, the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.

6. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, the following Directors were considered to have interests in the businesses which competed or were likely to compete, either directly or indirectly, with the businesses of the Group under Rule 8.10 of the Listing Rules.

Mr. Hui owned the following property development interests in the PRC through the Private Group:

(a) Zhenshi Development Zone — a composite development in Zhenshi Development Zone, Shishi City, Fujian Province, PRC.
(b) Wuyi Tourist Resort — a tourist and resort development in Wuyishan National Resort District, Fujian Province, PRC.

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(c) Gold Coast Resort — a tourist and resort development in Fujian Province, PRC.
(d) Asia Games Garden — a residential development in Beizhendonglu, Asia Games Village, Beijing, PRC.
(e) Zizhu Garden — a residential development in Haidian District, Beijing, PRC.
(f) Royal Garden — a residential development in Chaoyang District, Beijing, PRC.
(g) Epoch Centre — a residential and retail development in Haidian District, Beijing, PRC.
(h) Zhenshi Hotel — a hotel in Shishi City, Fujian Province, PRC.
(i) Wuyishan Fishing Lake Hotel — a hotel in Wuyi Tourist Resort, Wuyishan National Resort District, Fujian Province, PRC.
(j) Dongfanghong Shopping Center — an underground retail development in Lanzhou, Gansu Province, PRC.
(k) Two Retail Units in Epoch Center Phase II — a residential and retail development in Haidian District, Beijing, PRC.
(l) Shimao Lakeside Garden — a residential development in Jinqiao, Pudong District, Shanghai, PRC.
(m) Suifenhe Project — situated in Progranichny-Suifenhe Inter-trade Economic Zone, with twothirds of the development located in the Progranichny municipality in Russia and one-third of the development located in the municipality of Suifenhe, Heilongjiang Province, PRC.
(n) The Genesis — a luxury residential development at 23 Severn Road, the Peak, Hong Kong.

Mr. Hui and Mr. Hui Sai Tan, Jason also hold directorships and/or senior management positions in the Private Group.

The Directors, including those interested in the businesses of the Private Group, will, as and when required under the Company’s articles of association, abstain from voting on any board resolution in respect of any contract, arrangement or proposal in which he or any of his associates has a material interest.

Save as disclosed above and in this circular, as at the Latest Practicable Date, none of the Directors or, so far as was known to them, any of their respective associates (as defined in the Listing Rules) was interested in any business (apart from the Group’s business) which competes or is likely to compete either directly or indirectly with the Group’s business (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder).

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APPENDIx V

7. MATERIAL ADVERSE CHANGE

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

8. LITIGATION

No member of the Enlarged Group is engaged in any litigation or claims of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened against any member of the Enlarged Group.

9. ExPERT

The following is the qualification of the expert who has given opinion or advice, which is contained in this circular:

Name	Qualification
DBS Asia Capital	Licensed corporation under the SFO to conduct type 1 (dealing
	in securities), type 4 (advising on securities) and type 6
	(advising on corporate finance) regulated activities
PricewaterhouseCoopers	Certified Public Accountants
DTZ	Property valuer
PRC Valuer	PRC property valuer

As at the Latest Practicable Date, DBS Asia Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of the text of its letter to the Independent Board Committee and the Independent Shareholders, which has been prepared for the inclusion in this circular and references to its name in the form and context in which it is included.

As at the Latest Practicable Date, PricewaterhouseCoopers has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report, which has been prepared for the inclusion in this circular and references to its name in the form and context in which it is included.

As at the Latest Practicable Date, DTZ has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report, which has been prepared for the inclusion in this circular and references to its name in the form and context in which it is included.

As at the Latest Practicable Date, the PRC Valuer has given and has not withdrawn its written consent to the issue of this circular with the inclusion of references to its name in the form and context in which it is included.

As at the Latest Practicable Date, neither DBS Asia Capital, DTZ, PricewaterhouseCoopers nor the PRC Valuer has any shareholding interest in any member of the Group or any right, whether legally enforceable or not, to subscribe for, or to nominate persons to subscribe for, securities in any member of the Group.

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APPENDIx V

10. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or was proposing to enter, into any service contract with any member of the Enlarged Group which does not expire or is not determinable by the employer within one year without payment of compensation other than statutory compensation.

11. MATERIAL CONTRACTS

The following contracts, not being contracts entered in the ordinary course of business, have been entered into by members of the Group within the two years preceding the Latest Practicable Date and which are or may be material:

(a) A share transfer agreement dated 30 December 2005 between Gemfair, Peak Castle Assets Limited, Shimao Group (Development) Limited and Vicking International Limited, pursuant to which Shimao Group (Development) Limited has agreed to transfer its 100% equity interest in Vicking International Limited to Peak Castle Assets Limited for a consideration of HK$480 million;
(b) A share transfer agreement dated 26 January 2006 between the Company and Gemfair, pursuant to which Gemfair has agreed to transfer its 100% equity interest in Shimao Property Holdings (BVI) Limited to the Company for a consideration of HK$7,400 million;
(c) A novation agreement dated 26 January 2006 between the Company, Gemfair and Peak Castle Assets Limited, pursuant to which a HK$480 million loan advanced to Peak Castle Assets Limited by Gemfair was novated and the Company was substituted as the debt or to the loan in place of Peak Castle Assets Limited;
(d) A novation agreement dated 26 January 2006 between the Company, Gemfair and Shimao Property Holdings (BVI) Limited, pursuant to which a HK$400 million loan advanced to Shimao Property Holdings (BVI) Limited by Gemfair was novated and the Company was substituted as the debt or to the loan in place of Shimao Property Holdings (BVI) Limited;
(e) A subscription agreement dated 27 January 2006 between the Company, GSS III Nimble Holdings Limited and Gemfair, pursuant to which GSS III Nimble Holdings Limited has agreed to subscribe for 222,222,222 shares of the Company for a consideration of HK$920 million;
(f) A subscription agreement dated 14 February 2006 between the Company, CCB International Asset Management Limited, CCB International (Holdings) Limited and Gemfair, pursuant to which CCB International Asset Management Limited has agreed to subscribe for 22,471,910 shares of the Company for a consideration of HK$93,033,708;
(g) A shareholders agreement dated 15 February 2006 between the Company, GSS III Nimble Holdings Limited and Gemfair, which sets out the terms governing the management of the Company and their rights as Shareholders;

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(h) A subscription agreement dated 15 February 2006 between the Company, Standard Chartered Private Equity Limited and Gemfair, pursuant to which Standard Chartered Private Equity Limited has agreed to subscribe for 93,719,807 shares of the Company for a consideration of HK$388 million;
(i) A deed of adherence dated 22 February 2006 between the Company, Gemfair, GSS III Nimble Holdings Limited, CCB International Asset Management Limited and CCB International (Holdings) Limited, pursuant to which CCB International Asset Management Limited and CCB International (Holdings) Limited have agreed to the terms of and to be parties to the shareholders agreement between the Company, GSS III Nimble Holdings Limited and Gemfair dated 15 February 2006;
(j) A deed of adherence dated 24 February 2006 between the Company, Gemfair, GSS III Nimble Holdings Limited, CCB International Asset Management Limited, CCB International (Holdings) Limited and Standard Chartered Private Equity Limited, pursuant to which Standard Chartered Private Equity Limited has agreed to the terms of and to be a party to the shareholders agreement between the Company, GSS III Nimble Holdings Limited and Gemfair dated 15 February 2006;
(k) A subscription agreement dated 3 March 2006 between the Company, Gemfair and Drawbridge Global Macro Master Fund Ltd., pursuant to which Drawbridge Global Macro Master Fund Ltd. has agreed to subscribe for 23,804,947 shares of the Company for a consideration of HK$98,552,480;
(l) A second subscription agreement dated 3 March 2006 between the Company, Gemfair and GSS III Nimble Holdings Limited, pursuant to which GSS III Nimble Holdings Limited has agreed to subscribe for 2,800,050 shares of the Company for a consideration of HK$11,592,207;
(m) A second subscription agreement dated 3 March 2006 between the Company, CCB International Asset Management Limited, CCB International (Holdings) Limited and Gemfair, pursuant to which CCB International Asset Management Limited has agreed to subscribe for 280,005 shares of the Company for a consideration of HK$1,159,220;
(n) A second subscription agreement dated 3 March 2006 between the Company and Standard Chartered Private Equity Limited and Gemfair, pursuant to which Standard Chartered Private Equity Limited has agreed to subscribe for 1,115,497 shares of the Company for a consideration of HK$4,618,157;
(o) A deed of adherence dated 7 March 2006 between the Company, Gemfair, GSS III Nimble Holdings Limited, CCB International Asset Management Limited, CCB International (Holdings) Limited, Standard Chartered Private Equity Limited and Drawbridge Global Macro Master Fund Ltd., pursuant to which Drawbridge Global Macro Master Fund Ltd. has agreed to the terms of and to be a party to the shareholders agreement between the Company, GSS III Nimble Holdings Limited and Gemfair dated 15 February 2006;

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APPENDIx V

GENERAL INFORMATION

(p) A deed of release dated 8 May 2006 between Mr. Hui and China Construction Bank, Hong Kong branch, pursuant to which the bank has agreed to release, effective from 5 July 2006, the guarantee given by the Company in respect of the US$40 million loan granted by the bank in favour of 上海世茂北外灘�發建設有限公司 (Shanghai Shimao North Bund Development and Construction Co. Ltd.);
(q) A deed of release dated 16 May 2006 between Mr. Hui and Industrial and Commercial Bank of China (Asia) Limited, pursuant to which the bank has agreed to release, effective from 5 July 2006, the guarantee given by the Company in respect of the HK$250 million loan granted by the bank in favour of 上海世茂莊園置業有限公司 (Shanghai Shimao Manor Real Estate Co. Ltd.);
(r) An equity transfer agreement dated 12 June 2006 between Shanghai Chengyao Property Services Limited and 上海世茂房地產有限公司 (Shanghai Shimao Real Estate Co. Ltd.), pursuant to which 上海世茂房地產有限公司 (Shanghai Shimao Real Estate Co. Ltd.) has agreed to acquire a 50% interest in 上海世茂第一太平物業管理公司 (Shanghai Shimao Savills Property Management Co. Ltd.) from Shanghai Chengyao Property Services Limited for a consideration of RMB500,000;
(s) A property license agreement dated 12 June 2006 between the Company and Shimao (Hong Kong) Investment Limited, pursuant to which Shimao (Hong Kong) Investment Limited has agreed to license the use of the premises at Units 4307–12, 43/F., Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong to the Company for a monthly license fee of HK$150,300 and half of the management fees, rates and utility services charges, and the respective amounts payable for 2007 and 2008 are subject to review;
(t) A trademark framework agreement dated 12 June 2006 between the Company, Shimao Enterprises, Shanghai Shimao, Shimao International and Mr. Hui, pursuant to which the Company has agreed to procure relevant members of the Group to grant non-exclusive licenses to Shimao Enterprises, Shanghai Shimao, Shimao International and Mr. Hui to use the “Shimao” trademarks and devices. Shimao Enterprises, Shanghai Shimao and Shimao International shall have the right to sub-license the ‘‘Shimao’’ trademarks and devices to their respective subsidiaries, and Mr. Hui shall have the right to sub-license the ‘‘Shimao’’ trademarks and devices to members of the Private Group. Each licensee or sub-licensee which uses the “Shimao” trademark and devices in its property development activities (excluding investment holding in property development companies) shall pay an annual royalty fee of HK$300,000 per project for the use of the ‘‘Shimao’’ trademarks and devices under the agreement;
(u) A club house operating agreement dated 12 June 2006 between 上海世茂房地產有限公司 (Shanghai Shimao Real Estate Co. Ltd.) and 上海梅森休閒健身俱樂部有限公司 (Shanghai Mason Club Co. Ltd.), pursuant to which the Company has agreed to grant operating right in respect of the club houses in Shanghai Shimao Riviera Garden to 上海梅森休閒健身俱樂部有限公司 (Shanghai Mason Club Co. Ltd.) in consideration for 30% of any profit of 上海梅森休閒健身俱樂部有限公司 (Shanghai Mason Club Co. Ltd.) resulting from the operation of each clubhouse, provided that no fees are payable by 上海梅森休閒健身俱樂部有限公司 (Shanghai Mason Club Co. Ltd.) for a clubhouse until the relevant clubhouse first makes a cumulative profit;

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APPENDIx V

(v) A deed of tax indemnity dated 12 June 2006 given by Mr. Hui in favour of the Group to provide indemnities, and keep the Group indemnified, against any tax liabilities falling on any member of the Group which might be payable in respect of, among others, any income, profit or gain earned accrued or received on or before the listing of the shares of the Company on the Stock Exchange;
(w) The Hong Kong underwriting agreement dated 21 June 2006 between the Company, Mr. Hui and Gemfair as covenantors, the underwriters, Goldman Sachs (Asia) L.L.C. and Morgan Stanley Dean Witter Asia Limited, pursuant to which the underwriters have agreed severally to subscribe or procure subscribers for the irrespective applicable proportions of the new shares of the Company offered for subscription by the public in Hong Kong;
(x) A purchase agreement dated 21 November 2006 entered into between the Company, certain subsidiaries of the Company, Morgan Stanley & Co International Limited and Goldman Sachs (Asia) L.L.C. in relation to the issue of US$250 million floating rate notes and US$350 million 8% senior notes by the Company pursuant to the terms thereof and an indenture dated 29 November 2006 entered into between the Company, Citibank, N.A. as trustee and certain subsidiaries of the Company as guarantors;
(y) A sale and purchase agreement dated 24 December 2006 entered into between Beijing Shimao and 北京天寰房地產�發有限責任公司 (Beijing Tianhuan Real Estate Development Co. Ltd.) , pursuant to which Beijing Shimao has agreed to acquire Beijing Shimao Tower (formerly known as 北京華平大廈 ( Beijing Huaping Plaza)) at a consideration of RMB1,050 million;
(z) A sale and purchase agreement dated 10 April 2007 entered into between the Company, Peak Castle Assets Limited and Jade VIII, Inc, pursuant to which Jade VIII, Inc has agreed to acquire from Peak Castle Assets Limited the entire issued share capital of Modern Way Holdings Limited at an aggregate consideration of RMB1,000 million;
(aa) A placing agreement dated 4 May 2007 entered into between the Company, Gemfair, Morgan Stanley & Co. International plc, Goldman Sachs (Asia) L.L.C. and UBS AG in relation to the placing of 305,845,000 shares of the Company owned by Gemfair at a price of HK$17.88 per share;
(bb) A subscription agreement dated 4 May 2007 entered into between the Company and Gemfair in relation to the subscription of 218,460,500 new shares of the Company at a price of HK$17.88 per share;
(cc) A share transfer agreement dated 23 May 2007 entered into between 上海世茂新體驗置業有限公司 (Shanghai Shimao Wonderland Property Co., Ltd.) and 山�魯能置業集團有限公司 (Shandong Luneng Real Estate Group Co. Ltd.) , pursuant to which Shanghai Shimao Wonderland Property Co., Ltd. has agreed to acquire the entire issued share capital of 北京財富時代有限公司 (Beijing Fortune Times Property Co. Ltd.) at a consideration of RMB1,400 million;

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APPENDIx V

(dd) A facility agreement dated 13 August 2007 entered into between the Company as borrower, Sumitomo Mitsui Banking Corporation and First Commercial Bank as mandated lead arrangers, certain subsidiaries of the Company as guarantors and certain financial institutions as lenders in respect of US$328 million term and revolving credit facilities made available by a syndicate of banks and financial institutions;
(ee) A share transfer agreement dated 18 September 2007 entered into between Shimao Property Holdings (BVI) Limited and Extra Year Group Limited, pursuant to which Shimao Property Holdings (BVI) Limited has agreed to acquire 88% of the issued share capital of 大連加港龍河發展有限公司 (Dalian Jiagang Longhe Development Co. Ltd.) at a consideration of US$8,800,000 and a premium on registered capital subject to adjustment on completion;
(ff) A share transfer agreement dated 30 September 2007 entered into between 大連錦華海港房地產�發有限公司 (Dalian Jinhua Harbour Real Estate Development Co. Ltd.) and 上海世茂潤基置業有限公司 (Shanghai Shimao Runji Property Co. Ltd.), pursuant to which 上海世茂潤基置業有限公司 (Shanghai Shimao Runji Property Co. Ltd.) has agreed to acquire 12% of the issued share capital of 大連加港龍河發展有限公司 (Dalian Jiagang Longhe Development Co. Ltd.) at a consideration of US$1,200,000 and a premium on registered capital subject to adjustment on completion;
(gg) A share transfer agreement dated 11 October 2007 entered into by 上海世茂匯盈置業有限公司(Shanghai Shimao Huiying Property Co. Ltd.) and 上海信興企業發展有限公司(Shanghai Xinxing Enterprises Development Co. Ltd.), pursuant to which 上海世茂匯盈置業有限公司 (Shanghai Shimao Huiying Property Co. Ltd.) has agreed to acquire 90% issued capital of 上海碧橙房地產有限公司 (Shanghai Bicheng Real Estate Co. Ltd.) at an aggregate consideration of approximately RMB308.8 million;
(hh) Share Subscription and Asset Transfer Agreement;
(ii) Amendment to the Hong Kong Non-competition Agreement;
(jj) PRC Non-competition Agreement; and
(kk) Deed of Release.

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APPENDIx V

12. GENERAL

(a) The company secretary of the Company is Ms. Lam Yee Mei, Katherine, an associate member of both the Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries.
(b) The qualified accountant of the Company is Mr. Ng Yu Yuet, a member of both the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.
(c) (i) As at the Latest Practicable Date, none of the Directors or expert (as named in this Appendix) had any direct or indirect interest in any assets which had, since 31 December 2006, being the date to which the latest published audited financial statements of the Company were made up, been 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; and
(ii) as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Enlarged Group since 31 December 2006, being the date to which the latest published audited financial statements of the Company were made up, which was significant in relation to the business of the Enlarged Group.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the Company’s principal place of business in Hong Kong at Units 4307–12, 43/F, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong during normal business hours on any weekday other than public holidays, up to and including 29 November 2007:

(a) the Share Subscription and Asset Transfer Agreement;
(b) the PRC Non-competition Agreement;
(c) the Deed of Release;
(d) the Amendment to the Hong Kong Non-competition Agreement;
(e) the memorandum of association and articles of association of the Company;
(f) the material contracts referred to in the section headed “Material Contracts” of this Appendix;
(g) the letter form DBS Asia Capital, the text of which is set out on pages 46 to 74 of this circular;
(h) the audited financial statements of the Group for the years ended 2004, 2005 and 2006;
(i) the accountants’ report on Shanghai Shimao prepared by PricewaterhouseCoopers, the texts of which are set out in Appendix II.A of this circular;

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APPENDIx V

(j) the accountants’ report on Shimao Enterprises prepared by PricewaterhouseCoopers, the texts of which are set out in Appendix II.B of this circular;
(k) the report prepared by PricewaterhouseCoopers in relation to the Pro Forma Statement on the Group and referred to in Appendix III of this circular;
(l) the property valuation reports prepared by DTZ and referred to in Appendix IV.A, Appendix IV.B and Appendix IV.C of this circular;
(m) the written consent of DBS Asia Capital referred to in the section headed “Expert” of this Appendix;
(n) the written consent of DTZ referred to in the section headed “Expert” of this Appendix; and
(o) the written consent of PricewaterhouseCoopers referred to in the section headed “Expert” of this Appendix.

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NOTICE OF EGM

==> picture [161 x 61] intentionally omitted <==

SHIMAO PROPERTY HOLDINGS LIMITED 世茂房地產控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 813)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Shimao Property Holdings Limited (the “Company”) will be held at The Harbour Room, Level 3, The Ritz-Carlton, 3 Connaught Road Central, Hong Kong on Friday, 30 November 2007 at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions:

ORDINARY RESOLUTIONS

1. Resolution regarding the Share Subscription and Asset Transfer Agreement and the Proposed Transaction (as defined in the Company’s circular to the shareholders of the Company dated 15 November 2007 (the “Circular”)

“ THAT the Share Subscription and Asset Transfer Agreement dated 22 October 2007 (as defined in the Circular) entered into between the Company, Shanghai Shimao Co. Ltd., Beijing Shimao Investment and Development Co. Ltd., Shanghai Shimao Enterprises Development Co. Ltd. and Peak Gain International Limited, and the transactions contemplated thereunder (the “Proposed Transaction”) be and are hereby approved, confirmed and ratified; and that any one director of the Company (other than Mr. Hui and Mr. Hui’s Associates (as defined in the Circular)) be and is hereby authorized with full power, to do all things and sign or execute all documents on behalf of the Company which may in his/her opinion be necessary or desirable for the purpose of giving effect to the Share Subscription and Asset Transfer Agreement, the Proposed Transaction or any matters relation thereto.”

2. Resolution regarding the PRC Non-competition Agreement (as defined in the Circular)

“ THAT the PRC Non-competition Agreement dated 22 October 2007 (as defined in the Circular) entered into between the Company, Shanghai Shimao Co. Ltd. and Mr. Hui Wing Mau and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and that any one director of the Company (other than Mr. Hui and Mr. Hui’s Associates (as defined in the Circular)) be and is hereby authorized with full power, to do all things and sign or execute all documents on behalf of the Company which may in his/her opinion be necessary or desirable for the purpose of giving effect to the PRC Non-competition Agreement or any matters relation thereto.”

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NOTICE OF EGM

3. Resolution regarding the Deed of Release (as defined in the Circular)

“ THAT the Deed of Release dated 22 October 2007 (as defined in the Circular) entered into unilaterally by the Company and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and that any one director of the Company (other than Mr. Hui Wing Mau and Mr. Hui’s Associates (as defined in the Circular)) be and is hereby authorized with full power, to do all things and sign or execute all documents on behalf of the Company which may in his/her opinion be necessary or desirable for the purpose of giving effect to the Deed of Release or any matters relation thereto.”

4. Resolution regarding the Grant (as defined in the Circular) as described in the Amendment to the Hong Kong Non-competition Agreement

“ THAT the Grant granted pursuant to the Amendment to the Hong Kong Non-competition Agreement dated 22 October 2007 (as defined in the Circular) granted by the Company to Mr. Hui Wing Mau be and is hereby approved, confirmed and ratified; and that any one director of the Company (other than Mr. Hui and Mr. Hui’s Associates (as defined in the Circular)) be and is hereby authorized with full power, to do all things and sign or execute all documents on behalf of the Company which may in his/her opinion be necessary or desirable for the purpose of giving effect to the Grant or any matters relation thereto.”

By order of the Board Lam Yee Mei, Katherine Company Secretary

Hong Kong, 15 November 2007

Notes:

A shareholder of the Company entitled to attend and vote at the extraordinary general meeting (or at any adjournment thereof) is entitled to appoint another person as his/her/its proxy to attend and vote in his/her/its stead in accordance with the articles of association of the Company. A proxy need not be a shareholder of the Company.
A form of proxy for use at the extraordinary general meeting is enclosed.
To be valid, the form of proxy, together with the power of attorney or other authority, if any, under which it is signed or a certified true copy of that power of attorney or authority must be deposited at the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the meeting (or any adjourned meeting thereof) and in default the form of proxy shall not be treated as valid. Completion and return of the form of proxy will not preclude shareholders of the Company from attending and voting in person at the meeting (or any adjourned meeting thereof) should they so wish.
In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the vote(s) of other joint holder(s), and for this purpose seniority will be determined by the order in which the names stand in the register of members of the Company in respect of such shares.

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NOTICE OF EGM

The register of members of the Company will be closed from 9:00 a.m. on Thursday, 29 November 2007 until 4:30 p.m. on Friday, 30 November 2007 during which period no transfer of shares will be registered. In order to qualify to attend the extraordinary general meeting, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for registration no later than 4:30 p.m. on Wednesday, 28 November 2007.

– 318 –

AI assistant

Shimao Group Holdings Limited — Proxy Solicitation & Information Statement 2007

49481_rns_2007-11-14_d4c44377-e968-40b7-a7ad-7d8e34b61b80.pdf

SHIMAO PROPERTY HOLDINGS LIMITED 世茂房地產控股有限公司

MAJOR AND CONNECTED TRANSACTION

CONTENTS

DEFINITIONS

DEFINITIONS

“Company”

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

RMB1.00: HK$1.05

SHIMAO PROPERTY HOLDINGS LIMITED 世茂房地產控股有限公司

(Stock code: 813)

MAJOR AND CONNECTED TRANSACTION

PROPOSED TRANSFER OF ASSETS AND SUBSCRIPTION OF NEW A SHARES AND NEW NON-COMPETITION ARRANGEMENTS

1. INTRODUCTION

2. THE SHARE SUBSCRIPTION AND ASSET TRANSFER AGREEMENT

(a) Date

(b) Parties

(c) The Proposed Transaction

Pre-completion corporate structure chart

Post-completion corporate structure chart

LETTER FROM THE BOARD

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(2) Consideration for the Asset Transfer

(ii) New A Shares Placings

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(iii) The Capital Injection and the Shimao Enterprises New A Share Subscription

(iv) Non-separable Hotel Projects

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(v) Shaoxing Project Companies

(d) Conditions

(i) Conditions in relation to the Company

(ii) Conditions in relation to the Subscribers

(iii) Conditions in relation to Shanghai Shimao

(iv) General Conditions

(e) Completion

(i) Completion of the Proposed Transaction shall take place upon:

(ii) Upon Completion:

(f) Governing law

3. INFORMATION ABOUT SHANGHAI SHIMAO AND SHIMAO ENTERPRISES

LETTER FROM THE BOARD

4. INFORMATION ABOUT THE COMPANY

Six months ended 30 June 2007 compared with the six months ended 30 June 2006

Turnover

Cost of sales

Gross profit

Fair value gains on an investment property

Other gains

Selling and marketing costs

Administrative expenses

Other operating expenses

Operating profit

Finance costs

Share of results of associated companies

Profit before income tax

Income tax expense

Profit for the period

Profit attributable to minority interest

Profit attributable to equity holders of Shanghai Shimao

2006 compared with 2005

Turnover

Cost of sales

Gross profit

Other gains

Selling and marketing costs

Administrative expenses

Other operating expenses

Operating profit

Finance costs

Share of results of associated companies

Profit before income tax

Income tax expense

Profit for the year

Profit attributable to minority interest

Profit attributable to equity holders of Shanghai Shimao

Shimao Group Holdings Limited Proxy Solicitation & Information Statement 2007