Sinco Pharmaceuticals Holdings Limited - Proxy Solicitation & Information Statement 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities of Sino Biopharmaceutical Limited you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

==> picture [236 x 88] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com (Stock Code: 1177)

CONNECTED AND DISCLOSEABLE TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS

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

Kingsway Capital Limited

A letter from the Independent Board Committee and a letter from the independent financial adviser, Kingsway Capital Limited, containing its advice to the Independent Board Committee and the Independent Shareholders are set out on pages 20 to 21 and pages 22 to 38 of this circular respectively.

A notice convening an extraordinary general meeting of Sino Biopharmaceutical Limited to be held at 7th Floor, Board Room, The Dynasty Club Limited, South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on Tuesday, 18 December, 2007 at 10:00 a.m. (or any adjournment thereof) is set out on pages 49 to 52 of this circular.

Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the Meeting or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

30 November, 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
The Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
New Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Information on LYG Tianqing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Reasons for the Capital Contributions and
the New Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Effect of the Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from Kingsway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Appendix I – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	49

– i –

DEFINITIONS

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

“Ace Elite” (Ace Elite Investments Limited), a limited liability company incorporated in the British Virgin Islands, wholly-owned by Mr. Tse Ping and is principally engaged in investment holding
“Articles” the articles of association of the Company
“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” the board of Directors
“Capital Contributions” the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution
“Company” Sino Biopharmaceutical Limited ( ), a company incorporated in the Cayman
Islands whose shares are listed and traded on the Main Board of the Stock Exchange
“connected person” has the meaning ascribed to it under the Listing Rules
“Da Feng Hang Chang”
(Da Feng Hang Chang Consultation
Centre), a company established in the PRC which is owned as to 6.93% by Mr. Zhang Baowen, an executive director of the Company and as to 93.07% by Independent Third Parties and is principally engaged in investment holding
“Directors” the directors of the Company
“EGM”

the extraordinary general meeting of the Company to be held on 18 December, 2007 for approving the Capital Contributions and the New Continuing Connected Transactions

“Existing Fenghai Master Supply Agreement”
the master supply agreement dated 18 September, 2006 entered into between Jiangsu Fenghai and LYG Tianqing, which the Company has complied with the announcement and reporting requirements under the Listing Rules, details of which were set out in the Company’s announcement dated 18 September, 2006

– 1 –

DEFINITIONS

“Existing NJCTT Master Supply the master supply agreement dated 18 September, 2006 Agreement” entered into between NJCTT and LYG Tianqing, which the Company has complied with the announcement and reporting requirements under the Listing Rules, details of which were set out in the Company’s announcement dated 18 September, 2006
“Group” the Company and its subsidiaries
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” the committee appointed by the Board, consisting of Mr. Lu Zhengfei, Mr. Li Dakui and Ms. Li Jun, being all the independent non-executive Directors, to advise the Independent Shareholders in respect of the terms of the Capital Contributions and the New Continuing Connected Transactions
“Independent Shareholders” in respect of the Capital Contributions, Shareholders other than those who have a material interest in the Capital Contributions and in respect of the New Continuing Connected Transactions, Shareholders other than those who have a material interest in the New Continuing Connected Transactions
“Independent Third Party(ies)” an independent person not connected with the Group or any of the directors, chief executives, substantial shareholders of the Company or any of its subsidiaries or any of their respective associates

– 2 –

DEFINITIONS

“JCTT”
“Jiangsu Agribusiness”
“Jiangsu Fenghai”
“Jiangsu Fenghai Capital Contribution”
“Jiangsu Fenghai Capital Increase Agreement”

(Jiangsu Chia Tai-Tianqing Pharmaceutical Co., Ltd.), a sino-foreign joint stock limited company incorporated in the PRC on 16 April, 1997, which is held as to 60% by Chia Tai Pharmaceutical (Lianyungang) Company Limited, a limited liability company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company, 33.5% by Jiangsu Agribusiness, 5% by (Lianyungang Bida Consultation Centre) (which is owned as to 3.5% by each of Mr. Zhang Baowen and Mr. Tse Hsin (both are executive Directors), as to 10% by Mr. Tao Huiqi (also an executive Director), and as to 83% by Independent Third Parties), 1% by (Jiangsu Xintaike Technology Development Limited), an Independent Third Party, and 0.5% by (China Pharmaceutical University Science and Technology Industrial (Group) Corporation), an Independent Third Party

(Jiangsu State Agribusiness
Group Corporation Limited), a state-owned enterprise established in the PRC and a PRC joint venture partner holding 33.5% interest in JCTT and is principally engaged in cultivation, plantation and processing of agricultural products and the business of investment management

(Jiangsu Fenghai Pharmaceutical Co., Ltd.), a limited liability company incorporated in the PRC on 5 January, 1980, which is owned as to 51% by Ace Elite, 30% by Jiangsu Agribusiness and 19% by Da Feng Hang Chang

a total amount of RMB48,404,000 (approximately HK$49,437,000) to be contributed by JCTT, out of which the RMB equivalent amount of US$4,773,500 (approximately HK$37,233,000) would be contributed to the registered capital of Jiangsu Fenghai with the remaining balance to be contributed to the capital reserve pursuant to the Jiangsu Fenghai Capital Increase Agreement
the capital increase agreement of Jiangsu Fenghai dated 9 November, 2007 entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT

– 3 –

DEFINITIONS

“Jiangsu Fenghai New Articles”
“Jiangsu Fenghai New JV Contract”
“Kingsway”
“Latest Practicable Date”
“Listing Rules”
“LYG Tianqing”
“Mr. Tse Ping”
“Mr. Zhang Baowen”
“New Continuing Connected Transactions”
“New Jiangsu Fenghai Master Supply Agreement”
“New Master Supply Agreements”
the new articles of association of Jiangsu Fenghai relating to Jiangsu Fenghai New JV Contract dated 9 November, 2007 entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT
the new joint venture contract of Jiangsu Fenghai dated 9 November, 2007 entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT
Kingsway Capital Limited, a licensed corporation under the SFO, licensed to carry out Type 6 (advising on corporate finance) regulated activity as set out in Schedule 5 of the SFO, being independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Capital Contributions and the New Continuing Connected Transactions
27 November, 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information which is contained in this circular
the Rules Governing the Listing of Securities on the Stock Exchange
(Lianyungang Chia Tai
Tianqing Medicine Co., Ltd.), a limited liability company incorporated in the PRC on 13 February, 2006, which was formerly known as (Lianyungang Tianyi Medicine Co., Ltd.) and
which is now wholly-owned by JCTT
the chairman and an executive Director of the Company
an executive Director of the Company
the transactions under the New Master Supply Agreements
the master supply agreement dated 9 November, 2007 entered into between Jiangsu Fenghai and LYG Tianqing
the New NJCTT Master Supply Agreement and the New Jiangsu Fenghai Master Supply Agreement

– 4 –

DEFINITIONS

==> picture [426 x 576] intentionally omitted <==

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

|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|“New|NJCTT|Master|Supply|the|master|supply|agreement|dated|9|November,|2007|
|Agreement”|entered|into|between|NJCTT|and|LYG|Tianqing|
|“NJCTT”|(Nanjing|Chia|Tai|Tianqing|
|Pharmaceutical|Co.,|Ltd.),|a|limited|liability|company|
|incorporated|in|the|PRC|on|31|August,|2001,|which|is|
|held|as|to|51%|by|JCTT,|25%|by|Chia|Tai|
|Pharmaceutical|(Lianyungang)|Company|Limited,|a|
|wholly|owned|subsidiary|of|the|Company,|14.6%|by|
|Jiangsu|Agribusiness|and|9.4%|by|
|(Golden|Bloom|Pharmaceutical|Company|Limited),|a|
|company|which|is|owned|as|to|5.6%|each|by|Mr.|
|Zhang|Baowen|and|Mr.|Tse|Hsin|respectively|(each|
|being|an|executive|director|of|the|Company)|and|as|to|
|88.8%|by|other|Independent|Third|Parties|
|“PRC”|the|People’s|Republic|of|China|(for|the|purpose|of|this|
|circular,|excluding|Hong|Kong,|the|Macau|Special|
|Administrative|Region|and|Taiwan)|
|“SFO”|Securities|and|Futures|Ordinance|(Chapter|571|of|the|
|Laws|of|Hong|Kong)|
|“Shareholders”|shareholders|of|the|Company|
|“Stock|Exchange”|The|Stock|Exchange|of|Hong|Kong|Limited|
|“subsidiary”|has|the|meaning|ascribed|thereto|under|the|Companies|
|Ordinance|(Chapter|32,|Laws|of|Hong|Kong)|
|“HK$”|Hong|Kong|dollars,|the|lawful|currency|of|Hong|Kong|
|“RMB”|Renminbi,|the|lawful|currency|of|the|PRC|
|“US$”|United|States|dollars,|the|lawful|currency|of|the|United|
|States|of|America|
|“Yancheng|Suhai|Capital|an|aggregate|amount|of|RMB4,731,900|(approximately|
|Contribution”|HK$4,833,000)|and|RMB1,818,100|(approximately|
|HK$1,857,000)|to|be|contributed|by|JCTT|to|the|
|increased|capital|and|capital|reserve|of|Yancheng|Suhai|
|respectively|pursuant|to|the|Yancheng|Suhai|Capital|
|Increase|Agreement|

----- End of picture text -----

“Yancheng Suhai Capital Increase the capital increase agreement of Yancheng Suhai dated Agreement” 9 November, 2007 entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT

– 5 –

DEFINITIONS

“Yancheng Suhai New Articles”

the new articles of association of Yancheng Suhai relating to the Yancheng Suhai New JV Contract dated 9 November, 2007 entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT

“Yancheng Suhai New JV Contract”

the new joint venture contract of Yancheng Suhai dated 9 November, 2007 entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT

“Yancheng Suhai”

(Yancheng Suhai Pharmaceutical Co., Ltd.), a limited liability company established in the PRC on 13 April, 1990, which is owned as to 51% by Ace Elite, 30% by Jiangsu Agribusiness and 19% by Da Feng Hang Chang

“%” per cent.

For the purpose of this circular, the following exchange rates have been used for the conversion of the relevant currencies into Hong Kong dollars for indication only: RMB1.00 to HK$1.021346; and US$1.00 to HK$7.80.

– 6 –

LETTER FROM THE BOARD

==> picture [236 x 88] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com

(Stock Code: 1177)

Executive Directors:

Mr. Tse Ping (Chairman) Mr. Tao Huiqi Mr. He Huiyu Ms. Cheng Cheung Ling Mr. Tse Hsin Mr. Zhang Baowen

Independent non-executive Directors:

Mr. Lu Zhengfei Mr. Li Dakui Ms. Li Jun

Registered office: Codan Trust Company (Cayman) Limited Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT George Town Grand Cayman British West Indies

Head office and principal place of business: Unit 09, 41st Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

30 November, 2007

To the Shareholders

Dear Sirs,

CONNECTED AND DISCLOSEABLE TRANSACTIONS

AND

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

The Directors announced on 9 November, 2007 that, JCTT, a non wholly-owned subsidiary of the Company, entered into the Jiangsu Fenghai New JV Contract, the Jiangsu Fenghai New Articles, the Jiangsu Fenghai Capital Increase Agreement, the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles and the Yancheng Suhai Capital

– 7 –

LETTER FROM THE BOARD

Increase Agreement with Ace Elite, Jiangsu Agribusiness and Da Feng Hang Chang respectively pursuant to which JCTT conditionally agreed to make the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution.

In addition, on 9 November, 2007, in order to ensure the continuous supply of medicines to the Group, LYG Tianqing entered into the New NJCTT Master Supply Agreement and the New Jiangsu Fenghai Master Supply Agreement with NJCTT and Jiangsu Fenghai respectively.

The purpose of this circular is to provide you with information regarding the Capital Contributions and the New Continuing Connected Transactions, to set out the advice from Kingsway to the Independent Board Committee and the Independent Shareholders and the recommendation of the Independent Board Committee in respect of the Capital Contributions and the New Continuing Connected Transactions and to give notice to the Independent Shareholders to convene the EGM to consider and, if thought fit, to approve the Capital Contributions and the New Continuing Connected Transactions.

THE CAPITAL CONTRIBUTIONS

A. THE JIANGSU FENGHAI NEW JV CONTRACT, THE JIANGSU FENGHAI NEW ARTICLES AND THE JIANGSU FENGHAI CAPITAL INCREASE AGREEMENT

Date: 9 November, 2007

Parties:

(i) Ace Elite;
(ii) Jiangsu Agribusiness;
(iii) Da Feng Hang Chang; and
(iv) JCTT

Capital Contribution to Jiangsu Fenghai

JCTT currently has no interest in Jiangsu Fenghai. The existing registered capital of Jiangsu Fenghai is US$4,590,000 (approximately HK$35,802,000) and is owned as to 51%, 30% and 19% by Ace Elite, Jiangsu Agribusiness and Da Feng Hang Chang. Pursuant to the Jiangsu Fenghai New JV Contract, JCTT will contribute a total of RMB48,404,000 (approximately HK$49,437,000), out of which the RMB equivalent amount of US$4,773,500 (approximately HK$37,233,000) would be contributed to the registered capital of Jiangsu Fenghai and the remaining balance would be contributed to the capital reserve of Jiangsu Fenghai in cash within 30 working days after the business licence of Jiangsu Fenghai has been obtained from the relevant PRC approval authorities. Save as mentioned above, JCTT is not required to make any other capital contribution (including cash contribution) to Jiangsu Fenghai. The amount of the

– 8 –

LETTER FROM THE BOARD

Jiangsu Fenghai Capital Contribution was determined with reference to the valuation of Jiangsu Fenghai as at 31 May, 2007 on cost approach basis carried out by an independent valuer in the PRC in June 2007 and the equity interest to be held by JCTT in Jiangsu Fenghai. The amount of contribution was agreed by commercial negotiations between the relevant parties on an arm’s length basis.

Upon completion of the capital increase, the registered capital of Jiangsu Fenghai will be increased from US$4,590,000 (approximately HK$35,802,000) to US$9,363,500 (approximately HK$73,035,300), which will be owned as to 25%, 14.71%, 9.31% and 50.98% by Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT respectively.

Condition

The Jiangsu Fenghai Capital Contribution shall take effect upon all necessary approvals from the relevant PRC authorities of the transactions contemplated in the Jiangsu Fenghai New JV Contract, the Jiangsu Fenghai New Articles and the Jiangsu Fenghai Capital Increase Agreement having been obtained. There is no long stop date provided in the Jiangsu Fenghai New JV Contract and the Jiangsu Fenghai Capital Increase Agreement.

The condition of the completion of the Jiangsu Fenghai Capital Contribution has not been fulfilled as at the date hereof.

Board composition of Jiangsu Fenghai

Upon completion of the Jiangsu Fenghai Capital Contribution, the board of directors of Jiangsu Fenghai will comprise seven directors, four of whom will be appointed by JCTT and one by each of Ace Elite, Jiangsu Agribusiness and Da Feng Hang Chang.

Information on Jiangsu Fenghai

Jiangsu Fenghai was established in the PRC on 5 January, 1980 as a limited liability company. The registered capital of Jiangsu Fenghai is US$4,590,000 (approximately HK$35,802,000). Jiangsu Fenghai is presently owned as to 51% by Ace Elite, 30% by Jiangsu Agribusiness and 19% by Da Feng Hang Chang. Jiangsu Fenghai is principally engaged in the manufacturing of pharmaceutical products for the treatment of bacterial, inflammatory and cardio cerebral diseases and raw materials.

– 9 –

LETTER FROM THE BOARD

The table below sets out selected financial information on Jiangsu Fenghai based on its audited accounts (prepared in accordance with PRC accounting standards) for the two years ended 31 December, 2006:

	Year ended	Year ended
	31 December,	31 December,
	2005	2006
	RMB’000	RMB’000
Turnover	56,249	72,754
Profit before taxation	4,724	9,385
Taxation	8	–
Profit after taxation	4,716	9,385

The net asset value of Jiangsu Fenghai as at 31 December, 2006 was RMB47,359,000 (approximately HK$48,370,000) (based on the audited accounts prepared in accordance with PRC accounting standards).

B. THE YANCHENG SUHAI NEW JV CONTRACT, THE YANCHENG SUHAI NEW ARTICLES AND THE YANCHENG SUHAI CAPITAL INCREASE AGREEMENT

Date: 9 November, 2007

Parties:

(i) Ace Elite;
(ii) Jiangsu Agribusiness;
(iii) Da Feng Hang Chang; and
(iv) JCTT

Capital Contribution to Yancheng Suhai

JCTT currently has no interest in Yancheng Suhai. The existing registered capital of Yancheng Suhai is RMB4,550,000 (approximately HK$4,647,000) and is owned as to 51%, 30% and 19% by Ace Elite, Jiangsu Agribusiness and Da Feng Hang Chang. Pursuant to the Yancheng Suhai New JV Contract, JCTT will contribute RMB4,731,900 (approximately HK$4,833,000) to the registered capital of Yancheng Suhai and RMB1,818,100 (approximately HK$1,857,000) to the capital reserve of Yancheng Suhai in cash within 30 business days after the business licence of Yancheng Suhai has been obtained from the relevant PRC approval authorities. Save as mentioned above, JCTT is not required to make any other capital contribution (including cash contribution) to Yancheng Suhai. The amount of the Yancheng Suhai Capital Contribution was determined with reference to the valuation of Yancheng Suhai as at 31 May, 2007 on cost approach basis carried out by an independent valuer in the PRC in June 2007 and

– 10 –

LETTER FROM THE BOARD

the equity interest to be held by JCTT in Yancheng Suhai. The amount of contribution was agreed by commercial negotiations between the relevant parties on an arm’s length basis.

Upon completion of the capital increase, the registered capital of Yancheng Suhai will be increased from RMB4,550,000 (approximately HK$4,647,000) to RMB9,281,900 (approximately HK$9,480,000), which will be owned as to 25%, 14.71%, 9.31% and 50.98% by Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT respectively.

Condition

The Yancheng Suhai Capital Contribution shall take effect upon all necessary approvals from the relevant PRC authorities of the transactions contemplated in the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles and the Yancheng Suhai Capital Increase Agreement having been obtained. There is no long stop date provided in the Yancheng Suhai New JV Contract and the Yancheng Suhai Capital Increase Agreement.

The condition of the completion of the Yancheng Suhai Capital Contribution has not been fulfilled as at the date hereof.

Board composition of Yancheng Suhai

Upon completion of the Yancheng Suhai Capital Contribution, the board of directors of Yancheng Suhai will comprise seven directors, four of whom will be appointed by JCTT and one by each of Ace Elite, Jiangsu Agribusiness and Da Feng Hang Chang.

Information on Yancheng Suhai

Yancheng Suhai was established in the PRC on 13 April, 1990 as a limited liability company. The registered capital of Yancheng Suhai is RMB4,550,000 (approximately HK$4,647,000). Yancheng Suhai is presently owned as to 51% by Ace Elite, 30% by Jiangsu Agribusiness and 19% by Da Feng Hang Chang. Yancheng Suhai is principally engaged in the manufacturing of pharmaceutical products for the treatment of bacterial, inflammatory and cardio cerebral diseases and raw materials.

– 11 –

LETTER FROM THE BOARD

The table below sets out selected financial information on Yancheng Suhai based on its audited accounts (prepared in accordance with PRC accounting standards) for the two years ended 31 December, 2006:

	Year ended	Year ended
	31 December,	31 December,
	2005	2006
	RMB’000	RMB’000
Turnover	90,026	74,119
Profit before taxation	3,973	1,649
Taxation	420	198
Profit after taxation	3,553	1,451

The net asset value of Yancheng Suhai as at 31 December, 2006 was RMB5,904,000 (approximately HK$6,030,000) (based on the audited accounts prepared in accordance with PRC accounting standards).

NEW CONTINUING CONNECTED TRANSACTIONS

In order to ensure the continuous supply of medicines to the Group, LYG Tianqing has entered into the New NJCTT Master Supply Agreement and the New Jiangsu Fenghai Master Supply Agreement with NJCTT and Jiangsu Fenghai respectively.

A. NEW NJCTT MASTER SUPPLY AGREEMENT

Date: 9 November, 2007

Parties:

NJCTT (as supplier)
LYG Tianqing (as purchaser)

Subject matter

Sale and distribution of cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines.

Term

From 1 January, 2008 to 31 December, 2010.

– 12 –

LETTER FROM THE BOARD

Sale prices

To be determined by reference to the prevailing market prices of and demand for cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines in the PRC and no less favourable to LYG Tianqing than those available to LYG Tianqing from independent third parties. According to the New NJCTT Master Supply Agreement, payment will be made in cash within a 90 day credit period.

Caps

It is proposed that the value of the sale and distribution of cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines to LYG Tianqing by NJCTT for the three financial years ending 31 December, 2010 will not exceed RMB20,000,000 (approximately HK$20,427,000), RMB25,000,000 (approximately HK$25,534,000) and RMB30,000,000 (approximately HK$30,640,000) respectively. The proposed caps have been determined by reference to (i) the estimated value of cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines to be sold by NJCTT from 1 January, 2008 to 31 December, 2010 taking into account the increasing market demand of the same; (ii) the possible price increases for cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines in line with consumer prices in the PRC generally; and (iii) the amount and value of historical transactions in the sum of RMB0 and RMB6,451,000 respectively under the Existing NJCTT Master Supply Agreement for the three and a half month period from 18 September, 2006 to 31 December, 2006 and for the ten months ended 31 October, 2007.

B. NEW JIANGSU FENGHAI MASTER SUPPLY AGREEMENT

Date: 9 November, 2007

Parties:

Jiangsu Fenghai (as supplier)
LYG Tianqing (as purchaser)

Subject matter

Sale and distribution of anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines.

Term

From 1 January, 2008 to 31 December, 2010.

– 13 –

LETTER FROM THE BOARD

Sale prices

To be determined by reference to the prevailing market prices of and demand for anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines in the PRC and no less favourable to LYG Tianqing than those available to LYG Tianqing from independent third parties. According to the New Jiangsu Fenghai Master Supply Agreement, payment will be made in cash within a 90 day credit period.

Caps

It is proposed that the value of the sale and distribution of anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines to LYG Tianqing by Jiangsu Fenghai for the three financial years ending 31 December, 2010 will not exceed RMB5,000,000 (approximately HK$5,107,000), RMB7,000,000 (approximately HK$7,149,000) and RMB9,000,000 (approximately HK$9,192,000) respectively. The proposed caps have been determined by reference to (i) the estimated value of anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines to be sold by Jiangsu Fenghai from 1 January, 2008 to 31 December, 2010 taking into account the increasing market demand of the same; (ii) the possible price increases for anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines in line with consumer prices in the PRC generally; and (iii) the amount and value of historical transactions under the Existing Fenghai Master Supply Agreement in the sum of RMB0 and RMB480,000 respectively for the three and a half month period from 18 September, 2006 to 31 December, 2006 and for the ten months ended 31 October, 2007.

INFORMATION ON LYG TIANQING

LYG Tianqing, formerly known as (Lianyungang Tianyi Medicine Co., Ltd.), was established in the PRC on 13 February, 2006 as a limited liability company. The registered capital of LYG Tianqing is US$970,000 (approximately HK$7,566,000). LYG Tianqing is wholly-owned by JCTT, a non wholly-owned subsidiary of the Company. LYG Tianqing is principally engaged in the wholesale distribution of the modernized Chinese medicines, chemical medicines and modern health-care products produced by the Group.

REASONS FOR THE CAPITAL CONTRIBUTIONS AND THE NEW CONTINUING CONNECTED TRANSACTIONS

The Group is principally engaged in the research, development, production and sale of a series of modernized Chinese medicines and chemical medicines for the treatment of hepatitis and cardio cerebral diseases. It is also developing medicines for treating oncology, analgesia, respiratory system, diabetes and digestive system diseases. It is also engaged in the coal to low carbon olefin industry through setting up a joint venture company in Shaanxi Province.

– 14 –

LETTER FROM THE BOARD

NJCTT is a subsidiary of the Company and a limited liability company incorporated in the PRC principally engaged in the manufacturing of modernized Chinese medicines and chemical medicines for the treatment of cardio cerebral diseases in Nanjing.

As stated in the sections headed “Information on Jiangsu Fenghai” and “Information on Yancheng Suhai” in this circular, the businesses carried on by Jiangsu Fenghai and Yancheng Suhai are similar and complementary to that carried on by the Group. The Capital Contributions will enable the Group to acquire significant interests in Jiangsu Fenghai and Yancheng Suhai. The Board believes that the Capital Contributions are consistent with the Group’s business objective relating to the establishment of business alliances with pharmaceutical enterprises. Following completion of the Capital Contributions, the Group will, through JCTT acquire significant interests in each of Jiangsu Fenghai and Yancheng Suhai, which will be treated as a subsidiary of the Company.

In view of the demand for medicines in the PRC, it is beneficial for LYG Tianqing to enter into the New Master Supply Agreements with NJCTT and Jiangsu Fenghai so as to continue to take advantage of ample supply of medicines by NJCTT and Jiangsu Fenghai, which have been approved by the State Food and Drug Administration of the PRC. The New Master Supply Agreements will continue to allow LYG Tianqing to obtain a stable supply of medicines with quality. The Directors believe that the New Master Supply Agreements will allow the parties involved to complement each other.

The Directors (excluding the independent non-executive Directors comprising the Independent Board Committee, whose views are referred to and set out under the section “Letter from the Independent Board Committee” in this circular) consider that the terms of the Jiangsu Fenghai New JV Contract, Jiangsu Fenghai New Articles, Jiangsu Fenghai Capital Increase Agreement, Yancheng Suhai New JV Contract, Yancheng Suhai New Articles, the Yancheng Suhai Capital Increase Agreement and the New Master Supply Agreements are on normal commercial terms, fair and reasonable and are in the interest of the Company and its Shareholders as a whole.

EFFECT OF THE CAPITAL CONTRIBUTIONS

Upon completion of the Capital Contributions, Jiangsu Fenghai and Yancheng Suhai will be owned as to 50.98% by JCTT and will become indirect subsidiaries of the Group. As the financial results of Jiangsu Fenghai and Yancheng Suhai will be consolidated to that of the Group, the Directors estimate that the net assets value of the enlarged Group attributable to the Shareholders will remain unchanged as the increase in the amount of the total assets would be offset by the increase in the amount of the total liabilities of the enlarged Group as a result of the Capital Contributions. Although the earnings of Jiangsu Fenghai and Yancheng Suchai will contribute as a new income stream to the earnings of the enlarged Group, the Directors anticipate that there will be no immediate material effect on the earnings of the enlarged Group as a result of the Capital Contributions.

– 15 –

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE LISTING RULES

Existing Shareholding Structure and Relationship

The existing shareholding structure and relationship between the relevant parties and companies involved in the Capital Contributions and the New Master Supply Agreements are as follows:

==> picture [414 x 253] intentionally omitted <==

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

Mr. Tse Ping Mr. Zhang Independent The Company
Baowen Third Parties
100% 6.93% 93.07% 100%
Da Feng Hang Jiangsu
Ace Elite Chia Tai
Chang Agribusiness
Pharmaceutical (Lianyungang)
51% 19% 33.5% Company Limited
30%
60%
JCTT
Jiangsu Fenghai Yancheng Suhai 25%
14.6% 100% 51%
Mr. Zhang Golden Bloom
Baowen Pharmaceutical LYG Tianqing
5.6% Company Limited NJCTT
9.4%
----- End of picture text -----

Connected and Discloseable Transactions

JCTT is a non wholly-owned subsidiary of the Company. Given that Jiangsu Agribusiness has a 33.5% equity interests in JCTT and Ace Elite is wholly-owned by Mr. Tse Ping, the entering into of the Jiangsu Fenghai New JV Contract, the Jiangsu Fenghai New Articles, the Jiangsu Fenghai Capital Increase Agreement, the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles and the Yancheng Suhai Capital Increase Agreement by JCTT constitute connected transactions for the Company under Rule 14A.13(1)(a) of the Listing Rules.

Since the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution (on an aggregate basis) exceed 5% but are below 25%, the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution constitute both connected transactions and discloseable transactions for the Company under Rule 14.06(2) of the Listing Rules. The Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution are subject to the reporting and disclosure requirements under the Listing Rules as well as approval by the Independent Shareholders. To the extent that they have interest in shares of the Company, Jiangsu Agribusiness, Mr. Tse Ping, Ace Elite, Da Feng Hang Chang, their respective ultimate beneficial owners and their respective associates shall

– 16 –

LETTER FROM THE BOARD

abstain from voting at the EGM in respect of the resolutions pertaining to the Capital Contributions. To the best of the Directors’ knowledge having made all reasonable enquiries, (i) Mr. Tse Ping and his associates who control or are entitled to exercise control over the voting rights in respect of 1,315,531,000 shares of the Company, representing approximately 58.11% of the entire issued share capital of the Company; and (ii) Mr. Tao Huiqi, an executive Director, who has an indirect 0.5% interest in JCTT and controls or is entitled to exercise control over the voting rights in respect of 6,000,000 shares of the Company, representing approximately 0.27% of the entire issued share capital of the Company, are required to abstain from voting at the EGM in respect of the resolutions pertaining to the Capital Contributions.

Continuing Connected Transactions

LYG Tianqing is a wholly-owned subsidiary of JCTT and an indirect subsidiary of the Company. Given that Jiangsu Agribusiness has a 33.5% equity interests in JCTT, which is a non-wholly owned subsidiary of the Company, and that NJCTT is a subsidiary of JCTT, NJCTT is an associate of Jiangsu Agribusiness and a connected person of the Company pursuant to Rule 14A.11 of the Listing Rules. Also, given that Jiangsu Fenghai is owned as to 30% by Jiangsu Agribusiness and as to 51% by Ace Elite which is wholly-owned by Mr. Tse Ping, Jiangsu Fenghai is an associate of Jiangsu Agribusiness and Ace Elite and a connected person of the Company within the meaning of the Listing Rules. Accordingly, the transactions under the New Master Supply Agreements constitute continuing connected transactions under the Listing Rules. Each of the applicable percentage ratios for the aggregate annual caps of the transactions under the New Master Supply Agreements is expected to be more than 2.5% and the annual consideration is expected to be higher than HK$10,000,000. Accordingly, the transactions under the New Master Supply Agreements constitute non-exempt continuing connected transactions for the Company under Rule 14A.35 of the Listing Rules and will be subject to Independent Shareholders’ approval at the EGM. To the extent that they have interest in shares of the Company, Jiangsu Agribusiness, Mr. Tse Ping, Golden Bloom Pharmaceutical Company Limited, Ace Elite, Da Feng Hang Chang, their respective ultimate beneficial owners and their respective associates shall abstain from voting at the EGM in respect of the resolutions pertaining to the New Continuing Connected Transactions. To the best of the Directors’ knowledge having made all reasonable enquiries, (i) Mr. Tse Ping and his associates who control or are entitled to exercise control over the voting rights in respect of 1,315,531,000 shares of the Company, representing approximately 58.11% of the entire issued share capital of the Company; and (ii) Mr. Tao Huiqi, an executive Director, who has an indirect 0.5% interest in JCTT and controls or is entitled to exercise control over the voting rights in respect of 6,000,000 shares of the Company, representing approximately 0.27% of the entire issued share capital of the Company, are required to abstain from voting at the EGM in respect of the resolutions pertaining to the New Continuing Connected Transactions.

– 17 –

LETTER FROM THE BOARD

EGM

A notice convening the EGM is set out on pages 49 to 52 of this circular. The EGM is being convened for the purpose of considering and, if thought fit, passing the ordinary resolutions to approve the Capital Contributions and the New Continuing Connected Transactions. The vote of the Independent Shareholders at the EGM shall be taken by poll and any Shareholder with a material interest in the transaction must abstain from voting.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the meeting in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the principal place of business of the Company in Hong Kong at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

Pursuant to Article 66 of the Articles, a resolution put to the vote of a meeting shall be decided on a show of hands unless a poll is required under the rules of the Stock Exchange or (before or on the declaration of the result of the show of hands or on withdrawal of any other demand for a poll) a poll is demanded:–

(a) by the chairman of such meeting; or
(b) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
(c) by any Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(d) by a Shareholder or Shareholders present in person or in case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all shares conferring that right; or
(e) by any of the Directors who individually or collectively (including the chairman of the relevant meeting of the Company) hold proxies in respect of shares representing 5% or more of the total voting rights at a particular meeting of the Company, and if on a show of hands such meeting votes in the opposite manner to that instructed in those proxies, such Directors shall have the right to demand a poll. If a poll is required under these circumstances, the chairman of the meeting should disclose to the meeting of the Company the total number of votes represented by all proxies held by Directors indicating an opposite vote to the votes cast at the meeting on a show of hands.

– 18 –

LETTER FROM THE BOARD

As indicated above, the chairman of the EGM will demand that a poll be taken in respect of the ordinary resolutions to be proposed at the EGM for the approval of the Capital Contributions and the New Continuing Connected Transactions.

RECOMMENDATION

The Independent Board Committee has been established to consider whether the Capital Contributions and the New Continuing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned and Kingsway has been appointed to advise the Independent Board Committee and the Independent Shareholders in that connection.

The text of the letter of Kingsway containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 22 to 38 of this circular and the text of the letter from the Independent Board Committee to the Independent Shareholders is set out on pages 20 to 21.

The Independent Board Committee, having taken into account the opinion of Kingsway, considers the Capital Contributions and the New Continuing Connected Transactions to be fair and reasonable and is in the interest of the Company and the Shareholders as a whole and accordingly, recommends the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the EGM.

FURTHER INFORMATION

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

Yours faithfully, For and on behalf of the Board

SINO BIOPHARMACEUTICAL LIMITED Tse Ping Chairman

– 19 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [236 x 88] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com (Stock Code: 1177)

30 November, 2007

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED AND DISCLOSEABLE TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS

We refer to the circular dated 30 November, 2007 issued to the Shareholders (the “ Circular ”) of which this letter forms part. Capitalized terms used herein shall have the same meanings as defined in the Circular unless otherwise requires.

As independent non-executive Directors who are independent of the parties to (a) the Capital Contributions; and (b) the New Continuing Connected Transactions ((a) and (b) collectively, the “ Transactions ”) or any transaction contemplated under the Jiangsu Fenghai New JV Contract, the Jiangsu Fenghai New Articles, the Jiangsu Fenghai Capital Increase Agreement, the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles, the Yancheng Suhai Capital Increase Agreement, the New NJCTT Master Supply Agreement and the New Jiangsu Fenghai Master Supply Agreement, we have been appointed by the Board to advise you as to whether, in our opinion, the terms and conditions of the Transactions are fair and reasonable so far as the Shareholders as a whole are concerned.

Kingsway has been appointed by the Company as the independent financial adviser to advise us regarding the fairness and reasonableness of the terms and conditions of the Transactions. Details of its advice, together with the principal factors and reasons taken into consideration in arriving at such opinion, are set out on pages 22 to 38 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 7 to 19 of the Circular and the additional information set out in the appendices to the Circular.

– 20 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the opinion of and the principal factors and reasons considered by Kingsway as stated in its letter of advice, we consider that the terms and conditions of the Transactions are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the resolutions in relation to the Transactions to be proposed at the EGM.

Yours faithfully, For and on behalf of the Independent Board Committee

Lu Zhengfei	Li Dakui	Li Jun
Independent Non-executive	Independent Non-executive	Independent Non-executive
Director	Director	Director

– 21 –

LETTER FROM KINGSWAY

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from Kingsway dated 30 November 2007 prepared for incorporation in this circular.

Kingsway Capital Limited

5/F, Hutchison House, 10 Harcourt Road, Central, Hong Kong Tel. No.: (852) 2877-1830 Fax. No.: (852) 2283-7722

30 November 2007

To the Independent Board Committee and the Independent Shareholders of Sino Biopharmaceutical Limited

Dear Sirs,

CONNECTED AND DISCLOSEABLE TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Capital Contributions, the New Continuing Connected Transactions and the relevant annual caps under each of the New Continuing Connected Transactions, details of which are set out in a circular (the “Circular”) of Sino Biopharmaceutical Limited to the Shareholders dated 30 November 2007, of which this letter forms part. Unless otherwise defined, capitalised terms used in this letter shall have the same meanings as defined in the Circular.

The Company announced that JCTT, a non wholly-owned subsidiary of the Company entered into the Jiangsu Fenghai New JV Contract, the Jiangsu Fenghai New Articles, the Jiangsu Fenghai Capital Increase Agreement, the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles and the Yancheng Suhai Capital Increase Agreement with Ace Elite, Jiangsu Agribusiness and Da Feng Hang Chang on 9 November 2007 pursuant to which JCTT will contribute a total of RMB48,404,000 (approximately HK$49,437,000) to Jiangsu Fenghai and a total of RMB6,550,000 (approximately HK$6,690,000) to Yancheng Suhai.

Given that Jiangsu Agribusiness has a 33.5% equity interest in JCTT, which is a non-wholly owned subsidiary of the Company, and Ace Elite is wholly-owned by Mr. Tse Ping, the Capital Contributions constitute connected transactions for the Company under the Listing Rules.

– 22 –

LETTER FROM KINGSWAY

The applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution (on an aggregate basis) exceed 5% but are below 25%. Hence, the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution constitute connected and discloseable transactions for the Company under Rule 14.06(2) of the Listing Rules and therefore are subject to reporting and disclosure requirements and Independent Shareholders’ approval under the Listing Rules. Jiangsu Agribusiness, Mr. Tse Ping, Ace Elite, Da Feng Hang Chang, Mr. Tao Huiqi, their respective ultimate beneficial owners and their respective associates shall abstain from voting at the EGM in respect of the resolutions pertaining to the Capital Contributions.

On 9 November 2007, LYG Tianqing, an indirect subsidiary of the Company, entered into the New NJCTT Master Supply Agreement and the New Jiangsu Fenghai Master Supply Agreement with NJCTT and Jiangsu Fenghai respectively in respect of the supply of relevant medicines by NJCTT and Jiangsu Fenghai on an on-going basis.

Given that Jiangsu Agribusiness has a 33.5% equity interest in JCTT and that NJCTT is a subsidiary of JCTT, NJCTT is an associate of Jiangsu Agribusiness and a connected person of the Company pursuant to Rule 14A.11 of the Listing Rules. Also, given that Jiangsu Fenghai is owned as to 30% by Jiangsu Agribusiness and as to 51% by Ace Elite which is wholly-owned by Mr. Tse Ping, Jiangsu Fenghai is an associate of Jiangsu Agribusiness and Ace Elite and a connected person of the Company under the Listing Rules. In addition, each of the applicable percentage ratios for the aggregate annual caps of the transactions under the New Master Supply Agreements is expected to be more than 2.5% and the annual consideration is expected to be higher than HK$10,000,000. Accordingly, the transactions under the New Master Supply Agreements constitute non-exempt continuing connected transactions for the Company under Rule 14A.35 of the Listing Rules, which together with the proposed annual caps, are subject to Independent Shareholders’ approval. Jiangsu Agribusiness, Mr. Tse Ping, Golden Bloom Pharmaceutical Company Limited, Ace Elite, Da Feng Hang Chang, Mr. Tao Huiqi, their respective ultimate beneficial owners and their respective associates shall abstain from voting at the EGM in respect of the resolutions pertaining to the New Continuing Connected Transactions.

The Independent Board Committee comprising all of the three independent non-executive Directors, being Mr. Lu Zhengfei, Mr. Li Dakui and Ms. Li Jun, has been established to advise the Independent Shareholders on the Capital Contributions, the New Continuing Connected Transactions and the relevant annual caps. In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to provide the Independent Board Committee and the Independent Shareholders with an independent opinion and recommendation as to whether (i) the entering into the Capital Contributions and the New Continuing Connected Transactions is in the interests of the Company and the Shareholders as a whole and in the ordinary and usual course of business of the Group and the terms thereof are on normal commercial terms and fair and reasonable; and (ii) the proposed annual caps are fair and reasonable.

– 23 –

LETTER FROM KINGSWAY

BASIS OF OUR OPINION

In formulating our view and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Capital Contributions, the New Continuing Connected Transactions and the relevant annual caps, we have relied on the information and representations provided to us by the Directors, which the Directors consider to be complete and relevant.

We have also relied on the information and representations contained in the Circular and have assumed that all statements of belief, opinion and intention made by the Directors in the Circular were true, accurate and complete at the time they were made and continue to be true and accurate on the date of the Circular. We have assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We consider that we have reviewed sufficient information to reach an informed view and have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have been advised by the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular.

We have not, however, carried out any independent verification of the information provided by the management of the Company and the Directors, nor have we conducted any independent investigation into the business and affairs of the Group, Jiangsu Fenghai, Yancheng Suhai, Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and LYG Tianqing, or any of their respective subsidiaries or associates.

A. THE CAPITAL CONTRIBUTIONS

PRINCIPAL REASONS AND FACTORS CONSIDERED

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

I. Background to and reasons for the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution

The pharmaceutical market in the PRC has been growing in recent years. According to the statistics released by the National Development and Reform Commission of the PRC, the cumulative production value of the PRC pharmaceutical industry amounted to RMB511.8 billion for the first ten months in 2007, representing an increase of 19.2% from the same period in 2006. The Directors advised that factors such as the continuous development of the PRC economy, the increasing level of medicine consumption per capita, the growing population and the aging trend are driving the continuous expansion in the PRC pharmaceutical market.

– 24 –

LETTER FROM KINGSWAY

The Group is principally engaged in the research, development, production and sale of a series of modernized Chinese medicines and chemical medicines for the treatment of hepatitis and cardio-cerebral diseases, and the development of medicines for treating oncology, analgesia, respiratory system, diabetes and digestive system diseases.

In light of the opportunities in the pharmaceutical industry, it is the Group’s business strategy, as set out in the 2007 quarterly results announcement and interim report of the Company, to establish new income streams and gain prominence in the pharmaceutical industry through the establishment and increase of business alliances with pharmaceutical enterprises. Both Jiangsu Fenghai and Yancheng Suhai are principally engaged in the manufacturing of pharmaceutical products for the treatment of bacterial, inflammatory and cardio cerebral diseases and raw materials. The Directors consider that the gain of control in Jiangsu Fenghai and Yancheng Suhai through the Capital Contributions will not only enlarge the scale of production of pharmaceutical products of the Group but also assist in consolidating the market share of the Group.

According to the PRC audited financial statements of Jiangsu Fenghai for the year ended 31 December 2006, the turnover and the net profit after tax of Jiangsu Fenghai was approximately RMB72.8 million (approximately HK$74.4 million) and approximately RMB9.4 million (approximately HK$9.6 million), representing an increase of 29.3% and 99.0%, respectively, over that of 2005. The Directors advised that such increase in turnover was mainly due to the successful launch of new products and the increase in the selling price of existing products of Jiangsu Fenghai. The new products, including Fenghaineng fructose injections ( ), Fenghaiping sodium chloride injections ( ) and Xinhaineng mixed sugar infusion ( ), are well received by the market since they are of high therapeutic value but have less side effect. On the other hand, the significant increase in net profit after tax was mainly due to effective cost control and economies of scale in production. As further advised by the Directors, Jiangsu Fenghai has almost reached its full production capacity. In order to enlarge the production scale, a new plant is under construction and is expected to be completed in the first half of 2008.

According to the PRC audited financial statements of Yancheng Suhai for the year ended 31 December 2006, the turnover and the net profit after tax of Yancheng Suhai was approximately RMB74.1 million (approximately HK$75.7 million) and approximately RMB1.5 million (approximately HK$1.5 million), representing a decrease of 17.7% and 59.2%, respectively, over that of 2005. The Directors advised that such decrease in turnover was mainly due to the reduction in the selling price of the products of Yancheng Suhai, since the average selling price dropped by 19% in 2006 as compared with that in 2005. Due to the decrease in international selling price of raw drugs, the turnover and the gross profit of Yancheng Suhai have been affected. As such, as advised by the Directors, Yancheng Suhai has changed its product mix since the second half of 2007 and switched to produce more raw drugs with higher profit margin.

– 25 –

LETTER FROM KINGSWAY

The Directors advise that they are optimistic towards the future development of Jiangsu Fenghai based on its upward profit trend and Yancheng Suhai based on its strategy of changing product mix.

Having considered (i) the opportunities in the PRC pharmaceutical industry; (ii) the expansion of the Group’s scale of production of pharmaceutical products resulting from the gain of control in Jiangsu Fenghai and Yancheng Suhai; (iii) the business of Jiangsu Fenghai and Yancheng Suahi being complementary to that of the Group and thus the Capital Contributions are in line with the Group’s business strategy of establishing business alliances with pharmaceutical enterprises; (iv) the upward profit trend of Jiangsu Fenghai; and (v) the confidence of the Directors on the future development of Jiangsu Fenghai and Yancheng Suhai, we are of the view that the Capital Contributions are in line with the business strategy of the Group and is in the interest of the Company and its Shareholders as a whole.

II. Principal terms of the Capital Contributions

(a) The Jiangsu Fenghai Capital Increase Agreement, the Jiangsu Fenghai New JV Contract and the Jiangsu Fenghai New Articles

Amount of capital contribution

JCTT currently has no interest in Jiangsu Fenghai. The registered capital of Jiangsu Fenghai is US$4,590,000 (approximately HK$35,802,000) and is owned as to 51%, 30% and 19% by Ace Elite, Jiangsu Agribusiness and Da Feng Hang Chang respectively. Pursuant to the Jiangsu Fenghai Capital Increase Agreement, the Jiangsu Fenghai New JV Contract and the Jiangsu Fenghai New Articles, JCTT will contribute a total of RMB48,404,000 (approximately HK$49,437,000), out of which the RMB equivalent amount of US$4,773,500 (approximately HK$37,233,000) will be contributed to the registered capital of Jiangsu Fenghai and the remaining balance will be contributed to the capital reserve of Jiangsu Fenghai in cash within 30 working days after the business licence of Jiangsu Fenghai has been obtained from the relevant PRC approval authorities. Save as mentioned above, JCTT is not required to make any other capital contribution (including cash contribution) to Jiangsu Fenghai.

Upon completion of the capital increase, the registered capital of Jiangsu Fenghai will be increased from US$4,590,000 (approximately HK$35,802,000) to US$9,363,500 (approximately HK$73,035,300). Jiangsu Fenghai will then be owned as to 25%, 14.71%, 9.31% and 50.98% by Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT respectively.

The Jiangsu Fenghai Capital Contribution shall take effect upon all necessary approvals from the relevant PRC authorities of the transactions contemplated under the Jiangsu Fenghai New JV Contract, the Jiangsu Fenghai New Articles and the Jiangsu Fenghai Capital Increase Agreement

– 26 –

LETTER FROM KINGSWAY

having been obtained. There is no long stop date provided in the Jiangsu Fenghai New JV Contract and the Jiangsu Fenghai Capital Increase Agreement.

Basis of capital contribution

The amount of the Jiangsu Fenghai Capital Contribution was determined with reference to the valuation of Jiangsu Fenghai as at 31 May 2007 on cost approach basis of RMB53,211,100 (approximately HK$54,347,000) before the distribution of dividends to the existing shareholders, carried out by an independent valuer in the PRC, and the equity interest to be held by JCTT in Jiangsu Fenghai. The amount of contribution was agreed by commercial negotiations between the relevant parties on an arm’s length basis. The amount of capital contribution to Jiangsu Fenghai by JCTT was calculated based on 50.98% of the valuation of Jiangsu Fenghai after distribution of dividends to the existing shareholders with no premium or discount.

(b) The Yancheng Suhai Capital Increase Agreement, the Yancheng Suhai New JV Contract and the Yancheng Suhai New Articles

Amount of capital contribution

JCTT currently has no interest in Yancheng Suhai. The registered capital of Yancheng Suhai is RMB4,550,000 (approximately HK$4,647,000) and is owned as to 51%, 30% and 19% by Ace Elite, Jiangsu Agribusiness and Da Feng Hang Chang respectively. Pursuant to the Yancheng Suhai Capital Increase Agreement, the Yancheng Suhai New JV Contract and the Yancheng Suhai New Articles, JCTT will contribute RMB4,731,900 (approximately HK$4,833,000) to the registered capital of Yancheng Suhai and RMB1,818,100 (approximately HK$1,857,000) to the capital reserve of Yancheng Suhai in cash within 30 business days after the business licence of Yancheng Suhai has been obtained from the relevant PRC approval authorities. Save as mentioned above, JCTT is not required to make any other capital contribution (including cash contribution) to Yancheng Suhai.

– 27 –

LETTER FROM KINGSWAY

Upon completion of the capital increase, the registered capital of Yancheng Suhai will be increased from RMB4,550,000 (approximately HK$4,647,000) to RMB9,281,900 (approximately HK$9,480,000). Yancheng Suhai will then be owned as to 25%, 14.71%, 9.31% and 50.98% by Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT respectively.

The Yancheng Suhai Capital Contribution shall take effect upon all necessary approvals from the relevant PRC authorities of the transactions contemplated under the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles and the Yancheng Suhai Capital Increase Agreement having been obtained. There is no long stop date provided in the Yancheng Suhai New JV Contract and the Yancheng Suhai Capital Increase Agreement.

Basis of capital contribution

The amount of the Yancheng Suhai Capital Contribution was determined with reference to the valuation of Yancheng Suhai as at 31 May 2007 on cost approach basis of RMB6,298,200 (approximately HK$6,433,000), carried out by an independent valuer in the PRC, and the equity interest to be held by JCTT in Yancheng Suhai. The amount of contribution was agreed by commercial negotiations between the relevant parties on an arm’s length basis. The amount of capital contribution to Yancheng Suhai by JCTT was calculated based on 50.98% of the valuation of Yancheng Suhai with no premium or discount.

– 28 –

LETTER FROM KINGSWAY

III. Price-to-earnings (P/E) ratio analysis

In order to assess the fairness and reasonableness of the total amount to be contributed by JCTT under the Capital Contributions, we have compared the implied P/E ratio in relation to the Capital Contributions to (i) the P/E ratios of those companies which are listed on the main board of the Stock Exchange and are principally engaged in the production of pharmaceutical products (the “Comparable Companies”); and (ii) the P/E ratio of the Company. To our best knowledge, we have identified 17 Comparable Companies, including the Company.

		Market
		capitalisation
		as at the	Latest full
		Latest	year net
Stock		Practicable	profit/(loss)	Historical
Code	Company	Date (“A”)	(“B”)	P/E (=A/B)
		HK$ million	HK$ million	times
399	Far East Pharmaceutical Technology	148.0	(64.1)	n.a.
	Company Limited
2327	Jiwa Bio-Pharm Holdings Limited	401.3	21.1	19.0
1149	Board Intelligence International	394.3	83.9	4.7
	Pharmaceutical Holdings Limited
1164	Vital BioTech Holdings Limited	472.9	37.7	12.5
1180	Paradise Entertainment Limited	573.5	(47.7)	n.a.
	(Formerly known as Lifetec
	Group Limited)
2348	Dawnrays Pharmaceutical	593.3	65.8	9.0
	(Holdings) Limited
899	Asia Resources Holdings Limited	959.8	(182.7)	n.a.
2898	Long Far Pharmaceutical Holdings	1,230.0	(14.1)	n.a.
	Limited

– 29 –

LETTER FROM KINGSWAY

		Market
		capitalisation
		as at the	Latest full
		Latest	year net
Stock		Practicable	profit/(loss)	Historical
Code	Company	Date (“A”)	(“B”)	P/E (=A/B)
		HK$ million	HK$ million	times
587	Hua Han Bio-Pharmaceutical	1,849.5	130.6	14.2
	Holdings Limited
1889	Wuyi International Pharmaceutical	2,479.2	118.6	20.9
	Company Limited
719	Shandong Xinhua Pharmaceutical	360.0	22.6	15.9
	Company Limited
2005	Lijun International Pharmaceutical	2,750.1	84.6	32.5
	(Holding) Co. Ltd.
1093	China Pharmaceutical Group	4,276.0	15.7	272.4
	Limited
2877	China Shineway Pharmaceutical	4,308.7	333.0	12.9
	Group Limited
3933	United Laboratories International	5,580.0	173.8	32.1
	Holdings Limited
874	Guangzhou Pharmaceutical	1,425.0	218.1	6.5
	Company Limited
1177	Sino Biopharmaceutical Limited	3,373.3	141.2	23.9
			High	272.4
			Low	4.7
			Average	36.7

– 30 –

LETTER FROM KINGSWAY

		Market
		capitalisation
		as at the	Latest full
		Latest	year net
		Practicable	profit/(loss)	Historical
		Date (“A”)	(“B”)	P/E (=A/B)
		RMB	RMB
		million	million	times
		(Note 1)	(Note 2)
Consideration payable by JCTT to
(a)	Jiangsu Fenghai	48.4	4.8	10.1
(b)	Yancheng Suhai	6.6	0.7	9.4

Source: Bloomberg/Stock Exchange website

Notes:

The figures represent the total amount contributed by JCTT to the registered capital and the capital reserve of Jiangsu Fenghai and Yancheng Suahi, respectively under the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution.
The figures represent 50.98% of the audited net profit after tax of Jiangsu Fenghai and Yancheng Suhai for the year ended 31 December 2006, respectively.

As illustrated in the table above, the P/E ratio of Jiangsu Fenghai and Yancheng Suhai implied from the Capital Contributions is about 10.1 times and 9.4 times, respectively. The P/E ratios are much lower than the average P/E ratio of the Comparable Companies and the P/E ratio of the Company of 36.7 times and 23.9 times. As such, we are of the view that the amount of the Capital Contributions is fair and reasonable.

Taking into account that (a) the amount of capital contribution by JCTT under the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution was determined based on the respective valuation of Jiangsu Fenghai and Yancheng Suhai and the respective equity interest to be held by JCTT in Jiangsu Fenghai and Yancheng Suhai, and was agreed by commercial negotiations between the relevant parties on an arm’s length basis; and (b) the P/E analysis as shown above, we are of the view that the basis of the amount of capital contribution under the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution is fair and reasonable, on normal commercial terms and in the interest of the Company and the Independent Shareholders as a whole.

– 31 –

LETTER FROM KINGSWAY

IV. Financial effects of the Capital Contributions

Prior to the Capital Contributions, the Company has no interest in Jiangsu Fenghai and Yancheng Suhai. Upon completion of the Capital Contributions, Jiangsu Fenghai and Yancheng Suhai will be owned as to 50.98% by JCTT and will each become an indirect subsidiary of the Company. As such, the financial results of Jiangsu Fenghai and Yancheng Suhai will be consolidated to that of the Group.

Effect on net assets value

Upon completion of the Capital Contributions, the net assets value of Jiangsu Fenghai and Yancheng Suhai would be increased by RMB48,404,000 (approximately HK$49,437,000) and RMB6,550,000 (HK$6,690,000) respectively, being the respective amount of the capital to be contributed by JCTT under the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution. As the financial results of Jiangsu Fenghai and Yancheng Suhai will be consolidated to that of the Company upon completion of the Capital Contributions, the net assets values of Jiangsu Fenghai and Yancheng Suhai will offset the amount of cash outflow of the Company in the Capital Contributions. Therefore, the Directors estimate that the net assets value of the Group, being equity attributable to the Shareholders, will remain unchanged.

Effect on earnings

The Directors estimate that there will be no immediate material effect on the earnings of the Group as a result of the Capital Contributions. In future, the earnings of Jiangsu Fenghai and Yancheng Suhai will contribute as new income stream to the earnings of the Group.

Effect on working capital and gearing position

The capital contribution by JCTT into Jiangsu Fenghai of RMB48,404,000 (approximately HK$49,437,000) and Yancheng Suhai of RMB6,550,000 (approximately HK$6,690,000) will be made in cash. The financial results of Jiangsu Fenghai and Yancheng Suhai will be consolidated into the Group’s account and as such the Directors consider that there will be no material changes in working capital of the Group upon completion of the Capital Contributions.

The Directors also expect that the gearing ratio of the Group, as calculated by dividing the total liabilities by the total assets, to increase slightly as a result of the consolidation of the total assets and total liabilities of Jiangsu Fenghai and Yancheng Suhai. However, taken into account the expected benefit of the Capital Contributions as discussed above, in particular, the widening of therapeutic categories of pharmaceutical products of the Group attributable by the products of Jiangsu Fenghai and Yancheng Suhai, the Directors consider that the slight increase in gearing ratio is acceptable.

– 32 –

LETTER FROM KINGSWAY

Taking into account of the aforesaid, we consider that the Capital Contributions would not have material adverse impact on the net assets value and the earnings of the Group. We noted that the gearing ratio of the Group is expected to increase slightly as a result of the Capital Contributions. However, having considered that (i) the product scope of Jiangsu Fenghai and Yancheng Suhai will widen the therapeutic categories of pharmaceutical products of the Group; and (ii) the obtaining of controlling power in Jiangsu Fenghai and Yancheng Suhai is in line with the Group’s business strategy, we are of the view that the impact of the Capital Contributions on the gearing of the Group to be acceptable.

B. THE NEW CONTINUING CONNECTED TRANSACTIONS

PRINCIPAL REASONS AND FACTORS CONSIDERED

In arriving at our recommendation to the Independent Board Committee and the Independent Shareholders in respect of the New Continuing Connected Transactions, we have considered the following principal reasons and factors:

I. Background of and reasons for entering into of the New NJCTT Master Supply Agreement and the New Jiangsu Fenghai Master Supply Agreement

LYG Tianqing, formerly known as ( ) (Lianyungang Tianyi Medicine Co., Ltd.), incorporated in the PRC on 13 February 2006, is a non wholly-owned subsidiary of the Company. It is principally engaged in the wholesale distribution of modernized Chinese medicines, chemical medicines and modern health-care products produced by the Group.

NJCTT, an indirect non-wholly owned subsidiary of the Company, is based in Nanjing and is principally engaged in the manufacturing of modernized Chinese medicines and chemical medicines for the treatment of cardio cerebral diseases. As described in the section headed “A. The Capital Contributions” in this letter, Jiangsu Fenghai is principally engaged in the manufacturing of pharmaceutical products for the treatment of bacterial, inflammatory and cardio cerebral diseases and raw materials.

The supply of cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines by NJCTT and Jiangsu Fenghai to LYG Tianqing on an on-going basis, together with the caps for the period from 18 September 2006 to 31 December 2006 and the year ending 31 December 2007, under the Existing NJCTT Master Supply Agreement and the the Existing Jiangsu Fenghai Master Supply Agreement respectively, were previously announced by the Company on 18 September 2006.

– 33 –

LETTER FROM KINGSWAY

The table below sets out the existing caps under the Existing NJCTT Master Supply Agreement and the Existing Jiangsu Fenghai Master Supply Agreement for the period from 18 September 2006 to 31 December 2006 and for the year ending 31 December 2007, together with the corresponding actual transaction amount for the period from 18 September 2006 to 31 December 2006 and for the ten months ended 31 October 2007:

			For the	year ending
			31 December 2007
	For the	period from		Actual
	18 September 2006 to			transaction
	31 December 2006			amount (up
		Actual		to 31
		transaction		October
	Cap	amount	Cap	2007)
	RMB million	RMB million	RMB million	RMB million
The Existing
NJCTT Master
Supply
Agreement	3.00	0	6.50	6.45
The Existing
Jiangsu Fenghai
Master Supply
Agreement	0.75	0	1.80	0.48

As illustrated above, the actual transaction amount under the Existing NJCTT Master Supply Agreement was nil for the period from 18 September 2006 to 31 December 2006 and RMB6.45 million for the ten months ended 31 October 2007. The actual transaction amount under the Existing Jiangsu Fenghai Master Supply Agreement was nil for the period from 18 September 2006 to 31 December 2006 and RMB0.48 million for the ten months ended 31 October 2007. As advised by the Directors, no transaction took place under either the Existing NJCTT Master Supply Agreement or the Existing Jiangsu Fenghai Master Supply Agreement in 2006 because LYG Tianqing was then in the process of reviewing its business strategy, and thus had not purchased from NJCTT or Jiangsu Fenghai from 18 September 2006 to 31 December 2006.

Both the Existing NJCTT Master Supply Agreement and the Existing Jiangsu Fenghai Master Supply Agreement will expire on 31 December 2007. In view of the growing demand for medicines in the PRC, the Directors consider that it is beneficial for LYG Tianqing to enter into the New Master Supply Agreements with NJCTT and Jiangsu Fenghai so as to continue to take advantage of the ample supply of medicines by NJCTT and Jiangsu Fenghai.

As advised by the Directors, the total purchase amount by LYG Tianqing from both independent third parties and connected persons amounted to RMB3.5 million for the year ended 31 December 2006 and RMB21.3 million for the ten months ended 31 October 2007. In particular, the purchase amount of LYG showed a quarter by quarter increasing trend in 2007. The total purchase amount in the third quarter of 2007

– 34 –

LETTER FROM KINGSWAY

increased by 8% from the second quarter of 2007 and the total purchase amount in the second quarter of 2007 increased by 57% from the first quarter of 2007. The Directors anticipate the purchase amount will continue to increase.

Given (i) the growing demand for medicines in the PRC; and (ii) that the New Master Supply Agreements will continue to allow LYG Tianqing to obtain a stable supply of medicines with high quality from NJCTT and Jiangsu Fenghai, the Directors believe that the New Master Supply Agreements will allow LYG Tianqing to grasp the opportunity in the growing pharmaceutical industry. Based on the aforesaid and the fact that the nature of the New Master Supply Agreements can expand the Group’s existing pharmaceutical product categories, we concur with the view of the Directors that the entering into of the New Master Supply Agreements will be in the ordinary and usual course of business of the Group and is in the interests of the Company and the Shareholders as a whole.

II. Major terms of the New Master Supply Agreements

1. Continuing supply of medicines

Under the New NJCTT Master Supply Agreement and the New Jiangsu Fenghai Master Supply Agreement, NJCTT and Jiangsu Fenghai will supply anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines to LYG Tianqing for the three years ending 31 December 2010.

2. Price

The price of the medicines to be supplied by NJCTT and Jiangsu Fenghai to LYG Tianqing will be determined by reference to the prevailing market prices of and demand for anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines in the PRC and no less favourable to LYG Tianqing than those available to LYG Tianqing from independent third parties. As confirmed by the Directors, this principle follows the practice under the Existing Jiangsu Fenghai Master Supply Agreement and the Existing Jiangsu Fenghai Master Supply Agreement.

3. Payment terms

Payment will be made in cash within a 90-day credit period. We have reviewed the New NJCTT Master Supply Agreement, the New Jiangsu Fenghai Master Supply Agreement and samples of contracts, and noted that the 90-day credit period has not been stated in those agreements or contracts. We have discussed with the management of the Company and given to understand that the actual credit terms offered by NJCTT and Jiangsu Fenghai to LYG Tianqing under the Existing NJCTT Master Supply Agreement and the Existing Jiangsu Fenghai Master Supply Agreement varied but was up to 90 days, and was determined on a case-by-case basis. As confirmed by the Directors, similar credit terms are given

– 35 –

LETTER FROM KINGSWAY

by independent third parties. The Directors further confirmed that the actual credit period of transactions to be conducted under the New Master Supply Agreements will follow this principle.

4. Proposed annual caps

The proposed annual caps under each of the New Master Supply Agreements are set out as follows:

	For the year	ending 31	December
	2008	2009	2010
	Cap	Cap	Cap
	RMB	RMB	RMB
	million	million	million
New NJCTT Master Supply
Agreement	20	25	30
Increase (%)	n.a.	25%	20%
New Jiangsu Fenghai Master Supply
Agreement	5	7	9
Increase (%)	n.a.	40%	29%

Rationale for determining the annual caps under the New Master Supply Agreements

As advised by the Directors, the proposed annual caps have been determined with reference to (i) the estimated value of cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines to be sold by NJCTT and Jiangsu Fenghai from 1 January 2008 to 31 December 2010 taking into account the increasing market demand; (ii) the expected price increase for cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines; and (iii) the amount and value of actual transactions under the Existing NJCTT Master Supply Agreement and the Existing Jiangsu Fenghai Master Supply Agreement for the ten months ended 31 October 2007.

In considering whether the relevant annual caps are fair and reasonable, we have considered the following factors:

As advised by the Directors, in 2006, the first year of its operation, LYG Tianqing mainly purchased medicines from independent third parties. For business expansion, LYG Tianqing started to explore new distribution rights from NJCTT and Jiangsu Fenghai in the second half of 2006. In the first ten months in 2007, LYG Tianqing experienced a substantial business growth. The total sales of LYG Tianqing for the first ten months in 2007 was 5 times than the total of 2006. The strong increase in demand for products from customers of LYG Tianqing is expected to continue in the coming years and hence driving the

– 36 –

LETTER FROM KINGSWAY

increase of its purchases. As such, the Directors consider that it is necessary to have a larger proposed annual caps to cater for the expected strong increase in demand;

We understand from the management that the expansion of sales network of LYG Tianqing is about to implement. LYG Tianqing plans to set up 10 to 20 new sales representative offices in Jiangsu Province as well as all prime cities in the PRC. With a broader sales network, LYG Tianqing is confident that it will be able to increase product sales, including the sales of NJCTT and Jiangsu Fenghai products;
According to the statistics released by the National Bureau of Statistics of China, the consumer price index in the PRC has increased by 6.2% in September 2007 as compared to that in September 2006. The Directors expect that the general consumer prices in the PRC will keep rising. As such, it is expected the purchase price of pharmaceutical products by LYG Tianqing from NJCTT and Jiangsu Fenghai which is determined by the prevailing market price will increase as a result;
Per management, the purchase amount from NJCTT has been increasing during the ten months ended 31 October 2007, mainly due to the fact that the new products of NJCTT were well received in the market which thus has driven the purchases of LYG Tianqing. The purchase amount of LYG Tianqing in the third quarter of 2007 from NJCTT increased by 49% from the second quarter of 2007 and the purchase amount in the second quarter of 2007 from NJCTT increased by 117% from first quarter of 2007. As a quarterly increasing trend in purchase is noted, the Directors believe that an annual cap of RMB20 million for the year 2008 is necessary for LYG Tianqing. Further, as advised by the management, the growth in the sales and purchase of LYG Tianqing is expected to continue, mainly due to retention of existing customers, exploration of new customers through a strong sales network, launch of new products and a general inflation is expected. Hence, the annual caps in 2009 and 2010 are proposed taken into account of the growth factors. The proposed annual cap in 2009 is RMB25 million, representing an increase of 25% from 2008 and the proposed annual cap in 2010 is RMB30 million, representing an increase of 20% from 2009;
Jiangsu Fenghai has several popular new products including Fenghaineng fructose injections ( ), Fenghaiping sodium chloride injections ( ) and Xinhaineng mixed sugar infusion ( ). As advised by the Directors, these products are well received by the market since they are of higher therapeutic value but have less side effect. To the knowledge of the Directors, the sales amount of these products has increased by 24% in 2006 from 2005 while the average selling price for these products increased by 29% in 2006 from 2005. As Jiangsu Fenghai’s production

– 37 –

LETTER FROM KINGSWAY

capacity is nearly full, it is currently unable to supply more medicines to meet LYG Tianqing’s demand. A new plant of Jiangsu Fenghai is being set up and is expected to commence production in the first half of 2008, after which more products can be produced to meet LYG Tianqing’s increasing demand. After considering the increase in production capacity of Jiangsu Fenghai, an annual cap of RMB5 million in 2008 is proposed. Further, as advised by the management, growth in the sales and purchase is expected to continue, mainly attributable by the products that were launched recently, along with other new products to be launched in the coming years, as well as new customers to be explored through a stronger sales network, as well as a general inflation to be considered. Hence, the annual caps in 2009 and 2010 are proposed taken into account of the growth factors. The proposed annual cap in 2009 is RMB7 million, representing an increase of 40% from 2008. The proposed annual cap in 2010 is RMB9 million, representing an increase of 29% from 2009; and

In addition, we are advised by the Directors that LYG Tianqing is still in the expansion stage and there is a lot of room for further development. Therefore, it is essential to obtain a sufficient annual cap for the above transactions in order to meet the demand when opportunities arise.

Taking into consideration the above factors, in particular, the background and the reasons for the New Master Supply Agreements, we consider that the terms of the New Master Supply Agreements and the relevant annual caps are fair and reasonable, entered into in the ordinary and usual course of business with normal commercial terms (or terms are no more favourable than those available to independent third parties under the prevailing local market conditions), and are in the interest of the Company and its Shareholders as a whole.

RECOMMENDATION

Having considered the above principal factors and reasons, we consider that the Capital Contributions and the New Continuing Connected Transactions are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, and advise the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the resolutions to be proposed at the EGM to approve the Capital Contributions and the New Continuing Connected Transactions.

Yours faithfully, For and on behalf of

Kingsway Capital Limited Chu Tat Hoi Executive Director

– 38 –

GENERAL INFORMATION

APPENDIX I

A. 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.

B. DISCLOSURE OF INTERESTS

(i) Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to the provisions under Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions which he would be deemed or taken to have under Sections 344 and 345 of the SFO) or the Model Code for Securities Transactions by Directors of Listed Companies, or which would have to be, pursuant to Section 352 of the SFO, entered in the register referred to therein:

Long positions in ordinary shares of the Company

		Number of shares held, capacity and nature	Number of shares held, capacity and nature	Number of shares held, capacity and nature	of interest
								Percentage
								of the
								Company’s
		Capacity/	Directly	Through				issued share
		Nature of	beneficially	controlled	Through			capital
Name of director	Notes	Interest	owned	corporations	spouse		Total	(%)
Mr. Tse Ping	(1)	Beneficial	45,000,000	1,035,488,908		–	1,080,488,908	47.73
		owner
Ms. Cheng Cheung	(2)	Deemed	–	– 1,080,488,908			1,080,488,908	47.73
Ling		interest
Mr. Tao Huiqi		Beneficial	6,000,000	–		–	6,000,000	0.27
		owner
Mr. Tse Hsin		Beneficial	26,896,000	–		–	26,896,000	1.19
		owner

Notes:

(1) Mr. Tse Ping held 1,035,488,908 shares through Remarkable Industries Limited and Validated Profits Limited. The entire issued share capital in each of these companies is owned by Mr. Tse Ping.
(2) Ms. Cheng Cheung Ling is the spouse of Mr. Tse Ping and is therefore deemed to be interested in the same shares in which Mr. Tse Ping has an interest.

– 39 –

GENERAL INFORMATION

APPENDIX I

Long position in shares of an associated corporation of the Company

				Percentage
	Name of			of
Name of	associated		Number of	shareholding
Director	corporation	Capacity	shares	(%)
Mr. Tse Hsin	JCTT (1)	Beneficial	173,250	0.18
		owner
	NJCTT (2)	Beneficial	39,592	0.78
		owner
Mr. Zhang	JCTT	Beneficial	173,250	0.18
Baowen		owner
	NJCTT	Beneficial	39,592	0.78
		owner
	LYG Tianqing (3)	Beneficial	18,624	1.92
		owner

Notes:

(1) JCTT is owned as to 60% by a wholly-owned subsidiary of the Company.

(2) NJCTT is owned as to 51% by JCTT.
(3) LYG Tianqing is a wholly-owned subsidiary of JCTT.

– 40 –

GENERAL INFORMATION

APPENDIX I

(ii) Save as disclosed below, the Directors or chief executive of the Company are not aware of any other person who (not being a Director or the chief executive of the Company), as at the Latest Practicable Date, had an interest or short position in the Shares or the 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 interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

Long position in shares and/or underlying shares

				Approximate
			Number of	percentage of
			shares and/or	issued share
			underlying	capital of the
		Capacity/Nature	shares of the	Company
Name	Notes	of interest	Company	(%)
Validated Profits Limited	(1)	Beneficial owner	795,488,908	35.14
Remarkable Industries	(1)	Beneficial owner	240,000,000	10.60
Limited
The Goldman Sachs Group,	(2)	Interest of a	203,576,000	8.99
Inc.		controlled
		corporation
Conspicuous Group		Beneficial owner	142,431,091	6.29
Limited
Chia Tai Development	(3)	Interest of a	142,431,091	6.29
Investment Company		controlled
Limited		corporation
Mr. Dhanin Chearavanont	(4)	Interest of a	142,431,091	6.29
		controlled
		corporation

Notes:

(1) Each of Validated Profits Limited and Remarkable Industries Limited is an investment holding company wholly-owned by Mr. Tse Ping who is also the sole director of each of these companies and a Director.
(2) The 203,576,000 shares were held by Goldman Sachs (Asia) Finance (“ Goldman Finance ”). Based on the disclosure of interests filing received by the Company, Goldman Finance is a controlled corporation of Goldman Sachs (Asia) Finance Holdings L.L.C., which in turn is a controlled corporation of Goldman Sachs & Co., which in turn is a controlled corporation of The Goldman Sachs Group, Inc., all of which are deemed under the SFO to be interested in the same 203,576,000 shares.

– 41 –

GENERAL INFORMATION

APPENDIX I

(3) Chia Tai Development Investment Company Limited (“ CT Development ”) has declared an interest in the same 142,431,091 shares in which Conspicuous Group Limited has declared an interest, by virtue of its shareholding in Conspicuous Group Limited.
(4) Mr. Dhanin Chearavanont has declared an interest in the same 142,431,091 shares in which CT Development has declared an interest for the purpose of the SFO as mentioned in Note (3) above, by virtue of his shareholding in CT Development.

C. COMPETING INTEREST

The following Director is considered to have interests in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group, as defined in the Listing Rules.

Mr. Tse Ping owns controlling interests in (Hainan Tigerlily Pharmaceutical Co., Ltd.) (“ HTPC ”), ABH (ABH Nature’s Products Inc.) (“ ABH ”), Jiangsu Fenghai and Yancheng Suhai.

HTPC is a trading company engaged in the import and export of medicines, including vitamins, anti-biotics and gastro medicines from Europe, the United States, Korea and other countries. Mr. Tse Ping owns an indirect interest of 95% in HTPC through (Peacever Pharmaceutical Products Company Limited) whose sole asset and business is its holding of shares in HTPC.

ABH is principally engaged in the re-processing of natural medicines and vitamins in the United States. Mr. Tse Ping owns an indirect interest of 40% in ABH through Hong Kong Natural Products Company Limited whose sole asset and business is its holding of shares in ABH.

Jiangsu Fenghai is principally engaged in the manufacturing of pharmaceutical products for the treatment of bacterial, inflammatory and cardio cerebral diseases and raw materials. Jiangsu Fenghai is indirectly owned as to 51% by Mr. Tse Ping and 1.32% by Mr. Zhang Baowen.

Yancheng Suhai is principally engaged in the manufacturing of pharmaceutical products for the treatment of bacterial, inflammatory and cardio cerebral diseases and raw materials. Yancheng Suhai is indirectly owned as to 51% by Mr. Tse Ping and 1.32% by Mr. Zhang Baowen.

There is no law or regulation or agreement which prohibits or restricts the entry of the above enterprises into any business which may compete directly or indirectly with the Group. Mr. Tse Ping entered into a deed of non-competition undertaking in favour of the Company on 9 September, 2003 (the “ Undertaking ”) pursuant to which Mr. Tse Ping has undertaken to the Company that, for so long as (i) Mr. Tse Ping, together with his associates, shall remain beneficially interested, directly or indirectly, in shares with at least 30% of the voting rights of the Company (from time to time); and (ii) the shares of the Company shall remain traded on the Main Board of the Stock Exchange, neither Mr. Tse Ping nor any of the companies or other entities more than 50% of the issued shares of which or equity of other nature carrying voting rights of which are directly or indirectly owned by Mr. Tse Ping, or in respect of which Mr. Tse Ping is entitled to control the board of

– 42 –

GENERAL INFORMATION

APPENDIX I

directors or management body of similar nature will, within the PRC (including Hong Kong), carry on, or become engaged or otherwise become interested in, any business which falls within the definition of “Restricted Business”, which is defined to mean:–

(i) the research and development, production and sale of biopharmaceutical products for the medical treatment of ophthalmia and osteoarthritis, biopharmaceutical products for external use for the medical treatment of skin disease, modernized Chinese medicines, chemical medicines and modern health-care products or the medical treatment of hepatitis and angiopathy of cardio-cerebral; and
(ii) the research and development of new medicines and modern health-care products for the medical treatment of cardiovascular and respiratory disease.

To date, none of the above enterprises carries on or has become engaged or otherwise become interested in any “Restricted Business”.

Apart from the information disclosed above, none of the Directors have interests in businesses which compete or is likely to compete with the business of the Group.

D. INTEREST IN CONTRACTS

Save as disclosed below, as at the Latest Practicable Date, none of the Directors had any material interest in any contract or arrangement which is significant in relation to the business of the Group:

Pursuant to a lease agreement between Ledo Properties Limited, a company in which Mr. Tse Ping (the Chairman of the Company) and his wife Ms. Cheng Cheung Ling, each owns 50% shareholdings, and the Company dated 8 September 2000 and a supplemental lease agreement dated 1 June, 2006, Ledo Properties Limited has agreed to lease to the Company an office premises situated at Unit F (also known as Unit 09), 41st Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Wanchai, Hong Kong. The premises has a saleable area of 1,547 sq.ft. and is leased to the Company on normal commercial terms for a fixed term of two years from 1 June, 2006 to 31 May, 2008. The total annual rental amounts to HK$780,000 with monthly rental of HK$65,000. All monthly rentals are exclusive of rates and management fees. The Company is required to pay a monthly management fee of HK$9,486.
Pursuant to a master supply agreement between Jiangsu Fenghai and LYG Tianqing dated 18 September, 2006, LYG Tianqing has agreed to purchase anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines from Jiangsu Fenghai, a company owned as to 51% by Ace Elite, which is wholly-owned by Mr. Tse Ping. The term of this agreement is from 18 September, 2006 to 31 December, 2007. The proposed caps under the agreement for the three and a half month period from 18 September, 2006 to 31 December, 2006 and for the financial year ending 31 December, 2007 will not exceed RMB750,000 and RMB1,800,000, respectively.

– 43 –

APPENDIX I

GENERAL INFORMATION

Mr. Tse Ping owns an approximately 80% shareholding interest in (Chia Tai Coal Chemical Limited), which holds a 29% equity

interest in (Shaanxi New Coal Chemical Science and Technology Development Co., Ltd.) (“ SNC ”), a party under the agreement dated 30 August, 2006 entered into between (Chia Tai Refined Chemical Industry Limited) (“ CTRC ”), a wholly-owned subsidiary of the Company, (Shaanxi Coal Chemical Industry Limited) (“ SCC ”), (Shaanxi Province Investment Group Limited) (“ SPI ”) and SNC for the establishment of (Shaanxi Xinxing Energy Chemical Industry Limited) (“ Shaanxi Energy ”).

Ace Elite is wholly-owned by Mr. Tse Ping. Pursuant to the Jiangsu Fenghai New JV Contract and the Jiangsu Fenghai Capital Increase Agreement entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT, a non-wholly owned subsidiary of the Company, JCTT conditionally agreed to make a total amount of RMB48,404,000 to be contributed by JCTT, out of which the RMB equivalent amount of US$4,773,500 would be contributed to the registered capital of Jiangsu Fenghai with the remaining balance to be contributed to the capital reserve.
Ace Elite is wholly-owned by Mr. Tse Ping. Pursuant to the Yancheng Suhai New JV Contract and the Yancheng Suhai Capital Increase Agreement entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT, a non-wholly owned subsidiary of the Company, JCTT conditionally agreed to make an aggregate amount of RMB4,731,900 and RMB1,818,100 to be contributed by JCTT to the increased capital and capital reserve of Yancheng Suhai respectively.
Pursuant to a new master supply agreement between Jiangsu Fenghai and LYG Tianqing dated 9 November, 2007, LYG Tianqing has agreed to purchase anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines from Jiangsu Fenghai, a company owned as to 51% by Ace Elite, which is wholly-owned by Mr. Tse Ping. The term of this agreement is from 1 January, 2008 to 31 December, 2010. The proposed caps under the agreement for the three financial years ending 31 December, 2010 will not exceed RMB5,000,000 and RMB7,000,000 and RMB9,000,000 respectively.

E. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors or Kingsway had any direct or indirect interest in any asset which has been acquired or disposed of by or leased to any member of the Group since 31 December, 2006 (the date to which the latest published audited consolidated financial statements of the Group were made up to) or proposed to be so acquired, disposed of or leased to any member of the Group.

– 44 –

GENERAL INFORMATION

APPENDIX I

F. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into or proposed to enter into a service contract with any members of the Group which is not expiring or determinable by the relevant employer within one year without payment of compensation (other than statutory compensation).

G. MATERIAL LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claim of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened against any member of the Group.

H. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading positions of the Group since 31 December, 2006 (the date to which the latest published audited consolidated accounts of the Group were made up).

I. QUALIFICATION AND CONSENT OF EXPERT

The following are the qualifications of the expert (the “ Expert ”) who has given its letters for the inclusion in this circular:

		Nature of	Date of
Name	Qualifications	opinion or advice	opinion
Kingsway	A licensed corporation	Letter to the	30 November,
	under the SFO licensed	Independent Board	2007
	to carry out Type 6	Committee and the
	(advising on corporate	Independent
	finance) regulated	Shareholders
	activity (as defined
	under the SFO)

The Expert has given and has not withdrawn its written consents to the issue of this circular with the inclusion of its letter and references to its names in the form and context in which they respectively appear.

As at the Latest Practicable Date, the Expert did not have any shareholding in the Company or any other member of the Group or the right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in the Company or any other member of the Group.

– 45 –

GENERAL INFORMATION

APPENDIX I

J. MATERIAL CONTRACTS

Apart from those disclosed below, the Company has not entered into any material contracts, not being contracts entered into in the ordinary course of business, which were entered into by the Group within the two years immediately preceding the Latest Practicable Date:

(i) a joint venture agreement dated 30 August, 2006 (the “ Shaanxi Xinxing Energy JV Agreement ”) entered into between CTRC, SCC, SPI and SNC for the establishment of Shaanxi Energy. Pursuant to the terms and conditions of the Shaanxi Xinxing Energy JV Agreement, Shaanxi Energy is owned as to 43% by CTRC, 36% by SCC, 16% by SPI and 5% by SNC upon establishment. The registered capital of Shaanxi Xinxing Energy is RMB1,750,000,000 which was contributed as to RMB752,500,000 by CTRC, RMB630,000,000 by SCC, RMB280,000,000 by SPI and RMB87,500,000 by SNC, in proportion to their respective equity interests in the Shaanxi Energy;
(ii) an acquisition agreement dated 10 May, 2007 entered into between Chia Tai Pharmaceutical (Lianyungang) Company Limited (“ CTL ”) and Golden Bloom Pharmaceutical Company Limited (“ Golden Bloom ”) whereby CTL has agreed to acquire and Golden Bloom has agreed to sell 4.6% equity interests in the registered capital of NJCTT for a consideration of US$303,200;
(iii) a share transfer agreement dated 10 May, 2007 entered into between (Beijing Chia Tai Green Continent Pharmaceutical
Co., Ltd.) (“ CT Green Continent ”), (Jiangsu Juxin Investment Management Corporation Limited) (“ Jiangsu Juxin ”) and (Huaian Hongda Investment Consulting Centre) (“ Huaian
Hongda ”) (as the vendors) and (Fine Enterprise Investment Limited) (“ Fine Enterprise ”) (as the purchaser) in relation to the acquisition of 20%, 16.8% and 0.48% equity interest in the registered capital of (Jiangsu Qingjiang Pharmaceutical Co., Ltd.) (“ Jiangsu
Qingjiang ”) held by CT Green Continent, Jiangsu Juxin and Huaian Hongda, respectively by Fine Enterprise;
(iv) a new joint venture contract of Jiangsu Qingjiang dated 10 May, 2007 (“ New Jiangsu Qingjiang JV Contract ”) entered into between Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda for the capital contribution to Jiangsu Qingjiang. Pursuant to the terms and conditions of the New Jiangsu Qingjiang JV Contract, Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda have agreed to contribute to the total investment value of RMB40,000,000 in proportion to their respective interest in the enlarged registered capital by way of injection of their share of assets in Jiangsu Qingjiang as represented by their respective equity interests in the then existing registered capital of Jiangsu Qingjiang and cash of an amount being the balance of their respective required contribution over their share of assets in Jiangsu Qingjiang. The amount of cash contribution by each of Fine Enterprise, Jiangsu Agribusiness and Huaian Hongda is RMB10,530,000, RMB77,000 and RMB50,000 respectively;

– 46 –

GENERAL INFORMATION

APPENDIX I

(v) the Jiangsu Fenghai New JV Contract;
(vi) the Jiangsu Fenghai Capital Increase Agreement;
(vii) the Yancheng Suhai New JV Contract; and
(viii) the Yancheng Suhai Capital Increase Agreement.

K. GENERAL

(i) Save as disclosed under the section “Interest in Contracts” in this circular, as at the Latest Practicable Date, none of the Directors was materially interested in any subsisting contract or arrangement which is significant to the business of the Group.
(ii) The secretary of the Company is Ms. Leung Sau Fung, Fanny. Ms. Leung is an associate member of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.
(iii) The qualified accountant of the Company is Ms. Yu Chau Ling. Ms. Yu is a fellow member and an associate member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants, respectively.
(iv) The Company’s registered office is at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies.

The principal place of business of the Company in Hong Kong is Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

(v) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(vi) The English text of this circular shall prevail over the Chinese text.

L. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong up to and including 18 December, 2007:

(i) the letter from the Independent Board Committee, the text of which is set out on pages 20 to 21 of this circular;
(ii) the letter from Kingsway, the text of which is set out on pages 22 to 38 of this circular;

– 47 –

GENERAL INFORMATION

APPENDIX I

(iii) the written consent of Kingsway referred to in paragraph headed “Qualification and Consent of Expert” in this Appendix;
(iv) the Jiangsu Fenghai New JV Contract, the Jiangsu Fenghai New Articles, the Jiangsu Fenghai Capital Increase Agreement, the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles, the Yancheng Suhai Capital Increase Agreement, the New NJCTT Master Supply Agreement and the New Jiangsu Fenghai Master Supply Agreement; and
(v) the contracts referred to under the paragraph headed “Material Contracts” in this Appendix.

– 48 –

NOTICE OF EGM

==> picture [236 x 88] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) Website: www.sinobiopharm.com (Stock code: 1177)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Sino Biopharmaceutical Limited ( ) (the “ Company ”) will be held at 10:00 a.m. on Tuesday, 18 December, 2007 at 7th Floor, Board Room, The Dynasty Club Limited, South West Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions:

ORDINARY RESOLUTIONS

1. “ THAT :

(a) the new joint venture contract of (Jiangsu Fenghai Pharmaceutical Co., Ltd.) (“ Jiangsu Fenghai ”) dated 9 November, 2007 (the “ Jiangsu Fenghai New JV Contract ”) entered in between (Ace Elite Investments Limited) (“ Ace Elite ”), (Jiangsu State Agribusiness Group Corporation Limited) (“ Jiangsu Agribusiness ”), (Da Feng Hang Chang Consultation Centre) (“ Da Feng Hang Chang ”) and (Jiangsu Chia Tai-Tianqing Pharmaceutical Co., Ltd.) (“ JCTT ”) (a copy of which marked “A” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose), the new articles of association of Jiangsu Fenghai dated 9 November, 2007 (the “ Jiangsu Fenghai New Articles ”) entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT (a copy of which marked “B” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose) and the capital increase agreement of Jiangsu Fenghai dated 9 November, 2007 (the “ Jiangsu Fenghai Capital Increase Agreement ”) entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT (a copy of which marked “C” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose), pursuant to which JCTT shall make capital contribution of the aggregate amount of RMB48,404,000 (approximately HK$49,437,000) to the registered capital and capital reserve of Jiangsu Fenghai and further particulars of which are set out in the circular of the Company dated 30 November, 2007 (a copy of which marked “D” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose) (the “ Circular ”) and the transactions contemplated under the Jiangsu Fenghai New JV Contract, the Jiangsu

– 49 –

NOTICE OF EGM

Fenghai New Articles and the Jiangsu Fenghai Capital Increase Agreement and the implementation thereof be and are hereby approved, ratified and confirmed; and

(b) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is hereby authorised for and on behalf of the Company to do all such acts and things deemed by him to be incidental to, ancillary to, or in connection with the matters contemplated in the Jiangsu Fenghai New JV Contract, the Jiangsu Fenghai New Articles and the Jiangsu Fenghai Capital Increase Agreement.”
“ THAT :
(a) the new joint venture contract of (Yancheng Suhai Pharmaceutical Co., Ltd.) (“ Yancheng Suhai ”) dated 9 November, 2007 (the “ Yancheng Suhai New JV Contract ”) entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT (a copy of which marked “E” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose), the new articles of association of Yancheng Suhai dated 9 November, 2007 (the “ Yancheng Suhai New Articles ”) entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT (a copy of which marked “F” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose) and the capital increase agreement of Yancheng Suhai dated 9 November, 2007 (the “ Yancheng Suhai Capital Increase Agreement ”) entered into between Ace Elite, Jiangsu Agribusiness, Da Feng Hang Chang and JCTT (a copy of which marked “G” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose), pursuant to which JCTT shall make capital contribution of the aggregate amount of RMB4,731,900 (approximately HK$4,833,000) and RMB1,818,100 (approximately HK$1,857,000) to the registered capital and capital reserve of Yancheng Suhai respectively and further particulars of which are set out in the Circular and the transactions contemplated under the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles and the Yancheng Suhai Capital Increase Agreement and the implementation thereof be and are hereby approved, ratified and confirmed; and
(b) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is hereby authorised for and on behalf of the Company to do all such acts and things deemed by him to be incidental to, ancillary to, or in connection with the matters contemplated in the Yancheng Suhai New JV Contract, the Yancheng Suhai New Articles and the Yancheng Suhai Capital Increase Agreement.”

– 50 –

NOTICE OF EGM

“ THAT :
(a) the master supply agreement (the “ New NJCTT Master Supply Agreement ”) dated 9 November, 2007 entered into between (Nanjing Chia Tai Tianqing Pharmaceutical Co.,
Ltd.) and (Lianyungang Chia Tai Tianqing Medicine Co., Ltd.), a copy of which marked “H” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose, in relation to the sale and distribution on an ongoing basis of cardio-cerebral medicines and anti-bacterial and anti-inflammatory medicines, and the terms of and the transactions contemplated under the New NJCTT Master Supply Agreement and the implementation thereof be and are hereby approved, ratified and confirmed;
(b) the proposed caps in relation to the transactions under the New NJCTT Master Supply Agreement for the financial years ending 31 December, 2008, 31 December, 2009 and 31 December, 2010 in the amounts of RMB20,000,000 (approximately HK$20,427,000), RMB25,000,000 (approximately HK$25,534,000) and RMB30,000,000 (approximately HK$30,640,000) respectively be and are hereby approved; and
(c) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/ them to be incidental to, ancillary to or in connection with the matters contemplated in the New NJCTT Master Supply Agreement.”
“ THAT :
(a) the master supply agreement (the “ New Jiangsu Fenghai Master Supply Agreement ”) dated 9 November, 2007 entered into between (Jiangsu Fenghai Pharmaceutical Co., Ltd.) and (Lianyungang Chia Tai Tianqing Medicine Co.,
Ltd.), a copy of which marked “I” is tabled at the meeting and initialed by the chairman of the meeting for identification purpose, in relation to the sale and distribution on an ongoing basis of anti-bacterial and anti-inflammatory medicines and cardio-cerebral medicines, and the terms of and the transactions contemplated under the New Jiangsu Fenghai Master Supply Agreement and the implementation thereof be and are hereby approved, ratified and confirmed;
(b) the proposed caps in relation to the transactions under the New Jiangsu Fenghai Master Supply Agreement for the financial years ending 31 December, 2008, 31 December, 2009 and 31 December, 2010 in the amounts of RMB5,000,000 (approximately HK$5,107,000), RMB7,000,000 (approximately HK$7,149,000) and RMB9,000,000 (approximately HK$9,192,000) respectively be and are hereby approved; and

– 51 –

NOTICE OF EGM

(c) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/ them to be incidental to, ancillary to or in connection with the matters contemplated in the New Jiangsu Fenghai Master Supply Agreement.”

By Order of the Board Leung Sau Fung, Fanny Company Secretary

Hong Kong, 30 November, 2007

Notes:

A shareholder entitled to attend and vote at the meeting convened by the above notice is entitled to appoint proxies to attend and vote in his stead. A proxy need not be a shareholder of the Company.
In order to be valid, the form of proxy must be deposited at the principal place of business of the Company at Unit 09, 41st Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a certified copy of that power of attorney or authority not less than 48 hours before the time appointed for the holding of the meeting.
Pursuant to Article 66 of the Articles of Association of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on withdrawal of any other demand for a poll) a poll is demanded:
(a) by the chairman of the meeting; or
(b) by at least three shareholders present in person or in the case of a shareholder being a corporation by its duly authorized representative or by proxy for the time being entitled to vote at the meeting; or
(c) by any shareholder or shareholders present in person or in the case of a shareholder being a corporation by its duly authorized representative or by proxy and representing not less than one-tenth of the total voting rights of all shareholders having the right to attend and vote at the meeting; or
(d) by a shareholder or shareholders present in person or in case of a shareholder being a corporation by its duly authorized representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all shares conferring that right; or
(e) by any of the Directors who individually or collectively (including the chairman of the relevant meeting of the Company) hold proxies in respect of shares representing 5% of more of the total voting rights at a particular meeting of the Company, and if on a show of hands such meeting votes in the opposite manner to that instructed in those proxies, such Directors shall have the right to demand a poll. If a poll is required under these circumstances, the chairman of the meeting should disclose to the meeting of the Company the total number of votes represented by all proxies held by Directors indicating an opposite vote to the votes cast at the meeting on a show of hands.

– 52 –

AI assistant

Sinco Pharmaceuticals Holdings Limited — Proxy Solicitation & Information Statement 2007

51056_rns_2007-11-29_60f3daea-4502-44df-b8f5-9f08022126ef.pdf

CONNECTED AND DISCLOSEABLE TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Stock Code: 1177)

Independent non-executive Directors:

CONNECTED AND DISCLOSEABLE TRANSACTIONS

AND

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

THE CAPITAL CONTRIBUTIONS

Parties:

Capital Contribution to Jiangsu Fenghai

Condition

Board composition of Jiangsu Fenghai

Information on Jiangsu Fenghai

LETTER FROM THE BOARD

B. THE YANCHENG SUHAI NEW JV CONTRACT, THE YANCHENG SUHAI NEW ARTICLES AND THE YANCHENG SUHAI CAPITAL INCREASE AGREEMENT

Parties:

Capital Contribution to Yancheng Suhai

Condition

Board composition of Yancheng Suhai

Information on Yancheng Suhai

LETTER FROM THE BOARD

NEW CONTINUING CONNECTED TRANSACTIONS

A. NEW NJCTT MASTER SUPPLY AGREEMENT

Parties:

Subject matter

Term

Sale prices

Caps

B. NEW JIANGSU FENGHAI MASTER SUPPLY AGREEMENT

Parties:

Subject matter

Term

Sale prices

Caps

INFORMATION ON LYG TIANQING

REASONS FOR THE CAPITAL CONTRIBUTIONS AND THE NEW CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

EFFECT OF THE CAPITAL CONTRIBUTIONS

IMPLICATIONS UNDER THE LISTING RULES

Existing Shareholding Structure and Relationship

Connected and Discloseable Transactions

LETTER FROM THE BOARD

Continuing Connected Transactions

EGM

RECOMMENDATION

FURTHER INFORMATION

CONNECTED AND DISCLOSEABLE TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Yours faithfully, For and on behalf of the Independent Board Committee

Kingsway Capital Limited

30 November 2007

CONNECTED AND DISCLOSEABLE TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM KINGSWAY

BASIS OF OUR OPINION

A. THE CAPITAL CONTRIBUTIONS

PRINCIPAL REASONS AND FACTORS CONSIDERED

I. Background to and reasons for the Jiangsu Fenghai Capital Contribution and the Yancheng Suhai Capital Contribution

LETTER FROM KINGSWAY

II. Principal terms of the Capital Contributions

Amount of capital contribution

LETTER FROM KINGSWAY

Basis of capital contribution

Amount of capital contribution

LETTER FROM KINGSWAY

Basis of capital contribution

III. Price-to-earnings (P/E) ratio analysis

LETTER FROM KINGSWAY

LETTER FROM KINGSWAY

IV. Financial effects of the Capital Contributions

Sinco Pharmaceuticals Holdings Limited Proxy Solicitation & Information Statement 2007