Smart Fish Wealthlink Holdings Limited — Proxy Solicitation & Information Statement 2006

Feb 16, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

**CHINA ELECTRONICS CORPORATION HOLDINGS COMPANY LIMITED ***

(Incorporated in the Cayman Islands and continued in Bermuda with limited liability)

(Stock Code: 0085)

CONTINUING CONNECTED TRANSACTIONS

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

A letter from the independent board committee of the Company is set out on page 9 of this circular. A letter from Altus Capital Limited, the independent financial adviser, containing its advice to the independent board committee and the independent shareholders of the Company is set out on pages 10 to 14 of this circular.

16 February 2006

* For identification purpose only

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Maintenance Services Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Proposed Cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Reasons for Entering into the Maintenance Services Agreement . . . . . . . . . . . .	5
Listing Rules Implications and Written Shareholder’s Approval . . . . . . . . . . . . .	6
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from Altus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15

– i –

DEFINITIONS

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

“Altus”	Altus Capital Limited, a licensed corporation to carry out
	type 4 (advising on securities), type 6 (advising on
	corporate finance) and type 9 (asset management)
	regulated activities under the SFO, the independent
	financial adviser to the Independent Board Committee
	and the independent Shareholders in respect of the terms
	of the Continuing Connected Transactions
“Board” “CEC”	the board of Directors (China Electronics Corporation), the controlling Shareholder holding
	74.98% interest in the Company
“Company”	China Electronics Corporation Holdings Company
	Limited
“Continuing Connected	the provision of mobile handsets maintenance services
Transactions”	pursuant to the Maintenance Services Agreement
“Directors”	the directors of the Company
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Board Committee”	the committee of the Board, consisting of Messrs. Chan
	Kay Cheung, Wong Po Yan and Yin Yongli, independent
	non-executive Directors, formed to advise the
	independent Shareholders in respect of the Continuing
	Connected Transactions
“Latest Practicable Date”	14 February 2006, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on The
	Stock Exchange of Hong Kong Limited

– 1 –

DEFINITIONS

“Options”	option(s) which have been granted under the Company’s
	share option scheme approved and adopted by
	Shareholders on 20 June 2002
“Philips China”	Philips (China) Investment Company Limited, a member
	of the Philips Group
“Philips Group”	Koninklijke Philips Electronics N.V., a company listed on
	New York and the Amsterdam stock exchanges, together
	with its affiliated companies
“PRC”	the People’s Republic of China
“Purchasing Agreement”	the general purchasing agreement dated 13 July 2005
	entered into between Sang Fei and Philips Consumer
	Electronics International B.V.
“Maintenance Services	the maintenance services agreement dated 21 January
Agreement”	2006 entered into between Sang Fei and Philips China
“RMB” “Sang Fei”	Renminbi, the lawful currency of the PRC (Shenzhen Sang Fei
	Consumer Communications Company Limited), a sino-
	foreign equity joint venture company established in the
	PRC and owned as to 65% by the Company, 25% by the
	Philips Group and 10% by (Shenzhen SED Industry Co., Ltd)
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Share(s)”	share(s) of HK$ 0.01 each in the share capital of the
	Company
“Shareholder(s)”	shareholder(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“%”	per cent.

For the purpose of this circular, unless otherwise specified, conversions of Renminbi into Hong Kong dollars are based on the exchange rate of RMB1.04 to HK$1.00. The translations are not representations that the Renminbi and Hong Kong dollar amounts could actually be converted at such rate, if at all.

– 2 –

LETTER FROM THE BOARD

**CHINA ELECTRONICS CORPORATION HOLDINGS COMPANY LIMITED ***

(Incorporated in the Cayman Islands and continued in Bermuda with limited liability)

(Stock Code: 0085)

Non-executive Directors:

Yang Xiaotang (Chairman) Tong Baoan (Vice Chairman)

Executive Directors:

Fan Qingwu (Managing Director) Hua Longxing

Independent Non-executive Directors:

Chan Kay Cheung Wong Po Yan Yin Yongli

Registered office:

Clarendon House 2 Church Street Hamilton, HM 11 Bermuda

Principal place of business in Hong Kong:

Room 908, 9th Floor Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong

16 February 2006

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

On 25 January 2006, the Board announced that the Company’s principal operating subsidiary, Sang Fei, has on 21 January 2006 entered into the Maintenance Services Agreement with Philips China. Philips China is a member of the Philips Group and is a connected person to the Company by virtue of the Philips Group being a substantial shareholder of Sang Fei. Pursuant to the Maintenance Services Agreement, Sang Fei will provide mobile handsets maintenance services to Philips China.

The purpose of this circular is to provide you with further information relating to the Continuing Connected Transactions. An Independent Board Committee has been established to advise the independent Shareholders in respect of the Continuing Connected Transactions.

* For identification purpose only

– 3 –

LETTER FROM THE BOARD

The recommendation of the Independent Board Committee to the independent Shareholders is set out on page 9 of this circular. The letter of advice from Altus to the Independent Board Committee and the independent Shareholders is set out on pages 10 to 14 of this circular.

MAINTENANCE SERVICES AGREEMENT

Date : 21 January 2006

Parties : (i) Sang Fei; and

• (ii) Philips China

Major terms

1. Provision of mobile handsets maintenance services

Pursuant to the Maintenance Services Agreement, Sang Fei will provide mobile handsets maintenance services to Philips China.

2. Term of the agreement

Pursuant to the Maintenance Services Agreement, Sang Fei will provide mobile handsets maintenance services to Philips China for a term of one year commencing from 1 January 2006. During the term of the Maintenance Services Agreement, either party may give three months’ written notice to terminate the agreement. Upon the expiry of the term of the Maintenance Services Agreement, the agreement may be extended for one year unless either party objects.

3. Pricing terms

Sang Fei will charge the mobile handsets maintenance fees at the pre-agreed price per unit. Such pre-agreed price will comprise material costs, labour costs, other related costs (including but not limited to transportation costs and logistics costs) and Sang Fei’s service charge. The pre-agreed price is determined after arm’s length negotiations between the parties with reference to the estimated costs to be incurred by Sang Fei for the provision of the maintenance services plus a service charge which is determined in accordance with market rates.

PROPOSED CAP

Under the Purchasing Agreement, Sang Fei will, among other things, design, develop, manufacture and supply mobile handsets, MP3 players and other portable electronics products to the Philips Group. Sang Fei will also provide maintenance services for mobile handsets for the Philips Group within 15 days (inclusive) after the sale of the mobile handsets supplied by Sang Fei under the Purchasing Agreement. Based on Sang Fei’s discussions with the Philips

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LETTER FROM THE BOARD

Group on its estimated purchase volume from Sang Fei for Philips branded mobile handsets on a non-committed basis, the Directors expect from that for the financial year ending 31 December 2006, the aggregate sales value of Philips branded mobile handsets under the Purchasing Agreement will not exceed RMB6,235 million. Details of the Purchasing Agreement are set out in the circular dated 11 August 2005 of the Company.

The Maintenance Services Agreement extends the maintenance services to be provided by Sang Fei beyond 15 days after the sale of the mobile handsets to cover the whole warranty period of the mobile handsets.

The Directors expect that for the financial year ending 31 December 2006 the aggregate amount of consideration to be received by Sang Fei from Philips China for the provision of mobile handsets maintenance services under the Maintenance Services Agreement will not exceed RMB60 million (equivalent to approximately HK$57.7 million). The annual cap for the consideration to be received by Sang Fei from Philips China for the provision of mobile handsets maintenance services is therefore set at RMB60 million for the financial year ending 31 December 2006.

In arriving at the above estimation of the annual aggregate amount of consideration to be received by Sang Fei from Philips China for the provision of mobile handsets maintenance services, the Directors have made reference to Philips Group’s total sales of mobile handsets during the past 12 months, Philips Group’s budgeted purchase volume from Sang Fei for Philips branded mobile handsets and the anticipated demand for maintenance services on the basis of such historical sales volume and budgeted purchase volume, and the proportion of mobile handsets which have been repaired out of the total number of mobile handsets which have been sold.

In connection with the provision of the maintenance services, Sang Fei will obtain from Philips China their on-hand spare parts and mobile handsets for exchange with or replacement for mobile handsets repaired by Sang Fei (“ Service Materials ”) at a consideration of approximately RMB15 million. The prices of Service Materials to be purchased by Sang Fei from Philips China will be determined after arm’s length negotiations between the parties with reference to market rates. Such consideration will be covered by the annual cap of RMB1,875 million (equivalent to approximately HK$1,803 million) for the purchase of raw materials by Sang Fei from the Philips Group for the year ending 31 December 2006, which annual cap has been approved by Shareholders (the “ Approved Annual Cap ”). Details of the Approved Annual Cap are set out in the circular dated 11 August 2005 of the Company.

REASONS FOR ENTERING INTO THE MAINTENANCE SERVICES AGREEMENT

Since completion of the acquisition of a 65% equity interest in Sang Fei in September 2004, the Group has been principally engaging in the manufacture and sales of mobile handsets in the PRC. The Group’s objective is to become a leading consumer electronics and communications products and service provider in the PRC.

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LETTER FROM THE BOARD

Given its nine years’ experience in the manufacturing of mobile handsets, Sang Fei has already established a well-developed production and technical capability, which enables it to explore business opportunities in other mobile handsets related business. With the existing production capacity and technical capability, the Directors consider that Sang Fei should further leverage its competitive advantages in mobile handsets related business by further expanding its mobile handsets maintenance services business.

The Maintenance Services Agreement will extend Sang Fei’s existing cooperation with the Philips Group, and will provide Sang Fei and indirectly, the Company, with an additional source of revenue and enable the Group to further capitalise on the rapid growth of the global communications products market and to maximise the utilisation of the Group’s existing production capacity. The Directors consider that it is in the interests of the Company and the Shareholders to enter into the Maintenance Services Agreement which will enable Sang Fei to generate a relatively steady new stream of revenue from the maintenance of mobile handsets for Philips China.

LISTING RULES IMPLICATIONS AND WRITTEN SHAREHOLDER’S APPROVAL

Sang Fei is the principal operating subsidiary of the Company. The Philips Group owns 25% interest in Sang Fei. Philips China is a member of the Philips Group. Accordingly, Philips China is a connected person to the Company and the transactions contemplated under the Maintenance Services Agreement are continuing connected transactions of the Company. As the expected aggregate amount of consideration to be received by Sang Fei under the Maintenance Services Agreement on an annual basis will exceed the 2.5% threshold under Rule 14A.34 of the Listing Rules, the Continuing Connected Transactions constitutes non-exempt continuing connected transactions under Rule 14A.35 of the Listing Rules and will normally be subject to the requirements of reporting, announcement and approval by the independent Shareholders at a special general meeting as set out in Chapter 14A of the Listing Rules. In relation to the purchase of Service Materials, the consideration to be paid by Sang Fei to Philips China will be covered by the Approved Annual Cap.

However, as the Continuing Connected Transactons are between Sang Fei and Philips China only and Philips China is only a connected person to the Company by virtue of the Philips Group being a substantial shareholder of Sang Fei (to the best knowledge of the Directors, the Philips Group has no shareholding in the Company), no Shareholder is required to abstain from voting at any general meeting convened by the Company for the purpose of approving the Continuing Connected Transactions.

CEC, the controlling Shareholder holding 74.98% interest in the Company, has approved the Continuing Connected Transactions by way of written approval. Since the conditions under Rule 14A.43 of the Listing Rules are met, the Company has made an application to the Stock Exchange for a waiver from the requirement to convene a special general meeting for the approval of the Continuing Connected Transactions by the independent Shareholders.

– 6 –

LETTER FROM THE BOARD

GENERAL INFORMATION

The Company is an investment holding company. Its principal operating subsidiary, Sang Fei, is primarily engaged in the manufacturing and sales of mobile handsets and other portable electronics products in the PRC. The Philips Group is one of the world’s largest electronics companies and considers itself to be one of the global leaders in colour television sets, lighting, electric shavers, medical diagnostic and patient monitoring and one-chip TV products.

RECOMMENDATION

Altus has been appointed as the independent financial adviser to advise the Independent Board Committee and the independent Shareholders in respect of the Continuing Connected Transactions. Altus considers that the Continuing Connected Transactions are conducted in the ordinary and usual course of business of the Group and that the terms and conditions of the Maintenance Services Agreement and the proposed cap are on normal commercial terms, fair and reasonable and in the interests of the Group and the Shareholders as a whole. Altus would therefore advise the Independent Board Committee to recommend the independent Shareholders to vote in favour of the relevant resolution if a special general meeting were to be held in order to approve the Continuing Connected Transactions and the proposed cap.

The Board and the Independent Board Committee consider that the terms of the Maintenance Services Agreement have been determined on an arm’s length basis and the Continuing Connected Transactions will be conducted in the ordinary course of business of the Group and on normal commercial terms. Since Sang Fei has been manufacturing mobile handsets for the Philips Group under the Purchasing Agreement, Sang Fei possesses the expertise and competence to provide the maintenance service. In view that Sang Fei can obtain a profit margin by providing such services, the Board is of the view that the Continuing Connected Transactions are in the interest of the Company and the Shareholders as a whole. In view of the analysis stated above, the Board is of the view that the proposed cap for the annual aggregate amount of consideration to be received by Sang Fei from Philips China under the Maintenance Services Agreement for the financial year ending 31 December 2006 is fair and reasonable.

The Independent Board Committee, after considering the advice from Altus, concurs with the views of the Altus and the Board and considers that the terms of the Continuing Connected Transactions and the proposed cap are fair and reasonable, and that the Continuing Connected Transactions are in the interests of the Company and the Shareholders as a whole. The Independent Board Committee would therefore recommend the independent Shareholders to vote in favour of the relevant resolution if a special general meeting were to be held in order to approve the Continuing Connected Transactions and the proposed cap.

– 7 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the letter of the Independent Board Committee set out on page 9 of this circular, the letter set out on pages 10 to 14 of this circular from Altus, the independent financial adviser to the Independent Board Committee and the independent Shareholders in respect of the Continuing Connected Transactions, and to the additional information set out in the appendix to this circular.

Yours faithfully For and on behalf of the Board

China Electronics Corporation Holdings Company Limited Yang Xiaotang Chairman

– 8 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

**CHINA ELECTRONICS CORPORATION HOLDINGS COMPANY LIMITED ***

(Incorporated in the Cayman Islands and continued in Bermuda with limited liability)

(Stock Code: 0085)

16 February 2006

To the independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We have been appointed by the Board to advise you as to whether the terms of the Continuing Connected Transactions and the proposed cap are fair and reasonable, and whether the Continuing Connected Transactions are in the interests of the Company and the Shareholders as a whole. Details of the Continuing Connected Transactions are set out on pages 3 to 8 of the circular (the “ Circular ”) dated 16 February 2006 issued by the Company to the Shareholders of which this letter forms part. The terms defined in the Circular shall have the same meanings when used in this letter, unless the context otherwise requires.

We wish to draw your attention to the letter from the Board set out on pages 3 to 8 of the Circular and the letter of advice from Altus set out on pages 10 to 14 of the Circular.

We, after taking advice from Altus, concur with the views of Altus and consider that the Continuing Connected Transactions are on normal commercial terms and are conducted in the ordinary and usual course of business of the Group. We are also of the view that the terms of the Continuing Connected Transactions and the proposed cap are fair and reasonable, and that the Continuing Connected Transactions are in the interests of the Company and the Shareholders as a whole. We would therefore recommend the independent Shareholders to vote in favour of the relevant resolution if a special general meeting were to be held in order to approve the Continuing Connected Transactions and the proposed cap.

Yours faithfully

Independent Board Committee

Chan Kay Cheung Wong Po Yan

Yin Yongli

* For identification purpose only

– 9 –

LETTER FROM ALTUS

The following is the text of a letter received from Altus in respect of the Continuing Connected Transactions prepared for the purpose of incorporation in this circular:

8/F Hong Kong Diamond Exchange Building 8 Duddell Street, Central Hong Kong

The Independent Board Committee and independent Shareholders of

China Electronics Corporation Holdings Company Limited

Room 908, 9th Floor, Sun Hung Kai Centre, No. 30 Harbour Road, Wanchai, Hong Kong

16 February 2006

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to the circular to the Shareholders dated 16 February 2006 (the “Circular”) issued by the Company of which this letter forms part and to our appointment as independent financial adviser to the Independent Board Committee and the independent Shareholders in respect of the Continuing Connected Transactions. Details of the Continuing Connected Transactions are set out in the letter from the Board (“Board’s Letter”) contained in the Circular. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

The Independent Board Committee has been formed to advise the independent Shareholders in relation to the Continuing Connected Transactions and the proposed annual cap. According to the Board’s Letter, no Shareholder is required to abstain from voting at the general meeting for the purpose of approving the Continuing Connected Transactions. CEC, being the controlling Shareholder holding 74.98% interest in the Company, has approved the Continuing Connected Transactions by way of written approval. The Company has therefore applied to the Stock Exchange for a waiver from the requirement to convene a special general meeting to approve the Continuing Connected Transactions, pursuant to 14A.53 of the Listing Rules.

– 10 –

LETTER FROM ALTUS

BASIS OF OUR OPINION

In formulating our opinion, we have relied to a considerable extent on the information, statements, opinions and representations supplied to us by the Company and the Directors and we have assumed that all such information, statements, opinions and representations contained or referred to in the Circular were true and accurate and, unless otherwise stated, complete at the time they were made and continue to be true at the date of the Circular, and we have relied on the same. We have also assumed that all statements of belief, opinion and intention of the Directors as set out in the Board’s Letter in the Circular were reasonably made after due and careful inquiry. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and referred to in the Circular.

The Directors confirmed that they have provided us with all currently available information and documents which are available under present circumstances to enable us to reach an informed view and we have relied on the accuracy of the information contained in the Circular to provide a reasonable basis of our opinions. We have no reason to suspect that any material facts or information (which is known to the Company) have been omitted or withheld from the information supplied or opinions expressed in the Circular nor to doubt the truth and accuracy of the information and facts, or the reasonableness of the opinions expressed by the Company and the Directors, which have been provided to us. We have not, however, carried out any independent verification on the information provided to us by the Directors, nor have we conducted any form of independent in-depth investigation into the business and affairs or the prospects of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our advice in respect of the terms of the Continuing Connected Transactions, we have taken into account the following principal factors and reasons:

1. Background of the Maintenance Services Agreement

The Group has been principally engaged in the manufacturing and sales of mobile handsets in the PRC since the acquisition of a 65% equity interest in Sang Fei in September 2004. The Group’s objective is to become a leading consumer electronic and communications products and service provider in the PRC. Sang Fei has been engaging in the manufacturing of mobile handsets for the Philips Group since 1997.

The Philips Group is one of the world’s biggest electronics companies and considers itself to be one of the global leaders in colour television sets, lighting, electric shavers, medical diagnostic and patient monitoring and one-chip TV products. Pursuant to the Purchasing Agreement dated 13 July 2005, Sang Fei has agreed to, among other things, design, develop, manufacture and supply mobile handsets, MP3 players and other portable electronics products to the Philips Group. Sang Fei has been providing maintenance services for mobile handsets it supplied to the Philips Group under the Purchasing Agreement. Such maintenance services previously covers 15 days (inclusive) after the sale of the mobile handsets and such transaction

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LETTER FROM ALTUS

constituted a continuing connected transaction. The transaction and the relevant cap have been approved by CEC, being an independent and controlling Shareholder, by way of written approval and the Company has applied a waiver for strict compliance with Rule 14A.43 of the Listing Rules. Details of the Purchasing Agreement are set out in the announcement dated 20 July 2005 and the circular dated 11 August 2005 of the Company.

On 21 January 2006, Sang Fei entered into the Maintenance Services Agreement with Philips China so as to extend the period for maintenance services to be provided by Sang Fei beyond the aforesaid 15 days to cover the whole warranty period of the mobile handsets sold under the Purchasing Agreement.

2. Implications under the Listing Rules

Sang Fei is the principal operating subsidiary of the Company and the Philips Group owns 25% interest in Sang Fei. Accordingly, Philips China is a connected person to the Company. The transactions contemplated under the Maintenance Services Agreement, being the Continuing Connected Transactions, constitute non-exempt continuing connected transactions under the Listing Rules.

3. Reasons for the Continuing Connected Transactions

Sang Fei has been manufacturing mobile handsets for the Philips Group since 1997 and maintenance services have been provided as value-added services to the Philips Group since 2005. The Maintenance Services Agreement is for the purpose of extending the maintenance services to be provided by Sang Fei beyond the 15 days after its sale of mobile handsets to the Philips Group to cover the whole warranty period of the mobile handsets. Such extension enhances the cooperation and relationship between the Group and the Philips Group, which is the Group’s major customer. Leveraging on its knowledge and experience, it is therefore strategically sound and in the interest of the Company to continue to expand the scope of manufacturing related-services to the Philips Group.

Sang Fei currently provides maintenance service for mobile handsets which are returned by customers of the Philips Group within 15 days of sales. Thus, Sang Fei already has an existing operation with a team of personnel with expertise in the maintenance of the mobile handsets and the relevant equipment required for conducting such services and the existing tools and equipment for manufacturing of mobile handsets can also be used for the provision of maintenance services. The extension of scope under the Maintenance Services Agreement therefore does not entail significant addition and training of personnel nor purchase of additional equipment. In particular, it is noted that certain workflow for provision of maintenance services, such as materials planning, overlaps with Sang Fei’s manufacturing operations, giving rise to sharing of knowledge and cost savings. The Maintenance Services Agreement is therefore incidental to the ordinary course of business of the Group and enables Sang Fei to further leverage on its competitive advantages and to further expand its mobile handsets related businesses. Based on our discussions with the management of Sang Fei, the resources required for the provision of maintenance services are expected to take up not more

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LETTER FROM ALTUS

than 2% of the Group’s existing manufacturing resources and its current facilities and resources are sufficient for the extension of maintenance services to the Philips Group pursuant to the Maintenance Services Agreement.

According to the management of Sang Fei, seasonal increase in man power requirements such as during peak seasons, if any, could be fulfilled by internal transfer of staffs with relevant expertise as staffs of the manufacturing operations possess technical skills which are also applicable to the provision of maintenance services. With such facilities and expertise already in place, the Maintenance Services Agreement therefore provides Sang Fei with additional sources of revenue without it having to incur substantial costs.

Based on the above, we consider that it is in the interests of the Group and the Shareholders for Sang Fei to enter into the Maintenance Services Agreement. We are of the view that the reasons for entering into the Maintenance Services Agreement are fair and reasonable.

4. Basis of determining the price

The product maintenance fees charged by Sang Fei will be based on a pre-agreed price per unit and the actual fees paid to Sang Fei will depend on the actual number of mobile handsets which have been repaired by Sang Fei. The pre-agreed price is determined after taken into account material costs, labour costs and other related costs (including but not limited to transportation costs and logistics costs) and Sang Fei’s service charge.

The transactions under the Maintenance Services Agreement will be conducted on normal commercial terms, which are determined on an arm’s length basis. According to the management of Sang Fei, the basis of price charged by Sang Fei is comparable to that charged by the maintenance service provider previously engaged by the Philips Group. When determining the pre-agreed price per unit under the Maintenance Services Agreement, Sang Fei has taken into account the costs of personnel, materials and other related costs where it was allowed under the Maintenance Services Agreement to review the price on a quarterly basis so that Sang Fei will ensure such costs are fully recoverable. In addition, Sang Fei also has the right to negotiate for compensation from the Philips Group in certain circumstances of material costs overrun. We are of the view that the above may ensure Sang Fei to earn a reasonable margin from the provision of maintenance services to the Philips Group under the Maintenance Services Agreement, in addition to the benefit of enhancement of relationship with the Philips Group.

In view of the above, we consider that the basis for determining the price of maintenance services to be fair and reasonable to the Group.

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LETTER FROM ALTUS

5. Annual Cap

Pursuant to the Maintenance Services Agreement, Sang Fei will provide mobile handsets maintenance services to Philip China for a term of one year commencing from 1 January 2006. The annual cap for the Continuing Connected Transactions shall not exceed RMB60 million (equivalent to approximately HK$57.7 million) (“Annual Cap”).

The Annual Cap is determined taking into account the estimated maintenance orders from the Philips Group and the pre-agreed price per unit under the Maintenance Services Agreement. When estimating the maintenances orders, the Group has made reference to: (i) the Philips Group’s total sales of mobile handsets during the past 12 months; (ii) the Philips Group’s budgeted purchase volume from Sang Fei for Philips branded mobile handsets; and (iii) the anticipated demand for maintenance services with reference to historical and budgeted sales, and the historical return rate for maintenance of Philips branded mobile handsets manufactured by Sang Fei which have been sold.

When assessing the reasonableness of the Annual Cap, we have considered the historical maintenance orders requested by the Philips Group from other maintenance services provider as informed by Sang Fei, the Philips Group’s estimated maintenance orders and the pre-agreed price per unit under the Maintenance Services Agreement and also the expected growth in the Philips Group’s mobile handset sales, which is estimated based on the growth of its manufacturing orders to Sang Fei. Based on the above, we are of the view that the basis for determining the Annual Cap to be fair and reasonable.

CONCLUSION AND RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that the Continuing Connected Transactions are conducted in the ordinary and usual course of business of the Group. The terms and conditions of the Maintenance Services Agreement, including the Annual Cap are on normal commercial terms, fair and reasonable and are in the interest of the Group and the Shareholders as a whole. We would therefore advise the Independent Board Committee to recommend the independent Shareholders to vote in favour of the relevant resolutions, if a special general meeting were to be held in order to approve the Continuing Connected Transactions and the Annual Cap pertaining to the Maintenance Services Agreement.

Yours faithfully, For and on behalf of

Altus Capital Limited Sean Pey, Chang

Executive Director

– 14 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

As at Latest Practicable Date, the following Directors and chief executive of the Company had, or were deemed to have, interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were deemed or taken to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

Name of Directors Number and description of equity derivatives Yang Xiaotang 4,000,000 Options (Note) Tong Baoan 3,800,000 Options (Note) Fan Qingwu 3,600,000 Options (Note) Hua Longxing 3,600,000 Options (Note) Total	No. of underlying Shares involved in the Options 4,000,000 3,800,000 3,600,000 3,600,000 15,000,000	Approximate % of the issued capital of the Company 0.37% 0.35% 0.33% 0.33%
		1.38%

Note:

The Options were all granted on 25 October 2005 under the share option scheme approved and adopted by the Shareholders on 20 June 2002. The Options represent personal interest held by the Directors as beneficial owners. Grantees of such Options are entitled to exercise the Options at a price of HK$1.488 per Share in the following periods:

• (i) in respect of 40% of the Options granted, from 1 November 2005 to 31 October 2008;

• (ii) in respect of a further 30% of the Options granted, from 1 November 2006 to 31 October 2009; and

(iii) in respect of the remaining 30% of the Options granted, from 1 November 2007 to 31 October 2010.

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APPENDIX

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were deemed or taken to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

Mr. Tong Baoan, the Vice Chairman of the Company and a non-executive Director, is a director of CEC. Messrs. Yang Xiaotang, the Chairman of the Company and a non-executive Director, Tong Baoan and Fan Qingwu, the Managing Director and an executive Director, are the directors of China Electronics Corporation (BVI) Holdings Company Limited (“ CEC (BVI) ”). Details of the shareholding of CEC and CEC (BVI) in the Company are set out in the paragraph headed “Substantial Shareholders” in this Appendix. Save as disclosed herein, none of the Directors is a director or employee of a company which has, or is deemed to have, an interest or a short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

None of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group taken as a whole.

Since 31 December 2004, being the date to which the latest published audited consolidated financial statements of the Group were made up, up to the Latest Practicable Date, none of the Directors nor Altus had any direct or indirect material interest in any assets which had been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

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GENERAL INFORMATION

APPENDIX

3. SUBSTANTIAL SHAREHOLDERS

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following persons had, or were deemed to have, interests or short positions in the Shares and the underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

		Approximate percentage
		or attributable
	Number or	percentage of total
	attributable number	issued share capital of
Name of Shareholder	of Shares held	the Company
CEC (BVI)	812,500,000	74.98%
CEC (Note 1)	812,500,000	74.98%
Devon Fortune Limited	91,421,608	8.43%
(“Devon Fortune”)
Chan Chak Shing	95,546,608 (Note 2)	8.81%

Notes:

• (1) CEC (BVI) is a wholly-owned subsidiary of CEC. Accordingly, CEC is deemed to be interested in the 812,500,000 Shares owned by CEC (BVI).

• (2) These 95,546,608 Shares represent the aggregate of: (i) the family interest of Mr. Chan Chak Shing of 4,125,000 Shares and (ii) the corporate interest of 91,421,608 Shares held by Devon Fortune. As Mr. Chan Chak Shing holds 100% interest in Devon Fortune, the interests of Devon Fortune are deemed to be the interests of Mr. Chan Chak Shing.

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following corporations were, directly or indirectly, interested 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 member of the Group:

Name of subsidiary	Name of shareholder	Interest held
Sang Fei	Members of the Philips Group	25%
Sang Fei	Shenzhen SED Industry Co., Ltd. (Note 3)	10%
Note:

(3) Shenzhen SED Industry Co., Ltd. is a company established in the PRC whose A shares are listed on the Shenzhen Stock Exchange and is indirectly owned as to approximately 55.34% by CEC as at the Latest Practicable Date.

Save as disclosed above, there is no person known to the Directors or the chief executive of the Company who, as at the Latest Practicable Date, had, or was deemed to have, an interest or short position in the Shares and the underlying Shares which would fall to be disclosed to

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GENERAL INFORMATION

APPENDIX

the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested 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 member of the Group, or any options in respect of such capital.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into, or proposed to enter into, any service contracts with the Company or any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

5. COMPETING INTEREST

Mr. Tong Baoan, the Vice Chairman of the Company and a non-executive Director, is a director of CEC, the President and legal representative of China Electronics Industry Corporation and the Chairman of Shenzhen SED Industry Co., Ltd. Mr. Fan Qingwu, the Managing Director and an executive Director, is the Vice President of China Electronics Industry Corporation.

Currently, CEC, China Electronics Industry Corporation and Shenzhen SED Industry Co., Ltd. are engaging, or having subsidiaries or associates which are engaging, in mobile handset related businesses which compete or are likely to compete, either directly or indirectly, with the business of the Group.

The abovementioned competing businesses are operated and managed by independent management and administration. In addition, the Directors consider that the business model of, and the markets served by, the Group are different from those of the abovementioned competing businesses. The Board can exercise independent judgment and is always acting for the interests of the Company and the Shareholders as a whole. Accordingly, the Group is capable of carrying on its business independently of, and at arm’s length from, the competing businesses mentioned above.

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, being the date to which the latest published audited consolidated financial statements of the Group were made up.

7. CONSENT AND QUALIFICATIONS OF EXPERT

Altus is a licensed corporation for types 4, 6 and 9 regulated activities under the SFO. Altus has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter of advice and references to its name in the form and context in which they respectively appear.

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GENERAL INFORMATION

APPENDIX

Altus is not beneficially interested in the share capital of any member of the Group and it does not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at Linklaters, 10th Floor, Alexandra House, Chater Road, Hong Kong during normal business hours on any business day from the date of this circular until 2 March 2006:

• (a) the Maintenance Services Agreement;

• (b) the Purchasing Agreement;

• (c) the letter of consent from Altus as referred to in the paragraph headed “Consent and Qualifications of Expert” in this Appendix; and

• (d) the letter from Altus dated 16 February 2006, the text of which is set out on pages 10 to 14 of this circular.

9. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text.

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