Weichai Power Co., Ltd.

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 your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your overseas listed foreign shares (‘‘H Shares’’) in Weichai Power Co., Ltd., 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.

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

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

VERY SUBSTANTIAL ACQUISITION INVOLVING A MERGER BY ABSORPTION OF TAGC AND CONTINUING CONNECTED TRANSACTIONS

Financial adviser to Weichai Power Co., Ltd. in respect of the Very Substantial Acquisition

Citigroup Global Markets Asia Limited

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Independent financial adviser to the independent board committee and the independent shareholders of Weichai Power Co., Ltd. on the Weichai Power Continuing Connected Transactions

A letter from the Board is set out on pages 11 to 70 of this circular.

A letter from the independent financial adviser to the independent board committee and the independent shareholders of Weichai Power (as defined in this circular) on the Weichai Power Continuing Connected Transactions (as defined in this circular) is set out on pages 72 to 103 of this circular.

Notices convening the Weichai Power Shareholders’ EGM (as defined in this circular), the Weichai Power H Shareholders’ EGM (as defined in this circular) and the Weichai Power Domestic and Foreign Shareholders’ EGM (as defined in this circular) of Weichai Power Co., Ltd. (the ‘‘Company’’), at which the resolutions for approving, inter alia, the Merger Proposal (as defined in this circular) will be considered are set out in this circular.

If you intend to attend the Weichai Power Shareholders’ EGM, the Weichai Power H Shareholders’ EGM or the Weichai Power Domestic and Foreign Shareholders’ EGM (as the case may be), please complete and return the relevant reply slip in accordance with the instructions printed thereon as soon as possible and in any event by no later than 9 December 2006.

Whether or not you are able to attend the Weichai Power Shareholders’ EGM, the Weichai Power H Shareholders’ EGM or the Weichai Power Domestic and Foreign Shareholders’ EGM (as the case may be), you are requested to complete the relevant proxy form in accordance with the instructions printed thereon and return it to, in the case of the Weichai Power Shareholders’ EGM and the Weichai Power H Shareholders’ EGM, Computershare Hong Kong Investor Services Limited, the H Share registrar of the Company in Hong Kong, at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong or, in the case of the Weichai Power Domestic and Foreign Shareholders’ EGM, the Secretary to the Board of the Company at Securities Department, 26 Minsheng East Street, Weifang, Shandong Province, the People’s Republic of China, Postal Code: 261001, not less than 24 hours before the time appointed for the holding of the relevant meeting. Completion and return of the proxy form will not preclude you from attending and voting in person at the relevant meeting or any adjournment thereof should you so wish.

12 November 2006

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter from Independent Board Committee on the Weichai Power
Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	71
Letter from Independent Financial Adviser on the Weichai Power
Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	72
Appendix IA — Financial information of the Weichai Power Group . . . . . . . . . . . . . . . . . . .	104
Appendix IB — Management discussion and analysis of the results of
the Weichai Power Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	161
Appendix IIA — Accountants’ report of the TAGC Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	174
Appendix IIB — Discussion and analysis of the results of the TAGC Group . . . . . . . . . . . . .	240
Appendix III — Pro forma financial information of the Enlarged Group . . . . . . . . . . . . . . .	254
Appendix IV — Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	263
Appendix V — Valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	285
Appendix VI — Amendments to the Weichai Power Articles . . . . . . . . . . . . . . . . . . . . . . . . . .	372
Appendix VII — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	407
Notice of Weichai Power Shareholders’ EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	417
Notice of Weichai Power H Shareholders’ EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	424
Notice of Weichai Power Domestic and Foreign Shareholders’ EGM . . . . . . . . . . . . . . . . . . . . . .	428

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DEFINITIONS

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

‘‘2.5% Threshold’’ the thresholds referred to in Rule 14A.34 of the Listing Rules
‘‘2004 Announcement’’ the announcement of Weichai Power dated 15 September 2004 in relation to, inter alia, the Weichai Power Continuing Connected Transactions
‘‘2004 Circular’’ the circular of Weichai Power dated 27 October 2004 in relation to, inter alia, the Weichai Power Continuing Connected Transactions
‘‘2004 Weichai Power the extraordinary general meeting of Weichai Power held on 15 December Shareholders’ EGM’’ 2004 approving, inter alia, the Existing Caps for the Weichai Power Continuing Connected Transactions
‘‘2005 Announcement’’ the announcement of Weichai Power dated 21 September 2005 in relation to, inter alia, the Weichai Power Continuing Connected Transactions
‘‘2005 Circular’’ the circular of Weichai Power dated 20 October 2005 in relation to, inter alia, the Weichai Power Continuing Connected Transactions
‘‘2005 Weichai Power the extraordinary general meeting of Weichai Power held on 5 December Shareholders’ EGM’’ 2005 approving, inter alia, the Existing Caps for the Weichai Power Continuing Connected Transactions
‘‘Assenting Weichai Power has the meaning ascribed to it in the section headed ‘‘9. Dissenting Weichai Shareholders’’ Power Shareholders’’ in appendix VII to this circular
‘‘associate’’ has the meaning ascribed to it under the Listing Rules
‘‘Board’’ or ‘‘Weichai the board of Directors Power Board’’
‘‘Buildings and Equipment’’ has the meaning ascribed to it in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal — 1. Weichai Power Continuing Connected Transactions’’ in the ‘‘Letter from the Board’’ in this circular
‘‘Business Day’’ any day on which banks are open for business in the PRC
‘‘Cash Alternative’’
the cash alternative under the Merger Proposal to the TAGC Public Shareholders who elect not to receive in whole (or in part) the Weichai A Shares at the rate of RMB5.05 per TAGC Share, subject to the Merger Proposal becoming unconditional, the details of which are set out in the section headed ‘‘I. The Merger Proposal — 5. Cash Alternative’’ in the ‘‘Letter from the Board’’ in this circular
‘‘Cash Alternative Amount’’ the amount of the Cash Alternative
‘‘Cash Alternative Provider(s)’’
has the meaning ascribed to it in the section headed ‘‘I. The Merger Proposal — 5. Cash Alternative’’ in the ‘‘Letter from the Board’’ in this circular

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DEFINITIONS

‘‘CCASS’’ the Central Clearing and Settlement System established and operated by HKSCC
‘‘CHDTGL’’ (China Heavy Duty Truck Group Co., Ltd.), a PRC State-owned enterprise
‘‘Chongchai Production the Company’s production line located at its premises in Chongqing Line’’ Municipality, the PRC for the manufacture of WD615 Engines
‘‘Chongqing Branch’’ the Company’s facility (being its branch office) in Chongqing Municipality, the PRC
‘‘Chongqing Weichai’’ (Chongqing Weichai Diesel Engine Works), a legal person established in the PRC and wholly-owned by Weichai Factory
‘‘Company’’ or ‘‘Weichai (Weichai Power Co., Ltd.), a joint stock limited Power’’ company incorporated in the PRC with limited liability
‘‘connected person’’ has the meaning ascribed to it under the Listing Rules ‘‘Continuing Connected the Weichai Power Continuing Connected Transactions and/or the TAGC Transactions’’ Continuing Transactions (as the context may require)
‘‘CSRC’’ (China Securities Regulatory Commission) ‘‘Director(s)’’ Director(s) of Weichai Power ‘‘Dissenting Weichai Power has the meaning ascribed to it in the section headed ‘‘9. Dissenting Weichai Shares’’ Power Shareholders’’ in appendix VII to this circular
‘‘Dissenting Weichai Power has the meaning ascribed to it in the section headed ‘‘9. Dissenting Weichai Shareholders’’ Power Shareholders’’ in appendix VII to this circular
‘‘Dissenting Weichai Power has the meaning ascribed to it in the section headed ‘‘9. Dissenting Weichai Shareholder Request’’ Power Shareholders’’ in appendix VII to this circular
‘‘Domestic Share(s)’’ the ordinary share(s) issued by the Company with a Renminbi denominated par value of RMB1.00 each, which are subscribed for and paid up in Renminbi or credited as fully paid up

‘‘Enlarged Group’’ the Weichai Power Group and the TAGC Group ‘‘Exchange Ratio’’ the ratio for the number of Weichai A Shares to be issued by Weichai Power, based on the number of TAGC Shares held by each TAGC Shareholder (other than InvestCo) under the Merger Proposal, being the ratio of one Weichai A Share to 3.53 TAGC Shares held by the TAGC Shareholders (other than InvestCo)

— 2 —

DEFINITIONS

‘‘Exempt Continuing being those Weichai Power Continuing Connected Transactions the Connected Transactions’’ proposed New Caps for which do not exceed the 2.5% Threshold, and, accordingly, are only subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements in Rules 14A.37 and 14A.38 of the Listing Rules

‘‘Existing Cap(s)’’ the maximum aggregate annual value for each of the Weichai Power Continuing Connected Transactions as set out in the 2004 Announcement, the 2004 Circular, the 2005 Announcement and the 2005 Circular (as the case may be) and as approved by the Weichai Power Shareholders at the 2004 Weichai Power Shareholders’ EGM and 2005 Weichai Power Shareholders’ EGM (as the case may be)
‘‘Final Record Date’’ being the date on which TAGC Shareholders’ entitlements to the Weichai A Shares under the Merger Proposal is determined, which date will be determined and announced by Weichai Power and TAGC in the PRC and Hong Kong
‘‘Foreign Share(s)’’ the ordinary share(s) issued by the Company with a Renminbi denominated par value of RMB1.00 each and which are subscribed for and paid up in a currency other than Renminbi. As these shares are not listed on any stock exchange in the PRC, they are not PRC listed foreign shares (or commonly known as ‘‘B shares’’)
‘‘Fujian Longgong’’ (Fujian Longyan Construction
Machinery (Group) Company Limited), a company incorporated in the PRC and a Promoter
‘‘GDP’’ gross domestic product
‘‘Group’’ or ‘‘Weichai Weichai Power and its subsidiaries before completion of the Merger Power Group’’ Proposal
‘‘Guangxi Liugong’’ (Guangxi Liugong Group Company Limited), a company established in the PRC, a Promoter and a State-owned enterprise
‘‘Guangxi Liugong (Guangxi Liugong Machinery Co., Ltd.), a Machinery’’ company established in the PRC

‘‘Guidelines and Guidance (Guidelines of Opinions’’ the State Council for Promoting the Reform and Opening-up and Sustained Development of the Capital Market) promulgated by the State Council, (Guidance Opinions on the Split Share Structure Reform of Listed Companies) and (Administrative Measures on the Split Share Structure Reform of Listed Companies) promulgated by the CSRC and other related rules, measures and regulations

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DEFINITIONS

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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|‘‘H|Share(s)’’|or|‘‘Weichai|the|overseas|listed|foreign|share(s)|in|the|capital|of|Weichai|Power|with|a|
|H|Share(s)’’|RMB denominated par value of RMB1.00 each which are subscribed for and|
|traded|in|Hong|Kong|Dollars,|and|they|are|listed|on|the|main|board|of|the|
|Hong|Kong|Stock|Exchange|
|‘‘Hangqi’’|(Hangzhou|Motor|Engine|Factory),|a|legal|person|
|established|in|the|PRC|and|is|wholly-owned|by|CHDTGL|
|‘‘High|Technology|(High|Technology|Industrial|
|Industrial|Development|Development|Zone,|Weifang|City,|Shandong|Province,|the|PRC)|
|Zone’’|
|‘‘Hong|Kong’’|the|Hong|Kong|Special|Administrative|Region|of|the|PRC|
|‘‘Hong|Kong|Stock|The|Stock|Exchange|of|Hong|Kong|Limited|
|Exchange’’|
|‘‘HK$’’|or|‘‘HK|Dollar’’|Hong|Kong|dollar,|the|lawful|currency|of|Hong|Kong|from|time|to|time|
|‘‘HKFRS’’|the|Hong|Kong|Financial|Reporting|Standard|issued|by|the|Hong|Kong|
|Institute|of|Certified|Public|Accountants|
|‘‘HKSCC’’|Hong|Kong|Securities|Clearing|Company|Limited|
|‘‘Hunan|SASAC’’|(Hunan|State-owned|Assets|Supervision|
|and|Administration|Commission),|the|State-owned|Assets|Supervision|and|
|Administration|Commission|of|the|Hunan|Province|
|‘‘InvestCo’’|(Weichai|Power|(Weifang)|Investment|Co.,|
|Ltd.),|a|limited|liability|company|established|in|the|PRC|on|2|August|2005|
|and|a|wholly-owned|subsidiary|of|Weichai|Power|
|‘‘IVM’’|IVM|Technical|Consultants|Wien|Gesellschaft|m.b.H.,|a|company|
|established|in|Austria|and|a|Promoter|
|‘‘Last|Dealing|Date’’|18|August|2006,|being|the|last|day|prior|to|the|suspension|of|trading|in|the|
|shares|of|TAGC|on|the|Shenzhen|Stock|Exchange|pending|the|release|of|an|
|announcement|by|TAGC|dated|1|September|2006|concerning|certain|of|the|
|matters|contained|in|the|Merger|Proposal,|which|was|also|the|last|day|prior|
|to|the|suspension|of|trading|in|the|H|Shares|on|the|Hong|Kong|Stock|
|Exchange|pending|the|release|of|the|announcement|dated|1|September|2006|
|in|relation|to|the|Merger|Proposal|
|‘‘Latest|Practicable|Date’’|7|November|2006,|being|the|latest|practicable|date|for|the|purpose|of|
|ascertaining certain information contained in this circular before its despatch|
|‘‘Listing|Rules’’|the|Rules|Governing|the|Listing|of|Securities|on|The|Stock|Exchange|of|
|Hong|Kong|Limited|

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DEFINITIONS

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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|‘‘Merger|Agreement’’|the|conditional|agreement|dated|12|November|2006|entered|into|between|
|Weichai Power and TAGC in relation to the Merger Proposal, the translation|
|of|which|is|set|out|in|appendix|IV|to|this|circular|
|‘‘Merger’’|or|‘‘Merger|the|proposed|merger|of|Weichai|Power|and|TAGC|and|the|issue|by|Weichai|
|Proposal’’|Power|of|new|Weichai|A|Shares|to|the|shareholders|of|TAGC|(other|than|
|InvestCo)|at|the|Exchange|Ratio|and|the|other|ancillary|matters|set|out|in|
|this|circular|
|‘‘MOC’’|(Ministry|of|Commerce),|the|Ministry|of|Commerce|of|the|PRC|
|‘‘New|Cap(s)’’|as|defined|in|the|section|headed|‘‘II.|Continuing|Connected|Transactions|of|
|the|Enlarged|Group|after|the|Merger|Proposal|—|1.|Weichai|Power|
|Continuing|Connected|Transactions’’|in|the|‘‘Letter|from|the|Board’’|in|this|
|circular|
|‘‘Non-exempt|Continuing|being|those|Weichai|Power|Continuing|Connected|Transactions|the|
|Connected|Transactions’’|proposed|New|Caps|for|which|exceed|the|2.5%|Threshold,|and,|
|accordingly,|they|will|be|subject|to|the|reporting|requirements|set|out|in|
|Rules|14A.45|and|14A.46|of|the|Listing|Rules,|the|announcement|
|requirement|in|Rule|14A.47|of|the|Listing|Rules|(and|the|relevant|
|announcement|was|released|on|12|November|2006)|and|the|annual|review|
|requirements|in|Rules|14A.37|and|14A.38|of|the|Listing|Rules|and|approval|
|from|the|Weichai|Power|Independent|Shareholders|at|the|Weichai|Power|
|Shareholders’|EGM|will|be|required|
|‘‘Peterson’’|Peterson|Holdings|Company|Limited|(|),|a|company|
|incorporated|in|Hong|Kong|and|a|Promoter|
|‘‘PRC’’|the|People’s|Republic|of|China,|which,|for|the|purpose|of|this|circular,|
|unless|otherwise|specified,|excludes|Hong|Kong,|the|Macau|Special|
|Administrative|Region|of|the|PRC|and|Taiwan|
|‘‘PRC|Company|Law’’|the|Company|Law|of|the|PRC|(|)|adopted|at|the|Fifth|
|Session|by|the|Standing|Committee|of|the|Eighth|National|People’s|
|Congress|on|29|December|1993|and|effective|from|1|July|1994,|as|
|amended,|supplemented|or|otherwise|modified|from|time|to|time|
|‘‘Promoter(s)’’|Weichai|Factory,|Peterson,|Weifang|Investment,|Fujian|Longgong,|
|Shenzhen|Investment,|IVM,|Shandong|Trust,|Guangxi|Liugong|and|24|
|natural|persons|whose|names|are|set|out|in|the|Weichai|Power|Prospectus|
|‘‘RMB’’|Renminbi,|the|lawful|currency|of|the|PRC|
|‘‘SFGC’’|(Shaanxi|Fast|Gear|Co.,|Ltd.),|a|company|
|established|in|the|PRC|and|is|a|51%|subsidiary|of|TAGC|
|‘‘SFO’’|the|Securities|and|Futures|Ordinance|(Chapter|571|of|the|Laws|of|Hong|
|Kong)|

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DEFINITIONS

‘‘Shaanxi Zhongqi’’ (Shaanxi Heavy Duty Motor Company Limited), a company established in the PRC and is a 51% subsidiary of TAGC
‘‘Shandong SASAC’’ (Shandong State-owned Assets Supervision and Administration Commission), the State-owned Assets Supervision and Administration Commission of the Shandong Province
‘‘Shandong Trust’’ (Shandong Enterprise Trust Operation Company Limited), a company established in the PRC and a Promoter
‘‘Shanghai Longgong’’ (Shanghai Longgong Machinery Company Limited), a limited liability company established in the PRC
‘‘Share(s)’’ the ordinary share(s) in the share capital of the Company ‘‘Shareholder(s)’’ holder(s) of Share(s) ‘‘Shenzhen Investment’’ (Shenzhen Chuangxin Investment Group Company Limited), a company incorporated in the PRC and a Promoter
‘‘State’’ the Central Government of the PRC ‘‘State Council’’ (State Council of the PRC) ‘‘Steyr’’ Man Steyr AG, a company established in Austria and, with respect to the period prior to the establishment of Man Steyr AG, the relevant asset(s), technology and/or business(es) of Steyr-Daimler-Puch Aktiengesellschaft that was/were injected into Man Steyr AG
‘‘Supervisor(s)’’ the supervisor(s) of Weichai Power ‘‘Supplemental Agreement’’ each of the supplemental agreements as referred to in this circular and entered into between Weichai Power and each of the counterparties to the respective Weichai Power Continuing Connected Transactions Agreements (certain of which are conditional on the relevant Weichai Power Independent Shareholders approving the relevant New Caps at the Weichai Power Shareholders’ EGM)
‘‘TAGC’’ (Torch Automobile Group Co., Ltd.), a company established in the PRC and the shares of which are listed on the Shenzhen Stock Exchange
‘‘TAGC Board’’ the board of directors of TAGC ‘‘TAGC Continuing the transactions described in the section headed ‘‘II. Continuing Connected Connected Transactions’’ Transactions of the Enlarged Group after the Merger Proposal — 2. TAGC Continuing Connected Transactions’’ in the ‘‘Letter from the Board’’ in this circular

— 6 —

DEFINITIONS

‘‘TAGC Debts’’

has the meaning ascribed to it in the section headed ‘‘I. The Merger Proposal — 12. Creditors’ rights as a result of the Merger Proposal’’ in the ‘‘Letter from the Board’’ in this circular
‘‘TAGC Debts has the meaning ascribed to it in the section headed ‘‘I. The Merger Proposal Restructuring Framework — 12. Creditors’ rights as a result of the Merger Proposal’’ in the ‘‘Letter Agreement’’ from the Board’’ in this circular
‘‘TAGC EGM(s)’’ the TAGC Shareholders’ EGM and/or the TAGC Public Shareholders’ EGM (as the context may require)
‘‘TAGC Group’’ TAGC and its subsidiaries
‘‘TAGC Public Shareholder(s)’’
the TAGC Shareholder(s) other than InvestCo and Zhuzhou State Assets Co
‘‘TAGC Public the extraordinary general meeting of the TAGC Public Shareholders to be Shareholders’ EGM’’ held on 8 January 2007 to consider, inter alia, the Merger Proposal
‘‘TAGC Share(s)’’
share(s) in the capital of TAGC
‘‘TAGC Shareholder(s)’’ holders of the TAGC Shares
‘‘TAGC Shareholders’ EGM’’
the extraordinary general meeting of the TAGC Shareholders to be held on 8 January 2007 to consider, inter alia, the Merger Proposal
‘‘TAGC Share Reform’’
the proposal in relation to the cancellation of the TAGC Shares held by TAGC Public Shareholders and the issue of new Weichai A Shares to them such that the current shareholding status of TAGC having non-tradable legal person shares will cease to exist
‘‘WD615’’ or ‘‘WD615 Engine(s)’’
the water-cooled, linear, 6-cylinder, turbo-charging, direct-injection highspeed diesel engine(s) with a displacement of 9.726 litres, manufactured by Weichai Power
‘‘WD618’’ or ‘‘WD618 Engine(s)’’
a new series of diesel engines developed based on the WD615 series with a displacement of 11.596 litres, manufactured by Weichai Power
‘‘Weichai A Share(s)’’
ordinary shares with a RMB denominated par value of RMB1.00 each, which are proposed to be traded in RMB and listed on the Shenzhen Stock Exchange, and which, subject to the Merger Agreement becoming unconditional and being completed, will be issued by Weichai Power pursuant to the Merger Proposal, and, if the context requires, include the Domestic Shares and the Foreign Shares
‘‘Weichai Factory’’
(Weifang Diesel Engine Works), a legal person established in
the PRC and is a substantial shareholder of Weichai Power and a Promoter
‘‘Weichai Power Articles’’ the articles of association of Weichai Power

— 7 —

DEFINITIONS

‘‘Weichai Power Continuing the transactions described in the section headed ‘‘II. Continuing Connected Connected Transactions’’ Transactions of the Enlarged Group after the Merger Proposal — 1. Weichai Power Continuing Connected Transactions’’ in the ‘‘Letter from the Board’’ in this circular
‘‘Weichai Power Continuing Connected Transactions Agreements’’
the agreements relating to the Weichai Power Continuing Connected Transactions entered into between Weichai Power and the relevant counterparties, further details of which are set out in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal — 1. Weichai Power Continuing Connected Transactions’’ in the ‘‘Letter from the Board’’ in this circular
‘‘Weichai Power Domestic the extraordinary general meeting of the holders of the Domestic Shares and and Foreign Foreign Shares to be held on 29 December 2006 to consider, inter alia, the Shareholders’ EGM’’ Merger Proposal
‘‘Weichai Power EGM(s)’’
the Weichai Power Shareholders’ EGM, the Weichai Power H Shareholders’ EGM and/or the Weichai Power Domestic and Foreign Shareholders’ EGM (as the context may require)
‘‘Weichai Power H Shareholders’ EGM’’
the extraordinary general meeting of holders of H Shares of Weichai Power to be held on 29 December 2006 to consider, inter alia, the Merger Proposal
‘‘Weichai Power a committee of the Board comprising Mr. Zhang Xiao Yu, Mr. Koo Fook Independent Board Sun, Louis and Mr. Fang Zhong Chang, being the independent non-executive Committee’’ Directors
‘‘Weichai Power AMS Corporate Finance Limited, a corporation licensed to carry on type 4 Independent Financial (advising on securities), type 6 (advising on corporate finance) and type 9 Adviser’’ (asset management) regulated activities under the SFO and the independent financial adviser appointed by Weichai Power Co., Ltd. to advise the independent board committee and the independent shareholders of Weichai Power Co., Ltd. in respect of the Weichai Power Continuing Connected Transactions
‘‘Weichai Power Weichai Power Shareholders who are not required to abstain from voting at Independent the Weichai Power Shareholders’ EGM in relation to the resolutions for Shareholders’’ approving the New Caps for the Weichai Power Continuing Connected Transactions
‘‘Weichai Power the prospectus dated 26 February 2004 issued by Weichai Power relating to Prospectus’’ the initial public offering and listing of its H Shares on the Hong Kong Stock Exchange
‘‘Weichai Power Shareholder(s)’’
Shareholder(s) of Weichai Power
‘‘Weichai Power Shareholders’ EGM’’
the extraordinary general meeting of the Shareholders to be held on 29 December 2006 to consider, inter alia, the Merger Proposal

— 8 —

DEFINITIONS

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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|‘‘Weifang|Investment’’|(Weifang|Investment|Company),|a|legal|person|established|
|in|the|PRC|and|Promoter.|Weifang|Investment|is|a|State-owned|enterprise|
|‘‘Weifang|Production|Line’’|Weichai|Power’s|production|line|located|at|its|premises|in|Weifang,|
|Shandong|Province|for|the|manufacture|of|WD615|and|WD618|Engines|
|‘‘Zhuzhou|State|Assets|Co’’|(Zhuzhou|State-owned|Assets|
|Administration|Management|Company|Limited),|a|State-owned|enterprise.|
|It|is|a|third|party|independent|of|the|Company|
|‘‘Zhuzhou|State|Assets|Co|has the meaning ascribed to it in the section headed ‘‘I. The Merger Proposal|
|Gift|Rate’’|—|3.|Merger|Agreement|—|Salient|terms|and|consideration’’|in|the|‘‘Letter|
|from|the|Board’’|in|this|circular|

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

If there is any inconsistency between the Chinese name of the entities mentioned in this circular and their English translation, the Chinese version shall prevail.

— 9 —

EXPECTED TIMETABLE

Latest time for lodging transfers of the H Shares in order
to be entitled to attend and vote at the
Weichai Power Shareholders’ EGM
and the Weichai Power H Shareholders’ EGM . . . . . . .	. . . . . . . . . . 4: 00 p.m., 28 November 2006
Closure of the registers of members of Weichai Power
for the determination of entitlements of the Shareholders to
attend and vote at the Weichai Power EGMs . . . . . . . .	. . . . . . . . . . . . . . . . . . 29 November 2006
Latest time for receiving reply slips for the Weichai Power
EGMs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . 9 December 2006
Latest time for lodging forms of proxy in respect of
the Weichai Power Shareholders’ EGM . . . . . . . . . . . .	. . . . . . . . . 10: 00 a.m., 28 December 2006
Latest time for lodging forms of proxy in respect of the
Weichai Power H Shareholders’ EGM . . . . . . . . . . . . .	. . . . . . . . . 11: 30 a.m., 28 December 2006
Latest time for lodging forms of proxy in respect of the
Weichai Power Domestic and Foreign Shareholders’ EGM . . . . . . . . 12: 00 noon, 28 December 2006
Weichai Power Shareholders’ EGM . . . . . . . . . . . . . . . .	. . . . . . . . . 10: 00 a.m., 29 December 2006
Weichai Power H Shareholders’ EGM . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . 11: 30 a.m. (Note 1),
	29 December 2006
Weichai Power Domestic and Foreign Shareholders’ EGM	. . . . . . . . . . . . . . . . 12: 00 noon (Note 2),
	29 December 2006
Press announcement of the results of the Weichai Power EGMs . . . . . . . . . . . . . . . . . 2 January 2007
TAGC Shareholders’ EGM . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . 8 January 2007
TAGC Public Shareholders’ EGM . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . 8 January 2007

Shareholders should note that the above expected timetable is subject to change. Further announcements will be made in the event of any change to the above expected timetable.

Notes:

This meeting shall commence at 11: 30 a.m. or, if later, as soon as practicable after the conclusion of the Weichai Power Shareholders’ EGM.
This meeting shall commence at 12: 00 noon or, if later, as soon as practicable after the conclusion of the Weichai Power H Shareholders’ EGM.

— 10 —

LETTER FROM THE BOARD

==> picture [190 x 103] intentionally omitted <==

WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

Executive Directors: Tan Xuguang (Chairman) Xu Xinyu Sun Shaojun Zhang Quan

Non-executive Directors: Yeung Sai Hong Chen Xuejian Yao Yu Li San Yim Liu Huisheng Zhang Fusheng Julius G. Kiss Han Xiaoqun

Registered office: 197, Section A Fu Shou East Street High Technology Industrial Development Zone Weifang City Shandong Province The People’s Republic of China

Principal place of business in Hong Kong: Suite 2501–2, 25th Floor One International Finance Centre 1 Harbour View Street Central Hong Kong

Independent Non-executive Directors: Zhang Xiaoyu Koo Fook Sun, Louis Fang Zhong Chang

Supervisors: Sun Chengping Wang Yong Jiang Jianfang

12 November, 2006

To: Holders of H Shares Other shareholders of Weichai Power

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION INVOLVING A MERGER BY ABSORPTION OF TAGC AND CONTINUING CONNECTED TRANSACTIONS

I. THE MERGER PROPOSAL

1. INTRODUCTION

On 12 November 2006, the Directors announced that Weichai Power had entered into the Merger Agreement with TAGC in respect of the Merger Proposal concerning Weichai Power and TAGC, subject to the satisfaction of various conditions (including, inter alia, obtaining the approvals of the CSRC and other

— 11 —

LETTER FROM THE BOARD

regulatory bodies of the PRC, and the approvals of the Weichai Power EGMs and the TAGC EGMs in the manner referred to below). The implementation of the Merger Proposal will involve the issue of new Weichai A Shares (which will have the same voting right as Weichai Power’s H Shares) by Weichai Power at the Exchange Ratio to the TAGC Shareholders (other than InvestCo) on the Final Record Date to be announced, as consideration for the cancellation of the respective TAGC Shares held by them, and TAGC’s assets will be absorbed into, and its liabilities will be assumed by, Weichai Power. Upon completion of the Merger, TAGC will cease to exist. It is the intention of Weichai Power that InvestCo will be dissolved as soon as practicable thereafter.

The purpose of this circular is to give you further information regarding the Merger Proposal and related matters and to seek your approval thereof at the relevant Weichai Power EGM, the notices of which are set out in this circular.

2. BACKGROUND

We refer to the circular of Weichai Power dated 29 August 2005 in respect of the acquisition by InvestCo of 263,279,520 TAGC Shares representing approximately 28.12% of the issued share capital of TAGC from State Asset ManagementCo on 8 August 2005 and the announcement of Weichai Power dated 10 November 2005 in respect of the completion of such acquisition.

We further refer to the circular of Weichai Power dated 14 June 2006 in relation to Weichai Power’s acquisition of further equity interest in InvestCo from all the other then equity holders in InvestCo and the announcement of Weichai Power dated 30 June 2006 announcing that Weichai Power’s shareholders at the annual general meeting of Weichai Power held on 30 June 2006 had approved such acquisition. Weichai Power’s equity interest in InvestCo then increased from 45% to 100%, and through InvestCo, Weichai Power is indirectly interested in approximately 28.12% of the issued shares of TAGC.

We further refer to the announcement of Weichai Power dated 1 September 2006 in respect of the approvals in principle by the Weichai Power Board and the TAGC Board of the Merger Proposal.

On 11 September 2006, Weichai Power announced that after discussions between TAGC and its shareholders, the Merger Proposal (including the per share price of the TAGC Shares and of the Weichai A Shares for the purpose of determining the Exchange Ratio, the Exchange Ratio, the Zhuzhou State Assets Co Gift Rate and the Cash Alternative Amount), as stated in the announcement dated 1 September 2006, remained unchanged.

On 12 November 2006, Weichai Power announced that it has entered into the Merger Agreement. The English translation of the Merger Agreement is set out in appendix IV to this circular. The salient features and the effects of the Merger Proposal are set out below.

3. MERGER AGREEMENT

Date: 12 November 2006

Parties: (a) Weichai Power, the principal business of which is the research and development, manufacturing and sale of high speed heavy duty diesel engines and engine parts.
(b) TAGC, the principal business of which is investment holding. To the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, as at the Latest Practicable Date, TAGC and its ultimate beneficial owners were third parties independent of, and were not connected persons of, Weichai Power.

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LETTER FROM THE BOARD

Salient terms and consideration

Under the Merger Proposal, subject to the conditions below, Weichai Power will issue new Weichai A Shares (which will have the same voting right as Weichai Power’s H Shares) at the Exchange Ratio to the TAGC Shareholders (other than InvestCo) on the Final Record Date to be announced, as consideration for the cancellation of the respective TAGC Shares held by them, and TAGC’s assets will be absorbed into, and its liabilities will be assumed by, Weichai Power.

The Exchange Ratio was determined based on the per share price of TAGC Shares of RMB5.80 and the issue price per new Weichai A Share of RMB20.47.

Upon issue, the new Weichai A Shares will be freely transferable. (Please note that Zhuzhou State Assets Co has undertaken to Weichai Power that it will not dispose of, or appoint other person to manage, its Weichai A Shares within a period of three years from the date such Weichai A Shares become listed on the Shenzhen Stock Exchange.)

The Merger Proposal will be accompanied by a cash alternative, to the TAGC Public Shareholders who elect not to receive in whole (or in part) the Weichai A Shares at the rate of RMB5.05 per TAGC Share, subject to the Merger Proposal becoming unconditional. For details, please refer to the section headed ‘‘I. The Merger Proposal — 5. Cash Alternative’’ in this letter.

Zhuzhou State Assets Co will transfer (by way of gift) a part of its holding of TAGC Shares to the TAGC Public Shareholders at the rate of 0.35 TAGC Share for every 10 TAGC Shares held (the ‘‘Zhuzhou State Assets Co Gift Rate’’), and such TAGC Shares so transferred by way of gift will also be exchanged for new Weichai A Shares at the Exchange Ratio. Zhuzhou State Assets Co has also agreed that it will not elect the Cash Alternative. For details, please refer to the section headed ‘‘6. Undertakings’’ in this letter.

Although InvestCo holds approximately 28.12% of TAGC’s issued shares, being a wholly-owned subsidiary of Weichai Power, it will elect not to receive any Weichai A Shares or cash payment under the Cash Alternative to be offered under the Merger Proposal.

Any fractional entitlement to the Weichai A Shares will not be issued to TAGC Shareholders and will be aggregated and distributed to such holders of the Weichai A Shares to be determined on a random basis by lot (provided that each such holder will not be given more than one Weichai A Share in such distribution).

Conditions precedent

The Merger Proposal is conditional upon the following:

the approvals of the Weichai Power Shareholders’ EGM, Weichai Power H Shareholders’ EGM and Weichai Power Domestic and Foreign Shareholders’ EGM by a two-third majority with respect to the Merger Proposal;
the approval of the TAGC Shareholders’ EGM (at which InvestCo shall not vote) and the TAGC Public Shareholders’ EGM by a two-third majority with respect to the Merger Proposal;
the approval of the Weichai Power Shareholders’ EGM by a two-third majority with respect to the amendments to the Weichai Power Articles as set out appendix VI to this circular;

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LETTER FROM THE BOARD

the Shenzhen Stock Exchange’s agreeing to grant listing to the Weichai A Shares, the Domestic Shares and the Foreign Shares;
the requisite consents and approvals having been obtained from the relevant governmental and regulatory authorities in the PRC (including, without limitation, the approval of the Merger Proposal and related matters by CSRC, the approval of the TAGC Share Reform related to the Merger Proposal by MOC, the approval of the disposal of State-owned shares involved in the Merger Proposal by Shandong SASAC and Hunan SASAC);
the identification of and entering into agreement with the appropriate Cash Alternative Provider(s) in respect of the provision of the Cash Alternative Amount; and
the approval of the TAGC Debt Restructuring Framework Agreement by the State Council (unless the relevant loans shall be repaid),

(unless the relevant condition is waived Provided That such condition is not required by law or regulatory authority).

Termination

Prior to the completion date of the Merger, the Merger Agreement shall be terminated upon occurrence of any of the following circumstances:

(a) Weichai Power and TAGC agreeing in writing to terminate the Merger Agreement prior to the completion date;
(b) approvals or permissions for the Merger and the TAGC Share Reform not being granted by the relevant PRC authorities or departments;
(c) any material breach of the responsibilities, undertakings or representations of the Merger Agreement by a party to the Merger Agreement and the other party requesting in writing to terminate the Merger Agreement;
(d) any events required by laws and regulations leading to the termination of the Merger Agreement; or
(e) the Merger is not completed within one year from the date of the Merger Agreement.

Others

If completion of the Merger Proposal does not occur on or before 30 April 2007, the Board may propose a final dividend for Weichai Power for 2006 for the consideration and approval by the 2006 annual general meeting of Weichai Power, provided that the aggregate amount of such dividend to be proposed and declared shall not exceed that of the interim dividend declared and paid by Weichai Power for the six months ended 30 June 2006 (and the amount of such final dividend per Weichai Power Share shall be referred to as the ‘‘Weichai Power per Share Final Dividend’’); and TAGC may also propose and declare a final dividend for 2006 at a rate per TAGC Share equal to the amount of Weichai Power per Share Final Dividend divided by 3.53. Save as aforesaid, both Weichai Power and TAGC have agreed not to distribute their respective retained earnings prior to the date of the completion of the Merger. The undistributed profits of Weichai Power and TAGC up to the date of completion of the Merger shall belong to the Shareholders of Weichai Power after completion of the Merger.

— 14 —

LETTER FROM THE BOARD

Effect of the Merger Agreement

The TAGC Shareholders comprise Zhuzhou State Assets Co, InvestCo and the TAGC Public Shareholders. As stated above, Zhuzhou State Assets Co has undertaken not to elect the Cash Alternative and InvestCo has undertaken not to participate in the Merger Proposal.

The Merger Proposal will only be implemented after the approvals of, inter alia, the Weichai Power EGMs, the TAGC Shareholders’ EGM and the TAGC Public Shareholders’ EGM (each by a two-third majority) have been obtained and the other conditions precedent stated above have been satisfied (or waived).

Under PRC law, after obtaining the said shareholders’ approvals and other conditions precedent having been satisfied (or waived), the Company will become entitled to carry out the Merger Proposal and merge with TAGC, and TAGC will then cease to exist. Accordingly, all of TAGC’s issued shares will be cancelled notwithstanding that there may exist TAGC Public Shareholders who have voted against the Merger Proposal at the relevant TAGC shareholders’ meetings, and these TAGC shareholders will have to either accept the new Weichai A Shares or the Cash Alternative as consideration for the cancellation of their TAGC Shares.

4. BASIS OF DETERMINATION OF CONSIDERATION

The consideration under the Merger Agreement was determined after arm’s length negotiations between Weichai Power and TAGC and taking into account a number of factors including the per share closing price of the H Shares as quoted on the Hong Kong Stock Exchange on the Last Dealing Date, the per share closing price of TAGC Shares as quoted on the Shenzhen Stock Exchange on the Last Dealing Date and the potential advantages that would accompany the Merger Proposal (further details of which are described in the section headed ‘‘I. The Merger Proposal — Reasons for and benefits of the Merger Proposal’’ in this letter).

The Exchange Ratio has been determined as follows:

(a) the per share price of the TAGC Shares is RMB5.80, representing a premium of approximately 14.85% over the closing price per TAGC Share of RMB5.05 as at the Last Dealing Date; and
(b) the issue price of the new Weichai A Shares shall be RMB20.47 per share, representing a premium of approximately 4.87% (based on the exchange rate of HK$1.00 to RMB1.02328, as quoted by The People’s Bank of China on 1 September 2006) over the closing price per H Share of HK$19.08 as at the Last Dealing Date,

and, accordingly, the Exchange Ratio for the Merger Proposal is that one Weichai A Share will be issued by Weichai Power for 3.53 TAGC Shares held by the TAGC Shareholders on the Final Record Date to be announced by Weichai Power and TAGC.

As required by the applicable regulations and procedures concerning the Guidelines and Guidance Opinions, TAGC held discussions with the TAGC Shareholders concerning the Merger Proposal for a period of 10 days after the release of the PRC announcement dated 1 September 2006 by TAGC in respect of the Merger Proposal. After such discussions, Weichai Power and TAGC have agreed that the prices of the TAGC Shares and the new Weichai A Shares mentioned above for the purpose of the Exchange Ratio, the Zhuzhou State Assets Co Gift Rate and the Cash Alternative Amount remain unchanged.

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LETTER FROM THE BOARD

5. CASH ALTERNATIVE

Subject to below, the Merger Proposal is accompanied by a Cash Alternative at the rate of RMB5.05 per TAGC Share to the TAGC Public Shareholders who elect not to receive in whole (or in part) their entitlements to Weichai A Shares, subject to the Merger Proposal becoming unconditional. Although InvestCo holds approximately 28.12% of TAGC’s issued shares, InvestCo will elect not to receive any cash payment under the cash alternative to be offered under the Merger Proposal.

The cash alternative will be made available by one or more third parties (who may (or may not) be securities underwriter or investment funds) (each a ‘‘Cash Alternative Provider’’) to be arranged by the listing sponsors to the Weichai A Share listing on the Shenzhen Stock Exchange. Weichai Power itself will not be a Cash Alternative Provider. For the TAGC Public Shareholders who elect to receive the Cash Alternative, the Cash Alternative Provider(s) will pay the Cash Alternative Amount to such TAGC Public Shareholders and such TAGC Public Shareholders will transfer their respective TAGC Shares to such Cash Alternative Provider(s), who will then become entitled to exchange such TAGC Shares with the new Weichai A Shares at the Exchange Ratio, provided that no single Cash Alternative Provider will, as a result of this arrangement, be issued such number of new Weichai A Shares amounting to more than the shareholding of Weichai Factory in Weichai Power’s issued shares following the completion of the Merger. After completion of the Merger Proposal, assuming that the shareholdings of the TAGC shareholders appearing in the shareholders’ list of TAGC as referred to in the paragraph headed ‘‘I. The Merger Proposal — 7. Effect of the Merger Proposal on the shareholdings in Weichai Power’’ below remain unchanged, Weichai Factory will remain as the single largest shareholder (other than HKSCC Nominees Limited, being the nominee of CCASS) of Weichai Power and there will be no change of control of Weichai Power.

As at the date of this circular, Weichai Power is in the process of negotiating with the potential Cash Alternative Provider(s). Upon finalization of the terms and entering into an agreement with the appropriate Cash Alternative Provider(s), Weichai Power will make a further announcement on the details of the cash alternative arrangements. Accordingly, as stated in the Merger Agreement, the identification of and entering into agreement with the appropriate Cash Alternative Provider(s) is a condition precedent to the completion of the Merger.

6. UNDERTAKINGS

Pursuant to an undertaking dated 31 August 2006, Zhuzhou State Assets Co has undertaken to Weichai Power that:
(a) it will transfer (by way of gift) a part of its holding of TAGC Shares to the TAGC Public Shareholders at the Zhuzhou State Assets Co Gift Rate, and such TAGC Shares so transferred by way of gift will also be exchanged for new Weichai A Shares at the Exchange Ratio. The above gift of TAGC Shares by Zhuzhou State Assets Co and issue of Weichai A Shares under the Merger Proposal will be completed at the same time; and
(b) it will not elect the Cash Alternative.
Pursuant to an undertaking dated 31 August 2006, InvestCo has undertaken to Weichai Power that it will not receive any Weichai A Shares or Cash Alternative in the Merger Proposal.
Pursuant to an undertakings dated 31 August 2006, Zhuzhou State Assets Co has undertaken to Weichai Power not to dispose of, or appoint other person to manage, its shares within a period of three years from the date they become listed on the Shenzhen Stock Exchange.

— 16 —

LETTER FROM THE BOARD

The holders of the Domestic Shares and Foreign Shares have also undertaken to Weichai Power that, following the listing of the Weichai A Shares on the Shenzhen Stock Exchange (the ‘‘Shenzhen Stock Exchange Listing’’), they will not dispose of their Weichai A Shares for a period of three years after the Shenzhen Stock Exchange Listing.

7. EFFECT OF THE MERGER PROPOSAL ON THE SHAREHOLDINGS IN WEICHAI POWER

The Merger Proposal, if implemented, will involve the issue of the Weichai A Shares, on the basis of the Exchange Ratio, by Weichai Power (which will have the same voting right as Weichai Power’s H Shares) to the shareholders of TAGC (other than InvestCo) as consideration for the cancellation of the respective TAGC Shares held by them, and TAGC will then cease to exist.

Based on the shareholders’ list of TAGC as at 27 October 2006, InvestCo was the single largest shareholder of TAGC; the second largest shareholder (namely, Zhuzhou State Assets Co) held approximately 7.95% of TAGC’s issued shares. The shares in TAGC are widely held, and, based on the said shareholders’ list, TAGC had 50,599 shareholders as at 27 October 2006. The third, fourth and fifth largest shareholders of TAGC held approximately 2.46%, 1.47% and 0.77%, respectively of TAGC’s issued shares.

On the basis of the Exchange Ratio and that TAGC has 936,286,560 shares in issue, of which 673,007,040 shares (being shares of TAGC in issue other than those held by InvestCo) will be cancelled pursuant to the Merger Proposal, Weichai Power will issue a maximum of 190,653,552 new Weichai A Shares, representing approximately 36.62% of Weichai Power’s total issued shares (as enlarged by the issue of such new Weichai A Shares). Accordingly, on the aforesaid basis, after the completion of the Merger, Weichai Power will have 520,653,552 shares in issue, comprising 126,500,000 H Shares, 169,250,000 Domestic Shares and 34,250,000 Foreign Shares which will also be tradable on the Shenzhen Stock Exchange as Weichai A Shares, and 190,653,552 new Weichai A Shares issued under the Merger Proposal. Accordingly, after the completion of the Merger and, pursuant to the requirement of the CSRC, as a consequence thereof, the Domestic Shares and Foreign Shares of Weichai Power will become Weichai A Shares and will also be listed on the Shenzhen Stock Exchange and rank pari passu in all respects with the new Weichai A Shares to be issued under the Merger. The H Shares will continue to be listed on the Hong Kong Stock Exchange.

As disclosed in the Weichai Power Prospectus, there was no PRC laws or regulations governing the definition and legal status of the Foreign Shares. Following the completion of the Merger Proposal, the Foreign Shares will become Weichai A Shares pursuant to the requirement of the CSRC. However, since the holders of such Foreign Shares (the ‘‘Foreign Holders’’) made their investments in the Foreign Shares in foreign currency, as advised by Weichai Power’s PRC legal advisers, the Foreign Holders will continue to be entitled to receive dividends in foreign currency and, in the event of the winding up of Weichai Power, to remit their share in the remaining assets (if any) of Weichai Power in foreign currency out of the PRC. Furthermore, as the Foreign Shares will become Weichai A Shares, all disputes between holders of the H Shares and the Weichai A Shares shall, pursuant to the (Mandatory Provisions for the Articles of Association of Companies to be Listed Overseas) and the Weichai Power Articles (as amended pursuant to the relevant resolution proposed at the Weichai Power Shareholders’ EGM), be settled by arbitration. The Weichai A Shares will not be PRC listed foreign shares (i.e. they are not ‘‘B shares’’).

On the basis of the above shareholders’ list of TAGC and assuming that the shareholdings of Weichai Power’s shareholders as outlined in the charts below remain unchanged, the completion of the Merger will not result in a change of control of Weichai Power.

— 17 —

LETTER FROM THE BOARD

The distribution of the shareholders of Weichai Power and their respective shareholding interests in Weichai Power before and after the completion of the Merger Proposal are as follows:

(a) Immediately before the completion of the Merger Proposal (as at the Latest Practicable Date)

==> picture [387 x 161] intentionally omitted <==

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

24 natural
persons
Fujian Weichai Holders of
Peterson IVM
Longgong Factory H Shares
7.12% 6.52% 3.26% 23.53% 38.33%
Guangxi Weifang Shenzhen Shandong
4.48%
Liugong Investment Investment Trust
1.36% 5.85% 6.52% 3.03%
Weichai Power
----- End of picture text -----*

Notes: * These are holders of Domestic Shares.

** These are holders of Foreign Shares.
(b) Immediately after the Merger Proposal (assuming that the shareholdings of Weichai Power’s shareholders as outlined in the above chart remain unchanged)

==> picture [435 x 170] intentionally omitted <==

Notes: # These shares will only become Weichai A Shares after the Merger. # # These Weichai A Shares will be issued pursuant to the Merger.

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LETTER FROM THE BOARD

8. REASONS FOR AND BENEFITS OF THE MERGER PROPOSAL

The Directors believe that the Merger Proposal is a unique market opportunity where TAGC can be acquired which will create valuable synergistic opportunities and expand the product breadth of the existing Weichai Power product base. Both Weichai Power and TAGC’s main products are part of the heavy-duty trucks market and TAGC is also a major assembler of heavy-duty trucks with Shaanxi Zhongqi. The heavyduty trucks market is generally defined as trucks with a load capacity of over 14 tons gross vehicle weight and has been a growing industry within China due to the improvements in infrastructure as well as the growth in the construction business. Weichai Power plans to use this opportunity to form a larger consolidated business in the heavy-duty trucks market that will create new business opportunities and result in positive synergistic effects.

(a) Enhance positioning in the heavy-duty truck value chain

Weichai Power is a market leader in the heavy-duty trucks diesel engine business and the TAGC Group is a market leader in the markets in which they compete including transmissions, axles and spark plugs for the heavy-duty trucks market. The TAGC Group is also one of the top five producers of heavy-duty trucks in China with Shaanxi Zhongqi. The Enlarged Group creates a greater breadth of products that the Weichai Power management team can control and grow in the heavy-duty trucks market. Due to the complementary nature of these businesses, the Directors believe that the Enlarged Group will be a dominant player in the heavy-duty trucks market.

With the combination of Weichai Power’s diesel engines and TAGC Group’s transmissions and axles, the Enlarged Group will be a leader with the ability to provide an integrated power train for heavy-duty trucks. The power train for the heavy-duty trucks market is a key component to truck assembly due to the practical nature of their benefits. As the leader within this sub-market and its major components, Weichai Power would be able to better position itself as the provider of choice for the heavy-duty trucks market.

With complementary products in the same general market, research and development efforts could be enhanced through greater collaboration including the development of integrated systems that could increase quality and efficiency. With further integration, Weichai Power will be able to enhance the entire product line for the industry with the potential for higher margins and market share growth.

(b) Create effectiveness and synergies

Since the acquisition of 28.12% of the equity interest in TAGC through InvestCo in November 2005, Weichai Power became the controlling shareholder of TAGC and has become more involved in the day-to-day management of TAGC including holding the chairman position and three additional seats on the board of directors of TAGC. Through this intimate interaction, Weichai Power has become familiar with TAGC’s operations and its people. The Merger solidifies this relationship and removes barriers that were between the two companies that limited the synergistic opportunities that could be realized through a fully merged enterprise.

Cost Synergies

Both the Weichai Power Group and the TAGC Group operate in the heavy-duty trucks market as parts producer and truck assembler. Due to the complementary nature of their respective businesses, there are opportunities to reduce duplicate functions in both companies to create a unified force and reduce costs. Many administrative functions can be consolidated under a single management team. After-sales services centres for parts and services, supply chains and

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LETTER FROM THE BOARD

certain sales channels could be consolidated, creating both cost savings for the Enlarged Group as well as increasing customer satisfaction by moving such services into an integrated sales network.

Revenue Synergies

Both the Weichai Power Group and the TAGC Group have different sales chains that the Enlarged Group will be able to integrate and create more outlets for the Enlarged Group’s products. This increased sales network and capability could provide greater push into the market. Additionally, incentives for current customers of one product may be able to help pull other associate products to increase the revenues of the Enlarged Group.

The Directors believe that in particular the acquisition of TAGC provides an opportunity to leverage the sale of Weichai Power’s products to the TAGC Group’s transmissions customers. SFGC is the dominant market leader in the production of heavy-duty trucks transmissions and leveraging that position to push Weichai Power engines will create more revenue opportunities for Weichai Power’s engines.

Finance Synergies

The Enlarged Group’s financial position, created through the financial strength of Weichai Power, will have a greater ability to restructure financing in a more efficient and optimal manner. If current market conditions continue, the Directors believe that the associated financial costs of the TAGC Group could be reduced. This reduction in financial costs will increase net income and allow capital to be more efficiently redeployed into the businesses and thus enhancing shareholders’ returns.

(c) Create a more streamlined organisation

Through the Merger, management will be consolidated and time and resources will be saved by having less overheads and a simplified organisational structure. Improvements and efficiencies will be achieved through a more direct management chain offering better control of TAGC’s subsidiaries and will provide enhanced efficiency in the overall operation of the Enlarged Group.

Current structure Post-Merger structure

==> picture [185 x 196] intentionally omitted <==

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

Weichai Power
100%
InvestCo
28.12%
TAGC
51% 51%
Other
Shaanxi subsidiaries
SFGC
Zhongqi and
associates
----- End of picture text -----

==> picture [186 x 109] intentionally omitted <==

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

Weichai Power
51% 51%
Other
Shaanxi subsidiaries
SFGC
Zhongqi and
associates
----- End of picture text -----

— 20 —

LETTER FROM THE BOARD

For the reasons stated above, the Directors believe that the terms of the Merger Proposal are fair and reasonable and in the interests of the Shareholders as a whole.

9. INFORMATION ON WEICHAI POWER

Weichai Power is established under PRC law as a limited company on 23 December 2002. Its H Shares are listed on the Hong Kong Stock Exchange.

Weichai Power is principally engaged in the research and development, manufacturing and sale of high-speed heavy-duty diesel engines and engine parts.

As at the Latest Practicable Date, Weichai Factory held approximately 23.53% of the issued share capital of Weichai Power.

For the three years ended 31 December 2005 and the six months ended 30 June 2006 (or as at 31 December 2003, 2004 or 2005, or 30 June 2006 (as the case may be)), the turnover, profit before taxation, net profit attributable to the equity holders of Weichai Power and net assets of the Weichai Group, prepared in accordance with the HKFRS, are as follows:

				Six months
				ended
				30 June
				(unless
	Year ended 31 December			otherwise
	(unless	otherwise indicated)		indicated)
	2003	2004	2005	2006
	RMB’000	RMB’000	RMB’000	RMB’000
	(audited)	(audited)	(audited)	(unaudited)
Turnover	3,555,670	6,155,779	5,250,735	3,493,590
Profit before taxation	455,493	738,738	410,602	391,016
Net profit attributable to equity holders of Weichai
Power	277,468	533,254	315,203	318,742
Total assets (as at 31 December or 30 June
as the case may be)	2,371,908	4,914,308	5,611,955	6,602,561
Net assets (as at 31 December or 30 June as the
case may be)	474,500	2,156,721	2,460,961	2,727,176

The financial information of the Weichai Group for the three years ended 31 December 2005 and the six months ended 30 June 2006 is set out in appendix IA to this circular and the management discussion and analysis of the results of the Weichai Group for the same periods are set out in appendix IB to this circular.

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LETTER FROM THE BOARD

10. INFORMATION ON THE TAGC GROUP

The TAGC Group is one of China’s leading automobile groups and is principally engaged in the manufacture and sale of heavy-duty trucks and motor vehicle parts and accessories (which include heavyduty vehicle transmissions, spark plugs, axles, chassis, air-conditioner compressors, etc.) for heavy-duty trucks. The TAGC Group is also engaged in the manufacture and sale of metal products (such as metal fencing) and general trading.

TAGC

TAGC was established under PRC law as a joint stock limited company on 17 December 1993 and its shares are listed on the Shenzhen Stock Exchange. TAGC is principally engaged in investment holding. During the financial years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006, TAGC principally derived its income from the operations of its subsidiaries, and other investments.

As at the Latest Practicable Date, InvestCo, a wholly-owned subsidiary of Weichai Power, held approximately 28.12% of the issued share capital of TAGC.

As at the Latest Practicable Date, TAGC had 39 subsidiaries. Amongst TAGC’s subsidiaries, SFGC (a 51% subsidiary of TAGC) and Shaanxi Zhongqi (a 51% subsidiary of TAGC), together, accounted for approximately 74% of the revenues of the TAGC Group for the six months ended 30 June 2006. The other subsidiaries of TAGC, together, accounted for approximately 26% of the total revenues of the TAGC Group for the six months ended 30 June 2006. For the three financial years ended 31 December 2003, 2004 and 2005, and for the six months ended 30 June 2006, the net profit contribution from SFGC and Shaanxi Zhongqi to the TAGC Group (before inter-group elimination) were approximately RMB66.1 million, RMB723.3 million, RMB306.7 million and RMB230.3 million, and approximately RMB102.9 million, RMB125.0 million, RMB60.9 million and RMB54.7 million respectively.

SFGC

SFGC was established under PRC law as a limited liability company on 28 September 2001. It is 51% held by TAGC and 49% held by (Shaanxi Automobile Gear Factory).

SFGC is principally engaged in the manufacture, sale, design and development of transmissions and other motor vehicle parts and components such as gears. It is the largest manufacturer of transmissions for heavy duty trucks in the PRC.

Products

The major products produced and sold by SFGC are transmissions and parts and components. For the six months ended 30 June 2006, the sales of transmissions were approximately RMB1,161,923,600, representing approximately 83% of the total sales of SFGC.

The major transmissions manufactured by SFGC are heavy-duty vehicles transmissions. Such transmissions adopt the technologies of twin-countershaft, floating main shaft and double-H operation mechanism and have the following characteristics and advantages: compact size, low noise emission, and stable, smooth and reliable operation. For the six months ended 30 June 2006, the sales of heavy-duty vehicle transmissions were approximately RMB1,129,596,000, representing approximately 97% of the total sales of SFGC.

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LETTER FROM THE BOARD

Production facilities

SFGC’s principal production facilities include three plants.

The Xi’an Plant has been in operation since 1985, occupying an area of over 260,000 square metres. It is the major plant of SFGC for the production of transmissions and gears.

The Fast Baoji Plant has been in operation since 12 September 1968, occupying an area of approximately 366,667 square metres. It is used for the manufacture of semi-finished parts for the production of transmissions by SFGC.

The Hi-Tech Plant was constructed with an investment of more than RMB500 million and has been in operation since 28 September 2005. It occupies an area of over 460,000 square metres. It is mainly used for the production of transmissions and certain vehicle parts and components.

Sales and after-sales services networks

The sales of the products of SFGC are conducted by SFGC directly at its sales centres. As at the Latest Practicable Date, SFGC had approximately 30 sale centres in the PRC.

SFGC provides after-sales services to its customers through its sales agents. As at the Latest Practicable Date, SFGC had approximately 1,000 maintenance stations in the PRC providing maintenance services.

Shaanxi Zhongqi

Shaanxi Zhongqi was established under PRC law as a limited liability company on 19 September 2002. It is 51% held by TAGC and 49% held by (Shaanxi Automobile Group Co., Ltd.).

Shaanxi Zhongqi is principally engaged in the manufacture and sale of heavy-duty vehicles and parts and components of heavy-duty vehicles. It is one of the five largest heavy-duty truck manufacturers in the PRC in 2005 in terms of revenue. During the financial years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006, the EBITDA and net profits of Shaanxi Zhongqi were approximately RMB188,087,800, RMB219,307,200, RMB168,910,300 and RMB129,167,000, and approximately RMB102,918,400, RMB124,955,000, RMB60,989,900 and RMB54,675,200, respectively.

Products

The major products of Shaanxi Zhongqi are heavy-duty vehicles, which can be divided into four main categories in terms of use, namely, trucks, tractors, dump trucks and special-purpose vehicles. For the six months ended 30 June 2006, the sales of heavy-duty trucks were approximately RMB2,917,610,000, representing approximately 90% of the total revenue of Shaanxi Zhongqi.

Shaanxi Zhongqi’s trucks are used for the carriage of goods, whilst its tractors are usually used for towing in ports; its dump trucks are mainly used for transporting loose materials for construction engineering and its special-purpose vehicles are produced for specific needs, including concrete stirring vehicles and freezer vehicles.

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LETTER FROM THE BOARD

The major heavy-duty vehicles produced and sold by Shaanxi Zhongqi are the (O’Long Series) and (D’Long Series). O’Long Series vehicles were developed by Shaanxi Zhongqi based on the technologies imported from Steyr in the 1980s. The O’Long Series vehicles have the typical Steyr advantages of being reliable, comfortable and durable. The D’Long Series vehicles commenced trial production in 2004 and it was developed based on a technology transfer agreement between MAN of Germany and Shaanxi Zhongqi. This series is technologically more advanced compared to the O’Long Series.

Production facilities

Shaanxi Zhongqi’s manufacturing operations are located in two facilities in Xi’an, occupying a total area of approximately 1,870,000 square metres.

The Shaanxi Automobile Commercial Vehicle Industrial Park is the main facility used by Shaanxi Zhongqi for the production of heavy-duty vehicles. Established with an investment of approximately RMB850 million and occupying an area of approximately 1,598,400 square metres, this facility has been in operation since 28 December 2005.

The Eastern Base has been in operation since 1985 and it occupies an area of approximately 273,000 square metres. It is mainly used for the production of special-purpose vehicles.

Sales and after-sales services networks

The sales of the products of Shaanxi Zhongqi are conducted through its sales agents. As at the Latest Practicable Date, Shaanxi Zhongqi had a sales network of over 300 sales centres in the PRC.

Shaanxi Zhongqi provides after-sales services to its customers through the services stations operated by its sales agents. As at the Latest Practicable Date, Shaanxi Zhongqi had over 400 after-sales services stations in the PRC providing the maintenance services.

Other TAGC subsidiaries

Other subsidiaries of TAGC include (Torch Spark Plug Co., Ltd.), a 97.5% subsidiary of TAGC (‘‘TSPC’’), (Mudanjiang Futong Auto Air Conditioner Co., Ltd.), a 51% subsidiary of TAGC (‘‘Mudanjiang Futong’’), and (Zhuzhou Torch Machinery Manufacturing Co., Ltd.), a wholly-owned subsidiary of TAGC (‘‘Zhuzhou Torch Machinery’’). TSPC is principally engaged in the production and sale of spark plugs, Mudanjiang Futong is principally engaged in the production and sale of air-conditioner compressors and Zhuzhou Torch Machinery is principally engaged in the production and sale of automobile parts such as piston pins, jibs, handspikes and rocker axles.

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LETTER FROM THE BOARD

For the three years ended 31 December 2005 and the six months ended 30 June 2006 (or as at 31 December 2003, 2004 or 2005, or 30 June 2006 (as the case may be)), the turnover, profit before taxation, net profit attributable to the TAGC Shareholders, total assets and net assets of the TAGC Group, prepared in accordance with the Hong Kong Financial Reporting Standards, are as follows:

						Six months
						ended 30
						June
						(unless
			Year	ended 31 December		otherwise
			(unless	otherwise indicated)		indicated)
			2003	2004	2005	2006
			RMB’000	RMB’000	RMB’000	RMB’000
			(audited)	(audited)	(audited)	(audited)
Turnover			11,063,355	12,399,814	7,995,568	5,870,070
Comprising:	—	Manufacture and sale of
		automobiles and
		transmissions	6,354,756	8,385,075	5,266,540	4,323,726
	—	Manufacture and sale of
		automobile components	948,688	1,381,931	1,401,911	739,991
	—	Provision of import and
		export services	3,030,677	1,795,833	790,395	377,720
	—	Others	729,234	836,975	536,722	428,633
Profit before taxation			716,532	850,693	457,651	373,099
Net profit after taxation attributable to the TAGC
Shareholders			218,322	220,586	150,047	115,915
Total assets (as	at 31 December or 30 June,
as the case may be)			9,816,671	8,740,950	8,013,550	9,597,237
Net assets (as at	31 December or 30 June, as the
case may be)			2,808,643	2,767,921	2,999,771	3,263,736

The financial information of the TAGC Group for the three years ended 31 December 2005 and the six months ended 30 June 2006 is set out in appendix IIA to this circular and the discussion and analysis of the results of the TAGC Group for the same periods are set out in appendix IIB to this circular.

The accountants’ report as set out in appendix IIA to this circular includes a disclaimer opinion in respect of TAGC Group’s results and cash flows for each of three years ended 31 December 2005 and its financial position as at 31 December 2003 and 2004 because the reporting accountants were unable to (i) carry out procedures they considered necessary in respect of certain subsidiaries that were disposed of during these periods (the books and records of which were passed to the new owners); (ii) obtain sufficient documentary evidence to substantiate TAGC Group’s assertion that it had control over an entity (and therefore had it consolidated) during the two years ended 31 December 2004 and (iii) to rely on the representation from the current TAGC Board regarding the truth and fairness of the statutory accounts of TAGC for each of the two years ended 31 December 2004 as a basis for the preparation of the accountants’ report because the current TAGC Board does not represent that the statutory accounts of TAGC for the said period are free from material misstatements as a result of TAGC Group’s involvement in certain alleged

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LETTER FROM THE BOARD

irregularities in connection with a former shareholder*. However, in the opinion of the reporting accountants, the financial information together with the notes thereto included in the accountants’ report gives a true and fair view of the state of affairs of the TAGC Group and TAGC as at 31 December 2005 and 30 June 2006 and of the consolidated profits and cash flows of the TAGC Group for the six months ended 30 June 2006.

The disclaimer opinion from the reporting accountants arose from the limitation of their procedures relating to a period prior to the election of certain Weichai Power-nominated directors onto the TAGC Board in December 2005. In assessing the financial impact of the Merger, the Directors consider that the most recent financial information of TAGC Group is of more relevance to Weichai Power. As the reporting accountants are able to opine positively on the state of affairs of the TAGC Group and TAGC as of 30 June 2006 and on the consolidated profits and cash flows of the TAGC Group for the six months then ended, the Directors consider that they have a sufficient basis to form their view as to the financial impact of the Merger.

Note * The Company understands that, in 2004, TAGC and two of its directors were publicly reprimanded by the Shenzhen Stock Exchange because the TAGC Group provided financial assistance (in terms of advances and guarantees) to its then single largest shareholder, Xinjiang D’long (Group) Co., Ltd. ( ) (‘‘D’Long’’), and its affiliates without appropriate approval and timely disclosures. As at 31 December 2005, the advances and guarantees were either repaid or provided for in the accounts of TAGC to the extent considered necessary. However, in the absence of a detailed investigation of all the transactions of the TAGC Group for the period when it was under the control of D’Long, the current TAGC Board is unable to represent whether there were other irregularities not disclosed in the TAGC accounts for each of the two years ended 31 December 2004. For details, please refer to note 1 to appendix IIA to this circular.

11. BUSINESS TRENDS

As mentioned above, Weichai Power is principally engaged in the research and development, manufacturing and sale of high-speed heavy-duty diesel engines and engine parts. Such diesel engines are mainly used in heavy-duty vehicles, construction machinery and coaches. TAGC is an investment holding company. The principal operating subsidiaries of TAGC are principally engaged in the manufacture and sale of heavy-duty trucks and related motor vehicle parts and accessories. Below is a discussion and analysis on the business trends of the relevant industries.

Overview

In recent years, the State’s macroeconomic policies and the rapid growth of fixed assets and infrastructure investments in the PRC, such as those under the (State’s North-West Great Development Strategy) and in relation to the Beijing 2008 Olympic Games, have stimulated the development of the heavy-duty vehicles and construction machinery industries. Since 2006, in line with the continual rapid growth of domestic economy in the PRC, the transportation vehicles, engineering vehicles and large construction machinery industries have entered into a rapid growth period and the trend of development of diesel engines for trucks and construction machinery is gearing towards the heavy-duty spectrum. On the other hand, the advancement of urbanisation, highway construction and blooming of tourism will lead to a rapid growth of the coaches market. In 2007, with the continual rapid growth of the economy of the PRC and the State’s macroeconomic policies, the Directors are of the view that the heavyduty vehicles, construction machinery and coaches industries will continue to grow steadily.

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LETTER FROM THE BOARD

Heavy-duty vehicles industry

According to the statistics published by (China Automobile Industry Sales News), a polarisation trend has emerged in the development of the automobile industry in 2006, i.e. the sales of medium heavy-duty trucks showed a significant decline while there was a substantial increase in the sales of heavy-duty trucks with a load capacity of 15 tons (or above). In view of the current industry developments, the Directors estimate that the sales of heavy-duty vehicles will increase by approximately 14% in 2006 as compared to 2005, reaching an aggregate of approximately 270,000 units. From 2006 to 2007, with the completion of the construction and improvement of highway networks in the PRC, the market of transportation vehicles for logistic purposes will enter into a rapid growth period, and the development of the structure of the heavy-duty vehicles will further move towards the high-power and heavy-duty end of the spectrum.

The Directors estimate that in 2007, the demand for heavy-duty trucks complying with the State II ( ) emission standard will continue to grow steadily, and the sales of heavy-duty trucks with a load capacity of 8 tons (or above) will increase by approximately 10%, reaching an aggregate of approximately 280,000 to 300,000 units. In addition, since the State III ( ) emission standard has been implemented in certain major PRC cities such as Beijing, Shanghai and Guangzhou, diesel engines complying with the State III ( ) emission standard have also been introduced in the market, although the aggregate volume of sales is still relatively low.

Construction machinery industry

The continuing rapid growth of the domestic economy and increase in the investments in infrastructure facilities in the PRC have brought about many construction related projects, which have in turn led to a further increase in the demand for construction machinery. According to the statistics published by (China Construction Machinery Committee), in the first half of 2006, the construction machinery market experienced a growth of approximately 15%. For the first eight months of 2006, led by wheel-loaders with a load capacity of 5 tons (or above) and excavators, the growth in the sales of large construction machinery products have reached approximately 20%, outpacing the construction machinery industry as a whole.

The Directors estimate that in 2007, with the continual steady increase in the investments in infrastructure facilities in the PRC (such as the redevelopment of old cities, construction of small cities and energy projects, etc.), the construction machinery industry will continue to grow.

Coaches industry

The development of the coaches market in the PRC is mainly affected by factors such as macroeconomic environment, urbanisation development and highway construction.

According to the statistics published by (Chinaauto.net), in the first eight months of 2006, the sales of medium to large sized coaches with a length of 7 metres (or above) were approximately 60,410 units, representing a growth of approximately 24.5% from the same period in 2005. In particular, the sales of large coaches with a length of 10 metres (or above) and those with a length of 10 to 11 metres have increased by 26.3% and 43.1%, respectively.

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LETTER FROM THE BOARD

The Directors estimate that such a trend will continue in 2007 for the following reasons:

Accelerated advancement of urbanisation

With the redevelopment of old cities, expansion of small and medium sized cities and urbanisation of the rural areas underway, the demand for public transport vehicles and replacement of the old vehicles has increased, which is expected to lead to the continued growth of the coaches market. The trend of the development of public transport vehicles in the PRC is gearing towards the luxurious and comfortable end of the market, with a low emission and heavy duty, for example, the vehicles used in the (18-metre high-speed public transport high-speed passage project), which is being implemented gradually in the major cities in the PRC, are mainly large coaches with a length of 12 metres (or above).

Highway networking

With the completion and improvement of the highway networking in 2006 and 2007 and the development of connections between major cities are enhanced, resulting in the emergence of more city circles. The Directors believe that this will lead to the demand for efficient and comfortable longdistance transportation vehicles, and heavy-duty and luxurious coaches will be a solution.

Industrialisation of tourism

With the continued economic development of the PRC, increase in wealth of the general public and the increase in the publicity and awareness of the PRC as a tourist destination, the number of domestic and overseas tourists in China has increased. This increases the pace of the development of the tourism industry, which will in turn lead to an increase in demand for large coaches for tourism purposes.

12. CREDITORS’ RIGHT AS A RESULT OF THE MERGER PROPOSAL

Under the PRC Company Law, in the case of a merger by absorption concerning a PRC established company and that the merger has been approved by the relevant shareholders’ meetings, each of the surviving company (in this case, Weichai Power) and the company being absorbed (in this case, TAGC) will need to notify their respective creditors within ten days after the shareholders’ meeting(s) of each such company of their right to require their respective debtor companies to repay their debts or provide the appropriate guarantee in respect of such debts (the ‘‘Creditor’s Repayment Right’’) provided that (i) any creditor who has received such notice in writing and wishes to exercise such right shall within a period of 30 days, and, with respect to any creditors who has not been sent such notice in writing and who wishes to exercise such right, such creditor shall within a period of 45 days commencing the date of the announcement of the relevant debtor company, notify its debtor company in writing of its intention to do so, and (ii) the relevant merger proposal becomes unconditional in all respects.

Accordingly, it is only if and when:

(i) the Merger Proposal shall have been approved at the Weichai Power EGMs and the TAGC EGMs, then the creditors of Weichai Power and TAGC shall be entitled to exercise the abovementioned right, and
(ii) the Merger Proposal becomes unconditional in all respects, then Weichai Power and TAGC shall become obliged to meet any demand made pursuant to their respective creditors’ Creditor’s Repayment Right.

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LETTER FROM THE BOARD

Weichai Power’s indebtedness position

As at 30 September 2006, Weichai Power had total liabilities of approximately RMB4,180.4 million, out of which approximately RMB230.7 million was bank borrowings. Creditors in respect of such bank borrowings in an aggregate of approximately RMB152.0 million have each signed a confirmation to Weichai Power to the effect that:

(a) they are aware of the Merger Proposal and the effect thereof with respect to their rights; and
(b) they agree to and support the Merger Proposal, agree not to demand early repayment of their lendings pursuant to their Creditor’s Repayment Right.

As at 30 September 2006, the total liabilities of Weichai Power (other than the above bank borrowings) amounted to approximately RMB3,949.7 million, of which (i) approximately RMB523.7 million represented amounts due to Weichai Factory (being the aggregate of the then instalment payments which remained payable as scheduled after 30 September 2006 for the acquisition by Weichai Power of the trademarks and technologies from Weichai Factory, further details of the aforesaid payments were set out in the Weichai Power Prospectus) and to certain subsidiaries of Weichai Power, and (ii) approximately RMB2,068.6 million represented accounts payables (including suppliers) of Weichai Power. Weichai Factory and the aforesaid subsidiaries of Weichai Power and suppliers have each given a confirmation on terms similar to that referred to in paragraphs (a) and (b) above.

Accordingly, the aggregate of the above bank borrowings, accounts payables and other liabilities without the benefit of the agreement of the relevant creditors not to exercise their Creditor’s Repayment Right amounted to approximately RMB1,436.1 million (the ‘‘Unsupported Weichai Power Liabilities’’).

As at 30 September 2006, Weichai Power had cash in hand of approximately RMB528.7 million and undrawn banking facilities of not less than approximately RMB2,187.5 million.

Therefore, since the Unsupported Weichai Power Liabilities, amounted to approximately RMB1,357.4 million in aggregate, which was substantially less than the aforesaid cash in hand and undrawn banking facility of not less than approximately RMB2,716.2 million in aggregate, the Directors are confident that any exercise by the creditors of Weichai Power of their Creditor’s Repayment Right can be satisfactorily resolved and met. (Note: In addition, Weichai Power has also received indicative offers for banking facilities in the aggregate sum of approximately RMB1,294.4 million.)

TAGC’s indebtedness position

On 22 May 2006, TAGC entered into a debt restructuring framework agreement (the ‘‘TAGC Debt Restructuring Framework Agreement’’) with certain of its creditors (the ‘‘Principal TAGC Creditors’’) in respect of TAGC’s bank borrowings in an aggregate of approximately RMB1,007.0 million (the ‘‘TAGC Debts’’) for the purpose of restructuring the TAGC Debts, conditional upon the approval by the State Council (if and when such approval is obtained, a separate announcement will be made). Under the TAGC Debt Restructuring Framework Agreement, TAGC agrees to repay the TAGC Debts over a period of seven years with the last instalment due in 2012. The TAGC Debt Restructuring Framework Agreement contains certain covenants (the ‘‘TAGC Covenants’’) that need to be observed by TAGC, which following the completion of the Merger will become binding on Weichai Power. A summary of the principal TAGC Covenants is as follows:

(a) TAGC shall implement an asset disposal plan with respect to its equity interest in MAT Automobile Inc. and apply the proceeds to the repayment of the TAGC Debts;

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LETTER FROM THE BOARD

(b) the debt to assets ratio (on an unconsolidated basis) shall not be higher than 55%;
(c) with respect to any proposed new financings, the following conditions must be satisfied:
(i) if the financing is for business development purpose, the accumulated principal repayment with respect to the TAGC Debts shall not be less than 25% at the relevant time;
(ii) after the financing, the debt to assets ratio (on an unconsolidated basis) shall not be higher than 55%;
(d) the net operating cashflow after interest expense and taxation shall first be applied in the repayment of TAGC Debts; and the dividends payable shall not be more than 50% of the principal of the TAGC Debts to be repaid in the relevant year.

Weichai Power and TAGC are in discussion with the Principal TAGC Creditors with a view to seeking the agreement of the Principal TAGC Creditors that they agree not to demand early repayment of their lendings and waive the TAGC Covenants. Certain Principal TAGC Creditors (aggregating approximately RMB431.0 million) have undertaken that they will not exercise their Creditor’s Repayment Right. There is no assurance that (i) the other Principal TAGC Creditors will agree to the aforesaid request of Weichai Power and TAGC not to demand early repayment of their lendings, and (ii) all the Principal TAGC Creditors will agree to waive the TAGC Covenants. In the event that the Principal TAGC Creditors do not agree to the aforesaid requests of Weichai Power and TAGC that they will not demand early repayment of their lendings and will waive the TAGC Covenants, subject to completion of the Merger taking place, it is the intention of Weichai Power to repay the TAGC Debts in full. The receipt of the State Council’s approval of the TAGC Debt Restructuring Framework Agreement is a condition precedent of the Merger Agreement. (Please refer to the section headed ‘‘I. The Merger Proposal — 3. Merger Agreement’’ above for details.)

As at 30 September 2006, TAGC had total liabilities of approximately RMB1,519.8 million, out of which approximately RMB1,007.0 million was bank borrowings under the TAGC Debt Restructuring Framework Agreement, approximately RMB121.2 million was other bank borrowings and approximately RMB328.8 million represented amounts due to certain subsidiaries of TAGC. Certain creditors being banks (including certain of the Principal TAGC Creditors aggregating approximately RMB431.0 million) and the aforesaid subsidiaries of TAGC representing in total approximately RMB782.8 million in liabilities of TAGC have each given a confirmation that they will not exercise their Creditor’s Repayment Right.

Accordingly, the aggregate of the above total liabilities without the benefit of the agreement of the relevant creditors not to exercise their Creditor’s Repayment Right amounted to approximately RMB737.0 million (the ‘‘Unsupported TAGC Liabilities’’).

The Directors are confident that with Weichai Power’s cash in hand and undrawn banking facilities in the aggregate sum of RMB2,716.2 million (as mentioned above), which is significantly higher than the combined Unsupported Weichai Power Liabilities and the Unsupported TAGC Liabilities of approximately RMB2,094.4 million, any exercise of the Creditor’s Repayment Right can be satisfactorily resolved and met.

13. LISTING RULES IMPLICATIONS

In the financial year of 2005, the consolidated revenue of the Weichai Power Group was approximately RMB5,250,735,000 and the consolidated revenue of the TAGC Group was approximately RMB7,995,568,000, and as at 30 June 2006, the consolidated total assets of the Weichai Power Group

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LETTER FROM THE BOARD

amounted to approximately RMB6,602,561,000 and the consolidated total assets of the TAGC Group amounted to approximately RMB9,597,237,000. Accordingly, based on the revenue ratio and assets ratio under Chapter 14 of the Listing Rules, the Merger Proposal (if it is implemented, becomes unconditional and is completed) will constitute a very substantial acquisition of Weichai Power under Chapter 14 of the Listing Rules and is therefore subject to the prior approval of the Weichai Power Shareholders. However, the Merger Proposal will not constitute a reverse takeover under Chapter 14 of the Listing Rules.

14. FINANCIAL EFFECTS OF THE MERGER PROPOSAL

Upon completion of the Merger, the assets and liabilities of TAGC will be absorbed and assumed by Weichai Power, and TAGC will cease to exist, the financial results of TAGC will be consolidated into those of Weichai Power after completion of the Merger Proposal.

Assuming that the consideration is fully settled by the exchange of Weichai A shares for TAGC A shares at the Exchange Ratio, the consolidated net assets of the Enlarged Group will be approximately RMB8,345.9 million, representing an increase of approximately 206.0% as compared to the consolidated net asset value of Weichai Power as at 30 June 2006, which was approximately RMB2,727.2 million, and the gearing ratio of the Enlarged Group, which is determined by dividing the total liabilities by the total assets, will be decreased from approximately 58.7% as at 30 June 2006 to approximately 54.8% immediately following the completion of the Merger.

During the six months ended 30 June 2006, the net profit attributable to the equity holders of Weichai Power stand-alone was approximately RMB318.7 million. Based on a pro forma basis and assuming the Merger was completed on 1 January 2006, the net profit attributable to the equity holders of the Enlarged Group during the same period will be increased to approximately RMB328.7 million.

The Board is of the view that the Merger would be conducive to enhancing the operating efficiency and competitive edge of the Group and would result in cost savings and enhancement of earnings of the Group.

Pro forma financial information of the Enlarged Group as at 30 June 2006

The consolidated total assets of the Weichai Power Group as at 30 June 2006 were approximately RMB6,602.6 million. As ascertained from the unaudited pro forma assets and liabilities statements of the Enlarged Group (as set out in appendix III to this circular), the pro forma total assets of the Enlarged Group (prepared on the basis as set out in appendix III to this circular) would amount to approximately RMB18,464.7 million, representing an increase of approximately 179.3% as compared to the consolidated total assets of the Weichai Power Group as at 30 June 2006. The total liabilities of the Weichai Power Group as at 30 June 2006 were approximately RMB3,875.4 million. The pro forma total liabilities of the Enlarged Group (prepared on the basis as set out in appendix III to this circular) would amount to approximately RMB10,118.6 million, representing an increase of approximately 161.1% as compared to the consolidated total liabilities of the Weichai Power Group as at 30 June 2006.

15. FINANCIAL AND TRADING PROSPECTS OF THE WEICHAI POWER GROUP AND THE TAGC GROUP

(a) General

Weichai Power is one of the leading diesel engine manufacturers in China, specializing in highspeed heavy-duty diesel engines, which are mainly used in heavy-duty vehicles and construction machineries.

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LETTER FROM THE BOARD

TAGC Group is one of the leading truck assembly and truck components manufacturing groups in China. The Board has been reviewing the business operations of the TAGC Group with a view to integrating its core business and further consolidating its truck assembly and spare parts manufacturing businesses into Weichai Power. The Board believes the Merger Proposal would substantially enhance Weichai Power’s fundamental competitive edge in the heavy duty truck industry.

In anticipation of the increasing demand of diesel engines in the domestic and international markets, the Board is optimistic about the future prospects of the Weichai Power Group’s business and operating results. Upon completion of the Merger, the Weichai Power Group will continue to focus on its diesel engine manufacturing business. Additionally, in an effort to further expand and strengthen the Weichai Power Group’s customer base and revenue stream, the Group will continue to actively seek to penetrate into new markets. With the Weichai Power Group’s consistent efforts in cost control and expansion of production capabilities, the Board believes that the Weichai Power Group’s internal objectives for the current year can be achieved.

Given the strength of its leading position in the diesel engine manufacturing industry in China, production scale, comprehensive product portfolio, strong customer base and professional management, the Weichai Power Group will be able to fully leverage the opportunities created through industry consolidation. The Weichai Power Group will adhere to its alliance strategy with foreign corporations, keep abreast of global trends of diesel engines development, collaborate with world-renowned enterprises and famous brands and adopt advanced technology in products, with a view to leading the development of the high speed heavy-duty diesel engine industry and creating better returns for our shareholders.

(b) Operating performance in second half of 2006

Weichai Power is principally engaged in the research and development, manufacturing and sale of high-speed heavy-duty diesel engines and engine parts. The operating environment of Weichai Power remains relatively stable in the second half of 2006 to-date. In the six months ended 30 June 2006, Weichai Power sold approximately 83,000 units of diesel engines. The Directors expect that for the year ending 31 December 2006, Weichai Power will sell not less than 145,000 units of diesel engines (2005: 114,000 units). Average per unit selling price of Weichai Power’s diesel engines and the gross profit margin for the second half of 2006 to-date remain relatively stable.

TAGC is principally engaged in investment holding. Amongst TAGC’s subsidiaries, SFGC (a 51% subsidiary of TAGC) and Shaanxi Zhongqi (a 51% subsidiary of TAGC), together, accounted for approximately 74% of the revenues of the TAGC Group in the six months ended 30 June 2006. SFGC is principally engaged in the manufacture, sale, design and development of transmissions and other motor vehicle parts and components such as gears. Shaanxi Zhongqi is principally engaged in the manufacture and sale of heavy-duty vehicles and parts and components of heavy-duty vehicles.

The operating environment of SFGC and Shaanxi Zhongqi remains relatively stable in the second half of 2006 to-date.

In the six months ended 30 June 2006, SFGC sold approximately 113,100 units of heavy-duty truck transmissions. Based on discussions with the management of SFGC, the Directors expect that for the year ending 31 December 2006, SFGC will sell not less than 210,000 units of heavy-duty truck transmissions (2005: 129,300 units). Average per unit selling price of SFGC’s heavy-duty truck transmissions and the gross profit margin for the second half of 2006 to-date remain relatively stable.

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LETTER FROM THE BOARD

In the six months ended 30 June 2006, Shaanxi Zhongqi sold approximately 14,900 units of heavy-duty trucks. Based on discussions with the management of Shaanxi Zhongqi, the Directors expect that for the year ending 31 December 2006, Shaanxi Zhongqi will sell not less than 28,000 units of heavy-duty trucks (2005: 14,400 units). Average per unit selling price of Shaanxi Zhongqi’s heavy-duty trucks and the gross profit margin for the second half of 2006 to-date remain relatively stable.

Detailed discussions on the business and performance of the Weichai Power Group and the TAGC Group are set out in appendix IB and appendix IIB, respectively to this circular.

The Directors are not aware of any material adverse change in the financial or trading position of the Weichai Power Group since 31 December 2005, the date to which the latest audited consolidated financial statements of the Weichai Power Group were made up.

Having made all reasonable enquiries with the directors of TAGC and save as disclosed in the accountants’ report of the TAGC Group as set out in appendix IIA to this circular, the Directors are not aware of any material adverse change in the financial or trading position of the TAGC Group since 30 June 2006, the date to which the said accountants’ report of the TAGC Group was made up.

(c) PRC disclosures

Pursuant to the request of the CSRC, Weichai Power is required to disclose, in the PRC, a combined profit forecast (prepared in accordance with the PRC generally accepted accounting principles) of the Enlarged Group for the year ending 31 December 2006 on the hypothetical assumption that both the acquisition of the 71.88% interest in TAGC not held by InvestCo and the Merger were completed on 1 January 2006 (the ‘‘Hypothetical PRC GAAP Profit Forecast’’) (Note). As the Weichai Power EGMs for the purpose of considering the Merger Proposal are only convened to be held on 29 December 2006, the Merger cannot be completed by 31 December 2006. Accordingly, the Directors of Weichai Power consider the principal assumptions of the Hypothetical PRC GAAP Profit Forecast that both the acquisition of the 71.88% interest in TAGC not held by InvestCo and the Merger were completed on 1 January 2006 to be unrealistic. The Directors of Weichai Power are further of the view that the Hypothetical PRC GAAP Profit Forecast is not consistent with HKFRS or Weichai Power’s existing accounting policy which requires the acquisition be accounted for as from the effective date of the acquisition, which, if the Merger will be completed, will only be in 2007.

The Directors of Weichai Power strongly urge the Weichai Power Shareholders and investors, and potential investors, of Weichai Power Shares to disregard, and not to rely on or take account of, the Hypothetical PRC GAAP Profit Forecast when making any decision in relation to any investment in or disposal of any Weichai Power Shares (or any interest therein). Accordingly, investors and potential investors in H Shares should not rely on information published or disseminated from the PRC when they deal, or contemplate dealing, in the H Shares or other securities of Weichai Power.

All information concerning the Merger Proposal disclosed in the PRC and which is relevant for the Shareholders to make an informed decision with regard to the resolutions to be considered at the Weichai Power EGMs has been included in this circular.

(Note: The Hypothetical PRC GAAP Profit Forecast will be published on the website of the Shenzhen Stock Exchange (www.szse.cn), (China Securities Journal), (Securities Times) and (Shanghai Securities News) on 13 November, 2006.)

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LETTER FROM THE BOARD

16. WORKING CAPITAL

Provided that TAGC will be able to restructure its short term bank loans to long term bank loans pursuant to the TAGC Debt Restructuring Framework Agreement, the Directors are of the opinion that, upon completion of the Merger Proposal contemplated in this circular and after taking into account the Enlarged Group’s existing cash and bank balances as well as the present available banking facilities, the Enlarged Group will have sufficient working capital to satisfy its present requirements as at the completion of the Merger Proposal and for the twelve month period after the date hereof, in the absence of unforeseen circumstances.

Prior to the completion of the Merger Proposal, Weichai Power will not be liable with respect to any TAGC Debts. As stated in the section headed ‘‘12. Creditors’ right as a result of the Merger Proposal’’ in this letter, the approval (if and when obtained) of the TAGC Debt Restructuring Framework Agreement by the State Council will be announced by the Company separately.

17. INDEBTEDNESS

Borrowings

As at the close of business on 30 September, 2006, being the latest practicable date for the purpose of this indebtedness statement, the Enlarged Group had outstanding bank loans of approximately RMB2,878.6 million, bills payables of RMB1,365.5 million and amounts due to related companies of RMB286.5 million.

Debt Securities

At 30 September, 2006, the Enlarged Group had no debt securities.

Securities and guarantees

At 30 September, 2006, the bank loans of approximately RMB2,878.6 million and bills payables of RMB1,365.5 million as aforesaid were secured by property, plant and equipments of RMB98.8 million, land use rights and buildings of RMB240.1 million, inventories of RMB109.4 million, trade and bills receivables of RMB214.9 million, bank and cash balances of RMB149.9 million and various guarantees provided by members of the Enlarged Group.

In addition, certain shares of the subsidiaries of the Enlarged Group were pledged to secure banking facilities granted to the Enlarged Group.

Contingent liabilities

As at 30 September, 2006, the Enlarged Group had guarantees of RMB127.6 million granted to third parties.

Disclaimer

Save as aforesaid and apart from intra-group liabilities and litigation as set out in Appendix VII to this circular, the Enlarged Group did not have, as at the close of business on 30 September, 2006, any capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgage, charges, hire purchases commitments, guarantees or other material contingent liabilities.

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LETTER FROM THE BOARD

Foreign currency amounts have been translated into Renminbi at the exchange rates prevailing at the close of business on 30 September, 2006.

Save as disclosed above, the Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Enlarged Group since 30 September, 2006 and to the latest practicable date.

18. AMENDMENTS TO THE WEICHAI POWER ARTICLES

For the purpose of the listing of the Weichai A Shares on the Shenzhen Stock Exchange and as required by the recently amended PRC Company Law and other relevant PRC laws and regulations, and to maintain an orderly operation of the various corporate functions of Weichai Power, the Board proposes to amend the Weichai Power Articles in the manner set out in appendix VI to this circular.

Subject to the approval of the Weichai Power Shareholders’ EGM in relation thereto being obtained and the approvals by, and the necessary filings at, the relevant governmental and/or regulatory bodies of the PRC, the amended Articles of Association will become effective upon the completion of issue of the Weichai A Shares.

The proposed amendments concern a number of areas, including:

(a) the scope of business;
(b) the registered capital and shareholding structure, reduction of capital and share repurchase, and share register;
(c) the rights and obligations of shareholders and controlling shareholders, and the proceedings of shareholders’ general meetings and class meetings;
(d) the rights and obligations of directors, supervisors, general manager and other senior management officers, and the proceedings of board meetings and supervisory committee meetings;
(e) the distribution of profits;
(f) the appointment of accounting firms;
(g) the merger and division of company;
(h) the procedures for the amendment to the Weichai Power Articles; and
(i) the publication of notice and announcement, dispute resolutions and interpretation of the Weichai Power Articles.

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LETTER FROM THE BOARD

II. CONTINUING CONNECTED TRANSACTIONS OF THE ENLARGED GROUP AFTER THE MERGER PROPOSAL

1. WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

A. Introduction

We refer to the announcement of Weichai Power dated 12 November 2006 in relation to, inter alia, the Weichai Power Continuing Connected Transactions.

This circular gives you further information in relation to the above matters and contains the advice of the Weichai Power Independent Financial Adviser to the Weichai Power Independent Board Committee and the Weichai Power Independent Shareholders in relation to the renewal of the Weichai Power Continuing Connected Transactions.

B. Renewal of the Weichai Power Continuing Connected Transactions

Reference is made to the 2004 Announcement, the 2004 Circular, the 2005 Announcement and the 2005 Circular in relation to, inter alia, the Weichai Power Continuing Connected Transactions. The Weichai Power Continuing Connected Transactions were approved and varied (as the case may be) by the Weichai Power Shareholders at the 2004 Weichai Power Shareholders’ EGM and 2005 Weichai Power Shareholders’ EGM (as the case may be).

The Weichai Power Continuing Connected Transactions Agreements are due to expire on 31 December 2006. Weichai Power has entered into the Supplemental Agreements (certain of which are conditional on the Weichai Power Independent Shareholders approving the relevant New Caps at the Weichai Power Shareholders’ EGM) to extend the term of the Weichai Power Continuing Connected Transactions Agreements to 31 December 2009.

A summary of the Weichai Power Continuing Connected Transactions, the Supplemental Agreements, the Existing Caps for the three years ending 31 December 2006, and the actual transaction amounts for the two years ended 31 December 2005 (audited) and for the six months ended 30 June 2006 (unaudited) for the Weichai Power Continuing Connected Transactions is set out below. As the audited results for the financial year ending 31 December 2006 are not available as at the Latest Practicable Date, the transaction amounts of the Weichai Power Continuing Connected Transactions for such period are hence not provided for in this circular.

The Existing Caps for the Weichai Power Continuing Connected Transactions, as approved by the Weichai Power Shareholders at the 2004 Weichai Power Shareholders’ EGM and 2005 Weichai Power Shareholders’ EGM (as the case may be), were assigned to such Weichai Power Continuing Connected Transactions for the three years ending 31 December 2006. Weichai Power proposes to renew the Existing Caps (such renewed caps shall be referred to as the ‘‘New Caps’’) as set out below. The New Caps for the three years ending 31 December 2009 are based on the internal estimates of Weichai Power, which are in turn determined by reference to the historical performance and the operating conditions of the Weichai Power Group. The bases of the New Caps are more particularly set out below.

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LETTER FROM THE BOARD

A summary of the proposed New Caps for each of the Weichai Power Continuing Connected Transactions is set out below:

Connected person and details of relevant	Connected person and details of relevant		2007	2008	2009
Continuing Connected Transactions			RMB’	RMB’	RMB’
			million	million	million
I.	Weichai Factory
1.	Provision of general services by Weichai Factory to	New Cap	7.0	7.5	8.0
	Weichai Power
2.	Supply and/or connection of utilities by Weichai	New Cap	110	125	140
	Factory to Weichai Power
3.	Supply of WD615 Engines by Weichai Power to	New Cap	26	29	34
	Weichai Factory
4.	Supply of finished diesel engine parts by Weichai	New Cap	136	160	185
	Factory to Weichai Power
5.	Supply of semi-finished diesel engine parts by	New Cap	220	250	290
	Weichai Power to Weichai Factory
6.	Provision of sales and warranty period repair services	New Cap	11.5	13	15
	by Weichai Power to Weichai Factory
II.	Chongqing Weichai
1.	Provision of general services by Chongqing Weichai	New Cap	8.5	9.5	10.5
	to Weichai Power
2.	Supply and/or connection of utilities by Chongqing	New Cap	16	17	18
	Weichai to Weichai Power
3.	Provision of processing services by Chongqing	New Cap	70	80	90
	Weichai to Weichai Power
III.	Guangxi Liugong Machinery
	Supply of WD615 Engines and parts by Weichai	New Cap	500	520	610
	Power to Guangxi Liugong Machinery
IV.	Fujian Longgong
	Supply of diesel engines and parts by Weichai Power	New Cap	135	150	165
	to Fujian Longgong
V.	Shanghai Longgong
	Supply of diesel engines and parts by Weichai Power	New Cap	500	520	570
	to Shanghai Longgong

Notes:

For the purposes of ascertaining whether a Weichai Power Continuing Connected Transaction would exceed the 2.5% Threshold and hence whether it is an Exempt Continuing Connected Transaction or a Non-exempt Continuing Connected Transaction, the transactions within each of the following paragraphs (a) to (e) have been aggregated:

(a) sections I(1), I(2), II(1) and II(2) above;

(b) sections I(3), I(5) and I(6) above;

(d) sections IV and V above.

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LETTER FROM THE BOARD

I. Continuing connected transactions between Weichai Power and Weichai Factory

Weichai Factory is engaged in the manufacture and sale of 6160A series, 170Z series and R and 95 series diesel engines, but none of them are high-speed heavy-duty diesel engines and they cannot be used in heavy-duty vehicles with a load capacity of 15 tonnes (or above) or heavy-duty construction machines, which are the key markets for Weichai Power’s WD615 and WD618 Engines.

Weichai Factory is a substantial shareholder and a promoter of Weichai Power and is accordingly a connected person of Weichai Power.

Provision of general services by Weichai Factory to Weichai Power

Agreement: Supplemental agreement to the general services agreement dated 17 November 2003 (as amended and supplemented by the supplemental agreements dated 15 September 2004 and 21 September 2005)

Date: 12 November 2006 Parties: 1. Weichai Power 2. Weichai Factory Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the general services agreement (prior to the entering into of this latest supplemental agreement), Weichai Factory has agreed to provide certain general services to Weichai Power, namely, environmental protection, security, fire, repair, maintenance and other general services and the payment of certain town land use right tax in relation to the property occupied and/or used by Weichai Power (and/or its staff, if applicable), for a term of three years with effect from 1 January 2003. The original general services agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the original general services agreement for a term of three years with effect from 1 January 2007. Save as aforesaid, all other terms of the original general services agreement remain unchanged.

Under the general services agreement (as supplemented by this latest supplemental agreement), the fees payable by Weichai Power to Weichai Factory with respect to the provision of the said general services are determined based on the actual costs incurred by Weichai Factory and apportioned on a pro-rata basis according to the area of the relevant property occupied and/or used by Weichai Power plus a service charge representing not more than 20% of such costs.

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LETTER FROM THE BOARD

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	15,000,000	16,000,000	18,000,000

The table below summarises the actual transaction amounts involved for the two years ended 31 December 2005 (audited) and for the six months ended 30 June 2006 (unaudited) for the Weichai Power Continuing Connected Transactions set out in this sub-section:

				1 January	1 January	1 January
				2004–	2005–	2006–
			31	December	31 December	30 June
				2004	2005	2006
				(audited)	(audited)	(unaudited)
				RMB	RMB	RMB
Actual	transaction	amount		13,281,164	15,588,594	6,179,544

In 2003 to 2005, Weichai Factory charged Weichai Power a service charge of 20% of the actual costs incurred by it for the provision of the above general services, which rate was reduced to 5% since 1 January 2006, being after the amendment to the original general services agreement (the details of which were set out in the 2005 Announcement and the 2005 Circular) and Weichai Power expects that the same rate will be charged by Weichai Factory for the three years ending 31 December 2009.

Weichai Power estimates that the total transaction amounts for the provision of the above general services by Weichai Factory to Weichai Power will reduce significantly as a result of the above-mentioned reduction in the service charge rate applied by Weichai Factory. Weichai Power estimates that the amounts payable by Weichai Power to Weichai Factory in respect of such general services for the three years ending 31 December 2009 will not exceed RMB7 million, RMB7.5 million and RMB8 million, respectively, and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions.

The New Caps have been estimated by Weichai Power primarily based on the relevant historical costs incurred plus a service charge representing 5% of such costs.

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Cap	7,000,000	7,500,000	8,000,000

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LETTER FROM THE BOARD

Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will extend the term of the original general services agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM. All other terms and conditions of the original general services agreement remain unchanged.

Supply and/or connection of utilities by Weichai Factory to Weichai Power

Agreement: Supplemental agreement to the utility services agreement dated 17 November 2003 (as supplemented by the supplemental agreements dated 15 September 2004 and 21 September 2005) Date: 12 November 2006 Parties: 1. Weichai Power 2. Weichai Factory Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the utility services agreement (prior to the entering into of this latest supplemental agreement), Weichai Factory has agreed to provide or provide the connection of (as the case may be) certain utility and energy services to Weichai Power, namely, water, electricity, gas, steam, oxygen, nitrogen, compressed air, waste water treatment and supply of treated waste water, etc., for a term of three years with effect from 1 January 2003. The original utility services agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the utility services agreement for a term of three years with effect from 1 January 2007. Save as aforesaid, all other terms of the original utility services agreement remain unchanged.

Under the utility services agreement, the fees payable by Weichai Power to Weichai Factory with respect to the provision and/or connection of the said utility and energy services are determined based on the actual usage of Weichai Power and by reference to the market prices of such utilities. If only government published rates are available with respect to certain utilities, the fees payable would be determined by reference to the government published rates plus the wastage, depreciation and repair expenses incurred by Weichai Factory in relation thereto. If no market price or government published rates with respect to the above utility and energy services

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LETTER FROM THE BOARD

are available, Weichai Power will pay the actual costs incurred by Weichai Factory in relation to the provision of such utility and energy services plus a service charge representing not more than 20% of such costs.

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	135,000,000	170,000,000	170,000,000

			1 January	1 January	1 January
			2004–	2005–	2006–
			31 December	31 December	30 June
			2004	2005	2006
			(audited)	(audited)	(unaudited)
			RMB	RMB	RMB
Actual	transaction	amount	108,219,020	113,850,411	47,471,711

In 2003 to 2005, Weichai Factory charged Weichai Power a service charge of 20% of the actual costs incurred by it for the provision of the above utility and energy services, which rate was reduced to 5%, being after the amendment to the original utility services agreement (the details of which were set out in the 2005 Announcement and the 2005 Circular since 1 January 2006 and Weichai Power expects that the same rate will be charged by Weichai Factory for the three years ending 31 December 2009.

Weichai Power estimates that the total transaction amounts for the provision of the above utility and energy services by Weichai Factory to Weichai Power for the three years ending 31 December 2009 will be less than the actual transaction amounts for the two years ended 31 December 2005 due to the reduction of the service charge rate applied by Weichai Factory and the new production facility of Weichai Power in the High Technology Industrial Development Zone (which commenced operation in 2005), which has assumed part of the production work of Weichai Power at its Weifang Production Line.

Despite the above, however, Weichai Power estimates that it will experience a steady increase in the demand of its products for the three years ending 31 December 2009, which will drive the utilization of its production facility leading to an increase in the utility to be consumed by Weichai Power. Weichai Power estimates that the amounts payable by Weichai Power to Weichai Factory in respect of such utility and energy services for the three years ending 31 December 2009 will not exceed RMB110 million, RMB125 million and 140 million, respectively, and such amounts have accordingly been set as the New Caps for these Weichai Power Continuing Connected Transactions.

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The New Caps have been estimated by Weichai Power primarily based on the relevant historical costs incurred plus a service charge representing 5% of such costs. The estimate has taken into account an increase in production volume of approximately 13–15% per year, which is partially offset by shifting of part of its production work from its Weifang Production Line to the new production line in the High Technology Industrial Development Zone.

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Cap	110,000,000	125,000,000	140,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 (when aggregated with those New Caps for the same period under sections I(1) above and II(1) and II(2) below) exceed the 2.5% Threshold, they constitute Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will extend the term of the original utility services agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM. All other terms and conditions of the original general services agreement remain unchanged.

Supply of WD615 Engines by Weichai Power to Weichai Factory

Agreement: Supplemental agreement to the framework agreement dated 17 November 2003 (as supplemented by a supplemental agreement dated 15 September 2004) Date: 12 November 2006 Parties: 1. Weichai Power 2. Weichai Factory Term: 1 January 2007 to 31 December 2009

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Other terms and details:

Pursuant to the framework agreement (prior to the entering into of this latest supplemental agreement), Weichai Power has agreed to supply Weichai Factory, at market prices, not more than certain stated quantities of WD615 Engines for each of the three years ending 31 December 2006. The WD615 Engines are one of the components of the power generators manufactured by Weichai Factory. The original framework agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the original framework agreement for a term of three years with effect from 1 January 2007. Save as aforesaid and the removal of the above references to the amount of WD615 Engines for the past periods (as they are no longer relevant), all other terms of the original framework agreement remain unchanged.

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	90,000,000	115,000,000	115,000,000

				1 January	1 January	1 January
				2004–	2005–	2006–
			31	December	31 December	30 June
				2004	2005	2006
				(audited)	(audited)	(unaudited)
				RMB	RMB	RMB
Actual	transaction	amount		39,484,509	36,955,140	21,042,441

As WD615 Engines are one of the components of the power generators manufactured by Weichai Factory, any increase in demand for Weichai Factory’s power generators will in turn drive the sales of WD615 Engines by Weichai Power to Weichai Factory.

At the time the Existing Caps for the supply of WD615 Engines by Weichai Power to Weichai Factory under the original framework agreement were determined in 2004, there was a significant power shortage in the PRC and many factories in the PRC had to purchase their own power generators to maintain their normal operations, which led to a significant increase in the demand for power generators in the PRC. The estimate of the sales of WD615 Engines, and hence the Existing Caps for the three years ended 31 December 2006 were produced on this basis. The power shortage in the PRC eased off in the last quarter of 2004 which reduced the demand for power generators. Furthermore, as disclosed in the annual report of Weichai Power for the year ended 31 December 2005, the central government of the PRC had implemented a series of austerity measures in infrastructure in 2005, which also led to a decrease in the demand for power generators. As a result, the sales of WD615 Engines by Weichai Power to Weichai Factory for the three years ending 31 December 2006 was less than those originally anticipated in 2004.

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LETTER FROM THE BOARD

However, the PRC has maintained a strong economic growth in recent years and Weichai Power estimates that the demand for power generators in the PRC will remain steady for the three years ending 31 December 2009. Weichai Power is a leading manufacturer of diesel engines in the PRC and this evidences the quality and competitiveness of Weichai Power’s Engines generally. With the proximity between Weichai Power’s production facilities and those of Weichai Factory, and in view of the high quality and the competitiveness of Weichai Power’s Engines, Weichai Power believes that Weichai Factory will continue to purchase Weichai Power’s Engines for the manufacture of Weichai Factory’s power generators.

As discussed above, sales of WD615 Engines in 2005 was much lower than originally estimated as a result of the implementation of certain austerity measures by the central government of the PRC. The management accounts for the current financial year indicated that the sales of WD615 Engines to Weichai Factory to-date is substantially lower than the Existing Cap for the year and, accordingly, the New Cap for 2007 is set at a lower base, which is comparable to the 2006 sales record to-date.

Weichai Power estimates that the sale of its WD615 Engine to Weichai Factory for the three years ending 31 December 2009 will not exceed RMB26 million, RMB29 million and RMB34 million, respectively, and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions. The estimate has also taken into account a stable increase in the average unit prices of WD615 Engines by reference to the estimated salary growth rate.

The table below summarises the New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	26,000,000	29,000,000	34,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 (when aggregated with those New Caps for the same period under sections I(5) and I(6) below) exceed the 2.5% Threshold, they constitute Nonexempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will, inter alia, extend the term of the original framework agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM.

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LETTER FROM THE BOARD

Supply of finished diesel engine parts by Weichai Factory to Weichai Power

Agreement: Supplemental agreement to the finished diesel engine parts supply agreement dated 17 November 2003 (as supplemented by a supplemental agreement dated 15 September 2004)

Date: 12 November 2006 Parties: 1. Weichai Power 2. Weichai Factory Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the finished diesel engine parts supply agreement (prior to the entering into of this latest supplemental agreement), Weichai Factory has agreed to supply to Weichai Power finished diesel engine parts for a term of three years with effect from 1 January 2003. The original finished diesel engine parts supply agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this supplemental agreement will extend the original finished diesel engine parts supply agreement for a term of three years with effect from 1 January 2007. Save as aforesaid, all other terms of the original finished diesel engine parts supply agreement remain unchanged.

Under the finished diesel engine parts supply agreement (as supplemented by this latest supplemental agreement), the consideration for the supply of the said finished diesel engine parts is equal to the lower of (i) the costs in relation to the manufacture of the relevant finished diesel engine parts incurred by Weichai Factory plus a service charge not exceeding 20% of such costs, or (ii) the relevant market prices (if available). Weichai Factory has agreed that the consideration for the supply of finished diesel engine parts to Weichai Power will not be higher than the consideration paid to Weichai Factory by any independent third parties.

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

2004 2005 2006 RMB RMB RMB Existing Cap 75,000,000 115,000,000 180,000,000

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LETTER FROM THE BOARD

				1 January	1 January	1 January
				2004–	2005–	2006–
			31	December	31 December	30 June
				2004	2005	2006
				(audited)	(audited)	(unaudited)
				RMB	RMB	RMB
Actual	transaction	amount		62,116,331	48,136,880	60,699,030

As disclosed in the annual report of Weichai Power for the financial year ended 2005, the PRC government had implemented a series of macro-tightening measures to slow down investments in infrastructure in the PRC. With effect from 1 April 2005, the central government implemented a new policy of (Vehicles’ Maximum Measurement On Size, Weight and Loading Capacity), which required all truck manufacturers to redesign their trucks so as to meet certain design standards with specific length, height and chassis structure requirements. As a result, the nationwide crackdown on truck overloading eased off in 2005. The implementation of the above-mentioned measures had certain negative impacts on the heavy-duty trucks industry, which in turn substantially slowed down the sales of Weichai Power’s diesel engines which were used in heavy-duty trucks. The reduction in the production volume of Weichai Power’s diesel engines led to the purchase of finished diesel engine parts from Weichai Factory in 2005 being less than anticipated.

The heavy-duty truck and construction machinery markets showed a significant recovery in 2006 after the downturn caused by the promulgation of the various industry policies mentioned above. Weichai Power estimates that the total consideration payable by Weichai Power for the supply of finished diesel engine parts by Weichai Factory for the three years ending 31 December 2009 will not exceed RMB136 million, RMB160 million and RMB185 million, respectively, and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions.

The New Caps have been prepared by Weichai Power primarily based on its estimate of its production volume, having taken into account the recovery of the heavy-duty truck and construction machinery markets as mentioned above, and of the average unit prices (which have been projected based on Weichai Power’s estimated salary growth rate) of those finished diesel engine parts to be purchased by Weichai Power. Weichai Power estimates that its production volume for diesel engines will increase at a rate of approximately 13% to 15% for the three years ending 31 December 2009. Weichai Power estimates that the salary levels of its labour force will increase at a rate of 5% per year for the three years ending 31 December 2009.

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	136,000,000	160,000,000	185,000,000

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LETTER FROM THE BOARD

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 (when aggregated with those New Caps for the same period under sections II(3) below) exceed the 2.5% Threshold, they constitute Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will extend the term of the original finished diesel engine parts supply agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM. All other terms and conditions of the original finished diesel engine parts supply agreement remain unchanged.

Supply of semi-finished diesel engine parts by Weichai Power to Weichai Factory

Agreement: Supplemental agreement to the semi-finished diesel engine parts supply agreement dated 17 November 2003 (as supplemented by a supplemental agreement dated 15 September 2004)

Date: 12 November 2006 Parties: 1. Weichai Power 2. Weichai Factory Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the semi-finished diesel engine parts supply agreement (prior to the entering into of this latest supplemental agreement), Weichai Power has agreed to provide semi-finished diesel engine parts to Weichai Factory for a term of three years with effect from 1 July 2003, the term of which has been extended to 31 December 2006 by a supplemental agreement dated 15 September 2004. The original semi-finished diesel engine parts supply agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the original semi-finished diesel engine parts supply agreement for a term of three years with effect from 1 January 2007. Save as aforesaid, all other terms of the original semi-finished diesel engine parts supply agreement remain unchanged.

Under the semi-finished diesel engine parts supply agreement (as supplemented by this latest supplemental agreement), the consideration payable by Weichai Factory are determined based on the costs incurred by Weichai Power in the provision of the semi-finished diesel engine

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parts plus a service charge not exceeding 20% of such costs, and that the consideration will not be less than the relevant market prices, if any (provided that it is permitted by the relevant laws and regulations in the PRC to do so).

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	175,000,000	200,000,000	200,000,000

			1 January	1 January	1 January
			2004–	2005–	2006–
			31 December	31 December	30 June
			2004	2005	2006
			(audited)	(audited)	(unaudited)
			RMB	RMB	RMB
Actual	transaction	amount	173,273,153	199,665,571	118,981,851

In 2003 to 2005, Weichai Power charged Weichai Factory a service charge of 20% of the actual costs incurred by it for the supply of the semi-finished diesel engine parts to Weichai Factory, which rate was reduced to 5% since 1 January 2006, being after Weichai Factory reduced its service charge for the provision of general services and utility services to Weichai Power from 20% to 5%, as more particularly described in the sub-section headed ‘‘1. Provision of general services by Weichai Factory to Weichai Power’’ and ‘‘2. Supply and/or connection of utilities by Weichai Factory to Weichai Power’’ above. Weichai Power expects that the same rate will be applied to Weichai Factory for the three years ending 31 December 2009.

As mentioned above, the PRC has maintained a strong economic growth in recent years and Weichai Power estimates that the demand for power generators in the PRC will remain steady for the three years ending 31 December 2009. Weichai Power is a leading manufacturer of diesel engines in the PRC and this evidences the quality and competitiveness of Weichai Power’s Engines generally. With the proximity between Weichai Power’s production facilities and those of Weichai Factory, and in view of the high quality and the competitiveness of Weichai Power’s diesel engines, Weichai Power believes that Weichai Factory will continue to purchase Weichai Power’s Engines for the manufacture of Weichai Factory’s power generators. Weichai Power estimates that the sale of its semi-finished diesel engine parts to Weichai Factory will increase steadily for the three years ending 31 December 2009. Weichai Power estimates that the transaction amounts involved for such sale for the three years ending 31 December 2009 will not exceed RMB220 million, RMB250 million and RMB290 million, respectively, and such amounts have accordingly been set as the New Caps for these Weichai Power Continuing Connected Transactions. This estimate has also taken into account a stable increase in the average unit prices of WD615 Engines by reference to the estimated salary growth rate of 5% per year.

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LETTER FROM THE BOARD

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

2007 2008 2009 RMB RMB RMB New Caps 220,000,000 250,000,000 290,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 exceed the 2.5% Threshold, they constitute Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will extend the term of the original semi-finished diesel engine parts supply agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM. All other terms and conditions of the original semi-finished diesel engine parts supply agreement remain unchanged.

Provision of sales and warranty period repair services by Weichai Power to Weichai Factory

Agreement: Supplemental agreement to the master sales and warranty period repair services agreement dated 17 November 2003 (as supplemented by a supplemental agreement dated 15 September 2004) Date: 12 November 2006 Parties: 1. Weichai Power 2. Weichai Factory Term: 1 January 2007 to 31 December 2009

Other terms and details:

Weichai Power and Weichai Factory share the same sales and maintenance network prior to the incorporation of Weichai Power, and such network has become part of the business of Weichai Power after its incorporation. Weichai Power and Weichai Factory entered into the master sales and warranty period repair services agreement (prior to the entering into of this latest supplemental agreement) in this regard.

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LETTER FROM THE BOARD

Pursuant to the master sales and warranty period repair services agreement (prior to the entering into of this latest supplemental agreement), Weichai Power has agreed to provide sales and warranty period repair services to the customers of Weichai Factory with respect to the diesel engines manufactured by Weichai Factory for a period of three years with effect from 1 September 2003, the term of which was extended to 31 December 2006 by a supplemental agreement dated 15 September 2004. The original master sales and warranty period repair services agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the original master sales and warranty period repair services agreement for a term of three years with effect from 1 January 2007. Save as aforesaid, all other terms of the original master sales and warranty period repair services agreement remain unchanged.

Under the master sales and warranty period repair services agreement (as supplemented by this latest supplemental agreement), Weichai Factory has agreed to pay Weichai Power an annual service fee of 3% of the total amount of sales of diesel engines procured by Weichai Power. The 3% service charge is determined based on the historical sales and maintenance costs incurred by Weichai Factory.

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	16,000,000	16,000,000	16,000,000

				1 January	1 January	1 January
				2004–	2005–	2006–
			31	December	31 December	30 June
				2004	2005	2006
				(audited)	(audited)	(unaudited)
				RMB	RMB	RMB
Actual	transaction	amount		13,453,696	15,641,133	6,567,918

The annual service fees charged by Weichai Power will depend on the estimated amount of sale of the diesel engines manufactured by Weichai Factory procured by Weichai Power which will partly depend on the demand of Weichai Factory’s power generators.

Weichai Power estimates that the total service fees payable by Weichai Factory to Weichai Power for the three years ending 31 December 2009 will not exceed RMB11.5 million, RMB13 million and RMB15 million, respectively and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions. The proposed New Caps have taken into account the estimated growth rate of the sale of Weichai Factory’s power generator, details of which are more particularly set out in the section headed ‘‘3. Supply of WD615 Engines by Weichai Power to Weichai Factory’’, and the incorporation of such sale to be procured by Weichai Power.

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LETTER FROM THE BOARD

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	11,500,000	13,000,000	15,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 (when aggregated with those New Caps for the same period under sections I(3) and I(5) above) exceed the 2.5% Threshold, they constitute Nonexempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will extend the term of the original master sales and warranty period repair services agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM. All other terms and conditions of the original master sales and warranty period repair services agreement remain unchanged.

II. Continuing connected transactions between Weichai Power and Chongqing Weichai

Chongqing Weichai is engaged in a similar business as Weichai Factory, namely, the manufacture and sale of 6160A series, 170Z series and R and 95 series diesel engines, but none of them are high-speed heavy-duty diesel engines, and they cannot be used in heavy-duty construction machines, which are the key markets for Weichai Power’s WD615 and WD618 Engines.

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LETTER FROM THE BOARD

Chongqing Weichai is wholly-owned by Weichai Factory, and since Weichai Factory is a substantial shareholder of Weichai Power, Chongqing Weichai is a connected person of Weichai Power.

Provision of general services by Chongqing Weichai to Weichai Power

Agreement: Supplemental agreement to the general services agreement dated 17 November 2003 (as supplemented by the supplemental agreements dated 15 September 2004 and 21 September 2005)

Date: 12 November 2006 Parties: 1. Weichai Power 2. Chongqing Weichai Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the general services agreement (prior to the entering into of this latest supplemental agreement), Chongqing Weichai has agreed to provide certain general services to Chongqing Branch, namely, environmental protection, security, fire and other general services and the payment of certain town land use right tax in relation to the property used by Chongqing Branch for a term of three years with effect from 1 July 2003, the term of which has been extended to 31 December 2006 by a supplemental agreement dated 15 September 2004. The term of the original general services agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the general services agreement for a term of three years with effect from 1 January 2007. Save as aforesaid, all other terms of the original general services agreement remain unchanged

Under the general services agreement (as supplemented by this latest supplemental agreement), the fees payable by Weichai Power to Chongqing Weichai are determined based on the actual costs incurred by it and apportioned on a pro-rata basis according to the area of the relevant property occupied and/or used by Chongqing Branch (and/or its staff, if applicable) plus a service charge not exceeding 20% of such costs (save that the town land use right tax paid by Chongqing Weichai on behalf of Chongqing Branch and its staff, if applicable, will not be subject to the said 20% service charge). With respect to certain public utilities provided by Chongqing Weichai to certain common area used by both Chongqing Weichai and Chongqing Branch, the costs with respect to such public utilities incurred by Chongqing Weichai would be shared between Chongqing Weichai and Chongqing Branch pro-rated according to their respective annual sales.

In addition, Chongqing Weichai has agreed that the charges for the general services referred to above will not be higher than the fees payable to it by any independent third parties. If Weichai Power is able to secure the provision of any services similar to those referred to above by itself or from a third party on terms more favourable than those set out in the general services agreement, then Weichai Power is entitled to terminate the relevant services by giving not less than 30 days’ prior notice to Chongqing Weichai.

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LETTER FROM THE BOARD

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transaction set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	10,000,000	13,000,000	16,000,000

				1 January	1 January	1 January
				2004–	2005–	2006–
			31	December	31 December	30 June
				2004	2005	2006
				(audited)	(audited)	(unaudited)
				RMB	RMB	RMB
Actual	transaction	amount		8,006,752	7,982,758	3,489,817

Chongqing Weichai has been charging Weichai Power a service charge of 20% of the actual costs incurred by it for the provision of the above general services and Weichai Power expects that the same rate will be charged by Chongqing Weichai for the three years ending 31 December 2009.

Weichai Power estimates that the total transaction amounts for the provision of the above general services by Chongqing Weichai to Weichai Power for the three years ending 31 December 2009 will not exceed RMB8.5 million, RMB9.5 million and RMB10.5 million, respectively, and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions.

The New Caps have been estimated by Weichai Power primarily based on the relevant historical costs incurred plus a service charge representing 20% of such costs, and the estimated salary growth rate of 10% in Chongqing for each of the three years ending 31 December 2009.

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	8,500,000	9,500,000	10,500,000

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LETTER FROM THE BOARD

Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Supply and/or connection of utilities by Chongqing Weichai to Weichai Power

Agreement: Supplemental agreement to the utility services agreement dated 17 November 2003 (as supplemented by the supplemental agreements dated 15 September 2004 and 21 September 2005) Date: 12 November 2006 Parties: 1. Weichai Power 2. Chongqing Weichai Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the utility services agreement (prior to the entering into of this latest supplemental agreement), Chongqing Weichai has agreed to provide or provide the connection of (as the case may be) certain utility and energy services to the Chongqing Branch, namely, water, electricity, natural gas, steam, oxygen, nitrogen and compressed air, etc. for a term of three years with effect from 1 July 2003, the term of which has been extended to 31 December 2006 by a supplemental agreement dated 15 September 2004. The original utility services agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the original utility services agreement for a term of three years with effect from 1 January 2007. All other terms of the original utility services agreement remain unchanged.

Under the utility services agreement (as supplemented by this latest supplemental agreement), the fees payable by Weichai Power to Chongqing Weichai in respect of the relevant utility and energy services are determined based on the usage thereof by the Chongqing Branch or, if it is not possible to measure such usage, pro-rated according to the respective sales of Chongqing Weichai and the Chongqing Branch and by reference to the market prices of such utilities. If only government published rates are available with respect to certain utilities, the fees payable will be determined by reference to the government published rates plus the wastage, depreciation and repair expenses incurred by Chongqing Weichai in relation to the provision of the relevant utilities. If no market prices or government published rates with respect to any of the

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above utilities are available, Weichai Power will pay the costs incurred by Chongqing Weichai in relation to the provision of the above utility and energy services plus a service charge representing not more than 20% of such costs.

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	65,000,000	90,000,000	90,000,000

				1 January	1 January	1 January
				2004–	2005–	2006–
			31	December	31 December	30 June
				2004	2005	2006
				(audited)	(audited)	(unaudited)
				RMB	RMB	RMB
Actual	transaction	amount		15,274,732	15,321,504	7,678,610

Chongqing Weichai has been charging Weichai Power a service charge of 20% of the actual costs incurred by it for the provision of the above utility and energy services and Weichai Power expects that the same rate will be charged by Chongqing Weichai for the three years ending 31 December 2009.

As discussed above, sale of Weichai Power’s Engines was substantially lower than anticipated due to various austerity measures implemented by the central government of the PRC. The decrease in production volume and the new production facility of Weichai Power in the High Technology Industrial Development Zone (which commenced operation in 2005), which has assumed part of the production work of Weichai Power at Chongqing Branch, led to a substantial reduction of consumption of utility by Weichai Power for two years ended 31 December 2005.

Weichai Power estimates that the amount payable by Weichai Power to Chongqing Weichai for the above utility and energy services for the three years ending 31 December 2009 will not exceed RMB16 million, RMB17 million and RMB18 million, respectively, and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions.

The New Caps have been estimated by Weichai Power by reference to the historical costs incurred plus a service charge representing 20% of such costs. The New Caps are stated at a lower base than the Existing Caps, which is in line with the actual transaction amounts for the two years ending 31 December 2005 and the management account for 2006 to-date. The New Caps have also taken into account the estimated salary growth rate of 10% due to the economic boom in Chongqing and that the increase of the costs for such utility and energy services at a rate of 5%.

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The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	16,000,000	17,000,000	18,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 (when aggregated with those New Caps for the same period under sections I(1), I(2) and II(1) above) exceed the 2.5% Threshold, they constitute Nonexempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will extend the term of the original utility services agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM. All other terms and conditions of the original utility services agreement remain unchanged.

Provision of processing services by Chongqing Weichai to Weichai Power

Agreement: Supplemental agreement to the processing agreement dated 17 November 2003 (as supplemented by the supplemental agreements dated 15 September 2004 and 21 September 2005)

Date: 12 November 2006 Parties: 1. Weichai Power 2. Chongqing Weichai Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the processing services agreement (prior to the entering into of this latest supplemental agreement), Chongqing Weichai has agreed to provide processing services to Chongqing Branch with respect to certain semi-finished diesel engine parts for a period of three years with effect from 1 July 2003, the term of which has been extended to 31 December 2006 by a supplemental agreement dated 15 September 2004. The original processing services agreement (prior to the entering into of this latest supplemental agreement) is due to expire on

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31 December 2006 and this latest supplemental agreement will extend the original processing agreement for a term of three years with effect from 1 January 2007. Save as aforesaid, all other terms of the original processing services agreement remain unchanged.

Under the processing services agreement (as supplemented by this latest supplemental agreement), the fees payable by Weichai Power to Chongqing Weichai are determined based on the lower of (i) the costs in relation to the provision of such processing services incurred by Chongqing Weichai plus a service charge representing not more than 20% of such costs; or (ii) the relevant market prices (if available).

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	96,000,000	164,000,000	164,000,000

				1 January	1 January	1 January
				2004–	2005–	2006–
			31	December	31 December	30 June
				2004	2005	2006
				(audited)	(audited)	(unaudited)
				RMB	RMB	RMB
Actual	transaction	amount		89,178,265	60,041,887	31,968,822

As discussed above, the central government of the PRC had implemented a series of austerity measures in 2005, which had certain negative impact on the heavy-duty trucks industry, which in turn led to a substantial reduction of the sales of Weichai Power’s Engines, which are used in heavy-duty trucks. The reduction in the production volume of Weichai Power’s Engines led to a decrease in the processing services required from Chongqing Weichai or Weichai Power’s Engines. As a result, the services fees for the processing services paid by Weichai Power was substantially lower than anticipated.

Despite the above, however, Weichai Power estimates that it will experience a steady increase in the demand of its product for the three years ending 31 December 2009, which will drive its production volume leading to an increase in the processing services required by Chongqing.

Weichai Power estimates that the service fees payable by Weichai Power to Chongqing Weichai in respect of the above processing services for the three years ending 31 December 2009 will not exceed RMB70 million, RMB80 million and RMB90 million, respectively, and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions.

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LETTER FROM THE BOARD

The above New Caps were prepared by Weichai Power primarily based on its estimate of the processing volume, which in turn is based on the production volume, of Weichai Power and the processing cost. Weichai Power estimates that the processing costs will increase steadily over the three years ending 31 December 2009, having taken into account the estimated increase in salary at a rate of 10% in Chongqing.

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	70,000,000	80,000,000	90,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 (when aggregated with those New Caps for the same period under sections I(4) above) exceed the 2.5% Threshold, they constitute Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Weichai Factory and Tan Xuguang (who is the general manager of Weichai Factory), who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will extend the term of the original processing services agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM. All other terms and conditions of the original processing services agreement remain unchanged.

III. Continuing connected transactions between Weichai Power and Guangxi Liugong Machinery

Guangxi Liugong Machinery is engaged in the manufacture and repair of construction machines, which require the WD615 Engines and parts manufactured by Weichai Power.

Guangxi Liugong Machinery is owned as to 63% by Guangxi Liugong, which is a Promoter, and, accordingly, Guangxi Liugong Machinery is an associate of Guangxi Liugong and, hence, a connected person of Weichai Power.

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LETTER FROM THE BOARD

Supply of WD615 Engines and parts by Weichai Power to Guangxi Liugong Machinery

Agreement: Supplemental agreement to the framework agreement dated 21 October 2003 (as supplemented by a supplemental agreement dated 15 September 2004)

Date: 12 November 2006 Parties: 1. Weichai Power 2. Guangxi Liugong Machinery Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the framework agreement (prior to the entering into of this latest supplemental agreement), Weichai Power has agreed to supply Guangxi Liugong Machinery, at market prices, not more than certain stated quantities of WD615 Engines and parts for each of the three years ending 31 December 2006. The original framework agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the original framework agreement for a term of three years with effect from 1 January 2007. Save as aforesaid and the removal of the above references to the amount of WD615 Engines and parts for the past periods (as they are no longer relevant), all other terms of the original framework agreement remain unchanged.

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

2004 2005 2006 RMB RMB RMB Existing Cap 400,000,000 600,000,000 710,000,000

			1 January	1 January	1 January
			2004–	2005–	2006–
			31 December	31 December	30 June
			2004	2005	2006
			(audited)	(audited)	(unaudited)
			RMB	RMB	RMB
Actual	transaction	amount	335,463,248	266,338,256	198,610,256

As disclosed in the annual report of Weichai Power for the financial year ended 2005, the central government of the PRC had implemented a series of austerity measures in 2005. The implementation of such measures had certain negative impacts on the construction machinery industry in the PRC, which in turn substantially slowed down the sales of Weichai Power’s

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LETTER FROM THE BOARD

Engines which are used in construction machines in 2005. As a result, the purchase orders from Guangxi Liugong Machinery for Weichai Power’s WD615 Engines were substantially less than anticipated.

However, the PRC has maintained a strong economic growth over the past years and the construction machinery market showed a very strong recovery following a depressed market in 2005. Guangxi Liugong Machinery is a leading manufacturer in construction machinery in the PRC, and the demand for its products has increased as a result of the launching of a number of major infrastructure projects in the PRC. Weichai Power anticipates that Guangxi Liugong Machinery will increase its purchase order for WD615 Engines from Weichai Power for the three years ending 31 December 2009. Due to the strategic alliance between Weichai Power and Guangxi Liugong Machinery reached in August 2006, whereby Weichai Power’s Engines will be incorporated in all of the products of Guangxi Liugong Machinery, the sales of WD615 Engines to Guangxi Liugong Machinery are also forecast to increase. Weichai Power estimates that the total consideration payable to Weichai Power by Guangxi Liugong Machinery for such sales for the three years ending 31 December 2009 will be approximately RMB500 million, RMB520 million and RMB610 million and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions. The sales of WD615 Engines to Guangxi Liugong Machinery to-date is substantially higher than that of 2005 and, accordingly, the New Cap for 2007 is set at a higher base, which is comparable to the 2006 sales to-date.

The above proposed New Caps have been prepared by Weichai Power primarily based on the estimate of the number of diesel engines required by Guangxi Liugong Machinery and of the average unit prices of such diesel engines. Weichai Power is a leading manufacturer of diesel engines in the PRC. This evidences the quality and competitiveness of Weichai Power’s Engines generally and, therefore, Weichai Power believes that Guangxi Liugong Machinery will continue to purchase Weichai Power’s Engines for the manufacture of its products.

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	500,000,000	520,000,000	610,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 exceed the 2.5% Threshold, they constitute Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Guangxi Liugong, who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

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LETTER FROM THE BOARD

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will, inter alia, extend the term of the original framework agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM.

IV. Continuing connected transactions between Weichai Power and Fujian Longgong

Fujian Longgong was engaged in the manufacture and sale of, inter alia, wheel-loaders, certain of which require the diesel engines and parts manufactured by Weichai Power. Fujian Longgong is indirectly owned by Li San Yim, a non-executive Director, and Ngai Ngan Ying, Li San Yim’s wife. Fujian Longgong is a Promoter and, hence, a connected person of Weichai Power.

As Li San Yim and Ngai Ngan Ying have restructured their interests in, and the businesses of, Fujian Longgong and Shanghai Longgong, the business of the manufacture and sale of, inter alia, wheel-loaders is also carried out by Fujian Longgong’s associates (as defined in the Listing Rules), which are also indirectly majority owned by Li San Yim and Ngai Ngan Ying.

Supply of diesel engines and parts by Weichai Power to Fujian Longgong and its associates

Agreement: Supplemental agreement to the framework agreement dated 21 October 2003 (as supplemented by a supplemental agreement dated 15 September 2004) Date: 12 November 2006 Parties: 1. Weichai Power 2. Fujian Longgong Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the framework agreement (prior to the entering into of this latest supplemental agreement), Weichai Power has agreed to supply Fujian Longgong, at market prices, not more than certain stated quantities of diesel engines and parts for each of the three years ending 31 December 2006. The original framework agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the original framework agreement for a term of three years with effect from 1 January 2007. As Li San Yim and Ngai Ngan Ying have restructured their interests in, and the businesses of, Fujian Longgong as mentioned above, this latest supplemental agreement will include the sale of diesel engines and parts to Fujian Longgong and its associates (as defined in the Listing Rules). Save as aforesaid and the removal of the above references to the amount of diesel engines and parts for the past periods (as they are no longer relevant), all other terms of the original framework agreement remain unchanged.

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LETTER FROM THE BOARD

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

		2004	2005	2006
		RMB	RMB	RMB
Existing	Cap	105,000,000	155,000,000	185,000,000

				1 January	1 January	1 January
				2004–	2005–	2006–
			31	December	31 December	30 June
				2004	2005	2006
				(audited)	(audited)	(unaudited)
				RMB	RMB	RMB
Actual	transaction	amount		67,641,633	81,714,060	66,400,000

As disclosed in the annual report of Weichai Power for the financial year ended 2006, the PRC government had implemented a series of austerity measures in 2005. The implementation of such measures had certain negative impacts on the construction machinery industry in the PRC, which in turn substantially slowed down the sales of Weichai Power’s diesel engines which were used in the wheel-loaders. As a result, the purchase orders from Fujian Longgong for Weichai Power’s diesel engines and parts were substantially less than anticipated.

However, the PRC has maintained a strong economic growth over the past years and the construction machinery market showed a very strong recovery following a depressed market in 2005. Fujian Longgong is a leading manufacturer in construction machinery in the PRC, and the demand for its wheel-loaders has increased as a result of the launching of a number of major infrastructure projects in the PRC. Weichai Power anticipates that Fujian Longgong will increase its purchase order for diesel engines and parts from Weichai Power for the three years ending 31 December 2009. Weichai Power estimates that the total consideration payable to Weichai Power by Fujian Longgong for such sales for the three years ending 31 December 2009 will be approximately RMB135 million, RMB150 million and RMB165 million and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions. The sales of diesel engines and parts by Weichai Power to Fujian Longgong and its associates to-date are substantially higher than 2005 and accordingly, the New Cap for 2007 is set at a higher base, which is comparable to the 2006 sales to-date.

The above proposed New Caps have been prepared by Weichai Power primarily based on the estimate of the number of diesel engines required by Fujian Longgong and of the average unit prices of such diesel engines. Weichai Power is a leading manufacturer of diesel engines in the PRC. This evidences the quality and competitiveness of Weichai Power’s Engines generally and, therefore, Weichai Power believes that Fujian Longgong will continue to purchase Weichai Power’s Engines for the manufacture of its products.

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LETTER FROM THE BOARD

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	135,000,000	150,000,000	165,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 exceed the 2.5% Threshold, they constitute Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Fujian Longgong, who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will, inter alia, extend the term of the original framework agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM.

V. Continuing connected transactions between Weichai Power and Shanghai Longgong

Shanghai Longgong was engaged in the manufacture and sale of, inter alia, construction machines, certain of which require the diesel engines and parts manufactured by Weichai Power. Shanghai Longgong is indirectly owned by Li San Yim, a non-executive Director, and Ngai Ngan Ying, Li San Yim’s wife. Li San Yim and Ngai Ngan Ying are also interested in Fujian Longgong, being one of the Promoters. Shanghai Longgong is thus an associate of Li San Yim and, hence, a connected person of Weichai Power.

As Li San Yim and Ngai Ngan Ying have restructured their interests in, and the businesses of, Shanghai Longgong and Fujian Longgong, the business of the manufacture and sale of, inter alia, wheel-loaders is also carried out by Shanghai Longgong’s associates (as defined in the Listing Rules), which are also indirectly majority owned by Li San Yim and Ngai Ngan Ying.

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LETTER FROM THE BOARD

Supply of diesel engines and parts by Weichai Power to Shanghai Longgong and its associates

Agreement: Supplemental agreement to the framework agreement dated 21 October 2003 (as supplemented by a supplemental agreement dated 15 September 2004)

Date: 12 November 2006 Parties: 1. Weichai Power 2. Shanghai Longgong Term: 1 January 2007 to 31 December 2009

Other terms and details:

Pursuant to the framework agreement (prior to the entering into of this latest supplemental agreement), Weichai Power has agreed to supply Shanghai Longgong, at market prices, not more than certain stated quantities of diesel engines and parts for each of the three years ending 31 December 2006. The original framework agreement (prior to the entering into of this latest supplemental agreement) is due to expire on 31 December 2006 and this latest supplemental agreement will extend the original framework agreement for a term of three years with effect from 1 January 2007. As Li San Yim and Ngai Ngan Ying have restructured their interests in, and the businesses of, Shanghai Longgong as mentioned above, this latest supplemental agreement will include the sale of diesel engines and parts to Shanghai Longgong and its associates (as defined in the Listing Rules). Save as aforesaid and the removal of the above references to the amount of diesel engines and parts for the past periods (as they are no longer relevant), all other terms of the original framework agreement remain unchanged.

The table below summarises the Existing Caps for the three years ending 31 December 2006 for the Weichai Power Continuing Connected Transactions set out in this sub-section:

2004 2005 2006 RMB RMB RMB Existing Cap 315,000,000 470,000,000 555,000,000

1 January 1 January 1 January 2004– 2005– 2006– 31 December 31 December 30 June 2004 2005 2006 (audited) (audited) (unaudited) RMB RMB RMB Actual transaction amount 250,072,991 268,059,829 250,036,752

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LETTER FROM THE BOARD

As disclosed in the annual report of Weichai Power for the financial year ended 2006, the PRC government had implemented a series of austerity measures in infrastructure in the PRC. The implementation of such measures had certain negative impacts on the construction machinery industry in the PRC, which in turn substantially slowed down the sales of Weichai Power’s Engines which are used in construction machines. As a result, the purchase orders from Shanghai Longgong for Weichai Power’s diesel engines and parts were substantially less than anticipated.

However, the PRC has maintained a strong economic growth over the past years and the construction machinery market showed a very strong recovery following a depressed market in 2005. Shanghai Longgong is a leading manufacturer in construction machinery in the PRC, the demand for its products has increased as a result of the launching of a number of major infrastructure products in the PRC. Weichai Power anticipates that Shanghai Longgong will increase its purchase order for diesel engines and parts from Weichai Power for the three years ending 31 December 2009. Weichai Power estimates that the total consideration payable to Weichai Power by Shanghai Longgong for such sales for the three years ending 31 December 2009 will not exceed RMB500 million, RMB520 million and RMB570 million and such amounts have accordingly been set as the proposed New Caps for these Weichai Power Continuing Connected Transactions. The sales of diesel engines and parts to Shanghai Longgong to-date is substantially higher than 2005 and, accordingly, the New Cap for 2007 is set at a higher base, which is comparable to the 2006 sales to-date.

The above proposed New Caps have been prepared by Weichai Power primarily based on the estimate of the number of diesel engines required by Shanghai Longgong and of the average unit prices of such diesel engines. Weichai Power is a leading manufacturer of diesel engines in the PRC. This evidences the quality and competitiveness of Weichai Power’s Engines generally, and therefore Weichai Power believes that Shanghai Longgong will continue to purchase Weichai Power’s Engines for the manufacture of its products.

The table below summarises the proposed New Caps for the Weichai Power Continuing Connected Transactions set out in this sub-section for the three years ending 31 December 2009:

		2007	2008	2009
		RMB	RMB	RMB
New	Caps	500,000,000	520,000,000	570,000,000

As the New Caps for these Weichai Power Continuing Connected Transactions for the three years ending 31 December 2009 exceed the 2.5% Threshold, they constitute Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and will be subject to the reporting requirements set out in Rules 14A.45 and 14A.46, the announcement requirement in Rule 14A.47 (and the relevant announcement was released on 12 November 2006) and the annual review requirements of Rules 14A.37 and 14A.38, and approval from the Weichai Power Independent Shareholders (being Weichai Power Shareholders other than Fujian Longgong, who will abstain from voting at the Weichai Power Shareholders’ EGM in relation to the resolution to be proposed in respect of these New Caps, and no other Weichai Power Shareholders will be required to abstain from voting in relation thereto at the Weichai Power Shareholders’ EGM) at the Weichai Power Shareholders’ EGM will be required.

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LETTER FROM THE BOARD

Since these Weichai Power Continuing Connected Transactions are Non-exempt Continuing Connected Transactions and the New Caps are subject to Weichai Power Independent Shareholders’ approval as aforesaid, this latest supplemental agreement (which will, inter alia, extend the term of the original framework agreement to 31 December 2009) is conditional upon the said resolution being passed at the Weichai Power Shareholders’ EGM.

C. Listing Rules Requirements

Weichai Power is principally engaged in the manufacture and sale of WD615 Engines and WD618 Engines and engine parts. Prior to the incorporation of Weichai Power and the listing of the Weichai Power Shares on the Hong Kong Stock Exchange, Weichai Power has had business relationship with certain entities. Under the Listing Rules, such entities became connected persons of Weichai Power since the listing of Weichai Power and the transactions between Weichai Power and these entities constitute continuing connected transactions of Weichai Power. As with respect to the continuing connected transactions between Weichai Power and Weichai Factory, since their production facilities are located in close proximity to each other and in view of the PRC Government’s policy not to duplicate construction of production and other facilities, certain continuing connected transactions have been continuing since the listing of Weichai Power on the Hong Kong Stock Exchange.

As Weichai Power has conducted these Weichai Power Continuing Connected Transactions with the relevant entities for many years and Weichai Power has built up a long term strategic and solid business relationship with these entities, the Directors, including the independent non-executive Directors, consider it to be beneficial to Weichai Power to continue to conduct these Weichai Power Continuing Connected Transactions in order to ensure and maximize operating efficiency and stability of the operation of Weichai Power.

The considerations for these Weichai Power Continuing Connected Transactions will be satisfied in cash and the relevant payment terms are normally within one month.

The Directors, including the independent non-executive Directors, have confirmed that the above Weichai Power Continuing Connected Transactions have been subject to arm’s length negotiations between Weichai Power and the relevant parties, and have been entered into by Weichai Power in the ordinary and usual course of business and either (i) on normal commercial terms or better, or (ii) on terms no less favourable to Weichai Power than those available to or from (as appropriate) independent third parties.

The Directors, including the independent non-executive Directors, are of the view that the Weichai Power Continuing Connected Transactions and the proposed New Caps, are fair and reasonable and in the interests of the Weichai Power Shareholders as a whole.

Since certain of the New Caps (in respect of any one or more of the three years ending 31 December 2009) referred to in the above section exceed the 2.5% Threshold, the Weichai Power Continuing Connected Transactions concerning such New Caps constitute Non-exempt Continuing Connected Transactions of Weichai Power under Chapter 14A of the Listing Rules and the New Caps will be subject to the prior approval of the Weichai Power Independent Shareholders (as mentioned above) at the Weichai Power EGM to be convened in relation to, inter alia, the resolution to be proposed in respect of each such New Cap and the relevant Supplemental Agreements, and the reporting requirements set out in Rules 14A.45 and 14A.46 for disclosure of details in Weichai Power’s annual reports and accounts, as well as annual review by the independent non-executive Directors under Rule 14A.37 and by Weichai Power’s auditors under Rule 14A.38.

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LETTER FROM THE BOARD

If any of the Weichai Power Continuing Connected Transactions Agreements (as amended by their related Supplemental Agreements) concerning the Non-exempt Continuing Connected Transactions is renewed or if there is a material change to the terms of any of them, or if any of the New Caps for such Nonexempt Continuing Connected Transactions is exceeded, Weichai Power must re-comply with Rules 14A.35(3) and (4).

2. TAGC CONTINUING CONNECTED TRANSACTIONS

TAGC is an investment holding company, and it derives its income principally from distributions from its subsidiaries and other investments as well as sale of investments. TAGC’s major subsidiaries are principally engaged in the manufacture and sale of heavy-duty trucks and motor vehicle parts.

TAGC invested in its principal operating subsidiaries in conjunction with operation support from the other minority shareholders who often are the founders of the relevant businesses. Accordingly, certain of the operating subsidiaries of TAGC have ongoing transactions with these minority shareholders. Following the completion of the Merger, the transactions (if they continue thereafter) of these operating subsidiaries with their substantial shareholders (as defined in the Listing Rules) will constitute connected transactions under Chapter 14A of the Listing Rules. Such continuing connected transactions may include the following:

					Connected person’s
					relationship with the TAGC	Nature of the connected person’s possible
Name 1.	of connected person (Shaanxi Fast Gear Automotive				Group Holder of 49% of the equity of SFGC	transaction with the TAGC Group (a) Sale of parts and components to SFGC (b) Sourcing of parts and components from
	Transmission Co. Ltd.)						SFGC
2.	Automotive	(Shaanxi Group Co. Ltd.)			Holder of 49% of the equity of Shaanxi Zhongqi	(c) (a)	Leasing of premises to SFGC Purchase of scrap metal and other production waste from Shaanxi
							Zhongqi
						(b)	Payment of utility (such as water and
							electricity) charges to Shaanxi Zhongqi
							for onward payment to utility providers
						(c)	Leasing of premises to Shaanxi
							Zhongqi
3.					Holder of 49% of the equity of	(a)	Sale of parts and components to Futon
	(Mudanjing	Huaton Automotive				(b)	Sourcing of miscellaneous materials
	Components		Company)		(Mudanjing Futon Automotive		from Futon
					Air Conditioner Co. Ltd.)	(c)	Provision of processing services to
					(‘‘Futon’’) (Note 1)		Futon
4.	(Dong Feng Automotive Group Co. Ltd.)				Holder of 40% of the equity of (Dong	(d) (a)	Leasing of premises to Futon Purchase of off-road vehicles from DFOVCL
					Feng Off-road Vehicle Co.	(b)	Sale of parts to DFOVCL
					Ltd.) (‘‘DFOVCL’’) (Note 2)	(c)	Payment for repair and maintenance
							services to DFOVCL
5.				(Zhuzhou	Holder of 49% of the equity of	(a)	Sale of parts to Zhuzhou Gear
	Gear Share	Co. Ltd.)				(b)	Leasing of premises to Zhuzhou Gear
					(Zhuzhou Gear Co. Ltd.)
					(‘‘Zhuzhou Gear’’) (Note 3)

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LETTER FROM THE BOARD

Notes:

Futon is a 51% subsidiary of TAGC.
DFOVCL is a 60% subsidiary of TAGC.
Zhuzhou Gear is a 51% subsidiary of TAGC.

Weichai Power is currently discussing the possible continuing connected transactions as well as their transaction terms and estimated future transaction amounts with the management of the relevant operating subsidiaries and the relevant counterparties. Following such discussions, such transactions may or may not continue. In the event that the parties decide that such transactions shall continue and they constitute continuing connected transactions under Chapter 14A of the Listing Rules, Weichai Power will comply with the announcement and/or independent shareholders’ approval requirements (including, if applicable, issuing a circular (containing the advice of an independent financial adviser in relation thereto) to shareholders under Chapter 14A of the Listing Rules.

III. WEICHAI POWER SHAREHOLDERS’ EGM

A notice convening the Weichai Power Shareholders’ EGM is set out in this circular. Except that Mr. Tan Xuguang, Weichai Factory, Guangxi Liugong and Fujian Longgong are required to abstain from voting (by way of poll) in respect of the relevant resolution(s) as referred to above for approval of the Weichai Power Continuing Connected Transactions, no Shareholders are required to abstain from voting (by way of poll) in respect of the resolutions for approvals of the Merger Proposal, the Weichai Power Continuing Connected Transactions and the amendments to the Weichai Power Articles at the Weichai Power Shareholders’ EGM. The procedure for demanding a poll is also set out below.

If you intend to attend the Weichai Power Shareholders’ EGM, please complete and return the reply slip enclosed in this circular in accordance with the instructions printed thereon as soon as possible and in any event by no later than 9 December 2006.

Whether or not you intend to attend the Weichai Power Shareholders’ EGM, you are requested to complete the proxy form enclosed in this circular in accordance with the instructions printed thereon and return it to Computershare Hong Kong Investor Services Limited, the H Share registrar of Weichai Power in Hong Kong, at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 24 hours before the time appointed for the holding of the Weichai Power Shareholders’ EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

IV. WEICHAI POWER H SHAREHOLDERS’ EGM

A notice convening the Weichai Power H Shareholders’ EGM is set out in this circular. No Shareholder is required to abstain from voting (by way of poll) in respect of the resolution for approval of the Merger Proposal at the Weichai Power H Shareholders’ EGM. The procedure for demanding a poll is also set out below.

If you intend to attend the Weichai Power H Shareholders’ EGM, please complete and return the reply slip enclosed in this circular in accordance with the instructions printed thereon as soon as possible and in any event by no later than 9 December 2006.

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LETTER FROM THE BOARD

Whether or not you intend to attend the Weichai Power H Shareholders’ EGM, you are requested to complete the proxy form enclosed in this circular in accordance with the instructions printed thereon and return it to Computershare Hong Kong Investor Services Limited, the H Share registrar of Weichai Power in Hong Kong, at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 24 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

V. WEICHAI POWER DOMESTIC AND FOREIGN SHAREHOLDERS’ EGM

A notice convening the Weichai Power Domestic and Foreign Shareholders’ EGM is set out in this circular. No Shareholder is required to abstain from voting (by way of poll) in respect of the resolution for approval of the Merger Proposal at the Weichai Power Domestic and Foreign Shareholders’ EGM. The procedure for demanding a poll is also set out below.

If you intend to attend the Weichai Power Domestic and Foreign Shareholders’ EGM, please complete and return the reply slip enclosed in this circular in accordance with the instructions printed thereon as soon as possible and in any event by no later than 9 December 2006.

Whether or not you intend to attend the Weichai Power Domestic and Foreign Shareholders’ EGM, you are requested to complete the proxy form enclosed in this circular in accordance with the instructions printed thereon and return it to the Secretary to the Board of the Company at Securities Department, 26 Minsheng East Street, Weifang, Shandong Province, the People’s Republic of China, Postal Code: 261001, not less than 24 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

VI. RECOMMENDATIONS

Having considered the reasons set out herein, the Directors are of the opinion that the terms of the Merger Agreement are fair and reasonable and in the interests of the Shareholders, holders of H Shares and holders of Domestic Shares and Foreign Shares as a whole. Accordingly, the Directors recommend the Shareholders and H Shareholders to vote in favour of the resolutions regarding the Merger Proposal and the amendments to the Weichai Power Articles which shall be necessary for the purpose of the the issue of the Weichai A Shares under the Merger Proposal and for Weichai Power to comply with the relevant PRC laws and regulations, to be proposed at the forthcoming Weichai Power EGMs.

As regards the Weichai Power Continuing Connected Transactions, they have been, and will continue to be, conducted in the ordinary and usual course of business of Weichai Power and on normal commercial terms, and for the reasons set out above, the Directors are of the view that the Weichai Power Continuing Connected Transactions are fair and reasonable insofar as Weichai Power (as a whole) is concerned, and would recommend that the Weichai Power Independent Shareholders should vote in favour of the resolutions to be proposed at the Weichai Power Shareholders’ EGM to approve the New Caps for the Nonexempt Continuing Connected Transactions.

A Weichai Power Independent Board Committee comprising the independent non-executive Directors (namely, Mr. Zhang Xiaoyu, Mr. Koo Fook Sun, Louis and Mr. Fang Zhong Chang) has been appointed to consider the respective New Caps in relation to the Non-exempt Continuing Connected Transactions. The Weichai Power Independent Financial Adviser has been appointed to advise the Weichai Power Independent Board Committee and the Weichai Power Independent Shareholders on the fairness and reasonableness of the said New Caps in relation to the Non-exempt Continuing Connected Transactions. Your attention is

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LETTER FROM THE BOARD

drawn to (i) the letter setting out the advice from the Weichai Power Independent Board Committee to the Weichai Power Independent Shareholders, which is set out in this circular, and (ii) the letter of advice from the Weichai Power Independent Financial Adviser setting out its advice to the Weichai Power Independent Board Committee and the Weichai Power Independent Shareholders in relation to the New Caps for the Non-exempt Continuing Connected Transactions, which is set out in this circular.

VII. FURTHER INFORMATION

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

Yours faithfully, For and on behalf of the Board of Directors Tan Xuguang Chairman and CEO

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LETTER FROM INDEPENDENT BOARD COMMITTEE ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

==> picture [190 x 104] intentionally omitted <==

WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

12 November 2006

To the Independent Shareholders of Weichai Power Co., Ltd.

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders of Weichai Power Co., Ltd. to consider the New Caps (as defined in the circular of the Company dated 12 November 2006) (the ‘‘Circular’’) in relation to the Non-exempt Continuing Connected Transactions, details of which are set out in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal — 1. Weichai Power Continuing Connected Transactions’’ in the ‘‘Letter from the Board’’ contained in the Circular. Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.

Your attention is drawn to the ‘‘Letter from the Board’’, the advice of the Weichai Power Independent Financial Adviser in its capacity as the independent financial adviser to the Weichai Power Independent Board Committee and the Weichai Power Independent Shareholders in respect of the Weichai Power Continuing Connected Transactions as set out in the ‘‘Letter from Independent Financial Adviser on the Weichai Power Continuing Connected Transactions’’ as well as other additional information set out in other parts of the Circular.

Having taken into account the advice of, and the principal factors and reasons considered by the Weichai Power Independent Financial Adviser in relation thereto as stated in its letter, we consider that the Weichai Power Continuing Connected Transactions and the New Caps are fair and reasonable so far as the interests of the Shareholders as a whole are concerned. We therefore recommend that you vote in favour of the ordinary resolutions to be proposed at the Weichai Power Shareholders’ EGM to approve the New Caps for the Non-exempt Continuing Connected Transactions.

Yours faithfully,

The Independent Board Committee

	Yours faithfully, The Independent Board Committee
Zhang Xiaoyu	Koo Fook Sun, Louis	Fang Zhong Chang
Independent non-executive	Independent non-executive	Independent non-executive
Director	Director	Director

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

The following is the full text of the letter to the independent board committee and the independent shareholders of Weichai Power Co., Ltd. in respect of the Weichai Power Continuing Connected Transactions from the Independent Financial Adviser for the purpose of incorporation into this circular.

20th Floor

Hong Kong Diamond Exchange Building 8–10 Duddell Street Central, Hong Kong

12 November 2006

To the independent board committee and the independent shareholders of Weichai Power Co., Ltd.

Dear Sirs,

NEW CAPS FOR NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the independent board committee (the ‘‘Independent Board Committee’’) and the independent shareholders (the ‘‘Independent Shareholders’’) of Weichai Power Co., Ltd. (the ‘‘Company’’) in respect of the Supplemental Agreements and the New Caps, details of which are set out in the circular to the Shareholders dated 12 November 2006 (the ‘‘Circular’’), of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Agreement and the New Caps. Unless otherwise stated, terms defined in the Circular have the same meanings in this letter.

On 12 November 2006, the Board announced, among others, that in view of the Weichai Power Continuing Connected Transactions Agreements which are due to expire on 31 December 2006, the Company has entered into the Supplemental Agreements with various connected persons (as defined under the Listing Rules) of the Company which include Weichai Factory, Chongqing Weichai, Guangxi Liugong Machinery, Fujian Longgong, and Shanghai Longgong (the ‘‘WP Connected Persons’’) to extend the term of the Weichai Power Continuing Connected Transactions Agreements to 31 December 2009. Since the New Caps, either individually or when aggregated with others, exceed the 2.5% Threshold, the Supplemental Agreements, and the New Caps are required to be subject to, among others, the approval of the independent shareholders at a general meeting of the Company pursuant to Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all the Independent Non-executive Directors, has been formed to advise the Independent Shareholders as to (i) whether the entering into of the Supplemental Agreements is in the interests of the Company and the Shareholders as a whole; (ii) the terms of the Supplemental Agreements and the New Caps are fair and reasonable; and (iii) whether the Independent Shareholders should vote in favour of the ordinary resolutions to approve the Supplemental Agreements and the New Caps at the EGM. As the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to (i) whether or not the entering into of the Supplemental

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

Agreements is in the interests of the Company and the Shareholders as a whole; (ii) whether or not the terms of the Supplemental Agreements and the New Caps are fair and reasonable; and (iii) whether or not the Independent Shareholders should vote in favour of the ordinary resolutions to approve the Supplemental Agreements and the New Caps at the EGM.

In formulating our opinion, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company, its advisers and the Directors. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company and the Directors and for which they are solely and wholly responsible, were true and accurate at the time they were made and continue to be so at the date hereof. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. The Directors have confirmed, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We consider that we have reviewed sufficient information which enables us to form a reasonable basis for our opinion. We also consider that we have performed all reasonable steps as required under Rule 13.80 of the Listing Rules to ascertain the reliability of the information provided to us and to form our opinion. We have not, however, conducted any independent verification of the information provided, nor have we carried out any in-depth investigation into the business and affairs of the Group or the WP Connected Persons, or the prospects of the market in which they respectively operate.

Apart from the normal advisory fee payable to us in connection with our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, no arrangement exists whereby we shall receive any other fees or benefits from the Company. We are independent of the Company for the purposes of Rule 13.84 of the Listing Rules.

PRINCIPAL FACTORS CONSIDERED

In formulating our opinion regarding the Supplemental Agreements and the New Caps, we have taken into consideration the following principal factors:

1. Background information

(a) Overview of the business operation and products of the Company

The Company is one of the leading high-speed, heavy-duty diesel engine manufacturers in the PRC, supplying mainly to major domestic truck and construction machinery manufacturers. The Company’s core products are six-cylinder, 110–266kw output, 9.7 litre displacement WD615 diesel engines and WD618 diesel engines with an output of 265–323kw. Diesel engine manufacturing is a very large industry with a diverse range of engines, which are characterised based on their end-products/applications. As disclosed in the Company’s annual report for the year ended 31 December 2005 (the ‘‘Annual Report’’), the sales of the Group’s WD615 and WD618 series engines which were used in heavy-duty trucks and construction machinery accounted for a total of approximately 82.4% of the Group’s total turnover of approximately RMB5,250.7 million for the year 2005. For the same financial year, the Group sold approximately 114,180 units of diesel engines, of which approximately 63,490 units were truck engines. Apart from the production and sale of diesel engines, the Group is also engaged in

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

the production and sale of engine parts. For the year ended 31 December 2005, sales of diesel engine parts amounted to approximately RMB683.0 million, which accounted for approximately 13.0% of the Group’s total turnover for the year.

As regards the latest sales information on the Group as disclosed in the Company’s interim report for the six months ended 30 June 2006 (the ‘‘Interim Report’’), the sales of WD615 and WD618 series engines which were used in heavy-duty trucks and construction machinery accounted for a total of approximately 83.3% of the Group’s total unaudited turnover of approximately RMB3,493.6 million for the six months ended 30 June 2006. During the same period, the Group sold approximately 83,027 units of diesel engines, of which approximately 44,197 units and 36,425 units were truck engines and construction machinery engines, respectively.

The following is a summary of the financial results of the Group for each of the two years ended 31 December 2005 and the six months ended 30 June 2006, which is extracted from the Annual Report and the Interim Report.

			For the six months ended	For the six months ended
	Year ended 31 December		30 June
	2004	2005	2005	2006
	RMB’000	RMB’000	RMB’000	RMB’000
	(audited and
	restated)	(audited)	(unaudited)	(unaudited)
Turnover	6,155,779	5,250,735	3,228,268	3,493,590
Gross profit	1,504,706	1,154,327	747,607	885,033
Profit for the year/period	533,254	316,683	250,223	320,665

For the year ended 31 December 2005, the Group’s turnover dropped by approximately 14.7% to approximately RMB5,250.7 million. As explained in the Annual Report, such drop in the turnover was mainly due to the decrease in the demand in the heavy-duty trucks market for diesel engines as a result of, among others, the implementation of a series of government policy measures which had slowed down the investments in infrastructure in China in 2005. Due to the drop in the sales volume of the diesel engines for heavy-duty trucks which had a relatively higher gross profit margin, the Group’s gross profit decreased further by approximately 23.3% to approximately RMB1,154.3 million. For the year ended 31 December 2005, the Group recorded a profit of approximately RMB316.7 million, representing a decrease of approximately 40.6% from the profit of approximately RMB533.3 million for the preceding financial year.

For the six months ended 30 June 2006, the Group recorded an unaudited turnover of approximately RMB3,493.6 million, representing an increase of approximately 8.2% over the turnover of approximately RMB3,228.3 million for the corresponding period in 2005. As noted in the Interim Report, such increase in the Group’s turnover for the first half of 2006 was the result of the recovery in the heavy-duty truck and construction machinery markets which had been adversely affected by the implementation of a series of government policy measures in relation to infrastructure in the PRC in 2005. Due to the increase in the sales volume of heavyduty truck diesel engines during the six-month period, the Group’s gross profit increased by approximately 18.4% to approximately RMB885.0 million from the gross profit of approximately RMB747.6 million for the six months ended 30 June 2005. For the six months

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

ended 30 June 2006, the Group recorded an unaudited profit of approximately RMB320.7 million, representing an increase of approximately 28.2% over the net profit of approximately RMB250.2 million for the corresponding period in 2005.

(b) Overview of the heavy-duty truck and construction machinery markets in China

As mentioned above, due to the Chinese government’s administrative and control measures which had slowed down the investments in infrastructure in China in 2005, demand for heavyduty trucks and construction machinery dropped which led to a substantial reduction in the Group’s sales of the relevant diesel engines for use in heavy-duty trucks and construction machinery during the relevant period. In particular, as set out in the Annual Report, the heavytruck market in the PRC had experienced for the first time an overall decline since 1997 with a drop in annual sales volume of approximately 36.2% in 2005 after significant growth in 2003 and 2004. Nevertheless, the heavy-truck and construction machinery markets in the PRC have been recovering significantly since 2006. According to the China Association of Automobile Manufacturers, the aggregate sales of heavy-duty tucks in the PRC amounted to approximately 153,334 units for the six months ended 30 June 2006, which represented a period-on-period growth of about 4.5%. As regards the sales of construction machinery in the PRC for the six months ended 30 June 2006, a total of approximately 97,331 units were sold, which represented an increase of about 15% over the same period of 2005.

As advised by the Company, in view of the rapid growth of the national economy, the development and improvement of the expressway network nationwide, logistics, transportation and automobile industries in China, the gradual implementation of large-scale projects such as the ‘‘West to East Gas Pipelines’’, the ‘‘South to North Water Channels’’ and the recent national policies focusing on promoting rural urbanisation, the Company is of the view that there will be a continuous development and positive growth of heavy-duty truck and construction machinery markets in the PRC.

According to , as a result of the development and improvement of the expressway network nationwide which fuels the development of the logistics service sector, and hence the demand for heavy-duty transportation vehicles, the total sales of heavy-duty trucks in the PRC for 2006 is estimated to reach about 270,000 units, representing an increase of 14% from the sales in 2005. On the other hand, according to the statistics of , the growth of the construction machinery market in the PRC for the six months ended 30 June 2006 has reached about 15% as compared to the same period in 2005. Having considered the recent developments of the heavy-duty truck and construction machinery markets in the PRC, we are of the general view that the demand for the Group’s diesel engines for use in heavy-duty trucks and construction machines would remain promising.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(c) Relationship with the WP Connected Persons

(i) Weichai Factory

Weichai Factory is a substantial shareholder and a promoter of the Company, holding approximately 23.53% of the entire issued share capital of the Company as at the Latest Practicable Date. Weichai Factory is engaged in the manufacture and sale of the following diesel engines:

6160A series and 170Z series, which are medium-speed diesel engines mainly used in fishing boats and power generators of 200kw (or above); and
R and 95 series diesel engines, which are mainly used in agricultural and related machines.

None of these series of diesel engines are high-speed heavy-duty diesel engines, and they cannot be used in heavy-duty vehicles with a load capacity of 15 tonnes (or above) or heavy-duty construction machines, which are the key markets for the Company’s WD615 and WD618 series engines.

(ii) Chongqing Weichai

Chongqing Weichai is wholly-owned by Weichai Factory and is engaged in businesses as similar to those of Weichai Factory, i.e. in the manufacture and sale of 6160A series, 170Z series and R and 95 series diesel engines.

(iii) Guangxi Liugong Machinery

Guangxi Liugong Machinery is owned as to 63% by Guangxi Liugong, which is a promoter of the Company, and is engaged in the manufacture and repair of construction machines, which require WD615 series engines and parts manufactured by the Company.

(iv) Fujian Longgong

Fujian Longgong is owned as to 69.16% by Mr. Li San Yim, a non-executive Director, and as to 30.84% by Ms. Ni Yinying, the wife of Mr. Li San Yim. Fujian a promoter of the Company and is engaged in the manufacture and sale of, among others, wheel-loaders, certain of which require the diesel engines and parts manufactured by the Company.

(v) Shanghai Longgong

Shanghai Longgong is owned as to 39.49% by Mr. Li San Yim, a non-executive Director, and as to 60.51% by Ms. Ni Yinying, the wife of Mr. Li San Yim. Shanghai Longgong is engaged in the manufacture and sale of, among others, construction machines, certain of which require the diesel engines and parts manufactured by the Company.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

By virtue of the relationship between the Company and each of Weichai Factory, Chongqing Weichai, Guangxi Liugong Machinery, Fujian Longgong and Shanghai Longgong as described above, these parties are considered to be connected persons of the Company under the Listing Rules and the transactions between the Company and each of them therefore constitute connected transactions.

2. Reasons for the Continuing Connected Transactions

The Company has had business relationships with the WP Connected Persons since the listing of the Company’s H Shares on the Stock Exchange in March 2004, and certain transactions which have been conducted between the Group and the WP Connected Persons on an ongoing basis have constituted non-exempt continuing connected transactions of the Company that are subject to, among others, the approval of the independent shareholders under the Listing Rules. In this connection, the existing non-exempt continuing connected transactions contemplated under the Weichai Power Continuing Connected Transactions Agreements and the Existing Caps have been approved by the Weichai Power Shareholders at the 2004 Weichai Power Shareholders’ EGM and 2005 Weichai Power Shareholders’ EGM (as the case may be). As the Weichai Power Continuing Connected Transactions Agreements are due to expire on 31 December 2006 and it is anticipated that the Group will continue the relevant transactions on a recurring basis, the Company has entered into the Supplemental Agreements with the WP Connected Persons to extend the term of the Weichai Power Continuing Connected Transactions Agreements to 31 December 2009.

Having considered that the transactions contemplated under the the Weichai Power Continuing Connected Transactions Agreements have been, and will continue to be, conducted in the ordinary and usual course of business of the Company and on normal commercial terms, the Directors are of the view that the entering into of the Supplemental Agreements to extend the term of the Weichai Power Continuing Connected Transactions Agreements is in the interests of the Company and its shareholders as a whole.

Based on the fact that the Group has engaged in the business transactions with the WP Connected Persons on an ongoing basis since the listing of the Company’s H Shares on the Stock Exchange in March 2004 and such transactions have been conducted in the ordinary and usual course of the business of the Company and, where applicable, approved previously by the independent shareholders of the Company in accordance with the relevant requirements of the Listing Rules and that the purpose of the Supplemental Agreements is to extend the term of the Weichai Power Continuing Connected Transactions Agreements for a further three-year period, we are also of the view that the entering into of the Supplemental Agreements is in the interests of the Company and its shareholders as a whole.

3. Continuing connected transactions between the Company and Weichai Factory

A. Provision of general services by Weichai Factory to the Company
(a) Terms of the general services agreement and the relevant supplemental agreements

Pursuant to the general services agreement dated 17 November 2003 (as amended and supplemented by supplemental agreements dated 12 January 2004, 2 February 2004, 15 September 2004 and 21 September 2005) entered into between the Company and Weichai Factory (the ‘‘General Services Agreement’’), Weichai Factory has agreed to provide certain general services to the Company, namely, environmental protection,

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

security, fire, repair, maintenance and other general services and the payment of certain town land use right tax in relation to the property occupied and/or used by the Company (and/or its staff, if applicable), for a term which is due to expire on 31 December 2006.

Pursuant to the General Services Agreement, the fees payable by the Company to Weichai Factory with respect to the provision of the above-mentioned general services are determined based on the actual costs incurred by Weichai Factory and apportioned on a pro-rata basis according to the area of the relevant property occupied and/or used by the Company (and/or its staff, if applicable) plus a service charge representing not more than 20% of such costs (save that the town land use right tax paid by Weichai Factory on behalf of the Company and its staff, if applicable, will not be subject to the said 20% service charge). With respect to the repair and maintenance charges and common costs incurred by Weichai Factory on staff quarters and the costs of general services provided by Weichai Factory to certain common area used by both Weichai Factory and the Company, the relevant charges and costs would be shared equally between the Company and Weichai Factory. In any event, the charges for the aforesaid general services will not be higher than the fees payable to Weichai Factory by any independent third parties (if any).

If the Company is able to secure the provision of any services similar to those referred to above by itself or from a third party on terms more favourable than those set out in the General Services Agreement, then the Company is entitled to terminate the relevant services by giving not less than 30 days’ prior notice to Weichai Factory.

Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term for the provision of the aforesaid general services will be extended for three years with effect from 1 January 2007 while all other terms and conditions of the General Services Agreement remain unchanged.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the actual fees paid by the Company to Weichai Factory with respect to the above-mentioned general services for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total service fees in	Total service fees in	Increase/
	relation to the provision		(Decrease) as
	of	general services by	compared to
	Weichai Factory to the		the preceding
		Company	financial year
		(RMB’ million)	(%)
Actual fees:
2004		13.3	N/A
2005		15.6	17.3
Existing Caps:
2004		15.0	N/A
2005		16.0	6.7
2006		18.0	12.5
New Caps:
2007		7.0	(61.1)
2008		7.5	7.1
2009		8.0	6.7

As stated in the Letter from the Board, Weichai Factory charged the Company a service charge of 20% of the actual costs incurred by it for the provision of the general services for each of the two years ended 31 December 2005. Pursuant to the amendment introduced by the supplemental agreement dated 21 September 2005 to the original general services agreement (the details of which were set out in the 2005 Announcement and the 2005 Circular), the relevant service charge rate has been changed from a fixed percentage of 20% to a flexible percentage that is not more than 20% with effect from 1 September 2005. As stated in the Letter from the Board, since 1 January 2006, Weichai Factory has charged the Company a service charge of 5%, instead of 20% as in the past, of the actual costs incurred by it for the provision of the general services. The Company expects that the existing rate of 5% will be charged by Weichai Factory for the three years ending 31 December 2009.

We have been advised by the Company that the total transaction amounts for the provision of the general services by Weichai Factory for the three years ending 31 December 2009 are expected to be substantially lower than the actual transaction amounts for the two years ended 31 December 2005 as a result of the commencement of the Company’s new production facility in the High Technology Industrial Development Zone, which has commenced operation since late 2005 and has assumed part of its production work at the Weifang Production Line. As the assessable profit derived from the production

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

in the High Technology Development Zone subject to the PRC Enterprise Income Tax is currently taxed at a preferential rate of 15%, which is significantly lower than the statutory income tax rate of 33% applicable to the assessable profit derived from the Company’s other production facilities, the Company considers that it is commercially beneficial for it to maximise the utilisation of the new production facility. Accordingly, it is expected that the level of production at the Weichai Production Line for the three years ending 31 December 2009 will be substantially less than the pre-2006 historical level.

Having considered that the general services to be required from Weichai Factory for the three years ending 31 December 2009 will maintain at a relatively low level as well as the effect of the above-mentioned reduction in the service charge rate applied by Weichai Factory since 1 January 2006, the Company proposes the relevant New Caps for each of the three years ending 31 December 2007, 2008 and 2009 to be RMB7.0 million, RMB7.5 million and RMB8.0 million, respectively. On the basis that the proposed New Caps are estimated by the Company based on the expected amount of the general services to be required from Weichai Factory and maintain consistently at a relatively low level during the relevant period, we consider that the proposed New Caps of RMB7.0 million, RMB7.5 million and RMB8.0 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, are fair and reasonable.

B. Supply and/or connection of utilities by Weichai Factory to the Company

(a) Terms of the utility services agreement and the relevant supplemental agreements

Pursuant to the utility services agreement dated 17 November 2003 (as amended and supplemented by the supplemental agreements dated 15 September 2004 and 21 September 2005) entered into between the Company and Weichai Factory (the ‘‘Utility Services Agreement’’), Weichai Factory has agreed to provide or provide the connection of (as the case may be) certain utility and energy services to the Company, which include water, electricity, gas, steam, oxygen, nitrogen, compressed air, waste water treatment and supply of treated waste water, etc., for a term which is due to expire on 31 December 2006.

Pursuant to the Utility Services Agreement, the fees payable by the Company to Weichai Factory with respect to the provision and/or connection of the utility and energy services are determined based on the actual usage of the Company and by reference to the market prices of such utilities. If only government published rates are available with respect to certain utilities, the fees payable would be determined by reference to the government published rates plus the wastage, depreciation and repair expenses incurred by Weichai Factory in relation thereto. If no market price or government published rates with respect to the above-mentioned utility and energy services are available, the Company will pay the actual costs incurred by Weichai Factory in relation to the provision of such utility and energy services plus a service charge representing not more than 20% of such actual costs.

Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term for the provision of the aforesaid utility and energy services will be extended for three years with effect from 1 January 2007 while all other terms and conditions of the Utility Services Agreement remain unchanged.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the fees paid by the Company to Weichai Factory with respect to the above-mentioned utility services for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total service fees in	Increase/
	relation to the provision	(Decrease) as
	of utility and energy	compared to
	services by Weichai	the previous
	Factory to the Company	financial year
	(RMB’ million)	(%)
Actual fees:
2004	108.2	N/A
2005	113.9	5.3
Existing Caps:
2004	135.0	N/A
2005	170.0	25.9
2006	170.0	—
New Caps:
2007	110.0	(35.3)
2008	125.0	13.6
2009	140.0	12.0

As stated in the Letter from the Board, Weichai Factory charged the Company a service charge of 20% of the actual costs incurred by it for the provision of the utility services for each of the two years ended 31 December 2005. Pursuant to the amendment introduced by the supplemental agreement dated 21 September 2005 to the original utility services agreement (the details of which were set out in the 2005 Announcement and the 2005 Circular), the relevant utility service charge rate has been changed from a fixed percentage of 20% to a flexible percentage that is not more than 20% with effect from 1 September 2005. As stated in the Letter from the Board, since 1 January 2006, Weichai Factory has charged the Company a service charge of 5%, instead of 20% as in the past, of the actual costs incurred by it for the provision of the utility services. The Company expects that the existing rate of 5% will be charged by Weichai Factory for the three years ending 31 December 2009.

Similar to the estimation of the general services to be provided by Weichai Factory as mentioned above, the Company also estimates that the total transaction amounts for the provision of the utility and energy services by Weichai Factory for the three years ending 31 December 2009 will be substantially lower than the actual transaction amounts for the two years ended 31 December 2005 because of the reduction of the service charge rate applied by Weichai Factory as well as the reduction in the amount of utility services required by the Company following the commencement of its new production facility in

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

the High Technology Industrial Development Zone. Nevertheless, the Company also estimates that it may experience a steady increase in the demand for its products for the two years ending 31 December 2008 and 2009, which will drive up the utilisation of the production facility at the Weifang Production Line leading to an increase in the utility to be consumed. As a result, the Company proposes that the New Caps in respect of the utility and energy services to be provided by Weichai Factory for each of the three years ending 31 December 2007, 2008 and 2009 will be RMB110 million, RMB125 million and 140 million, respectively.

We note that the aforesaid New Caps of RMB110 million, RMB125 million and 140 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, have been substantially less than the existing Cap of RMB170 million for the year ending 31 December 2006. However, in view of the Company’s new production facility in the High Technology Industrial Development Zone which commenced operation in 2005 and the fact that the utility services charge rate applied by Weichai Factory has been significantly reduced to 5%, we consider it fair and reasonable to propose a New Cap for the year ending 31 December 2007 at a level lower than the Existing Cap. As regards the proposed New Cap for each of the two years ending 31 December 2008 and 2009, which represents an annual increase of approximately 13.6% and 12.0%, respectively, from the relevant New Cap for the preceding year, we understand that such New Caps have taken into account the Company’s expectation of the steady increase in the demand for its products in the relevant period. Accordingly, we are of the view that the proposed New Caps of RMB110 million, RMB125 million and RMB140 million in respect of the provision of the utility and energy services by Weichai Factory for each of the three years ending 31 December 2007, 2008 and 2009, respectively, are fair and reasonable.

C. Supply of WD615 Engines by the Company to Weichai Factory

(a) Terms of the framework agreement and the relevant supplemental agreement

Pursuant to the framework agreement dated 17 November 2003 (as supplemented by the supplemental agreement dated 15 September 2004) entered into between the Company and Weichai Factory (the ‘‘Framework Agreement’’), the Company has agreed to supply not more than the pre-determined number of WD615 Engines to Weichai Factory at market prices for each of the three years ending 31 December 2006. Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the Framework Agreement will be extended for three years with effect from 1 January 2007. Other than the extension of the term and the removal of the references to the maximum number of supply of WD615 Engines for the past periods, all other terms and conditions of the Framework Agreement remain unchanged.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the total transaction amounts in relation to the sales of WD615 Engines by the Company to Weichai Factory for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total transaction
	amounts in relation to	Increase/
	the sales of WD615	(Decrease) as
	Engines by the	compared to
	Company to Weichai	the previous
	Factory	financial year
	(RMB’ million)	(%)
Actual amounts:
2004	39.5	N/A
2005	37.0	(6.3)
Existing Caps:
2004	90.0	N/A
2005	115.0	27.8
2006	115.0	—
New Caps:
2007	26.0	(77.4)
2008	29.0	11.5
2009	34.0	17.2

WD615 Engines are one of the components of the power generators manufactured by Weichai Factory. As stated in the letter from the Board, at the time when the Existing Caps for the supply of WD615 Engines to Weichai Factory were determined in 2004, there was a significant power shortage in the PRC and many factories had to install their own power generators to maintain their normal operations, which led to a significant increase in the demand for power generators in the PRC. It was on such basis that the estimate of the sales of WD615 Engines and hence the Existing Caps for the three years ending 31 December 2006 were determined. However, the power shortage in the PRC eased off in the forth quarter of 2004, which reduced the demand for power generators. Furthermore, as disclosed in the Annual Report, the central government of the PRC had implemented a series of austerity measures in relation to infrastructure investments in 2005, which also led to a decrease in the demand for power generators in the PRC. As a result, the actual sales of WD615 Engines by the Company to Weichai Factory for the two years ended 31 December 2005 in the respective amounts of approximately RMB39.5 million and RMB37.0 million were substantially lower than the relevant Existing Caps of RMB90 million and RMB115 million. Based on its management accounts for the current financial year, the Company has noticed that the sales of WD615 Engines to Weichai Factory so far have also been substantially lower than the Existing Cap of RM115 million for the year ending 31 December 2006.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

Nevertheless, having considered the fact that the PRC has maintained a strong economic growth in recent years, the Company estimates that the demand for power generators in the PRC will remain steady for the three years ending 31 December 2009. As the Company is a leading manufacturer of diesel engines in the PRC with high quality and competitiveness and given the proximity between the Company’s production facilities and those of Weichai Factory, the Company considers that Weichai Factory will continue to purchase WD615 Engines for the manufacture of its power generators. As noted in the Letter from the Board, the New Cap of RMB26 million for the year ending 31 December 2007, which represents a decrease of over 70% from the Existing Cap of RMB115 million for the year ending 31 December 2006, has been set at a lower base and by reference to the latest sales record for the current year. Having taken into account the expected stable increase in the average unit prices of WD615 Engines by reference to the estimated salary growth rate in the relevant period, the Company proposes the New Cap in respect of the sale of WD615 Engines to Weichai Factory to be RMB26 million, RMB29 million and RMB34 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively.

As the sale of WD615 Engines by the Company to Weichai Factory has been, and will continue to be, based on market prices and WD615 Engine is a core product of the Company, it is in the commercial interest of the Company to continue to sell to Weichai Factory by extending the duration of the Framework Agreement. Given that the Company is a leading manufacturer of diesel engines in the PRC and that WD615 Engines are one of the components of the power generators manufactured by Weichai Factory, it is also reasonable to expect that Weichai Factory will continue to purchase WD615 Engines from the Company for the manufacture of its power generators. Having considered that (i) the proposed New Cap of RMB26 million for the year ending 31 December 2007 has been determined by reference to the relevant actual sales record for the current year and (ii) the respective New Caps of RMB29 million and RMB34 million for the two years ending 31 December 2009 represent only a moderate increase in anticipation of the increase in the average unit prices of WD615 Engines, we are of the view that the proposed New Caps of RMB26 million, RMB29 million and RMB34 million in respect of the sale of WD615 Engines to Weichai Factory for each of the three years ending 31 December 2007, 2008 and 2009, respectively, are fair and reasonable.

D. Supply of finished diesel engine parts by Weichai Factory to the Company

(a) Terms of the finished diesel engine parts supply agreement and the relevant supplemental agreement

Pursuant to the finished diesel engine parts supply agreement dated 17 November 2003 (as supplemented by the supplemental agreement dated 15 September 2004) entered into between the Company and Weichai Factory (the ‘‘Finished Diesel Engine Parts Supply Agreement’’), Weichai Factory has agreed to supply finished diesel engine parts to the Company for a term which is due to expire on 31 December 2006. Pursuant to the Finished Diesel Engine Parts Supply Agreement, the consideration for the supply of the finished diesel engine parts is equal to the lower of (i) the costs in relation to the manufacture of the relevant finished diesel engine parts incurred by Weichai Factory plus a service charge not exceeding 20% of such costs or (ii) the relevant market prices (if available). In addition,

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

Weichai Factory has agreed that the consideration for the supply of finished diesel engine parts to the Company will not be higher than the consideration paid to Weichai Factory by any independent third parties.

Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the Finished Diesel Engine Parts Supply Agreement will be extended for three years with effect from 1 January 2007 while all other terms and conditions remain unchanged.

(b) Rationale for determining the New Caps

The table below sets out (i) the total transaction amounts in relation to the supply of finished diesel engine parts by Weichai Factory to the Company for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total transaction
	amounts in relation to	Increase/
	the supply of finished	(Decrease) as
	diesel engine parts by	compared to
	Weichai Factory to the	the previous
	Company	financial year
	(RMB’ million)	(%)
Actual amounts:
2004	62.1	N/A
2005	48.1	(22.5)
Existing Caps:
2004	75.0	N/A
2005	115.0	25.9
2006	180.0	56.5
New Caps:
2007	136.0	(24.4)
2008	160.0	17.6
2009	185.0	15.6

As explained in the Letter from the Board, due to a series of marco-economic tightening measures implemented by the PRC government to slow down the infrastructure investments in the PRC as well as a new policy which required all truck manufacturers to redesign their trucks so as to meet certain design standards with specific length, height and chassis structure requirements in 2005, the heavy-duty trucks market had been adversely affected, which in turn substantially slowed down the sales of the Company’s heavy-duty truck diesel engines. Accordingly, the reduction in the production volume led to the purchase of finished diesel engine parts from Weichai Factory in 2005 being less than anticipated. In particular, the actual purchases of finished diesel engine parts from Weichai Factory by the Company for the year ended 31 December 2005 amounted to approximately

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

RMB48.1 million, which represented a decrease of approximately 22.5% from the purchase in 2004 and was significantly lower than the Existing Cap of RMB115 million for 2005.

Having considered that (i) the significant recovery in the heavy-duty truck and construction machinery markets in the PRC in 2006; (ii) the Company’s projection of the average unit prices of those finished diesel engine parts to be purchased by it; and (iii) the estimated growth rate at approximately 13% to 15% of the production volume of the finished diesel engine parts for the three years ending 31 December 2009, the Company estimates that the total consideration for the supply of finished diesel engine parts by Weichai Factory for each of the three years ending 31 December 2007, 2008 and 2009 will not exceed RMB136 million, RMB160 million and RMB185 million, respectively. Accordingly, such amounts have been set as the proposed New Caps for the transactions contemplated under the Finished Diesel Engine Parts Supply Agreement for the three financial years ending 31 December 2009.

As the finished diesel engine parts purchased from Weichai Factory have been, and will continue to be, used by the Company for its production of the diesel engines for heavy-duty trucks and construction machinery and the consideration payable by the Company will not be higher than the consideration paid to Weichai Factory by any independent third parties, we consider that it is in the commercial interest of the Company to continue to purchase the finished diesel engine parts from Weichai Factory by extending the duration of the Finished Diesel Engine Parts Supply Agreement. Given that the proposed New Cap of RMB136 million, RMB160 million and RMB185 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, has been primarily based on the Company’s estimate of its production volume which has taken into account a moderate growth rate of about 13% to 15% as well as the projected increase in the average unit prices of the finished diesel engine parts, we are of the view that such proposed New Caps are fair and reasonable.

E. Supply of semi-finished diesel engine parts by the Company to Weichai Factory

(a) Terms of the semi-finished diesel engine parts supply agreement and the relevant supplemental agreement

Pursuant to the semi-finished diesel engine parts supply agreement dated 17 November 2003 (as supplemented by the supplemental agreement dated 15 September 2004) entered into between the Company and Weichai Factory (the ‘‘Semi-finished Diesel Engine Parts Supply Agreement’’), the Company has agreed to supply semi-finished diesel engine parts to Weichai Factory for a term which is due to expire on 31 December 2006. The consideration payable by Weichai Factory are determined based on the costs incurred by the Company in the provision of the semi-finished diesel engine parts plus a service charge not exceeding 20% of such costs, and that the consideration will not be less the relevant market prices, if any (provided that it is permitted by the relevant laws and regulations in the PRC to do so).

Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the Semi-finished Diesel Engine Parts Supply Agreement will be extended for three years with effect from 1 January 2007 while all other terms and conditions remain unchanged.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the total transaction amounts in relation to the supply of semi-finished diesel engine parts by the Company to Weichai Factory for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total transaction
	amounts in relation to	Increase/
	the supply of Semi-	(Decrease) as
	finished diesel engine	compared to
	parts by the Company	the previous
	to Weichai Factory	financial year
	(RMB’ million)	(%)
Actual amounts:
2004	173.3	N/A
2005	199.7	15.2
Existing Caps:
2004	175.0	N/A
2005	200.0	14.3
2006	200.0	—
New Caps:
2007	220.0	10.0
2008	250.0	13.6
2009	290.0	16.0

As stated in the Letter from the Board, the Company charged Weichai Factory a service charge of 20% of the actual costs incurred by it for the supply of semi-finished diesel engine parts for each of the two years ended 31 December 2005. In view of the reduction by Weichai Factory in respect of the service charge rates applicable to the transactions contemplated under the General Services Agreement and the Utility Services Agreement (details of these two Agreements are set out in the relevant sections above), the Company has also reduced the service charge rate from 20% to 5% for its provision of the semi-finished diesel engine parts to Weichai Factory since 1 January 2006. The Company expects that the same rate of 5% will be charged to Weichai Factory for the three years ending 31 December 2009.

As shown in the above table, the actual transaction amounts in relation to the sales of semi-finished diesel engine parts to Weichai Factory for each of the two years ended 31 December 2005 were approximately RMB173.3 million and RMB199.7 million respectively, both of which approximated substantially the relevant Existing Caps of RMB175 million and RMB200 million. As stated in the Letter from the Board, in view of the strong economic growth of China in recent years, the Company estimates that the demand for power generators in the PRC will remain steady for the three years ending 31 December 2009. Accordingly, the Company expects that Weichai Factory will continue to

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

purchase its semi-finished diesel engine parts for the manufacture of power generators, and estimates that the sale of its semi-finished diesel engine parts to Weichai Factory will increase steadily for the three years ending 31 December 2009. On this basis, the Company estimates that the proposed New Caps for the supply of semi-finished diesel engine parts to Weichai Factory for each of the three years ending 31 December 2007, 2008 and 2009 are RMB220 million, RMB250 million and RMB290 million, respectively.

Given that (i) the actual sales of semi-finished diesel engine parts by the Company to Weichai Factory for each of the two years ended 31 December 2005 amounted to approximately RMB173.3 million and RMB199.7 million, respectively, and matched closely the respective Existing Caps of RMB175 million and RMB200 million; (ii) the proposed New Caps of RMB220 million, RMB250 million and RMB290 million for each of the three years ending 31 December 2007, 2008 and 2009 represents a relatively steady growth rate of about 10% to 16% during the relevant period; (iii) the consideration payable by Weichai Factory for such transactions will not be less than the costs incurred by the Company and, where applicable, the relevant market prices; and (iv) it is in the commercial interest of the Company to maximise the value of the transactions contemplated under the Semi-finished Diesel Engine Parts Supply Agreement so as to increase its revenue stream, we consider the proposed New Caps of RMB220 million, RMB250 million and RMB290 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, to be fair and reasonable.

F. Provision of sales and warranty period repair services by the Company to Weichai Factory
(a) Terms of the master sales and warranty period repair services agreement and the relevant supplemental agreement

Pursuant to the master sales and warranty period repair services agreement dated 17 November 2003 (as supplemented by the supplemental agreement dated 15 September 2004) entered into between the Company and Weichai Factory (the ‘‘Master Sales and Warranty Period Repair Services Agreement’’), the Company has agreed to provide sales and warranty period repair services to the customers of Weichai Factory with respect to the diesel engines manufactured by Weichai Factory for a term which is due to expire on 31 December 2006. In consideration of the aforesaid services provided by the Company, Weichai Factory has agreed to pay the Company an annual service fee of 3% of the total amount of sales of diesel engines by Weichai Factory procured by the Company.

Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the Master Sales and Warranty Period Repair Services Agreement will be extended for three years with effect from 1 January 2007 while all other terms and conditions remain unchanged.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the total service fees charged by the Company for the provision of the sales and warranty period repair services to Weichai Factory for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total service fees in	Total service fees in
	relation to the provision		Increase/
	of	sales and warranty	(Decrease) as
	period repair services		compared to
	by the Company to		the previous
		Weichai Factory	financial year
		(RMB’ million)	(%)
Actual fees:
2004		13.5	N/A
2005		15.6	15.6
Existing Caps:
2004		16.0	N/A
2005		16.0	—
2006		16.0	—
New Caps:
2007		11.5	(28.1)
2008		13.0	13.0
2009		15.0	15.4

As noted in the Letter from the Board, the service charge at 3% per annum under the Master Sales and Warranty Period Repair Services Agreement has been determined based on the historical sales and maintenance costs incurred by the Company, and the annual service fees to be charged by the Company will depend on the total amount of sales of diesel engines by Weichai Factory procured by it, which will partly depend on the demand for Weichai Factory’s power generators. As mentioned above, when the Existing Caps were determined in 2004, the demand for power generators was expected to grow substantially as there was a significant power shortage in the PRC and many factories had to purchase their own power generators to maintain their normal operations. Nevertheless, such power shortage eased off in the last quarter of 2004. In addition, the implementation in 2005 of a series of austerity measures in relation to infrastructure investments had also adversely affected the demand for power generators in the PRC.

Based on its management accounts for the current financial year, the Company notices that the sales and warranty period repair service fees charged to Weichai Factory so far have been substantially lower than the Existing Cap of RMB16 million for the year ending 31 December 2006. As such, the Company has proposed a low base for the New Cap of RMB11.5 million for the year ending 31 December 2007, which represents a significant decrease of about 28% from the Existing Cap of RMB16 million for the year

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

ending 31 December 2006. Nevertheless, given that the PRC has maintained a strong economic growth in recent years, the Company believes that demand for power generators in the PRC will remain steady for the three years ending 31 December 2009. Accordingly, the Company estimates that the total service fees payable by Weichai Factory to it for the provision of the sales and warranty period repair services for each of the three years ending 31 December 2007, 2008 and 2009 will not exceed RMB11.5 million, RMB13 million and RMB15 million, respectively, and such amounts have accordingly been set as the proposed New Caps for the relevant transactions.

Given that (i) the service charge at 3% per annum under the Master Sales and Warranty Period Repair Services Agreement has been determined based on the historical sales and maintenance costs incurred by the Company and (ii) the proposed New Cap of RMB11.5 million, RMB13.0 million and RMB15.0 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, represents a relatively steady growth rate of about 13% to 15% during the relevant period, we consider that the proposed New Caps of RMB11.5 million, RMB13.0 million and RMB15.0 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, are fair and reasonable.

Continuing connected transactions between the Company and Chongqing Weichai
A. Provision of general services by Chongqing Weichai to the Company
- (a) Terms of the general services agreement and the relevant supplemental agreement

Pursuant to the general services agreement dated 17 November 2003 (as amended and supplemented by supplemental agreements dated 14 January 2004, 2 February 2004, 15 September 2004 and 21 September 2005) entered into between the Company and Chongqing Weichai (the ‘‘CW General Services Agreement’’), Chongqing Weichai has agreed to provide certain general services to the Company’s branch office in Chongqing, the PRC (the ‘‘Chongqing Branch’’), namely, environmental protection, security, fire and other general services and the payment of certain town land use right tax in relation to the property used by the Chongqing Branch for a term which is due to expire on 31 December 2006.

Pursuant to the CW General Services Agreement, the fees payable by the Company to Chongqing Weichai with respect to the provision of the above-mentioned general services are determined based on the actual costs incurred by Chongqing Weichai and apportioned on a pro-rata basis according to the area of the relevant property occupied and/ or used by the Chongqing Branch (and/or its staff, if applicable) plus a service charge representing not more than 20% of such costs (save that the town land use right tax paid by Chongqing Weichai on behalf of the Chongqing Branch and its staff, if applicable, will not be subject to the said 20% service charge). With respect to certain public utilities provided by Chonqing Weichai to certain common area used by both Chongqing Weichai and the Chonggqing Branch, the relevant costs incurred by Chongqing Weichai would be shared between Chongqing Weichai and the Chongqing Branch on a pro-rata basis in accordance with their respective annual sales. In any event, the charges for the aforesaid general services will not be higher than the fees payable to Chongqing Weichai by any independent third parties (if any).

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

If the Company is able to secure the provision of any services similar to those referred to above by itself or from a third party on terms more favourable than those set out in the CW General Services Agreement, then the Company is entitled to terminate the relevant services by giving not less than 30 days’ prior notice to Chongqing Weichai.

Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the CW General Services Agreement will be extended for three years with effect from 1 January 2007 while all other terms and conditions remain unchanged.

(b) Rationale for determining the New Caps

The table below sets out (i) the actual fees paid by the Company to Chongqing Weichai with respect to the above-mentioned general services for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total service fees in	Total service fees in	Increase/
	relation to the provision		(Decrease) as
	of	general services by	compared to
	Chongqing Weichai to		the previous
		the Company	financial year
		(RMB’ million)	(%)
Actual fees:
2004		8.0	N/A
2005		8.0	—
Existing Caps:
2004		10.0	N/A
2005		13.0	30.0
2006		16.0	23.1
New Caps:
2007		8.5	(46.9)
2008		9.5	11.8
2009		10.5	10.5

As stated in the Letter from the Board, Chongqing Weichai has been charging the Company a service charge of 20% of the actual costs incurred by it for the provision of the general services, and the Company expects that the same rate will be charged by Chongqing Weichai for the three years ending 31 December 2009.

As noted in the above table, the actual fees paid by the Company to Chongqing Weichai in relation the general services for the year ended 31 December 2005 amounted to approximately RMB8.0 million, which was substantially lower than the Existing Cap of RMB13.0 million. As mentioned above, demand for diesel engines in the PRC in 2005 was substantially lower than anticipated due to various austerity measures implemented by the central government of the PRC. In addition, the new production facility of the Company in

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

the High Technology Industrial Development Zone, which commenced operation in 2005, had assumed part of the production work that would have otherwise been carried out in the Chongqing Branch. Accordingly, since the level of the Company’s production work at the Chongqing Branch was substantially lower than the level originally anticipated in 2004 when the relevant Existing Caps had been determined, the actual general services fees incurred by the Company in 2005 were also substantially lower than the relevant Existing Cap.

As advised by the Company, its management accounts for the current financial year has indicated that the general services fees charged by Chongqing Weichai so far have also been substantially lower than the Existing Cap of RMB13 million for the year ending 31 December 2006. Accordingly, the Company has proposed a lower base for the New Cap of RMB8.5 million for the year ending 31 December 2007, which represents a significant decrease of over 40% from the Existing Cap of RMB13 million for the year ending 31 December 2006, and the New Caps for each of the two years ending 31 December 2008 and 2009 to remain steadily as RMB9.5 million and RMB10.5 million, respectively.

On the basis that the above New Caps are arrived at primarily based on the existing general services fees that have already been charged by Chongqing Weichai for the current financial year, we consider the proposed New Caps of RMB8.5 million, RMB9.5 million and RMB10.5 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, to be fair and reasonable.

B. Supply and/or connection of utilities by Chongqing Weichai to the Company

(a) Terms of the utility services agreement and the relevant supplemental agreement

Pursuant to the utility services agreement dated 17 November 2003 (as amended and supplemented by supplemental agreements dated 15 September 2004 and 21 September 2005) entered into between the Company and Chongqing Weichai (the ‘‘CW Utility Services Agreement’’), Chongqing Weichai has agreed to provide or provide the connection of (as the case may be) certain utility and energy services to the Chongqing Branch, namely, water, electricity, natural gas, steam, oxygen, nitrogen and compressed air, etc., for a term which is due to expire on 31 December 2006.

Under the CW Utility Services Agreement, the fees payable by the Company to Chongqing Weichai in respect of the aforesaid utility and energy services are determined based on the usage thereof by the Chongqing Branch or, if it is not possible to measure such usage, pro-rated according to the respective sales of Chongqing Weichai and the Chongqing Branch and by reference to the market prices of such utilities. If only government published rates are available with respect to certain utilities, the fees payable will be determined by reference to the government published rates plus the wastage, depreciation and repair expenses incurred by Chongqing Weichai in relation to the provision of the relevant utilities. If no market prices or government published rates with respect to any of the above utilities are available, the Company will pay the costs incurred by Chongqing Weichai in relation to the provision of the utility and energy services plus a service charge representing not more than 20% of such costs.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the CW Utility Services Agreement will be extended for three years with effect from 1 January 2007 while all other terms and conditions remain unchanged.

(b) Rationale for determining the New Caps

The table below sets out (i) the actual fees paid by the Company to Chongqing Weichai with respect to the above-mentioned utility and energy services for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total	service fees in
	relation to the provision		Increase/
	of utility and energy		(Decrease) as
	services	by Chongqing	compared to
	Weichai to the		the previous
		Company	financial year
	(RMB’ million)		(%)
Actual fees:
2004		15.3	N/A
2005		15.3	—
Existing Caps:
2004		65.0	N/A
2005		90.0	38.5
2006		90.0	—
New Caps:
2007		16.0	(82.2)
2008		17.0	6.3
2009		18.0	5.9

As stated in the Letter from the Board, Chongqing Weichai has been charging the Company a service charge of 20% of the actual costs incurred by it for the provision of the utility and energy, and the Company expects that the same rate will be charged by Chongqing Weichai for the three years ending 31 December 2009.

As noted in the above table, the actual fees paid by the Company to Chongqing Weichai in relation the utility and energy services for the two years ended 31 December 2005 in the respective amounts of approximately RMB15.3 million and RMB15.3 million were significantly below the relevant Existing Caps of RMB65 million and RMB90 million. As mentioned above, the level of the Company’s production work at the Chongqing Branch had been substantially lower than the level originally anticipated in 2004. Therefore, there was also a substantial reduction of utility consumption by the Chongqing Branch during the relevant period and the actual utility and energy services fees incurred were significantly lower than the relevant Existing Caps. Based on its management accounts for the current financial year, the Company notices that the utility

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

and energy services fees charged by Chongqing Weichai so far have also been substantially lower than the Existing Cap for the year ending 31 December 2006. As such, the Company has proposed a lower base for the New Cap of RMB16 million for the year ending 31 December 2007, which is in line with the actual transaction amounts for the two years ended 31 December 2005 and the latest management accounts for 2006, and the New Caps for each of the two years ending 31 December 2008 and 2009 to remain steadily as RMB17 million and RMB18 million, respectively.

On the basis that the above New Caps are arrived at primarily based on the historical transaction amounts in recent financial years as well as existing utility and energy services fees that have already been charged by Chongqing Weichai for the current financial year, we consider the proposed New Caps of RMB16 million, RMB17 million and RMB18 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, to be fair and reasonable.

C. Provision of processing services by Chongqing Weichai to the Company

(a) Terms of the processing services agreement and the relevant supplemental agreement

Pursuant to the processing services agreement dated 17 November 2003 (as amended and supplemented by supplemental agreements dated 12 January 2004, 2 February 2004, 15 September 2004 and 21 September 2005) entered into between the Company and Chongqing Weichai (the ‘‘Processing Services Agreement’’), Chongqing Weichai has agreed to provide processing services to the Chongqing Branch with respect to certain semi-finished diesel engine parts for a term which is due to expire on 31 December 2006. Under the Processing Services Agreement, the fees payable by the Company to Chongqing Weichai are determined based on the lower of (i) the costs in relation to the provision of such processing services incurred by Chongqing Weichai plus a service charge representing not more than 20% of such costs or (ii) the relevant market prices (if available).

Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the Processing Services Agreement will be extended for three years with effect from 1 January 2007 while all other terms and conditions remain unchanged.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the actual fees paid by the Company to Chongqing Weichai with respect to the above-mentioned processing services for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total	service fees in	Increase/
	relation to the provision		(Decrease) as
	of processing services		compared to
	by Chongqing Weichai		the previous
	to the Company		financial year
		(RMB’ million)	(%)
Actual fees:
2004		89.2	N/A
2005		60.0	(32.7)
Existing Caps:
2004		96.0	N/A
2005		164.0	70.8
2006		164.0	—
New Caps:
2007		70.0	(57.3)
2008		80.0	14.3
2009		90.0	12.5

As noted in the above table, the actual fees paid by the Company to Chongqing Weichai in relation the processing services for the year ended 31 December 2005 amounted to approximately RMB60.0 million, which represented a substantial decrease of over 30% from RMB89.2 million for the preceding year and was significantly lower than the Existing Cap of RMB164 million for the relevant year. As discussed above, due to various austerity measures in relation to the infrastructure investments in the PRC implemented in 2005, the heavy-duty trucks market had been adversely affected, which in turn led to a substantial reduction of the Company’s sales of diesel engines for heavy-duty trucks. Accordingly, there was a substantial decrease in the processing services required from Chongqing Weichai as a result of the reduction of the Company’s production volume in 2005, and the actual processing services fees for 2005 were significantly lower than the relevant Existing Cap. We have also been advised by the Company that, based on its management accounts for the current financial year, the relevant processing services fees for the current financial year are expected to be substantially lower than the Existing Cap for the year ending 31 December 2006.

Nevertheless, as the heavy-duty truck and construction machinery markets in the PRC have been gradually recovering since 2006, the Company estimates that it will experience a steady increase in the demand for its products for the three years ending 31 December 2009, which will drive its production volume leading to an increase in the

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

processing services required from Chongqing Weichai. In addition, having taken into account the expected increase in salary level by 10% in Chongqing in the relevant financial years, the Company also estimates that the processing costs will increase steadily over the three years ending 31 December 2009. As such, the Company estimates that the processing services fees payable to Chongqing Weichai for each of the three years ending 31 December 2007, 2008 and 2009 will not exceed RMB70 million, RMB80 million and RMB90 million, respectively, and such amounts have accordingly been set as the relevant New Caps.

Given that the processing services fees for the current financial year is expected to be substantially lower than the Existing Cap for the year ending 31 December 2006, we consider it fair and reasonable to propose the New Cap for the year ending 31 December 2007 at a level substantially lower than the Existing Caps. As the proposed New Caps of RMB70 million, RMB80 million and RMB90 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, represent a relatively steady growth rate of about 12% to 14% during the relevant period and have taken into consideration the expected growth of the Company’s production volume and expected increase of processing costs in the relevant period, we are of the view that such proposed New Caps are fair and reasonable.

5. Continuing connected transactions between the Company and Guangxi Liugong Machinery

(a) Terms of the framework agreement and the relevant supplemental agreement

Pursuant to the framework agreement dated 21 October 2003 (as supplemented by the supplemental agreement dated 15 September 2004) entered into between the Company and Guangxi Liugong Machinery (the ‘‘GLM Framework Agreement’’), the Company has agreed to supply not more than the pre-determined number of WD615 Engines and related parts to Guangxi Liugong Machinery at market prices for each of the three years ending 31 December 2006. Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the GLM Framework Agreement will be extended for three years with effect from 1 January 2007. Other than the extension of the term and the removal of the references to the maximum number of supply of WD615 Engines for the past periods, all other terms and conditions of the GLM Framework Agreement remain unchanged.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the total transaction amounts in relation to the sales of WD615 Engines and related parts by the Company to Guangxi Liugong Machinery for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total transaction
	amounts in relation to
	the sales of WD615	Increase/
	Engines and related	(Decrease) as
	parts by the Company	compared to
	to Guangxi Liugong	the previous
	Machinery	financial year
	(RMB’ million)	(%)
Actual amounts:
2004	335.5	N/A
2005	266.3	(20.6)
Existing Caps:
2004	400.0	N/A
2005	600.0	50.0
2006	710.0	18.3
New Caps:
2007	500.0	(29.6)
2008	520.0	4.0
2009	610.0	17.3

As noted in the above table, the actual transaction amount in relation to the sales of WD615 Engines and related parts by the Company to Guangxi Liugong Machinery for the year ended 31 December 2005 amounted to approximately RMB266.3 million, which represented a decrease of about 20% from RMB335.5 million for the preceding year and was significantly lower than the Existing Cap of RMB600 million for the relevant year. As advised by the Company, the series of austerity measures in relation to infrastructure investments implemented by the central government of the PRC in 2005 also had negative impacts on the construction machinery market. Since Guangxi Liugong Machinery is engaged in the manufacture and repair of construction machinery and WD615 Engines are utilised by it as parts of the construction machinery, the decrease in the demand for construction machinery has affected the sales of Guangxi Liugong Machinery, which has in turn reduced its purchases from the Company. Accordingly, the purchase orders placed by Guangxi Liugong Machinery to the Company in 2005 had been substantially less than those anticipated as a result of the slow down of the construction machinery market at the relevant time.

Nevertheless, having considered that the PRC has maintained a strong economic growth in recent years and the construction machinery market has showed a strong recovery following a depressed market in 2005, the Company anticipates that Guangxi Liugong Machinery will

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

increase its purchase order for WD615 Engines and related parts for the three years ending 31 December 2009. In addition, due to the strategic alliance between the Company and Guangxi Liugong Machinery reached in August 2006 whereby the Company’s diesel engines will be incorporated in all of the products of Guangxi Liugong Machinery, the Company’s sales of WD615 Engines to Guangxi Liugong Machinery are also forecast to increase. Having taken into account the estimate of the number of WD615 Engines to be required by Guangxi Liugong Machinery and the expected increase in the average unit prices of WD615 Engines during the relevant period, the Company proposes the New Cap in respect of the sale of WD615 Engines and related parts to Guangxi Liugong Machinery to be RMB500 million, RMB520 million and RMB610 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively.

As the sale of WD615 Engines and related parts by the Company to Guangxi Liugong Machinery has been, and will continue to be, based on market prices and WD615 Engine is a core product of the Company, it is in the commercial interest of the Company to continue to sell to Guangxi Liugong Machinery by extending the duration of the GLM Framework Agreement. In addition, it is also in the commercial interest of the Company to maximise the value of the transactions contemplated under the GLM Framework Agreement so as to increase its revenue stream. On this basis, we are of the view that the proposed New Caps of RMB500 million, RMB520 million and RMB610 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, are fair and reasonable.

6. Continuing connected transactions between the Company and Fujian Longgong

(a) Terms of the framework agreement and the relevant supplemental agreement

Pursuant to the framework agreement dated 21 October 2003 (as supplemented by the supplemental agreement dated 15 September 2004) entered into between the Company and Fujian Longgong (the ‘‘FL Framework Agreement’’), the Company has agreed to supply not more than a pre-determined number of diesel engines and parts to Fujian Longgong at market prices for each of the three years ending 31 December 2006. Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the FL Framework Agreement will be extended for three years with effect from 1 January 2007. Other than the extension of the term and the removal of the references to the maximum number of supply of diesel engines and parts for the past periods, all other terms and conditions of the FL Framework Agreement remain unchanged. In addition, under the relevant Supplemental Agreement, the Company has agreed to supply its diesel engines and parts not only to Fujian Longgong but also to the associates (as defined under the Listing Rules) of Fujian Longgong.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the total transaction amounts in relation to the sales of diesel engines and parts by the Company to Fujian Longgong for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total transaction
	amounts in relation to	Increase/
	the sales of diesel	(Decrease) as
	engines and parts by the	compared to
	Company to Fujian	the previous
	Longgong	financial year
	(RMB’ million)	(%)
Actual amounts:
2004	67.6	N/A
2005	81.7	20.9
Existing Caps:
2004	105.0	N/A
2005	155.0	47.6
2006	185.0	19.4
New Caps:
2007	135.0	(27.0)
2008	150.0	11.1
2009	165.0	10.0

As noted in the above table, the actual transaction amount in relation to the sales of engines and parts by the Company to Fujian Longgong for the year ended 31 December 2005 was approximately RMB81.7 million, which represented only about 50% of the Existing Cap of RMB155 million for 2005. Fujian Longgong is engaged in the manufacture and sale of, among others, wheel-loaders, certain of which require the diesel engines and parts manufactured by the Company. As mentioned above, the PRC construction machinery market was adversely affected by a series of the Chinese central government’s austerity measures implemented in 2005 in relation to infrastructure investments. Because of the slow down of the sales of construction machinery, the purchase orders placed by Fujian Longgong to the Company in 2005 had been substantially less than anticipated.

In view of the recent recovery of the construction machinery market, the Company anticipates that Fujian Longgong will increase its purchase order for diesel engines and parts for the three years ending 31 December 2009. Having taken into account the estimate of the number of diesel engines to be required by Fujian Longgong and the expected increase in the average unit prices of such diesel engines during the relevant period, the proposed New Caps in respect of the sale of diesel engines and parts to Fujian Longgong are RMB135 million, RMB150 million and RMB165 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

As the sale of diesel engines and parts by the Company to Fujian Longgong has been, and will continue to be, based on market prices, it is in the commercial interest of the Company to continue to sell to Fujian Longgong, including its associates, by extending the duration of the FL Framework Agreement, as well as to maximise the value of the transactions contemplated under the FL Framework Agreement so as to increase the revenue stream of the Company. Accordingly, we are of the view that the proposed New Caps of RMB135 million, RMB150 million and RMB165 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, are fair and reasonable.

7. Continuing connected transactions between the Company and Shanghai Longgong

(a) Terms of the framework agreement and the relevant supplemental agreement

Pursuant to the framework agreement dated 21 October 2003 (as supplemented by the supplemental agreement dated 15 September 2004) entered into between the Company and Shanghai Longgong (the ‘‘SL Framework Agreement’’), the Company has agreed to supply not more than a pre-determined number of diesel engines and parts to Shanghai Longgong at market prices for each of the three years ending 31 December 2006. Subject to the approval of the relevant Supplemental Agreement by the Independent Shareholders at the EGM, the term of the SL Framework Agreement will be extended for three years with effect from 1 January 2007. Other than the extension of the term and the removal of the references to the maximum number of supply of diesel engines and parts for the past periods, all other terms and conditions of the SL Framework Agreement remain unchanged. In addition, under the relevant Supplemental Agreement, the Company has agreed to supply its diesel engines and parts not only to Shanghai Longgong but also to the associates (as defined under the Listing Rules) of Shanghai Longgong.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(b) Rationale for determining the New Caps

The table below sets out (i) the total transaction amounts in relation to the sales of diesel engines and parts by the Company to Shanghai Longgong for each of the two years ended 31 December 2005; (ii) the relevant Existing Caps for each of the three years ending 31 December 2006; and (iii) the proposed New Caps for each of the three years ending 31 December 2009:

	Total transaction	Total transaction
	amounts in relation to		Increase/
	the sales of diesel		(Decrease) as
	engines and parts by the		compared to
	Company	to Shanghai	the previous
		Longgong	financial year
	(RMB’ million)		(%)
Actual amounts:
2004		250.1	N/A
2005		268.1	7.2
Existing Caps:
2004		315.0	N/A
2005		470.0	49.2
2006		550.0	17.0
New Caps:
2007		500.0	(9.1)
2008		520.0	4.0
2009		570.0	9.6

As noted in the above table, the actual transaction amount in relation to the sales of engines and parts by the Company to Shanghai Longgong for the year ended 31 December 2005 was approximately RMB268.1 million, which amounted to approximately 57% of the Existing Cap of RMB470 million for 2005. As advised by the Company, since Shanghai Longgong is engaged in the manufacture and sale of, among others, construction machines, certain of which require the diesel engines and parts manufactured by the Company, the slow down of the sales of construction machinery in the PRC in 2005 substantially reduced the purchase orders placed by Fujian Longgong to the Company during the relevant period. As a result, the actual transaction amount of sales in 2005 was significantly lower than the relevant Existing Cap.

However, due to the recovery of the construction machinery market in the PRC since 2006, sales of construction machines by Shanghai Longgong has improved considerably and based on the management accounts of the Company for the year ending 31 December 2006, the Company notices that the transaction amount in relation to the sales of diesel engines and parts to Shanghai Longgong has increased significantly. Accordingly, the Company proposes a New Cap of RMB500 million for the year ending 31 December 2007, which has taken into account the actual transaction amount with Shanghai Longgong so far for the year ending 31 December 2006. Given the Company’s estimate of the number of diesel engines to be required by Shanghai Longgong and the expected increase in the average unit prices of such diesel engines during the

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

relevant period, the Company estimates that the relevant New Caps for each of the three years ending 31 December 2007, 2008 and 2009 are RMB500 million, RMB520 million and RMB570 million.

As the sale of diesel engines and parts by the Company to Shanghai Longgong has been, and will continue to be, based on market prices, it is in the commercial interest of the Company to continue to sell to Shanghai Longgong, including its associates, by extending the duration of the SL Framework Agreement, as well as to maximise the value of the transactions contemplated under the SL Framework Agreement so as to increase the revenue stream of the Company. As such, we are of the view that the proposed New Caps of RMB500 million, RMB520 million and RMB570 million for each of the three years ending 31 December 2007, 2008 and 2009, respectively, are fair and reasonable.

8. Annual review of the proposed New Caps for the Non-exempt Continuing Connected Transactions

Pursuant to the Listing Rules, there is restriction of the value of the Non-exempt Continuing Connected Transactions by way of the New Caps for each of the three financial years ending 31 December 2007, 2008 and 2009, and the New Caps are subject to the annual review by the independent non-executive Directors and auditors of the Company of the terms of the Non-exempt Continuing Connected Transactions and the New Caps not being exceeded, details of which must be included in the Company’s subsequent published annual reports and accounts. Also, pursuant to the Listing Rules, each year the auditors of the Company must provide a letter to the Board confirming, among others, that the Non-exempt Continuing Connected Transactions are conducted in accordance with the relevant agreement governing the transactions and that the New Caps not being exceeded. In addition, pursuant to the Listing Rules, the Company shall publish an announcement if it knows or has reason to believe that the independent non-executive directors and/or the auditors of the Company will not be able to confirm the terms of the Non-exempt Continuing Connected Transactions and the New Caps not being exceeded.

We have reviewed the annual reports of the Company for the financial years 2004 and 2005 and noticed that the independent non-executive directors of the Company have reviewed the relevant continuing connected transactions of the Company and have confirmed that the transactions have been entered into by the Company in the ordinary course of its business, on normal commercial terms, and in accordance with the terms of the agreements governing such transactions that are fair and reasonable and in the interests of the shareholders of the Company as a whole. We are of the view that there are appropriate measures in place to govern the conduct of the Non-exempt Continuing Connected Transactions and safeguard the interests of the Independent Shareholders.

RECOMMENDATION

In formulating our recommendation to the Independent Board Committee and the Independent Shareholders, we have considered the above principal factors and reasons, in particular, the following:

(i) The Company has engaged in the business transactions with the WP Connected Persons on an ongoing basis since the listing of the Company’s H Shares on the Stock Exchange in March 2004 and such transactions, where applicable, have been approved previously by the independent shareholders of the Company in accordance with the relevant requirements of the Listing Rules. The purpose of the Supplemental Agreements is to extend the term of the Weichai Power Continuing Connected Transactions Agreements for a further three-year period.

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LETTER FROM INDEPENDENT FINANCIAL ADVISER ON THE WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

(ii) The Non-exempt Continuing Connected Transactions have been, and will continue to be, conducted in the ordinary and usual course of business of the Company and on normal commercial terms or terms which are no less favourable to the Company than those available to or from (as appropriate) independent third party customer or supplier and in accordance with the terms of the Weichai Power Continuing Connected Transactions Agreements.
(iii) Internal control procedures, including the annual review by the independent non-executive directors and the auditors of the Company of the terms and the New Caps for each of the Nonexempt Continuing Connected Transactions, are in place to monitor and to compare the terms and conditions of the Non-exempt Continuing Connected Transactions.
(iv) The value of, and the basis for determining, the New Caps are reasonable, details of which are set out in the relevant sections headed ‘‘Rationale for determining the New Caps’’.

Based on the above consideration, we are of the opinion that the entering into of the Supplemental Agreements to extend the term of the Weichai Power Continuing Connected Transactions Agreements is in the interests of the Company and the Shareholders as a whole, and the terms of the Supplemental Agreements and the New Caps are fair and reasonable. Accordingly, we would advise the Independent Board Committee and the Independent Shareholders that the Independent Shareholders should vote in favour of the ordinary resolutions to approve the Supplemental Agreements and the New Caps at the EGM.

Yours faithfully, For and on behalf of AMS Corporate Finance Limited Jinny Mok Director

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

A. FINANCIAL SUMMARY

The following is a summary of the audited consolidated results and audited consolidated balance sheet of the Group for the three years ended 31st December, 2005:

Turnover Profit before tax Income tax expense Profit for the year Attributable to: Equity holders of the parent Minority interests ASSETS AND LIABILITIES Total assets Total liabilities Equity attributable to equity holders of the parent Minority interests	Six months ended 30th June, 2006 RMB’000 (unaudited) 3,493,590 391,016 (70,351) 320,665 318,742 1,923 320,665 As at 30th June, 2006 RMB’000 (unaudited) 6,602,561 3,875,385 2,727,176 2,662,873 64,303 2,727,176	Year ended 31st December, 2005 RMB’000 (audited) 5,250,735 410,602 (93,919) 316,683 315,203 1,480 316,683 As at 31st December, 2005 RMB’000 (audited) 5,611,955 3,150,994 2,460,961 2,398,581 62,380 2,460,961	Year ended 31st December, 2004 RMB’000 (restated) (audited) 6,155,779 738,738 (205,484) 533,254 533,254 — 533,254 As at 31st December, 2004 RMB’000 (restated) (audited) 4,914,308 2,757,587 2,156,721 2,156,721 — 2,156,721	Year ended 31st December, 2003 RMB’000 (originally stated) (audited) 3,555,670 455,493 (178,025) 277,468 277,468 — 277,468 As at 31st December, 2003 RMB’000 (originally stated) (audited) 2,371,908 1,897,408 474,500 474,500 — 474,500

Note: The audited financial statements of the Group for the three years ended 31st December, 2003, 2004 and 2005 have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’). The HKICPA has issued a number of new Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (‘‘collectively, new HKFRSs’’) which are effective for accounting periods beginning on or after 1st January, 2005.

The above financial summary prior to 2003 has not been adjusted to take into account the effect on the adoption of new HKFRSs by HKICPA as the directors considered that it is not practicable to do so.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31ST DECEMBER, 2005

NOTES Turnover 7 Cost of sales Gross profit Other income 8 Distribution costs Administrative expenses Research and development expenses Other expenses Share of results of an associate Finance costs 9 Profit before tax Income tax expense 10 Profit for the year 11 Attributable to: Equity holders of the parent Minority interests Dividends 14 Basic earnings per share 15	2005 RMB’000 5,250,735 (4,096,408) 1,154,327 69,963 (403,968) (272,052) (94,869) (762) 941 (42,978) 410,602 (93,919) 316,683 315,203 1,480 316,683 103,950 RMB0.96	2004 RMB’000 (restated) 6,155,779 (4,651,073) 1,504,706 64,937 (391,838) (301,062) (82,370) (2,476) — (53,159) 738,738 (205,484) 533,254 533,254 — 533,254 72,075 RMB1.73

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

CONSOLIDATED BALANCE SHEET AT 31ST DECEMBER, 2005

NOTES NON-CURRENT ASSETS Property, plant and equipment 16 Prepaid lease payments — non-current portion 17 Intangible assets 18 Interest in an associate 20 Available-for-sale financial assets 21 Investment securities 22 Deposits paid for acquisition of property, plant and equipment 23 Deferred tax assets 31 CURRENT ASSETS Inventories 24 Trade and bills receivables 25 Deposits, prepayments and other receivables 25 Prepaid lease payments — current portion 17 Pledged bank deposits 26 Bank balances and cash 25 CURRENT LIABILITIES Trade and bills payables 27 Other payables and accruals 27 Amount due to a related party 36(c) Tax payable Discounted bills with recourse Unsecured bank borrowings — due within one year 28 Warranty provision 29 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	2005 RMB’000 1,608,840 60,491 202,226 561,191 20,000 — 143,960 1,850 2,598,558 645,578 1,162,049 122,826 1,278 371,670 709,996 3,013,397 1,811,506 379,253 63,272 185,370 235,200 44,241 18,559 2,737,401 275,996 2,874,554	2004 RMB’000 (restated) 911,933 61,769 264,449 — — 20,000 358,155 —
		1,616,306
		429,149 661,912 96,998 1,278 334,445 1,774,220
		3,298,002
		1,955,546 287,236 90,525 189,058 — 20,000 12,996
		2,555,361
		742,641
		2,358,947

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

NOTES NON-CURRENT LIABILITIES Amount due to a related party 36(c) Unsecured bank borrowings — due after one year 28 CAPITAL AND RESERVES Share capital 30 Reserves Equity attributable to equity holders of the parent Minority interests	2005 RMB’000 123,593 290,000 413,593 2,460,961 330,000 2,068,581 2,398,581 62,380 2,460,961	2004 RMB’000 (restated) 202,226 —
		202,226
		2,156,721
		330,000 1,826,721
		2,156,721 —
		2,156,721

The financial statements on pages 10 to 47 were approved and authorised for issue by the Board of Directors on 19th April, 2006 and are signed on its behalf by:

DIRECTOR

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER, 2005

Attributable to equity holders of the parent Share capital Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits Total Minority interests RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 215,000 — — 27,641 13,820 218,039 474,500 — (11,500) — — — — — (11,500) — 126,500 1,166,797 — — — — 1,293,297 — — (60,755) — — — — (60,755) — — — — — — 533,254 533,254 — — — — — — (72,075) (72,075) — — — — 53,687 26,843 (80,530) — — 330,000 1,106,042 — 81,328 40,663 598,688 2,156,721 — — — 30,607 — — — 30,607 — 330,000 1,106,042 30,607 81,328 40,663 598,688 2,187,328 — — — — — — — — 60,900 — — — — — 315,203 315,203 1,480 — — — — — (103,950) (103,950) — — — — 30,791 15,395 (46,186) — — 330,000 1,106,042 30,607 112,119 56,058 763,755 2,398,581 62,380	Attributable to equity holders of the parent Share capital Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits Total Minority interests RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 215,000 — — 27,641 13,820 218,039 474,500 — (11,500) — — — — — (11,500) — 126,500 1,166,797 — — — — 1,293,297 — — (60,755) — — — — (60,755) — — — — — — 533,254 533,254 — — — — — — (72,075) (72,075) — — — — 53,687 26,843 (80,530) — — 330,000 1,106,042 — 81,328 40,663 598,688 2,156,721 — — — 30,607 — — — 30,607 — 330,000 1,106,042 30,607 81,328 40,663 598,688 2,187,328 — — — — — — — — 60,900 — — — — — 315,203 315,203 1,480 — — — — — (103,950) (103,950) — — — — 30,791 15,395 (46,186) — — 330,000 1,106,042 30,607 112,119 56,058 763,755 2,398,581 62,380	Attributable to equity holders of the parent Share capital Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits Total Minority interests RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 215,000 — — 27,641 13,820 218,039 474,500 — (11,500) — — — — — (11,500) — 126,500 1,166,797 — — — — 1,293,297 — — (60,755) — — — — (60,755) — — — — — — 533,254 533,254 — — — — — — (72,075) (72,075) — — — — 53,687 26,843 (80,530) — — 330,000 1,106,042 — 81,328 40,663 598,688 2,156,721 — — — 30,607 — — — 30,607 — 330,000 1,106,042 30,607 81,328 40,663 598,688 2,187,328 — — — — — — — — 60,900 — — — — — 315,203 315,203 1,480 — — — — — (103,950) (103,950) — — — — 30,791 15,395 (46,186) — — 330,000 1,106,042 30,607 112,119 56,058 763,755 2,398,581 62,380	Attributable to equity holders of the parent Share capital Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits Total Minority interests RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 215,000 — — 27,641 13,820 218,039 474,500 — (11,500) — — — — — (11,500) — 126,500 1,166,797 — — — — 1,293,297 — — (60,755) — — — — (60,755) — — — — — — 533,254 533,254 — — — — — — (72,075) (72,075) — — — — 53,687 26,843 (80,530) — — 330,000 1,106,042 — 81,328 40,663 598,688 2,156,721 — — — 30,607 — — — 30,607 — 330,000 1,106,042 30,607 81,328 40,663 598,688 2,187,328 — — — — — — — — 60,900 — — — — — 315,203 315,203 1,480 — — — — — (103,950) (103,950) — — — — 30,791 15,395 (46,186) — — 330,000 1,106,042 30,607 112,119 56,058 763,755 2,398,581 62,380	Attributable to equity holders of the parent Share capital Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits Total Minority interests RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 215,000 — — 27,641 13,820 218,039 474,500 — (11,500) — — — — — (11,500) — 126,500 1,166,797 — — — — 1,293,297 — — (60,755) — — — — (60,755) — — — — — — 533,254 533,254 — — — — — — (72,075) (72,075) — — — — 53,687 26,843 (80,530) — — 330,000 1,106,042 — 81,328 40,663 598,688 2,156,721 — — — 30,607 — — — 30,607 — 330,000 1,106,042 30,607 81,328 40,663 598,688 2,187,328 — — — — — — — — 60,900 — — — — — 315,203 315,203 1,480 — — — — — (103,950) (103,950) — — — — 30,791 15,395 (46,186) — — 330,000 1,106,042 30,607 112,119 56,058 763,755 2,398,581 62,380	Attributable to equity holders of the parent Share capital Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits Total Minority interests RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 215,000 — — 27,641 13,820 218,039 474,500 — (11,500) — — — — — (11,500) — 126,500 1,166,797 — — — — 1,293,297 — — (60,755) — — — — (60,755) — — — — — — 533,254 533,254 — — — — — — (72,075) (72,075) — — — — 53,687 26,843 (80,530) — — 330,000 1,106,042 — 81,328 40,663 598,688 2,156,721 — — — 30,607 — — — 30,607 — 330,000 1,106,042 30,607 81,328 40,663 598,688 2,187,328 — — — — — — — — 60,900 — — — — — 315,203 315,203 1,480 — — — — — (103,950) (103,950) — — — — 30,791 15,395 (46,186) — — 330,000 1,106,042 30,607 112,119 56,058 763,755 2,398,581 62,380	Attributable to equity holders of the parent Share capital Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits Total Minority interests RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 215,000 — — 27,641 13,820 218,039 474,500 — (11,500) — — — — — (11,500) — 126,500 1,166,797 — — — — 1,293,297 — — (60,755) — — — — (60,755) — — — — — — 533,254 533,254 — — — — — — (72,075) (72,075) — — — — 53,687 26,843 (80,530) — — 330,000 1,106,042 — 81,328 40,663 598,688 2,156,721 — — — 30,607 — — — 30,607 — 330,000 1,106,042 30,607 81,328 40,663 598,688 2,187,328 — — — — — — — — 60,900 — — — — — 315,203 315,203 1,480 — — — — — (103,950) (103,950) — — — — 30,791 15,395 (46,186) — — 330,000 1,106,042 30,607 112,119 56,058 763,755 2,398,581 62,380	Attributable to equity holders of the parent Share capital Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits Total Minority interests RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 215,000 — — 27,641 13,820 218,039 474,500 — (11,500) — — — — — (11,500) — 126,500 1,166,797 — — — — 1,293,297 — — (60,755) — — — — (60,755) — — — — — — 533,254 533,254 — — — — — — (72,075) (72,075) — — — — 53,687 26,843 (80,530) — — 330,000 1,106,042 — 81,328 40,663 598,688 2,156,721 — — — 30,607 — — — 30,607 — 330,000 1,106,042 30,607 81,328 40,663 598,688 2,187,328 — — — — — — — — 60,900 — — — — — 315,203 315,203 1,480 — — — — — (103,950) (103,950) — — — — 30,791 15,395 (46,186) — — 330,000 1,106,042 30,607 112,119 56,058 763,755 2,398,581 62,380
330,000	1,106,042	—	81,328	40,663	598,688	2,156,721	—
—	—	30,607	—	—	—	30,607	—
330,000 — — — —	1,106,042 — — — —	30,607 — — — —	81,328 — — — 30,791	40,663 — — — 15,395
330,000	1,106,042	30,607	112,119	56,058	763,755	2,398,581	62,380

As stipulated by the relevant regulations of the People’s Republic of China (the ‘‘PRC’’), the aggregate allocations to the statutory surplus reserve and statutory welfare reserve are 10% and 5% respectively of the Group’s profit after tax under the relevant accounting principles and financial regulations applicable to companies established in the PRC (the ‘‘PRC GAAP’’).

According to the provision of Articles of Association of the Company and its subsidiaries, the statutory surplus reserve shall only be used for making up losses, capitalisation into share capital and expansion of the relevant entity’s production and operation. The statutory welfare fund is used for the collective welfare of the relevant entity’s staff and workers.

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APPENDIX IA FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

According to the Company’s Articles of Association, distribution of profit by the Company is determined with reference to the profit as reported under the PRC GAAP or Hong Kong Financial Reporting Standards, whichever is less.

At 31st December, 2005, the distributable reserves of the Company was RMB755,141,000 (2004: RMB598,688,000 as restated).

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31ST DECEMBER, 2005

OPERATING ACTIVITIES Profit before tax Adjustments for: Share of results of an associate Finance costs Depreciation of property, plant and equipment Amortisation of prepaid lease payments Amortisation of intangible assets Loss on disposal of property, plant and equipment Impairment loss on trade receivables Operating cash flows before movements in working capital Increase in inventories Increase in trade and bills receivables (Note) Increase in deposits, prepayments and other receivables (Decrease) increase in trade and bills payables Increase in other payables and accruals Increase in warranty provision Cash (used in) generated from operations Tax paid Tax refunded NET CASH (USED IN) FROM OPERATING ACTIVITIES (Note) INVESTING ACTIVITIES Purchases of property, plant and equipment and deposits paid for acquisition of property, plant and equipment Investment in an associate (Increase) decrease in pledged bank deposits Proceeds from disposal of property, plant and equipment Purchases of prepaid lease payments Purchases of investment securities NET CASH USED IN INVESTING ACTIVITIES	2005 RMB’000 410,602 (941) 42,978 109,597 1,278 62,223 489 15,272 641,498 (216,429) (515,409) (25,828) (144,040) 92,017 5,563 (162,628) (107,608) 8,151 (262,085) (593,048) (560,250) (37,225) 250 — — (1,190,273)	2004 RMB’000 (restated) 738,738 — 53,159 53,835 699 72,595 1,266 17,244 937,536 (149,244) (54,646) (57,670) 630,455 198,921 5,692 1,511,044 (121,753) — 1,389,291 (853,130) — 57,133 312 (49,903) (20,000) (865,588)

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

FINANCING ACTIVITIES Discounted bills with recourse raised (Note) New bank borrowings raised Capital contributions from minority shareholders Repayments of bank borrowings and discounted bills with recourse Dividends paid Interest paid Amount repaid to a related party Share issue expenses Proceeds from issue of shares Amount advanced from a related party NET CASH FROM FINANCING ACTIVITIES (Note) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1ST JANUARY CASH AND CASH EQUIVALENTS AT 31ST DECEMBER, REPRESENTED BY BANK BALANCES AND CASH	2005 RMB’000 1,140,700 634,241 60,900 (1,225,500) (103,950) (30,843) (87,414) — — — 388,134 (1,064,224) 1,774,220 709,996	2004 RMB’000 (restated) — 20,000 — (151,720) (72,075) (53,159) (67,409) (66,381) 1,281,797 21,245 912,298 1,436,001 338,219 1,774,220

Note: Consequent to the adoption of Hong Kong Accounting Standard 39 (HKAS 39), as disclosed in note 2 to the financial statements, bills discounted with full recourse have not been derecognised in the balance sheet. Consequently, cash flows from operating and financing activities are not comparable to the cash flows for the year ended 31st December, 2004 as HKAS 39 does not permit retrospective application. Had retrospective application been permitted and applied, the cash flows of the Group would have been as follows:

Net cash (used in) from operating activities, as reported Add: Cash inflow (outflow) from bills discounted with recourse Net cash from financing activities, as reported Add: Cash (outflow) inflow from bills discounted with recourse	2005 RMB’000 (262,085) 704,605 442,520 388,134 (704,605) (316,471)	2004 RMB’000 (restated) 1,389,291 (704,605) 684,686 912,298 704,605 1,616,903

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31ST DECEMBER, 2005

1. GENERAL

The Company was incorporated as a joint stock limited company with limited liability in the People’s Republic of China (the ‘‘PRC’’) and its H shares are listed on the Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) as from 11th March, 2004. The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information section in the annual report.

The financial statements are presented in Renminbi, which is the functional currency of the Company.

The principal activities of the Company are the manufacture and sale of diesel engines and related parts. The principal activities of its associate and subsidiaries are set out in notes 20 and 37 respectively.

2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES IN ACCOUNTING POLICIES

In the current year, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (‘‘HKFRSs’’), Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations (hereinafter collectively referred to as ‘‘new HKFRSs’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) that are effective for accounting periods beginning on or after 1st January, 2005. The application of the new HKFRSs has resulted in a change in the presentation of the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity. The changes in presentation have been applied retrospectively. The adoption of the new HKFRSs has resulted in changes to the Group’s accounting policies in the following areas that have an effect on how the results for the current and prior accounting years are prepared and presented:

Financial Instruments

In the current year, the Group has applied HKAS 32 Financial Instruments: Disclosure and Presentation and HKAS 39 Financial Instruments: Recognition and Measurement. HKAS 32 requires retrospective application. HKAS 39, which is effective for annual periods beginning on or after 1st January, 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The principal effects resulting from the implementation of HKAS 32 and HKAS 39 are summarised below:

Classification and measurement of financial assets and financial liabilities

The Group has applied the relevant transitional provisions in HKAS 39 with respect to the classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

Prior to 31st December, 2004, the Group classified and measured its equity securities in accordance with the benchmark treatment of Statement of Standard Accounting Practice 24 (‘‘SSAP 24’’). Under SSAP 24, investments in debt or equity securities are classified as ‘‘investment securities’’, ‘‘other investments’’ or ‘‘held-to-maturity investments’’ as appropriate. ‘‘Investment securities’’ are carried at cost less impairment losses (if any) while ‘‘other investments’’ are measured at fair value, with unrealised gains or losses included in profit or loss. Held-to-maturity investments are carried at amortised cost less impairment losses (if any). From 1st January, 2005 onwards, the Group has classified and measured its equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as ‘‘financial assets at fair value through profit or loss’’, ‘‘available-for-sale financial assets’’, ‘‘loans and receivables’’, or ‘‘held-to-maturity financial assets’’. ‘‘Financial assets at fair value through profit or loss’’ and ‘‘available-for-sale financial assets’’ are carried at fair value, with changes in fair values recognised in profit or loss and equity respectively. Available-for-sale equity investments that do not have quoted market prices in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost less impairment after initial recognition. ‘‘Loans and receivables’’ and ‘‘held-to-maturity financial assets’’ are measured at amortised cost using the effective interest method after initial recognition.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

On 1st January, 2005, the Group classified and measured its equity securities in accordance with the transitional provisions of HKAS 39. Investment securities of RMB20,000,000 which are unlisted equity securities whose fair value cannot be measured reliably were reclassified as available-for-sale investments and are stated at cost less impairment losses (see Note 2A for the financial impact).

Financial assets and financial liabilities other than debt and equity securities

From 1st January, 2005 onwards, the Group has classified and measured its financial assets and financial liabilities other than debt and equity securities (which were previously outside the scope of SSAP 24) in accordance with the requirements of HKAS 39. Classification of financial assets are mentioned above. Financial liabilities are generally classified as ‘‘financial liabilities at fair value through profit or loss’’ or ‘‘other financial liabilities’’. Financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in profit or loss directly. Other financial liabilities are carried at amortised cost using the effective interest method after initial recognition.

Prior to the application of HKAS 39, an interest-free non-trade balance from a related party was stated at the nominal amount. HKAS 39 requires all financial assets and financial liabilities to be measured at fair value on initial recognition. Such interest-free non-trade balance is measured at amortised cost determined using the effective interest method at subsequent balance sheet dates. The Group has applied the relevant transitional provisions in HKAS 39. As a result of this change in the accounting policy, the carrying value of an amount due to a related party as at 1st January, 2005 was reduced by approximately RMB30,607,000 in order to state such amount at amortised cost in accordance with HKAS 39. Correspondingly, the Group’s capital reserve as at 1st January, 2005 was increased by the same amount which represents the deemed capital contribution from the related party. Profit for the year was decreased by approximately RMB12,135,000 due to the recognition of imputed interest expense (see Note 2A for the financial impact).

Cost of equity transactions

Under HKAS 32, the Group records transaction costs of an equity transaction as a deduction from equity. The transaction costs of an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. Transaction costs that relate jointly to more than one transaction (for example, costs of a concurrent offering of some shares and a stock exchange listing of other shares) are allocated to these transactions using a basis of allocation that is rational and consistent with similar transactions.

On applying HKAS 32, listing expenses of approximately RMB5,626,000 were reversed from share premium and accounted for as an expense item for the year ended 31st December, 2004 (see Note 2A for the financial impact).

Derecognition

HKAS 39 provides more rigorous criteria for the derecognition of financial assets than the criteria applied in previous periods. Under HKAS 39, a financial asset is derecognised, when and only when, either the contractual rights to the asset’s cash flows expire, or the asset is transferred and the transfer qualifies for derecognition in accordance with HKAS 39. The decision as to whether a transfer qualifies for derecognition is made by applying a combination of risks and rewards and control tests. The Group has applied the relevant transitional provisions and applied the revised accounting policy prospectively to transfers of financial assets from 1st January, 2005 onwards. As a result, the Group’s bill receivables discounted with full recourse which were derecognised prior to 1st January, 2005 have not been restated. As at 31st December, 2005, the Group’s bills receivables discounted with full recourse have not been derecognised. Instead, the related borrowings of approximately RMB232,500,000 have been recognised on the balance sheet date. This change in accounting policy has had no material effect on results for the current year.

Owner-occupied Leasehold Interest in Land

In previous years, owner-occupied leasehold land and buildings were included in property, plant and equipment and measured using the cost model. In the current year, the Group has applied HKAS 17 Leases. Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. To the extent that the allocation of the lease payments between the land and buildings elements can be made reliably, the leasehold interests in land are reclassified to prepaid lease payments under operating leases, which are carried at cost and amortised over the lease term on a straight-line basis. This change in accounting policy has been applied retrospectively (see Note 2A for the financial impact).

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

2A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES

The effects of the changes in the accounting policies described above on the results for the current and prior years are as follows:

Increase in administrative expenses in respect of listing expenses Increase in finance costs in respect of imputed interest on an amount due to a related party Decrease in profit for the year	2005 RMB’000 — (12,135) (12,135)	2004 RMB’000 (5,626) — (5,626)

The cumulative effects of the application of the new HKFRSs on 31st December, 2004 and 1st January, 2005 are summarised below:

Balance sheet items Impact of HKAS 17: Property, plant and equipment Prepaid lease payments — non-current portion Prepaid lease payments — current portion Impact of HKAS 32 and HKAS 39: Investment securities Available-for-sale investments Amount due to a related party — due within one year Amount due to a related party — due after one year Total effects on assets and liabilities Share premium Capital reserve Retained profits Total effects on equity	As at 31.12.2004 (originally stated) RMB’000 974,980 — — 20,000 — (90,525) (202,226) 702,229 1,100,416 — 604,314 1,704,730	Adjustments RMB’000 (63,047) 61,769 1,278 — — — — — 5,626 — (5,626) —	As at 31.12.2004 (restated) RMB’000 911,933 61,769 1,278 20,000 — (90,525) (202,226) 702,229 1,106,042 — 598,688 1,704,730	Adjustments RMB’000 — — — (20,000) 20,000 11,099 19,508 30,607 — 30,607 — 30,607	As at 1.1.2005 (restated) RMB’000 911,933 61,769 1,278 — 20,000 (79,426) (182,718) 732,836 1,106,042 30,607 598,688 1,735,337

The Group has not early applied the following new standards and interpretations that have been issued but are not yet effective. The Directors of the Company anticipate that the application of these Standards or Interpretations will have no material impact on the financial statements of the Group.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

HKAS 1 (Amendment)	Capital disclosures1
HKAS 19 (Amendment)	Actuarial gains and losses, group plans and disclosures2
HKAS 21 (Amendment)	Net investment in a foreign operation2
HKAS 39 (Amendment)	Cash flow hedge accounting of forecast intragroup transactions2
HKAS 39 (Amendment)	The fair value option2
HKAS 39 & HKFRS 4	Financial guarantee contracts2
(Amendments)
HKFRS 6	Exploration for and evaluation of mineral resources2
HKFRS 7	Financial instruments: Disclosures1
HK(IFRIC) — INT 4	Determining whether an arrangement contains a lease2
HK(IFRIC) — INT 5	Rights to interests arising from decommissioning, restoration and environmental rehabilitation
	funds2
HK(IFRIC) — INT 6	Liabilities arising from participating in a specific market-waste electrical and electronic
	equipment3
HK(IFRIC) — INT 7	Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary
	Economies4

1 Effective for annual periods beginning on or after 1st January, 2007.
2 Effective for annual periods beginning on or after 1st January, 2006.
3 Effective for annual periods beginning on or after 1st December, 2005.
4 Effective for annual periods beginning on or after 1st March, 2006.

3. CHANGES OF ACCOUNTING ESTIMATES

In previous years, intangible assets were amortised over their estimated useful lives of 4.5 years to 8 years. HKAS 38 requires intangible assets to be assessed at the individual asset level as having either finite or indefinite life. A finite-life intangible asset is amortised over its estimated useful life whereas an intangible asset with an indefinite useful life is carried at cost less accumulated impairment losses (if any). Intangible assets with indefinite lives are not subject to amortisation but are tested for impairment annually or more frequently when there are indications of impairment. In accordance with the transitional provisions in HKAS 38, the Group reassessed the useful lives of its intangible assets on 1st January, 2005 and concluded that certain intangible assets with a total carrying amount of RMB108,892,000 recognised under the predecessor accounting standard have indefinite useful lives. The Group has applied the revised useful lives prospectively and discontinued amortising intangible assets with indefinite useful lives from 1st January, 2005 onwards. No amortisation has been charged in relation to intangible assets with indefinite useful lives for the year ended 31st December, 2005. As a result, the profit for the year has been increased by approximately RMB15,556,000. Comparative figures for 2004 have not been restated.

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost basis as explained in the accounting policies set out below.

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Interest in an associate

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amount receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes.

Sales of goods are recognised when goods are delivered and title has passed.

Income from repairs are recognised when services are provided.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Property, plant and equipment

Property, plant and equipment other than construction in progress are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Construction in progress is carried at cost, less any identified impairment loss.

Depreciation is provided to write off the cost of items of property, plant and equipment other than construction in progress over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

No depreciation is provided for construction in progress until the construction is completed and the properties and assets are ready for their intended use.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year in which the item is derecognised.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

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APPENDIX IA

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

Borrowing costs

All borrowing costs are recognised as and included in finance costs in the income statement in the period in which they are incurred.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise.

Retirement benefit costs

Payments to the defined contribution retirement benefit plans are charged as expenses as they fall due.

Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Company’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Intangible assets

On initial recognition, intangible assets acquired separately are recognised at cost. After initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses.

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APPENDIX IA

Gain or losses arising from derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually by comparing their carrying amounts with their recoverable amounts, irrespective of whether there is any indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.

Intangible assets with finite useful lives are also tested for impairment when there is an indication that an asset may be impaired (see the accounting policies in respect of impairment losses for tangible and intangible assets below).

Research and development expenditures

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development expenditure is recognised only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortised on a straight-line basis over its useful life, and carried at cost less subsequent accumulated amortisation and any accumulated impairment losses.

Where no internally-generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into one of the two categories, including loans and receivables and availablefor-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of financial assets are set out below.

Loans and receivables

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APPENDIX IA

of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Other financial liabilities

Other financial liabilities including trade and bills payables, other payables, amount due to a related party and unsecured bank borrowings are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

For financial liabilities, they are removed from the Group’s balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expires). The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

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Impairment loss

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss is subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment on trade receivables

The Group performs ongoing credit evaluations of its customers and adjusts credit limit based on payment history and customers’ current credit-worthiness, as determined by the review of their current credit information. The Group continuously monitors collections and payments from its customers and maintains an impairment for estimated credit losses based upon its historical experience and any specific collection issues that it has identified. While such credit losses have historically been within the Group’s expectations and the impairment established, there is no guarantee that it will continue to experience the same credit loss that it has had in the past.

Impairment on intangible assets

During the year, the management reassessed the carrying amount of its intangible assets. This process requires managements estimate of future cash flows generated by its intangible assets. For any instance where the evaluation process indicates impairment, the appropriate asset’s carrying value are written down to the recoverable amount and the amount of the write down is charged against the results of operations.

Intangible assets with finite useful lives

The Group’s net book value of intangible assets with finite useful lives as at 31st December, 2005 was RMB93,334,000. The Group amortises these intangible assets on a straight-line basis over the estimated useful lives of 4.5 years. The estimated useful lives reflect the Directors’ estimate of the periods that the Group intends to derive future economic benefits from the use of the Group’s intangible assets.

Warranty expenses

The Group offers a six-month to one-year warranty for its products, during which free warranty service for the repair and maintenance of parts or components under normal usage is provided to the customers. Warranty expenses are acquired with reference to historical cost data for repairs and maintenance, and units of products sold.

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APPENDIX IA

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s major financial instruments include trade and bills receivables, deposits, other receivables, pledged deposits, bank balances and cash, trade and bills payables, other payables, borrowings, discounted bills with recourse and amount due to a related party. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Currency risk

The Group has foreign currency purchases, which expose the Group to foreign currency risk. Certain trade payables of the Group are denominated in foreign currencies. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31st December, 2005 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Directors of the Company consider that the Group’s credit risk is significantly reduced.

The Group has a number of counterparties and customers, however, credit risk of the Group is concentrated on certain major customers. The management considers the strong financial background and good creditability of these customers, and there is no significant credit risk.

Interest rate risk

The Group is exposed to interest rate risk through the impact of rate changes on interest bearing bank borrowings. The Group currently does not have any interest rate hedging policy. The interest rates and terms of repayment of bank borrowings of the Group are disclosed in note 28.

Commodity price risk

The Group is exposed to the commodity price risk such as steel and metal (major components of the Group’s raw materials). The Group currently does not have any commodity futures to hedge the price risk exposure of its raw material purchases.

7. BUSINESS AND GEOGRAPHICAL SEGMENTS

The Group was principally engaged in the business of manufacture and sale of diesel engines and related parts and substantially all of the Group’s turnover and operating results were derived from the PRC and accordingly, no analysis of business and geographical segment is presented.

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APPENDIX IA

8. OTHER INCOME

Other income includes: Gain on sale of scrap and other materials Sales and warranty period repair services fee income Bank interest income Others FINANCE COSTS Interest on: Bank borrowings wholly repayable within five years Imputed interest expense on amount due to a related party INCOME TAX EXPENSE PRC Enterprise Income Tax: Current year Overprovision in prior year Tax credit Deferred tax (note 31)	2005 RMB’000 32,402 21,025 10,246 6,290 69,963 2005 RMB’000 30,843 12,135 42,978 2005 RMB’000 106,379 (203) (10,407) 95,769 (1,850) 93,919	2004 RMB’000 29,549 13,454 18,592 3,342 64,937 2004 RMB’000 53,159 — 53,159 2004 RMB’000 269,371 (240) (63,647) 205,484 — 205,484

9. FINANCE COSTS

10. INCOME TAX EXPENSE

PRC Enterprise Income Tax is calculated at the statutory income tax rate of 33% (2004: 33%) of the assessable profit of the Group, except on assessable profit derived from the production in the high technology development zone, which is taxed at a preferential rate of 15% since current financial year pursuant to the Notice of Ministry of Finance and the State Administration of Taxation concerning certain preferential policies on enterprise income tax ( ) and the Notice of the State Administration of Taxation concerning proper implementation of the continuing administrative work after the cancellation delegation of the examination and approval procedure for enterprise income tax ( ).

Pursuant to the notice issued by Jiang Jing Municipal Tax Bureau, the Company’s Chongqing branch is also subject to PRC Enterprise Income Tax at a preferential rate of 15% (2004: 15%).

The Company’s Hong Kong branch is subject to Hong Kong Profits Tax at 17.5% (2004: 17.5%) on its estimated assessable profit. No provision for Hong Kong Profits Tax has been made as the branch had no assessable profit for the year.

Pursuant to the notices issued by Weifang Municipal Tax Bureau and Chongqing Municipal Tax Bureau, the Group is entitled to a total income tax credit of approximately RMB10,407,000 (2004: RMB63,647,000) in respect of eligible additions of domestic machinery and equipment for production use.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

The tax charge for the year can be reconciled to the profit before tax per the income statement as follows:

Profit before tax Tax at PRC Enterprise Income Tax rate of 33% (2004: 33%) Tax effect of share of results of an associate Tax effect of expenses not deductible for tax purpose Tax effect of concessionary tax rate for the Company’s operation in high technology development zone Effect of different tax rate for the Company’s Chongqing branch Overprovision in prior year Tax credit	2005 RMB’000 410,602 135,499 (311) 11,310 (26,803) (15,166) (203) (10,407) 93,919	2004 RMB’000 738,738
		243,784 — 41,556 — (15,969) (240) (63,647)
		205,484

11. PROFIT FOR THE YEAR

Profit for the year has been arrived at after charging (crediting): Depreciation of property, plant and equipment Amortisation of prepaid lease payments (included in administrative expenses) Amortisation of technologies (included in administrative expenses) Amortisation of trademarks (included in distribution expenses) Auditors’ remuneration Impairment loss on trade receivables Cost of inventories recognised as expense Transportation costs for the products sold (included in distribution expenses) Directors’ and Supervisors’ emoluments (note 12) Staff costs excluding Directors’ and Supervisors’ emoluments Retirement benefits scheme contributions excluding amounts included in Directors’ and Supervisors’ emoluments Share of tax of an associate (included in share of results of an associate) Loss on disposal of property, plant and equipment	2005 RMB’000 109,597 1,278 62,223 — 3,000 15,272 4,096,408 29,657 3,874 220,959 27,328 (311) 489	2004 RMB’000 53,835 699 62,223 10,372 3,000 17,244 4,651,073 36,744 5,438 241,373 25,232 — 1,266

Staff costs disclosed above do not include an amount of approximately RMB16,036,000 (2004: RMB13,832,000) relating to research and development activities, which is included under research and development expenses.

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APPENDIX IA

12. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

The remuneration paid or payable to each of the 16 (2004: 16) Directors and 3 (2004: 3) Supervisors were as follows:

2005

																Koo Fook		Fang
		Tan		Sun	Zhang	Yeung Sai	Chen Xue			Li San	Tong	Zhang	Julius G.	Han	Feng	Sun,	Zhang	Zhong	Sun	Wang	Jiang
		Xuguang	Xu Xinyu	Shaojun	Quan	Hong	Jian	Yao	Yu	Yim	Jingen	Fusheng	Kiss	Xiaoqun	Gang	Louis	Xiaoyu	Chang	Chengping	Yong	Jianfang	Total
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Fees		—	—	—	—	—	—		—	—	—	—	—	—	—	—	—	—	—	—	—	—
Other	emoluments
	Salaries and other
	benefits	380	250	250	250	50	50		50	50	50	50	50	2	48	146	100	100	50	60	50	2,036
	Retirement benefits
	scheme
	contribution	76	50	50	50	—	—		—	—	—	—	—	—	—	—	—	—	—	12	—	238
	Performance related
	incentive payments	500	300	300	300	—	—		—	—	—	—	—	—	—	—	—	—	—	200	—	1,600
	Total emoluments	956	600	600	600	50	50		50	50	50	50	50	2	48	146	100	100	50	272	50	3,874
	2004
																Koo Fook		Fang
		Tan		Sun	Zhang	Yeung Sai		Chen Xue			Li San	Tong	Zhang	Julius G.	Feng	Sun,	Zhang	Zhong	Sun	Wang	Jiang
		Xuguang	Xu Xinyu	Shaojun	Quan	Hong	Liu Zheng	Jian		Yao Yu	Yim	Jingen	Fusheng	Kiss	Gang	Louis	Xiaoyu	Chang	Chengping	Yong	Jianfang	Total
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Fees		—	—	—	—	—	—		—	—	—	—	—	—	—	—	—	—	—	—	—	—
Other	emoluments
	Salaries and other
	benefits	380	250	250	250	50	25		25	50	50	50	50	50	50	146	100	4	50	60	50	1,940
	Retirement benefits
	scheme
	contribution	76	50	50	50	—	—		—	—	—	—	—	—	—	—	—	—	—	12	—	238
	Performance related
	incentive payments	1,560	300	300	300	—	—		—	—	—	—	300	—	—	—	—	—	300	200	—	3,260
Total	emoluments	2,016	600	600	600	50	25		25	50	50	50	350	50	50	146	100	4	350	272	50	5,438

Note: The performance related incentive payment is determined as a percentage of the Group’s profit for the two years ended 31st December, 2005.

13. EMPLOYEES’ EMOLUMENTS

Of the five individuals with the highest emoluments in the Group, four (2004: four) were Executive Directors of the Company whose emoluments are included in the disclosures in note 12 above. The emoluments of the remaining one (2004: one) individual was as follows:

Salaries and allowances Retirement benefits scheme contributions	2005 RMB’000 1,352 12 1,364	2004 RMB’000 1,525 3
		1,528

No emoluments were paid by the Group to the Directors, Supervisors or the five highest paid individuals as an inducement to join or upon joining the Group or as a compensation for loss of office. None of the Directors nor any of the Supervisors waived any emoluments for either 2004 or 2005.

14. DIVIDENDS

Final, paid — 2004: RMB0.15 (2003: RMB0.105) per share Interim, paid — 2005: RMB0.165 (2004: RMB0.15) per share	2005 RMB’000 49,500 54,450 103,950	2004 RMB’000 22,575 49,500
		72,075

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APPENDIX IA FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

A final dividend of RMB0.165 for the year ended 31st December, 2005 (2004: RMB0.15 per share which was declared on 27th May, 2005) per share has been proposed by the Directors and is subject to approval by the shareholders in the annual general meeting to be held on 30th June, 2006.

15. BASIC EARNINGS PER SHARE

The calculation of basic earnings per share is based on the profit for the year attributable to equity holders of parent of approximately RMB315,203,000 (2004: RMB533,254,000 as restated) and on the number of 330,000,000 (2004: average number of 308,005,000) ordinary shares in issue during the year.

The following table summarises the impact on basic earnings per share as a result of:

Reported figures before adjustments Adjustments arising from the changes in accounting policies Restated	Impact on basic earnings per share 2005 2004 RMB RMB 1.00 1.75 (0.04) (0.02) 0.96 1.73

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APPENDIX IA

16. PROPERTY, PLANT AND EQUIPMENT

COST At 1st January, 2004 — As originally stated — Reclassified to prepaid lease payments — As restated Additions Transfer Disposals At 31st December, 2004 Additions Transfer Disposals At 31st December, 2005 DEPRECIATION At 1st January, 2004 — As originally stated — Reclassified to prepaid lease payments — As restated Charged for the year Eliminated on disposals At 31st December, 2004 Charged for the year Eliminated on disposals At 31st December, 2005 CARRYING VALUE At 31st December, 2005 At 31st December, 2004 (restated)	Construction in progress RMB’000 148,114 — 148,114 593,754 (268,073) — 473,795 801,634 (967,196) — 308,233 — — — — — — — — — 308,233 473,795	Buildings RMB’000 54,971 (14,003) 40,968 — 34,182 — 75,150 — 276,724 — 351,874 4,825 (160) 4,665 3,739 — 8,404 12,462 — 20,866 331,008 66,746	Plant and machinery RMB’000 181,929 — 181,929 75 208,548 (1,661) 388,891 148 622,223 (1,086) 1,010,176 29,163 — 29,163 40,367 (387) 69,143 77,860 (505) 146,498 863,678 319,748	Computer, equipment and fixtures RMB’000 15,572 — 15,572 9,563 8,889 (388) 33,636 4,849 30,155 (109) 68,531 3,845 — 3,845 4,876 (117) 8,604 9,247 (79) 17,772 50,759 25,032	Motor vehicles RMB’000 15,660 — 15,660 2,366 16,454 (49) 34,431 612 38,094 (274) 72,863 2,982 — 2,982 4,853 (16) 7,819 10,028 (146) 17,701 55,162 26,612	Total RMB’000 416,246 (14,003) 402,243 605,758 — (2,098) 1,005,903 807,243 — (1,469) 1,811,677 40,815 (160) 40,655 53,835 (520) 93,970 109,597 (730) 202,837 1,608,840 911,933

Depreciation is provided to write off the cost of property, plant and equipment other than construction in progress over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method at the following rates per annum:

Buildings	20 years
Plant and machinery	5 to 10 years
Computer, equipment and fixtures	5 years
Motor vehicles	5 years

All buildings are situated in the PRC on land under operating leases with medium-term.

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APPENDIX IA

17. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments represented land use rights in the PRC held under medium-term lease.

Analysed for reporting purposes as: Current Non-current	2005 RMB’000 1,278 60,491 61,769	2004 RMB’000 1,278 61,769
		63,047

18. INTANGIBLE ASSETS

COST At 1st January, 2004 Acquired from China Heavy Duty Truck Group (Note iii) At 31st December, 2004 and 31st December, 2005 AMORTISATION At 1st January, 2004 Charge for the year At 31st December, 2004 Charge for the year At 31st December, 2005 CARRYING VALUE At 31st December, 2005 At 31st December, 2004	Trademarks RMB’000 (Note i) — 119,264 119,264 — 10,372 10,372 — 10,372 108,892 108,892	Technologies RMB’000 (Note ii) 222,965 — 222,965 5,185 62,223 67,408 62,223 129,631 93,334 155,557	Total RMB’000 222,965 119,264
			342,229
			5,185 72,595
			77,780 62,223
			140,003
			202,226
			264,449

Notes:

(i) The trademarks have a legal life up to 2012 but are renewable every 10 years at minimal cost. The Directors of the Company are of the opinion that the Group would renew the trademarks continuously and has the ability to do so.

As a result, the trademarks are considered by the management of the Group as having an indefinite useful life because it is expected to contribute to net cash inflows indefinitely. The trademarks will not be amortised until its useful life is determined to be finite. Instead it will be tested for impairment annually and whenever there is an indication that it may be impaired. Particulars of the impairment testing are disclosed in Note 19.

(ii) Technologies are amortised on a straight-line basis over 4.5 years.
(iii) China Heavy Duty Truck Group Co., Ltd. (‘‘CHDTGL’’) was the holding company of a substantial shareholder in the Company. CHDTGL and its affiliates other than the Group are collectively referred as China Heavy Duty Truck Group.

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APPENDIX IA

19. IMPAIRMENT TESTING ON TRADEMARKS WITH INDEFINITE USEFUL LIVES

As explained in Note 7, the Group was principally engaged in the business of manufacture and sale of diesel engines and related parts, which is the Group’s only cash generating unit (CGU). For the purposes of impairment testing, the carrying amounts of trademarks as at 31st December, 2005 are fully allocated to this unit.

During the year ended 31st December, 2005, management of the Group determines that there is no impairment of its CGU containing trademarks with indefinite useful lives.

The recoverable amount of the CGU is determined based on a value in use calculation. The key assumptions for the value in use calculation is those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years based on an estimated growth rate of 10% to 18%. This rate does not exceed the average long-term growth rate for the relevant markets. The rate used to discount the forecast cash flows is 6.8%. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of the CGU to exceed the aggregate recoverable amount of the CGU.

20. INTEREST IN AN ASSOCIATE

Cost of investment in an unlisted associate Share of post-acquisition profit	2005 RMB’000 560,250 941 561,191	2004 RMB’000 — —
		—

As at 31st December, 2005, the Group had an interest in the following associate:

Name of entity	Form of business structure Country of registration/ Principal place of operation Paid up registered capital Proportion of registered capital held by the Group Principal activity RMB Incorporated The PRC 1,245,000,000 45% Investment holdin

45% Investment holding in 28.12% equity interest in Torch Automobile Group Co., Ltd. ( ) which is principally engaged in the manufacture and sale of heavy duty trucks and vehicle parts

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

The summarised financial information in respect of the Group’s associate is set out below:

Total assets Total liabilities Net assets Group’s share of net assets of associate Revenue Profit for the year Group’s share of result of associate for the year	2005 RMB’000 1,247,714 (623) 1,247,091 561,191 4,052 2,091 941	2004 RMB’000 — —
		—
		—
		—
		—
		—

21. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Available-for-sale financial assets as at 31st December, 2005 represented an investment in 5.71% of the registered capital of , a private entity established in the PRC. As the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed, the Directors of the Company are of the opinion that the instruments shall be measured at cost less impairment at each balance sheet date.

22. INVESTMENT SECURITIES

Investment securities as at 31st December, 2004 represented an investment in 5.71% of the registered capital of . Upon the application of HKAS 39 on 1st January, 2005, investment securities were reclassified to available-for-sale financial assets under HKAS 39 (see Note 2 for details).

23. DEPOSITS PAID FOR ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT

As at 31st December, 2005, the amount represented the deposits paid to certain vendors for the acquisition of property, plant and equipment. Details of the related capital commitments are set out in note 32.

Included in the balance was a refundable deposit of RMB80,000,000 paid to CHDTGL in relation to a framework agreement dated 27th September, 2004 for the Group to acquire certain assets of Hangzhou Motor Engine Factory, a wholly-owned subsidiary of CHDTGL. While the framework agreement expired on 31st December, 2005, in the opinion of the Directors, efforts and negotiation will continue to be made with a view to enforce completion of the agreement. Accordingly, the deposit continues to be presented as non-current at the balance sheet date.

24. INVENTORIES

Raw materials and consumables Work-in-progress Finished goods	2005 RMB’000 340,362 81,041 224,175 645,578	2004 RMB’000 164,498 26,175 238,476
		429,149

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

25. OTHER FINANCIAL ASSETS

Trade and bills receivables

Third party customers Related party customers Less: accumulated impairment Bills receivable	2005 RMB’000 151,850 251,128 (42,584) 360,394 801,655 1,162,049	2004 RMB’000 317,550 197,386 (27,312)
		487,624 174,288
		661,912

The credit terms granted by the Group to its customers are normally in the range from 30 days to 180 days. However, customers with established trading records could be granted longer credit period. The following is an aged analysis of trade and bills receivables net of impairment losses as at the balance sheet date:

Within 90 days Between 91 to 180 days Between 181 to 365 days Over 365 days	2005 RMB’000 974,679 180,522 2,916 3,932 1,162,049	2004 RMB’000 521,199 124,953 4,146 11,614
		661,912

The related party customers represented China Heavy Duty Truck Group, Fujian Longgong and Guangxi Liugong. At 31st December, 2005, the related party customers also included and its affiliates.

Details of the relationship with Fujian Longgong and Guangxi Liugong are set out in note 36(a).

The bills are non-interest bearing and have a maturity of six months.

The fair value of the Group’s trade and bills receivables, deposits and other receivables at 31st December, 2005 approximates carrying amounts.

Bank balances and cash

Bank balances and cash, which carry prevailing market interest rates, comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amounts of these assets approximate their fair value at the balance sheet date.

26. PLEDGE OF ASSETS

At 31st December, 2005, bank deposits of approximately RMB371,670,000 (2004: RMB334,445,000) were pledged to banks to secure bills payable issued and bills receivables discounted by the Group.

At 31st December, 2004, bills receivable of approximately RMB119,876,000 were pledged to banks to secure bills payable issued by the Group.

The pledged bank deposits carry prevailing bank interest rates. The pledge will be released upon the settlement of the relevant bank borrowings. The fair value of the bank deposits at 31st December, 2005 approximates carrying amounts.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

27. OTHER FINANCIAL LIABILITIES

Trade and bills payables

Third party suppliers Related party suppliers Bills payable An analysis of trade and bills payables as at the balance sheet date is as follows: Within 90 days Between 91 to 180 days Between 181 to 365 days Over 365 days	2005 RMB’000 1,184,615 75,411 1,260,026 551,480 1,811,506 1,312,896 439,327 13,123 46,160 1,811,506	2004 RMB’000 1,212,276 42,466
		1,254,742 700,804
		1,955,546
		1,294,745 644,684 10,044 6,073
		1,955,546

Related party suppliers represented China Heavy Duty Truck Group.

The bills are non-interest bearing and have a maturity of six months.

The fair value of the Group’s trade and bills payables and other payables at 31st December, 2005 approximates carrying amounts.

28. UNSECURED BANK BORROWINGS

Unsecured bank borrowings The maturity profile of the above bank borrowings is as follows: On demand or within one year More than one year, but not exceeding two years More than two years, but not exceeding five years Less: Amounts due within one year shown under current liabilities	2005 RMB’000 334,241 44,241 240,000 50,000 334,241 (44,241) 290,000	2004 RMB’000 20,000
		20,000 — —
		20,000 (20,000)
		—

Unsecured bank borrowings include approximately RMB310,000,000 (2004: RMB20,000,000) fixed-rate borrowings which carry interest ranging from 5.6% to 5.8% (2004: at 5.1%). The remaining unsecured bank borrowings of approximately USD3,000,000 (equivalent to approximately RMB24,241,000) (2004: Nil) are denominated in currencies other the functional currencies of the relevant group entities. These borrowings are variable-rate borrowings which carry interest at 1.2% over London Interbank Offered Rate.

During the year, the Group obtained new loans in the amount of RMB634,241,000. The loans bear fixed interest at a range from 5.6% to 5.8% and will be repayable within three years.

The fair value of the Group’s bank borrowings approximates to the corresponding carrying amount calculated by discounting the future cash flows at the prevailing market borrowing rate for similar borrowings at the balance sheet date.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

As at the balance sheet date, the Group had undrawn borrowing facilities with floating rate expiring within one year amounting to approximately USD7,000,000 (2004: Nil).

29. WARRANTY PROVISION

At 1st January, 2005 Additional provision in the year Utilisation of provision At 31st December, 2005	RMB’000 12,996 195,851 (190,288)
	18,559

The warranty provision represents management’s best estimate of the Group’s liability under six-month to one-year warranty granted on products, based on past experience for defective products.

30. SHARE CAPITAL

At 1st January, 2004 Conversion of certain state-owned domestic shares to H shares (Note) Issue of H shares upon listing on the Main Board of the Stock Exchange (including those converted from domestic shares) At 31st December, 2004 and 31st December, 2005	Number of shares Domestic shares H shares ’000 ’000 215,000 — (11,500) 11,500 — 115,000 203,500 126,500	Registered, issued and fully paid RMB’000 215,000 — 115,000
		330,000

Note: Pursuant to the approval from the Ministry of Finance of the PRC regarding the sale and conversion of the domestic shares, the total number of H shares issued at HK$10.50 each was 126,500,000 H shares, comprising 115,000,000 new H shares and 11,500,000 H shares converted from 11,500,000 domestic shares.

31. DEFERRED TAXATION

The following are the major deferred tax liabilities and assets recognised and movements thereon during the current and prior years:

Trademarks RMB’000 At 1st January, 2004 and 31st December, 2004 — Charge (credit) to income for the year 5,133 At 31st December, 2005 5,133 32. CAPITAL COMMITMENTS Capital expenditure in respect of acquisition of property, plant and equipment contracted for but not provided in the financial statements Capital expenditure in respect of the acquisition of property, plant and equipment authorised but not contracted for	Trademarks RMB’000 At 1st January, 2004 and 31st December, 2004 — Charge (credit) to income for the year 5,133 At 31st December, 2005 5,133 32. CAPITAL COMMITMENTS Capital expenditure in respect of acquisition of property, plant and equipment contracted for but not provided in the financial statements Capital expenditure in respect of the acquisition of property, plant and equipment authorised but not contracted for	Others RMB’000 — (6,983) (6,983) 2005 RMB’000 234,912 —	Others RMB’000 — (6,983) (6,983) 2005 RMB’000 234,912 —	Total RMB’000 — (1,850)
				(1,850)
		2005 RMB’000 234,912 —		2004 RMB’000 423,631
				340,180

— 132 —

FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

As set out in note 23, the Group paid a refundable deposit of RMB80,000,000 to CHDTGL for the proposed acquisition of certain assets pursuant to a framework agreement dated 27th September, 2004.

While the framework agreement expired on 31st December, 2005, in the opinion of the Directors, efforts and negotiation will continue to be made with a view to enforce completion of the agreement. However, the final amount of the consideration for the acquisition, if the transaction does go ahead, is yet to be determined.

33. OTHER COMMITMENTS

In August 2003, in conjunction with China Heavy Duty Truck Group, the Group entered into research and development contracts with AVL List GmbH, a third party, with a contract sum of approximately Euro 6.6 million (equivalent to approximately RMB68,741,000).

As at 31st December, 2004, the outstanding commitment amounted to approximately Euro 1,445,000 (equivalent to approximately RMB15,242,000). All such commitments were fulfilled as at 31st December, 2005 as the project was completed during the year.

34. OPERATING LEASE COMMITMENTS

The Group as lessee

Minimum lease payments paid under operating leases during the year: Plant and machinery Premises	2005 RMB’000 30,117 20,522 50,639	2004 RMB’000 30,117 18,712
		48,829

At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	2005 RMB’000 50,355 73,218 123,573	2004 RMB’000 48,620 118,508
		167,128

Operating lease payments represent rentals payable by the Group for certain of its plant and machinery and premises. Leases are negotiated for a term ranging from 1 year to 5 years and rent is fixed over the lease term.

35. POST BALANCE SHEET EVENT

On 20th March, 2006, (State-owned Assets Supervision and Administration Commission of Shandong Province People’s Government, ‘‘Shandong SASAC’’) issued a document approving the segregation of ownership between CHDTGL and (Weifang Diesel Engine Works, the ‘‘Weichai Factory’’) such that CHDTGL transferred its entire ownership in Weichai Factory to Shandong SASAC for its direct holding (the ‘‘Transfer’’).

Up to the date of the annual report, Weichai Factory is interested in approximately 23.53% shareholding interest in the Company and is the single largest shareholder of the Company. Upon completion of the Transfer, Shandong SASAC has become the direct supervising authority over Weichai Factory.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

36. CONNECTED AND RELATED PARTIES DISCLOSURE

(a) During the year, the Group had the following significant transactions with related parties and connected persons:

Connected persons and related parties China Heavy Duty Truck Group: Sales of diesel engines and related parts Purchases of materials Purchases of finished diesel engines General services fee paid Utility services fee paid Processing services fee Sales and warranty period repair services fee income Purchases of property, plant and equipment Disposal of property, plant and equipment Purchase of trademarks Trademarks fee paid Rental paid for certain premises, machinery and equipment Connected persons Fujian Longgong Group (note i): Sales of diesel engines and related parts Guangxi Liugong Group (note ii): Sales of diesel engines and related parts Notes:	2005 RMB’000 1,806,798 128,868 409,791 23,571 129,172 60,042 21,025 145 71 — — 46,218 349,774 266,338	2004 RMB’000 2,003,837 124,768 — 21,288 123,494 89,178 13,454 88 196 119,264 5,184 46,218 317,715 335,463

(i) Fujian Longgong is a promoter of the Company and holds 6.52% interest in the Company at 31st December, 2005. Fujian Longgong together with its affiliates are collectively referred as the ‘‘Fujian Longgong Group’’.
(ii) Guangxi Liugong is a promoter of the Company and holds 1.36% interest in the Company at 31st December, 2005. Guangxi Liugong together with its affiliates are collectively referred as the ‘‘Guangxi Liugong Group’’.

Compensation of key management personnel

The remuneration of Directors and other members of key management during the year was as follows:

Short-term benefits Post-employment benefits	2005 RMB’000 3,636 238 3,874	2004 RMB’000 5,200 238
		5,438

(b) Details of the trading balances with related parties are set out in notes 25 and 27. These trading balances arose from the transactions set out in note 36(a).

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

(i) Name of related company Amount due to a related party: China Heavy Duty Truck Group (Note)	2005 RMB’000 186,865	2004 RMB’000 292,751

The amount is unsecured and interest-free. An amount of RMB182,719,000 (2004: RMB269,635,000) is repayable in instalments over a period of 5 years and the remaining balance is repayable on demand and approximates fair value.

Note: As at 31st December, 2005, included in the balance due to China Heavy Duty Truck Group was an amount of approximately RMB182,719,000 (2004: approximately RMB269,635,000) which represented the balance of the consideration payable for the acquisition of technologies and trademarks from China Heavy Duty Truck Group. The amount is repayable as follows:

Within one year In the second year In the third to fifth year inclusive Less: Amount due for settlement within one year (including under current liabilities)	2005 RMB’000 59,126 62,083 61,510 182,719 (59,126) 123,593	2004 RMB’000 67,409 67,409 134,817
		269,635 (67,409)
		202,226

The effective interest rate for the amount due to a related party of RMB182,179,000 is approximately 5%.

At 31st December, 2005, the fair value of the amount due to a related part was approximately RMB182,719,000, determined based on the present value of the estimated future cash outflows discounted using the prevailing market rate at the balance sheet.

(ii) Details of a refundable deposit of RMB80,000,000 (2004: RMB80,000,000) paid to CHDTGL are set out in note 23.

(d) Transactions/balances with other state-controlled entities in the PRC

The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (‘‘state-controlled entities’’). In addition, the Group itself is part of a larger group of companies under Weichai Factory which is controlled by the PRC government. Apart from the transactions with Weichai Factory and fellow subsidiaries and other related parties disclosed in sections (a) to (c) above, the Group also conducts business with other state-controlled entities. The Directors consider those state-controlled entities are independent third parties so far as the Group’s business transactions with them are concerned.

In establishing its pricing strategies and approval process for transactions with other state-controlled entities, the Group does not differentiate whether the counter-party is a state-controlled entity or not.

— 135 —

FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

Material transactions/balances with other state-controlled entities are as follows:

Trade sales Trade purchases Amounts due to other state-controlled entities Amounts due from other state-controlled entities	2005 RMB’000 1,394,513 598,002 121,652 140,659	2004 RMB’000 2,078,155
		865,640
		184,804
		181,856

In addition, the Group has entered into various transactions, including deposits placements, borrowings and other general banking facilities, with certain banks and financial institutions which are state-controlled entities in its ordinary course of business. In view of the nature of those banking transactions, the Directors are of the opinion that separate disclosure would not be meaningful.

Except as disclosed above, the Directors are of the opinion that transactions with other state-controlled entities are not significant to the Group’s operations.

37. PARTICULARS OF SUBSIDIARIES

The following table lists the subsidiaries of the Group as at 31st December, 2005:

Name of subsidiary		Form of business structure Country of registration/ Principal place of operation Paid up registered capital Proportion of registered capital held by the Company directly Principal activities RMB Incorporated The PRC 45,795,918 51% Trading of spare parts of diesel engine Incorporated The PRC 5,200,000 52% Trading of lubricant oil products Incorporated The PRC 10,400,000 52% Provision of warehouse management services Incorporated The PRC 47,500,000 95% Inactive

None of the subsidiaries had any debt securities outstanding at the end of the year or at any time during the year.

— 136 —

FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

FINANCIAL SUMMARY

RESULTS Turnover Profit before tax Income tax expense Profit for the year Attributable to: Equity holders of the parent Minority interests Dividends Basic earnings per share (in RMB) ASSETS AND LIABILITIES Total assets Total liabilities Capital and reserves Equity attributable to equity holders of the parent Minority interests	2001 RMB’000 (audited) 856,581 82,700 (4,188) 78,512 78,512 — 78,512 — 0.98 2001 RMB’000 (audited) 454,841 (359,665) 95,176 95,176 — 95,176	For the year ended 31st December, 2002 2003 2004 RMB’000 RMB’000 RMB’000 (audited) (audited) (restated) 1,880,368 3,555,670 6,155,779 224,677 455,493 738,738 (57,132) (178,025) (205,484) 167,545 277,468 533,254 167,545 277,468 533,254 — — — 167,545 277,468 533,254 — 20,859 72,075 2.01 1.29 1.73 As at 31st December, 2002 2003 2004 RMB’000 RMB’000 RMB’000 (audited) (audited) (restated) 705,268 2,371,908 4,914,308 (487,797) (1,897,408) (2,757,587) 217,471 474,500 2,156,721 217,471 474,500 2,156,721 — — — 217,471 474,500 2,156,721	2005 RMB’000 (audited) 5,250,735 410,602 (93,919) 316,683 315,203 1,480 316,683 103,955 0.96 2005 RMB’000 (audited) 5,611,955 (3,150,994) 2,460,961 2,398,581 62,380 2,460,961

— 137 —

FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30TH JUNE, 2006

NOTES Turnover Cost of sales Gross profit Other income Distribution expenses Administrative expenses Research and development expenses Other expenses Share of results of an associate Finance costs Profit before taxation Income tax expense 4 Profit for the period 5 Attributable to: Equity holders of the parent Minority interests Dividend paid 6 Basic earnings per share 7	Six months ended 30.6.2006 30.6.2005 RMB’000 RMB’000 (unaudited) (unaudited) 3,493,590 3,228,268 (2,608,557) (2,480,661) 885,033 747,607 32,103 30,594 (288,982) (175,474) (149,846) (148,648) (75,905) (45,376) (87) (107) 16,523 — (27,823) (15,438) 391,016 393,158 (70,351) (142,935) 320,665 250,223 318,742 250,223 1,923 — 320,665 250,223 54,450 49,500 RMB0.96 RMB0.76

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

CONDENSED CONSOLIDATED BALANCE SHEET AT 30TH JUNE, 2006

NOTES NON-CURRENT ASSETS Property, plant and equipment 8 Prepaid lease payments — non-current portion Intangible assets Interest in an associate 9 Available-for-sale financial assets Deposits paid for acquisition of property, plant and equipment Deferred tax assets CURRENT ASSETS Inventories Trade and bills receivables 10 Deposits, prepayments and other receivables Prepaid lease payments — current portion Tax recoverable Pledged bank deposits 13 Bank balances and cash CURRENT LIABILITIES Trade and bills payables 11 Other payables and accruals Amount due to a related party Tax payable Dividend payable Bank borrowings — due within one year Warranty provision NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Amount due to a related party Bank and other borrowings — due after one year 12 CAPITAL AND RESERVES Share capital 13 Reserves Equity attributable to equity holders of the parent Minority interests	30.6.2006 RMB’000 (unaudited) 1,619,974 59,852 171,115 1,051,058 20,000 312,517 3,913 3,238,429 580,666 1,821,397 240,536 1,278 193 316,551 403,511 3,364,132 2,254,757 659,189 64,750 174,059 54,450 99,956 53,140 3,360,301 3,831 3,242,260 92,552 422,532 515,084 2,727,176 330,000 2,332,873 2,662,873 64,303 2,727,176	31.12.2005 RMB’000 (audited) 1,608,840 60,491 202,226 561,191 20,000 143,960 1,850
		2,598,558
		645,578 1,162,049 122,826 1,278 — 371,670 709,996
		3,013,397
		1,811,506 379,253 63,272 185,370 — 279,441 18,559
		2,737,401
		275,996
		2,874,554
		123,593 290,000
		413,593
		2,460,961
		330,000 2,068,581
		2,398,581 62,380
		2,460,961

— 139 —

FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30TH JUNE, 2006

At 1st January, 2005 Profit for the period, representing total recognised income for the period Final dividend paid Transfer At 30th June, 2005 Shares issued by subsidiaries to minority interests Profit for the period, representing total recognised income for the period Interim dividend paid Transfer At 31st December, 2005 Profit for the period, representing total recognised income for the period Final dividend paid Transfer At 30th June, 2006	Share capital RMB’000 330,000 — — — 330,000 — — — 330,000 — — — 330,000	Attributable to equity holders of the parent Share premium Capital reserve Statutory surplus reserve Statutory welfare reserve Retained profits RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 1,106,042 30,607 81,328 40,663 598,688 — — — — 250,223 — — — — (49,500) — — 25,624 12,813 (38,437) 1,106,042 30,607 106,952 53,476 760,974 — — — — — — — — — (54,450) — — 5,167 2,582 (7,749) 1,106,042 30,607 112,119 56,058 763,755 — — — — 318,742 — — — — (54,450) — — 30,257 15,138 (45,395) 1,106,042 30,607 142,376 71,196 982,652	Total RMB’000 2,187,328 250,223 (49,500) — 2,388,051 — (54,450) — 2,398,581 318,742 (54,450) — 2,662,873	Minority interests RMB’000 — — — — — 60,900 — — 62,380 1,923 — — 64,303	Total RMB’000 2,187,328 250,223 (49,500) — 2,388,051 60,900 (54,450) — 2,460,961 320,665 (54,450) — 2,727,176

At 30th June, 2006, the distributable reserves of the Company was RMB955,601,000 (31.12.2005: RMB755,141,000).

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30TH JUNE, 2006

NOTES
Net cash from (used in) operating activities
Net cash used in investing activities
Acquisition of a subsidiary (net of cash and cash equivalents
acquired)
18
Purchases of property, plant and equipment and deposits paid
for acquisition of property, plant and equipment
Other investing cash flows
Net cash used in financing activities
Repayment of bank borrowings
Other financing cash flows
Dividend paid
Advance from an associate
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1st January,
Cash and cash equivalents at 30th June, represented by bank
balances and cash

Six months ended
30.6.2006
30.6.2005
RMB’000
RMB’000
(unaudited)
(unaudited)
604,008
(404,026)
(684,742)
—
(264,712)
(403,899)
62,592
86,879
(886,862)
(317,020)
(179,485)
—
(57,386)
(62,058)
—
(49,500)
213,240
—
(23,631)
(111,558)
(306,485)
(832,604)
709,996
1,774,220
403,511
941,616

— 141 —

FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30TH JUNE, 2006

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with Hong Kong Accounting Standard 34 ‘‘Interim Financial Reporting’’ issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared under the historical cost basis.

The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31st December, 2005.

In the current period, the Group has applied, for the first time, a number of new standards, amendments and interpretations issued by the HKICPA (hereinafter collectively referred to as ‘‘new HKFRS(s)’’) that are effective for accounting periods beginning on or after 1st December, 2005 or 1st January, 2006. The adoption of the new HKFRSs has had no material effect on how the results for the current or prior accounting periods are prepared and presented. Accordingly, no prior period adjustment has been required.

The Group has not applied the following new standards, amendments and interpretations that have been issued but are not yet effective. The Directors of the Company anticipate that the application of these standards, amendments and interpretations will have no material impact to the results and financial positions of the Group.

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HK(IFRIC) — INT 7 Applying the Restatement Approach under HKAS 29 ‘‘Financial Reporting in Hyperinflationary Economies’’[2] HK(IFRIC) — INT 8 Scope of HKFRS 2 ‘‘Share-based Payment’’[3] HK(IFRIC) — INT 9 Reassessment of embedded derivatives[4]

1 Effective for annual periods beginning on or after 1st January, 2007.
2 Effective for annual periods beginning on or after 1st March, 2006.
3 Effective for annual periods beginning on or after 1st May, 2006.
4 Effective for annual periods beginning on or after 1st June, 2006.

3. SEGMENT INFORMATION

The Group was principally engaged in the business of manufacture and sale of diesel engines and related parts and substantially all of the Group’s turnover and operating results were derived from the People’s Republic of China (the ‘‘PRC’’) and accordingly, no analysis of business and geographical segment is presented.

4. INCOME TAX EXPENSE

PRC Enterprise Income Tax Deferred tax

Six months	ended
30.6.2006	30.6.2005
RMB’000	RMB’000
(unaudited)	(unaudited)
72,414	142,935
(2,063)	—
70,351	142,935

— 142 —

FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

Pursuant to the Notice of Ministry of Finance and the State Administration of Taxation concerning certain preferential policies on enterprise income tax ( ) and the Notice of the State Administration of Taxation concerning proper implementation of the continuing administrative work after the cancellation delegation of the examination and approval procedure for enterprise income tax ( ), the Group’s PRC Enterprise Income Tax is calculated at the statutory income tax rate of 33% (2005: 33%) of its assessable profit, except that assessable profit derived from the production in the high technology development zone is taxed at a preferential rate of 15% (2005: 15%).

Pursuant to the notice issued by Jiang Jing Municipal Tax Bureau, the Company’s Chongqing branch is also subject to PRC Enterprise Income Tax at a preferential rate of 15% (2005: 15%).

The Company’s Hong Kong branch is subject to Hong Kong Profits Tax at 17.5% (2005: 17.5%) on its estimated assessable profit. No provision for Hong Kong Profits Tax has been made as the branch had no assessable profit for the year.

There was no significant unprovided deferred taxation during the period or at the balance sheet date.

5. PROFIT FOR THE PERIOD

	Six months	ended
	30.6.2006	30.6.2005
	RMB’000	RMB’000
	(unaudited)	(unaudited)
Profit for the period has been arrived at after charging:
Depreciation of property, plant and equipment	84,255	44,399
Amortisation of intangible assets	31,111	38,889
Amortisation of prepaid lease payments
	639	639
and after crediting:
Bank interest income	6,706	5,699

6. DIVIDEND

In June 2006, a dividend of RMB0.165 per share amounting to RMB54,450,000 was approved to be paid to shareholders as the final dividend for 2005.

In June 2005, a dividend of RMB0.15 per share amounting to RMB49,500,000 was paid to shareholders as the final dividend for

The Directors have determined that an interim dividend of RMB0.20 (six months ended 30th June, 2005: RMB0.165) per share should be paid to the shareholders of the Company whose names appear in the Register of Members on 22nd September, 2006.

7. BASIC EARNINGS PER SHARE

The calculation of basic earnings per share is based on the profit for the period attributable to equity holders of parent of approximately RMB318,742,000 (six months ended 30th June, 2005: RMB250,223,000) and on the number of 330,000,000 (six months ended 30th June, 2005: 330,000,000) ordinary shares in issue during the period.

8. ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT

During the period, the Company spent approximately RMB96,155,000 (six months ended 30th June, 2005: RMB666,223,000) on property, plant and equipment.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

9. INTEREST IN AN ASSOCIATE

Cost of investment in unlisted shares of an associate listed in the PRC Cost of investment in an unlisted associate Share of post-acquisition profit	30.6.2006 RMB’000 (unaudited) 1,051,058 — — 1,051,058	31.12.2005 RMB’000 (audited) — 560,250 941
		561,191

At 31st December, 2005, the Group held 45% in (‘‘Weifang Investment’’) which is an investment company established in the PRC whose principal asset is a 28.12% interest in (‘‘TAGC’’) in the form of domestic shares. On 30th June, 2006, the Group completed the acquisition of the remaining 55% interest in Weifang Investment. Accordingly, Weifang Investment became a wholly-owned subsidiary of the Group and TAGC became a direct associate of the Group.

TAGC is a company established in the PRC with its ‘A’ shares listed on the Shenzhen Stock Exchange. TAGC is principally engaged in the manufacture and sale of heavy trucks and related parts and components.

At 30th June, 2006, included in the cost of investment in associate is goodwill of approximately RMB509,584,000 (31.12.2005: RMB238,918,000), which is attributable to TAGC.

10. TRADE AND BILLS RECEIVABLES

The credit terms granted by the Group to its customers are generally similar and are normally in the range from 30 days to 180 days. However, customers with established trading records could be granted longer credit period. An analysis of trade debtors is as follows:

Third party customers Related party and connected person customers Bills receivable An aged analysis of trade and bills receivables is as follows: Within 90 days Between 91 to 180 days Between 181 to 365 days Over 365 days	30.6.2006 RMB’000 (unaudited) 457,790 288,553 746,343 1,075,054 1,821,397 1,365,224 302,319 147,575 6,279 1,821,397	31.12.2005 RMB’000 (audited) 142,977 217,417
		360,394 801,655
		1,162,049
		974,679 180,522 2,916 3,932
		1,162,049

At 30th June, 2006, the related party and connected person customers represented Weifang Diesel Engine Works (‘‘Weichai Factory’’) and its affiliates other than the Group (collectively referred to as ‘‘Weichai Factory Group’’), (‘‘Fujian Longgong’’) and its affiliates, (‘‘Guangxi Liugong’’) and its affiliates and TAGC and its affiliates. Weichai Factory is a substantial shareholder of the Company. Fujian Longgong and Guangxi Liugong are promoters of the Company and held 6.52% and 1.36% interest in the Company at 30th June, 2006, respectively.

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APPENDIX IA

At 31st December, 2005, the related party and connected person customers also included China Heavy Duty Truck Group Co., Ltd. (‘‘CHDTGL’’) and its affiliates other than the Group. CHDTGL ceased to be the holding company of a substantial shareholder of the Company during the period. CHDTGL and its affiliates other than the Group are collectively referred to as China Heavy Duty Truck Group.

The bills receivables are non-interest bearing and have a maturity of six months.

The fair value of the Group’s trade and bills receivables at the balance sheet dates approximates carrying amount.

11. TRADE AND BILLS PAYABLES

Third party suppliers Related party and connected person suppliers Bills payable An analysis of trade and bills payables is as follows: Within 90 days Between 91 to 180 days Between 181 to 365 days Over 365 days	30.6.2006 RMB’000 (unaudited) 1,780,793 25,180 1,805,973 581,316 2,387,289 1,943,552 333,618 59,574 50,395 2,387,289	31.12.2005 RMB’000 (audited) 1,184,615 75,411
		1,260,026 551,480
		1,811,506
		1,312,896 439,327 13,123 46,160
		1,811,506

At 30th June, 2006, the related party and connected person suppliers represented Weichai Factory Group and China Heavy Duty Truck Group.

At 31st December, 2005, the related party and connected person suppliers also included China Heavy Duty Truck Group.

The bills are non-interest bearing and have maturity of six months.

The fair value of trade and bills payables at the balance sheet dates approximates carrying amount.

12. BANK AND OTHER BORROWINGS — DUE AFTER ONE YEAR

During the period, the Group obtained other borrowings of the amount of approximately RMB132,532,000.

13. SHARE CAPITAL

At 1st January, 2005, 31st December, 2005 and 30th June, 2006	Number of shares Domestic shares H shares ’000 ’000 203,500 126,500	Registered, issued and fully paid RMB’000 330,000

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

14. PLEDGE OF ASSETS

At 30th June, 2006, the following assets were pledged to secure bills payables issued by banks for the Group:

(i) bank deposits of approximately RMB316,551,000 (31.12.2005: RMB371,670,000);
(ii) bills receivables of approximately RMB42,042,000 (31.12.2005: Nil); and
(iii) 35,579,520 shares in TAGC at carrying amount of approximately RMB142,040,000 (31.12.2005: Nil).

15. CAPITAL COMMITMENTS

Capital expenditure in respect of the acquisition of property, plant and equipment contracted for but not provided in the financial statements Capital expenditure in respect of the acquisition of property, plant and equipment authorised but not contracted for	30.6.2006 RMB’000 (unaudited) 340,546 299,982	31.12.2005 RMB’000 (audited) 234,912
		—

16. OPERATING LEASE COMMITMENTS

At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	30.6.2006 RMB’000 (unaudited) 51,171 49,028 100,199	31.12.2005 RMB’000 (audited) 50,355 73,218
		123,573

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

17. ACQUISITION OF A SUBSIDIARY

On 30th June, 2006, the Group acquired 55% further equity interest in Weifang Investment for a cash consideration of RMB684,750,000 prior to the acquisition, Weifang Investment was owned as to 45% by the Group. Following the acquisition, Weifang Investment became a wholly-owned subsidiary of the Company. This transaction has been accounted for using the purchase method of accounting.

The net assets acquired in the transaction are as follows:

Net assets acquired: Interest in an associate Amount due from a shareholder Bank balances and cash Trade and other payables 55% of net assets acquired Goodwill (included in interest in an associate) Satisfied by: Cash consideration paid Net cash outflow arising on acquisition: Cash consideration paid Cash and cash equivalents acquired	Fair value (Note) RMB’000 541,474 213,240 8 (1,842) 752,880 414,084 270,666 684,750 684,750 (684,750) 8 (684,742)

Note: The initial accounting for the above acquisition has been determined provisionally, awaiting the receipt of professional valuations in relation to certain underlying assets and liabilities of the associates.

The goodwill arising on the acquisition of Weifang Investment is attributable to the anticipated future operating synergies from the combination with TAGC.

The acquisition had no impact to the Group’s turnover and profit for the period.

Had the acquisition been completed on 1st January, 2006, the Group’s turnover for the period would have been approximately RMB3,493,590,000, and profit for the period would have been total ‘‘proforma’’ profit for the Group approximately RMB340,861,000. This proforma information is for illustration purpose only and is not necessarily indicative of the Group’s results of operations that would actually have been achieved had the acquisition been completed on 1st January, 2006, nor is it intended to be a projection of future results.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

POST BALANCE SHEET EVETNS AND CONTINGENT LIABILITIES
(a) Trading in the H share of the Company has been suspended since 21st August, 2006 pending the release of an announcement. As at the date of this report, the said announcement has not been finalised.
(b) On 26th August, 2006, the Company and Weichai Factory received a letter from CHDTGL, the former registered capital holder of Weichai Factory, stating that there existed discrepancies in the account balances between CHDTGL and the Company and Weichai Factory and that the Company and Weichai Factory should be responsible for certain losses that CHDTGL suffered in the past. The directors, after careful examination of the said letter and the circumstances surrounding thereto, are of the opinion that as far as the Company is concerned, such statements are groundless. If pursued, the directors intend to contest such matters vigorously.

The directors believe that taking into account the provisions that have been included in these accounts, any eventual resolution with CHDTGL of the relevant matters will not have a material adverse effect on the Group’s financial position.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

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14th June, 2006

The Directors Weichai Power Co., Ltd.

Dear Sirs,

We set out below our report on the financial information relating to (Weichai Power (Weifang) Investment Co. Ltd.) (the ‘‘JV Co’’) for the period from 2nd August, 2005 (date of establishment) to 31st December, 2005 (the ‘‘Relevant Period’’) for inclusion in the circular dated 14th June, 2006 (the ‘‘Circular’’) issued by Weichai Power Co., Ltd. (the ‘‘Company’’) in connection with its acquisitions of further equity interests in the JV Co not already owned by it (the ‘‘Acquisitions’’).

The JV Co was established in the People’s Republic of China (the ‘‘PRC’’) on 2nd August, 2005 as a limited liability company. The principal activity of the JV Co is the holding of approximately 28.12% interest in the registered capital of Torch Automobile Group Co., Ltd. ( ) (‘‘TAGC’’) which is principally engaged in the manufacture and sale of heavy duty trucks and vehicle parts. TAGC is listed on the Shenzhen Stock Exchange in the PRC.

The statutory financial statements of the JV Co for the Relevant Period were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises registered in the PRC and were audited by (Shandong Zhengyuanhexin Certified Public Accountant’s Office, Ltd.), certified public accountants registered in the PRC (the ‘‘Underlying Financial Statements’’).

The financial information of the JV Co for the Relevant Period set out in this report (the ‘‘Financial Information’’) has been prepared from the Underlying Financial Statements, after making such adjustments as we considered necessary for the purpose of preparing our report for inclusion in the Circular.

The directors of the JV Co are responsible for the preparation of the Underlying Financial Statements. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

We were engaged to examine the Underlying Financial Statements and carried out such additional procedures as necessary in accordance with the Auditing Guideline ‘‘Prospectuses and the reporting accountant’’ as recommended by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’). However, included in the Financial Information is an amount of RMB3,453,062, representing the JV Co’s share of TAGC’s profit for the Relevant Period, and an amount of RMB1,027,810,640, representing the JV Co’s interest in TAGC at 31st December, 2005. However, because we were unable to gain access to the necessary accounting books and records of TAGC for the purpose of this report, we were unable to carry out the procedures we considered necessary on the relevant financial information of TAGC in order to satisfy ourselves that these amounts are not materially misstated in the context of this report.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

Because of the significance of the matter set out in the preceding paragraph, we are unable to form an opinion as to whether the Financial Information gives a true and fair view of the state of affairs of the JV Co as at 31st December, 2005 and of its profit and cash flows for the Relevant Period.

I. FINANCIAL INFORMATION

Income Statement

For the period from 2nd August, 2005 (date of establishment) to 31st December, 2005

Notes Turnover Bank interest income Other interest income Administrative expenses Share of results of an associate 9 Profit before taxation Taxation 5 Profit for the period 6	RMB — 415,560 6,985,887 (5,414,657) 3,453,062 5,439,852 (854,636) 4,585,216

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

Balance Sheet At 31st December, 2005 Notes Non-current assets Interest in an associate 9 Deferred tax assets 14 Current assets Loans to shareholders 10 Other receivables 11 Bank balances 11 Current liabilities Other payables 12 Tax payable Net current assets Capital and reserve Registered and paid up capital 13 Retained profit	RMB 1,027,810,640 92,787
	1,027,903,427
	208,900,000 3,527,074 12,014,609
	224,441,683
	1,812,471 947,423
	2,759,894
	221,681,789
	1,249,585,216
	1,245,000,000 4,585,216
	1,249,585,216

Statement of Changes in Equity For the period from 2nd August, 2005 (date of establishment) to 31st December, 2005

On establishment Capital injection Capital reduction Profit for the period At 31st December, 2005	Registered and paid up capital RMB 5,000,000 1,633,000,000 (393,000,000) — 1,245,000,000	Retained profit RMB — — — 4,585,216 4,585,216	Total RMB 5,000,000 1,633,000,000 (393,000,000) 4,585,216
			1,249,585,216

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

Cash Flow Statement

For the period from 2nd August, 2005 (date of establishment) to 31st December, 2005

OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Interest income
Share of results of an associate
Operating cash flows before movements in working capital
Increase in other receivables
Increase in other payables
NET CASH USED IN OPERATING ACTIVITIES
INVESTING ACTIVITIES
Investment in an associate
Loans to shareholders
Repayments of loans from shareholders
Interest received
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Capital injection
Capital reduction
NET CASH FROM FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS, AND
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD, representing
bank balances

RMB
5,439,852
(7,401,447)
(3,453,062)
(5,414,657)
(1,830)
1,636,209
(3,780,278)
(1,024,357,578)
(601,900,000)
393,000,000
4,052,465
(1,229,205,113)
1,638,000,000
(393,000,000)
1,245,000,000
12,014,609

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

NOTES TO THE FINANCIAL INFORMATION

1. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis and in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRS(s)’’).

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of the JV Co.

The JV Co has not early applied the following new Hong Kong Accounting Standards (‘‘HKAS(s)’’), amendments and interpretations (‘‘INT’’) that have been issued but are not yet effective. The directors of the JV Co anticipate that the application of these standards, amendments or interpretations will have no material impact on the Financial Information of the JV Co.

HKAS 1 (Amendment)	Capital disclosures1
HKAS 19 (Amendment)	Actuarial gains and losses, group plans and disclosures2
HKAS 21 (Amendment)	The effects of changes in foreign exchange rates — net investment in a foreign
	operation2
HKAS 39 (Amendment)	Cash flow hedge accounting of forecast intragroup transactions2
HKAS 39 (Amendment)	The fair value option2
HKAS 39 & HKFRS 4	Financial guarantee contracts2
(Amendments)
HKFRS 6	Exploration for and evaluation of mineral resources2
HKFRS 7	Financial instruments: Disclosures1
HK(IFRIC) — INT 4	Determining whether an arrangement contains a lease2
HK(IFRIC) — INT 5	Rights to interests arising from decommissioning, restoration and environmental
	rehabilitation funds2
HK(IFRIC) — INT 6	Liabilities arising from participating in a specific market, waste electrical and
	electronic equipment3
HK(IFRIC) — INT 7	Applying the restatement approach under HKAS 29 Financial Reporting in
	Hyperinflationary Economics4
HK(IFRIC) — INT 8	Scope of HKFRS 25
HK(IFRIC) — INT 9	Reassessment of embedded derivatives6

1 Effective for annual periods beginning on or after 1st January, 2007.
2 Effective for annual periods beginning on or after 1st January, 2006.
3 Effective for annual periods beginning on or after 1st December, 2005.
4 Effective for annual periods beginning on or after 1st March, 2006.
5 Effective for annual periods beginning on or after 1st May, 2006.
6 Effective for annual periods beginning on or after 1st June, 2006.

Investments in associates

The results and assets and liabilities of associates are incorporated in the Financial Information using the equity method of accounting. Under the equity method, investments in associates are carried in the balance sheet at cost as adjusted for post-acquisition changes in the JV Co’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the JV Co’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the JV Co’s net investment in the associate), the JV Co discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the JV Co has incurred legal or constructive obligations or made payments on behalf of that associate.

Where the JV Co transacts with its associate, profits and losses are eliminated to the extent of the JV Co’s interest in the relevant associate.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

Revenue recognition

Interest income from a financial asset is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The JV Co’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in associates, except where the JV Co is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Goodwill

Goodwill arising on an acquisition of an associate represents the excess of the cost of acquisition over the JV Co’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant associate at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of an associate (which is accounted for using the equity method) is included in the cost of the investment of the relevant associate and is carried at cost less accumulated impairment losses. For impairment testing purpose, the entire carrying amount of the investment in associate is tested for impairment by comparing the carrying amount with its recoverable amount irrespective of whether there is any indication that it may be impaired.

On subsequent disposal of an associate, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when the JV Co becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

Financial assets

The JV Co’s financial assets are classified as loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policy adopted is set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including loans to shareholders, other receivables and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the JV Co are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the JV Co after deducting all of its liabilities. The JV Co’s financial liabilities are classified as other financial liabilities. The accounting policies adopted in respect of other financial liabilities and equity instruments are set out below.

Other financial liabilities

Other financial liabilities including other payables is subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the JV Co are recorded at the proceeds received, net of direct issue cost.

Impairment loss

At each balance sheet date, the JV Co reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

2. KEY SOURCES OF ESTIMATION UNCERTAINTY

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

Impairment on goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the investment in associate. The value in use calculation requires the JV Co to estimate the future cash flows expected to be generated by the associate and a suitable discount rate in order to calculate the present value. Where the actual amount of future cash flows is less than expected, a material impairment loss may arise.

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The JV Co’s major financial instruments include loans to shareholders, bank balances and other payables. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The JV Co’s management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Credit risk

The JV Co’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations as at 31st December, 2005 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the balance sheet. The JV Co reviews the recoverable amount of each receivable at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts.

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

4. BUSINESS AND GEOGRAPHICAL SEGMENTS

The JV Co is principally engaged in investment holding and all of its turnover and operating results are derived from the PRC. Accordingly, no analysis of business and geographical segment is presented.

5. TAXATION

PRC Enterprise Income Tax: Current period Deferred taxation (note 14)	RMB 947,423 (92,787) 854,636

PRC Enterprise Income Tax is calculated at the statutory income tax rate of 33% of the assessable profit of

JV Co.

The taxation for the period can be reconciled to the profit per the income statement as follows:

Profit before taxation Tax at PRC Enterprise Income Tax rate of 33% Tax effect of share of results of an associate Tax effect of expenses not deductible for tax purpose Taxation for the period	RMB 5,439,852 1,795,151 (1,139,510) 198,995 854,636

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

6. PROFIT FOR THE PERIOD

RMB

Profit for the period has been arrived at after charging:

Auditors’ remuneration Directors’ and supervisors’ remuneration	— —

The auditors’ remuneration for the period amounting to RMB120,000 was borne by Weichai Power Co., Ltd. (‘‘Weichai Power’’), a shareholder of the JV Co.

7. DIRECTORS’, SUPERVISORS’ AND EMPLOYEES’ EMOLUMENTS

During the period, no emoluments were paid by the JV Co to any of the directors, supervisors and employees of the JV Co as an inducement to join or upon joining or as compensation for loss of office. None of the directors or supervisors waived any emoluments during the period.

8. EARNINGS PER SHARE

Earnings per share has not been presented as such information is not required for a private company.

9. INTEREST IN AN ASSOCIATE

Cost of investment in an associate which is listed in the PRC Share of post-acquisition profits	RMB 1,024,357,578 3,453,062
	1,027,810,640

As at 31st December, 2005, the JV Co had interests in the following associate:

						Proportion
				Country of		of registered
			Form of	establishment/		capital held
			business	Principal place	Paid up registered	by the
Name	of	entity	structure	of operation	capital	JV Co	Principal activities
						%
TAGC			Incorporated	The PRC	RMB936,286,560	28.12	Manufacture and sale of
						(note)	heavy duty trucks and
							vehicle parts

Note: Being 263,279,520 Domestic shares of the issued share capital of TAGC, which comprises 337,677,120 Domestic shares and 598,609,440 A shares as at 31st December, 2005.

The results of TAGC incorporated into the Financial Information are made up for the period from 11th August, 2005 (the effective date of acquisition) to 31st December, 2005.

Included in the cost of investment in TAGC is goodwill of RMB579,145,044 arising on acquisition by the JV Co of TAGC during the period. TAGC plans to undergo a share reform and compensation may be given to the holders of TAGC’s A shares. The compensation, if any, paid by the JV Co (as a holder of TAGC’s Domestic shares) will be accounted for as the cost of investment in TAGC by the JV Co and goodwill arising on acquisition may be adjusted accordingly. The JV Co’s management represented that the compensation cannot be reliably estimated as at the date of this report.

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FINANCIAL INFORMATION OF THE WEICHAI POWER GROUP

APPENDIX IA

The recoverable amount of investment in associate has been determined based on value in use calculation. This calculation uses cash flow projections based on financial budgets approved by the JV Co’s management covering a 5-year period, at a discount rate of 4.2%. The cash flows beyond the 5-year period are extrapolated using a steady 10% growth rate. Another key assumption for the value in use calculation is the budgeted gross margin, which is determined based on TAGC’s past performance and expectations of the JV Co’s management for the market development. The JV Co’s management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of TAGC to exceed the aggregate recoverable amount of TAGC.

The summarised financial information in respect of TAGC is set out below:

Total assets Total liabilities Net assets Minority interests Net assets attributable to equity holder of TAGC JV Co’s share of net assets of TAGC at 31st December, 2005 Revenue Profit for the period JV Co’s share of profit of TAGC for the period	RMB (in million) 8,284 5,053
	3,231 1,635
	1,596
	449
	1,348
	12
	3

During the period, the JV Co’s management determines that there is no impairment on the cost of investment in TAGC.

10. LOANS TO SHAREHOLDERS

Longkou Golden Electrics Co. Ltd. (‘‘Longkou Golden’’) (note i) ( ) Shandong Haihua Group Ltd. (‘‘Shandong Haihua’’) (note ii) ( ) Weifang Yaxing Group Ltd. (‘‘Weifang Yaxing’’) (note ii) ( )	RMB 87,150,000 74,500,000 47,250,000
	208,900,000

Notes:

(i) The amount is unsecured, interest bearing at 5.22% per annum and repayable on 22nd February, 2006. Subsequent to 31st December, 2005, the repayment date was extended to 22nd August, 2006.
(ii) The amounts are loans arranged by a bank and are unsecured, interest bearing at 3.6% per annum and repayable on 28th August, 2006.

The directors of the JV Co consider that the carrying amount of the loans to shareholders approximated its fair value at the balance sheet date.

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APPENDIX IA

11. OTHER FINANCIAL ASSETS

Other receivables

Interest receivable from Longkou Golden Interest receivable from Shandong Haihua Interest receivable from Weifang Yaxing Others	RMB 2,053,708 924,953 546,583 1,830
	3,527,074

The directors of the JV Co consider that the carrying amount of the other receivables approximated its fair value at the balance sheet date.

Bank balances

Bank balances, which carry effective interest rates ranging from 0.75% to 1.68% per annum, comprise cash held by the JV Co and short-term bank deposits with an original maturity of three months or less. The directors of the JV Co consider that the carrying amounts of these assets approximated their fair values at the balance sheet date.

12. OTHER FINANCIAL LIABILITIES

Other payables

The directors of the JV Co consider that the carrying amount of the JV Co’s other payables approximated its fair value at the balance sheet date.

13. REGISTERED AND PAID UP CAPITAL

On establishment Add: Capital injection Less: Capital reduction At 31st December, 2005	RMB 5,000,000 1,633,000,000 (393,000,000)
	1,245,000,000

On the date of establishment, RMB5,000,000 was injected as registered capital of the JV Co. On 3rd August, 2005 and 5th August, 2005, additional RMB983,000,000 and RMB650,000,000, respectively, were injected to increase the registered capital of the JV Co.

On 16th August, 2005, registered and paid up capital was reduced by cash refund of RMB393,000,000 to the shareholders in proportion to their respective shareholdings in the JV Co.

14. DEFERRED TAXATION

The followings are the major deferred tax asset recognised and movements thereon during the current period:

Credit to income for the period and balance at 31st December, 2005	Pre-operating expenses RMB 92,787

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APPENDIX IA

15. PLEDGE OF ASSETS

At 31st December, 2005, the JV Co had pledged 35,579,520 Domestic shares in TAGC, to a bank to secure the bank loan granted to TAGC.

16. RELATED PARTY DISCLOSURES

(a) Transactions
(i) Interest income from shareholders of the JV Co:

Longkou Golden Shandong Haihua Weifang Yaxing	RMB 1,951,024 2,036,813 2,998,050

(ii) The auditors’ remuneration for the period amounting to RMB120,000 was borne by Weichai Power.
(b) Balances

Details of amounts due from related parties are set out in notes 10 and 11.

Details of pledge of assets to a bank to secure loan of an associate are set out in note 15.

II. ULTIMATE HOLDING COMPANY

At 31st December, 2005, the JV Co did not have ultimate holding company.

III. DIRECTORS’ AND SUPERVISORS’ REMUNERATION

Under the arrangement presently in force, no remuneration is payable by the JV Co to its directors and supervisors for the year ending 31st December, 2006.

IV. SUBSEQUENT EVENTS

No significant event incurred subsequent to 31st December, 2005.

V. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the JV Co in respect of any period subsequent to 31st December, 2005.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

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APPENDIX IB

MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

Weichai Power is one of the leading diesel engine manufacturer in China, specializing in the manufacture of high-speed heavy-duty diesel engines, which are mainly used in heavy-duty vehicles and construction machinery. Weichai Power’s core products are six-cylinder, 110–266kw output, 9.7 litre displacement WD615 diesel engines and WD618 diesel engines with an output of 265–323kw. At the end of 2004, Weichai Power invented and launched to the market the Euro III diesel engines (WP10 and WP12 series) with a 10–12 litre displacement capacity and higher power up to 480 horsepower. Weichai Power has continued its trial production of these new inventions in year 2005 and year 2006 on a testing basis by utilising its new production lines.

In July 2006, Weichai Power signed an agreement with a major heavy-duty truck maker in Europe. Under this agreement, Weichai Power is expected to supply 17,500 units of new generation of diesel engines in the next three years. This move signified a significant step of the Group in penetrating its business and diversifying its revenue into the international market.

(A) INDUSTRY REVIEW

Six months ended 30 June 2006

For the six months ended 30 June 2006, the economy of the PRC continued and sustained to record impressive growth. Gross domestic product expanded by approximately 9.9% in 2005 and approximately 10.9% for the six months ended 30 June 2006. In line with the strong economic growth and the rapid urbanization stimulated by the ‘‘11th Five Year Plan’’ of the PRC, both the heavy-duty truck and construction machinery markets showed a significant recovery after the downturn caused by the promulgation of certain industry policies in 2005. For the six months ended 30 June 2006, sales of heavy-duty trucks and construction machines (wheel loaders) in China increased by approximately 9% and 13%, respectively, compared with the same period in 2005.

Heavy-duty trucks industry

Due to the rapid shift in focus and changing demand in the market in China from light and medium sized heavy-duty trucks to heavy-duty trucks with the load capacity of 15 tones (and above), the total units of diesel engine sold for heavy-duty truck increased by approximately 10.2% from 40,123 (in the six months ended 30 June 2005) units to 44,197 units for the six months ended 30 June 2006. A sizable proportion of the unit sales of heavy-duty trucks with a load capacity of 15 tones (and above) in the PRC market was concentrated in a few manufacturers, which also included the major customers of Weichai Power, such as: Shaanxi Zhongqi, (Chongqing Hongyan Automobile Co. Ltd.) (‘‘Chongqing Hongyan’’), (Beijing Foton Motor Company Limited) (‘‘Beijing Foton’’), (Baotou NorthBenz Heavy-duty Truck Co., Ltd) (‘‘North-Benz’’) and (Anhui Hualing Automobile Group Co., Ltd).

Construction machinery — Wheel loaders industry

For the six months ended 30 June 2006, China’s construction machinery market also showed a very strong recovery following a depressed market in 2005 due to the implementation of a series of micro-economic tightening measures by the PRC central government. The total units of diesel engine sold for construction machinery with a load capacity of 5 tones (and above) increased by approximately 41.6% from 25,732 units (in the six months ended 30 June 2005) to 36,425 units for the six months ended 30 June 2006. A sizeable proportion of the sales of construction machinery with a load capacity of 5 tonnes (and above) in the PRC was concentrated in a few manufacturers, which also

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APPENDIX IB

included the major customers of Weichai Power, such as: Guangxi Liugong, Shanghai Longgong, Fujian Longyan and (Shandong Lingong Construction Machinery Co., Ltd) (‘‘Shandong Lingong’’).

Year ended 31 December 2005 compared to year ended 31 December 2004

Heavy-duty trucks industry

The PRC central government implemented a series of austerity measures to cool down infrastructure investments in 2005. With effect from 1 April 2005, the central government has implemented a new policy of (Vehicles’ Maximum Measurement On Size, Weight and Loading Capacity), which required all truck manufacturers to redesign their trucks so as to meet certain standards with specific length, height and chassis structure standards. As a result, the nationwide crackdown on truck overloading has been easing off since the second quarter of 2005. The implementation of the above-mentioned measures had certain negative impacts on the heavy-duty trucks industry, which in turn substantially slowed down the sales of Weichai Power’s diesel engines which were used in heavy-duty trucks as compared to the previous year. In China, during the year, the total sales of heavy-duty trucks decreased by approximately 36% as compared with the same period in 2004.

Construction machinery — Wheel loaders industry

For the year ended 31 December 2005, the sale of the wheel loaders with a load capacity of 5 tonnes (and above), being the second-most important market of Weichai Power, slowed down as a result of the implementation of series of austerity measures with credit-tightening policies by the PRC central government.

Year ended 31 December 2004 compared to year ended 31 December 2003

Heavy-duty vehicles industry

Although during 2004, the PRC central government implemented a series of austerity measures, the sales of heavy-duty vehicles with a load capacity of 8 tonnes (and above) was not much affected. In the PRC, the total sales of heavy-duty vehicles with a load capacity of 8 tonnes (and above) during 2004 rose by approximately 45% as compared with that of the same period in 2003. Major truck manufacturers engaged in manufacturing heavy-duty vehicles with a load capacity of 15 tonnes (and above) also recorded very impressive growth rates at the range of approximately 80% to 150%.

During 2004, the PRC central government was cracking down hard on the widespread practice of truck overloading. Furthermore, toll charges for heavy-duty vehicles with a load capacity of 15 tonnes (and above) was reduced by approximately 30%. All these have stimulated the demand for heavy-duty vehicles with a load capacity of 15 tonnes (and above) and also accelerated the pace of truck-capacity upgrading in the PRC.

Construction machines — wheel loaders

Wheel loaders with a load capacity of 5 tonnes (and above), being its second-most important market, is also showing strong and increasing growth during the year.

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APPENDIX IB

MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

In recent years, the wheel loader market in the PRC grew by over 29% year-on-year. During 2004, the implementation of a series of austerity measures with credit-tightening policies by the PRC central government adversely affected the sales of some categories of the construction machines such as excavators to a certain extent. But there was no clear sign of over supply of construction machines, especially in wheel loaders with a load capacity of 5 tonnes (and above). The sales growth of wheel loaders only slowed down mildly since the implementation of these austerity measures.

(B) SALES OF WD615 AND WD618 SERIES ENGINES

Six months ended 30 June 2006

For the six months ended 30 June 2006, Weichai Power’s turnover increased by approximately 8.2% from approximately RMB3,228.3 million in the corresponding period in 2005 to approximately RMB3,493.6 million in the first half of 2006. The turnover of Weichai Power was derived mainly from the sale of diesel engines used in heavy-duty trucks and construction machinery (these are mainly the WD615 and WD618 series), which in total accounted for approximately 83.3% and also represented approximately 49.9% and 33.4% of the total turnover of Weichai Power, respectively. For the six months ended 30 June 2006, Weichai Power sold 83,027 units of diesel engines, compared to 68,646 units in the corresponding period in 2005, representing an increase of approximately 20.9%, while the average unit selling price of the Weichai Power Group’s major products have remained relatively stable. Of the diesel engines sold in the first six months of 2006, 44,197 units (2005 : 40,123 units) were truck engines, representing an increase of approximately 10.2% when compared to that for the same period in 2005. For the six months ended 30 June 2006, 36,425 units (2005 : 25,732 units) of diesel engines for construction machinery were sold, representing an increase of approximately 41.6% when compared to that for the same period in 2005.

Year ended 31 December 2005 compared to year ended 31 December 2004

For the year ended 31 December 2005, Weichai Power’s turnover decreased by approximately 14.7% from approximately RMB6,155.8 million in 2004 to approximately RMB5,250.7 million in 2004. The turnover of Weichai Power was derived mainly from the sale of diesel engines used in heavy-duty trucks and construction machinery, which in total accounted for approximately 82.4% and each represented approximately 53.3% and 29.1% of the total turnover of Weichai Power, respectively. During the year, Weichai Power sold 114,180 units of diesel engines, compared to 134,460 units in 2004, representing a decrease of approximately 15.1%, while the average unit selling price of Weichai Power remained relatively stable during the year. Of the diesel engines sold for the year ended 31 December 2005, 63,490 units (2004 : 83,100 units) were trucks engines, representing a decrease of approximately 23.6% when compared to that for the same period in 2004.

Year ended 31 December 2004 compared to year ended 31 December 2003

Turnover of Weichai Power for the year ended 31 December 2004 amounted to approximately RMB6,155.8 million, representing an increase of approximately RMB2,600.1 million or approximately 73.1% over the same period in 2003. Turnover was derived mainly from the sales of diesel engines used in heavy-duty trucks and construction machines, which accounted for approximately 60.7% and 27.7% of the total turnover, respectively. The significant increase in turnover was mainly attributable to the robust market demand for its WD615 engines. To meet the increasing demand, Weichai Power further expanded its production capacity and improved its operational efficiency during the year. The expansion in scale also enabled Weichai Power to achieve economies of scale and adopt a more flexible and competitive pricing strategy for its products. As a

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APPENDIX IB

result of the above factors, Weichai Power’s net profit attributable to shareholders for the year ended 31 December 2004 increased to approximately RMB538.9 million, representing an approximately 92.2% increase as compared to that for the same period in 2003.

(C) SALES OF DIESEL ENGINE PARTS

Six months ended 30 June 2006

Apart from the production and sale of diesel engines, Weichai Power is also engaged in the production and sale of diesel engine parts. The production and sale of diesel engine parts not only contributed to the revenue of Weichai Power, but also ensured the generation of revenue from the provision of after-sales services on such diesel engine parts. For the six months ended 30 June 2006, Weichai Power recorded an approximately 31.0% increase in sales of diesel engine parts from approximately RMB353.3 million in the corresponding period in 2005 to approximately RMB462.7 million in the first half of 2006. The surge in sales was mainly attributable to the increase in accumulated sales volume of diesel engines in previous years. The sales of diesel engine parts represented approximately 13.2% (2005 : 10.9%) of Weichai Power’s total turnover in the year.

Year ended 31 December 2005 compared to year ended 31 December 2004

During 2005, Weichai Power recorded an approximately 33.0% increase in sales of diesel engine parts from approximately RMB513.5 million in 2004 to approximately RMB683.0 million in 2005. This increase in sales was primarily due to the increase in sales volume of diesel engine parts to its major customers during the year. The sales of diesel engine parts represented approximately 13.0% (2004: 8.3%) of Weichai Power’s total turnover in 2005.

Year ended 31 December 2004 compared to year ended 31 December 2003

For the year ended 31 December 2004, Weichai Power recorded an approximately 413.5% increase in sales of engine parts from approximately RMB100.0 million in 2003 to approximately RMB513.5 million in 2004. This significant increase was mainly attributable to the increase in sale volume of diesel engines from 80,480 units in 2003 to 134,460 units in 2004 as a result of the continuing strong market demand in heavy-duty vehicles and construction machines markets in the PRC. The sales of diesel engine parts represented approximately 8.3% (2003: 2.8%) of the Group’s turnover during the year.

(D) FINANCIAL REVIEW

Six months ended 30 June 2006

Turnover

Weichai Power’s turnover increased by approximately 8.2% from RMB3,228.3 million (first six months of 2005) to approximately RMB3,493.6 million for the six months ended 30 June 2006. The increase in turnover was the result of a rebounce in demand in the heavy-duty trucks and construction machinery industries for diesel engines. For the six months ended 30 June 2006, Weichai Power sold 83,027 units of diesel engines in total, compared to 68,646 units in the same period in 2005, representing an increase of approximately 20.9% while the unit average selling price of its diesel engines remained relatively stable.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

Gross profit and gross profit margin

Weichai Power’s gross profit increased by approximately 18.4% from approximately RMB747.6 million (first six months of 2005) to approximately RMB885.0 million for the six months ended 30 June 2006 as a result of increase in the sales volume from 68,646 units (first six months of 2005) to 83,027 units of diesel engines for the six months ended 30 June 2006. Gross profit margin increased from approximately 23.2% to approximately 25.3%, which was mainly due to the increase in the sale of heavy-duty trucks diesel engines in the first half of 2006 which have a relatively higher gross profit margin and cost control efficiency.

Selling and distribution costs

Selling and distribution costs increased from approximately RMB175.5 million (first six months of 2005) to approximately RMB289.0 million for the first six months in 2006. As a percentage of turnover, selling and distribution costs increased from 5.4% (first six months of 2005) to approximately 8.3% for the first six months of 2006, which was mainly due to the increase in repair and maintenance expenses and after-sales services charges resulting from the extension of warranty period for certain major customers from an average of 180 days starting from the second half of 2005 to one year and substantial increase in the number of after-sales services centers from an average of approximately 1,281 in the first half of 2005 to approximately 1,354 for the corresponding period in 2006.

Administrative expenses

Administrative expenses of Weichai Power increased by approximately 0.8% from approximately RMB148.6 million in the first half of 2005 to approximately RMB149.8 million for the corresponding period in 2006. The increase in administrative expenses was mainly due to the increase in the depreciation charged for the first six months of 2006. As a percentage of turnover, the administrative expenses decreased from approximately 4.6% in the first half of 2005 to approximately 4.3% for the corresponding period in 2006. The decrease in administrative expenses was mainly due to the increase in the operational scale of Weichai Power with most of the administrative expenses are relatively fixed to some extent.

Net profit margin

Weichai Power’s profit increased from RMB250.2 million in the first half of 2005 to approximately RMB320.7 million for the same period in 2006, whilst the net profit margin increased substantially from approximately 7.8% in the first half of 2005 to approximately 9.2% for the corresponding period in 2006. The substantial increase in the net profit margin was mainly due to the increase in gross profit margins and the substantial decrease of income tax expense due to the decrease of the effective income tax rate from approximately 36.4% in 2005 to approximately 18.0% in 2006. This is because substantially all of the Weichai Power Group’s production and sales were derived from the high technology development zone, in which its assessable profits are subject to tax exemption at a preferential tax rate of 15% as compared to the statutory enterprise income tax rate of 33%.

Liquidity and financial resources

During the first six months of 2006, Weichai Power maintained a relatively healthy cash flow and capital resources, which were reasonably allocated to appropriate use.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

As at 30 June 2006, the net cash and cash equivalents of Weichai Power amounted to approximately RMB403.5 million (30 June 2005: RMB941.6 million).

As at 30 June 2006, Weichai Power’s total assets were approximately RMB6,602.6 million (30 June 2005: approximately RMB4,784.7 million) and total liabilities were approximately RMB3,875.4 million (30 June 2005: approximately RMB2,396.7 million) and the total equity reached approximately RMB2,727.2 million (30 June 2005 : approximately RMB2,388.1 million).

Weichai Power has sufficient financial resources to fund its operations, as well as its current investment needs and development plans, in its ordinary course of business.

Capital structure

During the first six months of 2006, Weichai Power’s bank borrowings were primarily denominated in RMB while its cash and cash equivalents were held in RMB and Hong Kong dollars.

It is the intention of Weichai Power to maintain an appropriate mix of equity and debt to ensure an efficient capital structure from time to time. As at 30 June 2006, Weichai Power had total debts of approximately RMB522.5 million, and its gearing ratio (represented by total debt divided by total assets) was approximately 7.9% (30 June 2005 : 0.42%)

Business and geographical segments

During the six months ended 30 June 2006, Weichai Power was principally engaged in the business of manufacture and sale of diesel engines and related parts and substantially all of Weichai Power’s turnover and operating results were derived from the PRC and accordingly, no analysis of business and geographical segment is presented.

Pledge of assets

At 30 June 2006, bank deposits and bills receivable of approximately RMB358.6 million (30 June 2005 : approximately RMB242.1 million) were pledged to banks to secure bills payable issued and bills receivables discounted by Weichai Power.

The pledged bank deposits carry prevailing bank interest rates. The pledge will be released upon the settlement of the relevant bank borrowings. Fair value of the bank deposits at the balance sheet dates approximates the carrying amount.

Foreign exchange risk exposure

As almost all of the operations of Weichai Power are located in the PRC. Its operating expenses and most of capital expenditure of Weichai Power were denominated in RMB for the first six months of 2006. Therefore, Weichai Power did not experience any material difficulties or effects on its operations or liquidity as a result of fluctuations in currency exchange during the first six months of 2006. The Directors believe that Weichai Power will have sufficient foreign exchange currency to meet its foreign exchange requirements.

Contingent liabilities

Weichai Power had no material contingent liabilities as at 30 June 2006.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

Capital commitments

As at 30 June 2006, Weichai Power had approximately RMB340.5 million capital commitments contracted (30 June 2005: approximately RMB128.7 million), principally for the capital expenditure in respect of purchase of property, machinery and equipment.

Capital expenditure, significant investment and material acquisitions

For the six months ended 30 June 2006, Weichai Power’s capital expenditure amounted to approximately RMB96.2 million (30 June 2005: approximately RMB666.2 million). This was mainly attributable to the acquisition and installation of new production lines, modification of existing production lines, research and development of Euro III diesel engines, but excluding the acquisition of a 55% equity interest in InvestCo.

In May 2006, Weichai Power entered into an agreement to acquire 55% of the equity interest in InvestCo. Upon completion of the said acquisition, InvestCo has become a wholly-owned subsidiary of Weichai Power and the sole business and asset of InvestCo is an approximately 28.12% shareholding in TAGC.

Human resources practice

As at 30 June 2006, Weichai Power had a total of over 7,700 employees. As Weichai Power believes that a loyal and motivated work force is key to its success, Weichai Power has long been investing in employees’ development efforts by organizing various training courses to broaden their horizon.

Employees are remunerated based on their performance, experience and the prevailing industry practices, with compensation policies and packages being reviewed on a yearly basis. Bonus and commission are also awarded to employees based on internal performance evaluation.

Weichai Power has established an incentive scheme for its senior management. Under this scheme, up to 5% of the audited annual profit after tax of Weichai Power will be paid as bonus to the Directors and other senior management staff each year.

Year ended 31 December 2005 compared to year ended 31 December 2004

Turnover

Weichai Power’s turnover decreased by approximately 14.7% from approximately RMB6,155.8 million in 2004 to approximately RMB5,250.7 million in 2005. The decrease in turnover was the result of the decreasing demand in the heavy-duty trucks industry for diesel engines as a result of the implementation of a series of micro-tightening measures which slowed down the investments in infrastructures in China in 2005 and the easing off of the national-wide crack-down on truck overloading practices. During the year ended 31 December 2005, Weichai Power sold 114,180 units of diesel engines, compared to 134,460 units in 2004, representing a decrease of approximately 15.1% while the unit average selling price of its diesel engines remained relatively stable.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

Gross profit and gross profit margin

During the year ended 31 December 2005, Weichai Power’s gross profit decreased by approximately 23.3% from RMB1,504.7 million in 2004 to approximately RMB1,154.3 million in 2005 as a result of decrease in the sales volume from 134,460 units in 2004 to 114,180 units of diesel engines in 2005. Gross profit margin decreased from approximately 24.4% to approximately 22.0% in 2005. The decrease in gross profit margin was mainly due to the decrease in the sale of heavy-duty trucks diesel engines in 2005 which have a relatively higher gross profit margin than the sale of diesel engines for construction machinery.

Distribution expenses

Weichai Power’s distribution expenses increased from approximately RMB391.8 million in 2004 to approximately RMB404.0 million in 2005. As a percentage of turnover, distribution expenses increased from approximately 6.4% in 2004 to approximately 7.7% in 2005, which was mainly due to the increase in repair and maintenance expenses and after-sales services charges resulting from the temporary extension of warranty period from an average of 180 days for the first half of 2005 to one year for the second half year of 2005 and the substantial increase in the number of after-sales services centers from an average of 1,100 in 2004 to 1,540 in 2005.

Administrative expenses

Weichai Power’s administrative expenses decreased by approximately 9.6% from approximately RMB301.1 million in 2004 to approximately RMB272.1 million in 2005. As a percentage of turnover, the administrative expenses increased from approximately 4.9% in 2004 to approximately 5.2% in 2005. The increase in administrative expenses was mainly due to the increase in the depreciation charged during the year.

Net profit margin

Weichai Power’s net profit attributable to shareholders decreased from approximately RMB533.3 million in 2004 to approximately RMB315.2 million in 2005, the net profit margin decreased from approximately 8.7% in 2004 to approximately 6.0% in 2005. The decrease in the net profit margin was mainly due to the gross profit margin decrease and increases in the percentage of distribution expense and administration expenses over the turnover in 2005; and the decrease of income tax credit granted by the PRC government from approximately RMB63.6 million in 2004 to approximately RMB10.4 million in 2005 has also led to the decrease in net profit margin of 2005.

PRC enterprise income tax is calculated at the statutory income tax rate of 33% (2004: 33%) of the assessable profit of Weichai Power, except on assessable profit derived from the production in the high technology development zone, which is taxed at a preferential rate of 15% since the 2005 financial year pursuant to the Notice of Ministry of Finance and the State Administration of Taxation concerning certain preferential policies on enterprise income tax ( ) and the Notice of the State Administration of Taxation concerning proper implementation of the continuing administrative work after the cancellation delegation of the examination and approval procedure for enterprise income tax ( ).

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

Liquidity and financial resources

Weichai Power has a very solid financial position. As at 31 December 2005, the net cash and cash equivalents of Weichai Power amounted to approximately RMB710.0 million (2004: approximately RMB1,774.2 million).

Capital structure

During 2005, Weichai Power’s bank borrowings were primarily denominated in RMB while its cash and cash equivalents were held in RMB and Hong Kong dollars.

It is the intention of Weichai Power to maintain an appropriate mix of equity and debt to ensure an efficient capital structure from time to time. As at 31 December 2005, Weichai Power had debts of approximately RMB334.2 million in aggregate and the gearing ratio (total debt/total asset) was approximately 6.0% (2004: approximately 0.4%).

Business and geographical segments

In 2005, Weichai Power was principally engaged in the business of manufacture and sale of diesel engines and related parts and substantially all of Weichai Power’s turnover and operating results were derived from the PRC and accordingly, no analysis of business and geographical segment is presented.

Pledge of assets

As at 31 December 2005, bank deposits of approximately RMB371.7 million (2004: RMB334.4 million) were pledged to banks to secure bills payable issued and bills receivables discounted by Weichai Power.

These pledged bank deposits carry prevailing bank interest rates. The pledge will be released upon the settlement of the relevant bank borrowings. Fair value of the bank deposits as at 31 December 2005 approximates the carrying amount.

Foreign exchange risk exposure

As almost all of the operations of Weichai Power are located in the PRC, its operating expenses as well as most of its capital expenditure were denominated in RMB for the year. Therefore, Weichai Power did not experience any material difficulties or effects on its operations or liquidity as a result of fluctuations in currency exchange during year 2005.

Contingent liabilities

Weichai Power had no material contingent liabilities as at 31 December 2005.

Capital commitments

As at 31 December 2005, Weichai Power had approximately RMB234.9 million (2004 : approximately RMB423.6 million) capital commitments, principally for the capital expenditure in respect of purchase of property, machinery and equipment.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

Capital expenditure

In year 2005, Weichai Power’s capital expenditure amounted to approximately RMB807.2 million (2004: approximately RMB774.9 million). This was mainly attributable to the acquisition and installation of new production lines, modification of existing production lines, research and development of Euro III diesel engines, but excluding the formation of the joint venture, InvestCo, for the acquisition of approximately 28.12% of shareholding interest in TAGC, a company listed on the Shenzhen Stock Exchange.

Human resources practice

As at 31 December 2005, Weichai Power had a total of over 6,550 employees. As Weichai Power believes people are the cornerstone of its success, Weichai Power has long been concerned with its employees’ development by organizing various training courses to broaden their horizon. During 2005, some of the senior management of Weichai Power attended training courses organised by reputational domestic and overseas universities. Employees are remunerated based on their performance, experience and the prevailing industry practices, with compensation policies and packages being reviewed on a yearly basis. Bonus and commission may also be awarded to employees based on internal performance evaluation.

Year ended 31 December 2004 compared to year ended 31 December 2003

Turnover

Weichai Power recorded significant growth in both turnover and net profit attributable to shareholders for the year ended 31 December 2004.

The significant increase in turnover and net profit attributable to shareholders were due to the significant increase in the demand for its products. The Weichai Power Group has increased production capacity of diesel engines by expanding in its existing production lines. In addition, the expansion in scale of operations has enabled the Weichai Power Group to absorb fixed production costs more effectively and to enjoy greater bargaining power in purchasing raw materials, in particular, the purchases of out-sourced parts for the manufacture of diesel engines. This in turn enabled us to adopt a more flexible pricing strategy.

Gross profit and gross profit margin

For the year ended 31 December 2004, Weichai Power’s gross profit increased by approximately 74.9% to approximately RMB1,504.7 million (2003 : RMB860.3 million) as a result of the increase in sales volume from 80,480 units in 2003 to 134,460 units of diesel engines in 2004. The cost of sales increased relatively in line with the increase in turnover. Accordingly, the gross profit margin of Weichai Power remained relatively stable as compared with prior year.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

Finance costs

Finance costs represented the interest expenses paid on bank borrowings wholly repayable within five years during the financial year ended 31 December 2004.

Weichai Power maintained a very low level of bank borrowings in 2004. Total bank borrowings decreased from approximately RMB151.7 million in as at 31 December 2003 to only approximately RMB20 million as at 31 December 2004, due to sufficient cash being generated from sales from operations during the year. The increase in finance costs was mainly due to the fact that certain bills receivables were discounted to banks without recourse and this had led to the increase in finance costs from approximately RMB30.4 million in 2003 to approximately RMB53.2 million in 2004.

Taxation

PRC enterprise income tax for Weichai Power was calculated at statutory income tax rate of 33% (2003: 33%) of the assessable profit except that Weichai Power’s Chongqing branch is taxed at a preferential rate of 15% (2003: 15%) pursuant to the relevant laws and regulations in the PRC. The tax charges in year 2004 were approximately RMB205.5 million in aggregate, representing an effective tax rate of approximately 27.6% (2003 : approximately 39.1%). The fact that the Weichai Power Group’s effective tax rate of approximately 27.6% is lower than the statutory rate of 33% was due to the fact that Weichai Power was granted a tax credit of approximately RMB63.6 million in relation to the acquisition of certain PRC manufactured machinery and equipment. .

According to the Notice of the Ministry of Finance and the State Administration of Taxation concerning certain preferential policies on enterprise income tax ( ) and the Notice of the State Administration of Taxation concerning the proper implementation of the continuing administrative work after the cancellation and delegation of the examination and approval procedure for enterprise income tax ( ), as Weichai Power is a high technology enterprise and its new production facilities and registered address are situated in the industrial park administered by the State (the ‘‘State Industrial Park’’), and the production at the State Industrial Park has already commenced in April 2005, Weichai Power is now entitled to enjoy preferential enterprise income tax treatment at a reduced tax rate of 15% in respect of the taxable profit generated from the new production facilities at the State Industrial Park starting from the tax assessable year of 2005 without the need to obtain any prior approval from PRC authorities.

Net profit margin

The net profit margin increased from approximately 7.8% in 2003 to approximately 8.8% in 2004, which was primarily due to the improvement in operational efficiency, benefit from the economy of scale enjoyed by Weichai Power and the tax credit granted to Weichai Power as mentioned above.

Liquidity and financial resources

Weichai Power had a very solid financial position and maintained a strong and steady cash inflow from its operating activities. As at 31 December 2004, the net cash and cash equivalents of Weichai Power amounted to approximately RMB1,774.2 million, representing an increase of

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

approximately 424.6% from approximately RMB338.2 million as at 31 December 2003. Such increase was primarily due to the cash inflow from operations and the net proceeds of the initial public offering of approximately RMB1,226.9 million received by Weichai Power in March 2004.

Capital structure

In year 2004, Weichai Power’s bank borrowings were primarily denominated in RMB while its cash and cash equivalents were held in RMB and Hong Kong dollars.

It was the intention of Weichai Power to maintain an appropriate mix of equity and debt to ensure an efficient capital structure from time to time. As at 31 December 2004, Weichai Power had debts of approximately RMB20 million and the gearing ratio was only a mere approximately 0.4% (2003: approximately 6.4%) (total debt/total asset).

Segment information

Weichai Power is principally engaged in the manufacture and sale of WD615 and WD618 diesel engines and its related parts. As substantially all of Weichai Power’s turnover and operating results in year 2004 were derived from the PRC, no analysis of business and geographical segment is prepared for the Period.

Pledge of assets

As at 31 December 2004, bank deposits and bills receivables of approximately RMB334.4 million (2003: approximately RMB391.6 million) and approximately RMB119.9 million (2003: approximately RMB77.1 million), respectively, were pledged to secure banking facilities granted to Weichai Power.

Foreign exchange risk exposure

Contingent liabilities

Weichai Power had no material contingent liabilities as at 31 December 2004.

Capital commitments

As at 31 December 2004, Weichai Power had approximately RMB423.6 million (2003: approximately RMB332.7 million) capital commitments, principally for the capital expenditure in respect of purchase of property, plant and equipment.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE WEICHAI POWER GROUP

APPENDIX IB

Capital expenditure

Weichai Power’s capital expenditure of property, plant and equipment and intangible assets for the year ended 31 December 2004 amounted to approximately RMB774.9 million. This was mainly attributable to the installation of new production lines, modification of existing production lines, research and development of Euro III diesel engines and acquisition of intangible assets related to trademarks.

Human resources practice

As at 31 December 2004, Weichai Power had a total of over 5,200 employees. As Weichai Power believes people are the cornerstone of its success, Weichai Power has long been concerned with its employees’ development by organizing various training courses to broaden their horizon. In year 2004, some of the senior management of Weichai Power attended training courses organised by reputational domestic and overseas universities such as (Peking Tsinghua University) and National University of Singapore ( ). Employees are remunerated based on their performance, experience and the prevailing industry practices, with compensation policies and packages being reviewed on a yearly basis. Bonus and commission may also be awarded to employees based on internal performance evaluation.

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

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12 November, 2006

The Directors Weichai Power Co., Ltd.

Dear Sirs,

We set out below our report on the financial information regarding Torch Automobile Group Co., Ltd. (‘‘TAGC’’) and its subsidiaries (hereinafter collectively referred to as ‘‘TAGC Group’’) for each of the three years ended 31 December, 2005 and the six months ended 30 June, 2006 (the ‘‘Relevant Period’’) (‘‘Financial Information’’), for inclusion in the circular dated 12 November, 2006 issued by Weichai Power Co., Ltd. (‘‘Weichai Power’’) in connection with its proposed acquisition of the remaining 71.88% interests in TAGC, not already owned by Weichai Power (the ‘‘Circular’’).

TAGC was established in the People’s Republic of China (the ‘‘PRC’’) as a joint stock limited company on 17 December, 1993 and its shares are listed on the Shenzhen Stock Exchange. TAGC Group is principally engaged in the manufacture and sale of heavy duty trucks and vehicle parts.

As at the date of this report, Weichai Power has an indirect 28.12% interest in the registered capital of TAGC.

The subsidiaries of TAGC at the date of this report and their statutory auditors for the Relevant Period are set out in note 46 to the Financial Information.

The directors of TAGC have prepared consolidated financial statements of TAGC Group in accordance with the relevant accounting principles and financial regulations applicable to enterprises registered in the PRC (‘‘Underlying Financial Statements’’) for the Relevant Period which were audited by Hunan Carea Certified Public Accountants Co., Ltd. ( ) (‘‘Hunan Carea’’), certified public accountants registered in the PRC.

The Financial Information of TAGC Group is prepared from the Underlying Financial Statements for the Relevant Period, after making such adjustments as we consider appropriate for the purpose of preparing our report and in accordance with the Hong Kong Financial Reporting Standards (‘‘HKFRS’’) issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’), for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of TAGC who approved their issue. The directors of Weichai Power are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

The scope of our examination which was planned in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA was limited as set out below:

Include in the Financial Information is financial information for each of the three years ended 31 December, 2005 related to subsidiaries that TAGC Group disposed of in each of the Relevant Period (the ‘‘Disposed Subsidiaries’’) which is set out as follows:

Revenue Profit before tax Total assets Total liabilities	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 4,163,289 3,302,946 246,801 280,263 193,341 74,882 At 31 December, 2003 2004 RMB’000 RMB’000 4,149,880 813,335 2,363,843 452,502	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 4,163,289 3,302,946 246,801 280,263 193,341 74,882 At 31 December, 2003 2004 RMB’000 RMB’000 4,149,880 813,335 2,363,843 452,502
		452,502

Subsequent to the disposals during the Relevant Period, the books and records of the Disposed Subsidiaries were passed to the control of the new owners of the respective Disposed Subsidiaries and we were unable to gain access to them or to perform the procedures that we considered necessary. Accordingly, we are unable to satisfy ourselves that the amounts included in the Financial Information as they relate to the Disposed Subsidiaries during the Relevant Period are free from material misstatement.

As set out in note 37, TAGC Group acquired 50% of the registered capital of China Aerospace Torch Automobile Co., Ltd. (‘‘China Aerospace Torch’’) during the year ended 31 December, 2003. China Aerospace Torch was accounted for as a subsidiary of TAGC Group until it was disposed in June 2004 because the directors of TAGC Group were of the opinion that TAGC Group could exercise control over China Aerospace Torch. However, we were unable to obtain sufficient documentary evidence to substantiate TAGC Group’s assertion that it had control over China Aerospace Torch during its period of ownership.
As detailed in note 1 to the Financial Information, because of the involvement of TAGC Group in certain alleged irregularities in connection with a former shareholder, the New TAGC Board (as defined in note 1) is unable to represent that the Underlying Financial Statements for each of the two years ended 31 December, 2004 are free from material misstatement. Accordingly, we are unable to rely on the representation from the New TAGC Board regarding the presentation of the financial information included in the Underlying Financial Statements for each of the two years ended 31 December, 2004 as a basis for the preparation of the Financial Information.

There were no other satisfactory procedures that we could adopt to overcome the above limitations of in the scope of our examination work.

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Any adjustments found to be necessary to the above amounts would affect the net assets of TAGC Group and TAGC as at 31 December, 2003 and 2004, and the consolidated profits and cash flows of TAGC Group for the year ended 31 December, 2003, 2004 and 2005.

In forming our opinion, we have considered the liquidity position of TAGC and TAGC Group in light of the net current liabilities of approximately RMB1,043 million in TAGC’s balance sheet as at 30 June, 2006 as described further in note 2 to the Financial Information. The TAGC directors are actively negotiating with various banks to restructure TAGC’s short term bank borrowings to long term debts. Provided that TAGC is able to restructure its bank borrowings, the TAGC directors are satisfied that TAGC and TAGC Group will be able to meet in full its debt when they are due. The Financial Information has been prepared on a going concern basis, the validity of which depends upon the success of TAGC’s debt restructuring. The Financial Information does not include any adjustments that would result from a failure to complete the debt restructuring. Our opinion is not qualified in this respect.

Because of the significance of the possible effects of the limitation in the scope of our examination work referred to above, we are unable to form an opinion as to whether the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of TAGC Group and TAGC as at 31 December, 2003 and 2004 and of the consolidated profit and cash flows of TAGC Group for the years ended 31 December, 2003, 2004 and 2005.

In our opinion the Financial Information together with the notes thereon gives, for the purpose of this report, a true and fair view of the state of affairs of TAGC Group and TAGC as at 31 December, 2005 and 30 June, 2006 and of the consolidated profits and cash flows of TAGC Group for the six months ended 30 June, 2006.

The comparative financial information of the TAGC Group for the six months ended 30 June, 2005 (‘‘Comparative Interim Financial Information’’) has been extracted from the TAGC Group’s financial information for the same period which was prepared solely for the purpose of this report. We have reviewed the Comparative Interim Financial Information in accordance with Statement of Auditing Standards 700 ‘‘Engagement to review interim financial reports’’ issued by the HKICPA. Our review consisted principally of making enquiries of TAGC Group’s management and applying analytical procedures to the Comparative Interim Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the Comparative Interim Financial Information. Because of the significance of the possible effect of the limitation in evidence available to us as set out above, we are unable to reach a review conclusion as to whether material modifications should be made to the Comparative Interim Financial Information.

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

A. FINANCIAL INFORMATION

Consolidated Income Statements

NOTES Revenue 7 Cost of sales Gross profit Other income 8 Distribution costs General and administrative expenses Other expenses Net (loss) gain on disposal of subsidiaries 38 Gain on disposal of associates Impairment loss (recognised) reversed on amounts due from a related company 26 Impairment loss recognised on investments in securities/available for sale investments 9 Impairment loss recognised on interests in associates 22 Finance costs 10 Provision of financial guarantee 31 Fair value of the financial guarantee contract at date of grant 31 Amortisation of deferred revenue arising from financial guarantee contracts 31 Share of results of associates 22 Profit before taxation 11 Taxation 13 Profit for the year/period Attributable to: Equity holders of TAGC Minority shareholders Dividends and distributions 14 Earnings per share — basic 15	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 11,063,355 12,399,814 7,995,568 (9,028,598) (9,895,960) (6,566,699) 2,034,757 2,503,854 1,428,869 46,932 89,420 74,041 (576,555) (684,790) (390,294) (622,859) (687,557) (575,089) (25,797) (20,537) (29,673) 4,339 (18,223) 58,342 — — 23,290 — (50,000) 50,000 — (147,987) (36,112) — — (4,863) (201,283) (199,317) (173,037) — — (795) — — (45,000) — — 28,057 56,998 65,830 49,915 716,532 850,693 457,651 (154,400) (150,458) (102,142) 562,132 700,235 355,509 218,322 220,586 150,047 343,810 479,649 205,462 562,132 700,235 355,509 312,096 17,970 9,363 RMB0.23 RMB0.24 RMB0.16	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 4,856,744 5,870,070 (3,933,715) (4,891,179) 923,029 978,891 21,710 38,889 (226,280) (292,911) (230,678) (381,597) (2,336) (9,481) 58,342 3,709 23,290 145,131 — — — (24,005) — — (90,984) (78,539) — — (45,000) — 14,028 — 20,680 (6,988) 465,801 373,099 (72,083) (104,172) 393,718 268,927 229,255 115,915 164,463 153,012 393,718 268,927 — 9,363 RMB0.25 RMB0.12

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Consolidated Balance Sheets

NOTES NON-CURRENT ASSETS Property, plant and equipment 16 Prepaid lease payments 17 Intangible assets 18 Negative goodwill 37(ii) Investment in securities 19 Available-for-sale investments 20 Deposits paid for property, plant and equipment 21 Interests in associates 22 Deferred tax assets 23 CURRENT ASSETS Inventories 24 Trade and bills receivables 25(i) Deposits, prepayments and other receivables 25(ii) Investment in securities 19 Available-for-sale investments 20 Prepaid lease payments 17 Amounts due from associates 22 Amounts due from related parties 26 Pledged bank deposits 27 Bank balances and cash 28 Assets classified as held for sale 36	As at 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 1,761,559 2,004,031 2,737,743 103,236 33,757 26,713 122,885 116,085 103,684 (30,951) — — 171,295 68,450 — — — 49,440 142,464 115,187 120,518 452,985 438,704 269,429 11,949 34,963 28,695 2,735,422 2,811,177 3,336,222 2,869,657 1,670,740 1,547,349 2,323,502 2,494,943 1,988,488 257,498 650,834 342,943 39,289 39,089 — — — 39,089 1,567 883 1,216 61,193 14,440 22,074 415,665 415,316 7,440 266,712 275,961 143,327 846,166 367,567 585,402 7,081,249 5,929,773 4,677,328 — — — 7,081,249 5,929,773 4,677,328	As at 30 June, 2006 RMB’000 2,856,740 13,152 94,979 — — 25,435 141,482 115,329 —
		3,247,117
		1,504,153 2,670,529 463,669 — 39,089 608 — 5,987 248,637 581,733
		5,514,405 835,715
		6,350,120

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

NOTES CURRENT LIABILITIES Trade and bills payables 29(i) Accruals and other payables 29(ii) Amount due to an associate 22 Amounts due to related parties 30 Dividends payables Dividends payables to minority shareholders Financial guarantee 31 Tax payable Bank borrowings — due within one year 32 Derivative financial instruments 33 Liabilities associated with assets classified as held for sale 36 NET CURRENT ASSETS (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITY Bank borrowings — due after one year 32 CAPITAL AND RESERVES Share capital 34 Reserves Equity attributable to equity holders of the TAGC Minority interests	As at 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 2,778,414 2,122,904 1,612,391 451,261 585,869 568,333 — 34,518 33,002 133,923 61,708 64,270 11,639 2,226 2,724 68,744 5,672 6,842 — — 45,795 103,680 189,911 113,096 3,176,912 2,615,024 2,416,356 2,741 1,130 — 6,727,314 5,618,962 4,862,809 — — — 6,727,314 5,618,962 4,862,809 353,935 310,811 (185,481) 3,089,357 3,121,988 3,150,741 280,714 354,067 150,970 2,808,643 2,767,921 2,999,771 936,287 936,287 936,287 85,104 383,461 479,545 1,021,391 1,319,748 1,415,832 1,787,252 1,448,173 1,583,939 2,808,643 2,767,921 2,999,771	As at 30 June, 2006 RMB’000 2,503,954 687,613 — 144,756 4,681 6,842 45,795 152,855 2,200,509 —
		5,747,005 360,813
		6,107,818
		242,302
		3,489,419 225,683
		3,263,736
		936,287 591,389
		1,527,676 1,736,060
		3,263,736

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Balance Sheets

NOTES NON-CURRENT ASSETS Investments in subsidiaries 46 Property, plant and equipment 16 Prepaid lease payments 17 Investment in securities 19 Available-for-sale investments 20 Investments in associates 22 CURRENT ASSETS Deposits, prepayments and other receivables 25(ii) Amounts due from subsidiaries 46 Amounts due from associates 22 Amounts due from related parties 26 Investment in securities 19 Available-for-sale investments 20 Prepaid lease payments 17 Bank balances and cash 28 CURRENT LIABILITIES Bills payable Accruals and payables 29(ii) Amounts due to subsidiaries 46 Amount due to an associates 22 Financial guarantee 31 Bank borrowings — due within one year 32 NET CURRENT LIABILITIES CAPITAL AND RESERVES Share capital 34 Reserves 35	As at 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 1,946,764 1,234,241 1,248,772 57,026 78,304 85,065 18,973 18,566 12,332 123,457 47,656 — — — 25,680 18,800 287,621 92,171 2,165,020 1,666,388 1,464,020 40,213 52,739 32,677 268,477 171,290 253,642 54,386 12,405 18,040 100,610 372,211 5,808 39,089 39,089 — — — 39,089 407 407 407 31,797 11,797 78,002 534,979 659,938 427,665 24,000 — — 138,202 107,793 80,561 587,102 341,741 239,499 — 34,518 25,842 — — 99,682 1,371,700 1,402,620 1,126,977 2,121,004 1,886,672 1,572,561 (1,586,025) (1,226,734) (1,144,896) 578,995 439,654 319,124 936,287 936,287 936,287 (357,292) (496,633) (617,163) 578,995 439,654 319,124	As at 30 June, 2006 RMB’000 1,248,772 85,117 12,129 — 1,680 18,735 1,366,433 45,244 346,029 — 5,808 — 39,089 407 4,448 441,025 — 79,051 175,760 — 92,297 1,136,477 1,483,585 (1,042,560) 323,873 936,287 (612,414) 323,873

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Consolidated Statements of Changes in Equity

Share capital RMB’000 624,192 — —	Capital reserve RMB’000 249,676 — —	Statutory surplus reserve RMB’000 (note) 101,120 — —	Attribu Assets revaluation reserve RMB’000 7,786 — —	table to equity holders of TAGC Translation reserve Goodwill reserve Accumulated profits (loss) Total Minority interests Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (9) (187,598) 5,156 800,323 748,358 1,548,681 2,746 — — 2,746 — 2,746 — — 218,322 218,322 343,810 562,132 2,746 — 218,322 221,068 343,810 564,878 — — — — — — — — (62,419) — — — — — — — 314,620 314,620 — — (88,373) — — — — — — — (58,800) (58,800) — — — — 459,033 459,033 — — — — (19,769) (19,769) 2,737 (187,598) 72,686 1,021,391 1,787,252 2,808,643 7,656 — — 7,656 — 7,656 — — 220,586 220,586 479,649 700,235 7,656 — 220,586 228,242 479,649 707,891 — — — — 49,506 49,506 — — (108,254) — — — — — — — (809,434) (809,434) — — — — (58,800) (58,800) — — (17,970) (17,970) — (17,970) — 88,085 — 88,085 — 88,085 10,393 (99,513) 167,048 1,319,748 1,448,173 2,767,921 — 99,513 (99,513) — — — — — (28,057) (28,057) — (28,057) 10,393 — 39,478 1,291,691 1,448,173 2,739,864 (16,543) — — (16,543) — (16,543) — — 150,047 150,047 205,462 355,509 (16,543) — 150,047 133,504 205,462 338,966 — — — — 114,167 114,167 — — (51,506) — — — — — — — (183,863) (183,863) — — (9,363) (9,363) — (9,363) (6,150) — 128,656 1,415,832 1,583,939 2,999,771 5,292 — — 5,292 — 5,292 — — 115,915 115,915 153,012 268,927 5,292 — 115,915 121,207 153,012 274,219 — — — — 2,355 2,355 — — — — (2,716) (2,716) — — — — (530) (530) — — (9,363) (9,363) — (9,363) (858) — 235,208 1,527,676 1,736,060 3,263,736	table to equity holders of TAGC Translation reserve Goodwill reserve Accumulated profits (loss) Total Minority interests Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (9) (187,598) 5,156 800,323 748,358 1,548,681 2,746 — — 2,746 — 2,746 — — 218,322 218,322 343,810 562,132 2,746 — 218,322 221,068 343,810 564,878 — — — — — — — — (62,419) — — — — — — — 314,620 314,620 — — (88,373) — — — — — — — (58,800) (58,800) — — — — 459,033 459,033 — — — — (19,769) (19,769) 2,737 (187,598) 72,686 1,021,391 1,787,252 2,808,643 7,656 — — 7,656 — 7,656 — — 220,586 220,586 479,649 700,235 7,656 — 220,586 228,242 479,649 707,891 — — — — 49,506 49,506 — — (108,254) — — — — — — — (809,434) (809,434) — — — — (58,800) (58,800) — — (17,970) (17,970) — (17,970) — 88,085 — 88,085 — 88,085 10,393 (99,513) 167,048 1,319,748 1,448,173 2,767,921 — 99,513 (99,513) — — — — — (28,057) (28,057) — (28,057) 10,393 — 39,478 1,291,691 1,448,173 2,739,864 (16,543) — — (16,543) — (16,543) — — 150,047 150,047 205,462 355,509 (16,543) — 150,047 133,504 205,462 338,966 — — — — 114,167 114,167 — — (51,506) — — — — — — — (183,863) (183,863) — — (9,363) (9,363) — (9,363) (6,150) — 128,656 1,415,832 1,583,939 2,999,771 5,292 — — 5,292 — 5,292 — — 115,915 115,915 153,012 268,927 5,292 — 115,915 121,207 153,012 274,219 — — — — 2,355 2,355 — — — — (2,716) (2,716) — — — — (530) (530) — — (9,363) (9,363) — (9,363) (858) — 235,208 1,527,676 1,736,060 3,263,736	table to equity holders of TAGC Translation reserve Goodwill reserve Accumulated profits (loss) Total Minority interests Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (9) (187,598) 5,156 800,323 748,358 1,548,681 2,746 — — 2,746 — 2,746 — — 218,322 218,322 343,810 562,132 2,746 — 218,322 221,068 343,810 564,878 — — — — — — — — (62,419) — — — — — — — 314,620 314,620 — — (88,373) — — — — — — — (58,800) (58,800) — — — — 459,033 459,033 — — — — (19,769) (19,769) 2,737 (187,598) 72,686 1,021,391 1,787,252 2,808,643 7,656 — — 7,656 — 7,656 — — 220,586 220,586 479,649 700,235 7,656 — 220,586 228,242 479,649 707,891 — — — — 49,506 49,506 — — (108,254) — — — — — — — (809,434) (809,434) — — — — (58,800) (58,800) — — (17,970) (17,970) — (17,970) — 88,085 — 88,085 — 88,085 10,393 (99,513) 167,048 1,319,748 1,448,173 2,767,921 — 99,513 (99,513) — — — — — (28,057) (28,057) — (28,057) 10,393 — 39,478 1,291,691 1,448,173 2,739,864 (16,543) — — (16,543) — (16,543) — — 150,047 150,047 205,462 355,509 (16,543) — 150,047 133,504 205,462 338,966 — — — — 114,167 114,167 — — (51,506) — — — — — — — (183,863) (183,863) — — (9,363) (9,363) — (9,363) (6,150) — 128,656 1,415,832 1,583,939 2,999,771 5,292 — — 5,292 — 5,292 — — 115,915 115,915 153,012 268,927 5,292 — 115,915 121,207 153,012 274,219 — — — — 2,355 2,355 — — — — (2,716) (2,716) — — — — (530) (530) — — (9,363) (9,363) — (9,363) (858) — 235,208 1,527,676 1,736,060 3,263,736	Total RMB’000 800,323 2,746 218,322	Minority interests RMB’000 748,358 — 343,810	Total RMB’000 1,548,681 2,746 562,132
— 249,676 62,419 — — — — —			— — — — — — — —	2,746 — — — — — — —	— — — — — — — —	218,322 221,068 — — (62,419) — — — (88,373) — — — — — — —
936,287 — —	— — —	189,493 — —	7,786 — —	2,737 7,656 —			1,021,391 7,656 220,586	1,787,252 — 479,649	2,808,643 7,656 700,235
— — — — — — —	— — — — — — —	— — 108,254 — — — —	— — — — — — —	7,656 — — — — — —	— — — — — — 88,085
936,287 —	— —	297,747 — —	7,786 — —	10,393 — —
936,287 — —	— — —	297,747 — —	7,786 — —
— — — — —	— — — — —	— — 51,506 — —	— — — — —
936,287 — —	— — —	349,253 — —	7,786 — —			128,656 — 115,915	1,415,832 5,292 115,915	1,583,939 — 153,012	2,999,771 5,292 268,927
— — — — —	— — — — —	— — — — —	— — — — —	5,292 — — — —	— — — — —
936,287	—	349,253	7,786			235,208	1,527,676	1,736,060	3,263,736

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At 1 January, 2005, restated (unaudited) Exchange difference arising on translation of financial statements of overseas foreign operation recognised directly in equity income statements Profit for the period Total recognised income and expenses for the period Capital contributions Appropriation Disposal of subsidiaries Dividends (Note 14) At 30 June, 2005 (unaudited)	Share capital RMB’000 936,287 — —	Capital reserve RMB’000 — — —	Statutory surplus reserve RMB’000 297,747 — —	Attributab Assets revaluation reserve RMB’000 7,786 — —	le to equity holders of the Translation reserve Goodwill reserve RMB’000 RMB’000 10,393 — (15,846) — — — (15,846) — — — — — — — — — (5,453) —	Company Accumulated profits (loss) RMB’000 39,478 — 229,255	Company Accumulated profits (loss) RMB’000 39,478 — 229,255	Company Accumulated profits (loss) RMB’000 39,478 — 229,255	Company Accumulated profits (loss) RMB’000 39,478 — 229,255
	— — — — —	— — — — —	— — 14,658 — —	— — — — —		229,255 213,409 — — (14,658) — — — — —
	936,287	—	312,405	7,786		254,075	1,505,100	1,433,528	2,938,628

Note: According to the Articles of Association of the relevant subsidiaries, they are required to transfer 10% of the profit after taxation (as determined under PRC accounting standards) to the statutory surplus reserve fund until the fund balance reaches 50% of the registered capital. The transfer to this fund must be made before distributing dividends to shareholders. The fund can be used to make up for previous years’ losses, expand the existing operations or convert into additional capital of the subsidiaries.

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APPENDIX IIA

Consolidated Cash Flow Statements

OPERATING ACTIVITIES Profit before taxation Adjustments for: Allowance (write back of) for inventories Amortisation of intangible assets Depreciation of property, plant and equipment Fair value losses (gains) on derivative financial instruments Finance costs Impairment loss recognised (reversed) on amounts due from a related company Gain on disposal of associates Impairment loss recognised on investments in securities/available- for-sale investments Impairment loss recognised on interest in associates Impairment loss recognised on property, plant and equipment Impairment loss recognised on trade receivables Impairment loss recognised (reversed) on other receivables Interest income Loss (gain) on disposal of subsidiaries Release of negative goodwill Release of prepaid lease payments Share of results of associates Operating cash flows before movements in working capital Increase in inventories (Increase) decrease in trade and bills receivables Decrease (increase) in deposits, prepayments and other receivables Increase (decrease) in trade and bills payables (Decrease) increase in accruals and other payables Increase in financial guarantee Cash generated from operations Income tax paid NET CASH FROM OPERATING ACTIVITIES	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 716,532 850,693 457,651 20,502 (14,371) (4,488) 14,910 13,685 14,556 241,106 282,044 239,662 2,741 (1,611) (1,130) 201,283 199,317 173,037 — 50,000 (50,000) — — (23,290) — 147,987 36,112 — — 4,863 5,075 16,935 2,930 45,455 7,192 27,640 6,903 12,715 (12,939) (17,910) (16,841) (10,851) (4,339) 18,223 (58,342) (916) — — 2,314 1,568 884 (56,998) (65,830) (49,915) 1,176,658 1,501,706 746,380 (1,620,812) (290,307) (148,599) (1,304,061) (1,039,955) 169,901 469,011 (683,391) 299,087 1,759,290 838,792 (231,496) (103,689) 352,297 24,963 — — 17,738 376,397 679,142 877,974 (1,068) (109,132) (166,130) 375,329 570,010 711,844	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 465,801 373,099 (7,809) 2,921 7,279 6,642 123,656 129,800 (1,130) — 90,984 78,539 — — (23,290) (145,131) — 24,005 — — — 436 15,011 29,495 (14,961) 25,477 (4,732) (5,110) (58,342) (3,709) — — 442 608 (20,680) 6,988 572,229 524,060 (712,754) (213,534) 322,499 (956,758) (367,960) (135,717) 195,625 1,043,272 170,140 190,292 (12,752) — 167,027 451,615 (107,592) (65,634) 59,435 385,981

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Consolidated Cash Flow Statements

NOTES INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of intangible assets Addition (disposal) in prepaid lease payments Purchase of investments in securities Purchase of available-for- sale investments Proceeds from disposal of investments in securities (Increase) decrease in pledged bank deposits Proceeds from disposal of property, plant and equipment Acquisition of subsidiaries 37 Disposal of subsidiaries 38 Interest received (Advanced to) repayment from related parties (Advanced to) repayment from associate Dividends received from associates Proceeds from disposal of associates Investments in associates NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Bank borrowings raised Capital contribution from minority interests Advances from (repayment to) related parties Advanced from (repayment to) associates Repayment of bank borrowings Dividends paid Interest paid Dividends paid to minority shareholders NET CASH FROM (USED IN) FINANCING ACTIVITIES	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 (1,204,872) (1,135,023) (1,313,618) (77,749) (64,465) (6,265) (72,885) 1,492 5,827 (35,276) (151,698) — — — (88,529) — — 121,427 (30,368) (9,249) 132,634 148,665 201,868 155,059 (172,551) — — 18,459 338,540 223,928 17,910 16,841 10,851 (315,665) (3,247) 407,876 (61,193) 349 (7,634) — 35,098 237,617 — — — — (160,579) — (1,785,525) (930,073) (120,827) 5,529,313 3,122,906 1,656,100 314,620 49,506 114,167 133,923 (72,215) 2,562 — 34,518 (1,516) (4,100,466) (2,978,191) (1,936,597) — (17,970) (9,363) (201,283) (205,946) (181,992) (58,800) (58,800) — 1,617,307 (126,192) (356,639)	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) (615,810) (597,491) (6,247) — — (2,996) (141,224) — (127,696) — 107,539 — 159,736 (105,310) — 125,143 — (10,923) 223,928 7,148 4,732 5,110 415,316 1,453 14,440 22,074 226,103 — — 292,243 — — 260,817 (263,549) 531,019 891,197 4,755 — (61,708) 80,486 (34,518) (33,002) (543,200) (908,746) — (9,363) (93,006) (82,347) — (530) (196,658) (62,305)

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NOTES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR/ PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF YEAR/ PERIOD Represented by: Bank balances and cash Bank balance and cash included in assets classified as held for sale	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 207,111 (486,255) 234,378 636,308 846,166 367,567 2,747 7,656 (16,543) 846,166 367,567 585,402 846,166 367,567 585,402 — — — 846,166 367,567 585,402	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 123,594 60,127 367,567 585,402 (15,847) 5,292 475,314 650,821 475,314 581,733 — 69,088 475,314 650,821	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 123,594 60,127 367,567 585,402 (15,847) 5,292 475,314 650,821 475,314 581,733 — 69,088 475,314 650,821
			650,821
			581,733 69,088
			650,821

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

1. GENERAL INFORMATION

TAGC was established in the PRC as a joint stock limited company on 17 December, 1993 and its shares are listed on the Shenzhen Stock Exchange. TAGC Group is principally engaged in the manufacture and sale of heavy duty trucks and vehicle parts.

The Financial Information of the Relevant Period has been prepared in accordance with the accounting policies adopted by Weichai Power, details of which are set out in note 4, which conform with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’). In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Companies Ordinance.

The Financial Information is presented in Renminbi (‘‘RMB’’), which is the same as the functional currency of TAGC.

On 8 November, 2005, Weichai Power, through its 45% held joint venture company, Weichai Power (Weifang) Investment Co., Ltd (‘‘InvestCo’’), acquired 28.12% of the share capital of TAGC. Following the acquisition and on 26 December, 2005, TAGC’s board of directors was re-elected (the ‘‘New TAGC Board’’) and several Weichai Power-nominated directors were elected into the New TAGC Board and the Weichai Power president became the chairman thereof. For the purpose of this report, the New TAGC Board has considered the Underlying Financial Statements for each of the periods in the Relevant Period and has the following determinations:

(i) TAGC Group was involved in certain alleged irregularities in connection with a former shareholder, Xinjiang D’long (Group) Co., Ltd. ( ) (‘‘D’long’’) during the years 2003 and 2004 and it was subject to investigations by various PRC regulators, as a result of which, TAGC and two TAGC directors were publicly reprimanded by the Shenzhen Stock Exchange for inadequate financial reporting. Because of this reason, the New TAGC Board is unable to conclude as to whether the Underlying Financial Statements for each of the two years ended 31 December, 2004 are free from material misstatement.
(ii) Based on the due diligence procedures that the New TAGC Board has performed, the New TAGC Board is satisfied that the Underlying Financial Statements for the year ended 31 December, 2005 and the six months ended 30 June, 2006 give a true and fair view of the affairs of TAGC and TAGC Group as at 31 December, 2005 and 30 June, 2006 and the consolidated profit and cash flows of TAGC Group for the respective year/period then ended.

2. BASIS OF PREPARATION OF FINANCIAL INFORMATION

As shown on TAGC’s balance sheet at 30 June, 2006, TAGC had net current liabilities of approximately RMB1,043 million at that date. The TAGC directors consider that whilst each of TAGC’s non-wholly owned subsidiaries have sufficient liquid funds, they operate financially on a stand-alone basis. Consequently, the assessment of the liquidity of TAGC Group as a whole, including TAGC, recognises that the ability of the non-wholly owned subsidiaries to transfer surplus funds to TAGC is subject to the constraints imposed by their dividend policies and by PRC regulations. Against this background, the TAGC directors are in active negotiation with various banks to restructure TAGC’s short-term bank borrowings to long-term debts. Provided that TAGC is able to restructure its bank borrowings, the TAGC directors are satisfied that TAGC and TAGC Group will be able to meet in full its debts as and when they are due. Accordingly the Financial Information is prepared on a going concern basis.

3. APPLICATION OF NEW/ REVISED HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES IN ACCOUNTING POLICIES

For the purpose of preparing and presenting the Financial Information of the Relevant Periods, TAGC Group has not early applied the following new standard, amendment or interpretations that have been issued but are not yet effective. The directors of TAGC anticipate that the application of these standard, amendment or interpretations will have no material impact on the results and the financial position of TAGC Group.

Hong Kong Accounting Standards (‘‘HKAS’’)1 (Amendment)	Capital disclosures1
HKFRS 7	Financial instruments: Disclosures1
HK(IFRIC) — Interpretation (‘‘INT’’) 7	Applying the restatement approach under HKAS 29
	Financial Reporting in Hyperinflationary Economies2
HK(IFRIC) — INT 8	Scope of HKFRS 23
HK(IFRIC) — INT 9	Reassessment of embedded derivatives4
HK(IFRIC) — INT 10	Interim Financial Reporting and Impairment5

1 Effective for annual periods beginning on or after 1 January, 2007

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2 Effective for annual periods beginning on or after 1 March, 2006
3 Effective for annual periods beginning on or after 1 May, 2006
4 Effective for annual periods beginning on or after 1 June, 2006
5 Effective for annual periods beginning on or after 1 November, 2006

4. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis except for investments in securities and certain financial instruments, which are measured at fair values as explained in the accounting policies set out below.

Basis of consolidation

The Financial Information incorporates the financial statements of TAGC and its subsidiaries.

The results of subsidiaries acquired or disposed of during the Relevant Period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of TAGC Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from TAGC Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of TAGC Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Goodwill

Goodwill arising on an acquisition of subsidiaries prior to 1 January, 2005 represents the excess of the cost of acquisition over TAGC Group’s interest in the fair value of the identifiable assets and liabilities of the relevant subsidiary at the date of acquisition.

Goodwill arising on acquisitions prior to 1 January, 2001

Goodwill arising on acquisitions prior to 1 January, 2001 was held in reserves.

Goodwill arising on acquisition after 1 January, 2001 and before 1 January, 2005

Goodwill arising on acquisitions after 1 January, 2001 was capitalised and amortised over its estimated useful life.

Goodwill arising on acquisitions after 1 January, 2005

Goodwill arising on an acquisition of subsidiaries represents the excess of the cost of acquisition over TAGC Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition.

TAGC Group has applied the relevant transitional provisions in HKFRS 3 (‘‘Business Combination’’). Goodwill previously recognised in reserves of RMB99,513,000 has been transferred to TAGC Group’s accumulated profits on 1 January, 2005.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cashgenerating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cashgenerating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cashgenerating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed in subsequent periods.

Excess of an acquirer’s interest in the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over cost (‘‘discount on acquisitions’’)

A discount on acquisition arising on acquisition of subsidiaries represents the excess of the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination.

Negative goodwill arising on acquisition of subsidiaries before 1 January, 2005 represents the excess of the net fair value of an acquirer’s identifiable assets and liabilities over the lost of the business combination.

All negative goodwill as at 1 January, 2005 has been derecognized with a corresponding adjustment to the Group’s accumulated profits.

Any negative goodwill arising on acquisition of associate on or after 1 January, 2001 is included within the carrying amount of the associate.

Investments in associates

The results and assets and liabilities of associates are incorporated in this Financial Information using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in TAGC Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When TAGC Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of TAGC Group’s net investment in the associate), TAGC Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that TAGC Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Where a group entity transacts with an associate of TAGC Group, profits and losses are eliminated to the extent of TAGC Group’s interest in the relevant associate.

Prior to 1 January, 2005, investments in associates are stated at TAGC Group’s share of the net assets of the associates less negative goodwill using the equity method of accounting.

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ (‘disposal groups’) previous carrying amount and fair value less costs to sell.

Revenue recognition

Revenue is measured at the fair value of consideration received or receivable and represents amount receivable for goods and services provided in the normal course of business.

Sales of goods are recognised when goods are delivered and title has passed.

Service income is recognised when the services are provided.

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APPENDIX IIA

Rental income, including rental invoiced in advance from properties let under operating leases, are recognised on a straight line basis over the period of the relevant leases.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Construction in progress are stated at cost, which includes direct costs attributable to construction and borrowing costs, less accumulated impairment losses. No depreciation or amortisation is provided on construction in progress until the construction is completed and the properties and assets are ready for use. The cost of completed construction work is transferred to the appropriate categories of property, plant and equipment.

Depreciation is provided to write off the cost of items of property, plant and equipment, other than construction in progress, over their estimated useful lives and after taking into account their estimated residual value, using the straight line method.

Leasehold land and buildings under development for future owner-occupied purpose

When the leasehold land and buildings are in the course of development for production, rental or for administrative purposes, the leasehold land component is classified as a prepaid lease payment and released to the income statement on a straight-line basis over the lease term. During the construction period, the amortisation charge provided for the leasehold land is included as part of costs of buildings under construction. Buildings under construction are carried at cost, less any identified impairment losses. Depreciation of buildings commences when they are available for use (i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by management).

Leasing

TAGC Group as lessor

Rental income from operating leases is recognised in the income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

Foreign currencies

In preparing the Financial Information of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of TAGC Group’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the Financial Information.

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For the purposes of presenting the Financial Information, the assets and liabilities of TAGC Group’s foreign operations are translated into the presentation currency of TAGC (i.e. Renminbi) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Government grants

Government grants are recognised as income over the periods necessary to match them with the related costs. Grants related to expense items are recognised in the same period as those expenses are charged to the income statement and are reported separately as ‘other income’.

Financial guarantee contracts

A financial guarantee contract is defined by HKAS 39 Financial Instruments: Recognition and Measurement as ‘‘a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument’’.

TAGC Group acts as the issuer of the financial guarantee contracts

Prior to 1 January, 2006, financial guarantee contracts were not accounted for in accordance with HKAS 39 and those contracts were disclosed as contingent liabilities. A provision for financial guarantee was only recognised when it was probable that an outflow of resources would be required to settle the financial guarantee obligation and the amount can be estimated realisably.

Upon the application of HKAS 39 and HKAS 4 (Amendments), a financial guarantee contract issued by TAGC Group and not designated as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, TAGC Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue. TAGC Group has applied the amendment retrospectively from 1 January, 2005 in accordance with the transitional position set out in the amendment.

In relation to a financial guarantee granted to banks over the repayment of a loan by outsiders, TAGC Group has applied the transitional provisions in HKAS 39. The fair value of the financial guarantee contract at the date of grant of RMB56,113,000, has been recognised in the balance sheet. The cumulative amortisation as at 1 January, 2005 of RMB28,056,000 and the unamortised amount of RMB28,057,000 have been adjusted against retained earnings and recognised as deferred revenue respectively.

Retirement benefit costs

Payments to the state-managed retirement benefit schemes and defined contribution retirement benefits plans are charged as an expense as they fall due.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

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The tax currently payable is based on taxable profit for the Relevant Period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes income statement items that are never taxable or deductible. TAGC Group’s liability for current tax is calculated using tax rates that have been enacted a substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Intangible assets

On initial recognition, intangible assets acquired separately and from business combinations are recognised at cost and at fair value respectively. After initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses.

Gains or losses arising from derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Impairment

Intangible assets with finite useful lives are tested for impairment when there is an indication that an asset may be impaired (see the accounting policies in respect of impairment losses for tangible and intangible assets below).

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Financial instruments

Prior to 1 January, 2005, investment in securities are recognised on a trade date basis and are measured initially at cost.

Investments other than held to maturity debt securities are classified as investment securities and other investments.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary.

Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the period.

From 1 January, 2005 onwards, financial assets and financial liabilities are recognised on the balance sheet when TAGC Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

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Financial assets

TAGC Group’s financial assets are classified into one of the following categories, including loans and receivables, and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and bills receivables, other receivables, bank balances and cash, pledged bank deposits, amount due from an associate, related parties) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories (set out above). At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assets are recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in subsequent periods.

Financial liabilities and equity

Financial liabilities and equity instruments issued by TAGC Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of TAGC Group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

Financial liabilities including bank borrowings, trade and bills payables and amounts due to an associate/related parties are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by TAGC are recorded at the proceeds received, net of direct issue costs.

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APPENDIX IIA

Derivative financial instruments and hedging

TAGC Group uses derivative financial instruments (primarily forward exchange contracts) to hedge its exposure against foreign exchange risks. All the derivatives that do not qualify for hedge accounting and are deemed as financial assets held for trading or financial liabilities held for trading. The derivatives are measured at fair value and changes in fair values of such derivatives are recognised directly in profit or loss.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and TAGC Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

For financial liabilities, they are removed from TAGC Group’s balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expires). The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

Provisions

Provisions are recognised when TAGC Group has a present obligation as a result of a past event, and it is probable that TAGC Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Impairment (other than intangible assets with indefinite useful lives for use and goodwill (see the accounting policies in respect of intangible assets and goodwill above))

At each balance sheet date, TAGC Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

Depreciation

TAGC Group’s carrying values of property, plant and equipment as at 30 June, 2006 were approximately RMB2,856.7 million. TAGC Group depreciates the property, plant and equipment over their estimated useful lifes and after taking into account their estimated residual value, using the straight line method, at the rates as detailed in note 16. The estimated useful life of the property, plant and equipment reflects the directors’ estimate of the periods that TAGC Group intends to derive future economic benefits from the use of TAGC Group’s property, plant and equipment.

Estimated impairment of property, plant and equipment

Impairment losses on property, plant and equipment of RMB5.1 million, RMB16.9 million, RMB2.9 million and RMB0.4 million for the year ended 31 December, 2003, 2004, 2005 and six months ended 30 June, 2006, respectively, were recognised in the consolidated income statement. Determining whether property, plant and equipment are impaired requires an estimation of

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the value in use of the cash-generating units to which property, plant and equipment have been allocated. The value in use calculation requires TAGC Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value.

Impairment loss on trade receivables and other receivables

The policy for doubtful receivables of TAGC Group is based on the ongoing evaluation of the collectability and aged analysis of the trade receivables and other receivables and on the management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including creditworthiness, the past collection history of each customer and borrower and the present value of estimated future cash flows discounted at the effective interest rate. If the financial conditions of the customers and borrowers of TAGC Group were to deteriorate, resulting in an impairment of their ability to make payments, additional impairment loss may be required.

Allowances for inventories

The management of the TAGC Group reviews its inventories at each balance sheet date, and makes allowance for obsolete and slow-moving inventory items identified that are no longer suitable for use in production. The management estimates the net realisable value for such items based primarily on the latest invoice prices and current market conditions. TAGC Group carries out an inventory review on a product-by-product basis at each balance sheet date and makes allowance for obsolete items.

Intangible assets with finite useful lives

TAGC Group’s net book value of intangible assets with finite useful lives as at 30 June, 2006 was RMB95.0 million. TAGC Group amortises these intangible assets on a straight-line basis over the estimated useful lives of 4 to 18 years. The estimated useful lives reflect the directors’ estimate of the periods that TAGC Group intends to derive future economic benefits from the use of TAGC Group’s intangible assets.

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

TAGC Group’s major financial instruments include bank balances, pledged bank deposits, trade and bills receivables, other receivables, available-for-sale investments, amount due from (to) related parties/associates, bank borrowings, trade and bills payables and other payables. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Currency risk

Several subsidiaries of TAGC have foreign currency sales, which expose TAGC Group to foreign currencies risk. TAGC Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will enter into foreign currency forward contracts in order to mitigate the foreign currency risk, if necessary.

Credit risk

TAGC Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 30 June, 2006 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet.

In order to minimise the credit risk, the management of TAGC Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, TAGC Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of TAGC consider that TAGC Group’s credit risk is significantly reduced.

At 30 June, 2006, the five largest receivable balances accounted for approximately 18.9% of the trade receivables. The management considers the financial background and creditability of these customers and conclude that taking into account the allowance that have been provided, there is no significant uncovered credit risk.

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Taking into account the strong financial background and good credit ability of its related parties, the management considers that there is no significant credit risk.

The credit risk on liquid funds is limited because the counter parties are banks with high credit ratings.

Liquidity risk

The Directors have given careful consideration on the measures currently undertaken by TAGC Group in respect of the TAGC Group’s liquidity position. As detailed in note 2, the Directors believe that the TAGC Group will have sufficient working capital for its future operational requirements.

Fair value interest rate risk

Bank and other borrowings at fixed rates expose TAGC Group to fair value interest rate risk. TAGC Group currently does not have an interest rate hedging policy. However, management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arises.

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7. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purpose, TAGC Group is currently organised into the following major divisions (i) manufacturing and sale of automobiles (ii) manufacturing and sale of automobile components (iii) provision of import and export services and (iv) others.

These divisions are the basis of which the TAGC Group reports its primary segment information.

Revenue Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Others Results Segment results Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Others Unallocated corporate expenses Other income Net (loss) gain on disposal of subsidiaries Gain on disposal of associates Impairment loss (recognised) reversed on amount due from a related company Impairment losses recognised on investments in securities/available- for-sale investments Impairment loss recognised on interests in associates Finance costs Provision of financial guarantee Fair value of financial guarantee contract at date of grant Amortisation of deferred revenue arising from financial guarantee contracts Share of results of associates Profit before taxation Taxation Profit for the year/period	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 6,354,756 8,385,075 5,266,540 948,688 1,381,931 1,401,911 3,030,677 1,795,833 790,395 729,234 836,975 536,722 11,063,355 12,399,814 7,995,568 1,141,334 1,536,525 853,857 (209,224) (95,420) 25,893 498,756 343,393 133,655 27,336 34,566 25,173 1,458,202 1,819,064 1,038,578 (648,656) (708,094) (604,765) 46,932 89,420 74,041 4,339 (18,223) 58,342 — — 23,290 — (50,000) 50,000 — (147,987) (36,112) — — (4,863) (201,283) (199,317) (173,037) — — (795) — — (45,000) — — 28,057 56,998 65,830 49,915 716,532 850,693 457,651 (154,400) (150,458) (102,142) 562,132 700,235 355,509	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 3,271,610 4,323,726 844,494 739,991 351,456 377,720 389,184 428,633 4,856,744 5,870,070 358,740 414,702 339,416 255,599 (17,986) (14,448) 16,579 30,127 696,749 685,980 (233,014) (391,078) 21,710 38,889 58,342 3,709 23,290 145,131 — — — (24,005) — — (90,984) (78,539) — — (45,000) — 14,028 — 20,680 (6,988) 465,801 373,099 (72,083) (104,172) 393,718 268,927

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Balance sheet Segment assets Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Unallocated Segment liabilities Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Unallocated Other information	As 2003 RMB’000 4,189,853 1,639,386 1,751,118 7,580,357 2,236,314 9,816,671 2,232,339 486,221 710,440 3,429,000 3,579,028 7,008,028	at 31 December, 2004 2005 RMB’000 RMB’000 5,290,547 4,732,584 1,495,464 1,501,336 610,097 639,572 7,396,108 6,873,492 1,344,842 1,140,058 8,740,950 8,013,550 2,097,877 1,303,523 538,478 533,044 128,420 129,428 2,764,775 1,965,995 3,208,254 3,047,784 5,973,029 5,013,779	As at 30 June, 2006 RMB’000 5,185,106 1,681,668 731,380
			7,598,154 1,999,083
			9,597,237
			2,156,450 820,962 275,172
			3,252,584 3,080,917
			6,333,501

Impairment loss on trade receivables Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Allowance for inventories Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Impairment loss on other receivables Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Unallocated	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 9,865 4,690 84 2,756 2,485 21,005 34,702 11,187 25,287 47,323 18,362 46,376 13,017 2,811 3,614 1,286 1,491 1,479 9,655 1,066 — 23,958 5,368 5,093 267 135 494 8,349 2,723 230 — 4,590 234 1,727 6,774 8,643 10,343 14,222 9,601	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 5,339 5,434 2,308 3,203 9,531 21,297 17,178 29,934 — 4,144 133 374 5,315 — 5,448 4,518 427 19,789 79 7,388 — 2,545 — — 506 29,722	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 5,339 5,434 2,308 3,203 9,531 21,297 17,178 29,934 — 4,144 133 374 5,315 — 5,448 4,518 427 19,789 79 7,388 — 2,545 — — 506 29,722
			29,934
			4,144 374 —
			4,518
			19,789 7,388 2,545 —
			29,722

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Impairment loss on PPE Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Unallocated Capital additions Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Unallocated Depreciation Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Unallocated Released prepaid lease payment Manufacturing and sale of automobiles Manufacturing and sale of automobile components Provision of import and export services Unallocated	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 5,075 16,255 1,443 — 680 — — — 1,487 — — — 5,075 16,935 2,930 563,568 859,306 1,113,481 149,900 157,496 84,039 392,894 17,358 106,679 29,708 26,461 13,043 1,136,070 1,060,621 1,317,242 151,982 195,929 145,279 68,612 76,376 77,165 16,491 4,777 10,935 4,021 4,962 6,283 241,106 282,044 239,662 1,056 590 — 427 571 477 — — — 831 407 407 2,314 1,568 884	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) — — — — — 436 — — — 436 591,783 409,347 27,476 52,008 106,475 115,024 250 3,957 725,984 580,336 73,928 66,565 38,107 24,116 8,784 35,916 2,837 3,203 123,656 129,800 — — 238 405 — — 204 203 442 608	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) — — — — — 436 — — — 436 591,783 409,347 27,476 52,008 106,475 115,024 250 3,957 725,984 580,336 73,928 66,565 38,107 24,116 8,784 35,916 2,837 3,203 123,656 129,800 — — 238 405 — — 204 203 442 608
			436
			409,347 52,008 115,024 3,957
			580,336
			66,565 24,116 35,916 3,203
			129,800
			— 405 — 203
			608

Geographical segments

An analysis of TAGC Group’s turnover by geographical market, irrespective of the origins of the goods and services, is presented below:

United States of America PRC	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 3,741,669 2,444,649 2,267,545 7,321,686 9,955,165 5,728,023 11,063,355 12,399,814 7,995,568	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 1,162,377 950,934 3,694,367 4,919,136 4,856,744 5,870,070	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 1,162,377 950,934 3,694,367 4,919,136 4,856,744 5,870,070
			5,870,070

As at the respective balance sheet date, over 90% of the identifiable assets of TAGC Group are located in the PRC. Accordingly, no analysis on carrying amount of segment assets or addition to property, plant and equipment is presented.

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8. OTHER INCOME

Government subsidies (note) Interest income Waiver of other payables Released of negative goodwill Others	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 28,106 43,029 36,110 17,910 16,841 10,851 — 29,550 23,227 916 — — — — 3,853 46,932 89,420 74,041	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 5,819 28,458 4,732 5,110 6,844 1,480 — — 4,315 3,841 21,710 38,889	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 5,819 28,458 4,732 5,110 6,844 1,480 — — 4,315 3,841 21,710 38,889
			38,889

Note: The subsidy income was principally value added tax (‘‘VAT’’) refunded based on the VAT tax payments made by TAGC Group during the Relevant Period. The timing and amount of the subsidy was entirely at the discretion of the relevant PRC government authorities.

9. IMPAIRMENT LOSS RECOGNISED ON INVESTMENTS

Impairment losses recognised in respect of: — investment securities (note a) — available-for-sale investments (note b)	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 — 147,987 — — — 36,112 — 147,987 36,112	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) — — — 24,005 — 24,005	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) — — — 24,005 — 24,005
			24,005

Notes:

(a) During the year ended 31 December, 2004, the directors of TAGC, having considered the financial performance of investment securities, were of the opinion that the carrying amounts exceeded the recoverable amounts, accordingly, recognised impairment losses of RMB147,987,000,000 through TAGC Group’s income statement for that year.

(b) The directors, having considered the financial performance of TAGC Group’s available for sale investments, were of the opinion that impairment losses have been increased accordingly, recognised impairment losses of RMB36,112,000 and RMB24,005,000 for the year ended 31 December, 2005 and the six months ended 30 June, 2006, respectively.

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10. FINANCE COSTS

Interest on: — bank borrowings wholly repayable within five years Less: amounts capitalised	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 201,283 205,946 181,992 — (6,629) (8,955) 201,283 199,317 173,037	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 93,006 82,347 (2,022) (3,808) 90,984 78,539

Borrowing costs capitalised during the year/period were attributable to the specific borrowings.

11. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging (crediting): Directors’ emoluments (note 12) Other staff costs Retirement benefits scheme contributions, excluding directors Total staff costs Amortisation of intangible assets Auditors’ remuneration Depreciation Research and development costs Fair value losses (gains) on derivative financial instruments Release of prepaid lease payments Release of negative goodwill, included in share of results of associates Impairment loss recognised on trade receivables Reversal of impairment loss on trade receivable Impairment loss recognised on other receivables Reversal of impairment loss on other receivable Impairment loss recognised on property, plant and equipment Allowance for inventories Reversal of allowance on inventories	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 1,045 1,632 2,540 99,093 130,011 272,778 15,291 18,297 19,179 115,429 149,940 294,497 14,910 13,685 14,556 1,740 820 1,982 241,106 282,044 239,662 25,696 21,504 27,202 2,741 (1,611) (1,130) 2,314 1,568 884 (916) — — 47,323 18,362 46,376 (1,868) (11,170) (18,736) 10,343 14,222 9,601 (3,440) (1,507) (22,540) 5,075 16,935 2,930 23,958 5,368 5,093 (3,456) (19,739) (9,581)	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 1,239 1,098 139,927 149,900 9,095 10,806 150,261 161,804 7,279 6,642 — — 123,656 129,800 12,481 15,361 (1,130) — 442 608 — — 17,178 29,934 (2,167) (439) 506 29,722 (15,467) (4,245) — 436 5,448 4,518 (13,257) (1,597)

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APPENDIX IIA

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

	Total	RMB’000			—	705	320		20	1,045			—	1,013	590		29	1,632			—	1,419	1,100		21	2,540				—	680	550		9	1,239			—	683	400		15	1,098
Zhang	Mingjiu	RMB’000			N/A	N/A	N/A		N/A	N/A			—	—	—		—	—			N/A	N/A	N/A		N/A	N/A				N/A	N/A	N/A		N/A	N/A			N/A	N/A	N/A		N/A	N/A
Zhou	Zhijun	RMB’000			—	126	40		5	171			—	191	50		11	252			N/A	N/A	N/A		N/A	N/A				N/A	N/A	N/A		N/A	N/A			N/A	N/A	N/A		N/A	N/A
	Li Dakai	RMB’000			—	—	—		—	—			N/A	N/A	N/A		N/A	N/A			N/A	N/A	N/A		N/A	N/A				N/A	N/A	N/A		N/A	N/A			N/A	N/A	N/A		N/A	N/A
Qian	Cheng	RMB’000			—	60	—		—	60			N/A	N/A	N/A		N/A	N/A			N/A	N/A	N/A		N/A	N/A				N/A	N/A	N/A		N/A	N/A			N/A	N/A	N/A		N/A	N/A
Chang	Yundong	RMB’000			N/A	N/A	N/A		N/A	N/A			—	—	—		—	—			N/A	N/A	N/A		N/A	N/A				N/A	N/A	N/A		N/A	N/A			N/A	N/A	N/A		N/A	N/A
Shao	Qunhui	RMB’000			N/A	N/A	N/A		N/A	N/A			—	—	—		—	—			N/A	N/A	N/A		N/A	N/A				N/A	N/A	N/A		N/A	N/A			N/A	N/A	N/A		N/A	N/A
	Li Shihao Liu Zheng	RMB’000 RMB’000			N/A N/A	N/A N/A	N/A N/A		N/A N/A	N/A N/A			N/A N/A	N/A N/A	N/A N/A		N/A N/A	N/A N/A			— —	30 30	— —		— —	30 30				N/A N/A	N/A N/A	N/A N/A		N/A N/A	N/A N/A			— —	— —	— —		— —	— —
Gu	Linsheng	RMB’000			N/A	N/A	N/A		N/A	N/A			—	120	—		—	120			—	120	—		—	120				—	60	—		—	60			—	60	—		—	60
Sun	Shaojun Lin Dawei	RMB’000 RMB’000			N/A —	N/A 60	N/A —		N/A —	N/A 60			N/A —	N/A 120	N/A —		N/A —	N/A 120			N/A —	N/A 120	N/A —		N/A —	N/A 120				N/A —	N/A 60	N/A —		N/A —	N/A 60			— —	— 60	— —		— —	— 60
Tan Nie Zhang Liu Yu Yang	Xuguang Xinyong Xu Xinyu Fusheng Hainan Changjiang Keqin	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	For the year ended 31 December, 2003	Directors	— fee N/A — N/A N/A — — —	— salaries and other allowance N/A 207 N/A N/A 126 126 —	— bonus N/A 160 N/A N/A 60 60 —	— retirement benefits scheme	contributions N/A 5 N/A N/A 5 5 —	Total emoluments N/A 372 N/A N/A 191 191 —	For the year ended 31 December, 2004	Directors	— fee N/A — N/A N/A — — —	— salaries and other allowance N/A 208 N/A N/A 187 187 —	— bonus N/A 350 N/A N/A 70 120 —	— retirement benefits scheme	contributions N/A 6 N/A N/A 6 6 —	Total emoluments N/A 564 N/A N/A 263 313 —	For the year ended 31 December, 2005	Directors	— fee — — — — — — N/A	— salaries and other allowance — 507 — — 306 306 N/A	— bonus — 600 — — 200 300 N/A	— retirement benefits scheme	contributions — 7 — — 7 7 N/A	Total emoluments — 1,114 — — 513 613 N/A	For the six months ended 30 June, 2005	(unaudited)	Directors	— fee N/A — N/A N/A — — N/A	— salaries and other allowance N/A 254 N/A N/A 153 153 N/A	— bonus N/A 300 N/A N/A 100 150 N/A	— retirement benefits scheme	contributions N/A 3 N/A N/A 3 3 N/A	Total emoluments N/A 557 N/A N/A 256 306 N/A	For the six months ended 30 June, 2006	Directors	— fee — — — — — — N/A	— salaries and other allowance — 255 — — 154 154 N/A	— bonus — 250 — — 50 100 N/A	— retirement benefits scheme	contributions — 5 — — 5 5 N/A	Total emoluments — 510 — — 209 259 N/A

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Employees’ emoluments

The five highest paid individuals of TAGC Group included two, two, three, three and three director for the year ended 31 December, 2003, 31 December, 2004, 31 December, 2005 and six months ended 30 June, 2005 and 30 June, 2006 respectively, details of which are set out above. The remunerations of the remaining individuals for the Relevant Period are as follows:

Employee — salaries and other benefits — bonus — retirement benefits scheme contributions	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 1,026 2,656 1,006 100 550 80 5 6 7 1,131 3,212 1,093	Six months ended 30 June, 2005 2006 RMB’000 (unaudited) RMB’000 153 505 30 30 3 4 186 539	Six months ended 30 June, 2005 2006 RMB’000 (unaudited) RMB’000 153 505 30 30 3 4 186 539
			539

Their emoluments were within the following bands:

Nil to HK$1,000,000 (equivalent to Nil to RMB1,030,000) RMB1,000,001 to RMB1,500,000 (equivalent to RMB1,030,001 to RMB1,545,000)	Year ended 31 December, 2003 2004 2005 No. of employees No. of employees No. of employees 3 2 2 — 1 —	Six months ended 30 June, 2005 2006 No. of employees No. of employees 2 2 — —

During the Relevant Period, no emoluments were paid by TAGC Group to any of the directors or the five highest paid individuals as an inducement to join or upon joining TAGC Group or as compensation for loss of office. None of the directors waived any emoluments during the Relevant Period.

13. TAXATION

The charge comprises: PRC income tax Overseas tax Deferred tax (note 23)	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 102,911 148,576 88,264 57,067 35,896 8,586 159,978 184,472 96,850 (5,578) (34,014) 5,292 154,400 150,458 102,142	Six months ended 30 June, 2005 2006 RMB’000 (unaudited) RMB’000 61,247 93,965 5,542 10,034 66,789 103,999 5,294 173 72,083 104,172	Six months ended 30 June, 2005 2006 RMB’000 (unaudited) RMB’000 61,247 93,965 5,542 10,034 66,789 103,999 5,294 173 72,083 104,172
			103,999 173
			104,172

According to and , TAGC is approved as a high technology enterprise and is subject to a preferential tax rate of 15%.

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

According to , certain subsidiaries which are approved as rate of 15%.

and are also subject to a preferential tax

The other PRC subsidiaries are subject to domestic tax rate 33%.

Taxation in other jurisdiction is calculated at the rates prevailing in the relevant jurisdiction.

The reconciliation of the taxation charge for the Relevant Period is as follows:

Profit before taxation Applicable tax rate in the PRC Tax at the applicable rate Tax effect of share of results of associates Tax effect of income not taxable for tax purposes Tax effect of expenses not deductible for tax purposes Tax effect of tax losses not recognised Tax effect of different tax rates Taxation	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 716,532 850,693 457,651 15% 15% 15% 107,480 127,604 68,648 (8,550) (9,875) (7,487) (2,160) (14,426) (12,289) 23,238 23,874 32,111 1,296 10,914 8,767 33,096 12,367 12,392 154,400 150,458 102,142	Six months ended 30 June, 2005 2006 RMB’000 (unaudited) RMB’000 465,801 373,099 15% 15% 69,870 55,965 (3,102) 1,048 (10,571) (4,777) 4,435 50,402 1,881 1,689 9,570 (155) 72,083 104,172	Six months ended 30 June, 2005 2006 RMB’000 (unaudited) RMB’000 465,801 373,099 15% 15% 69,870 55,965 (3,102) 1,048 (10,571) (4,777) 4,435 50,402 1,881 1,689 9,570 (155) 72,083 104,172
			15%
			55,965 1,048 (4,777) 50,402 1,689 (155)
			104,172

DIVIDENDS AND DISTRIBUTIONS

Ordinary shares: Final dividend paid per ordinary share: 2002: (note) 2003: RMB2.0 cents 2004: RMB1.0 cents 2005: RMB1.0 cents	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 312,096 — — — 17,970 — — — 9,363 — — — 312,096 17,970 9,363	Six months ended 30 June, 2005 2006 RMB’000 (unaudited) RMB’000 — — — — — — — 9,363 — 9,363	Six months ended 30 June, 2005 2006 RMB’000 (unaudited) RMB’000 — — — — — — — 9,363 — 9,363
			9,363

Note: The dividends in 2003 represent a scrip dividend of RMB62,419,104 and a capitalisation issue of RMB249,676,416 as approved by shareholders in April 2003.

— 203 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

15. EARNINGS PER SHARE

The calculations of the basic earnings per share for the Relevant Period were based on the following data:

Profit for the year/period attributable to equity holders of TAGC for the purpose of basic earnings per share Weight average number of ordinary shares for the purpose of basic earnings per shares	Year ended 31 December, Six months ended 30 June, 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) RMB’000 218,322 220,586 150,047 229,255 115,915 Number of shares 936,287,000 936,287,000 936,287,000 936,287,000 936,287,000	Year ended 31 December, Six months ended 30 June, 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) RMB’000 218,322 220,586 150,047 229,255 115,915 Number of shares 936,287,000 936,287,000 936,287,000 936,287,000 936,287,000
		936,287,000

No diluted earnings per share is presented for the Relevant Period as there were no dilutive ordinary shares in issue.

— 204 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

16. PROPERTY, PLANT AND EQUIPMENT

Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —	Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —	Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —	Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —	Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —	Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —	Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —	Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —	Buildings RMB’000 252,183 102,710 — 3,384 (8,289) —
61,848	8,177	18,084	692,577	43,716	42,178	4,615	96,252	967,447
296,392	227,553	22,170	983,586	69,995	89,677	5,872	66,314	1,761,559
307,592	423,002	13,024	1,002,592	81,501	71,014	5,616	99,690	2,004,031
475,472	1,067,129	17,840	1,008,892	26,902	68,183	4,840	68,485	2,737,743
523,029	828,952	17,937	1,314,385	15,197	82,397	4,146	70,697	2,856,740

— 205 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

TAGC COST At 1 January, 2003 Additions Disposals At 31 December, 2003 Additions Transfer Disposals At 31 December, 2004 Additions Transfer At 31 December, 2005 Additions Disposals At 30 June, 2006 DEPRECIATION AND AMORTISATION At 1 January, 2003 Provided for the year Eliminated on disposals At 31 December, 2003 Provided for the year Eliminated on disposals At 31 December, 2004 Provided for the year At 31 December, 2005 Provided for the period Eliminated on disposals At 30 June, 2006 CARRYING AMOUNT At 31 December, 2003 At 31 December, 2004 At 31 December, 2005 At 30 June, 2006	Buildings RMB’000 21,630 287 (3,358) 18,559 17,698 17,334 — 53,591 11,650 12,925 78,166 2,923 — 81,089 335 951 (93) 1,193 1,455 — 2,648 2,692 5,340 2,858 — 8,198 17,366 50,943 72,826 72,891	Construction in progress RMB’000 — 23,522 — 23,522 6,746 (17,334) — 12,934 — (12,925) 9 1,034 — 1,043 — — — — — — — — — — — — 23,522 12,934 9 1,043	Plant and machinery RMB’000 282 60 — 342 — — — 342 — — 342 — — 342 — 23 — 23 23 — 46 23 69 — — 69 319 296 273 273	Furniture, fixtures and equipment RMB’000 8,524 895 (357) 9,062 1,481 — — 10,543 359 — 10,902 — — 10,902 1,626 1,629 (15) 3,240 1,979 — 5,219 2,049 7,268 244 — 7,512 5,822 5,324 3,634 3,390	Motor vehicles RMB’000 8,422 4,944 (458) 12,908 535 — (271) 13,172 1,035 — 14,207 — (915) 13,292 1,553 1,418 (60) 2,911 1,506 (52) 4,365 1,519 5,884 101 (213) 5,772 9,997 8,807 8,323 7,520	Total RMB’000 38,858 29,708 (4,173) 64,393 26,460 — (271) 90,582 13,044 — 103,626 3,957 (915) 106,668 3,514 4,021 (168) 7,367 4,963 (52) 12,278 6,283 18,561 3,203 (213) 21,551 57,026 78,304 85,065 85,117

— 206 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

The carrying values of buildings are situated on:

TAGC GROUP Leasehold land in the PRC held under medium-term land use rights TAGC Leasehold land in the PRC held under medium-term land use rights	As 2003 RMB’000 296,392 17,366	at 31 December, 2004 2005 RMB’000 RMB’000 307,592 475,472 50,943 72,826	As at 30 June, 2006 RMB’000 523,029
			72,891

The above items of property, plant and equipment are depreciated on a straight line basis, after taking into account their residual values, at the following rates per annum:

Buildings	Over the shorter of the term of the relevant land use rights or 35 years
Leasehold improvement	5% to 10%
Plant and machinery	10% — 14.3%
Furniture, fixtures and equipment	5%
Motor vehicles	5% — 8%
Computer equipment	162/3%–331/3%
Other equipment	5%

During the Relevant Period, the directors conducted a review of TAGC Group’s manufacturing assets and determined that a number of those assets were impaired, due to physical damage and technical obsolescence. Accordingly, impairment losses of RMB5,075,000, RMB16,935,000, RMB2,930,000 and RMB436,000, for the year ended 31 December, 2003, 2004 2005 and 30 June, 2006, respectively were recognised in respect of property, plant and equipment. The recoverable amounts of the relevant assets were determined on the basis of their value in use, under discounted cash flow method, using discount rate of 5.5% for the Relevant Period.

— 207 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

17. PREPAID LEASE PAYMENTS

TAGC GROUP TAGC Group’s prepaid lease payments comprise: Leasehold land in the PRC held under medium-term land use rights Analysed for reporting purposes as: Non-current asset Current asset TAGC TAGC prepaid lease payments comprise: Leasehold land in the PRC held under medium-term land use rights Analysed for reporting purposes as: Non-current asset Current asset	As 2003 RMB’000 104,803 103,236 1,567 104,803 19,380 18,973 407 19,380	at 31 December, 2004 2005 RMB’000 RMB’000 34,640 27,929 33,757 26,713 883 1,216 34,640 27,929 18,973 12,739 18,566 12,332 407 407 18,973 12,739	As at 30 June, 2006 RMB’000 13,760
			13,152 608
			13,760
			12,536
			12,129 407
			12,536

— 208 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

18. INTANGIBLE ASSETS

TAGC GROUP COST At 1 January, 2003 Additions Disposal of subsidiaries At 31 December, 2003 Additions Disposal of subsidiaries At 31 December, 2004 Additions Disposal of subsidiaries At 31 December, 2005 Additions Disposal of subsidiaries At 30 June, 2006 AMORTISATION AND IMPAIRMENT At 1 January, 2003 Charge for the year Eliminated on disposals of subsidiaries At 31 December, 2003 Charge for the year Eliminated on disposal of subsidiaries At 31 December, 2004 Charge for the year Eliminated on disposal of subsidiaries At 31 December, 2005 Charge for the period Eliminated on disposal of subsidiaries At 30 June, 2006 CARRYING VALUE At 31 December, 2003 At 31 December, 2004 At 31 December, 2005 At 30 June, 2006	Technology know-how RMB’000 72,106 77,749 — 149,855 61,652 (68,306) 143,201 6,264 (7,000) 142,465 — — 142,465 12,122 14,848 — 26,970 13,310 (10,726) 29,554 14,180 (2,890) 40,844 6,642 — 47,486 122,885 113,647 101,621 94,979	Patents RMB’000 1,500 — (1,500) — 2,813 — 2,813 1 — 2,814 — (2,814) — 25 62 (87) — 375 — 375 376 — 751 — (751) — — 2,438 2,063 —	Total RMB’000 73,606 77,749 (1,500) 149,855 64,465 (68,306) 146,014 6,265 (7,000) 145,279 — (2,814) 142,465 12,147 14,910 (87) 26,970 13,685 (10,726) 29,929 14,556 (2,890) 41,595 6,642 (751) 47,486 122,885 116,085 103,684 94,979

— 209 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

The above intangible assets have definite useful lives. Such intangible assets are amortised on a straight-line basis over the following periods:

Technology know-how 3–17 years Patents 6.5 years

19. INVESTMENT IN SECURITIES

Investment in securities as at 31 December, 2003 and 2004 are set out below. Upon the application of HKAS 39 on 1 January, 2005, investment securities were reclassified to appropriate categories under HKAS 39.

TAGC GROUP Unlisted equity securities in the PRC Carrying amount analysed for reporting purposes as: Current Non-current TAGC Unlisted equity securities in the PRC Carrying amount analysed for reporting purposes as: Current Non-current	Investment securities 2003 2004 RMB’000 RMB’000 171,295 68,450 — — 171,295 68,450 171,294 68,450 123,457 47,656 — — 123,457 47,656 123,457 47,656	Other investments 2003 2004 RMB’000 RMB’000 39,289 39,289 39,289 39,089 — — 39,289 39,089 39,089 39,089 39,089 39,089 — — 39,089 39,089	Total 2003 2004 RMB’000 RMB’000 210,584 107,539 39,289 39,089 171,295 68,450 210,584 107,539 162,546 86,745 39,089 39,089 123,457 47,656 162,546 86,745	Total 2003 2004 RMB’000 RMB’000 210,584 107,539 39,289 39,089 171,295 68,450 210,584 107,539 162,546 86,745 39,089 39,089 123,457 47,656 162,546 86,745
				39,089 68,450
				107,539
				86,745
				39,089 47,656
				86,745

20. AVAILABLE-FOR-SALE INVESTMENTS

Available-for-sale investments at 31 December, 2005 and 30 June, 2006 comprise:

TAGC GROUP Unlisted securities: — Overseas equity securities — PRC equity securities Carrying amount analysed for reporting purposes as: Current Non-current	As at 31 December, 2005 RMB’000 — 88,529 88,529 39,089 49,440 88,529	As at 30 June, 2006 RMB’000 3,264 61,260
		64,524
		39,089 25,435
		64,524

— 210 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

TAGC Unlisted equity securities in the PRC Carrying amount analysed for reporting purposes as: Current Non-current	As at 31 December, 2005 RMB’000 64,769 39,089 25,680 64,769	As at 30 June, 2006 RMB’000 40,769
		39,089 1,680
		40,769

As at the respective balance sheet dates, the above unlisted equity investments represent investments in unlisted equity securities issued by private entities. They are measured at cost less impairment at each balance sheet date because the range of reasonable fair values estimates was so wide that the directors of TAGC were of the opinion that their fair values could not be measured reliably.

21. DEPOSITS PAID FOR ACQUISITION OF PROPERTIES, PLANT AND EQUIPMENT

The deposits at the balance sheet dates were made by TAGC Group in connection with the acquisition of property, plant and equipment in the PRC. The amounts committed at the respective balance sheet dates are shown as capital commitments in note 41.

22. INTERESTS IN ASSOCIATES/AMOUNT DUE FROM (TO) ASSOCIATE

TAGC GROUP Cost of investment in associates Share post-acquisition profits Negative goodwill (Note) Impairment loss Amounts due from associates Amount due to associates TAGC Unlisted shares, at cost less: impairment loss Amounts due from associates Amounts due to associates	As 2003 RMB’000 263,008 199,199 462,207 (9,222) — 452,985 61,193 — As 2003 RMB’000 18,800 — 18,800 54,386 —	at 31 December, 2004 2005 RMB’000 RMB’000 391,257 191,274 47,447 83,018 438,704 274,292 — — — (4,863) 438,704 269,429 14,400 22,074 (34,518) (33,002) at 31 December, 2004 2005 RMB’000 RMB’000 311,211 126,562 (23,590) (34,391) 287,621 92,171 12,405 18,040 (34,518) (25,842)	As at 30 June, 2006 RMB’000 139,682 (19,490)
			120,192 — (4,863)
			115,329
			—
			—
			As at 30 June, 2006 RMB’000 50,635 (31,900)
			18,735
			—
			—

— 211 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

During the year ended 31 December, 2005, the directors considered that in light of the recurring operating losses of an associate and the unfavourable market conditions, impairment losses of RMB4,836,000 was recognised in the income statements.

The amounts due from (to) associates were unsecured, interest free and repayable on demand. The fair value of the amount at the respective balance sheet dates approximates to their carrying amount.

Note:

Movements during the Relevant Period in negative goodwill of associates are as follows:

==> picture [434 x 238] intentionally omitted <==

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

||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|RMB’000|
|GROSS|AMOUNT|
|Arising|on|acquisition|during|the|year|ended|31|December,|2003|and|balance|at|31|December,|2003|9,636|
|Eliminated|on|disposal|(9,636)|
|At|31|December,|2004,|2005|and|30|June,|2006|—|
|RELEASE|TO|INCOME|
|Released|during|the|year|ended|31|December,|2003|and|balance|at|31|December,|2003|414|
|Eliminated|on|disposal|(414)|
|At|31|December,|2004,|2005|and|30|June,|2006|—|
|CARRYING|AMOUNT|
|At|31|December,|2003|(9,222)|
|At|31|December,|2004|—|
|At|31|December,|2005|—|
|At|30|June,|2006|—|

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

As at the respective balance sheet dates, TAGC Group had interest in the following associates:

Proportion of registered capital held by TAGC Group (Note a)

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

|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|At|
|At|31|December,|30|June,|
|Name|of|entity|2003|2004|2005|2006|Principal|activities|
|Shenyang|Aero|Space|Mitsubishi|Motors|Engine|30%|—|—|—|Manufacturing|of|
|Manufactory|Co.,|Ltd|automobile|engine|and|parts|
|(|)|
|Shanghai|Aerospace|Taiquan|Electronic|and|50%|—|—|—|Manufacturing|of|
|Machinery|Co.,|Ltd|(|)|automobile|gear|and|parts|
|Hunan|Yingde|Gas|Co.,|Ltd|(‘‘Yingde|Gas’’)|49%|49%|49%|—|Production|of|industrial|
|(|)|used|gas|
|Eaton|Fast|Gear|(Xian)|Co.,|Ltd|(‘‘Eaton|Fast|Gear’’)|—|45%|45%|45%|Manufacturing|of|heavy|
|(|)|duty|automobile|gear|and|
|parts|
|Chongqing|Hongyan|Automobile|Co.,|Ltd|—|41%|—|—|Manufacturing|of|
|(‘‘Chongqing|Hongyan’’)|(|)|automobile|
|(note|b)|

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

— 212 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Proportion of registered capital held by TAGC Group (Note a)

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

||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|At|
|At|31|December,|30|June,|
|Name|of|entity|2003|2004|2005|2006|Principal|activities|
|Anhui|TAGC|Energy|&|Chemicals|Co.,|Ltd|‘‘(Anhui|—|36%|36%|—|Manufacturing|of|chemical|
|TAGC’’)|(|)|(methanol|related)|product|
|Guangzhou|Dinlong|Communication|Equipment|Co.,|—|40%|40%|—|Trading|of|mobile|
|Ltd|(‘‘Guangzhou|Dinlong’’)|communication|equipment|
|(|)|and|accessories|
|Zhuzhou|Auto|Trading|Market|(|)|23%|23%|23%|23%|Agency|service|of|trading|
|second|hand|motor|vehicles|
|Shaanxi|Eurostar|Auto|Co.,|Ltd|—|33%|33%|33%|Manufacturing|and|trading|
|(‘‘Shaanxi|Eurostar’’)|of|automobile|and|related|
|(|)|(note|c)|parts|
|Shandong|Lianhe|Goods|Transportation|Co.,|Ltd.|—|—|40%|40%|Logistics|related|services|
|(|)|
|Shaanxi|Tonghui|Automobile|Transportation|Co.,|Ltd.|—|—|40%|40%|Logistics|related|services|
|(|)|
|Far|East|Flagship|(Beijing)|International|Technology|—|—|—|38%|System|development|and|
|Co.|Ltd.|technical|support|
|(|)|
|Torch|Xian|Security|Science|and|Technology|Co.,|Ltd|—|—|—|45%|Manufacturing|and|trading|
|(‘‘Torch|Security’’)|(|)|of|security|related|products|
|Xian|Cummics|Engine|Co.,|Ltd|—|—|—|25%|Manufacturing|and|trading|
|(|)|of|diesel|engine|and|parts|

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

Notes:

(a) The equity interests of the above associates were held by TAGC indirectly, except for 20% of Eaton Fast Gear, 30% of Chongqing Hongyau, 40% of Torch Security, 28.14% of Yingde Gas and 26% of Anhui TAGC.
(b) Chongqing Honyuan was a subsidiary of TAGC Group until August 2004, when TAGC Group’s interest in Chongqing Hongyan was reduced from 51% to 41%.
(c) Shanxi Eurostar was a subsidiary of TAGC Group until April 2004, when TAGC Group’s interest in Shanxi Eurostar was reduced from 54% to 33%.
(d) All associates were established in the PRC.

— 213 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

The summarised financial information in respect of TAGC Group’s associates for the Relevant Period is set out below:

Results

Turnover
Profit (loss) before taxation
Profit (loss) before taxation attributable to
TAGC Group
Financial position
Total assets
Total liabilities
Net assets
Net assets attributable to TAGC Group

Year ended 31 December,
Six months ended 30 June,
2003
2004
2005
2005
2006
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(unaudited)
369,092
1,650,339
603,476
305,938
76,925
97,201
21,310
136,682
39,450
(18,932)
56,998
65,830
49,915
20,680
(6,988)
As at 31 December,
As at 30
June,
2003
2004
2005
2006
RMB’000
RMB’000
RMB’000
RMB’000
2,595,250
3,052,335
1,175,198
676,602
(1,198,618)
(2,070,923)
(519,458)
(334,148)
1,396,632
981,412
655,740
342,454
462,207
438,704
274,292
120,192

23. DEFERRED TAX

The following are the major components of deferred tax assets recognised and movements thereon during the Relevant Period:

TAGC GROUP At 1 January, 2003 (Charge) credit to the consolidated income statement for the year At 31 December, 2003 Effect of exchange difference Credit to the consolidated income statement for the year Disposal of a subsidiary At 31 December, 2004 Effect of exchange difference Credit (charge) to the consolidated income statement for the period At 31 December, 2005 Effect of exchange difference Credit to consolidated income statement Reclassified to assets held for sale At 30 June, 2006	Difference between accounting and tax depreciation RMB’000 (1,763) (1,158) (2,921) 6 9,067 2,519 8,671 (198) (4,207) 4,266 19 219 (4,504) —	Impairment loss on investment RMB’000 — — — 57 20,645 — 20,702 (629) 86 20,159 88 — (20,247) —	Others RMB’000 (note a) 8,134 6,736 14,870 19 4,302 (13,601) 5,590 (149) (1,171) 4,270 19 (392) (3,897) —	Total RMB’000 6,371 5,578 11,949 82 34,014 (11,082) 34,963 (976) (5,292) 28,695 126 (173) (28,648) —

— 214 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

The following are the tax effect of unrecognised deferred tax assets at the respective balance sheet dates:

TAGC GROUP Unutilised tax losses (note b) Deductible temporary differences (note c)	As 2003 RMB’000 23,265 64,642	at 31 December, 2004 2005 RMB’000 RMB’000 39,607 18,179 98,992 77,121	As at 30 June, 2006 RMB’000 53,899
			145,162

Notes:

(a) The amount of other deferred tax mainly represents the temporary difference arisen from impairment loss recognised on trade and other receivable and allowances for inventories.
(b) No deferred tax asset has been recognised in respect of the tax losses due to the unpredictability of future profit streams. Pursuant to the relevant laws and regulations in the PRC, the unutilised tax losses at the respective balance sheet dates can be carried forward for a period of five years.
(c) No deferred tax asset has been recognised in relation to the deductible temporary differences as it is not certain that taxable profit will be available against which the deductible temporary differences can be utilised. These deductible temporary differences mainly arisen from the impairment loss recognised on trade and other receivable and other receivable and allowances for inventories.

24. INVENTORIES

TAGC GROUP Raw materials Work-in-progress Finished goods	As 2003 RMB’000 821,315 517,316 1,531,026 2,869,657	at 31 December, 2004 2005 RMB’000 RMB’000 492,052 586,400 418,425 330,063 760,263 630,886 1,670,740 1,547,349	As at 30 June, 2006 RMB’000 549,264 377,915 576,974
			1,504,153

25. TRADE AND BILLS RECEIVABLES/DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

(i) Trade and bills receivables

TAGC Group allows an average credit period of 30 days to 180 days to its trade customers. However, longer credit period will be granted to customers with good business relationship.

The following is an aged analysis of trade and bills receivables at the respective balance sheet dates:

TAGC GROUP 0—90 days 91—180 days 181—365 days Over 365 days	As 2003 RMB’000 1,760,267 374,147 143,202 45,886 2,323,502	at 31 December, 2004 2005 RMB’000 RMB’000 1,699,090 1,680,222 618,533 166,107 51,011 1,596 126,309 140,563 2,494,943 1,988,488	As at 30 June, 2006 RMB’000 2,167,940 279,246 155,007 68,336
			2,670,529

— 215 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Included in trade receivable, at the respective balance sheet date are trading balances due from related parties, details of which are set out in note 45.

The fair values of TAGC Group’s trade and other receivables at the respective balance sheet dates approximate to the corresponding carrying amount.

(ii) Deposits, prepayments and other receivables

The fair values of TAGC and TAGC Group’s other receivables at the respective balance sheet dates approximate to the corresponding carrying amount.

26. AMOUNTS DUE FROM RELATED PARTIES

Particulars of the amounts due from related companies are as follows:

Name of related party (Note c) TAGC Group (Zhuzhou Administration of State-Owned Assets) (Note a) (Xin Qiang Printon Trading Co. Ltd.) (Note b) (Shaanxi Automotive Group Co. Ltd.) (Shaanxi Fast Gear Automotive Transmission Co. Ltd.) (Mudanjiang Huatong Automotive Parts Company) Wei Wang and its affiliates D’Long Debt (Note d) TAGC (Zhuzhou Administration of State- Owned Assets) (Xin Qiang Printon Trading Co. Ltd.) D’Long Debt	As 2003 RMB’000 3,305 73,570 — — 1,203 6,087 331,500 415,665 3,305 73,570 23,735 100,610	at 31 December, 2004 2005 RMB’000 RMB’000 3,305 3,305 — 2,503 5,138 — — — 2,256 — 3,525 1,632 401,092 — 415,316 7,440 3,305 3,305 — 2,503 368,906 — 372,211 5,808	As at 30 June, 2006 RMB’000 3,305 2,503 — 179 — — —
			5,987
			3,305 2,503 —
			5,808

— 216 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Maximum balance outstanding during the year/period

TAGC Group (Zhuzhou Administration of State- Owned Assets) (Xin Qiang Printon Trading Co. Ltd.) (Shaanxi Automotive Group Co. Ltd.) (Shaanxi Fast Gear Automotive Transmission Co. Ltd.) (Mudanjiang Huatong Automotive Parts Company) Wei Wang and its affiliates D’Long Debt TAGC (Zhuzhou Administration of State- Owned Assets) (Xin Qiang Printon Trading Co. Ltd.) D’Long Debt Notes:	For the year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 3,305 3,305 3,305 73,570 73,570 2,503 — 5,138 5,138 — — — 1,203 2,256 2,256 6,087 3,525 3,525 331,500 401,092 401,092 3,305 3,305 3,305 73,570 73,570 2,503 23,735 368,906 368,906	For the Six month ended 30 June, 2006 RMB’000 3,305 2,503 — 179 — 1,632 —
		3,305 2,503 40

(a) Being a TAGC shareholder.

(b) Being a TAGC subsidiary’s minority shareholder and/or its affiliates.

(c) Please refer to note 45 regarding the relationship between TAGC Group and the other related parties.
(d) The balance represents amounts due from D’long and its affiliates (the ‘‘D’long Debt’’). During the year ended 31 December, 2004, an allowance of RMB50 million was made against the D’long Debt and charged to the income statement for that year. In August, 2005, as part of the acquisition by InvestCo of 28.12% interest in TAGC, the D’long Debt was transferred to InvestCo at its face value of RMB401,092,000 and the allowance of RMB50 million previously made was reversed to income during the year ended 31 December, 2005.

The amounts are unsecured, interest fee and repayable on demand.

The fair values of the above balances at the respective balance sheet dates approximate to the corresponding carrying amount.

27. PLEDGED BANK DEPOSITS

The balance represents deposits pledged to banks to secure banking facilities granted to TAGC Group. At the respective balance sheet dates, the deposits were pledged to secure short term bank loans and were therefore classified as current assets. The ranges of interests rate on TAGC Group’s pledged bank deposits are as follows:

Effective interest rate: Fixed-rate deposits	Year ended 31 December, 2003 2004 2005 1.2% to 1.7% 1.4% to 1.7% 1.1% to 1.3%	Six months ended 30 June, 2005 2006 (unaudited) 1.5% to 1.7% 1.5% to 1.7%

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

28. BANK BALANCES AND CASH

TAGC GROUP AND TAGC

Bank balances and cash comprise cash held by TAGC Group and TAGC and short-term bank deposits that are interest bearing and with original maturity of three months or less. The carrying amount of these assets approximates their fair value.

The bank balances and cash of TAGC Group and TAGC are mainly denominated in Renminbi. At 31 December, 2003, 2004, 2005 and 30 June, 2006, TAGC Group’s bank balances and cash that were denominated in United States Dollars amounted to RMB35,168,000, RMB55,450,000, RMB74,586,000 and RMB37,229,000, respectively.

Included in the bank balance of TAGC Group and TAGC is an amount of Nil, RMB611,000, RMB74,321,000 and RMB3,203,000 held under the names of independent third parties at 31 December, 2003, 2004, 2005 and 30 June, 2006, respectively.

29. TRADE AND BILLS PAYABLES/ACCRUALS AND OTHER PAYABLES

(i) Trade and bills payables

The following is an aged analysis of trade payables at the respective balance sheet dates:

TAGC GROUP 0—90 days 91—180 days 181—365 days Over 365 days Trade payable	As 2003 RMB’000 438,603 1,834,034 491,467 14,310 2,778,414	at 31 December, 2004 2005 RMB’000 RMB’000 425,068 421,755 1,132,552 868,266 529,789 279,005 35,495 43,365 2,122,904 1,612,391	As at 30 June, 2006 RMB’000 1,571,456 245,190 490,465 196,843
			2,503,954

Included in trade payables at the respective balance sheet date are trading balances due to related parties, details of which are set out in note 45.

The fair values of the above balances at the respective balance sheet dates approximate the corresponding carrying amount.

(ii) Accruals and other payables

The following is an analysis of accruals and other payables

TAGC GROUP Other payables Accruals	As 2003 RMB’000 398,581 52,680 451,261	at 31 December, 2004 2005 RMB’000 RMB’000 513,390 481,896 72,479 86,437 585,869 568,333	As at 30 June, 2006 RMB’000 570,699 116,914
			687,613

— 218 —

APPENDIX IIA

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

TAGC Other payables Accruals	As 2003 RMB’000 117,979 20,223 138,202	at 31 December, 2004 2005 RMB’000 RMB’000 93,691 63,487 14,102 17,074 107,793 80,561	As at 30 June, 2006 RMB’000 57,468 21,583
			79,051

The fair values of the other payable at the respective balance sheet dates approximate the corresponding carrying amounts.

30. AMOUNTS DUE TO RELATED PARTIES

Particulars of the amounts due to related parties are as follows:

TAGC GROUP (Hong Kong Hongyuan Trading Co., Ltd) (Shaanxi Automotive Group Co. Ltd.) (Shaanxi Fast Gear Automotive Transmission Co. Ltd.) (Mudanjiang Huatong Automotive Parts Company) (Dongfeng Motor Group Company Limited) (Qijiang Gear Factory) (China Heavy Duty Truck Group Co., Ltd.) and its subsidiaries Wei Wang and his affiliates Midwest Air Technologies, Inc	As 2003 RMB’000 — 21,718 71,030 8,130 — 12,910 6,128 2,724 11,283 133,923	at 31 December, 2004 2005 RMB’000 RMB’000 — — 7,964 9,831 26,148 35,310 8,130 8,130 — 5,600 15,785 — — — 2,665 2,790 1,016 2,609 61,708 64,270	As at 30 June, 2006 RMB’000 1,937 64,539 62,514 8,876 6,800 — — — 90
			144,756

Notes:

(a) The amounts are unsecured, interest bearing at the prevailing market rate and repayable on demand.

(b) The fair values of the above balances at the respective balances sheet dates approximate to the corresponding carrying amounts.

— 219 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

31. FINANCIAL GUARANTEE

(i) Provision

TAGC GROUP Effect of change in accounting policies and at 1 January, 2005 Issue of new financial guarantee during the year Amortisation for the year Provision for the year Transfer from deferred revenue At 31 December, 2005 and at 30 June, 2006 TAGC Effect of change in accounting policies and at 1 January, 2005 Issue of new financial guarantee during the year Provision for the year Amortisation for the year Transfer from deferred revenue At 31 December, 2005 Issue of new financial guarantee during the period Amortisation for the period At 30 June, 2006	Provision on guarantees RMB’000 (note) — — — 795 45,000 45,795 — — 795 — 45,000 45,795 — — 45,795	Deferred revenue RMB’000 28,057 45,000 (28,057) — (45,000) — 126,172 148,330 — (175,615) (45,000) 53,887 44,280 (51,665) 46,502	Total RMB’000 28,057 45,000 (28,057) 795 —
			45,795
			126,172 148,330 795 (175,615) —
			99,682 44,280 (51,665)
			92,297

Note: During the year ended 31 December, 2005, the bank borrowings of (Guangzhou Guangyingxin Industrial Development Co., Ltd.), an independent third party, and (Guangzhou Dinlong Communication Equipment Co., Ltd.), an associate of TAGC Group, were guaranteed by TAGC and were in financial difficulties. In the opinion of the directors, it was probable that TAGC would suffer a loss of RMB45,000,000 and RMB795,000, respectively, as a result of these guarantees. Accordingly, a provision for losses in these amounts were made during that year.

(ii) Contingent liabilities

Guarantees given to banks by TAGC Group and TAGC in respect of banking facilities granted to related companies and third parties as at 31 December, 2003, 2004 and 2005 and as at 30 June, 2006 are set out as below:

TAGC GROUP Guarantees given to banks in respect of banking facilities granted to: — associates — third parties — related party	As 2003 RMB’000 114,000 328,500 61,070 503,570	at 31 December, 2004 2005 RMB’000 RMB’000 288,500 114,795 202,260 184,947 61,070 — 551,830 299,742	As at 30 June, 2006 RMB’000 — 145,165 —
			145,165

— 220 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

				As at
As	at	31 December,		30 June,
2003		2004	2005	2006
RMB’000		RMB’000	RMB’000	RMB’000

TAGC Guarantees given to banks in respect of banking facilities granted to: — subsidiaries — associates — third parties — related party	2,938,554 114,000 328,500 61,070 3,442,124	1,228,871 288,500 151,950 61,070 1,730,391	1,070,831 114,795 102,725 — 1,288,351	946,350 — 128,835 —
				1,075,185

32. BANK BORROWINGS

TAGC GROUP Secured bank loans Trust receipt loans Other borrowings The amount is repayable as follows: Within one year More than one year, but not exceeding two years TAGC Secured bank loans due within one year	As 2003 RMB’000 3,422,511 31,837 3,278 3,457,626 3,176,912 280,714 3,457,626 1,371,700	at 31 December, 2004 2005 RMB’000 RMB’000 2,964,213 2,560,582 2,190 6,744 2,688 — 2,969,091 2,567,326 2,615,024 2,416,356 354,067 150,970 2,969,091 2,567,326 1,402,620 1,126,977	As at 30 June, 2006 RMB’000 2,426,192 — —
			2,426,192
			2,200,509 225,683
			2,426,192
			1,136,477

The ranges of effective interest rates (which are also equal to contracted interest rates) on the borrowings of TAGC Group and TAGC are as follows:

	Year	ended 31 December,	ended 31 December,	Six months ended 30 June,	Six months ended 30 June,
	2003	2004	2005	2005	2006
Effective interest rate:
Fixed-rate borrowings	4.43% to 4.65%	4.43% to 4.65%	6.14% to 6.37%	6.14% to 6.24%	5.85% to 6.14%

TAGC Group’s borrowings are denominated in the following currencies:

TAGC GROUP Renminbi United States Dollars	As 2003 RMB’000 3,199,876 257,750 3,457,626	at 31 December, 2004 2005 RMB’000 RMB’000 2,912,851 2,469,526 56,240 97,800 2,969,091 2,567,326	As at 30 June, 2006 RMB’000 2,426,192 —
			2,426,192

— 221 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

The fair value of TAGC Group’s borrowings at the respective balance sheet dates approximate their corresponding carrying amounts.

Included in the above are defaulted bank loans of approximately nil, RMB340 million, RMB253 million and RMB91 million at 31 December, 2003, 2004, 2005 and 30 June, 2006 respectively. TAGC is currently negotiating a re-structuring of these loans with the relevant bankers. As at the date of this report, the negotiations are still in progress. However, the directors of TAGC are confident that their negotiations with the lenders will ultimately reach a successful conclusion.

33. DERIVATIVE FINANCIAL INSTRUMENTS

One of the subsidiaries of TAGC used derivative financial instruments (primarily foreign currency forward contracts) to manage its risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions.

TAGC Group utilised currency derivatives to manage future transactions and cash flows. TAGC Group had foreign currency forward contracts to manage exchange rate exposures. The instrument purchased during the year ended 31 December, 2003 and 2004 were denominated in EURO and Great Britain Pound. At 31 December, 2003, TAGC Group had notional amounts of 2.1 million EURO which matured in September 2004 and 975,000 Great Britain Pounds which matured in various dates through June 2005. At 31 December, 2004, TAGC Group had notional amounts of 975,000 Great Britain Pounds which matured in June 2005.

The foreign currency derivatives contracts were measured at fair value at each balance sheet date. Their fair values were determined based on the quoted market prices for equivalent instruments at the balance sheet date. The fair value of the currency derivatives at 31 December, 2003 and 2004 were RMB2,741,000 and RMB1,130,000, respectively, which was recognised as a liability in the Financial Information.

At 31 December, 2005 and 30 June, 2006, TAGC Group did not have any outstanding derivative financial instruments.

34. SHARE CAPITAL

At 1 January, 2003 Scrip dividends Bonus shares issued At 31 December, 2003, 2004, 2005 and 30 June, 2006	Number of shares in ’000 624,192 249,676 62,419 936,287	Amount RMB’000 624,192 249,676 62,419
		936,287

By share type:

Unlisted legal person shares Listed shares	As 2003 ’000 337,678 598,609 936,287	Number of shares at 31 December, 2004 2005 ’000 ’000 337,678 337,678 598,609 598,609 936,287 936,287	As at 30 June, 2006 ’000 337,678 598,609
			936,287

On 11 April, 2003, the TAGC shareholders resolved:

(i) to issue, on the basis of one share for every ten shares held, 62,419,104 shares in the total amount of approximately RMB62,419,104 in lieu of cash dividend.
(ii) to issue, on the basis of four bonus shares for every ten shares held, 249,676,416 bonus shares held by capitalizing an amount of RMB249,677,000 standing to the credit of TAGC’s capital reserves amount.

— 222 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

35. RESERVES

TAGC At 1 January, 2003 Loss for the year Appropriation Bonus shares issued At 31 December, 2003 Loss for the year Dividends (Note) Appropriation At 31 December, 2004, originally stated Effect of change in accounting policies At 1 January, 2005, as restated Loss for the year Dividend (Note) Appropriation At 31 December, 2005 Profit for the year Dividend (Note) At 30 June, 2006	Capital reserve RMB’000 263,014 — — (249,676) 13,338 — — — 13,338 — 13,338 — — — 13,338 — — 13,338	Statutory surplus reserve RMB’000 61,997 — 36,906 — 98,903 — — 23,078 121,981 — 121,981 — — 13,255 135,236 — — 135,236	Accumulated (Losses) profits RMB’000 (198,348) (171,860) (36,906) (62,419) (469,533) (121,371) (17,970) (23,078) (631,952) (56,113) (688,064) (55,054) (9,363) (13,255) (765,737) 14,112 (9,363) (760,988)	Total RMB’000 126,663 (171,860) — (312,095) (357,292) (121,371) (17,970) — (496,633) (56,113) (552,746) (55,054) (9,363) — (617,163) 14,112 (9,363) (612,414)

On 18 April, 2006, TAGC entered into a debt restructuring agreement with certain banks to restructure its bank borrowings and guarantees (the ‘‘Debt Restructuring Agreement’’). Under the Debt Restructuring Agreement, TAGC cannot declare or pay a dividend, or make a distribution to its shareholders that exceeds 50% of the yearly repayment amount of the restructured debts. As at the date of this report, the Debt Restructuring Agreement is subject to the approval by the State Council.

Note: Dividend and distribution are declared on the basis of TAGC’s financial statements prepared in accordance with PRC accounting rules and regulations at the respective date.

36. ASSETS HELD FOR SALE

Pursuant to the Debt Restructuring Agreement, TAGC is to dispose its 75% interest in MAT Automobile Inc. (‘‘MAT’’) and other TAGC subsidiaries associated with the operation of MAT (collectively referred to as the ‘‘MAT Group’’). The assets and liabilities attributable to the MAT Group, the disposal of which is expected to take place within a year, have been classified as a disposal group held for sale and are presented separately in the consolidated balance sheet at 30 June, 2006.

The TAGC directors expect that the net proceeds from the disposal of the MAT Group will exceed the net carrying amount of the relevant assets and liabilities and accordingly, no impairment loss has been recognised.

— 223 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

The major classes of assets and liabilities of the MAT Group all of which have been classified as assets/liabilities held for sale as at 30 June, 2006 are as follows:

TAGC Group
Property, plant and equipment (note)
Prepaid-lease payments (note)
Deferred tax assets
Inventories
Trade and bills receivables
Deposits, prepayments and other receivables
Bank balance and cash
Total assets classified as held for sale
Trade and bills payables
Accruals and other payables
Tax payable
Bank borrowings
Total liabilities associated with assets classified as held for sale
Net assets of MAT Group

As at
30 June, 2006
RMB’000
211,953
16,557
28,648
252,462
249,709
7,298
69,088
835,715
(159,570)
(79,380)
1,722
(123,585)
(360,813)
474,902

Note: Included in the above are buildings of RMB82,392,000 within property, plant and equipment, and prepaid lease payments of RMB16,557,000, both of which were related to land in the PRC held under medium term land use rights.

— 224 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

37. ACQUISITION OF SUBSIDIARIES/NEGATIVE GOODWILL

(i) Acquisition of subsidiaries

The carrying amounts of subsidiaries acquired during the Relevant Period are as follows:

The fair value of the net assets acquired: Property, plant and equipment Investment securities Interest in associates Inventories Trade and bills receivable Deposits, prepayments and other receivables Amount due from a related company Bank balances and cash Trade and bills payables Accruals and other payables Tax (payables) recoverable Bank borrowings Minority interests Negative goodwill Total consideration Satisfied by: Cash consideration Analysis of net inflow of cash and cash equivalents in connection with the acquisition of subsidiaries: Consideration paid Bank balances and cash acquired	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 (note) 73,610 — — 9,719 — — 363,587 — — 46,149 — — 65,241 — — 86,710 — — 100,000 — — 248,184 — — (46,035) — — (22,676) — — (3,237) — — (9,617) — — 911,635 — — (459,033) — — 452,602 — — (31,867) — — 420,735 — — 420,735 — — 420,735 — — (248,184) — — 172,551 — —	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) — 6,821 — — — — — 335 — 2,120 — 21,766 — — — 1,045 — (7,920) — (10,336) — 492 — — — 14,323 — (2,355) — 11,968 — — — 11,968 — 11,968 — 11,968 — (1,045) — 10,923

— 225 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

The revenue and profit before taxation contributed by the subsidiaries acquired by TAGC Group between the date of acquisition and the relevant balance sheet date are as follows:

Revenue Profit before taxation	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 119,964 — — 49,652 — —	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) — — — —	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) — — — —
			—

Note: On 15 August, 2003, TAGC Group acquired 50% equity interest in China Aerospace Torch from an independent third party for a cash consideration of RMB359,710,000. This acquisition was accounted for by using the purchase method. In the opinion of the TAGC directors, TAGC Group had control over China Aerospace Torch during its period of ownership. Accordingly, China Aerospace Torch was accounted for as a subsidiary during TAGC Group’s period of ownership.

(ii) Negative goodwill

GROSS AMOUNT Arising on acquisition during the year ended 31 December, 2003 and at 31 December, 2003 Eliminated on disposal during the year ended 31 December, 2004 At 31 December, 2004, 2005 and 30 June, 2006 RELEASED TO INCOME Released during the year ended 31 December, 2003 and at 31 December, 2003 Eliminated on disposal during the year ended 31 December, 2004 At 31 December, 2004, 2005 and 30 June, 2006 CARRYING AMOUNT At 31 December, 2003 At 31 December, 2004 At 31 December, 2005 At 30 June, 2006	RMB’000 31,867 (31,867)
	—
	916 (916)
	—
	30,951
	—
	—
	—

38. DISPOSAL OF SUBSIDIARIES

During the Relevant Period, TAGC Group disposed of the following subsidiaries which we were unable to gain access to the books and records (the ‘‘Disposed subsidiaries’’):

(a) On November, 2003, TAGC Group disposed of its equity interests in (Wenling Longjiang Machinery Manufacture Co., Ltd.) and (Zhuzhou TORCH Jiutian Technology Co., Ltd.) for a cash consideration for RMB30,000,000 and RMB5,448,000, respectively.
(b) In May, 2004, TAGC Group 75% equity interest in Midwest Air Technology Inc. (‘‘Midwest’’) was repurchased by Midwest for a consideration of USD25,802,000 (equivalent to approximately RMB213,520,000.
(c) In June, 2004, TAGC Group disposed of its 50% equity interests in China Aerospace Torch for a consideration of RMB395,583,000 to the minority shareholder of , to be satisfied by cash of RMB295,583,000 and assignment of an amount due from a related company of RMB100,000,000.
(d) In April, 2004, TAGC Group’s equity interest in Shaanxi Eurostar was diluted from 54.3% to 33.1% as a result of additional capital injection in Shaanxi Eurostar.

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

(e) In August 2004, the TAGC Group disposed of 10.4% equity interest in Chonggi Hongyau for a cash consideration of RMB53,420,000 to the minority shareholder of Chonggi Hongyau. Subsequent to this disposal, Chonggi Hongyau became an associate of TAGC Group.
(f) In October 2004, TAGC Group disposed of its 10% equity interest in Guangzhou Dinlong for a consideration of RMB4,500,000 to the minority shareholder of Guangzhou Dinlong. Subsequent to this disposal, Guangzhou Dinlong became an associate of TAGC Group.
(g) In January 2005, TAGC Group disposed of its 51% equity interests in (Chongqing CAFE Auto Brake and Steering Co., Ltd) to the minority shareholder of (Chongqing CAFE Auto Brake and Steering Co., Ltd) for a cash consideration of RMB37,390,000.
(h) In May 2005, TAGC Group disposed of its 51% equity interests in (Qijiang Gear Co., Ltd) for a cash consideration of RMB212,320,000 to an independent third party.

Other than the Disposed Subsidiaries, in January 2006, TAGC Group also disposed of its 55% equity interests in (Shanghai Yingdaxin Auto Electronics Co., Ltd) for a cash consideration of RMB7,561,000 to independent third party.

Net assets disposed of: Property, plant and equipment Prepaid lease payment Intangible assets Investment in securities Deposits paid for property, plant and equipment Interests in associates Deferred tax assets Amounts due from related companies Inventories Trade and bills receivables Deposit, prepayments and other receivables Bank balances and cash Trade and bills payables Accruals and other payables Dividend payable Tax recoverable (payable) Bank borrowings Minority interests Goodwill reserve released Negative goodwill released Gain (loss) on disposal Total considerations Transferred and interests in associates	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 15,282 317,302 185,879 — 67,103 — 1,413 57,580 4,110 19,800 106,756 — — 108,307 — — 462,282 — — 11,082 — — 100,000 — 93,407 1,503,595 276,478 70,149 861,323 308,914 15,893 277,340 21,743 14,488 256,690 25,785 (99,814) (1,494,302) (279,017) (5,687) (284,871) (40,831) — (5,303) — 3,244 10,809 (6,559) (79,798) (633,250) (121,268) (19,769) (809,434) (183,863) 28,608 913,009 191,371 — 88,085 — — (30,951) — 4,339 (18,223) 58,342 32,947 951,920 249,713 — 256,690 — 32,947 695,230 249,713	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 185,879 828 — — 4,110 2,063 — — — — — — — — — — 276,478 1,682 308,914 1,614 21,743 — 25,785 413 (279,017) (59) (40,831) (11) — — (6,559) 38 (121,268) — (183,863) (2,716) 191,371 3,852 — — — — 58,342 3,709 249,713 7,561 — — 249,713 7,561

— 227 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Satisfied by: Cash Assignment of an amount due from a related company Analysis of cash inflow of cash and cash equivalents in connection with the disposal of business: Consideration received Bank balances and cash	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 32,947 595,230 249,713 — 100,000 — 32,947 695,230 249,713 32,947 595,230 249,713 (14,488) (256,690) (25,785) 18,459 338,540 223,928	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 249,713 7,561 — — 249,713 7,561 249,713 7,561 (25,785) (413) 223,928 7,148	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 249,713 7,561 — — 249,713 7,561 249,713 7,561 (25,785) (413) 223,928 7,148
			7,561
			7,561 (413)
			7,148

39. MAJOR NON-CASH TRANSACTIONS

During the year ended 31 December, 2003, a bonus issue of RMB249,677,000 was made out of capital reserve and scrip dividends in the amount of RMB62,419,000 were issued in lieu of cash dividend.

During the year ended 31 December, 2004, part of the interest in a subsidiary was disposed of and TAGC Group was assigned an amount due from a related company in the amount of RMB100 million as part of the consideration.

40. OPERATING LEASE COMMITMENTS

TAGC Group as lessee

Minimum leases payments paid under operating leases in respect of buildings	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 48,374 49,158 31,557	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 18,485 14,238

At the respective balance sheet dates, TAGC Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	As 2003 RMB’000 41,246 85,301 174,347 300,894	at 31 December, 2004 2005 RMB’000 RMB’000 24,897 21,949 80,569 85,079 161,764 160,548 267,230 267,576	As at 30 June, 2006 RMB’000 19,051 92,301 153,736
			265,088

— 228 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Operating lease payments represent rentals payable by TAGC Group for certain of its offices. Leases are negotiated for an average term of two years with fixed rentals.

TAGC

TAGC had no significant operating lease commitments at the respective balance sheet dates.

41. CAPITAL COMMITMENTS

TAGC Group Capital expenditure authorised but not contracted for in respect of: — construction in progress Capital expenditure contracted but not provided for in respect of: — acquisition of property, plant and equipment — construction in progress — investments in associates	As 2003 RMB’000 861 24,773 83,461 114,330 222,564	at 31 December, 2004 2005 RMB’000 RMB’000 2,227 1,064,855 — — 332,322 13,603 — 58,000 332,322 71,603	As at 30 June, 2006 RMB’000 657,300
			— 44,315 56,000
			100,315

TAGC

TAGC had no significant capital commitments at the respective balance sheet dates.

42. PLEDGE OF ASSETS

At the respective balance sheet dates, the following assets were pledged to banks to secure general banking facilities granted to TAGC Group:

TAGC GROUP Property, plant and equipment Prepaid lease payments Interest in associates Investment in securities/available-for-sale investment Inventories Trade receivables Bank deposits Bills receivables TAGC Interest in subsidiaries Investments in securities/available-for-sale investments	As 2003 RMB’000 667,470 24,210 — 60,000 643,610 432,010 266,712 — 2,094,012 634,666 60,000 694,666	at 31 December, 2004 2005 RMB’000 RMB’000 587,090 581,973 21,170 87,597 — 163,560 30,000 24,000 93,500 93,287 200,670 20,912 275,961 143,327 151,110 175,452 1,359,501 1,290,108 803,613 491,546 30,000 24,000 833,613 515,546	As at 30 June, 2006 RMB’000 377,142 22,460 — — 99,169 209,685 248,637 136,100
			1,093,193
			606,546 —
			606,546

— 229 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

43. CONTINGENT LIABILITIES

(i) a TAGC subsidiary has assigned certain of its receivable to settle a bank loan of RMB18 million. However, at the respective balance sheet date, that subsidiary’s obligation to repay the bank loan had not been released.
(ii) pursuant to the negotiation with various banks to restructure its bank loans, TAGC has obtained the banks’ agreement to waive their interest charges to the extent of approximately RMB12 million. Accordingly, these interest charges had not been provided in the Financial Information. While the bank loans restructuring including the waiver of interest are subject to final approval by the State Council, the TAGC directors are however confident that the approval will be obtained in due course.

44. RETIREMENT BENEFITS PLANS

Plans for PRC employees

The employees employed in the PRC are members of the state-managed retirement benefits schemes operated by the PRC government. The PRC subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefits schemes to fund the benefits. The only obligation of the TAGC Group with respect to the retirement benefits schemes is to make the required contributions under the schemes.

Plans for non-PRC employees

TAGC Group also operates employee retirement benefits plans for its non-PRC employees. These plans are defined contributions plans and TAGC Group makes its contribution with reference to the employees’ relevant payroll costs.

45. RELATED PARTY DISCLOSURES

(I) Related party transactions

Other than as disclosed in note 38 in respect of disposal of subsidiaries to the minority shareholders of the relevant subsidiaries, TAGC Group had the following significant transactions with related parties during the Relevant Period.

==> picture [455 x 283] intentionally omitted <==

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

|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Six|months|
|Year|ended|31|December,|ended|30|June,|
|Name|of|related|parties|Nature|of|transaction|2003|2004|2005|2005|2006|
|RMB’000|RMB’000|RMB’000|RMB’000|RMB’000|
|(unaudited)|
|Hong|Kong|Hongyuan|Trading|Co.,|Ltd|Sales|of|materials|26,915|12,154|3,561|12,084|1,037|
|(note|a)|Purchases|of|materials|1,325|579|—|—|—|
|Chongqing|Heavy-Duty|Automotive|Sales|of|materials|17,963|7,543|—|—|—|
|Group|Purchase|of|materials|12,545|7,543|—|—|—|
|(note|a)|Rental|and|service|charges|3,987|3,987|—|—|—|
|Shaanxi|Automotive|Group|Co.,|Ltd|Sale|of|materials|20,931|13,789|13,442|7,448|7,959|
|(note|a)|Purchase|of|materials|7,250|—|—|—|—|
|Rental|and|service|charges|11,820|11,820|11,820|5,910|5,410|
|Shaanxi|Fast|Gear|Automotive|Sales|of|materials|17,674|20,325|18,685|13,697|12,278|
|Transmission|Co.|Ltd.|Purchase|of|materials|27,173|31,756|83,547|39,614|38,672|
|Rental|and|service|charges|4,408|4,408|4,408|2,204|1,620|
|(formerly|known|as|‘‘|’’)|
|(note|a)|
|Chongqing|Hongyan|Automobile|Sale|of|materials|—|89,546|—|—|—|
|Co.,|Ltd|
|(note|c)|

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

— 230 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Name of related parties Nature of transaction Zhuzhou Gear Stock Co., Ltd (note a) Sales of materials Purchases of materials Rental charges Dongfeng Motor Group Company Limited (note a) Sales of materials Purchases of materials Tigerey Accessories LLC (note a) Sales of finished goods Midwest (note a) Sales of materials Weichai Power Purchase of materials Mudanjiang Huatong Automotive Parts Company (note a) Purchases of materials China Heavy Duty Truck Group Co., Ltd. and its subsidiaries (note b) Sales of materials Purchases of materials Chongqing Heavy Vehicle Co., Ltd (note a) Rental and service charges Qijiang Gear Factory (note a) Rental and service charges Purchased equipment China Huarong Asset Management Corporation (note d) Management fee paid	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 — 1,213 — 60,331 6,592 1,725 1,500 1,500 1,500 — 6,800 19,701 — 3,944 998 27,097 — — — 45,032 52,205 — — 95,315 — 1,429 2,526 — — 69,521 — — 1,895 14,073 — — 6,960 — — 6,720 — — — — 20,055	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) — — 4,864 640 750 1,556 3,761 — 919 — — — 23,744 6,332 — 886,163 1,161 — — — — — — — — — — — — —

In addition, during the six months ended 30 June, 2006, TAGC Group disposed of its entire interest in an associate, Yingde Gas, to Baslow Technology Limited and (Heshun (Hong Kong) Investments Company Limited) for an aggregate consideration of approximately RMB272 million. Certain TAGC directors have interest in (Heshun (Hong Kong) Investments Company Limited).

Furthermore, in 2004, TAGC Group acquired an investment from Wang Wei, a minority shareholder of a TAGC subsidiary, at a consideration of approximately RMB46 million. An impairment allowance against the full amount of this investment was made by TAGC Group in the same year. There were also sale and purchase transactions between TAGC Group and Wang Wei and his affiliates during the Relevant Period.

Notes:

(a) Being a TAGC subsidiary’s minority shareholder and/or its affiliates.
(b) Being an indirect substantial shareholder of Weichai Power until 2005.
(c) Being an associate of a TAGC subsidiary.
(d) Being the company which managed the TAGC shares held by D’long prior to their disposal to InvestCo.

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

(II) Banking facilities

At 31 December, 2003 and 31 December. 2004, D’long and its affiliates provided corporate guarantees to banks to secure banking facilities granted to TAGC Group to the extent of RMB590 million and RMB540 million respectively.

At 31 December, 2005 and 30 June, 2006, InvestCo pledged its 35,579,520 shares in TAGC to banks to secure banking facilities granted to TAGC Group to the extent of RMB140 million.

During the Relevant Period, certain TAGC associates and minority shareholders of certain subsidiaries provided guarantees in support of the banking facilities granted to TAGC Group.

Details of the guarantees granted to the subsidiaries and associates by TAGC are disclosed in note 31(ii).

(III) Related party balances

Included in trade receivables and trade payables were the following related party balances:

(i) Trade receivables

Name of related party Hong Kong Hongyuan Trading Co., Ltd Chongqing Heavy-Duty Automotive Group Shaanxi Automotive Group Co. Ltd. Shaanxi Fast Gear Automotive Transmission Co. Ltd. Dongfeng Motor Group Company Limited Midwest Weichai Power China Heavy Duty Truck Group Co., Ltd. and its subsidiaries Tigerey Accessories Ltd	As at 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 3,063 985 43 9,604 8,484 — — 3,170 3,156 — — — — 1,596 6,907 1,203 2,256 — — 14,084 15,402 — — 175 — — 14,414 1,427 — — 15,297 30,575 40,097	As at 30 June, 2006 RMB’000 — — — 14,323 2,811 — 962 175 — —
		18,271

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ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

(ii) Trade payables

Hong Kong Hongyuan Trading Co., Ltd Chongqing Heavy-Duty Automotive Group Shaanxi Fast Gear Automotive Transmission Co. Ltd. Zhuzhou Gear Stock Co., Ltd Dongfeng Motor Group Company Limited Midwest Air Technologies Inc Weichai Power China Heavy Duty Truck Group Co., Ltd. and its subsidiaries Qijiang Gear Factory	As at 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 4,501 579 579 20,678 54,284 — 5,749 5,015 9,527 11,452 13,325 4,057 — 1,448 168 — — — — — 39,411 — — — — 1,012 7,616 42,380 75,663 61,358	As at 30 June, 2006 RMB’000 579 — 19,917 6,818 — 90 90,238 — —
		117,642

Details of other non-trade balances with related parties at the respective balance sheet dates are set out in the notes 26 and 30.

(IV) Compensation of key management personnel

The remuneration of directors and other members of key management for the Relevant Period were as follows:

Short term benefits Retirement benefits contributions	Year ended 31 December, 2003 2004 2005 RMB’000 RMB’000 RMB’000 1,025 1,603 2,519 20 29 21 1,045 1,632 2,540	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 1,230 1,083 9 15 1,239 1,098	Six months ended 30 June, 2005 2006 RMB’000 RMB’000 (unaudited) 1,230 1,083 9 15 1,239 1,098
			1,098

46. INVESTMENTS IN SUBSIDIARIES/AMOUNTS DUE FROM (TO) SUBSIDIARIES

Unlisted shares, at cost Less: Impairment losses Amounts due from subsidiaries Amounts due to subsidiaries	As 2003 RMB’000 1,972,868 (26,104) 1,946,764 268,477 (587,102)	at 31 December, 2004 2005 RMB’000 RMB’000 1,275,553 1,308,180 (41,312) (59,408) 1,234,241 1,248,772 171,290 253,642 (341,741) (239,499)	As at 30 June, 2006 RMB’000 1,308,180 (59,408)
			1,248,772
			346,029
			(175,760)

— 233 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

At the respective balance sheet dates, the directors considered that in light of the recurring operating losses of the subsidiaries and the unfavourable market conditions, impairment losses of RMB26,104,900, RMB15,208,000, RMB18,096,000 and Nil were recognised in the income statement for that period.

The amounts due from (to) subsidiaries are unsecured, interest free and repayable on demand. The fair value of the amounts at 30 June, 2006 approximate their carrying amount.

Particulars of the subsidiaries at the respective balance sheet dates are as follows:

Name of subsidiary
Place and
date of
establishment
Issued and
registered
capital
Baoji Fast Gear Co., Ltd
(‘‘Baoji Fast Gear’’)
(note b)
PRC
28 September,
2001
RMB30,000.00
Beijing Huikeying High-Tec Co., Ltd
(note b)
PRC
25 July, 2000
RMB50,000.00
(note b)
PRC
28 April, 1999
RMB8,000.00
China Aerospace Torch Automobile
Co. Ltd.
(note b)
PRC
10 May, 2001
RMB719,420.00
Chongqing CAFE Auto Brake and
Steering Co., Ltd
(note b)
PRC
27 June, 2003
RMB58,800.00
Chongqing Hongyan Automobile Co.,
Ltd
(note b)
PRC
20 December,
2002
RMB500,000.00
Dalian Hongyuan Machinery
Manufactory Co., Ltd. (‘‘Dalian
Hongyuan’’)
(note b)
PRC
20 April, 1998
USD10,000.00
Guangzhou Dialog Communication
Equipment Co., Ltd. (‘‘Guangzhou
Dialog’’)
(note b)
PRC
25 June, 2003
RMB50,000.00
Hangzhou Hongyuan Machinery
Manufacturing Co., Ltd.
(‘‘Hangzhou Hongyuen
Machinery’’)
(note b)
PRC
1 December,
1995
USD1,150.00
Hangzhou Sports Equipment Co., Ltd.
(‘‘Hangzhou Hongyuen Sporting’’)
(note b)
PRC
13 July, 1993
USD160.00

Attributable equity interest held
by TAGC Group (note a)
Principal activities
At 31 December,
At
30 June,
2003
2004
2005
2006
51.0%
51.0%
51.0%
51.0%
Manufacturing and sale of
automotive components
80.0%
80.0%
80.0%
80.0%
Trading of computer software
and provision of computer-
related research and
development services
30.0%
—
—
—
Trading for motor vehicles
and related automotive
components
50.0%
—
—
—
Provision of leasing services
and trading of motor
vehicles, machineries and
related spare parts
51.0%
51.0%
—
—
Manufacturing and sale of
automotive components
51.0%
—
—
—
Manufacturing and sale of
heavy duty trucks and
related automotive
components
75.0%
75.0%
100.0%
100.0%
Manufacturing and sale of
metal and machineries
50.0%
—
—
—
Trading of telecommunication
products and related spare
parts
75.0%
75.0%
75.0%
75.0%
Trading of metal and
machineries
75.0%
75.0%
75.0%
75.0%
Trading of fitness equipments

— 234 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Name of subsidiary
Place and
date of
establishment
Issued and
registered
capital
Kunshan Hongyuan Machinery
Manufacturing Co., Ltd.
(note b)
PRC
12 May, 1998
USD900.00
Laichou Luyuan Auto Parts Co., Ltd.
(‘‘Laizhou Luyuan’’)
(note b)
PRC
13 June, 1992
RMB37,930.00
MAT (note c)
United States
of America
(‘‘USA’’)
3 December,
1990
USD175,000
Midwest (note d)
USA
18 December,
1984
USD100,000
Qingdao Hongben Machinery
Manufacturing Co,. Ltd.
(‘‘Qingdao Hongben’’)
(note b)
PRC
16 January,
1998
USD160.00
Qijiang Gear Co., Ltd
PRC
28 December,
2002
RMB150,000.00
Qijiang Gear Forging Co., Ltd
(note b)
PRC
7 November,
2003
RMB21,000.00
Shaanxi Fast Gear Co., Ltd
(note b)
PRC
28 September,
2001
RMB256,790.00
Shaanxi Hande Axle Co., Ltd.
(‘‘Shaanxi Hande Axle’’)
(note b)
PRC
23 March,
2003
RMB180,000.00
Shaanxi Heavy-Duty Automotive Co.,
Ltd
(note b)
PRC
19 September,
2002
RMB686,000.00
Shaanxi Heavy Duty Automotive
Import & Export Co., Ltd.
(note b)
PRC
18 May,
2006
RMB10,000.00
Shaanxi Jinding Casting
Co. Ltd.
(note b)
PRC
18 August,
2005
RMB35,360.00
Shaanxi Eurostar Auto Co., Ltd.
(‘‘Shaanxi Eurostar’’)
(note b)
PRC
28 August,
1998
RMB70,000.00
Shanghai Heda Automobile Parts Co.,
Ltd
(note b)
PRC
16 November,
1993
USD4,248.20

Attributable equity interest held
by TAGC Group (note a)
Principal activities
At 31 December,
At
30 June,
2003
2004
2005
2006
75.0%
75.0%
75.0%
75.0%
Trading of metal and
machineries
75.0%
75.0%
100.0%
100.0%
Trading of automotive
components
75.0%
75.0%
75.0%
75.0%
Trading of automotive
components
75.0%
—
—
—
Trading of retail products
75.0%
75.0%
75.0%
75.0%
Trading of metal and
machineries
51.0%
51.0%
—
—
Manufacturing and sales of
automotive components
51.0%
51.0%
—
—
Manufacturing and sales of
automotive components
51.0%
51.0%
51.0%
51.0%
Trading of automotive
components
51.0%
51.0%
51.0%
51.0%
Manufacturing and sale of
automotive and related
services
51.0%
51.0%
51.0%
51.0%
Trading of heavy duty trucks
and related automotive
components
—
—
—
51.0%
Trading of heavy duty trucks
and related automotive
components
—
—
51.0%
51.0%
Provision of casting products
and related development
services
54.3%
—
—
—
Provision of design services
for automotive
components
75.0%
75.0%
75.0%
75.0%
Trading of automotive
components

— 235 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Name of subsidiary
Place and
date of
establishment
Issued and
registered
capital
Shanghai Tongyue Automobile
Leasing Co,. Ltd. (‘‘Shanghai
Tongyue’’)
(note b)
PRC
10 August,
2005
RMB55,000.00
Shanghai Wanyong Storage and
Transportation Co. Ltd.
(‘‘Shanghai Wanyong’’)
(note e)
PRC
11 July, 2003
RMB10,000.00
Shanghai Yingdaxin Auto Electronics
Co., Ltd
(note b)
PRC
26 May, 2003
RMB10,000.00
Shenzhen Huayue Logistics Co. Ltd.
(‘‘Shenzhen Huayue’’)
(note e)
PRC
19 October,
2005
RMB4,000.00
Tangshan Hongben Manufacturing
Manufactory Co., Ltd. (‘‘Tanqshan
Hongben’’)
(note b)
PRC
6 August,
1998
RMB100.00
Tianjin Hongben Machinery
Manufacturing Co., Ltd.
(‘‘Tianjin Hongben’’)
(note b)
PRC
18 May, 1998
USD4,535.20
Tianjin Hongning Machinery
Manufacturing Co., Ltd
(note b)
PRC
10 October,
2001
RMB12,000.00
Torch Import & Export Co,. Ltd
(‘‘Torch Import and Export’’)
(note b)
PRC
1 November,
1998
RMB181,000.00
Xinjiang Machinery Equipment
Manufacturing Co,. Ltd
(note b)
PRC
28 December,
1999
RMB20,000.00
Xian Fast Auto Driving System
Co., Ltd
(note b)
PRC
8 November,
2003
RMB120,000.00
Zhuzhou Gear Co., Ltd.
(note b)
PRC
16 December,
2002
RMB61,315.00
Zhuzhou Torch Auto Lighting Co,
Ltd.
(note b)
PRC
22 March,
2002
RMB12,000.00
Zhuzhou Torch Auto Sealing Co, Ltd.
(note b)
PRC
22 March,
2002
RMB9,000.00

Attributable equity interest held
by TAGC Group (note a)
Principal activities
At 31 December,
At
30 June,
2003
2004
2005
2006
—
—
85.4%
85.4%
Provision of leasing and
trading of motor vehicles,
machineries and related
spare parts
—
—
—
84.0%
Provision of logistics services
and sales of motor vehicles
and related spare parts
55.0%
55.0%
55.0%
—
Trading of automotive
components
—
—
—
73.5%
Provision of logistics services,
leasing and trading of
motor vehicles and related
spare parts
75.0%
75.0%
75.0%
75.0%
Trading of metal components
75.0%
75.0%
75.0%
75.0%
Trading of metal and
automotive components
75.0%
75.0%
75.0%
75.0%
Manufacturing and sale of
metal products
100.0%
100.0%
100.0%
100.0%
Provision of export and
import services
95.0%
95.0%
95.0%
95.0%
Provision of export and
import services
—
51.0%
51.0%
51.0%
Trading of motor vehicles and
related automotive
components
51.0%
51.0%
51.0%
51.0%
Trading of motor vehicles and
related automotive
components
97.8%
97.8%
97.8%
97.8%
Trading of automotive
components
—
94.6%
94.6%
94.6%
Trading of automotive
components

— 236 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Name of subsidiary
Place and
date of
establishment
Issued and
registered
capital
Zhuzhou Torch Sparkplugs
Co., Ltd
(note b)
PRC
3 September,
2002
RMB80,000.00
Zhuzhou Torch Auto Electronics Co.,
Ltd
(note b)
PRC
22 March,
2002
RMB9,700.00
Zhuzhou Torch Property
Development Co., Ltd
(note b)
PRC
22 March
1994
RMB9,500.00
Zhuzhou Torch Machinery
Manufacturing Co., Ltd
(note b)
PRC
22 September,
1998
RMB46,000.00
Zhuzhou Torch Construction
Engineering Co., Ltd
(note b)
PRC
26 June, 1996
RMB7,000.00
Zhuzhou Wandefu Gear Co. Ltd.
(note b)
PRC
11 July, 2005
RMB1,000.00
Zhuzhou Wande Forging Co. Ltd.
(note b)
PRC
25 October,
2005
RMB5,000.00
Zhuzhou Euro Grace Gear
Automotive Transmission
Co. Ltd.
(note b)
PRC
30 April, 2006
RMB50,000.00
Zhuzhou TORCH Environment
Protection Technology Co., Ltd
(note b)
PRC
31 May, 2000
RMB9,000.00
Dongfeng Off-road Vehicle Co., Ltd
(note b)
PRC
15 August,
2002
RMB135,000.00
Shiyan Surface and Coating
Technology Co. Ltd. (‘‘Shiyan
Coating’’)
(note e)
PRC
7 November,
2003
RMB2,200.00
Mudanjiang Futong Auto Air
Conditioning Co., Ltd
(note b)
PRC
6 June, 2002
RMB72,580.00

Attributable equity interest held
by TAGC Group (note a)
Principal activities
At 31 December,
At
30 June,
2003
2004
2005
2006
97.5%
97.5%
97.5%
97.5%
Trading of spark plugs
73.7%
73.7%
73.7%
73.7%
Trading of automotive
components
100.0%
100.0%
100.0%
100.0%
Provision of properties
development
100.0%
100.0%
100.0%
100.0%
Trading of automotive
component
76.5%
76.5%
76.5%
76.5%
Provision of construction
services
—
—
51.0%
51.0%
Manufacturing and sales of
motor vehicles and related
automotive components
—
—
50.7%
50.7%
Manufacturing and sales of
motor vehicles and related
automotive components
—
—
—
51.0%
Trading of automotive
components
94.6%
—
—
—
Trading of automotive
components
60.0%
60.0%
60.0%
60.0%
Trading of motor vehicles and
related automotive
components
—
—
—
51.0%
Trading of automotive
components
51.0%
51.0%
51.0%
51.0%
Trading of automotive
components

— 237 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

Notes:

a. TAGC directly holds the interest in these subsidiaries, except that the following interests were indirectly held by TAGC at the respective balance sheet dates:

==> picture [407 x 522] intentionally omitted <==

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|As|at|
|As|at|31|December,|30|June,|
|2003|2004|2005|2006|
|Baoji|Fast|Gear|Co.|Ltd|95.0%|95.0%|95.0%|95.0%|
|Beijing|Guangqi|Aerospace|Auto|Sales|Service|Co.|Ltd.|
|60.0%|—|—|—|
|Dalian|Hongyuan|Machinery|Manufactory|Co.,|Ltd|
|—|—|25.0%|25.0%|
|Guangzhou|Dialog|Communication|Equipment|Co.,|Ltd|
|50.0%|—|—|—|
|Laizhou|Luyuan|Automobile|Parts|Co.,|Ltd|
|—|—|25.0%|25.0%|
|Qijiang|Gear|Forging|Co.|Ltd|
|52.0%|52.0%|—|—|
|Shaanxi|Hande|Axle|Co.,|Ltd|
|94.0%|94.0%|94.0%|94.0%|
|Shaanxi|Jinding|Casting|Co.|Ltd.|
|87.0%|87.0%|87.0%|87.0%|
|Shaanxi|Eurostar|Auto|Co.,|Ltd|
|54.3%|—|—|—|
|Shandong|Lianhe|Goods|Transportation|Co.,|Ltd|
|—|—|40.0%|40.0%|
|Shanghai|Tongyue|Automobile|Leasing|Co.,|Ltd|
|—|—|85.4%|85.4%|
|Shanghai|Wanyong|Storage|and|Transportation|Co.|Ltd.|
|—|—|—|100%|
|Shanghai|Yingdaxin|Automobile|Electron|Co.,|Ltd|
|—|—|55.0%|55.0%|
|Shenzhen|Huayue|Logistics|Co.|Ltd.|
|—|—|87.5%|87.5%|
|Torch|Import|and|Export|Co.,|Ltd|
|1.7%|1.7%|1.7%|1.7%|
|Xian|Fast|Auto|Driving|System|Co.|Ltd.|
|—|100%|100%|100%|
|Zhuzhou|TORCH|Real|Estate|Development|Co.|Ltd.|
|7.4%|7.4%|7.4%|7.4%|
|Zhuzhou|TORCH|Machine|Manufacturing|Co.|Ltd.|
|5.4%|5.4%|5.4%|5.4%|
|Zhuzhou|TORCH|Construction|Engineering|Co.|Ltd.|
|82.9%|82.9%|82.9%|82.9%|
|Zhuzhou|Wandefu|Gear|Co.|Ltd.|
|—|—|90.0%|90.0%|
|Zhuzhou|Wande|Forging|Co.|Ltd.|
|—|—|—|100%|
|Zhuzhou|Euro|Grace|Gear|Automotive|Transmission|
|Co.|Ltd.|
|—|—|—|95.0%|

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

— 238 —

ACCOUNTANTS’ REPORT OF THE TAGC GROUP

APPENDIX IIA

b. The statutory financial statements of these subsidiaries for each of the three years ended 31 December, 2005, or from the period of establishment to the period ended 31 December, 2003, 31 December, 2004, 31 December, 2005 and six months ended 30 June, 2006, if applicable, prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises registered in the PRC, were audited by Hunan Carea, except for the following:

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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Name|of|company|Financial|year|Name|of|auditors|
|Hangzhou|Hongyuen|Sporting|Goods|Co.,|Ltd|Year|ended|31|Hangzhou|RuiXin|Certified|Public|Accountants|
|December,|2004|
|Qingdao|Hongben|Machinery|Co.,|Ltd|Year|ended|31|
|December,|2004|
|Tangshan|Hongben|Machinery|Co.,|Ltd|Year|ended|31|
|December,|2004|
|Hangzhou|Hongyuen|Machinery|Year|ended|31|Hangzhou|RuiXin|Certified|Public|Accountants|
|December,|2004|
|Laizhou|Luyuan|Automobile|Parts|Co.,|Ltd|Year|ended|31|Lai|Zhou|Hong|Zheng|Certified|Public|Accountants|
|December,|2004|

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c. The financial statements of MAT were prepared in accordance with accounting principles and financial regulations applicable in the USA and were audited by Pricewaterhouse Coopers L.L.P. for each of the two years ended 31 December, 2004 and by Chicago, BDO Illinois for the year ended 31 December, 2005.
d. The financial statements of Midwest were prepared in accordance with accounting principles and financial regulations applicable in the USA and were audited by Pricewaterhouse Coopers L.L.P. for the year ended 31 December, 2003 prior to the disposal of it in 2004.
e. No audited financial statements have been prepared for Shiyan Coating, Shanghai Wanyong and Shenzhen Huayue because their first financial year end date will be 31 December, 2006.

B. DISTRIBUTABLE RESERVES

Subject to the dividend and distribution restrictions as set out in note 37 and on the basis of TAGC’s accounts prepared in accordance with PRC accounting rules and regulations, at 30 June, 2006, TAGC’s reserve available for distribution to the equity holder of TAGC amounted to approximately RMB569,058,000.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of TAGC Group, TAGC or any of its subsidiaries have been prepared in respect of any period subsequent to 30 June, 2006.

Yours faithfully Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

TAGC is an investment holding company. During the financial years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006, TAGC principally derived its income from the operations of its subsidiaries, and other investments.

During the years/period under review, the subsidiaries and associated companies of TAGC were principally engaged in the manufacture and sale of heavy-duty trucks and motor vehicle parts and accessories (which include heavy-duty vehicle transmissions, spark plugs, chassis, air-conditioner compressors, etc.) for heavy-duty trucks. The TAGC Group is also engaged in the manufacture and sale of metal products (such as metal fencing) and general trading.

(A) INDUSTRY REVIEW

During the financial periods under review below, the subsidiaries and associated companies of TAGC were principally engaged in the manufacture and sale of heavy-duty trucks and related motor vehicle parts and accessories, as revenues generated from these operations accounted for approximately 66.0%, 78.8%, 83.4% and 86.3%, respectively of the TAGC Group’s turnover during the respective years/period. The sales of metal products and general trading accounted for the remaining of the TAGC Group’s turnover. Accordingly, the heavy-duty trucks industry is particularly pertinent to the business of the TAGC Group.

Six months ended 30 June 2006

For the six months ended 30 June 2006, the economy of the PRC continued to record impressive and sustained growth. Gross domestic product in the PRC expanded by approximately 9.9% in 2005 and approximately 10.9% for the six months ended 30 June 2006. In line with the strong economic growth and the rapid urbanization stimulated by the ‘‘11th Five Year Plan’’ of the PRC since October 2005, the heavy-duty truck market showed a significant recovery after the downturn caused by the promulgation of certain industry policies in 2005.

For the six months ended 30 June 2006, sales of heavy-duty trucks in China increased by approximately 9%, as compared with the same period in 2005. This increase was primarily due to the then recent macro-economic upturn, and long-term elimination of overloading limitations, which optimised the heavy-duty truck and chassis market in the PRC.

Year ended 31 December 2005 compared to year ended 31 December 2004

During 2005, the PRC central government implemented a series of austerity measures to cool down infrastructure investments. With effect from 1 April 2005, the central government implemented a new policy of (Vehicles’ Maximum Measurement On Size, Weight and Loading Capacity), which required all truck manufacturers to redesign their truck structures so as to meet certain required standards (in terms of length, height and chassis structure).

The implementation of these governmental measures had had negative impacts on the heavyduty truck manufacturers as compared to the previous year. In China, the total sales of heavy-duty trucks decreased by approximately 36% in 2005, as compared with the same period in 2004.

Year ended 31 December 2004 compared to year ended 31 December 2003

Although the PRC central government implemented a series of macro-economic austerity measures in 2004, the sales of heavy-duty vehicles with a load capacity of 8 tonnes (and above) was not significantly affected. This was primarily due to the increasing market demand for heavy-duty

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APPENDIX IIB

trucks during the year, as a result of the strong development of highway networks and road infrastructure in the PRC. The total sales of heavy-duty vehicles with a load capacity of 8 tonnes (and above) during 2004 rose by approximately 45%, as compared with that of the same period in 2003. Major truck manufacturers engaged in manufacturing heavy-duty vehicles with a load capacity of 15 tonnes (and above) also recorded impressive growth rates from approximately 80% to 150%.

It was then estimated that approximately 80% of the medium to heavy-duty vehicles in the PRC were frequently overloaded in previous years. During the year, the PRC central government cracked down on the widespread practice of truck overloading. Furthermore, toll charges for heavy-duty vehicles with a load capacity of 15 tonnes (and above) was reduced by approximately 30%. All these factors stimulated the demand for heavy-duty vehicles with a load capacity of 15 tonnes (and above) and also accelerated the pace of truck-capacity upgrading in the PRC during the year.

(B) FINANCIAL REVIEW

The information below concerning an analysis of the performance and other financial aspects of the TAGC Group has been prepared based on the accountants’ report prepared by Messrs. Deloitte Touche Tohmatsu in respect of the TAGC Group contained in appendix IIA of this circular.

As set out in that accountants’ report, the TAGC Group disposed of its interests in the Disposed Subsidiaries (as defined therein) in 2003, 2004 and 2005, and accordingly, the books and records of these disposed subsidiaries were not available for auditing purpose. For details, please refer to the accountants’ report set out in appendix IIA to this circular. Accordingly, Messrs. Deloitte Touche Tohmatsu were unable to perform the requisite audit procedures in respect of the accounting records related to those companies. Accordingly, the information and analysis contained in this section below (which has been prepared based on the said accountants’ report) is also subject to the similar constraints.

Six months ended 30 June 2006

Turnover

The TAGC Group recorded a turnover of approximately RMB5,870.1 million during the period, representing an increase of approximately 20.9% compared to that of the six months ended 30 June 2005 of approximately RMB4,856.7 million. This increase was principally due to (i) an increase in the sales of Shaanxi Zhongqi (being a principal subsidiary of TAGC) from approximately RMB1,984.0 million (in the first six months of 2005) to approximately RMB3,115.0 million (in the first six months of 2006). The increase in sales of Shaanxi Zhongqi was due to an increase in the number of heavy-duty trucks sold during the period by approximately 70.8%, from 8,745 units (in the first six months of 2005) to 14,936 units in this period, and (ii) an increase in the turnover of SFGC from approximately RMB1,222.0 million (in the first six months of 2005) to approximately RMB1,407.0 million (in the first six months of 2006), which was due to an increase in the number of heavy-duty truck transmissions sold during the period by approximately 23.5% from 91,625 units (in the first six months of 2005) to 113,157 units.

Gross profit and gross profit margin

Gross profit increased to approximately RMB978.9 million from approximately RMB923.0 million (in the first six months of 2005), representing an increase of approximately 6.1%. The increase was principally due to an increase in turnover in the first half of 2006. However, gross profit margin

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

decreased from approximately 19.0% (in the first six months of 2005) to approximately 16.7% during the period, which was primarily due to the increase in the price of the raw materials (mostly steel) consumed by the TAGC Group.

Distribution costs

Distribution costs (comprising principally direct selling expenses such as promotion and product warranty expenses) increased in tandem with turnover. Such costs increased from approximately RMB226.3 million (representing approximately 4.7% of the turnover of the first six months of 2005) to approximately RMB292.9 million, representing approximately 5.0% of the turnover of the period.

General and administrative expenses

General and administrative expenses increased by approximately 65.4% from approximately RMB230.7 million in the first half of 2005 to approximately RMB381.6 million for the corresponding period in 2006. The increase in general and administrative expenses was mainly due to the increase in turnover. As a percentage of turnover, general and administrative expenses increased from approximately 4.7% to 6.5%.

Finance costs

Finance costs, which principally comprised interest expense, decreased by approximately 13.7% from approximately RMB91.0 million (in the first six months of 2005) to approximately RMB78.5 million in the first half of 2006. This was principally due to a decrease in total bank borrowings, from approximately RMB2,567.3 million as at 30 June 2005 to RMB2,426.0 million as at 30 June 2006.

Net profit attributable to equity holders of TAGC and net profit margin

Net profit attributable to equity holder of TAGC reduced by approximately 49.4% from approximately RMB229.3 million (in the first six months of 2005) to approximately RMB115.9 million for the period. Net profit margin decreased by approximately 3.5% from approximately 8.1% (first six months of 2005) to approximately 4.6% for the period, which was principally due to a higher effective tax rate recorded in this period (the details of which are set out in the section headed ‘‘Taxation’’ below) and a higher pace of increase in costs of sales compared to the increase in turnover between the six months ended 30 June 2005 and 30 June 2006.

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

Year ended 31 December 2005 compared to year ended 31 December 2004

Turnover

Turnover decreased by approximately 35.5% from approximately RMB12,399.8 million in 2004 to approximately RMB7,995.6 million in 2005. The decrease in turnover during the period was principally due to the following factors:

(i) a decline in the heavy-duty trucks industry due to the implementation of a series of macrotightening and austerity measures which slowed down infrastructure investments in China in 2005 and the nation-wide crack-down on truck overloading practices. During the year ended 31 December 2005, the TAGC Group sold 14,449 units of heavy-duty trucks, compared to 27,650 trucks sold in 2004, representing a decrease of approximately 47.7%, which was due in part to the fact that Chongqing Hongyan Automobile (a heavy-duty truck manufacturer) had ceased to be a subsidiary of TAGC since August 2004;
(ii) certain companies ceasing to be subsidiaries of TAGC during the period (including Midwest Air Technologies Inc.) which affected the turnover of the TAGC Group; and
(iii) a decrease in unit sales of heavy-duty vehicle transmissions by SFGC during the period by approximately 31.0%, from 187,524 sets of transmission in 2004 to 129,342 sets in 2005.

Although the total number of the heavy-duty trucks sold by the TAGC Group decreased by approximately 47.7% (2005: 14,449 units; 2004: 27,650 units), as Chongqing Hongyan ceased to be a subsidiary of the TAGC Group in August 2004, the number of the heavy-duty trucks sold by Shaanxi Zhongqi during the period only decreased by approximately 19.8% (2005: 14,449 units; 2004: 18,014 units), which was lower than the industry decline of approximately 36.0%. This was due to the high quality of the products of Shaanxi Zhongqi. Shaanxi Zhongqi commenced large scale commercial production of its new (D’Long) series of heavy-duty trucks in 2005, which was an additional source of income. The (D’Long) series commenced trial production in 2004 and was developed based on a technology transfer agreement between MAN of Germany and Shaanxi Zhongqi.

Gross profit and gross profit margin

Gross profit decreased by approximately 42.9% from approximately RMB2,503.9 million in 2004 to approximately RMB1,428.9 million in 2005. Gross profit margin decreased from approximately 20.2% in 2004 to approximately 17.9% in 2005. This is principally a result of (i) a decrease in the revenue contribution from Shaanxi Zhongqi and SFGC, (ii) an increase in the costs of certain raw materials and parts such as steel and heavy-duty truck wheels, and (iii) SFGC’s incurring depreciation charges upon the commencement of operation of its new production line in 2005.

Distribution expenses

Distribution expenses decreased from approximately RMB684.8 million in 2004 to approximately RMB390.3 million in 2005. As a percentage of turnover, distribution expenses decreased from approximately 5.5% in 2004 to approximately 4.9% in 2005. This was mainly due to the decrease in the turnover of the TAGC Group for the period and the deconsolidation of Chongqing Hongyan since August 2004 as mentioned above.

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

General and administration expenses

General and administration expenses decreased by approximately 16.4% from approximately RMB687.6 million in 2004 to approximately RMB575.1 million in 2005. As a percentage of turnover, general and administration expenses increased from approximately 5.5% in 2004 to approximately 7.2% in 2005. The decrease in 2005 was primarily due to the deconsolidation of Chongqing Hongyan since August 2004 as mentioned above and the decrease in turnover of the TAGC Group.

Finance costs

Finance costs decreased by approximately 13.2% from approximately RMB199.3 million in 2005 to approximately RMB173.0 million for the year. This was principally due to a decrease in total bank borrowings, which was approximately RMB2,567.3 million as at 31 December 2005, as compared to that of approximately RMB2,969.1 million as at 31 December 2004.

Net profit attributable to equity holders of TAGC and net profit margin

Net profit attributable to shareholders decreased from approximately RMB220.6 million in 2004 to approximately RMB150.0 million in 2005, whilst the net profit margin for the year decreased from approximately 5.6% in 2004 to 4.4% in 2005. The decrease in net profit was mainly due to the decrease in turnover in 2005 as discussed above.

Year ended 31 December 2004 compared to year ended 31 December 2003

Turnover

Turnover increased by approximately 12.1% from approximately RMB11,063.3 million in 2003 to approximately RMB12,399.8 million in 2004. The increase in turnover was principally the result of:

(i) a change in the structure of heavy-duty truck market as the demand for high tonnage (namely, 24-tonne (or above)) heavy-duty trucks increased, which benefited Shaanxi Zhongqi, as this was Shaanxi Zhongqi’s principal target market and these trucks commanded higher prices;
(ii) the increase in the sales of the TAGC Group from 23,446 units of trucks sold in 2003 to 27,650 units sold in 2004; and
(iii) an increase in sales of heavy-duty truck transmissions by SFGC by approximately 134.3% from 80,046 sets in 2003 to 187,542 sets in 2004. However, as Chongqing Hongyan ceased to be a subsidiary of TAGC since August 2004, TAGC Group no longer shared it revenue contribution thereafter.

Gross profit and gross profit margin

During the year ended 31 December 2004, gross profit increased by approximately 23.1% from approximately RMB2,034.8 million in 2003 to approximately RMB2,503.9 million in 2004. Gross profit margin increased by approximately 1.8% during the period. This was principally a result of (i) the expansion of the TAGC Group’s trucks and vehicle parts operations during the period, which

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

increased the sales volume of the TAGC Group, and (ii) the increase in costs of sales at a slower pace than the increase in turnover, which was due to the economies of scale achieved by certain of the TAGC Group’s manufacturing operations.

Distribution expenses

Distribution expenses increased from approximately RMB576.6 million in 2003 to approximately RMB684.8 million in 2004. As a percentage of turnover, distribution expenses increased from approximately 5.2% in 2003 to approximately 5.5% in 2004. This was mainly due to the increase in the promotion expense of Shaanxi Zhongqi in order to increase sales and the increase in sales rebates paid to its distributors and agents in tandem with the increase in sales during the period.

General and administration expenses

General and administration expenses increased by approximately 10.4% from approximately RMB622.9 million in 2003 to approximately RMB687.6 million in 2004. As a percentage of turnover, general and administration expenses decreased from approximately 5.6% to 5.5%. The increase in general and administration expenses was mainly due to the expansion of the operations of SFGC, as SFGC increased its turnover by approximately 115.0% and its net profit by approximately 98.0% year on year, which in turn led to an increase in staff costs.

Finance costs

Finance costs decreased by approximately 1.0% from approximately RMB201.3 million in 2003 to approximately RMB199.3 million for the period. This was principally due to the decrease in total bank borrowings, which was approximately RMB2,969.1 million as at 31 December 2004, as compared to that of approximately RMB3,457.6 million as at 31 December 2003.

Net profit attributable to equity holders of TAGC and net profit margin

Net profit attributable to equity holder of TAGC increased from approximately RMB218.3 million in 2003 to approximately RMB220.6 million in 2004, whilst the net profit margin for the year increased from approximately 5.1% in 2003 to approximately 5.6% in 2004. Although there was an increase in turnover and gross profit during the year by approximately 12.1% and 23.1%, respectively, the TAGC Group recorded an increase in net profit in 2004 of only approximately 1.0%, which was mainly due to the impairment loss recognised from TAGC’s investments in two companies and a reversal of impairment loss recognised on amounts due from a then related company during the year, which was partially off-set by a gain arising out of a waiver of a loan in the sum of approximately RMB29.6 million (recognised as ‘‘Other income’’) previously owed by the TAGC Group. The details are set out in the section headed ‘‘(G) Impairment loss recognised and reversed’’ below and in notes 9 and 26 to the accountants’ report set out in appendix II A.

(C) TAXATION

TAGC is an investment holding company. During the financial years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006, the businesses of the TAGC Group were carried out by TAGC’s subsidiaries, and, accordingly, income tax were charged to these subsidiaries separately. The PRC enterprise income tax is charged at the rate of 33%, but as the subsidiaries of TAGC are situated in various parts of the PRC, they are subject to the enterprise income tax regulations and tax privileges available in their respective localities.

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

The TAGC Group’s effective tax rate (being income tax amount divided by profit before taxation) for the financial years ended 31 December 2003, 2004 and 2005 were approximately 21.5%, 17.7% and 22.3%, respectively. These were all lower than the standard tax rate of 33%, which was due principally to the fact that, during such periods, the TAGC Group’s revenue was contributed to a large extent by its heavy-duty trucks and motor vehicle parts divisions, being subsidiaries established in Xi’an, Shaanxi Province and Chongqing, which areas were subject to a preferential tax rate of 15% as a result of the central government’s policy to encourage development in the western part of the PRC.

Accordingly, for the reasons stated above, the TAGC Group’s effective tax rate for the financial year ended 31 December 2005 was approximately 22.3%. The TAGC Group’s effective tax rate for the year ended 31 December 2004 was approximately 17.7%, while its effective tax rate for 2003 was approximately 21.5%.

Chongqing Hongyan was a subsidiary of TAGC in 2003 and was profit making. It was therefore subject to enterprise income tax in 2003. However, Chongqing Hongyan became loss making in 2004 and also ceased to be a subsidiary of TAGC upon a PRC court order made in August 2004. The court order has led to the sale of the TAGC Group’s approximately 10.4% equity interest in Chongqing Hongyan to (Chongqing Heavy Duty Vehicle Group Co. Ltd., being the then 49% equity holder of Chongqing Hongyan) and the proceeds of such sale was used to settle a debt owed by the TAGC Group to Chongqing Hongyan. Accordingly, the fact that Chongqing Hongyan’s turning into a loss and the subsequent disposal of the equity interest in Chongqing Hongyan in 2004 contributed to the decrease in the TAGC Group’s effective tax rate in 2004, as compared to 2003.

Furthermore, Midwest Air Technologies Inc. (then a 75% subsidiary of TAGC) repurchased its 75% equity interests from the TAGC Group and had ceased to be a subsidiary of TAGC during the year. This also contributed to a lower effective tax rate in 2004, as compared to 2003.

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APPENDIX IIB

DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

(D) FINANCIAL POSITION, GEARING RATIO, LIQUIDITY AND FINANCIAL RESOURCES

Assets Non-current assets Current assets excluding cash and bank balances Cash and bank balances (unpledged) Short-term bank loans Other current liabilities Gross assets employed Sources of funding Share capital Reserves Minority interests Long-term bank loans due after one year Gearing ratio	As at 31 December 2003 2004 2005 RMB’000 RMB’000 RMB’000 2,735,422 2,811,177 3,336,222 6,235,083 5,562,206 4,091,926 846,166 367,567 585,402 3,176,912 2,615,024 2,416,356 3,550,402 3,003,938 2,446,453 3,089,357 3,121,988 3,150,741 936,287 936,287 936,287 85,104 383,461 479,545 1,787,252 1,448,173 1,583,939 280,714 354,067 150,970 3,089,357 3,121,988 3,150,741 35.2% 34.0% 32.0%	As at 30 June 2006 RMB’000 3,247,117 5,768,387 581,733 2,200,509 3,907,309 3,489,419
		936,287 591,389 1,736,060 225,683
		3,489,419
		25.3%

The financial position of the TAGC Group continued to improve during the three years ended 31 December 2005 and the six months ended 30 June, 2006. Shareholder’s funds increased by approximately 29.2% in 2004 as compared with that of 2003 and 7.2% in 2005 as compared to that in 2004. The TAGC Group’s gross assets employed also slightly increased throughout those periods.

Gearing ratio, defined as the ratio of total loans outstanding to total assets, was maintained at a relatively stable and reasonable level of between approximately 32.0% to 35.0% during the three years ended 31st December 2005.

The TAGC Group maintained a satisfactory cash position (unpledged) for the three years ended 31 December 2005 and the six months ended 30 June 2006. The Torch Group’s liquidity has remained satisfactory and has sufficient cash and banking facilities to meet its commitment, working capital and future investment requirements.

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

(E) PLEDGE OF ASSETS

The TAGC Group’s pledged its assets (generally comprising land use rights, plant and machinery, trade and bill receivables, bank balances and inventories) to secure banking facilities granted to the TAGC Group. As at 31 December 2003, 2004 and 2005 and 30 June 2006, the assets pledged to banks were stated to be in the value of approximately RMB2,094.0 million, RMB1,359.5 million, RMB1,290.1 million and RMB1,093.2 million, respectively. The decrease in the value of the assets pledged over the said periods was principally due to the continuous decrease in the bank borrowings of the TAGC Group over such periods. Details of such pledges are set out in note 42 to the accountants’ report set out in appendix IIA to this circular.

(F) GAIN (LOSS) ON DISPOSAL OF SUBSIDIARIES, ASSOCIATES AND INVESTMENTS

TAGC is an investment holding company, and it principally derived its income from distributions from its subsidiaries and other investments as well as sale of invested businesses and investments. It has in the past invested in, and disposed of, majority as well as minority holdings in various companies, as the then directors of TAGC (or the relevant subsidiaries holding such interests) deemed appropriate.

Six months ended 30 June 2006

The net gain on disposal of subsidiaries and associates in the amount of approximately RMB148.8 million in the period was principally due to the following disposals by the TAGC Group during this period:

(i) the disposal of a 48.5% equity interest in (Hunan Yingde Gas Co., Ltd.) realising a gain of approximately RMB145.1 million; and
(ii) the disposal of a 55.0% equity interest in (Shanghai Yingdaxin Automobile Electronics Co., Ltd. realizing a gain of approximately RMB3.7 million.

Financial year ended 31 December 2005

The gain on disposal of subsidiaries and associates in the amount of approximately RMB81.6 million in 2005 was principally due to the following disposals by the TAGC Group during this year:

(i) the disposal of a 51% equity interests in (Chongqing Ka Fu Automobile Power Steering System Co. Ltd.) realising a gain of approximately RMB4.7 million;
(ii) the disposal of a 51.0% equity interests in (Qijiang Gear Power Steering Co. Ltd.) realising a gain of approximately RMB53.7 million; and
(iii) the disposal of a 40.6% equity interest in Chongqing Hongyan realising a gain of approximately RMB23.3 million.

Following the financial difficulty of (Xin Jiang D’Long Group, which was then a shareholder of TAGC) in 2004, the TAGC Group recognised an impairment loss in the period of RMB50.0 million in respect of the amount due from a related company, Xin Jiang D’Long Group in the sum of RMB100.0 million. Following InvestCo’s purchase of its approximately 28.12% shares in

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

TAGC and loans aggregating RMB401.1 million due and owing from members of the Xin Jiang D’Long Group to TAGC (the details of which were disclosed in Weichai Power’s circular dated 29 August 2005), a part of the purchase consideration in the sum of RMB50.0 million paid by InvestCo was applied by the vendor to pay TAGC to make good the previous impairment loss of RMB50.0 million in respect of the said amount due from a related company. Accordingly, an impairment loss on amount due from a related company of RMB50.0 million was reversed in 2005.

Financial year ended 31 December 2004

The net loss in disposal of subsidiaries and associates in the amount of approximately RMB18.2 million incurred in 2004 was principally due to the following disposals by the TAGC Group during this period:

(i) the disposal of a 50% equity interest in (China Aerospace Torch Automotive Co. Ltd.) realising a gain of approximately RMB0.9 million. In 2004, the TAGC Group’s principal operating subsidiaries’ business was the manufacture of heavy-duty trucks, whilst China Aerospace Torch Automotive Co. Ltd. was principally engaged in the manufacture of saloon cars. Following the financial difficulties of (Xin Jiang D’Long Group, which was a then shareholder group of TAGC) in
2004, which to a certain extent affected TAGC’s ability to raise further substantial borrowings at that time, and with a view to concentrating its financial resources on the development of its principal business of the manufacture and sale of heavy-duty trucks, TAGC disposed of its 50% equity interest in China Aerospace Torch Automotive Co. Ltd;
(ii) the disposal of an approximately 10.4% equity interest in Chongqing Hongyan realising a loss of approximately RMB2.8 million;
(iii) the disposal of a 75.0% equity interest in Midwest Air Technologies Inc. realising a loss of approximately RMB15.5 million;
(iv) the disposal of a 10.0% equity interest in (Guangzhou Ding Long Communication Equipment Co. Ltd.) realising a loss of approximately RMB0.5 million; and
(v) the disposal of a 54.3% equity interest in (Shaanxi Eurostar Automobile Co. Ltd.) realising a loss of approximately RMB0.4 million.

Financial year ended 31 December 2003

The gain in disposal of subsidiaries and associates in the amount of approximately RMB4.3 million incurred in 2003 was due to the disposal by the TAGC Group during this period in (Wen Ling City Long Jiang Machinery Manufacture Co. Ltd.) realising a gain of approximately RMB4.3 million.

Details of the gain (loss) on disposal of subsidiaries are set out in note 38 to the accountants’ report in appendix IIA in this circular.

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

(G) IMPAIRMENT LOSS RECOGNISED AND REVERSED

TAGC is an investment holding company. During the financial years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006, an impairment loss was recognised when TAGC’s then directors (or the directors of the relevant overseas subsidiaries, as the case may be) formed the view that the carrying amount of the investment exceeded the recoverable amount.

The impairment loss in 2004 was approximately RMB148.0 million. Approximately RMB45.8 million and RMB30.0 million of impairment loss were in respect of the TAGC Group’s 11.2% investment in (New Century Financial Leasing Co. Ltd.) (with respect to 75% of the investment value carried) and 7.5% investment in (Oriental Life Insurance Co. Ltd.) (with respect to 10% of the investment value carried), being associate of (Xin Jiang D’Long Group), following the financial difficulties of the Xin Jiang D’Long Group in 2004. An impairment loss of RMB50.0 million was also recognised in 2004 in respect of the amount due from a related company in the sum of RMB50.0 million held by Xin Jiang D’Long Group for the TAGC Group. MAT Automotive, Inc., a United States incorporated subsidiary of TAGC also recognised an impairment loss of approximately RMB57.3 million in respect of its investment in Australia.

The impairment loss in 2005 was approximately RMB36.1 million. This principally represents further impairment loss with respect to New Century Financial Leasing Co. Ltd. (being 25% of the investment value carried) and Oriental Life Insurance Co. Ltd. (being 50% of the investment value carried).

The impairment loss in 2006 was approximately RMB24.0 million. This principally represents further impairment loss with respect to Oriental Life Insurance Co. Ltd. (being 40% of the investment value carried).

Details of the impairments are set out in notes 9 to the accountants’ report in appendix IIA in this circular.

(H) CAPITAL COMMITMENT AND CAPITAL EXPENDITURE

The TAGC Group’s capital commitments contracted (but not provided for) as at 31 December 2003, 2004 and 2005 and 30 June 2006 were approximately RMB222.6 million, RMB332.3 million, RMB71.6 million and RMB100.3 million, respectively, which were principally contracts for acquisition of property, plant and equipment construction in progress for the upgrade and expansion of the production facilities of Shaanxi Zhongqi and SFGC and investments in associates.

The TAGC Group’s capital expenditures for 2003, 2004 and 2005 and the six months ended 30 June 2006 were approximately RMB1,136.0 million, RMB1,060.6 million, RMB1,317.2 million and RMB580.3 million, respectively, which were primarily for the acquisition of property, plant and equipment and for the upgrade and expansion of the production facilities of Shaanxi Zhongqi and SFGC.

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

(I) CONTINGENT LIABILITIES

Guarantees to banks in respect of the banking facilities of subsidiaries

During the three years ended 31 December 2005 and the six months ended 30 June 2006, TAGC provided guarantees to banks in respect of the banking facilities of its subsidiaries as follows:

	As at 31 December	As at 31 December		As at 30 June
	2003	2004	2005	2006
	RMB’000	RMB’000	RMB’000	RMB’000
Guarantees given to banks
in respect of banking
facilities granted to
subsidiaries	2,938,554	1,228,871	1,070,831	946,350

Guarantees to banks in respect of the banking facilities of associated companies, third parties and related parties

During the three years ended 31 December 2005 and the six months ended 30 June 2006, in addition to the guarantees in respect of the banking facilities of other members of the TAGC Group, the TAGC Group has provided guarantees to banks in respect of the banking facilities of certain associated companies of the TAGC Group, third parties and related parties as follows:

Guarantees given to banks in respect of banking facilities of: — associated companies — third parties — related parties Total:	As at 31 December 2003 2004 2005 RMB’000 RMB’000 RMB’000 114,000 288,500 114,795 328,500 151,950 41,655 61,070 61,070 — 503,570 501,520 156,450	As at 30 June 2006 RMB’000 — 67,765 —
		67,765

As at 30 June 2006

Of the guarantees of the TAGC Group outstanding as at 30 June 2006 in respect of the banking facilities of the then and/or previous associated companies and/or third parties and/or related parties:

(i) approximately RMB19.8 million was in respect of bank loans owed by (Guangzhou Guangyingxin Development Co. Ltd.).
Guangzhou Guangyingxin Development Co. Ltd. is a third party. This guarantee was given by the TAGC Group while Xin Jiang D’Long Group was still a shareholder of TAGC. As compared 31 December 2005, the guaranteed amount outstanding in respect of bank loans owed by Guangzhou Guangyingxin Development Co. Ltd. had reduced by RMB22 million as a result of the repayment of principal and by the further sum of approximately RMB43.2 million as a provision for that amount was made in 2005;

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

(ii) approximately RMB58.0 million was in respect of a bank loan owed by (Hunan Yingde Gas Co., Ltd.). Hunan Yingde Gas Co., Ltd. was
previously an associated company of TAGC, and the TAGC Group disposed of its 48.5% equity interest in it in 2006. However, the bank guarantee given by the TAGC Group while Hunan Yingde Gas Co., Ltd. was still an associated company had not been released.

As at 31 December 2005

Of the TAGC Group’s guarantees outstanding as at 31 December 2005 in respect of the banking facilities of the then and/or previous associated companies and/or third parties:

(i) approximately RMB84.9 million was in respect of bank loans owed by (Guangzhou Guangyingxin Development Co., Ltd.). (Please refer to above for a description of Guangzhou Guangyingxin Development Co. Ltd..);
(ii) approximately RMB58.0 million was in respect of a bank loan owed by (Hunan Yingde Gas Co., Ltd.). (Please refer to above for a description of Hunan Yingde Gas Co., Ltd.);
(iii) approximately RMB56.0 million was in respect of a bank loan owed by (Zhuhai Yingde Gas Co., Ltd.). Zhuhai Yingde Gas Co., Ltd. was a subsidiary of Hunan Yingde Gas Co., Ltd. and hence it was previously an associated company of TAGC. (Please refer to above for a description of Hunan Yingde Gas Co., Ltd.).

During the year ended 31 December 2005, (Guangzhou Guangyingxin Development Co., Ltd. was in financial difficulties, and a provision for loss of approximately RMB43.2 million in respect of the relevant guarantee was made.

As at 31 December 2004

Of the TAGC Group’s guarantees outstanding as at 31 December 2004 in respect of the banking facilities of the then and/or previous associated companies and/or third parties:

(i) approximately RMB60 million was in respect of banking facility of (Heilongjiang Huaguan Technology Co., Ltd.), which was
a third party. The TAGC Group granted this guarantee in consideration of a guarantee provided by Heilongjiang Huaguan Technology Co., Ltd. in respect of a banking facility of the TAGC Group in excess of RMB60 million;
(ii) approximately RMB2.0 million was in respect of a banking facility o (Zhuzhou Torch Enterprise Group No.3 Co.,
Ltd.). Zhuzhou Torch Enterprise Group No.3 Co., Ltd. was a company related to a shareholder of TAGC at the time of TAGC’s initial listing on the Shenzhen Stock Exchange;
(iii) approximately RMB90 million was in respect of the banking facilities of Guangzhou Guangyingxin Development Co. Ltd.;
(iv) approximately RMB58.0 million was in respect of a bank loan owed by Hunan Yingde Gas Co., Ltd.. (Please refer to the above for details);

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DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TAGC GROUP

APPENDIX IIB

(v) approximately RMB56.0 million was in respect of a bank loan owed by Zhuhai Yingde Gas Co., Ltd.. (Please refer to the above for details); and
(vi) approximately RMB174.5 million was in respect of the banking facility of Chongqing Hongyan, which became an associated company of TAGC during the period as a result of the TAGC Group’s disposal of an approximately 10.4% equity interest therein and thereby reducing the TAGC Group’s interest in Chongqing Hongyan to approximately 40.6%.

As at 31 December 2003

Of the TAGC Group’s guarantees outstanding as at 31 December 2003 in respect of the banking facilities of the then and/or previous associated companies and/or third parties:

(i) approximately RMB113.5 million was in respect of banking facilities of Guangzhou Guangyingxin Development Co., Ltd.;
(ii) approximately RMB190.0 million was in respect of banking facilities of Heilongjiang Huaguan Technology Co., Ltd.; and
(iii) approximately RMB10.0 million was in respect of the banking facilities of (Shanghai Sheng Sheng Investment Co., Ltd.). Shanghai Sheng
Sheng Investment Co., Ltd. was a third party and this guarantee was made at the request of Xin Jiang D’Long Group.

(J) EMPLOYEES

As at 31 December 2003, TAGC Group and its associated companies had approximately 27,000 employees, which number decreased to approximately 24,000 employees as at 31 December 2004 , due to the fact that the TAGC Group had disposed its interests in two subsidiaries, (China Aerospace Torch Automobile Co. Ltd.) and Midwest Air Technologies Inc. during the period. As at the end of 2005 and the beginning of 2006, the number of employees of the TAGC Group and its associated companies was further reduced to approximately 15,000 employees, which was principally due to the disposal by the TAGC Group of its interests in (Chongqing Ka Fu Automobile Power Steering System Co. Ltd.), (Qijiang Gear Manufacturing Co. Ltd.) and Chongqing Hongyan in the period.

Pursuant to a shareholders’ resolution adopted in 1998, TAGC will appropriate not more than 5% of its net profit of each financial year to set up five award funds for the purpose of incentivising its senior management.

The employees employed by the TAGC Group in the PRC are members of the state-managed retirement benefits schemes operated by the PRC government. Based on these retirement benefit schemes, the PRC subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefits schemes to fund the benefits. The only obligation of the Torch Group with respect to the retirement benefits schemes is to make the required contributions under the schemes.

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

INTRODUCTION TO THE PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. Introduction

The accompanying unaudited pro forma financial information of the Enlarged Group has been prepared to illustrate the effect of the proposed acquisition by InvestCo of 71.88% interest in TAGC (‘‘Acquisition’’) on the basis that the consideration will be settled by the issue of 190,653,552 Weichai A shares.

The unaudited pro forma combined balance sheet of the Enlarged Group is prepared based upon the unaudited consolidated balance sheet of the Group as at 30 June 2006, which has been extracted from the interim report of the Company for the six months ended 30 June 2006 and the audited consolidated balance sheet of TAGC Group as at 30 June 2006 as extracted from the accountants’ report thereon sets out in Appendix II to this circular as if the Acquisition had been completed on 30 June 2006.

The unaudited pro forma combined income statement and cash flow statement of the Enlarged Group are prepared based on the unaudited consolidated income statement and cash flow statement of the Group for the six months ended 30 June 2006 which have been extracted from the interim report of the Company for the six months ended 30 June 2006 and the audited consolidated income statement and cash flow statement of TAGC Group for the same period as extracted from the accountants’ report sets out in Appendix II to this circular as if the Acquisition had been completed on 1 January 2006.

The unaudited pro forma financial information is prepared to provide information on the Enlarged Group as a result of the completion of the Acquisition. As it is prepared for illustration purpose only, it does not purport to represent what the results or financial position of the Enlarged Group will be on completion of the Acquisition.

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Pro forma balance sheet

As at 30 June 2006

		As at 30 June 2006
NON-CURRENT ASSETS Property, plant and equipment Goodwill Prepaid lease payments Intangible assets Interests in an associates Available-for-sale investments Deposits paid for property, plant and equipment Deferred tax assets CURRENT ASSETS Inventories Trade and bills receivables Deposits, prepayments and other receivables Available-for-sale investments Prepaid lease payments Amounts due from related parties Tax recoverable Pledged bank deposits Bank balances and cash Assets classified as held for sale	The Group RMB’000 (unaudited) 1,619,974 — 59,852 171,115 1,051,058 20,000 312,517 3,913 3,238,429 580,666 1,821,397 240,536 — 1,278 — 193 316,551 403,511 3,364,132 — 3,364,132	TAGC Group Pro forma Adjustments Notes RMB’000 RMB’000 2,856,740 — 3,506,060 (a)(b) 13,152 94,979 115,329 (1,051,058) (b) 25,435 141,482 — 3,247,117 1,504,153 2,670,529 (90,238) (c) 463,669 39,089 608 5,987 — 248,637 581,733 (100,000) (d) 5,514,405 835,715 6,350,120	The Enlarged Group RMB’000 (unaudited) 4,476,714 3,506,060 73,004 266,094 115,329 45,435 453,999 3,913
			8,940,548
			2,084,819 4,401,688 704,205 39,089 1,886 5,987 193 565,188 885,244
			8,688,299 835,715
			9,524,014

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

As at 30 June 2006

		As at 30 June 2006
CURRENT LIABILITIES Trade and bills payables Accruals and other payables Amounts due to related parties Dividends payables Dividends payables to minority shareholders Financial guarantee Tax payable Bank borrowings — due within one year Liabilities associated with assets classified as held for sale NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON CURRENT LIABILITIES Amount due to a related party Bank borrowings — due after one year	The Group RMB’000 (unaudited) 2,254,757 659,189 64,750 54,450 — 53,140 174,059 99,956 3,360,301 — 3,360,301 3,831 3,242,260 92,552 422,532 515,084 2,727,176	TAGC Group Pro forma Adjustments Notes RMB’000 RMB’000 2,503,954 (90,238) (c) 687,613 144,756 4,681 6,842 45,795 152,855 2,200,509 5,747,005 360,813 6,107,818 242,302 3,489,419 — 225,683 225,683 3,263,736	The Enlarged Group RMB’000 (unaudited) 4,668,473 1,346,802 209,506 59,131 6,842 98,935 326,914 2,300,465
			9,017,068 360,813
			9,377,881
			146,133
			9,086,681
			92,552 648,215
			740,767
			8,345,914

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

As at 30 June 2006

CAPITAL AND RESERVES Share capital Reserves Equity attributable to equity holders of the Parent Minority interests	The Group RMB’000 (unaudited) 330,000 2,332,873 2,662,873 64,303 2,727,176	TAGC Group Pro forma Adjustments Notes RMB’000 RMB’000 936,287 (745,633) (a) 591,389 3,100,635 (a)(b)(d) 1,527,676 1,736,060 3,263,736	The Enlarged Group RMB’000 (unaudited) 520,654 6,024,897 6,545,551 1,800,363 8,345,914

Notes to pro forma balance sheet

(a) The goodwill arising on the Acquisition is calculated as follow:

71.88% of the net asset value of TAGC Group at 30 June 2006 (note 1) Goodwill Total consideration (note 2) Satisfied by: Shares Cost of acquisition (note d)	RMB’000 1,098,094 2,884,584
	3,982,678
	3,902,678 80,000
	3,982,678

Notes:

(1) The net assets value of the TAGC Group, based on the carrying amount of the assets and liabilities at 30 June 2006, will be adjusted on the date of completion with reference to the fair value of its assets, liabilities and contingent liabilities at that date.
(2) The amount represents an aggregate of the fair value of the consideration paid of RMB3,902,678,000 calculated on the basis of 190,653,552 Weichai Power A-shares issued at RMB20.47, representing a premium of approximately 4.84% over the closing price per H share of HK$19.08 at the Last Dealing Date, and the cost of acquisition as mentioned in note (d) below.

The fair value of the consideration will be adjusted subsequently with reference to the market price of Weichai Power A shares on the date of issue.

(b) Interests in associates of the Company of RMB1,051,058,000 at 30 June, 2006 represents share of net asset value of 28.12% in TAGC of RMB429,582,000 and goodwill of RMB621,476,000. The goodwill was determined provisionally awaiting for the finalisation of the fair value of the underlying assets and liabilities.
(c) This represents the elimination of the balances between the Group and TAGC Group.
(d) Professional fees attributable to the Acquisition and the conversion of the Company’s existing domestic and foreign shares into A shares are estimated to be approximately RMB100,000,000, of which RMB80,000,000 and RMB20,000,000 is included in the cost of the Acquisition and charged to income statement, respectively.

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Pro forma income statement

For six months ended 30 June 2006

Turnover Cost of sales Gross profit Other income Selling and distribution costs Administrative expenses Research and development expenses Other expenses Gain on disposal of subsidiaries Gain on disposal of associates Impairment loss recognised on investments Finance costs Share of results of associates Profit before taxation Income tax expenses Profit for the period Profit attributable to: Equity holders of the Parent Minority interests	The Group RMB’000 (unaudited) 3,493,590 (2,608,557) 885,033 32,103 (288,982) (149,846) (75,905) (87) — — — (27,823) 16,523 391,016 (70,351) 320,665 318,742 1,923 320,665	TAGC Group RMB’000 5,870,070 (4,891,179) 978,891 38,889 (292,911) (381,597) — (9,481) 3,709 145,131 (24,005) (78,539) (6,988) 373,099 (104,172) 268,927 115,915 153,012 268,927	Pro forma Adjustments Notes RMB’000 (886,163) (a) 872,991 (a)(b) (20,000) (d) (16,523) (c) 1,976 (b) (105,986) (b)(c)(d)(e) 58,267 (b)(e)	The Enlarged Group RMB’000 (unaudited) 8,477,497 (6,626,745) 1,850,752 70,992 (581,893) (551,443) (75,905) (9,568) 3,709 145,131 (24,005) (106,362) (6,988) 714,420 (172,547) 541,873 328,671 213,202 541,873

Notes to the pro forma income statement

(a) This represents the elimination of inter-company sales and purchases of approximately RMB886,163,000 between the Group and TAGC Group.

(b) This represents the elimination of unrealised profit on inventory of RMB13,172,000 (including taxation of RMB1,976,000 and minority interests of RMB5,486,000) in respect of goods sold by the Group to TAGC Group at 30 June 2006.

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APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(c) This represents the reversal of profit of TAGC Group shared by the Group for the six months ended 30 June 2006 using equity method of accounting.
(d) Professional fees attributable to the conversion of the Company’s existing domestic and foreign shares into A-shares are estimated to be approximately RMB20,000,000 which are charged to the income statement.
(e) The Company held 45% interests in InvestCo at 1 January, 2006, which had 28.12% interests in TAGC, and the remaining 55% interests in InvestCo were acquired by the Company and completed in June 2006 (‘‘InvestCo Completion’’).

The pro forma income statement is prepared as if the Acquisition had been completed on 1 January 2006 and an adjustment of RMB63,753,000, representing the 55% interests of InvestCo in the profit attributable to the equity holders of TAGC prior to the InvestCo Completion, was recognised.

Pro forma condensed cash flow statement

For six months ended 30 June 2006

OPERATING ACTIVITIES Net cash from operating activities INVESTING ACTIVITIES Acquisition of subsidiary Purchase and deposit paid of property, plant and equipment Proceeds from disposal of associates Other investing cash flows Net cash outflow from investing activities FINANCING ACTIVITIES Repayment of bank borrowings Bank borrowings raised Advance from (repayment to) associates Other financing cash flows Net cash outflow from financing activities	The Group RMB’000 (unaudited) 604,008 (684,742) (264,712) — 62,592 (886,862) (179,485) — 213,240 (57,386) (23,631)	TAGC Group Pro forma Adjustments Note RMB’000 RMB’000 385,981 (10,923) 485,402 (a)(b) (597,491) 292,243 52,622 (263,549) (908,746) 891,197 (33,002) (11,754) (62,305)	The Enlarged Group RMB’000 (unaudited)) 989,989 (210,263) (862,203) 292,243 115,214 (665,009) (1,088,231) 891,197 180,238 (69,140) (85,936)

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS AT END OF PERIOD	The Group RMB’000 (unaudited) (306,485) — 709,996 403,511	For six months ended 30 June 2006 TAGC Group Pro forma Adjustments Note RMB’000 RMB’000 60,127 5,292 585,402 (585,402) (a) 650,821	The Enlarged Group RMB’000 (unaudited)) 239,044 5,292 709,996
			954,332

Note:

(a) This represents the adjustment on the cash and cash equivalents of RMB585,402,000 as at 1 January 2005 of TAGC Group.

(b) This represents the settlement of professional fee of RMB100,000,000 attributable to the Acquisition.

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PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

==> picture [121 x 55] intentionally omitted <==

==> picture [76 x 33] intentionally omitted <==

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF WEICHAI POWER CO., LTD.

We report on the unaudited pro forma financial information of Weichai Power Co., Ltd. (the ‘‘Weichai Power’’) and its subsidiaries (hereinafter collectively referred to as ‘‘Weichai Power Group’’) sets out on page 255 in Appendix III to the circular dated 12 November, 2006 (the ‘‘Circular’’), which has been prepared by the directors for illustration purpose only, to provide information about how the acquisition of 71.88% equity interests in Torch Automobile Group Co., Limited (the ‘‘Acquisition’’) might have affected the financial information presented. The basis of preparation of the unaudited pro forma financial information is set out in page Appendix III to the Circular.

Respective responsibilities of directors of the Company and the reporting accountants

It is the responsibility solely of the directors of Weichai Power to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 ‘‘Accountants’ Reports on Pro Forma Financial Information in Investment Circulars’’ issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of Weichai Power. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of Weichai Power on the basis stated, that such basis is consistent with the accounting policies of the Weichai Power Group and that the adjustments are appropriate for the purpose of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

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APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The unaudited pro forma financial information is for illustration purpose only, based on the judgements and assumptions of the directors of Weichai Power, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of:

the financial position of the Weichai Power Group as at 30 June 2006 or at any future date; or
the results and cash flows of the Weichai Power Group for the six months ended 30 June 2006 or for any future period.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of Weichai Power on the basis stated;
(b) such basis is consistent with the accounting policies of Weichai Power; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong 12 November 2006

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MERGER AGREEMENT

APPENDIX IV

(This is not an official translation of the original Merger Agreement. In the event of any discrepancy, the Chinese version shall prevail.)

WEICHAI POWER CO., LTD.

and

TORCH AUTOMOBILE GROUP CO., LTD

Merger Agreement

12 November 2006

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MERGER AGREEMENT

APPENDIX IV

Clause 1 Definitions Clause 2 The Merger (1) The Merger
(2) Registered capital and total number of shares of the Surviving Company (3) Consideration for the Merger
(4) Conditions of the Merger
(5) Completion of the Merger Clause 3 The Share Exchange
(1) Subject of the Share Exchange
(2) Shares to be exchanged
(3) Shares to be received
(4) Share Exchange price and Exchange Ratio
(5) Disposition of fractions of Shares
(6) Disposition of the Share Exchange of the Shares to be exchanged with restricted rights (7) Assumption of the expenses of the Share Exchange
(8) Listing of Shares to be received subsequent to the Share Exchange
Clause 4 The Cash Alternative of TAGC Shareholders (1) Subject who are entitled to the Cash Alternative
(2) Electing the Cash Alternative
(3) Consideration for electing the Cash Alternative
(4) Settlement and Clearing of Shares in respect of which the Cash Alternative has been elected (5) Related taxes and expenses Clause 5 Exit Rights of Dissenting Shareholders of Weichai Power
(1) Subject who are entitled to the Exit Rights of Dissenting Shareholders
(2) Exercising the Exit Rights of Dissenting Shareholders
(3) Consideration for purchase by third parties of all Shares held by Dissenting Shareholders (4) Settlement and Clearing of Shares in respect of which the Exit Rights of Dissenting Shareholders has been exercised
(5) Related taxes and expenses
Clause 6 Exchange of Original Domestic Shares and Unlisted Foreign Shares of Weichai Power
Clause 7 Representations, warranties and undertakings of Weichai Power Clause 8 Representations, warranties and undertakings of TAGC Clause 9 Relevant arrangements for the Transitional Period
Clause 10 Operations and administration of the Surviving Company
Clause 11 Articles of the Surviving Company
Clause 12 Directors, supervisors, senior management and staff
Clause 13 Assignment of debt obligations and assumption of assets
Clause 14 Assumption of relevant taxes and expenses Clause 15 Amendment and termination of the Agreement Clause 16 Liability for breach Clause 17 Force majeure Clause 18 Applicable law and dispute resolution
Clause 19 Notices
Clause 20 Supplementary provisions

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MERGER AGREEMENT

APPENDIX IV

Acquiring Party:

Weichai Power Co., Ltd. (hereinafter referred to as ‘‘Weichai Power’’)

Address: 197A Fu Shou East Street, High Technology Industrial Development Zone, Weifang, Shandong Province Legal Representative: Tan Xuguang Postal Code: 261061

Acquired Party:

Torch Automobile Group Co., Ltd. (hereinafter referred to as ‘‘TAGC’’)

Address: 1 Huanghe S. Road, Hexi, Zhuzhou City, Hunan Province Legal Representative: Tan Xuguang Postal Code: 412001

WHEREAS:

Weichai Power, a joint stock limited company duly established and validly existing, was registered and incorporated with the Administration of Industry and Commerce of Shandong Province (registration number: 3700001807810).

Weichai Power is a listed company whose overseas listed foreign shares are issued to the public and listed on the Main Board of the Hong Kong Stock Exchange (Stock code: 2338). The total number of shares of Weichai Power is 330,000,000, of which 126,500,000 shares are overseas listed foreign shares, accounting for 38.33% of the total number of shares.

TAGC, a joint stock company duly established and validly existing, was registered and incorporated with the Administration of Industry and Commerce of Hunan Province (registration number: 4300001000391).

TAGC is a listed company whose domestically listed domestic shares are issued to the public and listed on the Shenzhen Stock Exchange (Stock Code: 000549). The total number of shares of TAGC is 936,286,560, of which 598,609,440 shares are domestic listed domestic shares, accounting for 63.93% of the total number of shares. TAGC has not yet completed implementing the Split Share Structure Reform.

Weichai Power holds 263,279,520 non-tradable shares in TAGC (accounting for 28.12% of the total number of shares of TAGC) through Weichai Power (Weifang) Investment Co., Ltd., its whollyowned subsidiary, which, as at the execution date of the Agreement, is the largest shareholder of TAGC.
Both the boards of directors of Weichai Power and TAGC have held respective meetings to consider and discuss the major issues involved in the Merger of TAGC by Weichai Power and the implementation of the Split Share Structure Reform of TAGC and reached a unanimous decision by agreeing to implement the related proposals of the Merger of TAGC by Weichai Power and the Split Share Structure Reform of TAGC concurrently. The independent directors of TAGC have given their

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MERGER AGREEMENT

APPENDIX IV

respective independent opinions that carrying out the related proposals of the Merger of TAGC by Weichai Power and the Split Share Structure Reform of TAGC concurrently would not harm the legal interests of respective investors.

Accordingly, in accordance with the provisions of the Company Law of the People’s Republic of China and the Contract Law of the People’s Republic of China and the relevant laws, regulations and regulatory documents and after friendly consultation and negotiations, both parties have reached the following agreement in respect of the matters relating to the Merger and the Split Share Structure Reform of TAGC.

CLAUSE 1 DEFINITIONS

For the purpose of the Agreement, unless otherwise specified in the Agreement or where the context requires, the following terms herein shall have the meanings set out below.

‘‘Acquiring Party’’ or	Weichai Power Co., Ltd.
‘‘Weichai Power’’
‘‘Acquired Party’’ or	Torch Automobile Group Co., Ltd.
‘‘TAGC’’
‘‘Surviving Company’’	Weichai Power Co., Ltd., which shall survive subsequent to the
	implementation and completion of the Merger
‘‘Weichai Investment’’	Weichai Power (Weifang) Investment Co., Ltd., a wholly-owned
	subsidiary of Weichai Power and the existing largest shareholder of
	TAGC
‘‘Zhuzhou State Assets Co’’	Zhuzhou State-owned Assets Administration Management Company
	Limited
‘‘A Shares’’	Domestic shares listed in the PRC
‘‘H Shares’’	overseas listed foreign shares issued by Weichai Power and listed on
	the Main Board of the Hong Kong Stock Exchange
‘‘Merger or Merger by	actions or matters by Weichai Power in relation to the issuance of A
Absorption’’	Shares as a consideration for the Merger with TAGC, the listing of all
	shares of Weichai Power (save for the H Shares outstanding) on the
	Shenzhen Stock Exchange, the de-listing and cancellation of corporate
	legal person status of TAGC, and the assumption of all assets and
	liabilities of TAGC by Weichai Power
‘‘Split Share Structure	actions or matters in relation to the cancellation of the split of shares
Reform’’	between non-tradable and tradable shareholders of TAGC by means of
	the Merger

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MERGER AGREEMENT

APPENDIX IV

‘‘Subject of the Share	TAGC shareholders who are entitled to opt for Share Exchange (i.e. all
Exchange’’	TAGC tradable shareholders whose names appear on the register of
	members of TAGC at the close of business of Shenzhen Stock
	Exchange on the registration date of entitlement in respect of the
	Merger and who do not elect for the Cash Alternative), Zhuzhou State
	Assets Co and third parties who have obtained TAGC Shares by
	payment of cash consideration due to the election of Cash Alternative
	by TAGC tradable shareholders in the Merger. For the purposes of the
	Merger by Share Exchange, the Subject of the Share Exchange
	excludes Weichai Investment
‘‘Share Exchange’’	actions or matters in respect of the exchange for shares to be issued by
	Weichai Power for the Merger with the TAGC shares held by the
	Subject of the Share Exchange in the Merger
‘‘Exchange Ratio’’	the ratio of exchange of every 3.53 shares of TAGC Shares for 1
	Weichai Power Share to be issued for the Merger in accordance with
	the Agreement of the Merger
‘‘SASAC’’	State-owned Assets Supervision and Administration Commission
	under the State Council
‘‘MOC’’	The Ministry of Commerce of the PRC
‘‘CSRC’’	China Securities Regulatory Commission
‘‘Hong Kong Stock	The Stock Exchange of Hong Kong Limited
Exchange’’
‘‘Clearing Corporation’’	China Securities Depository & Clearing Corporation Limited,
	Shenzhen Branch
‘‘Approving Authorities’’	SASAC, CSRC and/or other authorities, organisations or departments
	of the State which have the approving authority over the Merger
‘‘Base Date of the Merger’’	30 June 2006, the base date for the audit of the Merger
‘‘Effective Date of the	The date on which all Conditions of the Agreement are satisfied
Merger’’	(including unfulfilled conditions that have been waived according to
	the provisions of the Agreement) and all approvals and permissions are
	granted by relevant Approving Authorities in relation to the Merger
‘‘Completion Date of the	The date on which all changes in industry and commerce registration
Merger’’	particulars in respect of the Merger have been completed by Weichai
	Power (as the Surviving Company)
‘‘Transitional Period’’	The period between the execution date of the Agreement and the
	Completion Date of the Merger

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‘‘Registration Date for Implementing the Merger’’
A date to be mutually determined by both parties to the Merger according to the progress of implementation and approvals of the Merger and announced in the PRC (for the purpose of the Agreement, excludes Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan) and the Hong Kong Special Administrative Region, which date must be a trading day of Shenzhen Stock Exchange. Shareholdings of the TAGC shareholders as at the close of business on that day shall be the basis for the Share Exchange or the election of Cash Alternative by the Subject of the Share Exchange
‘‘Cash Alternative’’
The right to obtain cash consideration and transfer of shares by selling all or part of the TAGC Shares (apart from those whose rights are restricted) held by TAGC tradable shareholders (whose names appear on the register of members kept by China Securities Depository & Clearing Corporation Limited, Shenzhen Branch at the close of business of Shenzhen Stock Exchange on the Registration Date for Implementing the Merger) at a prescribed price on the Effective Date of the Merger to third parties who will pay a cash consideration
‘‘Dissenting Shareholders’’ Shareholders of Weichai Power who have participated in the relevant general meetings held for the purpose of approving the Merger and objected to the Merger
‘‘Assenting Shareholders’’ Shareholders of Weichai Power who have participated in the relevant general meetings held for the purpose of approving the Merger and assented to the Merger
‘‘Company Law’’ The Company Law of the People’s Republic of China
‘‘RMB’’ Renminbi

CLAUSE 2 THE MERGER

(1) The Merger
Both parties to the Agreement agreed that, pursuant to the terms and subject to the conditions of the Agreement, Weichai Power and TAGC would be merged by means of absorption. Weichai Power will be the Acquiring Party and TAGC will be the Acquired Party. After completion of the Merger:
- i) TAGC will be de-listed with its corporate legal person status being cancelled and Weichai Investment will also be dissolved and cancelled. All the assets, liabilities and undertakings of TAGC and Weichai Investment will be assumed by Weichai Power.
- ii) The registered capital and shareholding structure of Weichai Power will be changed correspondingly, while its place of registration, form of organization, legal representatives and company name will remain unchanged.

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  - 3) The management and staff of Weichai Power will continue to hold their original positions in accordance with their employment agreements with Weichai Power. Should there be any business needs subsequent to the Merger, proper deployment will be made for the management and staff of TAGC by Weichai Power.

As a result of the Merger, the amended new Articles (draft) have already been drafted by Weichai Power, which will be the Articles of the Surviving Company, will come into effect on the Completion Date of the Merger.
Prior to completion of the Merger, members of the board of directors and/or the supervisory committee of Weichai Power will be deployed appropriately in accordance with the relevant requirements of CSRC regarding A share companies.
Subsequent to the Effective Date of the Merger and prior to the Completion Date of the Merger, TAGC shall transfer its documents (including various certificates, files, financial information and customer information which Weichai Power considers as necessary) during the period of its operation to Weichai Power.
As the Merger and the Split Share Structure Reform of TAGC will be carried out concurrently, the consideration of the Merger will be the issue of A Shares by Weichai Power. Accordingly, the Merger, the Split Share Structure Reform of TAGC and the issue of A Shares by Weichai Power will be carried out concurrently.
The Merger and the Split Share Structure Reform of TAGC will be carried out concurrently. Immediately prior to the Merger, Zhuzhou State Assets Co will transfer (by way of gift) a total of 20,951,330 TAGC Shares to the TAGC tradable shareholders at the ratio of 10: 0.35, i.e. 0.35 TAGC Share to be given for every 10 TAGC Shares held by a TAGC tradable shareholder as consideration for the Split Share Structure Reform of TAGC. Each of the TAGC tradable shareholders will carry out the Share Exchange under the Agreement or elect the Cash Alternative with their shareholdings subsequent to the above gift. Zhuzhou State Assets Co will carry out the Share Exchange under the Agreement with the TAGC shares held after it has given away the said 20,951,330 shares.
Both parties have agreed that the Base Date of the Merger would be 30 June 2006, which would also be the base date for audit of the financial conditions of both parties.
If, at any time subsequent to the Effective Date of the Merger, the Surviving Company considers or has been advised that it is required to make corresponding arrangements in order to grant, complete or confirm any rights and interests that the Surviving Company has obtained or will obtain from Weichai Power or TAGC and its assets as a result of the Merger or implementing the Agreement, other officers authorised by the directors or the board of directors of the Surviving Company should be authorised to make such arrangements in the name of or on behalf of Weichai Power or TAGC.
(2) Registered capital and total number of shares of the Surviving Company
On the execution date of the Agreement, the registered capital of Weichai Power is RMB330 million and the total number of shares outstanding is 330 million shares.

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APPENDIX IV

Subsequent to completion of the Merger, the TAGC shares held by other TAGC shareholders (other than Weichai Investment) will be exchanged at the ratio of 3.53 shares for one new A Share issued by Weichai Power, or the shares finally issued by third parties and Weichai Power through exercise of the Cash Alternative will be exchanged at the ratio of 3.53: 1, to a total of 190,653,552 shares of the Surviving Company.
Subsequent to completion of the Merger, the registered capital and the total number of shares of the Surviving Company will be adjusted correspondingly to RMB520,653,552 and 520,653,552 shares respectively.

(3) Consideration for the Merger

In the Merger, TAGC Shareholders (other than Weichai Investment) may exchange the TAGC shares held by them with the Weichai A Shares at the Exchange Ratio of 3.53: 1 (i.e. 3.53 TAGC shares for one Weichai A Share), or receive corresponding cash consideration at a price of RMB5.05 per share by electing the Cash Alternative. For Weichai Power, the consideration payable for the Merger is the issue of 190,653,552 A Shares to the TAGC Shareholders who are the Subject of the Share Exchange and/or the third parties who have paid for the cash consideration for the Merger.

(4) Conditions of the Merger

The Merger having been passed by at least two-thirds of the voting rights held by shareholders (including their proxies) present at the general meeting, the domestic share and unlisted foreign share class meeting and the H Share class meeting of Weichai Power respectively, the Articles of the Surviving Company having been passed by at least two-thirds of the voting rights held by shareholders (including their proxies) present at the general meeting of Weichai Power and the Merger having been passed by at least two-thirds of the voting rights held by all shareholders (including their proxies) present at the general meeting and the relevant shareholders’ meeting of TAGC respectively (with the related parties abstaining).
The disposal of the state-owned shares and the Split Share Structure Reform of TAGC involved in the Merger and the related matters having been approved by the state-owned assets supervision and administration authority.
The Merger and the related matters having been approved by the CSRC.
The related matters involved in the Merger having been approved by MOC.
Confirmation that the third parties to the Merger and the Split Share Structure Reform having secured sufficient funds or finance for the purposes of paying the cash consideration to TAGC Tradable Shareholders who have elected the Cash Alternative.
The Framework Agreement for the Debt Restructuring of Torch Automobile Group Co., Ltd. entered into between TAGC and certain of its creditors on 18 April 2006 having obtained the approval of the State Council (unless the related loans have already been repaid).
Both parties to the Merger may agree to waive any one or part of the above Conditions in writing, provided that it has not been compulsorily required by any laws, regulations or competent regulatory departments.

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(5) Completion of the Merger

Completion of the Merger will take place on the date when TAGC completes its Split Share Structure Reform and cancellation of industry and commerce registration procedure, the A Shares issued by the Surviving Company for the purpose of the Merger are listed pursuant to the approval of the Shenzhen Stock Exchange and the corresponding procedures of changing its industry and commerce registration particulars are completed.

CLAUSE 3 THE SHARE EXCHANGE

(1) Subject of the Share Exchange

The Subject of the Share Exchange comprises Zhuzhou State Assets Co. and all tradable shareholders whose names appeared on the register of members of TAGC at the close of business of Shenzhen Stock Exchange on the Registration Date for Implementing the Merger and the third parties who will obtain the TAGC Shares by paying cash consideration upon election of the Cash Alternative by tradable shareholders.

(2) Shares to be exchanged

The Shares to be exchanged in the Share Exchange are the TAGC Shares issued by TAGC, which are RMB-denominated ordinary shares at a nominal value of RMB1 per share, and either held or obtained by the Subject of the Share Exchange.

(3) Shares to be received

The Shares to be received in the Share Exchange are the A Shares to be issued by Weichai Power for the Merger, at a nominal value of RMB1 per share.

(4) Share Exchange price and Exchange Ratio

In the Share Exchange, the prices of the A shares of Weichai Power and TAGC shares are RMB20.47 per share and RMB5.80 per share, respectively.

The Exchange Ratio of the Merger is 3.53: 1, i.e. one Weichai Power A Share to be issued as a result of the Merger for every 3.53 TAGC Shares held by Zhuzhou State Assets Co, TAGC Tradable Shareholders and the third parties who have obtained TAGC Shares by paying cash consideration upon election of Cash Alternative by TAGC Tradable Shareholders.

(5) Disposition of fractions of Shares

Subsequent to completion of the Share Exchange, the number of Weichai Power Shares to be obtained by the Subject of the Share Exchange shall be in whole numbers. If the quotient of dividing the TAGC Shares held by the Subject of the Share Exchange by the Exchange Ratio is not a whole number, the fractions of the shares held by the Subject of the Share Exchange will be given out randomly when they are exchanged for the shares received, until the actual number of shares exchanged is equal to the total number of shares planned to be issued by Weichai Power.

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(6) Disposition of Share Exchange of the Shares to be exchanged with restricted rights
In respect of TAGC Shares held by the directors, supervisors and senior management of TAGC which are subject to temporary lock-up, the method of Share Exchange and the disposition of fractions of shares shall be the same as the other shares exchanged.
In respect of the TAGC Shares which have been subject to pledge, other third-party rights or judicial moratorium, such shares will be exchanged for Weichai Power Shares in the Share Exchange and the original pledge, other third-party rights or judicial moratorium on TAGC Shares shall remain unchanged on the corresponding Weichai Power Shares exchanged.

(7) Assumption of expenses of the Share Exchange

Expenses incurred on the Share Exchange by the Subject of the Share Exchange, such as the registration fee for change of shareholding, will be implemented according to relevant laws and regulations, the requirements of the Clearing Corporation and the usual practices of the stock market.

(8) Listing of Shares to be received subsequent to the Share Exchange

Upon completion of the Merger, the shares received will be listed pursuant to the approval of the Shenzhen Stock Exchange.

CLAUSE 4 THE CASH ALTERNATIVE OF TAGC SHAREHOLDERS

(1) Subject who are entitled to the Cash Alternative
In order to safeguard the interests of TAGC Shareholders and to avoid investment losses that might be incurred as a result of uncertainties arising from the fluctuations in share prices of the Surviving Company subsequent to the Merger, both parties unanimously agreed to offer a Cash Alternative to TAGC shareholders, other than Weichai Investment, whose names appeared on the register of members kept by the Clearing Corporation at the close of business of the Shenzhen Stock Exchange on the Registration Date for Implementing the Merger.
Provided that TAGC Shareholders holding or accepted to hold (1) TAGC Shares subject to lockup held by directors, supervisors and senior management of TAGC; (2) TAGC Shares subject to pledge, other third-party rights or judicial moratorium; (3) shares held by shareholders who have committed to Weichai Power and TAGC that they will elect the Share Exchange and waive the Cash Alternative; and (4) other shares in respect of which the election of the Cash Alternative is not permitted shall not be entitled to elect the Cash Alternative in respect of the aforesaid shares and can only carry out the Share Exchange in accordance with the provisions of the Agreement.
Both parties to the Agreement hereby confirm that Zhuzhou State Assets Co has waived to elect the Cash Alternative pursuant to a letter of undertaking it has furnished.

(2) Electing the Cash Alternative

TAGC Tradable Shareholders who are entitled to elect the Cash Alternative shall do so through the Shenzhen Stock Exchange System within the prescribed period, namely the reporting period for electing the Cash Alternative. Such shareholders may elect the Cash Alternative in respect of all or part of the TAGC shares held by them.

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(3) Consideration for electing the Cash Alternative

TAGC Tradable Shareholders electing the Cash Alternative shall receive a cash consideration of RMB5.05, payable by the third parties, for each TAGC Share so elected.

(4) Settlement and Clearing of Shares in respect of which the Cash Alternative has been elected

Subsequent to expiry of the reporting period for electing the Cash Alternative, both parties to the Merger shall negotiate with the third parties to determine the ratio and amount of shares to be allocated among such third parties (provided that no negotiation shall be necessary if there is only one single third party). Third parties shall, upon the request of competent authorities or departments, deposit the relevant amounts into the designated bank account within a stipulated period of time. Both parties to the Agreement confirm they will arrange with certain third parties and procure that, subsequent to Completion of the Merger, the number of shares held by any single third party shall not exceed those held by Weichai Diesel Factory.
Both parties to the Merger shall complete clearing and settlement procedures in respect of the Cash Alternative in association with the third parties and relevant authorities or departments by transferring shares in respect of which the Cash Alternative has been elected to the account of the third parties and depositing the cash consideration received in connection therewith into the capital accounts of relevant shareholders.

(5) Related taxes and expenses

Taxes and expenses relating to the election of the Cash Alternative by TAGC Tradable Shareholders shall be payable in accordance with relevant laws, regulations, rules of the Clearing Corporation and the usual practices of the stock market.

CLAUSE 5 EXIT RIGHTS OF DISSENTING SHAREHOLDERS OF WEICHAI POWER

(1) Subject who are entitled to the Exit Rights of Dissenting Shareholders

Pursuant to the Company Law and the Articles of Weichai Power, Weichai Power Shareholders who have voted against the Merger at the general meeting convened for the purpose of approving the Merger shall have the right to demand the acquisition of their shares at a fair price by Weichai Power or the assenting shareholders of Weichai Power (‘‘Assenting Shareholders’’) of the Merger.
For Weichai Power Shares subject to lock-up held by Directors, Supervisors and senior management of Weichai Power and Weichai Power Shares subject to pledge, other third-party rights or judicial moratorium, Weichai Power Shareholders holding the said Weichai Power Shares shall not be entitled to claim any Exit Rights of Dissenting Shareholders.
Each of the promoter legal person shareholders, such as Weichai Diesel Engine Works and Weifang Investment Company, may be deemed to have waived its respective Exit Rights of Dissenting Shareholders by furnishing a letter of undertaking that they will not transfer their holdings of Weichai Power Shares within three years subsequent to the issue of A shares by Weichai Power.

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APPENDIX IV

(2) Exercise of the Exit Rights of Dissenting Shareholders

Dissenting Shareholders shall apply to Weichai Power or the Assenting Shareholders for the exit rights of acquiring their shares at fair prices within thirty days after the conditions of the Merger are satisfied or become unconditional. Such Dissenting Shareholders may exercise the Exit Rights of Dissenting Shareholders in respect of all or part of their Weichai Power Shares.

If those Dissenting Shareholders electing to request any Assenting Shareholders to acquire their shares at fair prices, Weichai Power shall, at the request of the Assenting Shareholders, take up any reasonable obligations of the Assenting Shareholders to those Dissenting Shareholders, provided that: (1) the Assenting Shareholders shall submit written requests and withdrawal requests (if any) or other documents required in accordance with the Company Law or the Articles of Weichai Power for acquiring shares at fair price to Weichai Power; (2) the Assenting Shareholders shall provide Weichai Power with the opportunity to lead all negotiations and procedures relating to the determination of the fair price under the Articles of Weichai Power; and (3) unless otherwise agreed in writing beforehand by Weichai Power, those Assenting Shareholders electing to request Weichai Power to take up the aforesaid obligations shall not initiate to determine any fair price or initiate to support any confirmed fair price nor resolve or propose any request to resolve any confirmed fair price.

Weichai Power will be entitled to arrange any third parties to acquire the shares to be disposed upon the request of such Dissenting Shareholders of Weichai Power. Under this circumstance, those Dissenting Shareholders shall not be entitled to claim any Exit Rights of Dissenting Shareholders from Weichai Power or any Assenting Shareholders any more.

Despite the aforesaid provision, in the event that any Dissenting Shareholder withdraws or loses (due to non-fulfilment of the Conditions or failure to apply within thirty days after the conditions of the Merger are satisfied or become unconditional or other reasons) the said Exit Right of Dissenting Shareholders, such shareholder shall, like the Assenting Shareholders, become a shareholder of the Surviving Company.

(3) Consideration for purchase by third parties of all Shares held by Dissenting Shareholders

The price per share at which third parties shall acquire shares held by Dissenting Shareholders of Weichai Power shall be determined in accordance with the requirement of the above Clause 5(2).

(4) Settlement and Clearing of Shares in respect of which the Exit Rights of Dissenting Shareholders has been exercised

Both parties to the Merger shall complete clearing and settlement procedures in respect of the Exit Rights of Dissenting Shareholders of Weichai Power in association with the third parties and relevant authorities or departments by transferring the said shares in respect of which the Exit Rights of Dissenting Shareholders has been exercised to the accounts of third parties acquiring the said shares and depositing cash consideration received in connection therewith into the capital accounts of the relevant Weichai Power Dissenting Shareholders.

(5) Related taxes and expenses

Taxes and expenses relating to exercising the Exit Rights of Dissenting Shareholders by Weichai Power shareholders shall be payable in accordance with relevant laws, regulations, rules of the Clearing Corporation and the usual practices of the stock market.

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CLAUSE 6 EXCHANGE OF ORIGINAL DOMESTIC SHARES AND UNLISTED FOREIGN SHARES OF WEICHAI POWER

Subsequent to completion of the Merger, the original domestic shares and unlisted foreign shares of Weichai Power shall both become restricted A Shares.

CLAUSE 7 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS OF WEICHAI POWER

As at the execution date of the Agreement, Weichai Power is a joint stock limited company validly established and legally existing in accordance with the laws, regulations and regulatory documents of the PRC. Weichai Power has the legal right to execute and perform the Agreement and assume corresponding obligations and responsibilities. The Agreement, once executed, shall have binding effect on Weichai Power and will not be revoked or declared null and void pursuant to the laws.
Particular items of information, facts, related data or major matters provided or disclosed by Weichai Power in writing to TAGC for the formulation and implementation of the Agreement are true, accurate and complete, and do not contain any misrepresentations, material omissions or other matters that will intentionally mislead TAGC or other related parties.
The execution and performance of the Agreement by Weichai Power have been approved by the board of directors. For the outstanding authorisations, licences and approvals that are required in order to effect and perform the Agreement, Weichai Power shall actively take all feasible and necessary actions and measures pursuant to the laws, regulations and regulatory documents of the PRC to obtain such authorisations, licences and approvals; execute and provide all information and documents that should be provided by Weichai Power in relation to the Merger and the Split Share Structure Reform; and perform the relevant obligations.
Weichai Power shall actively discharge its obligations in relation to information disclosure of the Merger and the Split Share Structure Reform.
As at the execution date of the Agreement, Weichai Power is not involved in any disputes, litigations, arbitrations or administrative penalties that will constitute any material effect or interruption on the Merger.
Weichai Power has several subsidiaries and its equity investments in these companies are true, legal and valid. There are no disputes over the ownership of property owned by Weichai Power. Save for matters disclosed publicly, there are no undisclosed judicial moratorium.
Since the execution date of the Agreement, the operating activities of Weichai Power and all of its subsidiaries are normal; save as the material events disclosed there is no event which may have material adverse effect on Weichai Power and all of its subsidiaries.
The financial statements of Weichai Power have been audited by a firm of PRC domestic certified public accountants, with qualifications to be engaged in the securities industry, which issued a standard unqualified ‘‘Audit Report’’ with 30 June 2006 as at the Base Date.
Requests of debt settlement or guarantee made by creditors of Weichai Power and Weichai Investment as a result of the Merger will be handled properly with best efforts.

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APPENDIX IV

Weichai Power and its subsidiaries have obtained all necessary licenses, approvals and consents from relevant departments of the Chinese Government for the legal operation of their respective business undertakings and are not in breach of any conditions or terms of these licenses, approvals and consents.
Since the execution date of the Agreement, Weichai Power and all of its subsidiaries have not engaged in any significant litigation, arbitration or administrative penalty which is proceeding and/or pending and/or reasonably foreseen, nor any indebtedness resulting from material infringement of environmental protection, intellectual property, product quality, labour safety, and human rights.

CLAUSE 8 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS OF TAGC

As at the execution date of the Agreement, TAGC is a joint stock limited company validly established and legally existing in accordance with the laws, regulations and regulatory documents of the PRC. TAGC has the legal right to execute and perform the Agreement and assume corresponding obligations and responsibilities. The Agreement, once executed, shall have binding effect on TAGC and will not be revoked or declared null and void pursuant to the laws.
Particular items of information, facts, related data or major events provided or disclosed by TAGC in writing to Weichai Power for the formulation and implementation of the Agreement are true, accurate and complete, and do not contain any misrepresentations, material omissions or other matters that will intentionally mislead Weichai Power or other related parties.
The execution and performance of the Agreement by TAGC have been approved by special resolutions of the general meeting and the relevant general meeting. For the outstanding authorisations, licences and approvals that are required to effect and perform the Agreement, TAGC shall actively take all feasible and necessary actions and measures pursuant to the laws, regulations and regulatory documents of the PRC to obtain such authorisations, licences and approvals; execute and provide all information and documents that should be provided by TAGC in relation to the Merger and the Split Share Structure Reform; and perform its relevant obligations.
Save for the authorizations, licences and approvals that are required for the performance of the Agreement pursuant to the laws, regulations and regulatory documents of the PRC, the execution or performance of the Agreement by TAGC shall not (1) be in breach of or in conflicts with the articles of TAGC or its subsidiaries and other internal regulatory management documents that have the highest authority; (2) be in breach of obligations of any other agreements that are legally binding on TAGC; (3) be in breach of litigations, arbitrations, administrative rulings or judgements applicable to TAGC; (4) be in breach of the prevailing laws, regulations and government orders of the PRC.
As at the execution date of the Agreement, TAGC is not involved in any disputes, litigations, arbitrations or administrative penalties that will constitute any material effect or interruption on the Merger.
Since its establishment, the registered capital and shareholding structure of TAGC have undergone several changes. Its registered capital is fully-paid up. The historical changes in share capital were validly approved and authorized, and were legal and valid. Save for the above, TAGC does not have any other authorised or issued shares as at the execution date of the Agreement. TAGC is not involved in any agreements, contracts, notes, arrangements or undertakings which may require the issuance, repurchase or transfer of its shares.

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APPENDIX IV

As at the execution date of the Agreement, save for the 35,579,520 TAGC shares pledged by Weichai Investment (Weichai Investment has undertaken to release the registration procedures of the pledge of such shares in time according to the development and the needs of Merger by Absorption and the Split Share Structure Reform), no other shareholders holding 5% or more TAGC shares has pledged their shares. There are no judiciary moratorium or other restrictions on rights in respect of TAGC shares held by those shareholders.
TAGC has several subsidiaries and affiliates and its equity investments in these companies are true, legal and valid. There are no disputes over the ownership of property owned by TAGC. Save for matters disclosed publicly, there is no undisclosed judicial moratorium. Each of the subsidiaries and affiliates owned by TAGC is validly established and legally existing pursuant to the laws, regulations and regulatory documents of the PRC.
Since the execution date of the Agreement, save for the significant matters disclosed in the historical statutory information disclosure documents of TAGC, the operating activities of TAGC are normal, and there is no event which may have material adverse effect on TAGC and all of its subsidiaries.
The financial affairs of TAGC have been reviewed by a practising firm of Hong Kong certified public accountants, which issued an unqualified Accountants’ Report with 30 June 2006 as at the Base Date.
Save for matters publicly disclosed, TAGC is not in breach of the laws and regulations in respect of environmental protections, taxation, staff and other aspects, nor was it punished or sanctioned by any competent authorities.
Since the execution date of the Agreement, save for the important matters otherwise disclosed in the past public announcement and documents of TAGC, TAGC and all of its subsidiaries are not engaged in any significant litigation, arbitration or administrative penalty which is proceeding and/or pending and/or reasonably foreseen, or do not have any indebtedness resulting from material infringement of environmental protection, intellectual property, product quality, labour safety, and human rights or any significant undisclosed liabilities undisclosed in its past statutory information disclosure documents.
TAGC shall actively discharge its obligations in relation to information disclosure of the Merger and the Split Share Structure Reform.
Requests of debt settlement and guarantee by creditors of TAGC as a result of the Merger will be handled properly with best efforts.
TAGC and its subsidiaries have obtained all necessary licenses, approvals and consent from related departments of the Chinese Government for the legal operation of its respective business undertakings and are not in breach of any conditions or terms of these licenses, approvals and consents.

CLAUSE 9 RELEVANT ARRANGEMENTS FOR THE TRANSITIONAL PERIOD

During the Transitional Period, one party shall actively provide related documents in respect of assets, financial records, minutes of meetings and material indebtedness and debts to the other party in a timely manner upon the request reasonably made by the other party.

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APPENDIX IV

During the Transitional Period, both parties shall operate according to the prevailing operational practices and methods; maintain good relationships with competent authorities of the government, customers and employees; prepare, organise and keep their respective documents and information; pay related taxes and expenses on time; and shall not conduct any unusual transactions or incur any unusual liabilities.
During the Transitional Period, both parties (including the major subsidiaries of both parties) shall not:
(1) Amend the Articles or similar constitutional documents, save for the amendments to the Articles of Weichai Power as a result of the Merger or in compliance with the requirements of laws and regulations of the Company Law currently in force;
(2) Issue, dispose, assign, charge and deal with shares, share capital or bonds with voting rights or securities convertible into any class of shares, share capital or bonds with voting rights, save for the shares approved and endorsed for issue by Weichai Power as a result of the Merger;
(3) Declare, reserve or pay any dividends or other distributions related to any shares or share capital in cash, shares or assets, save for those referred to in Clause 2(1)10;
(4) Divide, consolidation or reclassify any shares or share capital;
(5) Acquire any class of shares or share capital, or any notes or guarantees (with underlying shares) direct or indirectly by means of repurchases, purchases or others.
During the Transitional Period, if any party incurs any significant matters (save for any matters specified or pre-determined under the Agreement), that party shall notify the board of the other party in writing in advance, and shall not execute or implement any of the above unless written consent has been granted by the board of the other party. These significant matters include, but not limited to, the following acts (save for acts by Weichai Power for the Merger) by both parties (including the major subsidiaries of both parties):
(1) Provide external guarantees, or create charges, pledges or other third party rights over its assets (save for those required by normal production and operation or in compliance with laws and regulations);
(2) Assume material liabilities for or on behalf of other parties (save for those required by normal production and operation or in compliance with laws and regulations);
(3) Waive its material rights, transferred its assets by way of gift, or waive material indebtedness of other parties;
(4) Transfer, acquire, merge, swap, purchase, invest or license of major assets (save for those required for normal production);
(5) Execute, revise or terminate material contracts which are not required by normal production, save for the provisions stipulated in those contracts;
(6) Implement major personnel changes, or make material adjustments to personnel deployment, corporate setup and investment structure;

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(7) Make significant adjustments to the remuneration or benefit-in-kind of management, employees or agents, including but not limited to increases in wages, bonuses, compensations, and the revision or termination of labour contract;
(8) Other matters that may have material effects on the assets, financial conditions and continuing operations of the company.
If completion of the Merger does not occur by 30 April 2007, the board of directors may propose a final dividend for 2006, subject to the approval by the 2006 annual general meeting of Weichai Power, provided that the amount of such dividend shall not exceed that of the interim dividend paid by Weichai Power for 2006. If Weichai Power shall pay its final dividend, the board of directors of TAGC may also propose to pay a final dividend for 2006 at a rate per TAGC share of the amount of the final dividend per Weichai Power divided by the Exchange Ratio 3.53. The said arrangement of dividend distribution may only be implemented when both parties to the Merger are legally qualified to do so. Save as aforesaid, both Weichai Power and TAGC have agreed not to distribute their respective undistributed profits prior to the date of the completion of the Merger. The undistributed profits of Weichai Power and TAGC up to the date of completion of the Merger shall belong to all the shareholders of Weichai Power after completion of the Merger.

CLAUSE 10 OPERATIONS AND ADMINISTRATION OF THE SURVIVING COMPANY

Subsequent to completion of the Merger, integration of the Surviving Company shall be conducted as appropriate and necessary under the principle of smooth transition and from the strategic prospective of overall operation.
In light of centralisation of planning and administration, various resources of TAGC, including human, financial and physical, shall be merged into the operation mode of Weichai Power by the Surviving Company in accordance with a modern enterprise system.
Subsequent to completion of the Merger, in order to avoid the impact of the Merger on the sustainable operations and stable development of TAGC subsidiaries, subsidiaries of TAGC may continue to execute investment or operation plans contemplated, approved or recognised by TAGC, general meetings and/or the board of directors of TAGC.

CLAUSE 11 ARTICLES OF THE SURVIVING COMPANY

For the purpose of the Merger, Weichai Power shall amend the Articles of Weichai Power (draft) in accordance with the provisions of the relevant law and regulations of the Company Law (as amended in 2005), and the Guidelines for Articles of Listed Company (as amended in 2006). The draft Articles is subject to approval by special resolution of a general meeting of Weichai Power and shall come into effect upon completion of the Merger.

CLAUSE 12 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND STAFF

Subsequent to completion of the Merger, directors and supervisors of TAGC shall cease to discharge their duties, and members of the board of directors of Weichai Power will be deployed appropriately based on the need for corporate governance and business management of the enlarged company, according to the regulatory requirements of the A share market.
Subsequent to completion of the Merger, the senior management and staff of TAGC, if so required by the business subsequent to the Merger, shall be properly and duly deployed by Weichai Power.

— 279 —

MERGER AGREEMENT

APPENDIX IV

CLAUSE 13 ASSIGNMENT OF DEBT OBLIGATIONS AND ASSUMPTION OF ASSETS

Following an announcement on the passing of the Merger issued by both parties and Weichai Investment to the creditors in accordance with the Company Law and the requirements of relevant laws, regulations and regulatory documents, they shall settle their debts or provide sufficient valid guarantees as required by respective creditors pursuant to the law, the outstanding debts of both parties and Weichai Investment shall be assumed by the Surviving company upon completion of the Merger.
Save as otherwise required by the relevant laws and regulation of the PRC, both parties agree that the Surviving Company shall assume the ownership and related rights and interests of all assets of TAGC and Weichai Investment (including, but not limited to, all assets, such as property, trademarks, patents and franchises) as from the Completion Date of the Merger, other than those referred in the above subclause. Accordingly, the Surviving Company shall be required to deal with the procedures of changes in registration particulars in respect of the said relevant assets. Where no informal procedures of assumption may be performed for the reasons because of changes in registration particulars, entitlement to the rights and assumption of the obligations of such assets by Surviving Company shall not be affected.
Subsequent to the Effective Date of the Merger and prior to the Completion Date, TAGC should actively deliver all agreements, documents, information and files relating to the historical evolution, financial (assets and liabilities), certificates and licenses, operations and administration since its establishment to the Surviving Company.
Subsequent to the Completion Date of the Merger, the subject-matters of the rights, obligations and interests of all contracts/agreements in force executed by TAGC shall be assigned to the Surviving Company. The changes in registration particulars of the certificates of rights of immovable property (including real estate) and other certificates of rights owned by TAGC shall proceed in accordance with the relevant requirements.

CLAUSE 14 ASSUMPTION OF RELEVANT TAXES AND EXPENSES

All costs and expenses incurred by the Merger shall be borne by both parties separately in accordance with the requirements of relevant laws, regulations or regulatory documents and the terms of relevant contracts. In the event that such costs and expenses subsist subsequent to completion of the Merger, they shall be borne by the Surviving Company.
In the event of the termination of the Agreement or the lapse of the Merger, both parties shall bear their own costs and expenses incurred during the Merger, other than losses arising from the breach of the counterparties.
If the acts of breach by one party resulted in the termination of the Agreement or the lapse of the Merger, then all costs and expenses incurred during the Merger shall be borne by the party in breach. If the acts of breach by both parties resulted in the termination of the Agreement or the lapse of the Merger, then all costs and expenses incurred during the Merger shall be borne by both parties in the proportion of their respective breaches.
Taxes incurred by the Merger shall be borne by both parties in accordance with the requirements of laws and regulations.

— 280 —

MERGER AGREEMENT

APPENDIX IV

CLAUSE 15 AMENDMENT AND TERMINATION OF THE AGREEMENT

From the date of the Agreement to the Effective Date of the Merger, both parties agree unanimously that the Agreement may be amended or a supplementary agreement may be executed, provided that the amended agreement or the supplementary agreement shall obtain valid approvals from the respective internal authority and corresponding approvals or permissions from relevant competent authorities or department be obtained.
Prior to the Completion Date of the Merger, the Agreement shall be terminated upon occurrence of the following circumstances:
(1) both parties agree unanimously in writing to terminate the Agreement prior to the Completion Date;
(2) approvals or permissions for the Merger and the Split Share Structure Reform have not be granted by the relevant Approving Authorities or departments;
(3) material breaches of the obligations, representations, warranties and undertakings of the Agreement by one party and the counterparty requests in writing to terminate the Agreement;
(4) any events required by laws, regulations and regulatory documents take place leading to the termination of the Agreement;
(5) if the Merger has not yet become effective within one year after the execution of the Agreement, the Agreement shall be terminated automatically upon expiry of one year from the execution date of the Agreement.

CLAUSE 16 LIABILITY FOR BREACH

Any party in breach of its representations, warranties, undertakings or makes false misrepresentation, or fails to perform any of the responsibilities and obligations under the Agreement shall constitute a default. The party in breach shall continue to perform its obligations and make remedies or provide full, timely, sufficient and valid compensation at the request of the other party.
Both parties shall not bear any liability for breach if the Merger becomes ineffective or fails to be completed other than due to any faults by either party to the Agreement.

CLAUSE 17 FORCE MAJEURE

Prior to the Completion Date of the Merger, in the event that the Merger fails to be fulfilled or fully fulfilled as a result of force majeure (including but not limited to events, such as earthquakes, typhoons, floods, fires, wars and acts of administrative intervention by the government) and changes in conditions, the party having the above force majeure event shall at once inform the other party about the event in the form of telegram or written notice within seven days, and provide details of the event and valid proofs for reasons of failure or partial failure to perform or the needs to delay performance of the Agreement. Both parties shall decide whether or not to amend or terminate the Agreement by reference to the extent of the impact on the performance of the Agreement by the event. If the event leads to the failure of the Merger, both parties will not assume any liability for breach.

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MERGER AGREEMENT

APPENDIX IV

CLAUSE 18 APPLICABLE LAW AND DISPUTE RESOLUTION

The PRC Law is applicable to the validity, explanation, performance and dispute resolution of the Agreement.
In the course of performing the Agreement, any disputes arising from or relating to the Agreement, including but not limited to the formation, binding, performance, explanation, liability for breach, amendment and termination of the Agreement, both parties to the Agreement shall resolve such disputes through a friendly negotiation. If the parties are unable to reach an agreement within 30 days after the occurrence of the dispute, then either party has the right to apply to the People’s court which has jurisdiction over the place where the Agreement is executed for a judgement, in accordance with the relevant regulations.
Prior to the resolution of the dispute, both parties shall continue to perform other terms of the Agreement not in dispute.

CLAUSE 19 NOTICES

Any notice in respect of the Agreement issued by any party to the other party shall be in written form, and shall be delivered by courier, facsimile, mail or speed-post. The notice shall be lodged at the following addresses or other address specified by one party to the other party in writing from time to time :
(1) Weichai Power

Address: 26 Minshengdong Street, Weifang, Shandong Province Post Code: 261061 Fax: 0536-2297073 Addressee: Lun Xueting Contact Telephone No.: 0536-2297069

(2) TAGC

Address: 3 Hongqibei Road, Zhuzhou, Hunan Province Post Code: 412001 Fax: 0733-8450108 Addressee: Jin Zhuojun Contact Telephone No.: 0733-8450105/ 8450019

If delivered by courier, the delivery is confirmed when the notice reaches the address and the addressee confirmed above; if delivered by facsimile, the delivery is confirmed upon receipt of the facsimile slip by the sender; if delivered by mail or speed post, the arrival date shown on the return receipt shall be the delivery date.

CLAUSE 20 SUPPLEMENTARY PROVISIONS

The heading of each clause of the Agreement is provided for your convenience only, and shall not be used as a reference in understanding and explaining the Agreement.

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MERGER AGREEMENT

APPENDIX IV

The Agreement is binding on both parties after execution by both parties. Unless otherwise agreed by both parties, neither party shall discharge or amend all or some of the terms of the Agreement. In respect of issues not covered by the Agreement, both parties shall otherwise agree to enter into a supplemental agreement which forms an integral part of the Agreement. Any changes to the Agreement shall be in writing and shall not be effective until it has been executed and sealed and validly approved by the respective parties.
In the course of performing the Agreement, if a particular provision or a part of the terms of the Agreement is in breach of the relevant mandatory regulations or cannot be enforced because of changes to the existing PRC Law and regulations, both parties shall negotiate in accordance with the relevant regulations, and amend the relevant terms; and the validity of all other provisions of the Agreement shall not, in any way, be affected.
Both parties agree that, unless otherwise specified by laws and regulations, the failure to exercise or to exercise his/her rights timely under the Agreement or any rights, powers or remedies acquired under the Agreement by either party of the Agreement shall not be deemed as renouncement of such rights, power or remedies by that party.
Prior to completion of the Merger, unless otherwise specified by provisions of relevant laws, regulations and regulatory documents or requirements of securities regulatory and supervisory department, either party shall maintain confidentiality and shall not disclose or reveal to any third parties about any conditions and details related to the Merger and the Split Share Structure Reform of TAGC, otherwise, it shall be liable to all losses brought to the other party and to assume the resulting liability for compensation.
The Agreement is sealed by both parties and executed by the legal representative or authorised representative of the respective parties, effective on the date when the Merger is passed on the relevant general meetings of both parties.
The Agreement is written in Chinese, with 10 counterparts, and each party shall have one copy, with the remaining copies being submitted to the relevant Approving Authorities or departments, each with same legal effect.

(Blank hereunder)

— 283 —

MERGER AGREEMENT

APPENDIX IV

(This is the signature page of the Merger Agreement which has no text.)

Weichai Power Co., Ltd.

Legal representative or authorised representative: [SIGNED AND SEALED]

Execution date: 12 November 2006

Torch Automobile Group Co., Ltd.

Legal representative or authorised representative: [SIGNED AND SEALED]

Execution date: 12 November 2006

— 284 —

VALUATION REPORT

APPENDIX V

Vigers Appraisal & Consulting Limited

International Asset Appraisal Consultants 10th Floor The Grande Building 398 Kwun Tong Road Kowloon Hong Kong

==> picture [67 x 64] intentionally omitted <==

12 November 2006

The Directors Weichai Power Company Limited 26 Minshengdong Street Kuiwen District Weifang City Shandong Province The PRC

Dear Sirs,

In accordance with your instructions for us to value the property interests held by Weichai Power Company Limited (the ‘‘Weichai’’ or the ‘‘Company’’) or its subsidiaries (collectively referred to as the ‘‘Weichai’’ Group) and property interests held by Torch Automobile Group Company Limited (the ‘‘Torch Automobile’’) or its subsidiaries (collectively referred to as ‘‘the Torch Automobile Group’’ in the People’s Republic of China (‘‘the PRC’’), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of such property interests as at 30 September 2006 for the purpose of incorporation in the circular.

Our valuation is our opinion of the market value of the property interest which we would define as intended to mean ‘‘the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion’’.

Due to the lack of identifiable market transaction on properties of similar nature of the buildings and structure, in valuing the property interests in Groups A and B, we have adopted a combination of the market and depreciated replacement cost approaches in assessing the land portions of the properties and the buildings and structures standing on the land respectively. The sum of the two results represents the market value of the properties as a whole. In the valuation of the land portions, reference has been made to the standard land prices in the relevant cities and the sales evidences as available to us in the locality.

The depreciated replacement cost approach considers the cost to reproduce or replace in new condition the property appraised in accordance with current construction costs for similar property in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The depreciated replacement cost approach generally furnishes a reliable indication of value for property in the absence of a known market based on comparable sales. It is subject to adequate potential profitability of the business or of the whole entity.

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VALUATION REPORT

APPENDIX V

The property interests in Groups C and D have been ascribed no commercial value due to the shortterm nature of its tenancy, its prohibition against assignment or sub-letting, or otherwise the lack of substantial profit rent.

Our valuation has been made on the assumption that the owners sell the property interests on the market without the benefit of deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which would serve to increase the value of the property interests. In addition, no forced sale situation in any manner is assumed in our valuation. Unless otherwise stated, the valuation represents the value of the entire property interest described in the valuation certificate and not the value of a share of it. Other assumptions in respect of each property, if any, have been set out in the footnotes of the valuation certificate for the respective properties.

We have not caused title searches to be made for the property interests at the relevant government bureaus in the PRC. We have been provided with certain extracts of title documents relating to the property interests. However, we have not scrutinized the original documents to verify the ownership, encumbrances or the existence of any subsequent amendments which may not appear on the copies handed to us. In undertaking our valuation of the properties, we have relied on the legal opinion provided by the Group’s PRC legal adviser, King & Wood.

We have relied to a considerable extent on information provided by the Company and have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, occupation, lettings, site and floor areas, development plan, construction costs, identification of the properties and other relevant matters. We have also been advised by the Company that no material facts had been concealed or omitted in the information provided to us. All documents have been used for reference only.

All dimensions, measurements and areas included in the valuation certificates are based on information contained in the documents provided to us by the Company and are approximations only. No on-site measurement has been taken.

We have inspected the exterior and, where possible, the interior of the properties. However, no structural survey has been made and we are therefore unable to report whether the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

We have not carried out investigations on site to determine the suitability of ground conditions and services etc. for any future development, nor have we undertaken any ecological or environmental surveys. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during construction period.

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

Our valuations are prepared in accordance with the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors (‘‘HKIS’’) and the requirements set out in Chapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited.

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VALUATION REPORT

APPENDIX V

Unless otherwise stated, all monetary amounts stated are in Renminbi (RMB). The exchange rate adopted as at the date of valuation was HK$1 = RMB1.01. There has been no significant fluctuation in exchange rate between that date and the date of this letter.

We enclose herewith a summary of our valuation and the valuation certificates.

Yours faithfully, For and on behalf of Vigers Appraisal & Consulting Limited Raymond Ho Kai Kwong Registered Professional Surveyor MRICS MHKIS MSc(e-com) Executive Director

Note: Raymond K. K. Ho, Chartered Surveyor, MRICS, MHKIS, has over twenty years’ experience in undertaking valuations of properties in Hong Kong and Macau, and has over thirteen years’ experience in valuations of properties in the PRC. Mr. Ho has been working with Vigers Group since 1989.

— 287 —

VALUATION REPORT

APPENDIX V

SUMMARY OF VALUATION

Group A — Property interests held and occupied by the Weichai Group

Market Value in existing state as at Property 30 September 2006 A1-1 Land, various buildings and structures RMB50,600,000 located at No. 26 Minshengdong Street, Kuiwen District, Weifang City, Shandong Province, the PRC

A1-2 Land, various buildings and structures RMB362,000,000 located at a site bounded by Fushou Dong Street and Yongchun Road, Gaoxin District, Kuiwen District, Weifang City, Shandong Province, the PRC Sub-total: RMB412,600,000

RMB412,600,000

— 288 —

VALUATION REPORT

APPENDIX V

Group B — Property interests held and occupied by the Torch Automobile Group

		Market Value in
		existing state as at
	Property	30 September 2006
B1-1	Land, various buildings and structures	RMB19,050,000
	located at Jingoushan Road,
	Yanjiawan,
	Hetang District,
	Zhuzhou City,
	Hunan Province,
	the PRC
B1-2	Land, various buildings and structures	RMB28,700,000
	located at Area 5,
	Tianyuan Development Zone,
	Zhuzhou City,
	Hunan Province,
	the PRC
B1-3	Land, various buildings and structures	RMB36,800,000
	located at No. 3 Hongqi Road North,
	Shifeng District,
	Zhuzhou City,
	Hunan Province,
	the PRC
B1-4	Land, various buildings and structures	RMB4,380,000
	located at Xintangpo Village,
	Hetanpu Town,
	Hetang District,
	Zhuzhou City,
	Hunan Province,
	the PRC
B1-5	Land, various buildings and structures	RMB21,450,000
	located at Yaojialing Village,
	Lukou Town,
	Zhuzhou City,
	Hunan Province,
	the PRC
B2-1	Land, various buildings and structures	RMB413,000,000
	located at Jijia Village,
	Gaolin County,
	Xi’an City,
	Shaanxi Province,
	the PRC

— 289 —

VALUATION REPORT

APPENDIX V

		Market Value in
		existing state as at
	Property	30 September 2006
B2-2	Land, various buildings and structures	RMB71,600,000
	located at No. 129 West Avenue,
	Xi’an National Hi-tech Industrial Development Zone,
	Xi’an City,
	Shaanxi Province,
	the PRC
B3-1	Land, various buildings and structures	RMB9,170,000
	located at Tushan Village,
	Tushan Town,
	Laizhou City,
	Shandong Province,
	the PRC
B3-2	Land, various buildings and structures	No commercial value
	located at Qianjin Community,
	Xifu Town Street,
	Chengyang District,
	Qingdao City,
	Shandong Province,
	the PRC
B4-1	Land, various buildings and structures	RMB11,870,000
	located at No. 0167
	Ninghe Economic & Technology Development Zone,
	Tianjin City,
	the PRC
B4-2	Land, various buildings and structures	RMB6,920,000
	located at the south of Luhan Road,
	Ninghe Economic & Technology Development Zone,
	Tianjin City,
	the PRC
B5-1	Land, various buildings and structures	No commercial value
	located at the west of Road No. 12,
	Xi’an District,
	Mudanjiang City,
	Heilongjiang Province,
	the PRC

— 290 —

VALUATION REPORT

APPENDIX V

		Market Value in
		existing state as at
	Property	30 September 2006
B6-1	Land, various buildings and structures	RMB21,200,000
	located at Yangshufang Economic Development Area,
	Pulandian City,
	Dalian City,
	Liaoning Province,
	the PRC
B7-1	The 16th level, 18th level and	RMB59,900,000
	19th level together with 9 carparking spaces
	located at No. 450 Fushan Road,
	Xintian International Building,
	Pudong New District,
	Shanghai,
	the PRC
B7-2	Land, various buildings and structures	No commercial value
	located at Xinqiao Village,
	Daying Town,
	Qingpu District,
	Shanghai,
	the PRC
B8-1	Land, various buildings and structures	RMB12,400,000
	located at Liangzhu Town,
	Yu Hang District,
	Hangzhou City,
	the PRC
B9-1	Land, various buildings and structures	RMB8,640,000
	located at north side of 312 National Road,
	Zhengyi Town,
	Kunshan City,
	Jiangsu Province,
	the PRC
B9-2	Land, various buildings and structures	RMB1,190,000
	located at No. 699 Xinchengnan Road,
	Yushan Town,
	Kunshan City,
	Jiangsu Province,
	the PRC

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VALUATION REPORT

APPENDIX V

Property
B9-3
Land, various buildings and structures
located at No. 5 Zhengyinan Road,
Bacheng Town,
Kunshan City,
Jiangsu Province,
the PRC
B9-4
Land, various buildings and structures
located at east side of Zhennan Road,
Zhengyi Town,
Kunshan City,
Jiangsu Province,
the PRC
B9-5
Land, various buildings and structures
located at No. 5 Zhennan Road,
Zhengyi Town,
Kunshan City,
Jiangsu Province,
the PRC
B10-1
Various buildings
located at Hongwei Jieban,
Shiyan City,
Hubei Province,
the PRC
B11-1
The 3rd-level of an office building
located at No. 85 Xibei Road,
Wunansha District,
Wulumuqi,
Xinjiang Weiwuer Autonomous Region,
the PRC
Sub-total:

Market Value in
existing state as at
30 September 2006
RMB4,730,000
No commercial value
RMB7,770,000
No commercial value
No commercial value

RMB738,770,000

— 292 —

VALUATION REPORT

APPENDIX V

Group C — Property interests leased and occupied by the Weichai Group

		Market Value in
		existing state as at
	Property	30 September 2006
		(RMB)
C1-1	An casting industrial complex	No commercial value
	located at No. 26 Minsheng Street East,
	Kuiwen District,
	Weifang City,
	Shandong Province,
	the PRC
C1-2	No. 92-2 Jiqi Road,	No commercial value
	Jinan City,
	Shandong Province,
	the PRC
C1-3	Unit 301, Phase I, Block 5,	No commercial value
	Anciliary Block of Lingongjia,
	Linyi City,
	Shandong Province,
	the PRC
C1-4	Two Units (200 sq.m.) on Level 1, Nos. 2-2 and 2–3,	No commercial value
	Qichechang Road West,
	Tianqiao District,
	Jinan City,
	Shandong Province,
	the PRC
C1-5	Two Units (220 sq.m.) on Level 1, Nos. 2-2 and 2-3,	No commercial value
	Qichechang Road West,
	Tianqiao District,
	Jinan City,
	Shandong Province,
	the PRC
C1-6	Levels 3 and 4, Phase II,	No commercial value
	Block 5, Huangtun 4th Zone,
	Tianqiao District,
	Jinan City,
	Shandong Province,
	the PRC
C1-7	Unit 876 Chongqing Road,	No commercial value
	Qingdao City,
	Shandong Province,
	the PRC

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VALUATION REPORT

APPENDIX V

	Property
C2-1	An industrial complex
	located at Jiangjindegan Town,
	Chongqing City,
	the PRC
C2-2	No. Te 16 Shipingheng Street,
	Jiulongpo,
	Chongqing City,
	the PRC
C2-3	Unit 15-2-3,
	No. 16 Jiulongpo District,
	Chongqing City,
	the PRC
C3-1	Unit 201, Phase II,
	Block 3, Xuefu Zone,
	Dangxiao Road,
	Taiyuen City,
	Shanxi Province,
	the PRC
C3-2	Unit 102, Phase II, Block 2,
	Xuefu Zone,
	Dangxiao Road,
	Taiyuen City,
	Shanxi Province,
	the PRC
C3-3	Beipanwan Industrial Zone,
	Huangling Village,
	Taiyuen City,
	Shanxi Province,
	the PRC
C4-1	Level 2, Gate 13,
	No. 52 Jia Changqing Street,
	Dongling District,
	Shenyang City,
	Laoning Province,
	the PRC

Market Value in existing state as at 30 September 2006 (RMB) No commercial value No commercial value No commercial value No commercial value No commercial value No commercial value

No commercial value

— 294 —

VALUATION REPORT

APPENDIX V

Property C5-1 Level 1, No. Fu 13–14, No. 726 Huaqi Main Road North, Guiyang City, Guizhou Province, the PRC C5-2 Level 5, Phase II, Block 4, Feng Huang Cui Ti, Feng Huang Village, Nanming District, Guiyang City, Guizhou Province, the PRC C6-1 Unit 702, Block 15C, Phase II, Yangguang Garden, Hongqiliang Road, Yangcha Lake, Jianghan District, Wuhan City, Hubei Province, the PRC C7-1 Unit 102, Level 2, Gate 1, Block 2, Chengkai Lane, Tanggu District, Tianjin City, the PRC C8-1 Levels 1 and 2, No. 702 Qinghe Street South, Yinchuan City, Ningxia Autonomous Region, the PRC C9-1 Level 1, Nos. 13–15 Guanqing Lane North, Guandu District, Kunming City, Yunnan Province, the PRC

Market Value in existing state as at 30 September 2006 (RMB)

No commercial value

No commercial value No commercial value

No commercial value

— 295 —

VALUATION REPORT

APPENDIX V

		Market Value in
		existing state as at
	Property	30 September 2006
		(RMB)
C9-2	Level 4, Yunshi Zone,	No commercial value
	Guansheng Road North,
	Kunming City,
	Yunnan Province,
	the PRC
C9-3	Level 1, Yunshi Zone,	No commercial value
	Guandu District,
	Kunming City,
	Yunnan Province,
	the PRC
C10-1	Level 1, Nanqiao Road West,	No commercial value
	Shikun District,
	Baotou City,
	Inner Mongolia Autonomous Region,
	the PRC
C10-2	Level 1, Dingqian Road,	No commercial value
	Qingshan District,
	Baotou City,
	Inner Mongolia Autonomous Region,
	the PRC
C11-1	Level 3, No. 198,	No commercial value
	Zhenju Road Si Bai,
	Zhenjiang City,
	Jiangsu Province,
	the PRC
C11-2	Level 1, No. 103 Dayushu Street,	No commercial value
	Peizhou City,
	Jiangsu Province,
	the PRC
C11-3	Level 2, Block 10, Phase II,	No commercial value
	Hanshi,
	Peizhou City,
	Jiangsu Province,
	the PRC

— 296 —

VALUATION REPORT

APPENDIX V

		Market Value in
		existing state as at
	Property	30 September 2006
		(RMB)
C11-4	Level 6, Block 13,	No commercial value
	Zhongyuan Zone,
	Nantong City,
	Jiangsu Province,
	the PRC
C12-1	Unit A10-208,	No commercial value
	West Comprehensive Market,
	Xining City,
	Qinghai Province,
	the PRC
C13-1	The conjunction between 312 National Road and	No commercial value
	216 National Road,
	Urumqi City,
	Xinjiang Autonomous Region,
	the PRC
C13-2	Unit 202, Level 2,	No commercial value
	Phase IV, Block 3,
	Jinfengyuan Zone,
	No. 298 A Lei Tai Road,
	Urumqi City,
	Xinjiang Autonomous Region,
	the PRC
C14-1	No. 11–19 Block 3, East Zone,	No commercial value
	Feng He Yuan Moden Logistic Center,
	Foshan City,
	Guangdong Province,
	the PRC
C15-1	Unit 1, Level 4, Phase IV,	No commercial value
	Block 1, Phase II, Jinfengyuan,
	No. 52 Longzhou Road
	(also known as No. 18 Gongnongyuan Street, Jinjiang District),
	Chengdu City,
	Xichuan Province,
	the PRC

— 297 —

VALUATION REPORT

APPENDIX V

		Market Value in
		existing state as at
	Property	30 September 2006
		(RMB)
C15-2	Unit 2, Level 4, Phase IV,	No commercial value
	Block 1, Phase II,
	Jinfengyuan, No. 52 Longzhou Road
	(also known as No. 18 Gongnongyuan Street, Jinjiang District),
	Chengdu City,
	Xichuan Province,
	the PRC
C16-1	Level 2, Block 1,	No commercial value
	South-west portion of the backyard,
	No. 128 Bolin Road South,
	Zhonghua Main Street North,
	Xinhua District, Shijiazhuang City,
	Hebei Province,
	the PRC
C16-2	Levels 1–2,	No commercial value
	No. 398 Youyi Main Street North,
	Shijiangzhuang City,
	Hebei Province,
	the PRC
C17-1	Levels 1 and 3 plus the godown on the	No commercial value
	junction between Zhengmi Road and
	Zhangjiang Road,
	Zhengzhou City,
	Henan Province,
	the PRC
C18-1	Level 2, Block 12,	No commercial value
	Hongping Zone,
	Yuentaiping District,
	Harbin City,
	Heilongjiang Province,
	the PRC
C18-2	Level 1, Nos. 386-11 Nanzhi Road,	No commercial value
	Tongwai District,
	Harbin City,
	Heilongjiang Province,
	the PRC

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APPENDIX V

Market Value in existing state as at Property 30 September 2006 (RMB) C19-1 Level 3, No. 22, Block 3, No commercial value Gate 3, Block 47, Yingchuan Road, Changchuan City, Jilin Province, the PRC C20-1 Levels 1 and 2, No commercial value No. 136 Heping Road, Liuzhou City, Guangxi Autonomous Region, the PRC C21-1 Units C12-1-1 and A3-2, No commercial value Gesanglinkashuang, Jinzhu Road West, Lhasa, Tibet Autonomous Region, the PRC C22-1 Level 1, No. 77 Changzhong Road, No commercial value Hongkou District, Shanghai City, the PRC C23-1 Units 5 and 6 of Block 36 and No commercial value Units 3 and 4 of Block 12, Jiazhoumeidu, Jiaqing City, Zhejiang Province, the PRC C23-2 Unit 101, Block 11 and a carparking space, No commercial value Jiazhoumeidu, Jiaqing City, Zhejiang Province, the PRC

Sub-total:

Nil

— 299 —

VALUATION REPORT

APPENDIX V

Group D — Property interests leased and occupied by the Torch Automobile Group

		Market Value in
		existing state as at
	Property	30 September 2006
		(RMB)
D1-1	Two industrial complexes	No commercial value
	located in Xi’an and Baoji Cities,
	Shaanxi Province,
	the PRC
D1-2	Taiqing Road West,	No commercial value
	Lianhu District, Xi’an City,
	Shaanxi Province,
	the PRC
D1-3	Shucang Village,	No commercial value
	Baoji Town,
	Wuzhangyuen County,
	Qishan Town,
	Baoji City,
	Shaanxi Province,
	the PRC
D2-1	Shagangzi Village,	No commercial value
	Yingchengzi Town,
	Ganjingzi District,
	Dalian City,
	Liaoning Province,
	the PRC
D2-2	Unit 804, No. 63 Chongshan Middle Road,	No commercial value
	Huanggu District,
	Shenyang City,
	Liaoning Province,
	the PRC
D3-1	Three parcels of land together with the buildings and structure	No commercial value
	located at No. 9 Hongqi Road North and
	No. 119 Xinhua Road West,
	Zhuzhou City,
	Hunan Province,
	the PRC

— 300 —

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APPENDIX V

		Market Value in
		existing state as at
	Property	30 September 2006
		(RMB)
D3-2	Unit 308, Level 3,	No commercial value
	Zhongnan Automobile Big World,
	Xingsha Development Zone,
	Changsha City,
	Hunan Province,
	the PRC
D4-1	Level 1, Bihu Commune Commercial Building,	No commercial value
	Wuhan Economic and Technology Development Zone,
	Wuhan City,
	Hubei Province,
	the PRC
D4-2	Unit 24-2, Erqiao Road,	No commercial value
	Hanyang District,
	Wuhan District,
	Hubei Province,
	the PRC
D5-1	Unit 602, No. 20,	No commercial value
	No. 1389 Nong Xin Er Road,
	Shanghai City,
	the PRC
D5-2	No. 1027 Changjiang Road South,	No commercial value
	Baoshan District,
	Shanghai City,
	the PRC
D6-1	A factory located in Liangzhu Industrial Estate,	No commercial value
	Yuhang District,
	Hangzhou City,
	Zhejiang Province,
	the PRC
D6-2	Units 409, 411 and 415 Xihuming Building,	No commercial value
	No. 296 Qingchun Road,
	Hangzhou City,
	Zhejiang Province,
	the PRC

— 301 —

VALUATION REPORT

APPENDIX V

		Market Value in
		existing state as at
	Property	30 September 2006
		(RMB)
D6-3	No. 407 Xihuming Building,	No commercial value
	No. 296 Qingchun Road,
	Hangzhou City,
	Zhejiang Province,
	the PRC
D6-4	A unit on West Tower,	No commercial value
	No. 349 Huancheng Road North,
	Jiangbei District,
	Ningbo City,
	Zhejiang Province,
	the PRC
D7-1	Dabizhuang Industrial Park,	No commercial value
	Dongli District,
	Tianjin City,
	the PRC
D7-2	Godown No. 2 East of B1, Industrial Zone,	No commercial value
	Xinwu Village,
	Wuxia Street,
	Dongli District,
	Tianjin City,
	the PRC
D7-3	No. 1 Qiwei Road,	No commercial value
	Ninghe Development Zone,
	He Town,
	Tianjin City,
	the PRC
D7-4	A godown located inside of Anlida Storage Company,	No commercial value
	Tianjin City,
	the PRC
D8-1	Unit 904, Level 1,	No commercial value
	Haiyue Center,
	No. 70 Donghai Road,
	Qingdao City,
	Shandong Province,
	the PRC

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VALUATION REPORT

APPENDIX V

		Market Value in
		existing state as at
	Property	30 September 2006
		(RMB)
D8-2	Levels 1–2, No. 6 Songhuaju (Section A),	No commercial value
	No. 121 Wujingshan Middle Road,
	Tianqiao District,
	Jinan City,
	Shandong Province,
	the PRC
D8-3	An office and a factory building on the east of Fuxin Road,	No commercial value
	Shangzhuang Industrial Park,
	Fushan High Technology
	Development Zone,
	Yantai City,
	Shandong Province,
	the PRC
D9-1	A parcel of land located on the south of Hengjiezhi Village,	No commercial value
	Chaoyang District,
	Beijing,
	the PRC
D9-2	Unit 1005, Level 10, Block B,	No commercial value
	Zhongjian Building,
	No. 15 Sanheli Road,
	Ganjiakou,
	Haidian District,
	Beijing, the PRC
D10-1	Level 2, North portion of Wenchong Section,	No commercial value
	Guangshen Highway,
	Huangpu District,
	Guangzhou City,
	Guangdong Province,
	the PRC
D10-2	Xinyun Automobile Repairing Factory,	No commercial value
	Jitang Road,
	Fengle Road North,
	Huangpu District,
	Guangzhou City,
	Guangdong Province,
	the PRC

— 303 —

VALUATION REPORT

APPENDIX V

Market Value in existing state as at Property 30 September 2006 (RMB) D11-1 Shop No. 3, Block 6, No commercial value Jingang Garden, Jingangcheng, Qilihe, Lanzhou City, Gansu Province, the PRC D12-1 Block 24 Mingjiayuan, No commercial value Guangdian Road, Nanan District, Chongqing City, the PRC D13-1 Level 1, No. 42 Kashe Road West, No commercial value Urumqi Economic Development Zone, Urumqi City, Xinjiang Autonomous Region, the PRC D14-1 Two units in No. 8-8 Anji Main Road, No commercial value Xixiangtang District, Nanning City, Guangxi Autonomous Region, the PRC D15-1 A unit in an office building located on the No commercial value north-east portion of the junction between Beihuan and 107 National Road, Zhengzhou City, Henan Province, the PRC D16-1 Block 7, Jindu Garden, No commercial value No. 469 Jinzhai Road South, Hefei City, Anhui Province, the PRC D17-1 A unit in No. 19 Taiyu Road, No commercial value Xiaodian District, Taiyuen City, Shanxi Province, the PRC

— 304 —

VALUATION REPORT

APPENDIX V

Property D18-1 A unit in No. 138 Chaidamu Road, Chengbei District, Xining City, Qinghai Province, the PRC D19-1 Unit 603, Phase 3, Block 1, South Zone, Deyuan District, Qingyuan Road, Xishan District, Kunming City, Yunnan Province, the PRC D20-1 Units 401, 402 and 404, Level 4, Shida Office Building, No. 1 Huayuan Road, Shahe Town, Jiuyuan District, Baotou City, Inner Mongolia Autonomous Region, the PRC D21-1 Units 1, 4 and 5, Level 3, Central Tower, Tongyin Accessory City, No. 12 Huaqi Main Road, Guiyang City, Guizhou Province, the PRC D22-1 Units 410 and 412, Lijingyuan Hotel, No. 2 Lijing Street North, Qingqing District, Yinchuan City, Ningxia Autonomous Region, the PRC D23-1 Unit 1202 on Zhongqing Building, No. 2066 Puyang Street, Luyuan District, Changchun City, Jilin Province, the PRC

Market Value in existing state as at 30 September 2006 (RMB) No commercial value No commercial value

No commercial value No commercial value No commercial value

No commercial value

— 305 —

VALUATION REPORT

APPENDIX V

Property
D24-1
Unit 17E, Block A,
No. 250 Dongyou Road,
Huli District,
Xiamen City,
Fujian Province,
the PRC
D25-1
Units 407 and 408, Level 4, Block A,
Nanjing Wangjiawan Logistic Centre,
No. 108 Dongfangcheng,
Xuanwu District,
Nanjing City,
Jiangsu Province,
the PRC
D26-1
Two units on level 1,
No. 222 Yingbin Main Road,
Qingyunpu District,
Nanchang City,
Jiangxi Province,
the PRC
D27-1
Land, various buildings and structures
located at the former Jindun Steel Factory
to South of the town government,
Tangshan,
the PRC
Sub-total:
Grand-total:

Market Value in
existing state as at
30 September 2006
(RMB)
No commercial value
No commercial value
No commercial value
No commercial value
Nil

RMB1,151,370,000

— 306 —

VALUATION REPORT

APPENDIX V

VALUATION CERTIFICATES

Group A — Property interests held and occupied by the Weichai Group

A1-1

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB50,600,000
structures	of land having a total site area of	the the Company as
located at	approximately 73,560 sq.m.	production plant.
No. 26 Minshengdong	together with the buildings and
Street,	structure erected thereon.
Kuiwen District,
Weifang City,	The buildings and structures
Shandong Province,	mainly comprises 17 buildings
the PRC	having a total gross floor area of
	approximately 63,167.15 sq.m.
	completed in around 2002.
	The buildings and structures of
	the property mainly include
	workshops, living quarters and
	office.
	The property is held with land
	use rights for a term expiring on
	9 June 2053.

Notes:

i. According to the State-owned Land Use Rights Certificate Wei Guo Yong (2003) No. A158, the land use rights of the property having a site area of approximately 73,560 sq.m. have been granted to Weichai Power Company Limited for industrial uses for a term expiring on 9 June 2053.
ii. According to 7 Building Ownership Certificates, the title of 17 buildings having a total gross floor area of approximately 52,167.15 sq.m. is vested in Weichai Power Company Limited for production and other uses. Further details are as follows:

Certificate Nos Wei Fang Quan Zheng Shu Zhi No. 011487 Wei Fang Quan Zheng Shu Zhi No. 011488 Wei Fang Quan Zheng Shu Zhi No. 011489 Wei Fang Quan Zheng Shu Zhi No. 011490 Wei Fang Quan Zheng Shu Zhi No. 011491 Wei Fang Quan Zheng Shu Zhi No. 011492 Wei Fang Quan Zheng Shu Zhi No. 011493 Total:	Number of Block 3 3 1 5 1 3 1 17	Gross Floor Area (sq.m.) 10,850.93 14,980.10 1,736.61 7,548.19 2,508.30 24,530.10 1,012.92
		63,167.15

iii. There are 2 buildings having a total gross floor area of approximately 4,809 sq.m have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of those buildings, as at the date of valuation, was in the region of RMB7,392,000.

— 307 —

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APPENDIX V

With the approvals from Weifang Diesel Engine Works , 15 buildings having a total gross floor area of approximately 35,850 sq.m have been built by the Company on certain neighboring sites owned by Weifang Diesel Engine Works . They are held and occupied by the Company as part of the production plant. The buildings have been ascribed as no commercial value due to the insufficient proof of the title. For reference purpose, the depreciated replacement cost of those buildings, as at the date of valuation, was in the region of RMB59,000,000.

iv. The PRC legal opinion states, inter alia, as follows:
Weichai Power Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. Weichai Power Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
No lease, assignment, mortgage or third party interest has been established on the property.
A total of 15 buildings have been built on 6 land lots held by Weifang Diesel Engine Works , which it obtained via assignment, administrative allocation or lease. According to the Company and a certificate issued by the Land Resource Bureau of Weifang City, the Company has applied for their acquisition via assignment of the land lots and the application is in process.

— 308 —

VALUATION REPORT

APPENDIX V

A1-2

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB362,000,000
structures	of land having a total site area of	the Company as production
located at a site bounded by	approximately 376,994 sq.m.	plant.
Fushou Dong Street and	together with the buildings and
Yongchun Road,	structure erected thereon.
Gaoxin District,
Kuiwen District,	The buildings and structures
Weifang City,	mainly comprises 6 buildings
Shandong Province,	having a total gross floor area of
the PRC	approximately 197,633 sq.m.
	completed in around 2004 and
	2006.
	The buildings and structures of
	the property mainly include
	workshops, living quarters and
	office.
	The property is held with land
	use rights for a term expiring on
	2 August 2054.

Notes:

i. According to the State-owned Land Use Rights Certificate Wei Guo Yong (2004) No. E093, the land use rights of the property having a site area of approximately 376,994 sq.m. have been granted to Weichai Power Company Limited for industrial uses for a term expiring on 2 August 2054.
ii According to 2 Building Ownership Certificates Wei Fang Fang Quan Zhen Gao Xin Zi Nos. 513155 and 513156, the title of the buildings having a total gross floor area approximately 197,633 sq.m. is vested in Weichai Power Company Limited.
iii. The PRC legal opinion states, inter alia, as follows:
Weichai Power Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. Weichai Power Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
No lease, assignment, mortgage or third party interest has been established on the property.

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VALUATION REPORT

APPENDIX V

Group B — Property interests held and occupied by the Torch Automobile Group

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
B1-1	Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB19,050,000
	structures	of land having a site area of	the Torch Automobile
	located at Jingoushan Road,	approximately 65,600 sq.m.	Group as production plant.
	Yanjiawan,	together with the buildings and
	Hetang District,	structure erected thereon.
	Zhuzhou City,
	Hunan Province,	The buildings and structures
	the PRC	mainly comprise 26 buildings
		having a total gross floor area of
		approximately 12,655 sq.m.
		completed in between 1958 to
		1987.
		The buildings and structures of
		the property mainly include
		workshops, living quarters and
		office.
		The property is held with land
		use rights for a term expiring on
		30 June 2048.

Notes:

i. According to the State-owned Land Use Rights Certificate Zhu Guo Yong (2005) No. A0853, the land use rights of the property having a site area of approximately 65,599.54 sq.m. have been granted to Torch Automobile Group Company Limited for industrial uses for a term expiring on 30 June 2048.

— 310 —

VALUATION REPORT

APPENDIX V

ii. According to 26 Building Ownership Certificates, the title of 26 buildings having a total gross floor area of approximately 12,655 sq.m. is vested in Zhuzhou Torch Machinery Manufacturing Company Limited for industrial and its ancillary office uses. Further details are as follows:

Building Ownership Certificate
Zhu Fang Quan Zheng Zhu Zhi No. 00101109
Zhu Fang Quan Zheng Zhu Zhi No. 00101112
Zhu Fang Quan Zheng Zhu Zhi No. 00101113
Zhu Fang Quan Zheng Zhu Zhi No. 00101114
Zhu Fang Quan Zheng Zhu Zhi No. 00101115
Zhu Fang Quan Zheng Zhu Zhi No. 00101116
Zhu Fang Quan Zheng Zhu Zhi No. 00101119
Zhu Fang Quan Zheng Zhu Zhi No. 00101120
Zhu Fang Quan Zheng Zhu Zhi No. 00101121
Zhu Fang Quan Zheng Zhu Zhi No. 00101122
Zhu Fang Quan Zheng Zhu Zhi No. 00101124
Zhu Fang Quan Zheng Zhu Zhi No. 00101125
Zhu Fang Quan Zheng Zhu Zhi No. 00101126
Zhu Fang Quan Zheng Zhu Zhi No. 00101130
Zhu Fang Quan Zheng Zhu Zhi No. 00101131
Zhu Fang Quan Zheng Zhu Zhi No. 00101132
Zhu Fang Quan Zheng Zhu Zhi No. 00101133
Zhu Fang Quan Zheng Zhu Zhi No. 00101135
Zhu Fang Quan Zheng Zhu Zhi No. 00101136
Zhu Fang Quan Zheng Zhu Zhi No. 00101137
Zhu Fang Quan Zheng Zhu Zhi No. 00101138
Zhu Fang Quan Zheng Zhu Zhi No. 00101140
Zhu Fang Quan Zheng Zhu Zhi No. 00101141
Zhu Fang Quan Zheng Zhu Zhi No. 00101144
Zhu Fang Quan Zheng Zhu Zhi No. 00101145
Zhu Fang Quan Zheng Zhu Zhi No. 00101146
Total:

Gross Floor Area
(in sq.m.)
22
447
65
499
1,024
866
470
688
1,215
652
238
53
309
25
54
489
64
771
98
1,449
475
204
27
1,153
1,000
298

12,655

iii. There are 19 buildings having a total gross floor area of approximately 10,548 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB3,040,000.
iv. The PRC legal opinion states, inter alia, as follows:
Torch Automobile Group Company Limited has legally obtained the land use rights as stated in the land use rights certificates. Torch Automobile Group Company Limited has the right to use, lease, mortgage or assign the land use rights in accordance with the laws.
Zhuzhou Torch Machinery Manufacturing Company Limited has legally obtained the title of the buildings as stated in the building ownership certificates. The buildings are subject to mortgage in favour of Industrial and Commerce Bank of China, Zhuzhou City Benlong Branch.
The non-conformity on the land use rights owner and the building owner has been created at the time when Zhuzhou government granted the land use rights to Torch Automobile Group Company Limited. Furthermore, there are 19 buildings having a total gross floor area of approximately 10,548 sq.m. erected on the site have not been issued with building ownership certificates. The building is practically used by Zhuzhou Torch Machinery Manufacturing Company Limited .

— 311 —

APPENDIX V

VALUATION REPORT

Torch Automobile Group Company Limited has presented written promise that, within one year, the land use rights of the property will be injected as additional capital of and legally sort out the non-conformity land and building issued on the property.
The land use rights and the buildings are subject to a mortgage in favour of Industrial and Commerce Bank of China, Zhouzhou City Benlong Branch.
v. According to the Company, Zhuzhou Torch Machinery Manufacturing Company Limited is a 100%-owned subsidiary of Torch Automobile Group.

— 312 —

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APPENDIX V

B1-2

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB28,700,000
structures located at Area 5,	of land having a site area of	the Torch Automobile
Tianyuan Development	approximately 30,879 sq.m.	Group as production plant.
Zone,	together with the 2 buildings
Zhuzhou City,	erected thereon.
Hunan Province,
the PRC	The buildings comprise a
	workshop and research centre
	having a total gross floor area of
	approximately 12,202 sq.m.
	completed in around 2005.
	The property is held with land
	use rights for a term expiring on
	19 June 2053.

Notes:

i. According to the State-owned Land Use Rights Certificate Zhu Guo Yong (2005) A0843, the land use rights of the property having a site area of approximately 30,879.40 sq.m. have been granted to Torch Automobile Group Company Limited for industrial uses for a term expiring on 19 June 2053.
ii. According to 2 Building Ownership Certificates Zhu Fang Quan Zheng Zhu Zhi Nos. 00186273 and 00186274, the title of 2 buildings having a total gross floor area of approximately 12,202.46 sq.m. is vested in Torch Automobile Group Company Limited for industrial and its ancillary office uses.
iii. The PRC legal opinion states, inter alia, as follows:
Torch Automobile Group Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. Unless stated otherwise in the mortgage agreement, Torch Automobile Group Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
The land use rights are subject to a mortgage in favour of the China Agricultural Bank, Zhuzhou City East District Branch.

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APPENDIX V

B1-3

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB36,800,000
structures located at	of land having a site area of	the Torch Automobile
No. 3 Hongqi Road North,	approximately 84,152 sq.m.	Group as production plant.
Shifeng District,	together with the buildings and
Zhuzhou City,	structure erected thereon.
Hunan Province,
the PRC	The buildings and structures
	mainly comprise 13 buildings
	having a total gross floor area of
	approximately 34,673 sq.m.
	completed in between 1988 to
	1994.
	The buildings and structures of
	the property mainly include
	workshops, storage and
	administrative buildings.
	The property is held with land
	use rights for a term expiring on
	13 December 2043.

Notes:

i. According to the State-owned Land Use Rights Certificate Zhu Guo Yong (2005)A0851, the land use rights of the property having a site area of approximately 84,151.71 sq.m. have been granted to Torch Automobile Group Company Limited for industrial uses for a term expiring on 13 December 2043.
ii. According to 13 Building Ownership Certificates, the title of 13 buildings having a total gross floor area of approximately 34,673 sq.m. is vested in Torch Automobile Group Company Limited. Further details are as follows:
Certificate No.

Certificate No.
Zhu Fang Quan Zheng Zhu Zhi No. 00181338
Zhu Fang Quan Zheng Zhu Zhi No. 00181345
Zhu Fang Quan Zheng Zhu Zhi No. 00181346
Zhu Fang Quan Zheng Zhu Zhi No. 00181347
Zhu Fang Quan Zheng Zhu Zhi No. 00181348
Zhu Fang Quan Zheng Zhu Zhi No. 00181349
Zhu Fang Quan Zheng Zhu Zhi No. 00181350
Zhu Fang Quan Zheng Zhu Zhi No. 00181351
Zhu Fang Quan Zheng Zhu Zhi No. 00181352
Zhu Fang Quan Zheng Zhu Zhi No. 00181353
Zhu Fang Quan Zheng Zhu Zhi No. 00181354
Zhu Fang Quan Zheng Zhu Zhi No. 00181355
Zhu Fang Quan Zheng Zhu Zhi No. 00181356
Total:

Gross Floor Area
(sq.m.)
45.97
611.73
2,974.44
2,983.24
192.01
2,431.56
570.24
4,359.81
1,854.88
7,094.47
287.22
1,309.46
9,958.11

34,673.14

iii. There are 10 buildings having a total gross floor area of approximately 6,180 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB2,300,000.

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APPENDIX V

iv. The PRC legal opinion states, inter alia, as follows:
Torch Automobile Group Company Limited has legally obtained the land use rights as stated in the land use rights certificates. However, the property should have been arranged for as capital injection for the subsidiaries of the Group including, Zhuzhou Torch Auto Lighting Company Limited , Zhuzhou Torch Auto Electronics Company Limited , Zhuzhou Torch Auto Sealing Company Limited and Zhuzhou Torch Sparkplugs Company Limited . Torch Automobile Group Company Limited has presented written promise

that, within one year, the property will be arranged as injected capital of its subsidiaries and legally sort out any non-conformity land and building title on the property and to ensure Torch Automobile Group and its subsidiaries will legally own and use the relevant land and buildings.

The land use rights and the buildings are subject to a mortgage in favour of Industrial and Commerce Bank of China, Zhuzhou City Benlong Branch.

— 315 —

VALUATION REPORT

APPENDIX V

B1-4

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB4,380,000
structures located at	of land having a site area of	the Torch Automobile
Xintangpo Village,	approximately 12,557 sq.m.	Group as production plant.
Hetanpu Town,	together with the buildings and
Hetang District,	structure erected thereon.
Zhuzhou City,
Hunan Province,	The buildings and structures
the PRC	mainly comprise 7 buildings
	having a total gross floor area of
	approximately 5,575 sq.m.
	completed in between 1994 to
	1995.
	The buildings and structures of
	the property mainly include
	workshops, storage and
	administrative buildings.
	The property is held with land
	use rights for a term expiring on
	30 October 2048.

Notes:

i. According to the State-owned Land Use Rights Certificate Zhu He Guo Yong (2005) A0852, the land use rights of the property having a site area of approximately 12,557 sq.m. have been granted to Torch Automobile Group Company Limited for industrial uses for a term expiring on 30 October 2048.
ii. According to 7 Building Ownership Certificates, the title of 7 buildings having a total gross floor area of approximately 5,575 sq.m. is vested in Torch Automobile Group Company Limited. Further details are as follows:

Building Ownership Certificate Zhu Fang Quan Zheng Zhu Zhi No. 00181339 Zhu Fang Quan Zheng Zhu Zhi No. 00181340 Zhu Fang Quan Zheng Zhu Zhi No. 00181341 Zhu Fang Quan Zheng Zhu Zhi No. 00181342 Zhu Fang Quan Zheng Zhu Zhi No. 00181343 Zhu Fang Quan Zheng Zhu Zhi No. 00181344 Zhu Fang Quan Zheng Zhu Zhi No. 00181357 Total:	Gross Floor Area (sq.m.) 409.29 178.76 356.73 330.46 797.32 1,474.15 2,028.25
	5,574.96

iii. There are 4 buildings having a total gross floor area of approximately 1,296 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB490,000.

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APPENDIX V

iv. The PRC legal opinion states, inter alia, as follows:
Torch Automobile Group Company Limited has legally obtained the land use rights as stated in the land use rights certificates. However, the property should have been arranged for as capital injection for and held under the subsidiaries of the Group including, Zhuzhou Torch Auto Sealing Company Limited , Zhuzhou Torch Auto Lighting Company Limited , Zhuzhou Torch Auto Electronics Company Limited and Zhuzhou Torch Sparkplugs Company Limited

. Torch Automobile Group Company Limited has presented written promise

The land use rights and the buildings are subject to a mortgage in favour of Industrial and Commerce Bank of China, Zhuzhou City Benlong Branch.

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APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
B1-5	Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB21,450,000
	structures located at	of land having a site area of	the Torch Automobile
	Yaojialing Village,	approximately 68,432 sq.m.	Group as production plant.
	Lukou Town,	together with the buildings and
	Zhuzhou City,	structure erected thereon.
	Hunan Province,
	the PRC	The buildings and structures
		mainly comprise 25 buildings
		having a total gross floor area of
		approximately 30,089 sq.m.
		completed in between 1964 to
		1993.
		The buildings and structures of
		the property mainly include
		workshops, storages and plant
		rooms.
		The property is held with land
		use rights for a term expiring on
		13 December 2043.

Notes:

i. According to the State-owned Land Use Rights Certificate Zhu Xian Guo Yong 2005 No. 848, the land use rights of the property having a site area of approximately 68,432.22 sq.m. have been granted to Torch Automobile Group Company Limited for industrial uses for a term expiring on 13 December 2043.

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APPENDIX V

VALUATION REPORT

ii. According to 25 Building Ownership Certificates, the title of 25 buildings having a total gross floor area of approximately 30,088.93 sq.m. is vested in Torch Automobile Group Company Limited for non-domestic uses. Further details are as follows:

Building Ownership Certificate
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011630
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011631
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011633
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011634
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011635
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011636
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011638
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011639
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011640
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011641
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011642
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011643
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011645
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011646
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011648
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011649
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011650
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011651
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011652
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011653
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011654
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011656
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011657
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011658
Zhu Fang Quan Zheng Lu Kou Zhen Zhi No. 00011659

Gross Floor Area
(sq.m.)
3,505.22
493.63
536.31
3,389.39
2,123.18
2,230.96
1,395.06
1,918.68
378.16
1,490.47
1,175.27
1,479.69
97.34
354.37
1,870.07
2,502.95
177.2
63.03
249.2
255.27
2,140.05
836.74
588.27
324.92
513.5

30,088.93

iii. There are 6 buildings having a total gross floor area of approximately 10,620 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB4,710,000.
iv. The PRC legal opinion states, inter alia, as follows:
Torch Automobile Group Company Limited has legally obtained the land use rights as stated in the land use rights certificates. However, the property should have been arranged for as capital injection for and held under the subsidiaries of the Group including Zhuzhou Torch Auto Lighting Company Limited , Zhuzhou Torch Auto Electronics Company Limited , Zhuzhou Torch Auto Sealing Company Limited , Zhuzhou Torch Sparkplugs Company Limited and Zhuzhou Torch Machinery Manufacturing Company Limited

. Torch Automobile Group Company Limited has presented written promise

that, within one year, the property will be arranged as injected capital of its subsidiaries and legally sort out any non-conformity land and building title on the property.

The land use rights and the buildings are subject to a mortgage in favour of Industrial and Commerce Bank of China, Zhuzhou City Benlong Branch.

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APPENDIX V

B2-1

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB413,000,000
structures located at	of land having a site area of	the Torch Automobile
Jijia Village,	approximately 1,652,708 sq.m.	Group as production plant.
Gaolin County,	together with the buildings and
Xi’an City,	structure erected thereon.
Shaanxi Province,
the PRC	The buildings and structures
	mainly comprises 19 buildings
	having a total gross floor area of
	approximately 9,061.20 sq.m.
	completed in between 2002 to
	2006.
	The buildings and structures of
	the property mainly include
	workshops, storages and plant
	rooms. The property is held with
	land use rights for a term
	expiring on 17 May 2055.

Notes:

i. According to the State-owned Land Use Rights Certificate Gao Guo Yong (2005) No. 5432, the land use rights of the property having a site area of approximately 1,652,708 sq.m. have been granted to Shaanxi Heavy Duty Automotive Company Limited for industrial uses for a term expiring on 17 May 2055.
ii. The 19 buildings having a total gross floor area of approximately 9,061 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB212,100,000.
iii. Another 19 buildings having a total gross floor area of approximately 235,900 sq.m. is being constructed on the site. As at the date of valuation, the construction expended on the construction works was approximately RMB345,900,000. This cost has been excluded in the valuation.
iv. The PRC legal opinion states, inter alia, that Shaanxi Heavy Duty Automotive Company Limited has legally obtained the land use rights of the property as stated in the title certificates.
v. According to the Company, Shaanxi Heavy Duty Automotive Company Limited is a 51%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B2-2

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB71,600,000
structures located at No. 129	of land having a site area of	the Torch Automobile
West Avenue,	approximately 272,545 sq.m.	Group as production plant.
Xi’an National Hi-tech	together with the buildings and
Industrial Development	structure erected thereon.
Zone,
Xi’an City,	The buildings and structures
Shaanxi Province,	mainly comprises 16 buildings
the PRC	having a total gross floor area of
	approximately 63,524 sq.m.
	completed in between 2002 to
	2006.
	The buildings and structures of
	the property mainly include
	workshops, treatment plant and
	storage.
	The property is held with land
	use rights for a term expiring on
	28 November 2053.

Notes:

i. According to the State-owned Land Use Rights Certificate Xi Gao Ke Ji Guo Yong (2004) 24196, the land use rights of the property having a site area of approximately 272,545 sq.m. have been granted to Xian Fast Auto Driving System Company Limited for industrial uses for a term expiring on 28 November 2053.
ii. The 16 buildings having a total gross floor area of approximately 63,524 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB94,950,000.
iii. Another building having a gross floor area of approximately 1,432 sq.m. is being constructed on the site. As at the date of valuation, the construction expended on the construction works was approximately RMB55,300,000. This cost has been excluded in the valuation.
iv. The PRC legal opinion states, inter alia, as follows:
Xian Fast Auto Driving System Company Limited has legally obtained the land use rights as stated in the land use rights certificates.
Xian Fast Auto Driving System Company Limited has presented a written promise that, within one year, it will endeavor to obtain the relevant building ownership certificates and sort out any noncompliance on the construction of the buildings to make sure the company will get the legal usage and ownership of the property.
v. According to the Company, Xian Fast Auto Driving System Company Limited is a 51%owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B3-1

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises 3 parcels	The property is occupied by	RMB9,170,000
structures located at	of land having a total site area of	the Torch Automobile
Tushan Village,	approximately 60,232 sq.m.	Group as production plant.
Tushan Town,	together with the buildings and
Laizhou City,	structure erected thereon.
Shandong Province,
the PRC	The buildings and structures
	mainly comprises 11 buildings
	having a total gross floor area of
	approximately 15,985 sq.m.
	completed in between 1994 to
	2004.
	The buildings and structures of
	the property mainly include
	workshops, storage, ancillary
	administrative office.

Notes:

i. According to the Collectively-owned Land Use Rights Certificate Lai Ji Jian No. 10010023, the land use rights of the property having a site area of approximately 27,679.38 sq.m. have been granted to Laizhou Luyuan Automobile Parts Company Limited for industrial uses without a specific year term.

According to the State-owned Land Use Rights Certificate Lai Zhou Guo Yong (99) No. 00075, the land use rights of the property having a site area of approximately 15,641.4 sq.m. have been granted to Laizhou Luyuan Automobile Parts Company Limited for industrial uses for a term expiring on 10 July 2048.

According to the State-owned Land Use Rights Certificate Lai Zhou Guo Yong (01) No. 1432, the land use rights of the property having a site area of approximately 16,910.90 sq.m. have been granted to Laizhou Luyuan Automobile Parts Company Limited for industrial uses for a term expiring on 30 December 2047.

ii. According to 7 Building Ownership Certificates, the title of the buildings having a total gross floor area of approximately 15,985.44 sq.m. is vested in . Further details are as follows:

Building Ownership Certificate Lai Fang Tu Zheng Zhi No. 112008 Lai Fang Quan Zheng Tu Shan Zhen Zhi No. 2003118502 Lai Fang Quan Zheng Tu Shan Zhen Zhi No. 2003118503 Lai Fang Quan Zheng Tu Shan Zhen Zhi No. 118046 Lai Fang Quan Zheng Tu Shan Zhen Zhi No. 2003147227 Lai Fang Quan Zheng Tu Shan Zhen Zhi No. 2003147228 Lai Fang Quan Zheng Tu Shan Zhen Zhi No. 2003147229 Total:	Number of Block 6 1 2 2 4 5 5 25	Gross Floor Area (sq.m.) 4,103.30 2,121.22 2,649.44 683.80 2,057.79 2,278.95 2,090.94
		15,985.44

iii. The land use rights held under the collectively-owned land has been ascribed as no commercial value due to the nontransferable nature of the property.

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APPENDIX V

iv. There are 107 buildings having a total gross floor area of approximately 18,207 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB5,763,000.
v. There are miscellaneous ancillary buildings and structure construction in progress on the site. As at the date of valuation, the total construction cost expended on the construction works was approximately RMB766,000. This cost has been excluded in the valuation.
vi. The PRC legal opinion states, inter alia, that for the land use rights acquired via State-owned Land Use Rights Certificates Lai Zhou Guo Yong (99) No. 00075 and (01) No. 1432 and the buildings held under Lai Fang Quan Zheng Tu Shan Zhen Zhi Nos. 118046, 2003118502, 2003118502, and 2003147227 to 2003147229, Laizhou Luyuan Automobile Parts Company Limited has legally obtained the land use rights and the title of the buildings as stated in the certificates. Laizhou Luyuan Automobile Parts Company Limited has the right to use, lease, mortgage or assign the land use rights in accordance with the laws. For the lot held via collectivelyowned Land Use Rights Certificate Lai Ji Jian No. 10010023 and the buildings held under Lai Fang Tu Zheng Zhi No. 112008, has not acquired the title of both the land use rights and the buildings.
vii. According to the Company, Laizhou Layuan Automobile Parts Company Limited is a 100%owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B3-2

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	No commercial value
structures located at Qianjin	of land having a site area of	the Torch Automobile
Community,	approximately 19,998 sq.m.	Group as production plant.
Xifu Town Street,	together with the buildings and
Chengyang District,	structure erected thereon.
Qingdao City,
Shandong Province,	The buildings and structures
the PRC	mainly comprises 6 workshops
	having a total gross floor area of
	approximately 9,307 sq.m.
	completed in around 2002.

Notes:

i. According to the Collectively-owned Land Use Rights Certificate Cheng Ji Yong (2005) Zi No. 1, the land use rights of the property having a site area of approximately 19,998 sq.m. have been granted to Qianjin Community (Qingdao Hongben Machinery Manufacturing Company Limited ( ) via administrative allocation for industrial uses without a specific year term.
i. According to the Building Ownership Certificate Qing Fang Di Quan Cheng Zi No. 003078, the title of 6 buildings having a total gross floor area of approximately 9,306.69 sq.m. is vested in Qingdao Hongben Machinery Manufacturing Company Limited for workshop and ancillary office purpose.
ii. The property has been ascribed as no commercial value due to the administrative allocation nature of land and insufficient proof of ownership of the building. For reference purpose, the depreciated replacement cost of the buildings and structures as at the date of valuation was in the region of RMB5,490,000
iii. The PRC legal opinion states, inter alia, as follows:
Qingdao Hongben Machinery Manufacturing Company Limited has not allowed to acquired the title of both the land use rights which are in collectively-owned nature and the buildings erected thereon.
Qingdao Hongben Machinery Manufacturing Company Limited has presented a written promise that it will coordinate and communicate with the local government, targeting in the shortest possible time, to get legally regulated or adjustment on the current use of collectively-owned land and building, and effectively obtain the relevant building ownership certificates and to sort out any non-compliance issue on the construction and use of the land and buildings.
iv. According to the Company, Qingdao Hongben Machinery Manufacturing Company Limited is a 75%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B4-1

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB11,870,000
structures located at	of land having a site area of	the Torch Automobile
No. 0167 Ninghe Economic	approximately 41,155 sq.m.	Group as production plant.
& Technology Development	together with the buildings and
Zone,	structure erected thereon.
Tianjin City,
the PRC	The buildings and structures
	mainly comprises 6 buildings
	having a total gross floor area of
	approximately 15,826 sq.m.
	completed in 2001.
	The buildings and structures of
	the property mainly include
	workshops, warehouse and
	administrative building.
	The property is held with land
	use rights for a term expiring on
	1 August 2050.

Notes:

i. According to the State-owned Land Use Rights Certificate Ning Guo Yong(2000) No. 0278, the land use rights of the property having a site area of approximately 41,155 sq.m. have been granted to Tianjin Hongben Machinery Manufacturing Company Limited for industrial uses for a term expiring on 1 August 2050.
ii. According to the Building Ownership Certificates Fang Quan Zheng Jing Fang Zi No. 000002160, the title of 4 buildings having a total gross floor area of approximately 15,826 sq.m. is vested in Tianjin Hongben Machinery Manufacturing Company Limited for industrial uses.
iii. There are 7 buildings having a total gross floor area of approximately 613 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB221,100.
iv. The PRC legal opinion states, inter alia, as follows:
Tianjin Hongben Machinery Manufacturing Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. Tianjin Hongben Machinery Manufacturing Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
The buildings are subject to a mortgage in favour of the China Agricultural Bank, Tianjin Dongli Branch.
v. According to the Company, Tianjin Hongben Machinery Manufacturing Company Limited is a 75%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B4-2

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB6,920,000
structures located at	of land having a site area of	the Torch Automobile
the south of Luhan Road,	approximately 21,735 sq.m.	Group as production plant.
Ninghe Economic &	together with the buildings and
Technology Development	structure erected thereon.
Zone,
Tianjin City,	The buildings and structures
the PRC	mainly comprises 4 buildings
	having a total gross floor area of
	approximately 9,199 sq.m.
	completed in between 2002 to
	2004.
	The buildings and structures of
	the property mainly include
	workshops and administrative
	buildings.
	The property is held with land
	use rights for a term expiring on
	1 February 2051.

Notes:

i. According to the State-owned Land Use Rights Certificate Jing Ning Guo Yong (2001) No. 0843, the land use rights of the property having a site area of approximately 21,735 sq.m. have been granted to Tianjin Hongning Machinery Manufacturing Company Limited for industrial uses for a term expiring on 1 February 2051.
ii. According to the Building Ownership Certificates Fang Quan Zheng Jing Fang Zi No. 000003916, the title of 5 buildings having a total gross floor area of approximately 9,198.78 sq.m. is vested in Tianjin Hongning Machinery Manufacturing Company Limited for industrial uses.
iii. There are 5 buildings having a total gross floor area of approximately 1,766 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB878,000.
iv. The PRC legal opinion states, inter alia, that Tianjin Hongning Machinery Manufacturing Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title
certificates. Tianjin Hongning Machinery Manufacturing Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
v. According to the Tianjin Hongning Machinery Manufacturing Company Limited Company, is a 75%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

B5-1

APPENDIX V

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	No commercial value
structures located at	of land having a site area of	the Torch Automobile
the west of Road No. 12,	approximately 102,581 sq.m.	Group as production plant.
Xi’an District,	together with the buildings and
Mudanjiang City,	structure erected thereon.
Heilongjiang Province,
the PRC	The buildings and structures
	mainly comprises 10 buildings
	having a total gross floor area of
	approximately 27,379 sq.m.
	completed in around 1996.
	The buildings and structures of
	the property mainly include
	workshops, treatment plant,
	administrative building and
	various plant room.

Notes:

i. According to the State-owned Land Use Rights Certificate Mu Guo Tu Guo Yong (2003) No. 200331, the land use rights of the property having a site area of approximately 102,581.50 sq.m. have been granted to via administrative allocation for industrial uses for a term expiring on 31 December
ii. According to 10 Building Ownership Certificates, the title of 10 buildings having a total gross floor area of approximately 27,379 sq.m. is vested in Mudanjiang Futong Auto Air Conditioning Company Limited for industrial and the associated administrative uses. Further details are as follows:

Building Ownership Certificate
Mu Fang Quan Zheng Xi An Qu Zi No. 205555
Mu Fang Quan Zheng Xi An Qu Zi No. 205558
Mu Fang Quan Zheng Xi An Qu Zi No. 205560
Mu Fang Quan Zheng Xi An Qu Zi No. 205561
Mu Fang Quan Zheng Xi An Qu Zi No. 205562
Mu Fang Quan Zheng Xi An Qu Zi No. 205563
Mu Fang Quan Zheng Xi An Qu Zi No. 205564
Mu Fang Quan Zheng Xi An Qu Zi No. 205565
Mu Fang Quan Zheng Xi An Qu Zi No. 205566
Mu Fang Quan Zheng Xi An Qu Zi No. 205567
Total:

Gross Floor Area
(sq.m.)
3,424.44
2,667.82
443.65
9,741.28
2,084.54
266.33
336.42
1,090.89
341.84
6,982.11

27,379.32

iii. The property has been ascribed as no commercial value due to the administrative allocation nature of land and insufficient proof of ownership on the building. For reference purpose, the depreciated replacement cost of the buildings and structures as at the date of valuation was in the region of RMB29,100,000.

iv. The PRC legal opinion states, inter alia, as follows:

Due to the non-conformity between the land use rights users and the building owners of the property, Mudanjiang Futong Auto Air Conditioning Company Limited , even though with the building ownership certificate issued, has not comprised with the legal condition on the issuance of the title certificates of the buildings erected on the land.
Mudanjiang Futong Auto Air Conditioning Company Limited has presented a written promise that, it will endeavor to coordinate and communicate with the local government, targeting in a year, to legally and effectively obtain the relevant building ownership certificates and sort out any noncompliance on the uses of the land and the construction of the buildings. That include getting the land use rights title from administrative allocation nature to under the ownership of the company.
v. According to the Company, Mudanjiang Futong Auto Air Conditioning Company Limited is a 51%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B6-1

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB21,200,000
structures located at	of land having a site area of	the Torch Automobile
Yangshufang Economic	approximately 30,315 sq.m.	Group as production plant.
Development Area,	together with the buildings and
Pulandian City,	structure erected thereon.
Dalian City,
Liaoning Province,	The buildings and structures
the PRC	mainly comprises 8 buildings
	having a total gross floor area of
	approximately 13,575 sq.m.
	completed in the 1990s’.
	The buildings and structures of
	the property mainly include
	workshop, boiler room,
	administrative building and staff
	canteen.
	The property is held with land
	use rights for a term expiring on
	11 August 2058.

Notes:

i. According to the State-owned Land Use Rights Certificate Pu Guo Yong (2003) No. 68 , the land use rights of the property having a site area of approximately 30,315.25 sq.m. have been granted to Dalian Hongyuan Machinery Manufactory Company Limited for industrial uses for a term expiring on 11 August 2058.
ii. According to 3 Building Ownership Certificates, the title of the buildings having a total gross floor area of approximately 13,574.57 sq.m. is vested in Dalian Hongyuan Machinery Manufactory Company Limited for industrial uses. Further details are as follows:

Building Ownership Certificate

Building Ownership Certificate Pu Lan Dian Nong Ji Fang Zi Di Yang Shu Fang 03001 Pu Lan Dian Nong Ji Fang Zi Di Yang Shu Fang 03002 Pu Lan Dian Nong Ji Fang Zi Di Yang Shu Fang 03003 Total:	Gross Floor Area (sq.m.) 5,655.67 2,749.69 5,169.21
	13,574.57

iii. There are other 11 buildings having a total gross floor area of approximately 3,494 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB3,317,000.
iv. The PRC legal opinion states, inter alia, as follows:
Dalian Hongyuan Machinery Manufactory Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. With the written consent from the mortgagee, Dalian Hongyuan Machinery Manufactory Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
Dalian Hongyuan Machinery Manufactory Company Limited has presented a written promise that, within one year, it will endeavor to apply for the construction approvals, obtain the relevant building ownership certificates, and sort out any non-compliance on the construction of the buildings to make sure the company will get the legal usage and ownership of the property.
The land use rights and the buildings are subject to a mortgage in favour of Nanyang Commercial Bank Company Limited Tailin Branch.
v. According to the Company, Dalian Hongyuan Machinery Manufactory Company Limited is a 100%-owned subsidiary of Torch Automobile Group.

— 328 —

VALUATION REPORT

APPENDIX V

B7-1

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
The 16th level, 18th level	The property comprises 12 office	The property is occupied by	RMB59,900,000
and 19th level together with	units on the 16th level, 18th	the Torch Automobile
9 carparking spaces located	level and 19th level together	Group as office.
at	with 9 carparking spaces in a
No. 450 Fushan Road,	multi-storey office development
Xintian International	completed in about 1999.
Building,
Pudong New District,	The office units have a total
Shanghai,	gross floor area of approximately
the PRC	3,615 sq.m.
	The property is held with land
	use rights for a term expiring on
	26 September 2043.

Notes:

i. According to the Shanghai Certificate of Real Estate Ownership No. Hu Fang Di Pu Zi (2005) 034707, the title of the 18th level having a gross floor area of 1,205.06 sq.m. and Carparking Space Nos. 2 to 6, 37, and 39 to 41 are vested in Torch Automobile Group Company Limited, Shanghai Branch .
ii. According to 2 Shanghai Certificate of Real Estate Ownership Nos. Hu Fang Di Pu Zi (2005) 040454 and (2005) 132150 respectively for the title of 16th level and 19th level of the property having a total gross floor area of approximately 2,410.12 sq.m. is vested in Torch Automobile Group Company Limited, Shanghai Branch .
iii. The PRC legal opinion states, inter alia, that Torch Automobile Group Company Limited has legally obtained the title of the property and has the right to use, lease, mortgage or assign the property in accordance with the laws.
iv. According to the Company, Torch Automobile Group Company Limited, Shanghai Branch is a 100%-owned subsidiary of Torch Automobile Group.

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APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
B7-2	Land, various buildings and	The property comprises a parcel	The property is occupied by	No commercial value
	structures located at	of land having a site area of	the Torch Automobile
	Xinqiao Village,	approximately 69,442 sq.m.	Group as production plant.
	Daying Town,	together with the buildings and
	Qingpu District,	structure erected thereon.
	Shanghai,
	the PRC	The buildings and structures
		mainly comprises 9 buildings
		having a total gross floor area of
		approximately 13,823 sq.m.
		completed in between 1996 to
		2001.
		The buildings and structures of
		the property mainly include
		workshops, treatment plant,
		dormitory, and associated
		administrative buildings.
		The property is held with land
		use rights for a term expiring on
		15 November 2023.

Notes:

i. According to Shanghai Certificate of Real Estate Ownership Hu Fang Di Qing Zi (2002) No. 003324, the title of the land in the nature of collectively-owned land and having a total site area of approximately 69,442 sq.m. is vested in Shanghai Heda Automobile Parts Company Limited for industrial uses.
ii. According to Shanghai Certificate of Real Estate Ownership Hu Fang Di Qing Zi (2002) No. 003324, the title of the collectively-owned buildings having a total gross floor area of approximately 13,822.61 sq.m. is vested in Shanghai Heda Automobile Parts Company Limited for industrial uses.
iii. According the a lease agreement entered into between Shanghai Heda Automobile Parts Company Limited (the lessor) and Shanghai Yingdaxin Auto Electronics Company Limited Shanghai Yingdaxin Auto Electronics Company Limited (the lessee), a floor area of
approximately 430 sq.m. has been leased out at a monthly rental of RMB4,383.33 for office and production uses.
iv. The PRC legal opinion states, inter alia, as follows:
Shanghai Heda Automobile Parts Company Limited has not allowed to acquired the title of both the land use rights and the buildings which are in collectively-owned nature.
Shanghai Heda Automobile Parts Company Limited has presented a written promise that it will coordinate and communicate with the local government, targeting in the shortest possible time, to get legally regulated or adjustment on the current use of collectively-owned land and building, and effectively obtain the relevant building ownership certificates and to sort out any non-compliance issue on the construction and use of the land and buildings.
The property is subject to a mortgage in favour of the Bank of China, Shanghai City Qing Pu Branch.
v. According to the Company, Shanghai Heda Automobile Parts Company Limited is a 75%owned subsidiary of Torch Automobile Group.

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APPENDIX V

B8-1

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB12,400,000
structures located at	of land having a site area of	the Torch Automobile
Liangzhu Town,	approximately 17,276 sq.m.	Group as production plant.
Yu Hang District,	together with the buildings and
Hangzhou City,	structure erected thereon.
the PRC
	The buildings and structures
	mainly comprises 10 buildings
	having a total gross floor area of
	approximately 10,402 sq.m.
	completed in between 1996 to
	1998.
	The buildings and structures of
	the property mainly include
	workshops and their associated
	plant rooms.
	The property is held with land
	use rights for a term expiring on
	9 September 2046.

Notes:

i. According to the State-owned Land Use Rights Certificate Hang Yu Chu Guo Yong (2001) No. 13-1074, the land use rights of the property having a site area of approximately 17,276.3 sq.m. have been granted to Hangzhou Hongyuan Machinery Manufacturing Company Limited for industrial uses for a term expiring on 9 September 2046.
ii. According to 3 Building Ownership Certificates, the title of 10 buildings having a total gross floor area of approximately 10,402 sq.m. is vested in Hangzhou Hongyuan Machinery Manufacturing Company Limited for industrial uses. Further details are as follows:

Building Ownership Certificate Yu Fang Quan Zheng Liang Geng Zi No. 0000151 Yu Fang Quan Zheng Liang Geng Zi No. 0000152 Yu Fang Quan Zheng Liang Geng Zi No. 0000153 Total:	Number of Block 1 5 4 10	Gross Floor Area (in sq.m.) 1,302.07 6,967.72 2,131.90
		10,401.69

iii. There are other 3 buildings erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB97,400.
iv. The PRC legal opinion states, inter alia, that Hangzhou Hongyuan Machinery Manufacturing Company Limited has legally obtained the land use rights as stated in the land use rights certificates. Hangzhou
Hongyuan Machinery Manufacturing Company Limited has the right to use, lease, mortgage or assign the land use rights in accordance with the laws.
v. According to the Company, Hangzhou Hongyuan Machinery Manufacturing Company Limited is a 75%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B9-1

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB8,640,000
structures located at the	of land having a site area of	the Torch Automobile
north side of National Road	approximately 15,201 sq.m.	Group as production plant.
312,	together with the buildings and
Zhengyi Town,	structure erected thereon.
Kunshan City,
Jiangsu Province,	The buildings and structures
the PRC	mainly comprises 10 buildings
	having a total gross floor area of
	approximately 8,014 sq.m.
	completed in between 2002 to
	2006.
	The buildings and structures of
	the property mainly include
	workshops, treatment plant and
	storage.
	The property is held with land
	use rights for a term expiring on
	28 November 2047.

Notes:

i. According to the State-owned Land Use Rights Certificate Kun Guo Yong (98) Zi No. 1-103-002, the land use rights of the property having a site area of approximately 15,201.3 sq.m. have been granted to Kunshan Hongyuan Machinery Manufacturing Company Limited for industrial uses for a term expiring on 28 November 2047.
ii. According to 3 Building Ownership Certificates, the title of 10 buildings having a total gross floor area of approximately 8,014.16 sq.m. is vested in Kunshan Hongyuan Machinery Manufacturing Company Limited for production and workshop uses. Further details are as follows:

Building Ownership Certificate Kun Fang Quan Zheng Zhen Yi Zi No. 111000224 Kun Fang Quan Zheng Zhen Yi Zi No. 111000367 Kun Fang Quan Zheng Zhen Yi Zi No. 111000397 Total:	Number of Block 2 1 7 10	Gross Floor Area (in sq.m.) 2,146.93 2,078.33 3,788.90
		8,014.16

iii. There are other 3 buildings having a total gross floor area of approximately 711 sq.m. erected on the site have not been issued with building ownership certificates. They have been ascribed as no commercial value due to the absence of ownership certificate. For reference purpose, the depreciated replacement cost of the buildings and structures of those buildings and structure as at the date of valuation was in the region of RMB597,000.

iv. The PRC legal opinion states, inter alia, as follows:

Kunshan Hongyuan Machinery Manufacturing Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. Subject to the consent from the mortgagee, Kunshan Hongyua Machinery Manufacturing Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
Kunshan Hongyuan Machinery Manufacturing Company Limited has presented a written promise that it will apply for the construction approvals, obtain the relevant building ownership certificates, and sort out any non-compliance on the construction of the buildings to make sure the company will get the legal usage and ownership of the property.
The land use rights and the buildings are subject to a mortgage in favour of the Zhenyi Village Credit Cooperative of Kunshan City.
v. According to the Company, Kunshan Hongyuan Machinery Manufacturing Company Limited is a 75%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B9-2

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB1,190,000
structures located at	of land having a site area of	the Torch Automobile
No. 699 Xinchengnan Road,	approximately 6,667 sq.m.	Group as warehouse.
Yushan Town,	together with the building having
Kunshan City,	a total gross floor area of
Jiangsu Province,	approximately 3,084 sq.m.
the PRC	erected thereon.
	The building was completed in
	2006.
	The property is held with land
	use rights for a term expiring on
	6 July 2053.

Notes:

i. According to the State-owned Land Use Rights Certificate Kun Guo Yong (2003) Zi No. 12003103375, the land use rights of the property having a site area of approximately 6,666.7 sq.m. have been granted to Kunshan Hongyuan Machinery Manufacturing Company Limited for industrial uses for a term expiring on 6 July 2053.
ii. According to the Building Ownership Certificates Kun Fang Quan Zheng Yu Shan Zi No. 101056046, the title of the workshop buildings having a total gross floor area of approximately 3,084.25 sq.m. is vested in Kunshan Hongyuan Machinery Manufacturing Company Limited .
iii. There are workshops and ancillary buildings construction in progress on the site. The total planned gross floor area of the buildings is approximately 3,084 sq.m. As at the date of valuation, the total construction cost expended on the construction works was approximately RMB1,960,000. This cost has been excluded in the valuation.
iv. The PRC legal opinion states, inter alia, as follows:
Kunshan Hongyuan Machinery Manufacturing Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. Subject to the consent from the mortgages, Kunshan Hongyuan Machinery Manufacturing Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
The land use rights of the property are subject to a mortgage in favour of the Zhenyi Village Credit Cooperative of Kunshan City.
v. According to the Company, Kunshan Hongyuan Machinery Manufacturing Company Limited is a 75%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B9-3

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB4,730,000
structures located at	of land having a site area of	the Torch Automobile
No. 5	approximately 4,095 sq.m.	Group as production plant.
Zhengyinan Road,	together with the building having
Bacheng Town,	a total gross floor area of
Kunshan City,	approximately 3,539 sq.m.
Jiangsu Province,	erected thereon. The building
the PRC	was completed in 2003.
	The property is held with land
	use rights for a term expiring on
	6 July 2053.

Notes:

i. According to the State-owned Land Use Rights Certificate Kun Guo Yong (2003) Zi No. 12003103374, the land use rights of the property having a site area of approximately 4,095 sq.m. have been granted to Kunshan Hongyuan Machinery Manufacturing Company Limited for industrial uses for a term expiring on 6 July 2053.
ii. According to the Building Ownership Certificate Kun Fang Quan Zheng Zhen Yi Zi No. 111001016, the title of the buildings having a total gross floor area of approximately 3,539.04 sq.m. is vested in Kunshan Hongyuan Machinery Manufacturing Company Limited for industrial uses.
iii. The PRC legal opinion states, inter alia, as follows:
Kunshan Hongyuan Machinery Manufacturing Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. Subject to the consent from the mortgagee, Kunshan Hongyuan Machinery Manufacturing Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
The land use rights of the property are subject to a mortgage in favour of the Zhenyi Village Credit Cooperative of Kunshan City.
iv. According to the Company, Kunshan Hongyuan Machinery Manufacturing Company Limited is a 75%-owned subsidiary of Torch Automobile Group.

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APPENDIX V

B9-4

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	No commercial value
structures located at	of land having a site area of	the Torch Automobile
east side of Zhennan Road,	approximately 3,697 sq.m.	Group as production plant.
Zhengyi Town,	together with the 2 workshop
Kunshan City,	buildings erected thereon.
Jiangsu Province,
the PRC	The buildings have a total gross
	floor area of approximately
	1,174 sq.m. completed in around
	2002.
	The property is held with land
	use rights for a term expiring on
	14 December 2051.

Notes:

i. According to the Collectively-owned Land Use Rights Certificate Kun Ji Yong (2002) Zi No. 22002103003, the land use rights of the property having a site area of approximately 3,696.8 sq.m. have been granted to Kunshan Hongyuan Machinery Manufacturing Company Limited for industrial uses for a term expiring on 14 December 2051.
ii. According to the Building Ownership Certificate Kun Fang Quan Zheng Zhen Yi Zi No. 111000341, the title of two buildings having a total gross floor area of approximately 1,174 sq.m. is vested in Kunshan Hongyuan Machinery Manufacturing Company Limited for production uses.
iii. The property has been ascribed as no commercial value due to the collectively-owned nature of the land and insufficient proof of ownership of the buildings. For reference purpose, the depreciated replacement cost of the buildings and structures as at the date of valuation was in the region of RMB704,000.
iv. The PRC legal opinion states, inter alia,
Kunshan Hongyuan Machinery Manufacturing Company Limited has not allowed to acquired the title of both the land use rights and the buildings which are in collectively-owned nature.
Kunshan Hongyuan Machinery Manufacturing Company Limited has presented a written promise that it will coordinate and communicate with the local government, targeting in the shortest possible time, to get legally regulated or adjustment on the current use of collectively-owned land and building, and effectively obtain the relevant building ownership certificates, and to sort out any non-compliance issue on the construction and use of the land and buildings.
The land use rights of the property and the buildings are subject to a mortgage in favour of the Zhenyi Village Credit Cooperative of Kunshan City.
v. According to the Company, Kunshan Hongyuan Machinery Manufacturing Company Limited is a 75%-owned subsidiary of Torch Automobile Group.

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APPENDIX V

B9-5

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Land, various buildings and	The property comprises a parcel	The property is occupied by	RMB7,770,000
structures located at	of land having a site area of	the Torch Automobile
No. 5 Zhennan Road,	approximately 12,199 sq.m.	Group as production plant.
Zhengyi Town,	together with the 3 buildings and
Kunshan City,	structure erected thereon.
Jiangsu Province,
the PRC	The buildings and structures
	mainly comprises 2 workshops
	and a guardhouse having a total
	gross floor area of approximately
	5,283 sq.m. completed in around
	2002.
	The property is held with land
	use rights for a term expiring on
	30 November 2051.

Notes:

i. According to the State-owned Land Use Rights Certificate Kun Guo Yong (2001) Zi No. 12001103020, the land use rights of the property having a site area of approximately 12,199.2 sq.m. have been granted to Kunshan Hongyuan Machinery Manufacturing Company Limited for industrial uses for a term expiring on 30 November 2051.
ii. According to the Building Ownership Certificate No. 111000396, the title of 3 buildings having a total gross floor area of approximately 5,282.55 sq.m. is vested in Kunshan Hongyuan Machinery Manufacturing Company Limited for production and other uses.
iii. The PRC legal opinion states, inter alia, as follows:
Kunshan Hongyuan Machinery Manufacturing Company Limited has legally obtained the land use rights and the title of the buildings as stated in the title certificates. Subject to the consent from the mortgagee, Kunshan Hongyuan Machinery Manufacturing Company Limited has the right to use, lease, mortgage or assign the land use rights and the buildings in accordance with the laws.
The land use rights of the property and the buildings are subject to a mortgage in favour of the Zhenyi Village Credit Cooperative of Kunshan City.
iv. According to the Company, Kunshan Hongyuan Machinery Manufacturing Company Limited is a 75%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B10-1

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 Various buildings located at The property comprises 11 The property is occupied by No commercial value Hongwei Jieban, blocks of buildings including the Torch Automobile Shiyan City, workshops, plant and ancillary Group as production plant. Hubei Province, rooms having a total gross floor the PRC area of approximately 12,741.39 sq.m. completed in between 1972 and 1992.

Notes:

i. According to 6 Building Ownership Certificates, the title of 11 buildings having a total gross floor area of approximately 12,741.39 sq.m. is vested in Dongfeng Off-road Vehicle Company Limited for production and workshop uses. The buildings are built on a site granted to via administrative allocation for industrial uses. Further details are as follows:

Building Ownership Certificate Shi Yan Fang Quan Zheng Zhang Wan Zi No. 30093050 Shi Yan Fang Quan Zheng Zhang Wan Zi No. 30093051 Shi Yan Fang Quan Zheng Zhang Wan Zi No. 30093052 Shi Yan Fang Quan Zheng Zhang Wan Zi No. 30093053 Shi Yan Fang Quan Zheng Zhang Wan Zi No. 30093054 Shi Yan Fang Quan Zheng Zhang Wan Zi No. 30093055 Total:	Number of Block 1 2 3 3 1 1 11	Gross Floor Area (in sq.m.) 1,511.16 907.93 4,278.15 2,512.27 1,870.63 1,661.25
		12,741.39

ii. The property has been ascribed as no commercial value due to the administrative allocation nature of land and insufficient proof of ownership of the building. For reference purpose, the depreciated replacement cost of the buildings and structures as at the date of valuation was in the region of RMB12,960,000.

iii. The PRC legal opinion states, inter alia, as follows:

Due to the non-conformity between the land use rights users and the building owners of the property, Dongfeng Off-road Vehicle Company Limited , even though with the building ownership certificate issued, has not acquired the title of the buildings erected on the land.
Dongfeng Off-road Vehicle Company Limited has presented a written promise that it will coordinate and communicate with the local government, targeting in the shortest possible time, to get legally regulated or adjustment on the problem on the property, and endeavor to sort out any non-compliance issue on the use of the land and the construction of the buildings.
iv. According to the Company, Dongfeng Off-road Vehicle Company Limited is a 60%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

B11-1

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 The 3rd-level of an office The property comprises the 3rdThe property is occupied by No commercial value building located at level of an office building the Torch Automobile No. 85 Xibei Road, having a total gross floor area of Group as office. Wunansha District, approximately 1,061.75 sq.m. Wulumuqi, completed in around 1996. Xinjiang Weiwuer Autonomous Region, the PRC

Notes:

i. According to the Building Ownership Certificate Wu Zhen Fang Zi No. 00173025, the title of the building having a gross floor area of approximately 1,061.75 sq.m. is vested in Xinjiang Machinery Equipment Manufacturing Company Limited . The building is built on a site with land use rights held in collectively-owned nature.
ii. The PRC legal opinion states, inter alia, that Xinjiang Machinery Equipment Manufacturing Company Limited has not allowed to acquired the title of both the land use rights and the buildings which are
in collectively-owned nature.
iii. According to the Company, Xinjiang Machinery Equipment Manufacturing Company Limited is a 95%-owned subsidiary of Torch Automobile Group.

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VALUATION REPORT

APPENDIX V

Group C — Property interests leased and occupied by the Weichai Group

	Property	Description	Particulars	of occupancy
C1-1	An casting industrial	The property comprises a	The property is leased to the
	complex located at	parcel of industrial land having	Group from	Weifang Diesel
	No. 26 Minsheng Street	a site area of approximately	Engine Works
	East,	154,944 sq.m. together with 29		, a connected
	Kuiwen District, Weifang	buildings with a total gross	party, for a	term of 5 years
	City,	floor area of approximately	commencing from 1 July
	Shandong Province,	63,244.71 sq.m. and other	2003 at an annual rent of
	the PRC	structures erected thereon.	RMB12,697,290 (inclusive
			of tax).
		The buildings and structures
		were completed in between	The property is occupied by
		1959 and 2002.	the Group for industrial and
			ancillary uses.
		The buildings and structures are
		mainly include factories,
		workshops, godowns, air-
		compressor rooms, balance
		room, electricity room and
		carpark.

Market Value in existing state as at 30 September 2006

No commercial value

Note: The PRC legal opinion states that the lessor possess legal land use rights of the property and legal title of the buildings, and has the right to lease the property to the Company. The lease agreement is legal and effective.

C1-2 No. 92-2 Jiqi Road, The property comprises a 5- The property is leased to the No commercial value Jinan City, storey building completed in or Group from an independent Shandong Province, about 1994. third party for a term the PRC commencing from 1 January The property has a gross floor 2006 to 31 December 2006 area of approximately 600 at an annual rent of sq.m. RMB70,000 exclusive of other expenses. The property is occupied by the Group for storage, residential and office uses.

Note: The PRC legal opinion states that as relevant title documents including building ownership certificate, land use rights certificate and certificate on lease registration have not been provided by the Company, it is unable to verify the legal status and effectiveness of the lease agreement.

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VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C1-3	Unit 301, Phase I, Block 5,	The property comprises a unit	The property is leased to the	No commercial value
	Ancillary Block of	in a 6-storey building	Group from an independent
	Lingongjia, Linyi City,	completed in or about 1992.	third party for a term
	Shandong Province,		commencing from 1
	the PRC	The property has a gross floor	October 2005 to 30
		area of approximately 163	September 2009 at an
		sq.m.	annual rent of RMB12,000
			exclusive of tax and other
			expenses.
			The property is occupied by
			the Group as godown and
			residential uses.

Two units (200 sq.m.) on	The property comprises 2 units	The property is leased to the
Level 1, Nos. 2-2 and 2-3	in a 6-storey completed in	Group from an independent
Qichechang Road West,	2005.	third party for a term
Tianqiao District,		commencing from 1
Jinan City,	The property has a total gross	February 2005 to 1 February
Shandong Province,	floor area of approximately 200	2008 at an annual rent of
the PRC	sq.m.	RMB108,000 exclusive of
		other expenses.
		The property is occupied by
		the Group for storage,
		residential and office uses.

Two units (220 sq.m.) on	The property comprises two	The property is leased to the
Level 1, Nos. 2-2 and 2-3,	units on Level 1 of a 6-storey	Group from an independent
Qichechang Road West,	building completed in or about	third party for a term
Tianqiao District,	2005.	commencing from 1
Jinan City,		February 2005 to 1 February
Shandong Province,	The property has a total gross	2008 at an annual rent of
the PRC	floor area of approximately 220	RMB108,000 exclusive of
	sq.m.	other expenses.
		The property is occupied by
		the Group for storage,
		residential and office uses.

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VALUATION REPORT

APPENDIX V

C1-6

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 Levels 3 and 4, The property comprises two The property is leased to the No commercial value Phase II, Block 5, units on Levels 3 and 4 of a 5- Group from an independent Huangtun 4th Zone, storey building completed in third party for a term Tianqiao District, 1994. commencing from 1 March Jinan City, 2005 to 28 February 2007 at Shandong Province, The property has a total gross an annual rent of the PRC floor area of approximately 236 RMB36,000 exclusive of sq.m. other expenses. The property is occupied by the Group for storage, residential and office uses.

C1-7

Unit 876 Chongqing Road, The property comprises Level 2 The property is leased to the No commercial value Qingdao City, of a 2-storey building Group from an independent Shandong Province, completed in or about 2003. third party for a term the PRC commencing from 1 The property has a gross floor December 2005 to 30 area of approximately 226 November 2006 at an annual sq.m. rent of RMB50,000 exclusive of other expenses. The property is occupied by the Group for storage use.

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VALUATION REPORT

APPENDIX V

C2-1

				Market Value in
				existing state as at
Property	Description	Particulars of occupancy		30 September 2006
An industrial	The property comprises a	The property is leased to the		No commercial value
complex located at Jiangjindegan Town,	parcel of industrial land having a site area of approximately	Group from	a
Chongqing City,	49,206.82 sq.m. together with	connected party,	for a term
the PRC	16 buildings having a total	of 5 years commencing from
	gross floor area of	1 July 2003 to 30 June 2008
	approximately 35,862.30 sq.m.	at an annual rent of
	and other structures.	RMB3,404,000 (inclusive of
	Furthermore, 5 buildings and	tax).
	structures are provided by the
	lessor to the Group to use at no	The property is occupied by
	charges.	the Group for industrial and
		ancillary uses.
	The buildings and structures are
	completed between 1970s and
	2000s.
	The buildings and structures
	mainly comprise workshop,
	technical building, godown,
	electricity room, security guard
	room, laboratory, power
	station, air-compressor room
	and pump station and
	transformer room.

C2-2 No. Te 16 Shipingheng The property comprises a unit The property is leased to the No commercial value Street, Jiulongpo, in a 27-storey building Group from an independent Chongqing City, completed in or about 2000. third party for a term the PRC commencing from 1 June The property has a gross floor 2006 to 31 May 2007 at an area of approximately 145.6 annual rent of RMB39,600 sq.m. exclusive of other expenses. The property is occupied by the Group for office use.

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VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C2-3	Unit 15-2-3,	The property comprises five	The property is leased to the	No commercial value
	No. 16 Jiulongpo District,	units in a 27-storey building	Group from an independent
	Chongqing City,	completed in or about 2000.	third party for a term
	the PRC		commencing from 1 June
		The property has a total gross	2006 to 1 June 2007 at an
		floor area of approximately	annual rent of RMB32,000
		177.1 sq.m.	exclusive of other expenses.
			The property is occupied by
			the Group for office use.

Unit 201, Phase II,	The property comprises a unit	The property is leased to the
Block 3, Xuefu Zone,	on Level 2 of a 2-storey	Group from an independent
Dangxiao Road,	building completed in or about	third party for a term
Taiyuen City,	2004.	commencing from 12
Shanxi Province,		September 2005 to 12
the PRC	The property has a gross floor	September 2006 at an
	area of approximately 119.3	annual rent of RMB27,400
	sq.m.	exclusive of management
		fee and other expenses.
		The property is occupied by
		the Group for storage,
		residential and office uses.

Unit 102, Phase II,	The property comprises a unit	The property is leased to the
Block 2, Xuefu Zone,	on Level 1 of a 2-storey	Group from an independent
Dangxiao Road,	building completed in 2004.	third party for a term
Taiyuen City,		commencing from 12
Shanxi Province,	The property has a gross floor	September 2005 to 12
the PRC	area of approximately 90 sq.m.	September 2006 at an
		annual rent of RMB47,000
		exclusive of other expenses.
		The property is occupied by
		the Group for residential
		and office uses.

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VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C3-3	Beipanwan Industrial Zone,	The property comprises a unit	The property is leased to the	No commercial value
	Huangling Village,	in a 2-storey building	Group from an independent
	Taiyuen City,	completed in or about 2004.	third party for a term
	Shanxi Province,		commencing from 17
	the PRC	The property has a gross floor	January 2006 to 16 January
		area of approximately 1,300	2007 at an annual rent of
		sq.m.	RMB140,000 exclusive of
			other expenses.
			The property is occupied by
			the Group for storage use.

Level 2, Gate 13,	The property comprises the	The property is leased to the
No. 52 Jia Changqing	Level 2 of a 2-storey building	Group from an independent
Street, Dongling District,	completed in or about 1996.	third party for a term
Shenyang City,		commencing from 3 April
Laoning Province,	The property has a gross floor	2006 to 2 April 2007 at an
the PRC	area of approximately 256.3	annual rent of RMB86,000
	sq.m.	exclusive of other expenses.
		The property is occupied by
		the Group for residential
		and office uses.

Level 1, No. Fu 13–14	The property comprises two	The property is leased to the
No. 726 Huaqi Main Road	units on Level 1 of a 3-storey	Group from an independent
North, Guiyang City,	building completed in or about	third party for a term
Guizhou Province,	1989.	commencing from 22
the PRC		October 2005 to 21 October
	The property has a total gross	2006 at an annual rent of
	floor area of approximately	RMB55,200 exclusive of
	73.42 sq.m.	other expenses.
		The property is occupied by
		the Group for residential
		and office uses.

— 344 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C5-2	Level 5, Phase II, Block 4,	The property comprises a unit	The property is leased to the	No commercial value
	Feng Huang Cui Ti,	on Level 5 of an 8-storey	Group from an independent
	Feng Huang Village,	building completed in 2001.	third party for a term
	Nanming District,		commencing from 22
	The PRC	The property has a gross floor	October 2005 to 21 October
		area of approximately 81.54	2006 at an annual rent of
		sq.m.	RMB7,800 exclusive of tax
			and other expenses.
			The property is occupied by
			the Group for residential
			use.

Unit 702, Block 15C,	The property comprises a unit	The property is leased to the
Phase II, Yangguang	on Level 7 of a 7-storey	Group from an independent
Garden, Hongqiliang Road,	building completed in or about	third party for a term
Yangcha Lake,	2001.	commencing from 1
Jianghan District,		February 2006 to 31 January
Wuhan City,	The property has a gross floor	2007 at an annual rent of
Hubei Province,	area of approximately 123.4	RMB42,000 exclusive of
the PRC	sq.m.	management fee and other
		expenses.
		The property is occupied by
		the Group for residential
		use.

Unit 102, Level 2, Gate 1,	The property comprises a unit	The property is leased to the
Block 2, Chengkai Lane,	on Level 2 of a 6-storey	Group from an independent
Tanggu District,	building completed in 1995.	third party for a term
Tianjin City,		commencing from 1 January
the PRC	The property has a gross floor	2006 to 31 December 2006
	area of approximately 92 sq.m.	at an annual rent of
		RMB13,200 exclusive of
		other expenses.
		The property is occupied by
		the Group for storage,
		residential ad office uses.

— 345 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C8-1	Levels 1 and 2, No. 702	The property comprises a unit	The property is leased to the	No commercial value
	Qinghe Street South,	on Level 2 of a 2-storey	Group from an independent
	Yinchuan City,	building completed in or about	third party for a term
	Ningxia Autonomous	2004.	commencing from 8 April
	Region, the PRC		2006 to 8 April 2008 at an
		The property has a gross floor	annual rent of RMB50,000
		area of approximately 160.24	exclusive of other expenses.
		sq.m.
			The property is occupied by
			the Group for storage,
			residential and office uses.

Level 1, Nos. 13–15	The property comprises a unit	The property is leased to the
Guanqing Lane North,	on Level 1 of a 6-storey	Group from an independent
Guandu District,	building completed in 1995.	third party for a term
Kunming City,		commencing from 6
Yunnan Province,	The property has a gross floor	November 2005 to 6
the PRC	area of approximately 110	November 2006 at an annual
	sq.m.	rent of RMB31,000
		exclusive of other expenses.
		The property is occupied by
		the Group for storage,
		residential and office uses.

C9-2 Level 4, Yunshi Zone, The property comprises a unit The property is leased to the No commercial value Guansheng Road North, on Level 4 of a 8-storey Group from an independent Kunming City, building completed in or about third party for a term Yunnan Province, 1998. commencing from 6 January the PRC 2006 to 6 January 2007 at an The property has a gross floor annual rent of RMB15,000 area of approximately 103 exclusive of other expenses. sq.m. The property is occupied by the Group for storage, residential and office uses.

— 346 —

VALUATION REPORT

APPENDIX V

C9-3

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Level 1, Yunshi Zone,	The property comprises a unit	The property is leased to the	No commercial value
Guandu District,	on Level 1 of an 8-storey	Group from an independent
Kunming City,	building completed in 1998.	third party for a term
Yunnan Province,		commencing from 15 June
the PRC	The property has a gross floor	2006 to 14 June 2007 at an
	area of approximately 102	annual rent of RMB15,000
	sq.m.	exclusive of other expenses.
		The property is occupied by
		the Group for storage,
		residential and office uses.

C10-1

Level 1, Nanqiao	The property comprises three	The property is leased to the
Road West,	units on Level 1 together with a	Group from an independent
Shikun District, Baotou	attached garden of a single-	third party for a term
City,	storey building completed in or	commencing from 1 January
Inner Mongolia	about 1970.	2005 to 31 December 2007
Autonomous Region,		at an annual rent of
the PRC	The property has a total gross	RMB48,000 exclusive of
	floor area of approximately 306	other expenses.
	sq.m. (The garden has a site
	area of approximately 300	The property is occupied by
	sq.m.)	the Group for storage,
		residential and office uses.

Level 1, Dingqian Road,	The property comprises two	The property is leased to the
Qingshan District,	units in a single-storey building	Group from an independent
Baotou City,	completed in or about 1970.	third party for a term
Inner Mongolia		commencing from 1 January
Autonomous Region,	The property comprises a total	2006 to 31 December 2006
the PRC	gross floor area of	at an annual rent of
	approximately 420 sq.m.	RMB36,000 exclusive of
		other expenses.
		The property is occupied by
		the Group for storage use.

— 347 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C11-1	Level 3, No. 198	The property comprises a unit	The property is leased to the	No commercial value
	Zheju Road Si Bai,	on Level 3 of a 5-storey	Group from an independent
	Zhenjiang City,	building completed in or about	third party for a term
	Jiangsu Province,	2002.	commencing from 1
	the PRC		November 2005 to 31
		The property has a gross floor	October 2006 at an annual
		area of approximately 120	rent of RMB24,000
		sq.m.	exclusive of other expenses.
			The property is occupied by
			the Group for residential
			use.

	Note:	The PRC legal opinion states that as relevant title documents including building ownership	The PRC legal opinion states that as relevant title documents including building ownership	The PRC legal opinion states that as relevant title documents including building ownership	certificate, land use rights
		certificate and certificate on lease registration have not been provided by the Company, it is unable to verify the legal
		status and effectiveness of the lease agreement.
C11-2	Level 1, No. 103 Dayushu		The property comprises a unit	The property is leased to the	No commercial value
	Street,		on Level 1 of a 6-storey	Group from an independent
	Peizhou City,		building completed in or about	third party for a term
	Jiangsu Province,		2000.	commencing from 1 April
	the PRC			2004 to 31 March 2007 at an
			The property has a gross floor	annual rent of RMB12,000
			area of approximately 100	exclusive of other expenses.
			sq.m.
				The property is occupied by
				the Group for storage use.

	Note: The PRC legal opinion states that as relevant title documents including building ownership	Note: The PRC legal opinion states that as relevant title documents including building ownership	Note: The PRC legal opinion states that as relevant title documents including building ownership	certificate, land use rights
	certificate and certificate on lease registration have not		been provided by the Company, it is unable to verify the legal
	status and effectiveness of the lease agreement.
C11-3	Level 2, Block 10,	The property comprises a unit	The property is leased to the	No commercial value
	Phase II, Hanshi,	on Level 2 of a 5-storey	Group from an independent
	Peizhou City,	building completed in 2003.	third party for a term
	Jiangsu Province,		commencing from 1 April
	the PRC	The property has a gross floor	2004 to 31 March 2007 at an
		area of approximately 105	annual rent of RMB16,000
		sq.m.	exclusive of other expenses.
			The property is occupied by
			the Group for residential
			and office uses.

— 348 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C11-4	Level 6, Block 13,	The property comprises a unit	The property is leased to the	No commercial value
	Zhongyuan Zone,	on Level 6 of a 6-storey	Group from an independent
	Nantong City,	building completed in or about	third party for a term
	Jiangsu Province,	2000.	commencing from 1
	the PRC		December 2004 to 1
		The property has a gross floor	December 2006 at an annual
		area of approximately 118.85	rent of RMB31,200
		sq.m.	exclusive of other expenses.
			The property is occupied by
			the Group for residential
			and office uses.

Unit A10-208, West	The property comprises a unit	The property is leased to the
Comprehensive Capital,	on Level 1 of a 2-storey	Group from an independent
Xining City,	building completed in or about	third party for a term
Qinghai Province,	2001.	commencing from 1
the PRC		October 2005 to 30
	The property has a gross floor	September 2006 at an
	area of approximately 177.12	annual rent of RMB38,258
	sq.m.	exclusive of other expenses.
		The property is occupied by
		the Group for storage and
		office uses.

The conjunction between	The property comprises 5 units	The property is leased to the
312 National Road and 216	on Level 1 of a single-storey	Group from an independent
National Road,	building completed in 1996.	third party for a term
Urumqi City,		commencing from 1
Xinjiang Autonomous	The property has a total gross	February 2005 to 31 January
Region, the PRC	floor area of approximately 750	2008 at an annual rent of
	sq.m.	RMB76,000 exclusive of
		management fee and other
		expenses.
		The property is occupied by
		the Group for storage use.

— 349 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C13-2	Unit 202, Level 2, Phase IV,	The property comprises a unit	The property is leased to the	No commercial value
	Block 3, Jinfengyuan Zone,	on Level 2 of a 4-storey	Group from an independent
	No. 298 A Lei Tai Road,	building completed in or about	third party for a term
	Urumqi City,	1998.	commencing from 1 July
	Xinjiang Autonomous		2005 to 30 June 2007 at an
	Region,	The property has a gross floor	annual rent of RMB9,600
	the PRC	area of approximately 85 sq.m.	exclusive of management
			fee and other expenses.
			The property is occupied by
			the Group for residential
			and office uses.

No. 11–19 Block 3,	The property comprises a unit	The property is leased to the
East Zone, Feng He Yuan	in a 3-storey building	Group from an independent
Moden Logistic Centre,	completed in 2004.	third party for a term
Foshan City,		commencing from 1 March
Guangdong Province,	The property has a gross floor	2005 to 28 February 2010 at
the PRC	area of approximately 680	an annual rent of
	sq.m.	RMB122,400 exclusive of
		management fee and other
		expenses.
		The property is occupied by
		the Group for storage,
		residential and office uses.

Unit 1, Level 4, Phase IV,	The property comprises a unit	The property is leased to the
Block 1, Phase II,	on Level 4 of an 11-storey	Group from an independent
Jinfengyuan,	building completed in or about	third party for a term
No. 52 Longzhou Road	2004.	commencing from 10 April
(also known as No. 18		2005 to 9 April 2007 at an
Gongnongyuan Street,	The property has a gross floor	annual rent of RMB31,200
Jinjiang District),	area of approximately 151.99	exclusive of management
Chengdu City,	sq.m.	fee and other expenses.
Xichuan Province,
the PRC		The property is occupied by
		the Group for residential
		use.

— 350 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C15-2	Unit 2, Level 4, Phase IV,	The property comprises a unit	The property is leased to the	No commercial value
	Block 1, Phase II,	on Level 4 of an 11-storey	Group from an independent
	Jinfengyuan,	building completed in or about	third party for a term
	No. 52 Longzhou Road	2004.	commencing from 10 April
	(also known as No. 18		2005 to 9 April 2007 at an
	Gongnongyuan Street,	The property has a gross floor	annual rent of RMB31,200
	Jinjiang District),	area of approximately 151.99	exclusive of management
	Chengdu City,	sq.m.	fee and other expenses.
	Xichuan Province,
	the PRC		The property is occupied by
			the Group for residential
			use.

Level 2, Block 1,	The property comprises the	The property is leased to the
South-west portion of the	Level 2 of a single-storey	Group from an independent
backyard, No. 128 Bolin	building completed in or about	third party for a term
Road South, Zhonghua	2005.	commencing from 1 May
Main Street North,		2005 to 30 April 2008 at an
Xinhua District,	The property has a gross floor	annual rent of
Shijiazhuang City,	area of approximately 650.19	RMB93,627.36 exclusive of
Hebei Province,	sq.m.	other expenses.
the PRC
		The property is occupied by
		the Group for storage,
		residential and office uses.

Levels 1–2, No. 398	The property comprises the	The property is leased to the
Youyi Main Street North,	Levels 1 and 2 of a 2-storey	Group from an independent
Shijiazhuang City,	building completed in 2001.	third party for a term
Hebei Province,		commencing from 5 March
the PRC	The property has a total gross	2006 to 5 March 2007 at an
	floor area of approximately 300	annual rent of RMB38,000
	sq.m.	exclusive of other expenses.
		The property is occupied for
		storage, residential and
		office uses.

— 351 —

VALUATION REPORT

APPENDIX V

C17-1

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 Levels 1 and 3 plus the The property comprises the The property is leased to the No commercial value godown on the junction levels 1 and 3 plus the godown Group from an independent between Zhengmi Road and portion of a 4-storey building third party for a term Zhangjiang Road, completed in or about 2005. commencing from 1 May Zhengzhou City, 2005 to 30 April 2008 at an Henan Province, The property has a total gross annual rent of RMB148,00 the PRC floor area of approximately exclusive of other expenses. 1,600 sq.m. The property is occupied by the Group for storage, residential and office uses.

C18-1 Level 2, Block 12, The property comprises a unit The property is leased to the No commercial value Hongping Zone, on Level 2 of a 6-storey Group from an independent Yuentaiping District, building completed in or about third party for a term Harbin City, 1998. commencing from 15 April Heilongjiang Province, 2005 to 14 April 2007 at an the PRC The property has a gross floor annual rent of RMB11,000 area of approximately 109.52 exclusive of other expenses. sq.m. The property is occupied by the Group for residential use.

C18-2 Level 1, No. 386-11 The property comprises a unit The property is leased to the No commercial value Nanzhi Road, on Level 1 of a 6-storey Group from an independent Tongwai District, building completed in or about third party for a term Harbin City, 2004. commencing from 12 April Heilongjiang Province, 2005 to 12 April 2007 at an the PRC The property has a gross floor annual rent of RMB70,000 area of approximately 200 exclusive of management sq.m. (inclusive of basement) fee and other expenses. The property is occupied by the Group for office use.

— 352 —

VALUATION REPORT

APPENDIX V

C19-1

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 Level 3, No. 22, Block 3, The property comprises a unit The property is leased to the No commercial value Gate 3, Block 47, on Level 3 of a 4-storey Group from an independent Yingchuan Road, building completed in 1953. third party for a term Changchuan City, commencing from 8 Jilin Province, The property has a gross floor October 2005 to 8 October the PRC area of approximately 71 sq.m. 2006 at an annual rent of RMB10,200 exclusive of other expenses. The property is occupied by the Group for residential use.

	Note:	The PRC legal opinion states that as relevant title documents including building ownership	The PRC legal opinion states that as relevant title documents including building ownership	The PRC legal opinion states that as relevant title documents including building ownership	certificate, land use rights
		certificate and certificate on lease registration have not been provided by the Company, it is unable to verify the legal
		status and effectiveness of the lease agreement.
C20-1	Levels	1 and 2, No. 136	The property comprises three	The property is leased to the	No commercial value
	Heping	Road,	units in a 2-storey building	Group from an independent
	Liuzhou City,		completed in or about 2000.	third party for a term
	Guangxi Autonomous			commencing from 1 January
	Region,		The property has a total gross	2006 to 31 December 2006
	the PRC		floor area of approximately 170	at an annual rent of
			sq.m.	RMB37,200 exclusive of
				other expenses.
				The property is occupied by
				the Group for storage,
				residential and office uses.

C21-1 Units C12-1-1 and A3-2, The property comprises two The property is leased to the No commercial value Gesanglinkashuang, units in a 4-storey building Group from an independent Jinzhu Road West, completed in 2005. third party for a term Lhasa, commencing from 1 January Tibet Autonomous Region, The property has a total gross 2006 to 31 December 2006 the PRC floor area of approximately 153 at an annual rent of sq.m. RMB50,000 exclusive of other expenses. The property is occupied by the Group for storage, residential and office uses.

— 353 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
C22-1	Level 1,	The property comprises a unit	The property is leased to the	No commercial value
	No. 77 Changzhong Road,	in a 2-storey building	Group from an independent
	Hongkou District,	completed in 1996.	third party for a term
	Shanghai City,		commencing from 10 April
	the PRC	The property has a gross floor	2006 to 10 April 2007 at an
		area of approximately 140	annual rent of RMB84,800
		sq.m.	inclusive of tax but
			exclusive of other expenses.
			The property is occupied by
			the Group for office use.

Units 5 and 6 of	The property comprises 4 units	The property is leased to the
Block 36 and Units 3 and 4	in two 12-storey building	Group from an independent
of Block 12,	completed in 2002.	third party for a term
Jiazhoumeidu,		commencing from 8 June
Jiaqing City,	The property has a total lettable	2006 to 7 December 2006 at
Zhejiang Province,	area of approximately 90 sq.m.	a half-yearly rent of
the PRC		RMB6,282, exclusive of
		management fee and other
		operating outgoings.
		The property is occupied by
		the Group for storage use.

Unit 101, Block 11 and a	The property comprises a unit	The property is leased to the
carparking space,	in a 12-storey building together	Group from an independent
Jiazhoumeidu,	with a carparking space in a	third party for a term
Jiaqing City,	development completed in	commencing from 8 June
Zhejiang Province,	2002.	2006 to 7 December 2006 at
the PRC		a half-yearly rent of
	The property has a total lettable	RMB16,315, exclusive of
	area of approximately 135.45	management fee and other
	sq.m. (excluding of a	operating outgoings.
	carparking space having a
	lettable area of approximately	The property is occupied by
	16.23 sq.m.)	the Group for office and
		residential uses.

— 354 —

VALUATION REPORT

APPENDIX V

Group D — Property interests leased and occupied by the Torch Automobile Group

									Market Value in
									existing state as at
	Property	Description	Particulars of		occupancy				30 September 2006
D1-1	Two industrial complexes	The property comprises (1) a	The property is		leased			to	No commercial value
	located in Xi’an and Baoji Cities, Shaanxi Province,	parcel of land situated on No. 39 and 71 Xinfu Road North, Xincheng District, Xi’an City	Torch Automobile from a connected party,				Group , for a term
	the PRC	together with various buildings	of 20 years commencing
		completed between 1972 to	from the	date of the
		2001 and (2) a parcel of land	establishment of Torch
		located on Zhengjia Village, Xi	Automobile at an			annual rent
		Gou Village, Hewan Village,	of RMB11,612,187.05.
		Tuqiao Village, Caojia Town,
		Qishan County, Baoji City	The property is		occupied by
		together with 99 buildings	Torch Automobile				Group for
		completed in 1972 to 2001.	industrial and ancillary uses.
		(1) of the property has a site
		area and total gross floor area
		of approximately 273,652.035
		sq.m. and 100,732.51 sq.m.
		respectively. (2) of the property
		has a site area and total gross
		floor area of approximately
		348,740 sq.m. and 103,220.86
		sq.m. respectively.

Note: The PRC legal opinion states that as relevant title documents including building ownership certificate, land use rights certificate and certificate on lease registration have not been provided by the Company, it is unable to verify the legal status and effectiveness of the lease agreement.

D1-2

Taqing Road West,	The property comprises thirty-	The property together with
Lianhu District,	three single- to three-storey	Property No. D1-3 is leased
Xi’an City,	buildings completed between	to Torch Automobile Group
Shaanxi Province,	1970s and 2000s.	from, , a
the PRC		connected party for a term of
	The property has a total gross	20 years commencing from
	floor area of approximately	October 2001 at an annual
	88,130 sq.m.	rent of RMB3,140,000
	The buildings mainly comprise	The property is occupied by
	workshop, office, godown,	Torch Automobile Group for
	boiler room, air-compressor	industrial use.
	room and other ancillary
	buildings.

Note: The PRC legal opinion states as follows:

i. The land use rights of the property have been acquired via administrative allocation. As consent from the government bureau has not been provided, it is unable to verify the legal status and effectiveness of the lease agreement on land.
ii. The lessor possess the building ownership for an area of 26,643.92 sq.m. on the buildings of the property and has the right to lease the building to the lessee. The lease agreement has not been registered and may subject to penalty enforced by the government bureau. However, the non-registration of the agreement will not affect its legal effectiveness.
iii. For the remaining buildings, as documents on their legal title have not been made available, it is unable to verify the effectiveness of the lease agreement on the remaining buildings.

— 355 —

VALUATION REPORT

APPENDIX V

D1-3

				Market Value in
				existing state as at
Property	Description	Particulars of occupancy		30 September 2006
Shucang Village,	The property comprises 60	The property together with		No commercial value
Baoji Town,	single- to three-storey buildings	Property No. D1-2 is leased
Wuzhangyuen County,	completed between 1970s to	to Torch Automobile Group
Qishan Town,	2000s.	from,	, a
Baoji City,		connected party for a term of
Shaanxi Province,	The property has a total gross	20 years commencing from
the PRC	floor area of approximately	October 2001 at an annual
	77,333.72 sq.m.	rent of RMB3,140,000
	The property mainly comprise	The property is occupied by
	workshop, office, godown,	Torch Automobile Group for
	boiler room, air-compressor	workshop use.
	room and other ancillary
	buildings.

Note: The PRC legal opinion states as follows:

i. The land use rights of the property have been acquired via administrative allocation. As consent from the government bureau has not been provided, it is unable to verify the legal status and effectiveness of the lease agreement on land.
ii. The lessor possess the building ownership for an area of 26,643.92 sq.m. on the buildings of the property and has the right to lease the building to the lessee. The lease agreement has not been registered and may subject to penalty enforced by the government bureau. However, the non-registration of the agreement will not affect its legal effectiveness.
iii. For the remaining buildings, as documents on their legal title have not been made available, it is unable to verify the effectiveness of the lease agreement on the remaining buildings.

D2-1

Shagangzi Village,	The property comprises a	The property is leased to
Yingchengzi Town,	parcel of land together with 12	Torch Automobile Group
Ganjingzi District,	single-storey buildings	from an independent third
Dalian City,	completed in the 1990s.	party for a term commencing
Liaoning Province,		from 1 June 2002 to 31 May
the PRC	The site area and the gross floor	2007 at an annul rent of
	area of the property is	RMB400,000 exclusive of
	approximately 14,515 sq.m. and	other expenses.
	1,503.5 sq.m. respectively.
		The property is occupied by
		Torch Automobile Group for
		industrial use.

— 356 —

VALUATION REPORT

APPENDIX V

D2-2

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Unit 804, No. 63 Chongshan	The property comprises a unit	The property is leased to	No commercial value
Middle Road,	on Level 8 of an 18-storey	Torch Automobile Group
Huanggu District,	building completed in 1996.	from an independent third
Shenyang City,		party for a term commencing
Liaoning Province,	The property has a gross floor	from 1 June 2006 to 31 May
the PRC	area of approximately 148.9	2011 at a monthly rent of
	sq.m.	RMB3,750 exclusive of
		management fee and other
		operating expenses.
		The property is occupied by
		Torch Automobile Group for
		office use.

Note: The PRC legal opinion states that as relevant title documents including building ownership certificate, land use rights certificate and certificate on lease registration have not been provided by the Company, it is unable to verify the legal status and effectiveness of the lease agreement.

D3-1

Three parcels of land The property comprises three The property is leased to No commercial value together with the buildings parcels of industrial land Torch Automobile Group and structure located at No. together with various buildings from an independent third 9 Hongqi Road North and completed in between 1970s party for a term of 20 years No. 119 Xinhua Road West, and the 1990s. commencing from the date Zhuzhou City, the Torch Automobile Hunan Province, The property has a total site established at an annual rent the PRC area and total gross floor area of RMB2,920,000. of approximately 141,371.29 sq.m. and 65,535,.35 sq.m. The property is occupied by respectively. the Torch Automobile Group for industrial use.

Note: The PRC legal opinion states as follows:

i. The lessor possess legal land use rights for the 114,961 sq.m. land located at No. 119 Xinhua Road West of the property and has the right to lease the land to the lessee. For the remaining area located at No. 9 Hongqi Road North, as document on its legal title has not been made available, it is unable to verify the legal status and effectiveness of the land use lease agreement.
ii. The lessor possess the building ownership for an area of 35,988.02 sq.m. on the buildings located at No. 119 Xinhua Road West of the property and has the right to lease the buildings to the Torch Automobile Group. For the remaining buildings, as documents on their legal title have not been made available, it is unable to verify the effectiveness of lease agreement on the remaining buildings.

— 357 —

VALUATION REPORT

APPENDIX V

D3-2

			Market Value in
			existing state as at
Property	Description	Particulars of occupancy	30 September 2006
Unit 308, Level 3,	The property comprises a unit	The property is leased to	No commercial value
Zhongnan Automobile	on Level 3 of a 6-storey	Torch Automobile Group
Big World,	building completed in 2002.	from an independent third
Xingsha Development Zone,		party for a term commencing
Changsha City,	The property has a gross floor	from 7 November 2005 to 7
Hunan Province,	area of approximately 113	November 2006 at an annual
the PRC	sq.m.	rent of RMB29,000
		exclusive of management fee
		and other operating
		outgoings.
		The property is occupied by
		the Torch Automobile Group
		for office and residential
		uses.

D4-1

Level 1, Bihu Commune	The property comprises Level 1	The property is leased to
Commercial Building,	of a single-storey building	Torch Automobile Group
Wuhan Economic and	completed in about 2005.	from an independent third
Technology Development		party for a term commencing
Zone, Wuhan City,	The property has a total gross	from 1 August 2005 to 31
Hubei Province,	floor area of approximately	July 2007 at a monthly rent
the PRC	1,100 sq.m.	of RMB12 per sq.m.
		inclusive of management fee
		but exclusive of other
		expenses.
		The property is occupied by
		Torch Automobile Group for
		industrial use.

— 358 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
D4-2	Unit 24-2, Erqiao Road,	The property comprises a unit	The property is leased to	No commercial value
	Hanyang District,	in a 2-storey building	Torch Automobile Group
	Wuhan District,	completed in 1970s.	from an independent third
	Hubei Province,		party for a term commencing
	the PRC	The property has a lettable area	from 1 April 2006 to 31
		of approximately 60 sq.m.	March 2007 at a monthly
			rent of RMB3,300.
			The property is occupied by
			Torch Automobile Group for
			office use.

Unit 602, No. 20,	The property comprises a unit	The property is leased to
No. 1389 Nong Xin	on Level 6 of a 6-storey	Torch Automobile Group
Er Road,	building completed in 2002.	from an independent third
Shanghai City,		party for a term commencing
the PRC	The property has a gross floor	from 1 January 2004 to 31
	area of approximately 129.75	December 2006 at an annual
	sq.m.	rent of RMB30,000.
		The property is occupied by
		Torch Automobile Group for
		office use.

No. 1027 Changjiang Road	The property comprises a	The property is leased to
South,	parcel of land together with a 2-	Torch Automobile Group
Baoshan District, Shanghai	storey building completed in	from an independent third
City,	1999.	party for a term commencing
the PRC		from 1 December 2001 to 30
	The property has a site area and	November 2010 at an annual
	gross floor area of	rent of RMB200,000, to be
	approximately 3,300 sq.m. and	increased by RMB10,000 per
	700 sq.m. respectively.	year until 2006. The rental
		will then be reviewed in
		accordance to the market
		rent.
		The property is occupied by
		Torch Automobile Group for
		industrial use.

— 359 —

VALUATION REPORT

APPENDIX V

D6-1

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 A factory located in The property comprises the The property is leased to No commercial value Liangzhu Industrial Estate, whole of a single-storey Torch Automobile Group Yuhang District, industrial block completed in from an independent third Hangzhou City, about 1994. party for a term commencing Zhejiang Province, from 6 October 2005 to 5 the PRC The property has a lettable area October 2006 at an annual of approximately 2,400 sq.m. rent of RMB302,400 exclusive of other expenses. The property is occupied by Torch Automobile Group for industrial use.

D6-2 Units 409, 411 and 415 The property comprises a unit The property is leased to No commercial value Xihuming Building, in a 7-storey building Torch Automobile Group No. 296 Qingchun Road, completed in 2001. from an independent third Hangzhou City, party for a term commencing Zhejiang Province, The property has a gross floor from 10 May 2005 to 9 May the PRC area of approximately 189.72 2011. The annual rent is sq.m. RMB214,668.18 for the period from 10 May 2005 to 9 May 2006, RMB221,592.96 for the period from 10 May 2006 to 9 May 2007 and RMB228,517.74 for the period from 10 May 2007 to 9 May 2011.

The property is occupied by Torch Automobile Group for office use.

— 360 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
D6-3	No. 407 Xihuming Building,	The property comprises a unit	The property is leased to	No commercial value
	No. 296 Qingchun Road,	of a 7-storey building	Torch Automobile Group
	Hangzhou City,	completed in 2001.	from an independent third
	Zhejiang Province,		party for a term commencing
	the PRC	The property has a gross floor	from 10 May 2005 to 9 May
		area of approximately 93.34	2011, the annual rent is
		sq.m.	RMB105,614.21 in the
			period from 10 May 2005 to
			9 May 2006,
			RMB109,021.12 in the
			period from 10 May 2006 to
			9 May 2007 and
			RMB112,428 in the period
			from 10 May 2007 to 9 May
			2011.
			The property is occupied by
			Torch Automobile Group for
			office use.

A unit on West Tower,	The property comprises a unit	The property is leased to
No. 349 Huancheng Road	in a 5-storey building	Torch Automobile Group
North, Jiangbei District,	completed in 2005.	from an independent third
Ningbo City,		party for a term commencing
Zhejiang Province,	The property has a gross floor	from 1 May 2005 to 1 May
the PRC	area of approximately 110	2007 at an annual rent of
	sq.m.	RMB45,000 exclusive of
		management fee.
		The property is occupied by
		Torch Automobile Group for
		office use.

Note: The PRC legal opinion states that the lessor possess the title on the buildings and has the right to lease out to the lessee. The lease agreement has not been registered and may subject to penalty enforced by the government bureau. However, the non-registration of the agreement will not affect its legal effectiveness.

— 361 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
D7-1	Dabizhuang Industrial Park,	The property comprises the	The property is leased to	No commercial value
	Dongli District,	whole of a single-storey	Torch Automobile Group
	Tianjin City,	building completed in 1970s.	from an independent third
	the PRC		party for a term commencing
		The property has a gross floor	from 20 May 2004 to 19 May
		area of approximately 7,278.48	2009 at a monthly rent of
		sq.m.	RMB8 per sq.m.
			The property is occupied by
			Torch Automobile Group for
			industrial use.

Godown No. 2 East of B1,	The property comprises the	The property is leased to
Industrial Zone,	whole of a single-storey	Torch Automobile Group
Xinwu Village,	building completed in 1990s.	from an independent third
Wuxia Street,		party for a term commencing
Dongli District,	The property has a gross floor	from 1 January 2005 to 31
Tianjin City,	area of approximately 3,960	December 2007 at an annual
the PRC	sq.m.	rent of RMB415,800.
		The property is occupied by
		Torch Automobile Group for
		industrial use.

	Note: The PRC legal opinion states that as relevant title documents including building ownership	Note: The PRC legal opinion states that as relevant title documents including building ownership	Note: The PRC legal opinion states that as relevant title documents including building ownership	certificate, land use rights
	certificate and certificate on lease registration have not		been provided by the Company, it is unable to verify the legal
	status and effectiveness of the lease agreement.
D7-3	No. 1 Qiwei Road,	The property comprises the	The property is leased to	No commercial value
	Ninghe Development Zone,	whole of a single-storey	Torch Automobile Group
	He Town,	building completed in 2002.	from an independent third
	Tianjin City,		party for a term commencing
	the PRC	The property has a gross floor	from 1 July 2005 to 30 June
		area of approximately 4,105	2007 at a monthly rent of
		sq.m.	RMB32,840.
			The property is occupied by
			Torch Automobile Group for
			industrial use.

Note: The PRC legal opinion states that the lessor has possessed the legal title on the buildings and has the right to lease the property to the lessee. The lease agreement is legal and effective.

— 362 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
D7-4	A godown located inside of	The property comprises the	The property is leased to	No commercial value
	Anlida Storage Company,	whole of a single-storey	Torch Automobile Group
	Tianjin City,	building completed in 1980s.	from an independent third
	the PRC		party for a term commencing
		The property has a lettable	from 1 June 2005 to 31 May
		floor area of approximately 854	2007 at a daily rent of RMB
		sq.m.	0.25 per sq.m.
			The property is occupied by
			Torch Automobile Group for
			storage use.

Unit 904, Level 1,	The property comprises a unit	The property is leased to
Haiyue Center,	in a 20-storey building	Torch Automobile Group
No. 70 Donghai Road,	completed in 2000.	from an independent third
Qingdao City,		party for a term from 1 April
Shandong Province,	The property has a gross floor	2000 at an annual rent of
the PRC	area of approximately 150.37	RMB70,000.
	sq.m.
		The property is occupied by
		Torch Automobile Group for
		office use.

D8-2

Levels 1–2,	The property comprises the	The property is leased to
No. 6 Songhuaju	whole on Levels 1 and 2 of a 2-	Torch Automobile Group
(Section A),	storey building completed in	from an independent third
No. 121 Wujingshan Middle	2003.	party for a term commencing
Road, Tianqiao District,		from 1 January 2003 to 31
Jinan City,	The property has a gross floor	December 2007 at an annual
Shandong Province,	area of approximately 399.49	rent of RMB182,000.
the PRC	sq.m.
		The property is occupied by
		Torch Automobile Group for
		office use.

— 363 —

VALUATION REPORT

APPENDIX V

D8-3

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 An office and a factory The property comprises the The property is leased to No commercial value building on the east of Fuxin whole of a 2-storey office Torch Automobile Group Road, Shangzhuang building and a single-storey from an independent third Industrial Park, factory building completed in party for a term commencing Fushan High Technology late-2006. from 1 September 2006 to 31 Development Zone, August 2008 at an annual Yantai City, The property has a total lettable rent of RMB 246,423.43 for Shandong Province, floor area of approximately the period from 1 September the PRC 2,240.213 sq.m. 2006 to 31 August 2007 and RMB 250,903.85 for the period from 1 September 2007 to 31 August 2008 exclusive of other operating outgoings. The property is currently under construction.

A parcel of land located on	The property comprises a	The property is leased to
the south of Hengjiezhi	parcel of land having a site area	Torch Automobile Group
Village,	of approximately 8,200 sq.m..	from an independent third
Chaoyang District,		party for a term commencing
Beijing,	An office building was built by	from 15 October 2002 to 14
the PRC	the lessee on the land in around	October 2007 at an annual
	2000.	rent of RMB380,000 for the
		period from 15 October 2002
		to 14 October 2004 and
		RMB10,000 will be
		increased annually since 15
		October 2004.
		The property is occupied by
		Torch Automobile Group for
		office use.

No commercial value

— 364 —

VALUATION REPORT

APPENDIX V

D9-2

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 Unit 1005, Level 10, The property comprises a unit The property is leased to No commercial value Block B, on Level 10 of a 10-storey Torch Automobile Group Zhongjian Building, building completed in 2002. from an independent third No. 15 Sanheli Road, party for a term commencing Ganjiakou, The property has a gross floor from 1 January 2006 to 31 Haidian District, area of approximately 162.29 December 2006 at a daily Beijing, sq.m. rent of RMB 4.1 per sq.m. the PRC inclusive of management fee. The property is occupied by Torch Automobile Group for office use.

Level 2, North portion of	The property comprises the	The property is leased to
Wenchong Section,	whole of Level 2 of a 4-storey	Torch Automobile Group
Guangshen Highway,	building completed in 1991.	from an independent third
Huangpu District,		party for a term commencing
Guangzhou City,	The property has a gross floor	from 9 June 2006 to 8
Guangdong Province, the	area of approximately 400	December 2012 at a monthly
PRC	sq.m.	rent of RMB6,000 exclusive
		of management fee and other
		operating outgoings.
		The property is occupied by
		Torch Automobile Group for
		office use.

Xinyun Automobile	The property comprises the	The property is leased to
Repairing Factory,	whole of a 2-storey building	Torch Automobile Group
Jitang Road,	completed in 2001.	from an independent third
Fengle Road North,		party for a term commencing
Huangpu District,	The property has a gross floor	from 15 June 2006 to 15
Guangzhou City,	area of approximately 300	December 2007 at a monthly
Guangdong Province,	sq.m.	rent of RMB3,000 exclusive
the PRC		of management fee and other
		operating outgoings.
		The property is occupied by
		Torch Automobile Group as
		warehouse.

— 365 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
D11-1	Shop No. 3, Block 6,	The property comprises a shop	The property is leased to	No commercial value
	Jingang Garden,	on Level 1 of a 6-storey	Torch Automobile Group
	Jingangcheng,	building completed in 2003.	from an independent third
	Qilihe, Lanzhou City,		party for a term commencing
	Gansu Province,	The property has a gross floor	from 1 March 2006 to 28
	the PRC	area of approximately 74.48	February 2007 at a monthly
		sq.m.	rent of RMB2,100 exclusive
			of management fee and other
			operating outgoings.
			The property is occupied by
			Torch Automobile Group for
			commercial use.

Block 24 Mingjiayuan,	The property comprises a unit	The property is leased to
Guangdian Road,	in a 8-storey building	Torch Automobile Group
Nanan District,	completed in 1999.	from an independent third
Chongqing City,		party for a term commencing
the PRC	The property has a lettable	from 1 May 2006 to 30 April
	floor area of approximately 224	2007 at a monthly rent of
	sq.m.	RMB4,000 exclusive of
		management fee and other
		operating outgoings.
		The property is occupied by
		Torch Automobile Group for
		office and storage uses.

Level 1, No. 42 Kashe Road	The property comprises the	The property is leased to
West, Urumqi Economic	whole of Level 1 of a 5-storey	Torch Automobile Group
Development Zone,	building completed in 1997.	from an independent third
Urumqi City,		party for a term commencing
Xinjiang Autonomous	The property has a total gross	from 1 November 2005 to 31
Region,	floor area of approximately 129	October 2006 at an annual
the PRC	sq.m.	rent of RMB60,000.
		The property is occupied by
		Torch Automobile Group for
		office uses.

— 366 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
D14-1	Two units in No. 8-8 Anji	The property comprises 2 units	The property is leased to	No commercial value
	Main Road, Xixiangtang	in a 3-storey building	Torch Automobile Group
	District, Nanning City,	completed in 1995.	from an independent third
	Guangxi Autonomous		party for a term commencing
	Region,	The property has a total gross	from 1 August 2006 to 31
	the PRC	floor area of approximately 100	July 2007 at a monthly rent
		sq.m.	of RMB3,750 exclusive of
			management fee and other
			operating outgoings.
			The property is occupied by
			Torch Automobile Group for
			office uses.

	Note: The PRC legal opinion states that as relevant title documents including building ownership	Note: The PRC legal opinion states that as relevant title documents including building ownership	Note: The PRC legal opinion states that as relevant title documents including building ownership	certificate, land use rights
	certificate and certificate on lease registration have not		been provided by the Company, it is unable to verify the legal
	status and effectiveness of the lease agreement.
D15-1	A unit in an office building	The property comprises a unit	The property is leased to	No commercial value
	located on the north-east	in a single-storey building	Torch Automobile Group
	portion of the junction	completed in 2004.	from an independent third
	between Beihuan and 107		party for a term commencing
	National Road, Zhengzhou	The property has a gross floor	from 20 April 2004 to 20
	City, Henan Province,	area of approximately 150	April 2009 at an annual rent
	the PRC	sq.m.	of RMB45,000.
			The property is occupied by
			Torch Automobile Group for
			office use.

Block 7, Jindu Garden,	The property comprises a unit	The property is leased to
No. 469 Jinzhai Road South,	of a 2-storey building	Torch Automobile Group
Hefei City,	completed in 2003.	from an independent third
Anhui Province,		party for a term commencing
the PRC	The property has a gross floor	from 5 March 2006 to 4
	area of approximately 230	March 2007 at a monthly
	sq.m.	rent of RMB3,600 exclusive
		of management fee and other
		operating outgoings.
		The property is occupied by
		Torch Automobile Group for
		office use.

— 367 —

VALUATION REPORT

APPENDIX V

					Market Value in
					existing state as at
	Property		Description	Particulars of occupancy	30 September 2006
D17-1	A unit	in No. 19 Taiyu	The property comprises a unit	The property is leased to	No commercial value
	Road, Xiaodian District,		in a 7-storey building	Torch Automobile Group
	Taiyuen City,		completed in 1995.	from an independent third
	Shanxi Province,			party for a term commencing
	the PRC		The property has a gross floor	from 20 March 2006 to 20
			area of approximately 120	March 2007 at a monthly
			sq.m.	rent of RMB3,500 exclusive
				of management fee and other
				operating outgoings.
				The property is occupied by
				Torch Automobile Group for
				office use.
	Note:	The PRC legal opinion states that as relevant title documents including building ownership			certificate, land use rights
		certificate and certificate on lease registration have not		been provided by the Company, it is unable to verify the legal
		status and effectiveness of the lease agreement.
D18-1	A unit	in No. 138 Chaidamu	The property comprises a unit	The property is leased to	No commercial value
	Road, Chengbei District,		in a 6-storey building	Torch Automobile Group
	Xining City,		completed in 2003.	from an independent third
	Qinghai Province,			party for a term commencing
	the PRC		The property has a gross floor	from 20 March 2006 to 20
			area of approximately 180	March 2007 at a monthly
			sq.m.	rent of RMB3,500 exclusive
				of management fee and other
				operating outgoings.
				The property is occupied by
				Torch Automobile Group for
				office use.

Unit 603, Phase 3,	The property comprises a unit	The property is leased to
Block 1, South Zone,	on Level 6 of a 15-storey	Torch Automobile Group
Deyuan District,	building completed in 2004.	from an independent third
Qingyuan Road,		party for a term commencing
Xishan District,	The property has a gross floor	from 1 April 2006 to 1 April
Kunming City,	area of approximately 110.13	2007 at a monthly rent of
Yunnan Province,	sq.m.	RMB2,100 exclusive of
the PRC		management fee and other
		operating outgoings.
		The property is occupied by
		Torch Automobile Group for
		office use.

— 368 —

VALUATION REPORT

APPENDIX V

Market Value in existing state as at Property Description Particulars of occupancy 30 September 2006 D20-1 Units 401, 402 The property comprises three The property is leased to No commercial value and 404, Level 4, units on Level 4 of a 5-storey Torch Automobile Group Shida Office Building, building completed in 2000. from an independent third No. 1 Huayuan Road, party for a term commencing Shahe Town, The property has a total lettable from 25 October 2005 to 24 Jiuyuan District, floor area of approximately 90 October 2006 at an annual Baotou City, sq.m. rent of RMB26,000 inclusive Inner Mongolia of management fee and other Autonomous Region, operating outgoings. the PRC The property is occupied by Torch Automobile Group for office use.

Units 1, 4 and 5, Level 3,	The property comprises three	The property is leased to
Central Tower,	units on Level 3 of a 6-storey	Torch Automobile Group
Tongyin Accessory City,	building completed in 2002.	from an independent third
No. 12 Huaqi Main Road,		party for a term commencing
Guiyang City,	The property has a total gross	from 8 October 2005 to 7
Guizhou Province,	floor area of approximately 50	October 2006 at a monthly
the PRC	sq.m.	rent of RMB20 per sq.m.
		exclusive of management
		fee.
		The property is occupied by
		Torch Automobile Group for
		storage use.

D22-1 Units 410 and 412, The property comprises two The property is leased to No commercial value Lijingyuan Hotel, units on level 4 of a 6-storey Torch Automobile Group No. 2 Lijing Street North, building completed in 2002. from an independent third Qingqing District, party for a term commencing Yinchuan City, The property has a total lettable from 26 October 2005 to 26 Ningxia Autonomous floor area of approximately 60 October 2006 at an annual Region, sq.m. rent of RMB32,000 the PRC exclusive of other operating outgoings. The property is occupied by Torch Automobile Group for office use.

— 369 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
D23-1	Unit 1202 on	The property comprises a unit	The property is leased to	No commercial value
	Zhongqing Building,	on Level 12 of a 12-storey	Torch Automobile Group
	No. 2066 Puyang Street,	building completed in 2001.	from an independent third
	Luyuan District,		party for a term commencing
	Changchun City,	The property has a gross floor	from 20 October 2005 to 20
	Jilin Province,	area of approximately 74.66	October 2006 at an annual
	the PRC	sq.m.	rent of RMB28,500 inclusive
			of management fee but
			exclusive of other operating
			outgoings.
			The property is occupied by
			Torch Automobile Group for
			office use.

Unit 17E, Block A,	The property comprises a unit	The property is leased to
No. 250 Dongyou Road,	on Level 17 of an 18-storey	Torch Automobile Group
Huli District,	building completed in 1996.	from an independent third
Xiamen City,		party for a term commencing
Fujian Province,	The property has a gross floor	from 1 March 2006 to 28
the PRC	area of approximately 151.49	February 2007 at a monthly
	sq.m.	rent of RMB3,700.
		The property is occupied by
		Torch Automobile Group for
		office use.

Units 407 and 408,	The property comprises two	The property is leased to
Level 4, Block A,	units on Level 4 of a 5-storey	Torch Automobile Group
Nanjing Wangjiawan	building completed in 2001.	from an independent third
Logistic Centre,		party for a term commencing
No. 108 Dongfangcheng,	The property has a total gross	from 7 March 2006 to 6
Xuanwu District,	floor area of approximately	March 2007 at an annual rent
Nanjing City,	52.8 sq.m.	of RMB21,199.2 exclusive
Jiangsu Province,		of other operating outgoings.
the PRC
		The property is occupied by
		Torch Automobile Group for
		office use.

— 370 —

VALUATION REPORT

APPENDIX V

				Market Value in
				existing state as at
	Property	Description	Particulars of occupancy	30 September 2006
D26-1	Two units on Level 1,	The property comprises two	The property is leased to	No commercial value
	No. 222 Yingbin	units on Level 1 of a 2-storey	Torch Automobile Group
	Main Road,	building completed in 2001.	from an independent third
	Qingyunpu District,		party for a term commencing
	Nanchang City,	The property has a total gross	from 12 November 2005 to
	Jiangxi Province,	floor area of approximately 70	12 November 2006 at a
	the PRC	sq.m.	monthly rent of RMB1,500
			inclusive of management fee
			but exclusive of other
			operating outgoings.
			The property is occupied by
			Torch Automobile Group for
			office use.

Land, various buildings	The property comprises a	The property is leased to the
and structures located at the	parcel of land having an area of	Group from an independent
former Jindun Steel	approximately 10,099 sq.m.	third party for a term of 15
Factory to South of the	together with the 7 buildings	years from 22 September
town government,	having a total gross floor area	2003 at an annual rental rate
Tangshan,	of approximately 2,000 sq.m.	of RMB600 per Chinese mu,
the PRC	completed in around 1998 to	to be revised after the 6th
	2001	year.
		The property is occupied by
		the Torch Automobile Group
		as workshop.

Note: The PRC legal opinion states that the lessee, a foreign enterprise, could not be entitled to rent the land, which is collectively-owned in nature.

— 371 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

In connection with Weichai Power’s proposed issue of the Weichai A Shares to be listed on the Shenzhen Stock Exchange under Merger Proposal, according to the (Guidelines on the Listed Companies’ Articles of Association (amended in 2006)) issued by the CSRC (‘‘Guidelines on Articles of Association’’), for a company offering shares to the public for the first time, when it submits an application to the CSRC, the contents of its articles of association shall comply with the Guidelines on Articles of Association. For a company which issues domestic shares and overseas listed shares, it shall comply with the requirements in the

(Mandatory Provisions for Articles of Association of Companies Listing Overseas) (‘‘Mandatory Provisions’’) and the Guidelines on Articles of Association. As Weichai Power is a company established in the PRC, the Weichai Power Articles shall also comply with the relevant provisions of the PRC Company Law, which has recently been amended. The Board also proposes certain amendments to maintain an orderly operation of the various corporate functions of Weichai Power.

The Board proposes to amend the Weichai Power Articles, and the amendments to the Weichai Power Articles to be considered, and if thought fit, approved at the Weichai Power Shareholders’ EGM are, as follows:

The following paragraph shall be added as Article 2:

‘‘The Company issued 115,000,000 overseas listed foreign shares to foreign investors to be subscribed for in foreign currency and listed overseas. The Company was listed on the Main Board of the Stock Exchange of Hong Kong Limited in March 2004.

On [date], the Company was approved by [authority] to issue [number of shares] ordinary shares denominated in RMB to the domestic public for the first time, and it was listed on Shenzhen Stock Exchange on [date]’’

The first paragraph of the original Article 6 shall be amended to read as:

‘‘Article 7 On 30 June 2003, these Articles were adopted by a special resolution passed at the Company’s general meeting for year 2002. They were revised by a special resolution passed at an extraordinary general meeting of the Company held on 20 October 2003, revised at the Company’s annual general meeting for year 2003 held on 29 June 2004, revised at the Company’s extraordinary general meeting for year 2004 held on 15 December 2004 and revised by way of special resolution at the Company’s extraordinary general meeting held on [.], 200[.]. These Articles have come into force upon approval by the company examination and approval authority under the State Council and after completion of the initial public offer of ordinary shares denominated in RMB.

Commencing from the effective date, these Articles will replace the Company’s original articles which will cease to have any further effect. These Articles regulate the Company’s organisation and conduct, the rights and obligations between the Company and its shareholders as well as between the shareholders. These Articles are a legally binding document.’’

The words ‘‘passed by the inaugural meeting of the Company at the time of incorporation’’ shall be deleted from the second paragraph of this Article.

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APPENDIX VI

The second paragraph of the original Article 7 shall be amended to read as:

‘‘The shareholders shall have the right to commence legal action against the Company and the Company shall have the right to commence legal action against the shareholders, directors, supervisors, general manager and other senior management officers in accordance with these Articles; the shareholders shall have the right to commence legal action against the other shareholders in accordance with these Articles; the shareholders shall have the right to commence legal action against the directors, supervisors, general manager and other senior management officers in accordance with these Articles.’’

The following words shall be inserted after the last paragraph of this Article:

‘‘The other senior management officers referred to in these Articles shall mean the deputy general manager, financial controller and secretary to the board of directors.’’

The original Article 9 shall be amended to read as:

‘‘The Company is an independent corporate legal person. The Company’s acts shall comply with PRC laws and regulations and safeguard the lawful interests of its shareholders. The Company shall be governed and protected by PRC laws, regulations and other relevant governmental provisions.’’

The original Article 10 shall be deleted in its entirety.
The following paragraph shall be inserted as Article 11:

‘‘The Company may invest in other enterprises provided that it may not become a capital contributor who is liable for the indebtedness of the enterprise invested by the Company, and the Company’s liabilities to the invested enterprise are limited to the amount of its capital contribution unless otherwise required by the laws.’’

The second sentence of the original Article 13 shall be amended to read as:

‘‘The scope of business of the Company includes: the ‘‘design, development, manufacture, sales, maintenance of the diesel engines and supplemental products and the import and export business of the enterprise under the (qualification certificate).’’

The original Article 15 shall be amended by inserting the following after the first sentence of the Article:

‘‘The ordinary shares issued by the Company shall include domestic shares and foreign shares.’’

The original Article 18 shall be amended to read as follows:

‘‘The shares issued by the Company which are denominated in Renminbi, and subscribed by domestic investors are known as domestic shares. The domestic shares which are listed domestically shall be known as domestic listed Renminbi ordinary shares. The shares issued by the Company which are denominated in a foreign currency and subscribed by foreign investors are known as foreign shares. Foreign shares which are listed overseas are known as overseas listed foreign shares. Both the domestic shareholders and foreign shareholders are ordinary shareholders and have the same rights and responsibilities.’’

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APPENDIX VI

The original Article 19 shall be amended to read as follows:

‘‘Upon the resolution passed at a general meeting and the submission to the relevant government authority for approval by the board, the domestic shares and promoter’s foreign shares may be listed on a domestic stock exchange and shall be collectively known as A shares after listing on a domestic stock exchange. Upon the resolution passed at a general meeting and approval by the relevant government authority, foreign shares may be listed on Hong Kong Stock Exchange or other stock exchanges outside PRC.

Upon the approval by the examination and approval authority which is authorised by the State Council, the Company may issue a total of 520,653,552 ordinary shares, including 215,000,000 shares issued to the promoters on incorporation. Details of capital contributions by the Company’s promoters upon incorporation are as follows:

==> picture [455 x 337] intentionally omitted <==

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

||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|No.|of|shares|
|subscribed|for|
|Promoters|(0’000|shares)|Mode|of|capital|contribution|Date|of|capital|contribution|
|(Weichai|Diesel|Engine|8,645|The|assets|(including|assets|and|Cash|was|paid|before|5|December|
|Works)|liabilities|relating|to|production|2002.|Formalities|for|the|transfer|of|
|and|operation)|of|as|at|real|properties|and|lands|were|
|31|December|2001,|in-kind|completed|on|16|June|2003|and|4|
|contribution|in|the|sum|of|RMB80|June|2003|respectively,|and|other|in-|
|million|and|RMB6.45|million|in|kind|contributions|were|delivered|on|
|cash|3|December|2002.|
|(Weifang|Investment|2,150|RMB21.50|million|in|cash|5|December|2002|
|Company)|
|(Peterson|Holdings|2,350|RMB23.50|million|in|cash|5|December|2002|
|Company|Limited)|
|2,150|RMB21.50|million|in|cash|5|December|2002|
|(Fujian|Longyan|
|Construction|Machinery|(Group)|
|Company|Limited)|
|2,150|RMB21.50|million|in|cash|5|December|2002|
|(Shenzhen|Chuangxin|
|Investment|Group|Company|
|Limited)|
|1,000|RMB10|million|in|cash|5|December|2002|
|(Shandong|Enterprise|
|Trust|Operation|Company|Limited)|
|1,075|RMB10.75|million|in|cash|5|December|2002|
|(IVM|Technical|
|Consultants|Wien|Gesellschaft|
|m.b.H)|
|(Guangxi|500|RMB5|million|in|cash|5|December|2002|
|Liugong|Group|Company|Limited)|
|24|natural|person|promoters|including|1,480|RMB14.8|million|in|cash|5|December|2002’’|
|Tan|Xuguang|

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

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AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

The original Article 20 shall be amended to read as follows:

‘‘Subsequent to the establishment of the Company, 115,000,000 ordinary shares were issued additionally. At the same time, the promoter of the Company disposed of 11,500,000 state-owned shares, representing 10% of its financing. All of the above shares are overseas-listed foreign shares. Subsequent to such issue and disposal, the shareholding structure of the Company is as follows: there are totally 330,000,000 ordinary shares in issue, of which 203,500,000 shares and 126,500,000 shares are held by the promoter shareholders and by holders of the overseas-listed foreign shares, respectively, representing 61.67% and 38.33% of the total number of shares of the Company, respectively.

After completion of the abovesaid issue of the overseas-listed foreign shares, there are 190,653,552 domestically listed domestic shares in issue, as approved by the approving authorities authorized by the State Council. After such issue and listing, the shareholding structure of the Company is as follows: there are totally 520,653,552 ordinary shares in issue, of which 394,153,552 shares (including 203,500,000 shares held by the promoter domestic shareholders and promoter foreign shareholders) are held by the A shareholders, and 126,500,000 shares are held by holders of the overseas-listed foreign shares.’’

The original Article 21 shall be deleted in its entirety, and replaced by the following:

‘‘The structure of the share capital of the Company is: 520,653,552 ordinary shares, of which 126,500,000 shares are held by overseas-listed foreign shareholders and 394,153,552 shares are held by holders of A shares (including 203,500,000 shares held by the promoters).’’

The words ‘‘domestic shares’’ in the first and second paragraphs of the original Article 22 shall be replaced with the words ‘‘A shares’’.
The words ‘‘domestic shares’’ in the original Article 23 shall be replaced with the words ‘‘A shares’’.
The original Article 24 shall be amended to read as follows:

‘‘The registered capital of the Company is RMB520,653,552, the total number of shares is 520,653,552 with a nominal value of RMB1.00 each.’’

The original Article 25 shall be amended by inserting the following as item (4):
‘‘(4) share capital converted from the common reserve fund ;’’; and
item (5) be amended to read as follows:

‘‘(5) other methods permitted under the PRC laws and administrative rules and by the China Securities Regulatory Commission’’

The second paragraph of the original Article 26 shall be deleted in its entirety.

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APPENDIX VI

The original Article 27 shall be amended by deleting the ‘‘.’’ and inserting the following words after the first sentence of this Article:

‘‘, may deal with it in accordance with the procedures stated in the PRC Company Law, other relevant rules and regulations and these Articles.’’

The second paragraph of the original Article 28 shall be amended to read as follows:

‘‘The Company shall notify its creditors within 10 days of the resolution of the reduction of registered capital and issue an announcement on the (China Securities Post) and/or other national newspapers and magazines designated by (administrative authority of securities of the State Council) and other newspapers and magazines designated by the board of directors within 30 days of the resolution. The creditors may require the Company to pay its debts or provide the corresponding guarantee within 30 days from the receipt of the notice, or within 45 days from the date of the first announcement if it does not receive the notice.’’

The original Article 29 shall be amended to read as follows:

‘‘In any of the following events, the Company may repurchase its outstanding shares through the procedures set out in these Articles after reporting to the competent authority of the State for approval:

(1) cancel shares for the purpose of reducing the Company’s registered capital;
(2) amalgamate with other companies that hold the Company’s share;
(3) allot shares to the Company’s staff as incentive;
(4) as the shareholders object to a resolution passed at a general meeting concerning the Company’s amalgamation or spin-off, they request the Company to acquire their shares.

The Company may not deal in its shares other than the circumstances as aforesaid.’’

The original Article 30 shall be amended by replacing the ‘‘.’’ at the end of item (3) in this Article by ‘‘;’’ and inserting the following as item (4) after item (3) in this Article:

‘‘(4) other methods approved under the law, administrative rules and (the administrative authority of securities of the State Council).’’

Article 32 shall be inserted as follows:

‘‘The Company’s acquisition of its shares for the reasons set out in Article 29(1) to (3) shall be subject to a resolution passed at general meeting. After the Company has acquired its shares pursuant to Article 29, cancellation should be effected within 10 days from the date of acquisition in the case of clause (1). Transfer or cancellation should be effected within six months in the cases of clauses (2) and (4).

If the Company acquires its own shares pursuant to the provision of Article 29(3), such acquisition will not exceed 5% of the Company’s total issued shares. The capital used for acquisition should be paid out of the Company’s profit after taxation. The acquired shares should be transferred to its staff within one year.’’

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APPENDIX VI

The first paragraph of the original Article 32 shall be amended to read as follows:

‘‘After the repurchase of its shares in accordance with the law, the Company shall cancel or transfer such shares within the period of time provided by law, administrative rules and the relevant listing rules, and arrange for the registration of change of capital at the original approving authority.’’

The word ‘‘Article 38’’ in the last sentence of the original Article 34 shall be replaced by the word ‘‘Article 37’’.
The word ‘‘Article 36’’ in the first sentence of the original Article 36 shall be replaced by the word ‘‘Article 35’’.
The following shall be inserted as Article 40:
‘‘The Company shall not accept the Company’s shares as a subject of a charge.’’
The following shall be added as Article 41:

‘‘Shares of the Company held by promoters are not transferable within one year from the date of establishment of the Company. Promoters’ shares issued prior to the domestic initial public offering of shares of the Company are not transferable within one year from the date of trading of the Company’s shares on a domestic stock exchange.

Directors, supervisors, general manager and other senior officers of the Company shall report to the Company the number of the Company’s shares held by them and any changes thereof. Shares transferable during their term of office annually shall not exceed twenty-five percent (25%) of the total number of shares of the Company held by them. Shares of the company held by them are not transferable within one year from the date of trading of the Company’s shares on a domestic stock exchange. Shares of the Company held by the aforesaid staff are not transferable within the first half year of their cessation of employment with the Company.’’

The following shall be added as Article 42:

‘‘If the directors, supervisors, general manager, other senior management of the Company and holders of more than 5% of the Company’s shares sell their shares within six months from the date of acquisition, or make further acquisition within six months after from the date of sale, the profits so generated shall belong to the Company and the board will receive the gain generated by it.

If the board of the Company fails to act according to the above requirement, the shareholders have the right to request the board to act within 30 days. If the board of the Company fails to act within the prescribed period stated above, the shareholders have the right to bring an action to the People’s Court directly in their own names in order to protect the interests of the Company.

If the board of the Company fails to act according to the provision of clause 1, the responsible directors shall be severally liable under the law.’’

The word ‘‘Article 43’’ in the original Article 40 shall be deleted and replaced by the word ‘‘Article 45’’.

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APPENDIX VI

The ‘‘,’’ between the phrase ‘‘or to pay a higher fee approved by the Stock Exchange of Hong Kong’’ and the phrase ‘‘to register the share transfer deed and other documents relating or incidental to the ownership of the shares’’ in paragraph (1) of Article 42 shall be deleted.

The following be inserted to the last sentence of the original Article 42:

‘‘If the Company decline to registration of transfer of shares, it shall provide a written notice to the relevant transferor and transferee of the refusal of registration of the transfer within two months from the date of formal application for such transfer.’’

The following sentence be inserted to the last sentence of the original Article 43:

‘‘This aforesaid is applicable to the holders of overseas-listed foreign shares listed on the Stock Exchange of Hong Kong Limited.’’

The last two sentences of the original Article 44 shall be amended to read as follows:

‘‘the shareholders whose names are registered on the share register after the closing of the share determination date enjoying the relevant rights.’’

The words ‘‘Article 150’’ in the second paragraph of the original Article 46 shall be replaced by the words ‘‘Article 144’’:

The words ‘‘domestic shares’’ in the second paragraph of Article 46 shall be replaced by the words ‘‘A shares’’; and

The word ‘‘right to’’ shall be inserted to the last sentence of Article 46 after the words ‘‘if the Company exercise’’ and before the words ‘‘issue share options’’.

The words ‘‘ ’’ in the Chinese version of the fourth paragraph of Article 49 shall be replaced with the words ‘‘ ’’.
The original Article 50 shall be amended to read as follows:

‘‘Holders of the Company’s ordinary shares are entitled to the following benefits:

(1) receive dividends and other forms of interest distributions according to the ratio of shares held by them;
(2) request, call, host, participate in a general meeting or appoint their proxies to attend such meeting pursuant to the law, and exercise their voting rights according to the ratio of shares held by them;
(3) supervise and manage the business and operating activities of the Company, make recommendations and raise queries;
(4) transfer, grant or pledge their shares pursuant to the provisions of the laws, administrative regulations, departmental rules and these Articles;
(5) receive the relevant information pursuant to the provisions of these Articles, including:
receive a copy of the Company’s Articles upon payment of the costs;

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APPENDIX VI

  2. have the right to inspect and take copies of the following upon payment of reasonable costs:

     - (i) the registers of all classes of shareholders;

     - (ii) the personal particulars of the directors, supervisors, general manager and other senior management of the Company, including:

        - A. present and former names and alias;

        - B. principal addresses (residential);

        - C. nationalities:

        - D. occupations and other part-time jobs and positions;

        - E. identification documents and numbers.

     - (iii) the shareholding of the Company;

     - (iv) the total nominal values, quantities, the highest and lowest prices of each class of shares repurchased by the Company since the previous accounting year, and report of the costs paid by the Company in connection therewith;

     - (v) minutes of general meetings, resolutions of board meetings and meetings of the supervisory committee;

     - (vi) the studs of the Company’s bonds, financial and accounting reports.

(6) in the event of the cessation or liquidation of the Company, participate in the distribution of the Company’s residual assets according to the ratio of their shares;
(7) bring an action to the People’s Court pursuant to the Company Law or other laws, administrative regulations and these Articles against any acts that impair the interests of the Company or shareholders, and assert the relevant rights;
(8) other rights under the laws, administrative regulations and these Articles.’’
The following shall be inserted as Article 55:

‘‘If a shareholder makes a request for inspecting the relevant information or seek any materials set out in the preceding Article, such shareholder should provide written documents to prove the class and quantity of the Company’s shares held by such shareholder. The Company will provide the relevant information and materials upon verification of the identity of such shareholder.’’

The following shall be inserted as Article 56:

‘‘If any resolution passed by general meetings and board meetings are in breach of law or administrative rules, the shareholders are entitled to seek confirmations from the People’s Court that such resolutions are null and void.

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AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

In respect of any procedures of calling of general meetings or board meetings or voting methods in breach of law or administrative rules, or any resolutions in breach of these Articles, the shareholders shall have the right to seek a cancellation of the same at the People’s Court within 60 days from the day of the breach.’’

38. The following should be inserted as Article 57:

‘‘If the directors, general manager or other senior management of the Company violate the provisions of the laws, administrative regulations or these Articles in the course of performing their duties, and such violation results in losses to the Company, the shareholders of the Company who are holding more than 1% of the Company’s shares, either individually or jointly, for a period of over 180 days continuously have the right to make a written request demanding the supervisory committee to bring an action to the People’s Court. If the supervisory committee violates the provisions of the laws, administrative regulations or these Articles in the course of performing its duties, and such violation results in losses to the Company, the shareholders have the right to make a written request demanding the board to bring an action to the People’s Court.

In the event that the Supervisory Committee and the Board of Directors refuse to bring an action after receipt of a written request from the shareholders in accordance with provisions set out in the previous paragraph, or fail to bring an action within 30 days from the receipt of such request, or in an emergency situation where failure to bring an action immediately shall result in harm beyond remedy to the Company’s interests, shareholders stipulated in the previous paragraph shall have the right to directly bring an action to the People’s Court in their own names for the benefit of the Company.

If the Company’s lawful interests are infringed by other people that result in losses to the Company, the shareholders mentioned in clause 1 of these Articles may bring an action to the People’s Court pursuant to the above provisions.’’

The following shall be inserted as Article 58:

‘‘Shareholders may commence legal actions against the directors, general managers or any other senior management officers who was in breach of the provisions of law, administrative rules, these Articles or acting against the interest of the shareholders.’’

The original Article 51 shall be amended to read as follows:

‘‘Holders of the ordinary shares of the Company shall perform the following obligations:

(1) comply with these Articles;
(2) make payment according to the number of shares subscribed for and the mode of participation;
(3) may not cease to be a shareholder unless otherwise provided by laws and regulations;
(4) may not impair the interests of the Company or other shareholders by abusing their rights as a shareholders; may not impair the interests of the Company’s creditors by abusing the Company’s status as an independent legal person or the shareholders’ limited liabilities. If the Company and other shareholders suffer losses as a result of the abuse of shareholders rights by a shareholder of the Company, such shareholder is liable to indemnify the Company or other shareholders against such losses pursuant to the laws. If the Company’s

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AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

shareholders evade debts by abusing the Company’s status as an independent legal person and the shareholders’ limited liabilities, and such acts seriously affect the interests of the Company’s creditors, such shareholders shall be severally liable for the Company’s debts.

(5) other obligations prescribed under the provisions of the laws, administrative regulations and these Articles.

Save with the terms agreed upon by the shareholders at the time of subscription for shares, the shareholders will not be liable for any subsequent request for providing additional share capital.’’

41. The following shall be inserted as Article 60:

‘‘If a shareholder who holds 5% or more of the voting rights in the Company creates a charge on its shares, it shall report to the Company in writing on the date of creation of the charge.’’

The following shall be inserted as Article 61:

‘‘The Company’s controlling shareholders and personnel who are in actual control may not impair the Company’s interests by virtue of their connected relationship. In the event of any loss to the Company arising from the violation of the relevant requirements, they shall be liable for compensation.

The Company’s controlling shareholders and people who are in actual control owe fiduciary duties to the Company and holders of the Company’s public shares. The controlling shareholders shall strictly exercise their rights as capital contributors, and may not impair the lawful interests of the Company and holders of public shares by way of profit distribution, asset reorganisation, foreign investment, conversion of capital for their own use, provision of guarantee for loans etc. They may not impair the lawful interests of the Company and holders of public shares by virtue of their controlling status.’’

The word ‘‘power’’ in the first sentence of the original Article 52 shall be replaced by the word ‘‘right’’.
The words ‘‘de facto’’ shall be inserted before the word ‘‘controller’’ in the first sentence of the original Article 53; and the words ‘‘Article 54’’ in the last sentence of the original Article 53 shall be replaced by the words ‘‘Article 64’’.
The words ‘‘(inclusive of 30%)’’ in items (2) and (3) in the original Article 55 shall be deleted.
The original Article 57 shall be amended to read as follows:
‘‘General meetings shall exercise the following functions and powers:
(1) to decide on the operational policies and investment plans of the Company;
(2) to elect and replace directors and decide on matters relating to their remuneration;
(3) to elect and replace the supervisors appointed from shareholders’ representatives and decide on matters relating to their remuneration;
(4) to examine and approve reports of the board of directors;

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APPENDIX VI

(5) to examine and approve reports of the supervisory committee;
(6) to examine and approve the Company’s annual financial budget and final account proposals;
(7) to examine and approve the Company’s plans for profit distribution and making up of losses;
(8) to pass resolutions on the increase or reduction of the Company’s registered capital;
(9) to pass resolutions on merger, division, dissolution, liquidation or conversion of form of the Company;
(10) to pass resolutions on the issuance of bonds by the Company;
(11) to pass resolutions on the appointment, dismissal or non-reappointment of firms of certified public accountants of the Company;
(12) to amend these Articles;
(13) to examine motions raised by the shareholders representing 3% or more of the Company’s share;
(14) to pass resolutions on transactions in respect of the acquisition and disposition of significant assets with amounts exceeding 30% of the most recent total audited assets of the Company within one year;
(15) to pass resolutions on external guarantees which, according to the laws, administrative regulations and these Articles, shall be approved by general meetings;
(16) to examine and approve changes in the use of funds raised;
(17) to examine share option incentive scheme;
(18) any other matters which, according to the laws, administrative regulations and these Articles, shall be approved by general meetings.

Subject to the provisions of the relevant laws, regulations and these Articles, the rights and obligations of preference shareholders, where preference shares are issued by the Company, shall be decided by general meetings.’’

The following shall be inserted as Article 68:

‘‘The provision of guarantee by the Company to an outside party shall be considered and approved by the board. The following guarantees shall be considered by the board and submitted to a general meeting for approval:

(1) the aggregate amount of any guarantee provided by the Company and its controlling subsidiaries has reached or exceeded 50% of the latest audited net assets;
(2) the provision of guarantee to the target of guarantee whose asset to liability ratio exceeds 70%;

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APPENDIX VI

(3) the amount of any single guarantee exceeds 10% of the latest audited net assets;
(4) the guarantee provided to shareholders, the people in actual control and their associates;
(5) the aggregate amount of any guarantee provided by the Company to outside parties has reached or exceeded 30% of the latest audited total assets;
(6) other guarantees to be submitted to a general meeting for approval under the laws, regulations and the Company’s Articles.

If the directors, general manager and other senior management violate the provisions of the laws, administrative regulations or the Company’s Articles governing the limits of examination and approval authorities and the examination procedures for providing guarantee to outside parties, and such violation causes damage to the Company, they are liable for compensation. The Company may also bring an action against them pursuant to the laws.’’

48. The following shall be inserted as Article 69:

‘‘For any matters to be determined at a general meeting under the laws, administrative regulations and the Company’s Articles, such matters shall be considered at the general meeting in order to protect the decision-making power of the Company’s shareholders on these matters. Where necessary and reasonable, if specific decisions on any resolution could not be made at a general meeting immediately, the general meeting may authorize the board to make a decision within the scope of authority by the general meeting.

If the authority granted to the board by the general meeting relates to matters requiring ordinary resolution, the resolution shall be passed by over 50% (exclusive of 50%) of shareholders (including proxies) who are present at a meeting and have voting rights. If it relates to matters requiring extraordinary resolution, the resolution shall be passed by two-thirds of shareholders (including proxies) who are present at a meeting and have voting rights. The scope of authority shall be clear and specific.’’

The original Article 59 shall be amended to read as follows:

‘‘General meetings are divided into annual general meeting and extraordinary general meeting. A general meeting is held once per year which should be held within six months after the close of the previous accounting year. The Company’s general meeting will be held at the Company’s address or any other place designated by the board of directors. A general meeting will be held at a place with the physical presence of the shareholders.

In the event of any of the following matters, the board should convene an extraordinary general meeting within two months:

(1) the number of directors is less than the number prescribed by the Company Law or is less than two-thirds as required under these Articles;
(2) when the Company has not recovered losses equivalent to one-third of its total paid-in capital;
(3) at the request of the shareholders of the Company who are holding more than 10% of the Company’s shares, either individually or jointly;

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APPENDIX VI

(4) where the board considers necessary;
(5) when proposed by the Supervisory Committee;
(6) other circumstances prescribed by the laws, administrative regulations or these Articles.’’
Article 72 shall be inserted as follows:

‘‘In the event of holding a general meeting, the Company would appoint a legal advisor to provide legal opinion on the following issues and make an announcement:

(1) whether the calling or holding of a meeting complies with the laws, administrative regulations and these Regulations;
(2) the qualifications of those who are present at a meeting, and the validity of the convener’s qualifications;
(3) the validity of the voting procedure and results at the meeting;
(4) the issue of legal opinion on any other matters at the Company’s request.’’
The word ‘‘for’’ in the last sentence of the original Article 63 shall be replaced by the word ‘‘to’’.
The original Article 61 shall be amended to read as follows:

‘‘When an annual general meeting is held, the board, supervisory committee and shareholders who are holding more than 3% of the Company’s shares, either individually or jointly, have the right to move new motions to the Company.

The shareholders who hold more than 3% of the Company’s shares, either individually or jointly, may move a temporary motion in writing and submit to the convener 10 days prior to the date of meeting. Within 2 days upon receipt of the motion, the convener should issue a supplementary notice of general meeting and announce details of the temporary motion.

Save with the circumstances stipulated in the preceding clause, after the convener has made an announcement of a general meeting, it may not alter the motion already stated in the announcement or add any new motion.’’

Article 76 shall be inserted as follows:

‘‘The matters discussed and determined at a general meeting shall be determined according to the provisions of the Company Law and the Company’s Articles. The general meeting may decide any matter stipulated in the Company’s Articles.

The shareholders may not vote or pass any resolution in respect of any matter not set out in the notice issued pursuant to Articles 73 and 74 or any motion inconsistent with the provision of Article 74 of these Articles.’’

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APPENDIX VI

Article 77 shall be amended to read as follows:

‘‘The motions of a general meeting are specific proposals on matters to be discussed at a general meeting. Any motion at a general meeting shall meet the following requirements:

(1) the contents thereof are not inconsistent with the provisions of the laws, administrative regulations and these Articles, and relate to the business scope of the Company and the scope of duties of general meetings;
(2) there is a clear topic for discussion with specific resolution;
(3) it should be submitted or sent to the convener in writing.’’
The original Article 63 of shall be amended by deleting the ‘‘.’’ at the end of item (8) and replacing it by ‘‘;’’ and inserting the following as item (9):

‘‘the notice of shareholders’ meetings shall include the name and phone number of the contact person.’’

The original Article 60 shall be deleted in its entirety.
The words ‘‘domestic shares’’ in the first phrase and the last phrase of the second paragraph of the original Article 64 shall be replaced by the words ‘‘A shares’’.
The following shall be inserted as Article 80:

‘‘Unless there is a justifiable reason, any general meeting shall not be adjourned or cancelled after the issue of notice of the meeting. The convenor of the meeting shall notify the shareholders of the relevant reasons at least 2 business days before the original date of meeting.’’

The following shall be inserted as Article 86:

‘‘When issues about connected transactions are discussed at a general meeting, the connected shareholders should not participate in the voting of the resolution, and the shares with voting rights of such shareholders will not be counted as valid votes. The announcement of a resolution passed at a general meeting should disclose sufficient details of voting by non-connected shareholders.

The above connected shareholders refer to the following shareholders: they are a connected party, or (if not a connected party) they are individuals or their associates who have substantial interests in the transaction to be voted pursuant to the Listing Rules as may be amended from time to time.’’

The following shall be inserted as Article 87:

‘‘If an individual shareholder attends a meeting in person, he/she should produce his/her identity card or valid identification document or share account card that could prove his/her identity. If a shareholder appoints a proxy to attend a meeting on his/her behalf, the proxy should produce his/her valid identity card and a proxy form issued by the relevant shareholder.

An institutional shareholder should appoint its legal representative or its proxy to attend a meeting. If the legal representative attends the meeting, he/she should produce his/her identity card or valid identification document or share account card that could prove his/her identity as a legal

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representative. If the legal representative appoints a proxy to attend the meeting, the proxy should produce his/her valid identity card and a written authorization issued by the legal representative of the institutional shareholder pursuant to laws.’’

The following shall be inserted as Article 88:

‘‘The board, independent directors and those shareholders who have met the relevant requirements (to be determined by the standards issued by the competent supervisory authority from time to time) may collect their voting rights at the general meeting from the Company’s shareholders. If the collector openly collects the voting rights of the Company’s shareholders, the collector shall comply with the requirements of the relevant supervisory authority and the stock exchange on which the Company’s shares are listed.’’

The second sentence of the original Article 71 shall be amended to read as follows:

‘‘An ordinary resolution shall be passed by over 50% (not including 50%) of the voting rights of the shareholders (including proxies) present at the meeting.’’

The original Article 72 shall be amended to read as follows:

‘‘When the shareholders (including proxies) vote at a general meeting, they shall exercise their voting rights based on the number of shares with voting rights held by them. Save with the provision of Article 115 concerning the adoption of a cumulative voting system for electing directors, each share carries one vote. The shares held by the Company itself do not attach any voting right, and such shares are not counted as part of the shares with voting rights of those shareholders who attend the meeting.

If any shareholders are required to abstain from voting any resolution pursuant to the Listing Rules of the Stock Exchange of Hong Kong Limited, or are restricted by such rules to the extent that they could only vote for or against the resolution, then for the purposes of determining whether the necessary quorum is present or whether sufficient votes are obtained to pass the resolution, any votes that violate the above provisions or restrictions will not be counted. In the course of voting, any special power or restriction attached to the voting right of any class of shares for the time being should be complied with. In addition, the provisions of laws, administrative regulations and these Articles should be complied with.’’

The words ‘‘(inclusive of 10%)’’ in item (3) in the original Article 73 shall be deleted.
Item (3) of the original Article 78 shall be amended to read as follows:

‘‘(3) the division, merger, dissolution, liquidation or change in type of the Company;’’.

The following shall be inserted as items (5) and (6):

‘‘(5) any purchase or sale of material assets or guarantee by the Company in an aggregate amount in a year of over 30% of the latest audited total assets of the Company;

(6) share incentive scheme;’’.

The existing item (5) shall be renumbered as item (7).

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The following sentence shall be added after item (7):

‘‘In addition, any resolutions involving the amendment to this Article, Articles 113, 115 and 122, shall be passed by over three-fourths of the voting rights of the shareholders (including proxies) present at the general meeting.’’

The original Article 79 shall be amended to read as follows:

‘‘Independent directors, the supervisory committee or shareholders holding 10% or more of the shares of the Company either singly or jointly requesting the convening of an extraordinary general meeting or a class meeting shall proceed in accordance with the procedures set forth below:

(1) sign one or more written requests of identical form and contents requesting the board of directors to convene an extraordinary general meeting or a class meeting and stating the agenda of the meeting. The board of directors shall make a written response of agreeing or disagreeing to convene the general meeting within ten days of receipt of the abovementioned written request.
(2) Where the board of directors agrees to convene an extraordinary general meeting, a notice of the general meeting shall be despatched within five days of the resolution of the board of directors. Any changes to the original motion stated in the notice should have obtained the agreement of the original proposer.
(3) Where the board of directors disagrees with the motion of the independent directors to convene an extraordinary general meeting, it should state its reasons and make an announcement.
(4) Where the board of directors disagrees with the motion of the supervisory committee to convene an extraordinary general meeting, or fails to make a response within ten days of receipt of the request, the board of directors shall be considered as cannot or unable to perform its duties of convening a general meeting and the supervisory committee shall convene and preside over such meeting. The procedures for convening shall be identical, to the extent possible, to those procedures adopted by the board of directors in convening a general meeting.
(5) Where the board of directors disagrees with the motion of shareholders to convene an extraordinary general meeting, shareholders should request the supervisory committee in writing to convene an extraordinary general meeting.

Where the supervisory committee agrees to convene an extraordinary general meeting, a notice of the general meeting shall be despatched within five days of receipt of the request. Any changes to the original motion stated in the notice should have obtained the agreement of the original proposer.

Where the supervisory committee fails to despatch the notice of a general meeting, it shall be considered that the supervisory committee will not convene or preside over a general meeting, and after ninety consecutive days, shareholders holding 10% or more of the shares of the Company either singly or jointly may convene and preside over a general meeting. Prior to the announcement of the resolutions of a general meeting, the shareholding percentage of the requisitioning shareholders should not be less than 10%. The procedures for convening shall be identical, to the extent possible, to those procedures adopted by the board of directors in convening a general meeting.

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Where the general meeting is convened and held by the supervisory committee or the shareholders in accordance with the previous paragraph, the board of directors should be duly informed in writing and the filing procedures in accordance with the applicable requirements be made with the relevant competent authorities. The board of directors and the secretary to the board should cooperate with the meeting and the board of directors should provide the register of members. Reasonable expenses incurred by the meeting shall be borne by the Company and shall be deducted from the sums owed by the Company to the negligent directors.’’

67. The original Article 80 shall be amended to read as follows:

‘‘A general meeting shall be convened and presided over by the chairman of the board. Where the chairman of the board cannot or is unable to perform his duties, a majority of the directors may jointly designate a director to preside over the meeting as chairman. Where no chairman is designated, the shareholders attending the meeting may elect one person as chairman. If for any reason the shareholders are unable to elect a chairman, the shareholder holding the largest number of shares with voting rights and attending the meeting (whether in person or by proxy) shall be chairman of the meeting.

The chairman of the supervisory committee shall preside over a general meeting convened by the supervisory committee. Where the chairman of the supervisory committee cannot or is unable to perform his duties, a majority of the supervisors may jointly designate a supervisor to preside over the meeting as chairman.

The representative of the convenor shall preside over a general meeting convened by the shareholders.

Where a general meeting is unable to continue due to the breach of the rules of meeting by the chairman, the general meeting may elect a person to preside over and continue the meeting with the agreement of a majority of the shareholders with voting rights present at the general meeting.’’

The original Article 83 shall be amended to read as follows:

‘‘If votes are counted at a general meeting, the result of the counting shall be recorded in the minutes of the meeting.

The minutes of general meeting shall be signed by the chairman of the meeting and directors, supervisors, secretary to the board, convenor or its representative attending the meeting.

Resolutions passed by the general meeting shall be the summary of the meeting. Minutes and summaries of the meeting shall be recorded in Chinese. The minutes of the meeting and the attendance records signed by the attending shareholders and the proxy forms of proxies shall be kept at the Company’s domicile for not less than ten years.’’

The following shall be inserted as Article 102:
‘‘Minutes of a general meeting shall contain the following contents:
(1) the date, place, agenda and name of the convenor of the meeting;
(2) the chairman of the meeting and the names of directors, supervisors, general manager and other senior management attending the meeting;

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(3) the number of shareholders and proxies attending the meeting, the total number of shares with voting rights held by them and as a percentage to the total number of shares of the Company;
(4) the total number of shares with voting rights held by respective holders of A shares (including proxies) and overseas listed foreign shareholders attending the meeting, and their respective percentages to the total number of shares of the Company;
(5) the process of discussion, main points of speakers and result of voting of each motion and details of the voting by holders of A shares and holders of domestic listed foreign shares of each resolution;
(6) details of the queries or recommendations of the shareholders and the related responses and explanations;
(7) the names of the lawyers, counters and scrutineers;
(8) other contents which shall be recorded in the minutes of the meeting in accordance with the provisions of the Articles.’’
The following shall be inserted as Article 103:

‘‘The shareholders shall have free access to the minutes of general meetings during office hours. When any shareholder requests a copy of the minutes, the Company shall within seven days after the receipt of the reasonable fee deliver the same to the shareholder.’’

The words ‘‘Article 88’’ shall be replaced by the words ‘‘Article 107’’ and the words ‘‘Article 92’’ shall be replaced by the words ‘‘Article 111’’ in the original Article 86.
The words ‘‘Article 87’’ in the first sentence of the original Article 88 shall be replaced by the words ‘‘the previous Article’’; and the words ‘‘Article 55’’ in item (1) shall be replaced by the words ‘‘Article 65’’.
The original Article 89 shall be amended by replacing the word ‘‘shall’’ in the second phrase of the first paragraph with the word ‘‘should’’ and inserting the following after the first sentence:

‘‘According the applicable listing rules as amended from time to time, any shareholder is required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.’’

All references to ‘‘domestic shares’’ in the original Article 92 shall be replaced by references to ‘‘A shares’’.
The word ‘‘15’’ shall be replaced by the words ‘‘not more than 18’’; and the phrase ‘‘There shall be no less than 2 independent non-executive directors (directors being independent from the shareholders of and not holding any positions in the company)’’ shall be deleted from the first sentence of the original Article 93; and the following shall be inserted after the last paragraph of the original Article 93:

‘‘External directors shall include independent directors of not less than one-third of the total number of directors, and at least one of the independent directors must possess appropriate professional qualifications or accounting or related financial management expertise (independent directors shall mean directors who are independent of the shareholders and do not hold any internal positions in the Company and the same shall apply to these Articles below).’’

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The original Article 94 shall be amended as follows:

‘‘Directors are elected by the general meeting. The term of service for each session shall be 3 years. Upon the expiration of his term, a director may stand for re-election and, if re-elected, may serve consecutive terms. However, no independent director shall serve consecutive terms exceeding 6 years.

The period for lodgment of notices in writing by shareholders to the Company of the intention to propose a candidate for election as a director in accordance with the Articles and of such candidate’s consent to be elected shall be at least 7 days, which shall commence from the day after the dispatch of the notice convening the general meeting for the election of directors and shall end on the date which is 10 days prior to the date of such general meeting.

Any shareholder who, by itself or jointly, holding shares representing more than 3% of the voting rights of the Company for 180 days or more consecutively shall have the right to appoint a nominee of director, the number of directors in each nomination shall not exceed one-fifth of the total number of directors and the total number of nominees.

The board of directors shall have the right to examine the qualifications of directors and resolutions in respect of the qualifications of directors shall be passed by over 50% of the board.

The chairman of the board are elected and removed by two-thirds of the total number of directors. The chairman of the board shall serve for a term of 3 years. They may stand for re-election and, if elected, may serve consecutive terms.

Subject to the provisions of the relevant laws and administrative regulations, the general meeting shall have the power by ordinary resolution to remove any director before the expiration of his term of office (but without prejudice to any claim for damages under any contract).

Any removal of the chairman of the board and directors in violation of Article 64 of the Articles of Association shall be held invalid.

A director may concurrently occupy the post of general manager or of a senior management officer other than a supervisor. A director is not required to hold any shares in the Company.’’

The following shall be inserted as Article 114:

‘‘Listed companies shall disclose detailed information on candidates for election as directors prior to the convening of the general meeting to ensure that shareholders are sufficiently informed about the candidates when they vote.

Candidates for election as directors shall give an undertaking in writing prior to the convening of the general meeting which states their consent to accept nomination, warrants that the information of candidates for election as directors disclosed to the public is true and complete, and assures diligent performance of the duties of directors after election.’’

The following shall be inserted as Article 115:

‘‘Accumulative voting shall apply to the election of directors at general meetings. In the election of more than 2 directors, the number of votes of each shareholder shall equal the multiple of the number of shares he holds and the number of directors he is entitled to appoint. Each shareholder shall be entitled to cast all his votes for a single nominee or distribute his votes at his discretion or cast all his votes for two or more nominees. The nominee with the highest number of votes shall be elected.’’

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The following shall be added as Article 116:

‘‘The appointment of new directors and supervisors shall be effective on the date of passing of election by general meetings.’’

The following shall be inserted as the first paragraph of Article 117:

‘‘The directors shall have the duty of good faith and diligence to the Company and the shareholders as a whole. The directors shall exercise their duties in accordance with the relevant rules, regulations and these Articles, and act in the interest of Company as a whole, with particular concern in the protection of the legal rights of the minority shareholders.’’

The original Article 98 shall be amended to read as follows:

‘‘The board of directors shall be accountable to the general meeting and shall exercise the following functions and powers:

(1) to be responsible for convening general meetings and reporting its work in general meetings;
(2) to implement resolutions passed by general meetings;
(3) to determine operational plans and investment proposals of the Company;
(4) to formulate annual financial budget proposals and final accounts proposals of the Company;
(5) to formulate profit distribution proposals and loss recovery proposals of the Company;
(6) to formulate proposals for increase or reduction of registered capital and issue of debentures of the Company;
(7) to draw up proposals for merger, demerger, dissolution or conversion of the Company;
(8) to determine other external guarantees, other than those which require approvals of general meetings, in accordance with the provisions of laws, administrative regulations and the Articles;
(9) to determine external investments, acquisitions and disposals of assets, charges on assets, entrustment of financial management and connected transactions of the Company within the scope authorised by general meetings;
(10) to determine the establishment of internal management structure of the Company;
(11) to appoint or remove general manager and secretary to the board; and to appoint or remove deputy general managers, financial controllers and other senior officers of the Company, based on the recommendations of the general managers, and to decide on their remunerations and methods of payment;
(12) to formulate the basic management system of the Company;
(13) to formulate proposals for amendments to these Articles;

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(14) to draw up proposals for acquisitions or disposals of major assets;
(15) to exercise the fund raising and borrowing powers and determine the mortgage, leasing, subcontracting and assignment of the assets of the Company, subject to the relevant laws, regulations, these Articles and the relevant rules;
(16) to implement other functions and powers conferred by laws, administrative regulations, departmental rules, general meetings and the Articles.

Resolutions by the board of directors on matters referred to in the preceding paragraph may be passed by the affirmative vote of more than half of the directors with the exception of resolutions on matters referred to in items (6), (7) and (13), which shall require the affirmative vote of more than two-thirds of the directors.

The director of the Company connected with the enterprise involved in the resolutions of the board of directors shall not exercise his own, or represent other directors to exercise voting right on such resolutions. The meeting of the board of directors may be held once more than half of the unconnected directors will be present. The resolution made by the meeting of the board of directors shall be passed by more than half of all such directors. The aforesaid matters requiring the affirmative vote of more than two-thirds of the directors shall be passed by more than two-thirds of all such directors. Where there are not more than three (3) unconnected directors, the relevant matters shall be forwarded to a general meeting for deliberation.

Resolutions by the board of directors on connected transactions of the Company shall be signed by the independent directors before becoming effective.

The board of directors may exercise any powers which have not been stipulated in these Articles to be exercisable by general meetings. The board of directors should comply with the provisions of the Articles and the requirements set by general meetings from time to time. The requirements set by general meetings shall not render any prior valid actions made by the board of directors invalid.’’

82. The original Article 99 shall be amended to read as follows:

‘‘When the board of directors disposes of fixed assets and the sum of the expected value of the consideration for the proposed disposal and the value of the consideration for disposal of fixed assets made in the four months immediately preceding the proposed disposal exceeds 33% of the value of the fixed assets shown in the last balance sheet placed before the general meeting, the board of directors may not dispose of the fixed assets without the prior approval of the general meeting.

For the purposes of this Article, the term ‘‘disposal of fixed assets’’ shall include the assignment of certain interests in assets other than by way of security.

The validity of transactions whereby the Company disposes of fixed assets shall not be affected by the breach of the first paragraph hereof.

Where the board of directors is making decisions in respect of market development, mergers and acquisitions, and investments in new sectors, and the amount of investment project or the mergers and acquisition project exceed a certain percentage (which percentage shall be decided by general meeting) of the total assets of the Company, it should engage consultative organisations in providing professional opinions as key basis of the decision of the board of directors.’’

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The following shall be added as Article 121:

‘‘Unless otherwise required by applicable laws, regulations and/or relevant listing rules, the board of directors shall have the right to make decision on any investment (including venture capital investment) or acquisition project within the scope authorised by shareholders. Where the major investment or acquisition project exceeds the approval limit of the board of directors, it should organise assessment and examination by relevant experts and professionals and submit to the general meetings for approval.’’

The following shall be added as Article 122:

‘‘When the Company is being acquired in accordance with the provision of Article 177, for the protection of the stable development of the Company and the interest of the shareholders as a whole, the directors shall engage an independent financial adviser or other professional advisers to analyse the financial condition of the Company and give an opinion on matters such as the fairness of the terms and conditions of the acquisition and the impact of the acquisition on the Company and to issue the relevant announcement. When the acquisition is confirmed by the board to be a hostile acquisition, the directors may, in accordance with the opinion of the professional advisers, issue an offer to the acquiring party, and/or implement reasonable measures of reverse takeover in accordance with the authorisation by the general meeting.

The shareholders may report to the relevant authority or commence a legal action against the directors at the Court when the board is in breach of the responsibilities of disclosure provided by (the Listed Companies Acquisition Supervisory Methods) or other provisions of the relevant law or regulations.’’

When the Company is being acquired and merged or any material adjustments are being made by the acquirer to the Company’s management, the board of directors of the Company shall seek and take advice from the labour union and the staff representatives’ meeting of the Company.

The last paragraph of the original Article 100 shall be amended as follows:

‘‘When the chairman of the board of directors is unable to perform his duties or fails to perform his duties, the members of the board may appoint a director by a majority of votes to perform the duties of the chairman.’’

The original Article 102 shall be amended to read as follows:

‘‘Meetings of the board of directors shall be held at least twice a year (regular meetings). Meetings of the board of directors shall be convened by the chairman of the board by giving a notice in writing to all directors and supervisors ten days before the meetings are held.

Extraordinary meetings of the board of directors should be convened by the chairman of the board under one of the following circumstances within 10 days and not subject to the aforesaid limitation on the notice period of meetings:

(1) shareholders representing 10% or more of the voting rights propose to do so;
(2) not less than one-third of the directors propose to do so;
(3) the supervisory committee proposes to do so.’’

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The following shall be added at the end of the sub-paragraph of the original Article 103:
‘‘, and supervisors, unless otherwise specified in these Articles.’’

The words ‘‘Article 98’’ in the last paragraph of the Article shall be replaced by the words ‘‘Article 119’’.

The original Article 104 shall be amended to read as follows:

‘‘All executive directors and external directors must be informed of any significant matter decided by the board of directors within the time stipulated in Article 125 and be provided with sufficient information at the same time in strict compliance with the stipulated procedures. Directors may request for the provision of supplementary information. Where one-fourth of the directors or more than two external directors are of the opinion that the information is inadequate or the argument is uncertain, they may jointly request for a delay in convening the meeting of the board or that part of the agenda of the meeting of the board and the board of directors should accept the request.

A notice of meeting shall be deemed as having been despatched to a director who has attended the meeting and did not propose a dissent to the non-receipt of the notice of the meeting prior to or at the meeting.

Meetings of the board of directors may be held only if attended by more than half of the directors (including directors who have appointed other directors to attend the meeting of the board on his behalf under Article 128). Each director shall be entitled to one vote. Resolutions of the board of directors must be passed by the affirmative vote of more than half of all the directors. When the number of votes for and against a resolution is a tie, the chairman of the board shall be entitled to cast one additional vote.’’

The last sentence of the first paragraph of the original Article 105 shall be amended to read as follows:

‘‘The power of attorney shall state the name of the attorney, the subject matter, scope and term.’’

The word ‘‘may’’ in the last sentence of second paragraph of this Article shall be replaced by the word ‘‘shall’’.

The words ‘‘ ’’ in the first sentence shall be replaced with the words ‘‘ ’’ in the Chinese version and the words ‘‘Article 117 of the Company Law’’ shall be replaced by the words ‘‘Article 112 of the Company Law’’ in the second paragraph of this Article.

The original Article 107 shall be amended to read as follows:

‘‘The board of directors shall keep minutes of decisions on matters considered, opinions of independent directors and resolutions in writing at their meetings, which shall be signed by the directors attending the meeting and the person preparing the minutes. The minutes of each board meeting should be available for the review of all directors as soon as possible. Any director who wishes to make amendments to the minutes should submit his amendments to the chairman of the board within one week of receipt of the minutes. Minutes of the board meetings shall be kept at the Company’s residence in China with a full copy being issued to each director as soon as possible. Minutes of the board meeting shall be kept for not less than ten years.’’

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91. The following shall be inserted as Article 131:

‘‘The directors shall be responsible for resolutions of the board of directors. Where a resolution of the board is in violation of laws, administrative regulations or these Articles, thereby causing serious losses to the Company, those directors who voted in favour of the resolution shall bear direct responsibility. Provided that, if a director is proven to have dissented at the voting of such resolution and such dissension was noted in the minutes, then the director may be relieved from such liability. Those directors who abstained from voting or were absent but did not entrust another director to attend on his behalf may not be relieved from such liability. Those directors who dissented in the discussion but did not vote against the resolution may not be relieved from such liability.’’

The following shall be inserted as Article 132:

‘‘Directors may resign prior to the expiration of their term of office. A resigning director shall submit a written notice of resignation to the board of directors. An independent director shall also provide an explanation of the circumstances which are relevant to his resignation and which in his opinion are necessary to bring to the attention of shareholders and creditors of the Company.

Where the resignation of a director results in the board of directors having less than the minimum number of directors required by law, his notice of resignation shall not take effect until a replacement director fills the causal vacancy created by the resignation. The board of directors shall convene an extraordinary general meeting to elect a replacement director for the causal vacancy. Prior to a resolution on the election of a director being passed by the general meeting, the functions and powers of the resigning director and the board of directors shall be reasonably restricted.

Where the resignation of an independent director results in the board of directors having less than the minimum proportion of independent directors required by the relevant regulatory authorities, his notice of resignation shall not take effect until a replacement independent director fills his causal vacancy.

Save for the aforesaid circumstances, the resignation of a director shall take effect from the date the notice of resignation is submitted to the board of directors.’’

The original Article 113 shall be amended to include the following at the end of the last paragraph of this Article:

‘‘The directors may hold the position of general manager, deputy general manager or other senior management officer, but the number of directors holding such positions shall not exceed half of the total number of directors.’’

The following shall be added as Article 139:
‘‘The term of appointment of the general manager shall be 3 years and may be reappointed.’’
The following shall be added as Article 141:

‘‘The general manger shall report to the board of directors and the supervisory committee at their request on the signing and implementation of material contracts, the application of funds and loss of the Company. The general manager shall ensure the truthfulness of his report.’’

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The words ‘‘save as provided otherwise in the contract’’ shall be added at the end of the first sentence of the original Article 117.
The original Article 122 shall be amended to read as follows:

‘‘Meetings of the supervisory committee shall be held at least once every six months and shall be convened and presided over by the chairman of the supervisory committee. Where the chairman of the supervisory committee cannot or is unable to perform his duties, a majority of the directors may jointly designate a supervisor to convene and preside over the meeting of the supervisory committee. Notice of a meeting of the supervisory committee shall be delivered to all supervisors ten days prior to the meeting. The notice of meeting shall include the following contents:

(1) the date, place and duration of the meeting;
(2) the reasons for and the agenda of the meeting;
(3) the date of the notice.’’
The following shall be added as Article 150:

‘‘Where a replacement supervisor is not elected timely upon expiration of the term of a supervisor or the resignation of a supervisor during his term resulting in the supervisory committee having less than the minimum number of supervisors required by law, that supervisor must continue to perform his duties pursuant to the laws, administrative regulations and the provisions of these Articles until the replacement supervisor takes office.’’

The original Article 123 shall be amended to read as follows:

‘‘The supervisory committee shall be accountable to general meetings and exercise the following functions and powers in accordance with the law:

(1) to verify the periodic reports of the Company prepared by the board of directors and to submit their verification opinion in writing;
(2) to monitor the Company’s financial affairs;
(3) to supervise the directors and senior officers in carrying out duties of the Company and to propose the removal of directors and senior officers who have violated any laws, administrative regulations, these Articles or the resolutions of general meetings;
(4) to demand any director and senior officer to rectify his act which is harmful to the Company’s interests;
(5) to propose the convening of extraordinary general meetings and to convene and preside over general meetings when the board of directors cannot perform the duties of convening and presiding over general meetings as required by law;
(6) to propose motions to general meetings;
(7) to initiate legal actions against any director and senior officer in accordance with the provisions of Clause 152 of the Company Law;

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(8) the supervisory committee may give recommendation on the appointment of the firm of certified public accountants engaged by the Company, and, when necessary, to appoint, in the name of the Company, another firm of certified public accountants to examine the Company’s financial affairs independently and to report the relevant information directly to the securities supervisory authorities of the State Council and other relevant departments;
(9) other functions and powers provided for in these Articles.

External supervisors shall report the honesty, diligence and performance of senior officers of the Company independently to general meetings.

Supervisors shall attend meetings of the board and make queries or recommendations in respect of resolutions of the board of directors.’’

The following shall be added as Article 153:

‘‘The supervisory committee may request the directors, general manger, deputy general manager or other senior management officers, internal and external auditing officers to attend the supervisory committee’s meetings and answer the questions of its concern.’’

The following shall be added as Article 154:

‘‘The supervisory committee shall takes minutes of the resolutions of the meetings. Supervisors attending the meeting and the person taking the minutes shall sign the minutes. Supervisors shall have the right to require explanatory statements of their speeches made during the meetings be recorded in the minutes. Minutes of the meetings of the supervisory committee shall be kept as the Company’s files for at least over ten years.’’

The following shall be added as Article 155:

‘‘Reasonable expenses incurred by the supervisory committee in the engagement of professionals such as lawyers, certified public accountants and practicing auditors in the exercise of its functions and powers shall be borne by the Company. The Company shall pay for reasonable expenses incurred by supervisors in attending meetings of the supervisory committee. Such expenses include travelling expenses from the location of the supervisor to the places of the meetings (if different from the location of the supervisor), food and lodging expenses during the duration of the meetings, rental of the premises of meetings and local travelling expenses.’’

The following words be deleted from item (3) of the original Article 127:

‘‘mismanagement of the Company’’.

The following be inserted as item (10) of this Article:

‘‘any person confirmed by (the administrative authority of securities of the State Council) as forbidden to enter the market and such restriction have not been removed .’’

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APPENDIX VI

104. The following be added as Article 158:

‘‘No director may act in his own name on behalf of the Company or the board of directors unless pursuant to the provisions of these Articles or with the legal authorisation of the board of directors. In the course of acting in his own name, a director shall state his position and identity insofar as a third party may reasonably believe that such director is acting on behalf of the Company or the board of directors.’’

Item (11) of the original Article 131 shall be amended to read as follows:

‘‘No one shall appropriate the Company’s capital, open a saving account in its personal name or other people’s names in respect to the Company’s assets, or lend the Company’s capital to others or to grant a guarantee for others with the Company’s assets without the informed consent of the shareholders’ meeting or the board meeting.’’.

The following be inserted as the last paragraph of Article:

‘‘The income of the directors, general manager, deputy general manager and other senior management officers obtained from any contravention of these Articles shall be accounted for the Company and such directors, general manager, deputy general manager and other senior management officers shall be responsible for the compensation of the loss of the Company.’’

The following shall be added as Article 163:

‘‘The directors, supervisors, general manager, deputy general manager and other senior management officers shall attend the shareholders’ meetings as requested by the shareholders and give explanations in respect of the shareholder’s enquiry and suggestions.’’

The original Article 133 shall be amended to read as follows:

‘‘The duty of good faith of the directors, supervisors, general manager and other administrative officers may not terminate at the end of their tenures, such duty of good faith owed to the Company and the shareholders shall not be released when their resignation report has not become effective and during the reasonable period after it is void or during a reasonable period the duration of which shall be specified after termination of their tenures. Their duty of confidentiality shall remain effective after termination of their tenures until such confidential information become public information. The period of continuance of the other duties shall be decided in accordance with the principles of fairness and shall depend on the length of the period between the departure and the happening of the relevant event, and the circumstances and terms under with their relationships with the Company are terminated.’’

The word ‘‘at’’ shall be replaced with the word "and" in the first sentence of the original Article 135.
The following shall be added as Article 166:

‘‘Any directors, supervisors, general manager and other senior officers of the Company who are in breach of laws, regulations, departmental rules or the provisions of these Articles in carrying the duties of the Company and thereby causing losses to the Company, shall bear the responsibility for compensation. Any directors, supervisors, general manager and other senior officers whose term of office are not yet expired shall bear the responsibility for the compensation the losses of the Company caused by his desertion of duties.’’

— 398 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

The words ‘‘Article 52’’ shall be replaced by the words ‘‘Article 62’’ in the original Article 134.
The original Article 146 shall be amended to read as follows:

‘‘The Company shall prepare a financial report at the end of each financial year, which shall be reviewed and audited by an accounting firm.’’

The original Article 154 shall be amended to read as follows:

‘‘The profit after tax of the Company shall be distributed in the following order:

(1) making up for losses;
(2) allocating to statutory common reserve;
(3) allocating to discretionary common reserve;
(4) paying dividends on ordinary shares.

The detailed distribution percentages in a certain year under items (3) and (4) of this Article shall be determined by the board of directors in accordance with the operational conditions and development needs of the Company and the resolution of general meeting.’’

The original Article 155 shall be amended to read as:

‘‘The Company shall not distribute any dividends or make other distributions in the form of bonus before its deficit is balanced and before the payment of statutory common reserve fund. No interest shall be payable by the Company to the shareholders in respect of dividends, other than in respect of due dividends that have yet to be paid out by the Company.’’

The original articles 156–158 shall be merged and amended to read as follows:

‘‘In distributing its profit after tax, the Company shall allocate ten percent (10%) of the profit to its statutory common reserve. Allocation to the Company’s statutory common reserve may cease once the cumulative amount of reserves therein exceeds fifty percent (50%) of the company’s registered capital.

Where the statutory common reserve is insufficient to cover the Company’s losses from prior years, the current year profit shall be used to cover such loss before allocation is made to the statutory common reserve pursuant to the preceding paragraph.

Subsequent to the allocation of profit after tax to the statutory common reserve by the Company, and a resolution of the general meeting, allocation may be made to the discretionary reserve fund.

Subsequent to making up for losses and allocations to the common reserves, the balance of the profit shall be distributed to the shareholders in proportion to their shareholdings. Profit shall not be distributed in respect of the Company’s shares held by the Company.

The detailed distribution percentages of discretionary common reserve and dividends on ordinary share in a certain year shall be determined by the board of directors in accordance with the operational conditions and development needs of the Company and the resolution of general meeting. Despite the preceding requirement, the board of directors may, in accordance with the authority

— 399 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

granted to the board of directors by shareholders at an annual general meeting, pay interim dividends to shareholders from time to time out of the earnings of the Company with permission of the board of directors, before the next annual general meeting without obtaining the prior approval of a general meeting.’’

The following be inserted to the original Article 160:
‘‘However, the Company must not apply the capital accumulation fund to cover its deficit.’’
The original Article 161 shall be amended to read as follows:

‘‘Subsequent to the passing of the resolution in respect of a profit distribution plan by a general meeting, the board of directors of the Company shall complete the distribution of dividends (or shares) within two months from the date of the general meeting.’’

The words ‘‘Articles 155, 156, 157, 158, 160 and 161’’ in the original Article 162 shall be replaced by the words ‘‘Articles 188, 189 and 191’’.
The words ‘‘domestic shares’’ in the third paragraph of the original Article 163 shall be replaced by the words ‘‘A shares’’.
The original Article 166 shall be amended to read as follows:

‘‘The Company shall appoint a receiving agent for holders of overseas-listed foreign shares. The receiving agent, on behalf of the relevant shareholders, shall receive the dividends distributed and other amounts payable to the shareholders in respect of overseas-listed foreign shares.

The receiving agent appointed by the Company shall meet the relevant requirements of the law of the place where the Company’s shares are listed or the relevant requirement of such stock exchange. The receiving agent appointed by the Company for holders of overseas-listed foreign shares listed in Hong Kong shall be a company registered as a trust company under the Trust Ordinance of Hong Kong.

The Company shall establish an internal audit system by employing professional audit staff, who shall conduct internal audit and control over the financial income and expenses and the economic activities of the Company.

The Company’s internal audit system and the responsibilities of the audit personnel shall become effective after the approval of the board of directors. The person in charge of the audit shall be accountable and report to the board of directors.

Subject to the relevant laws and regulations of the PRC, the Company may exercise its right of forfeiture over unclaimed dividends which shall be used for any purposes of the Company, but such right cannot be exercised prior to the expiration of the applicable statute of limitation.

The Company shall have the right to terminate the despatch of dividend warrants to holders of overseas-listed foreign shares by mail, but such right shall not be exercised until after the dividend warrants have not been cashed for two consecutive occasions. However, where the dividend warrant is undelivered to the addressee and returned, the Company may also exercise such right.

— 400 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

The board of directors may determine that any payment for shares prior to the calls on shares shall be entitled to interest. However, shareholders shall not be entitled to receive dividends declared subsequently in respect of the calls on shares.’’

The original Article 167 shall be amended to read as follows:

‘‘The Company shall engage accounting firms with ‘‘qualifications to practise in securitiesrelated business’’ to conduct the auditing of accounting reports, verification of net assets and other related consultation services.’’

The following shall be added as Article 199:

‘‘The appointment of the accounting firm engaged by the Company shall be decided by the shareholders’ meeting, the board of directors shall not engage any accounting firm prior to the decision of the shareholders’ meeting.’’

The following shall be added as Article 200:

‘‘The Company shall warrant to provide true, complete accounting evidence, books, financial reports and other accounting information to the accounting firm it engages and shall not refuse, hide such information or provide false information.’’

The original Article 168 shall be amended to read as follows:

‘‘The term of engagement of the reporting accountants shall be one year from the date of the Annual General Meeting to the next annual general meeting, and may be reappointed and the expiry of the term of engagement.’’

The words ‘‘the Company shall give the accounting firm prior notice’’ in the first paragraph of the original Article 174 shall be replaced by the following:
‘‘the Company shall give the accounting firm 10 days notice’’
The last sentence of the original Article 176 shall be amended to read as follows:

‘‘The Company shall notify its creditors within 10 days of the resolution of the merger and issue an announcement on the (China Securities Post) and/or other national newspapers and magazines designated by (administrative authority of securities of the State Council) and other newspapers and magazines designated by the board of directors within 30 days of the resolution. The creditors may require the Company to pay its debts or provide the corresponding guarantee within 30 days from the receipt of notice, or within 45 days from the date of announcement if it does not receive the notice.’’

The original Article 177 shall be amended to read as follows:
‘‘Where there is a division of the Company, its assets shall be divided accordingly.

In the event of a division of the Company, the parties to the division shall execute a division agreement and prepare balance sheets and lists of assets. The Company shall notify its creditors of the division resolution within ten days of the date of the division resolution and make the relevant public announcements on the (China Securities Post) and/or other national newspapers and

— 401 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

magazines designated by (administrative authority of securities of the State Council) and other newspapers and magazines designated by the board of directors within thirty days of the date of the Company’s division resolution.

The liabilities of the Company prior to the division shall be assumed by the companies subsequent to the division in accordance with the agreement of the parties, unless otherwise agreed in writing in respect of debt settlement by the Company prior to the division with the debtors.’’

The original Article 179 shall be amended to read as follows:

‘‘The Company shall be dissolved and liquidated according to law upon occurrence of one of the following events:

(1) the term of business operation prescribed by the Articles has expired, or any other cause for dissolution prescribed by the Company’s Articles;
(2) a resolution for dissolution has been passed at a general meeting;
(3) the dissolution is necessary as a result of merger or division of the Company;
(4) the business license of the Company is revoked by law, and the Company is ordered to close down or be cancelled;
(5) there are serious difficulties in the operation and management of a company and the Company’s continuance will definitely cause significant losses to shareholders’ interests and cannot be solved through other channels. Shareholders holding 10% or more of the voting rights of all shareholders may request the people’s court to dissolve the Company.’’
The original Article 180 shall be deleted in its entirety.
The following shall be added as Article 213:

‘‘In the event of the sub-paragraph (1) of the preceding Article, the Company shall continue to exist by amendment to these Articles.

The amendment to these Articles in accordance with the previous provisions shall be passed by the shareholders present at the meeting representing two-thirds of the voting rights of the Company.

The following shall be inserted as Article 214:

‘‘If the Company is dissolved pursuant to sub-paragraphs (1), (2), (4) and (5) of Article 212, a liquidation group shall be formed and liquidation shall commence within 15 days upon the occurrence of the event causing the dissolution. The liquidation group shall consist of persons designated by the directors or shareholders’ meeting. If the liquidation group is not formed at the expiry of the said period, the creditors of the Company may apply to the People’s Court to designate the relevant persons to form the liquidation group to conduct liquidation.’’

— 402 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

The original article 182 shall be amended to read as follows:

‘‘The liquidation group shall notify the creditors within 10 days from its formation, and shall issue an announcement on (China Securities Post) and/or other national newspapers and magazines designated by (administrative authority of securities of the State Council) and other newspapers and magazines designated by the board of directors within 60 days.

Creditors shall declare their credit rights to the liquidation group within 30 days upon the receipt of the notice or, in case no notice has been received, within 45 days upon the date of the first announcement.

Creditors shall explain matters relevant to the credit rights and furnish evidences when declaring creditor rights. The liquidation group shall arrange for registration of the debts.

During the period of declaration of debts, the liquidation group shall not pay any debts to the creditors.’’

The original Article 183 shall be amended by replacing the word ‘‘or’’ with ‘‘,’’ in item (2); and by inserting the following to the end of item (4):
‘‘pay all outstanding taxes and ascertain all taxes incurred in the process of liquidation;’’
The original Article 184 shall be amended to read as follows:

‘‘The liquidation committee shall, after examining the assets and preparing the balance sheets and an inventory list of assets of the Company, formulate a liquidation proposal and submit it to the general meeting or relevant supervisory authority for confirmation.

Liquidation expenses, including remunerations for members and advisers of the liquidation committee shall be paid out of the assets of the Company first prior to the settlement of indebtedness of other debtors.

Once the Company has made the decision on liquidation, no person can dispose of the Company’s assets without the approval of the liquidation committee.

During the course of liquidation, the Company shall not engage in any new business activities.

Subsequent to the preference payment of liquidation expenses by the Company, the liquidation committee shall distribute the assets of the Company in settlement in the following order:

(1) wages owed to employees of the Company;
(2) social insurance premium and statutory compensation fund;
(3) taxed owed;
(4) bank loans, bonds and other debts of the Company.

— 403 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

Subsequent to the settlement of the debts of the Company, the surplus assets shall be distributed to the shareholders according to the classes of shares held by them and the proportions of their shareholdings:

(1) Distribution to preference shareholders shall be made in accordance with the nominal value of the preference shares. Where the nominal value of the preference shares are not paid in full, distribution shall be made in accordance with the proportions of their shareholdings;
(2) Distribution to ordinary shareholders shall be made in accordance with the proportions of their shareholdings.

In the course of liquidation, the Company shall not conduct any business activities irrelevant to the liquidation.’’

The following shall be added as Article 222:

‘‘If the Company shall be wound up in accordance with the law, it shall be liquidated in accordance with the relevant laws of enterprise liquidation.’’

The following shall be added as Article 224:

‘‘The directors shall amend these Articles in accordance with the resolution of shareholders’ meeting and the opinion of the relevant regulatory authorities.’’

The following shall be added as Article 225:

‘‘The Company shall amend these Articles under any of the following circumstances:

(1) Subsequent to the amendments to the Company Law or the relevant laws and administrative regulations, the matters provided for in these Articles are in conflict with the provisions of the amended laws and administrative regulations;
(2) Changes in the state of affairs of the Company are inconsistent with matters provided for in these Articles;
(3) The general meeting has decided to amend these Articles.’’
The following shall be added as Article 227:

‘‘The amendment of Articles as required by law and administrative rules shall be announced in accordance with the relevant provisions.’’

The following shall be added as Article 228:

‘‘Notices of the Company shall be issued by the following means:

(1) in person;
(2) by post;
(3) by way of public announcement;

— 404 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

(4) other means provided for in these Articles.

Where a notice is given by way of public announcement, all relevant persons shall be deemed to be served when the announcement is made.’’

The following shall be added as Article 229:

‘‘Unless otherwise provided for in these Articles, all notices, information or written statements issued by the Company to the holders of overseas-listed foreign shares must be served on each shareholder by delivery in person or prepaid mail to the registered address of any such shareholder.’’

The following shall be added as Article 230:

‘‘If the notice of the Company is given in person, the recipient shall sign (or seal) on the acknowledgement slip, which date shall be deemed to be the date of delivery;

If the notice of the Company is issued by way of public announcement, the date of the first public announcement shall be deemed to be the date of delivery;

If the notice of the Company is sent by post, the date of delivery shall be the third working day after delivery to the post office.’’

The following shall be added as Article 231:

‘‘The meeting and the resolutions resolved thereat shall not be invalidated as a result of the accidental omission to give notice of the meeting to, or the failure of receiving such notice by, a person entitled to receive such notice.’’

The following shall be added as Article 232:

‘‘ (China Securities Post) and/or other national newspapers and magazines designated by (administrative authority of securities of the State Council) and other newspapers and magazines designated by the board of directors shall be the media for publication of the Company’s announcement and disclosure of information.’’

The words ‘‘domestic shares’’ in the first sentence of item (1) of the original Article 190 shall be replaced by the words ‘‘A shares’’.
The following shall be inserted before the last paragraph of the original Article 192.

‘‘Controlling shareholder: shareholders holding shares that account for more than 50% of the total share capital of the Company; shareholders whose shareholdings are entitled to voting rights that could have a material impact on resolutions of general meetings, even though such shareholdings account for less than 50%.

De facto controller: persons who are not shareholders of the Company but who could effectively dominate the acts of the Company through investment relationships, agreements or other arrangements.

— 405 —

AMENDMENTS TO THE WEICHAI POWER ARTICLES

APPENDIX VI

Connected relationships: relationships between the controlling shareholders, de facto controllers, directors, supervisors and senior management on the one hand and companies directly or indirectly controlled by them on the other and other relationships that might result in the transferral of the Company’s interests, provided that companies controlled by the State shall not be deemed as connected to one another merely because they are subject to common control by the State.’’; and

The word ‘‘shall’’ shall be replaced by the words ‘‘need to’’ in the last phrase of the last paragraph.

The following shall be added as Article 237:

‘‘The board of directors may formulate by-laws pursuant to the provisions of these Articles. Such by-laws shall not be in conflict with the provisions of the Articles.’’

The following shall be added as Article 238:

‘‘These Articles are drafted in Chinese. The version most recently approved by (Shandong Province Commerce and Industry Administrative Bureau) shall prevail in the case of discrepancies between the version in Chinese and other languages.’’

The following shall be added as Article 239:

‘‘For the purposes of these Articles, the term ‘‘not less than’’, ‘‘within’’, ‘‘not more than’’ are all inclusive terms while ‘‘not exceeding’’, ‘‘above’’, ‘‘less than’’ and ‘‘more than’’ are exclusive terms.’’

The following be added as Article 240:

‘‘The board of directors shall be responsible for the interpretation of these Articles.’’

Article 241 shall be deleted in its entirety, and replaced by the following:

‘‘These Articles include the rules for procedures for the general meetings, the board of directors’ meetings and the supervisory committee’s meetings.’’

The numbering of these Articles shall be amended accordingly where applicable.

As Weichai Power is a PRC incorporated company and the official Weichai Power Articles are in the Chinese language, the above proposed amendments are an unofficial English language translation (the ‘‘English Translation’’) of the official proposed amendments in the Chinese language (the ‘‘Official Amendments’’), which are set out in the Chinese language version of this circular. Accordingly, in the event of any inconsistency between the English Translation and the Official Amendments, the Official Amendments shall prevail.

— 406 —

GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the 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 the Latest Practicable Date, the interests and short positions of the Directors and Supervisors in the shares, underlying shares and debentures of the Company notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or as recorded in the register required to be kept by the Company under section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (as if it were applicable also to the Supervisors of the Company) were as follows:

	Personal	Corporate		Type of
Name of Director	interest	interest	Total Capacity	interest
Tan Xuguang	4,300,000	Nil	4,300,000 Beneficial owner	Long
	(Note 1)
Xu Xinyu	1,000,000	Nil	1,000,000 Beneficial owner	Long
	(Note 1)
Sun Shaojun	1,000,000	Nil	1,000,000 Beneficial owner	Long
	(Note 1)
Zhang Quan	1,000,000	Nil	1,000,000 Beneficial owner	Long
	(Note 1)
Yeung Sai Hong	Nil	23,500,000	23,500,000 Interest of corporation	Long
(Note 3)		(Note 2)	controlled by this person
Li San Yim (Note 4)	Nil	21,500,000	21,500,000 Interest of corporation	Long
		(Note 1)	controlled by this person
Julius G. Kiss(Note 5)	Nil	10,750,000	10,750,000 Interest of corporation	Long
		(Note 2)	controlled by this person
Name of Supervisor
Wang Yong	350,000	Nil	350,000 Beneficial owner	Long
	(Note 1)

Notes:

These are Domestic Shares of the Company. Domestic Shares are ordinary shares issued by the Company, with a Renminbi-denominated par value of RMB1.00 each, which are subscribed for and paid up in Renminbi or credited as fully paid up.

— 407 —

GENERAL INFORMATION

APPENDIX VII

These are Foreign Shares of the Company. Foreign Shares are ordinary shares issued by the Company, with a Renminbidenominated par value of RMB1.00 each, which are subscribed for and paid up in a currency other than Renminbi.
Yeung Sai Hong, a Director, was directly and indirectly interested in the entire issued share capital of Peterson Holdings Company Limited ( ), which in turn held 23,500,000 Foreign Shares.
Li San Yim, a Director, and his wife, Ni Yinying, were interested in 69.16% and 30.84%, respectively in the capital of (Fujian Longyan Construction Machinery (Group) Company Limited), which in turn

held 21,500,000 Domestic Shares, and Li San Yim was deemed interested in Ni Yinying’s entire interest in Fujian Longgong.

Julius G. Kiss, a Director, was indirectly interested in the entire capital of IVM Technical Consultants Wien G.m.b.H., which in turn held 10,750,000 Foreign Shares of the Company.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, insofar as the Directors were aware, the interests and short positions of any person (other than a Director or Supervisor) in the shares and underlying shares of the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept under section 336 of the SFO were as follows:

==> picture [422 x 359] intentionally omitted <==

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

|||||||||||
|---|---|---|---|---|---|---|---|---|---|
|Percentage|of|
|Number|of|share|capital|
|Domestic|comprising|
|Shares|only|Domestic|
|(Note|6)|and/or|Shares|and|
|Foreign|Shares|Foreign|Shares|Percentage|of|
|(Note|7)|(being|(being|shares|share|capital|Type|of|
|shares|of|the|of|the|same|Number|of|comprising|interest|
|Name|same|class)|class)|H|Shares|only H|Shares|Capacity|held|
|(Weifang|77,647,900|38.16%|Nil|—|Beneficial|owner|Long|
|Diesel|Engine|Works)|
|Peterson|Holdings|Company|23,500,000|11.55%|Nil|—|Beneficial|owner|Long|
|Limited|(Note|1)|
|Advantage|Investment|23,500,000|11.55%|Nil|—|Interest|of|Long|
|Corporation|Limited|corporation|
|(Note|1)|controlled|by|
|this|entity|
|21,500,000|10.57%|Nil|—|Beneficial|owner|Long|
|(Fujian|Longyan|
|Construction|Machinery|
|(Group)|Company|
|Limited)|
|(Ni Yinying) (Note 2)|21,500,000|10.57%|Nil|—|Spouse|Long|
|(Weifang|19,311,550|9.49%|Nil|—|Beneficial|owner|Long|
|Investment|Company)|
|(Note|3)|

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

— 408 —

GENERAL INFORMATION

APPENDIX VII

					Percentage of
				Number of	share capital
				Domestic	comprising
				Shares	only Domestic
				(Note 6) and/or	Shares and
				Foreign Shares	Foreign Shares		Percentage of
				(Note 7) (being	(being shares		share capital		Type of
				shares of the	of the same	Number of	comprising		interest
Name				same class) 21,500,000	class) 10.57%	H Shares Nil	only H Shares —	Capacity Beneficial owner	held Long
(Shenzhen Chuangxin
Investment	Group
Company Limited)
(Note 3)				21,500,000	10.57%	Nil	—	Interest of	Long
(Shenzhen Investment								corporation
Management		Company)						controlled by
(Note 4)								this entity
IVM Technical Consultants				10,750,000	5.28%	Nil	—	Beneficial owner	Long
Wien G.m.b.H.
ADTECH Advanced				10,750,000	5.28%	Nil	—	Interest of	Long
Technologies		AG						corporation
(Note 5)								controlled by
								this entity
JPMorgan Chase & Co.				Nil	—	13,568,100	10.73%	Investment	Long
								Manager
The Capital Group Co., Inc.				Nil	—	12,670,000	10.02%	Investment	Long
								Manager
Fidelity International			Ltd.	Nil	—	11,375,000	8.99%	Investment	Long
								Manager
Hansberger Global				Nil	—	8,851,000	7.00%	Investment	Long
Investors, Inc.								Manager
Atlantis Investment				Nil	—	6,500,000	5.73%	Investment	Long
Management		Ltd.						Manager
Mirae Asset Global				Nil	—	6,335,000	5.01%	Investment	Long
Investment	Management							Manager
Limited

Notes:

Yeung Sai Hong, a non-executive Director, was beneficially interested in the entire issued share capital of Advantage Investment Corporation Limited, which was interested in 90% of the entire issued share capital of Peterson Holdings Company Limited.
The capital of (Fujian Longyan Construction Machinery (Group) Company Limited) was held as to approximately 69.16% by Li San Yim (a non-executive Director) and as to approximately 30.84% by (Ni Yinying). Ni Yinying is Li San Yim’s wife, and therefore she is deemed to be interested in Li San Yim’s

entire interest in Fujian Longgong.

— 409 —

GENERAL INFORMATION

APPENDIX VII

(Weifang Investment Company) is a State-owned enterprise.
(Shenzhen Investment Management Company) was interested in approximately 33.73% of the capital of (Shenzhen Chuangxin Investment Group Company Limited).
ADTECH Advanced Technologies AG was wholly-owned by Julius G. Kiss, a non-executive Director, and it was interested in the entire capital of IVM Technical Consultants Wien G.m.b.H.
Domestic Shares are ordinary shares issued by Weichai Power, with a Renminbi-denominated par value of RMB1.00 each, which are subscribed for and paid up in Renminbi or credited as fully paid up.
Foreign Shares are ordinary shares issued by Weichai Power, with a Renminbi-denominated par value of RMB1.00 each, which are subscribed for and paid up in a currency other than Renminbi.
The English translations of the Chinese names in the above table and notes were prepared by Weichai Power for information purpose only and should not be relied upon.

4. ARRANGEMENTS AND MATTERS CONCERNING DIRECTORS

(a) Each of the executive Directors has entered into a service contract with the Company for a term commencing on 18 December 2005 and ending on 17 December 2008. Terms of the service contracts of each executive Directors are in all material respects the same. None of the Directors has entered into any service contract with the Weichai Power Group, which is not determinable by the Weichai Power Group within one year without payment of compensation (other than the payment of statutory compensation).
(b) As at the Latest Practicable Date, none of the Directors was interested, directly or indirectly, in any assets which had since 31 December 2005, being the date to which the latest published audited consolidated financial statements of the Weichai Power Group were made up, been acquired or disposed of by or leased to the Company, or were proposed to be acquired or disposed of by or leased to the Company.
(c) As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date and entered into by the Weichai Power Group since 31 December 2005, being the date to which the latest published audited consolidated financial statements of the Weichai Power Group were made up, and which was significant in relation to the business of the Weichai Power Group.
(d) As at the Latest Practicable Date, save as disclosed herein, none of the Directors or their respective associates had any interest in a business which competes or may compete with the business of the Company. As at the Latest Practicable Date, the Directors were not aware that any of the Directors or their respective associates had interest in any business, apart from the Weichai Power Group’s business, which competed or was likely to compete, either directly or indirectly, with the business of the Weichai Power Group which would fall to be disclosed under the Listing Rules.

5. LITIGATION

The Company is not engaged in any litigation or arbitration or claims of material importance and, so far as the Directors are aware, no litigation or arbitration or claims of material importance is pending or threatened against the Company.

— 410 —

GENERAL INFORMATION

APPENDIX VII

6. MATERIAL ADVERSE CHANGE

7. EXPERT

(a) The following is the qualification of the expert which has given opinions or advice which are contained in this circular:

Name

Qualification

Deloitte Touche Tohmatsu Vigers Appraisal & Consulting Limited

Certified public accountants

Chartered surveyors

AMS Corporate Finance Limited

A corporation licensed to carry on type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

(b) As at the Latest Practicable Date, none of Deloitte Touche Tohmatsu, Vigers Appraisal & Consulting Limited and AMS Corporate Finance Limited have any shareholding in the Company or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Company, nor did it have any interest, direct or indirect, in any assets which had, since the date to which the latest published audited consolidated financial statements of the Weichai Power Group were made up, been acquired or disposed of by or leased to the Company, or were proposed to be acquired or disposed of by or leased to the Company.
(c) Deloitte Touche Tohmatsu, Vigers Appraisal & Consulting Limited and AMS Corporate Finance Limited have given and have not withdrawn their written consent to the issue of this circular with the inclusion herein of their report and letter and references to their name in the forms and contexts in which they appear.

8. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Weichai Power Group within the two years immediately preceding the date of this circular and are or may be material:

(a) a capital investment agreement dated 1 August 2005 entered into between Weichai Power and an individual for the purpose of establishing InvestCo;
(b) a capital increase agreement dated 3 August 2005 entered into between Weichai Power and other investors for the increase of the equity capital of InvestCo to RMB988,000,000;
(c) a captial increase agreement dated 5 August 2005 entered into between Weichai Power and the other then equity holders of InvestCo for the increase of the equity capital of InvestCo to RMB1,638,000,000;

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(d) a capital reduction agreement dated 16 August 2005 entered into between Weichai Power and the other then equity holders of InvestCo for the reduction of the equity capital of InvestCo from RMB1,638,000,000 to RMB1,245,000,000;
(e) a share purchase agreement entered into on 11 August 2005 between (China HuaRong Asset Management Corp.), (Xinjiang D’LONG (Group) Co., Ltd.), (Guangzhou Chuangbao Investment Co. Ltd.), (Shaanxi Zhong Ke Yuan New Technology Development
Co. Ltd.) and InvestCo, pursuant to which InvestCo acquired 28.12% shareholding interest in TAGC for an aggregate consideration of RMB622,290,000;
(f) a loan transfer agreement entered into on 11 August 2005 between (China HuaRong Asset Management Corp.), TAGC and InvestCo, pursuant to which TAGC agreed to sell a loan in the aggregate amount of approximately RMB401,092,000 to InvestCo for an aggregate consideration of RMB401,092,000;
(g) the sale and purchase agreements all dated 12 May 2006 between Weichai Power and each of (Shandong Haihua Group Ltd.), (Weifang
Yaxing Group Ltd.), (Longkou Golden Electrics Co. Ltd.) in relation to the acquisition by the Company of 30%, 18% and 7% of the equity interest in InvestCo, respectively, for a consideration of RMB373,500,000, RMB224,100,000 and RMB87,150,000, respectively; and

(h) the Merger Agreement.

9. DISSENTING WEICHAI POWER SHAREHOLDERS

A Weichai Power Shareholder who has voted against the Merger Proposal (‘‘Dissenting Weichai Power Shareholder’’) at the Weichai Power Shareholders’ EGM or the Weichai Power H Shareholders’ EGM (as the case may be) at which it is entitled to attend and vote its shares may request (such request shall be referred to as the ‘‘Dissenting Weichai Power Shareholder Request’’) Weichai Power or (a) Weichai Power Shareholder(s) who has/have voted in favour of the Merger (each an ‘‘Assenting Weichai Power Shareholder’’) to purchase the Weichai Power Shares held by such Dissenting Weichai Power Shareholder (‘‘Dissenting Weichai Power Shares’’) at a fair price. In order to qualify as a registered Dissenting Weichai Power Shareholder and exercise the dissenting right, investors need to, among other things, note the relevant procedures set out below (in particular, the sub-sections below headed ‘‘Steps to exercise dissenting right and procedures to become registered Dissenting Weichai Power Shareholder’’ and ‘‘Important notice’’).

Qualifying conditions for Dissenting Weichai Power Shares

The right to make the Dissenting Weichai Power Shareholder Request is provided by article 175 of the Weichai Power Articles and PRC law. A Dissenting Weichai Power Shareholder Request will only be valid if the following conditions (the ‘‘Dissenting Weichai Power Shares Qualifying Conditions’’) are complied with (or satisfied, as the case may be):

(1) the relevant Dissenting Weichai Power Shareholder is a registered holder of the Dissenting Weichai Power Shares on the date of the Weichai Power Shareholders’ EGM or the Weichai Power H Shareholders’ EGM (as the case may be) at which it is entitled to attend and vote;

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(2) such Dissenting Weichai Power Shareholder has voted its Dissenting Weichai Power Shares against the Merger Proposal at the Weichai Power Shareholders’ EGM or the Weichai Power H Shareholders’ EGM (as the case may be) at which it is entitled to attend and vote its shares;
(3) on the Final Record Date such Dissenting Weichai Power Shareholder remains the registered holder of the same Dissenting Weichai Power Shares that it held on the date of the Weichai Power Shareholders’ EGM or the Weichai Power H Shareholders’ EGM (as the case may be);
(4) the Merger Agreement and the Merger Proposal are approved by the Weichai Power EGMs and the Merger Proposal has become unconditional and not terminated; and
(5) such Dissenting Weichai Power Shareholder has submitted a Dissenting Weichai Power Shareholder Request in writing (by sending a notice, by fax or by mail, to Weichai Power at the following address: Securities Department, 26 Minsheng East Street, Weifang, Shandong Province, The People’s Republic of China, Postal Code 261001; Facsimile: 86 (536) 8197073), such notice to be received by Weichai Power within 30 calendar days (the ‘‘Registration Period’’) after the date on which the Merger Proposal becomes unconditional (the ‘‘Opening Date’’) with the following information:
(i) the number of Dissenting Weichai Power Shares with respect to which such Dissenting Weichai Power Shareholder makes such Dissenting Weichai Power Shareholder Request; and
(ii) the correspondence address, telephone number and, if any, facsimile number of such Dissenting Weichai Power Shareholder.

If and when the Merger Proposal becomes unconditional, a separate announcement of the Opening Date will be made.

If a Dissenting Weichai Power Shareholder does not make its Dissenting Weichai Power Shareholder Request in strict compliance with paragraph (5) in this sub-section above (in particular by sending the above said notice to Weichai Power, such notice to be received by Weichai Power within the Registration Period) as well as with the other conditions and procedures set out in this sub-section and other parts of this section, any purported Dissenting Weichai Power Shareholder Request so made will not be effective. Furthermore, if the above Dissenting Weichai Power Shares Qualifying Conditions are not met, or such Dissenting Weichai Power Shareholder cannot deliver the relevant share certificate(s) and validly transfer the unencumbered title to the relevant Dissenting Weichai Power Shares to the relevant transferee(s), any purported Dissenting Weichai Power Shareholder Request so made will not be effective.

Assurance to Assenting Weichai Power Shareholders

In addition, the Merger Agreement provides that in the event that any Dissenting Weichai Power Shareholder elects to request any Assenting Weichai Power Shareholder to purchase its Dissenting Weichai Power Shares at a fair price as referred to above, Weichai Power shall, at the request of such Assenting Weichai Power Shareholder, assume any liability which such Assenting Weichai Power Shareholder may have towards the Dissenting Weichai Power Shareholder provided that (i) such Assenting Weichai Power Shareholder shall give notice of any written demand for payment of the fair

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price, the withdrawals (if any) of such demands, and any other instruments served on such Assenting Weichai Power Shareholder pursuant to the PRC Company Law or the Weichai Power Articles to Weichai Power (ii) such Assenting Weichai Power Shareholder shall give Weichai Power the opportunity to direct all negotiations and proceedings with respect to the demand for determining the fair price, and (iii) except with the prior written consent of Weichai Power, such Assenting Weichai Power Shareholder shall not voluntarily make any payment with respect to any demand for the fair price, or settle or offer to settle any such demand.

Weichai Power Shareholders who have voted for the Merger and have received the relevant demand from a Dissenting Weichai Power Shareholder may at any time after receiving such demand notify Weichai Power by sending a notice (by fax or by mail) to Weichai Power at the following address: Securities Department, 26 Minsheng East Street, Weifang, Shandong Province, The People’s Republic of China, Postal Code 261001; Facsimile: 86 (536) 8197073. This will enable Weichai Power to take steps to assume all obligations that are owed by the Weichai Power Shareholders who have voted for the Merger to the Dissenting Weichai Power Shareholders in a timely manner.

The PRC legal advisors to Weichai Power have confirmed that Weichai Power can arrange for an Assenting Weichai Power Shareholder or any third party to purchase the Dissenting Weichai Power Shares held by the Dissenting Weichai Power Shareholders, in which case the Dissenting Weichai Power Shareholders shall not be entitled to assert their right against Weichai Power or any other Assenting Weichai Power Shareholders.

Steps to exercise dissenting right and procedures to become registered Dissenting Weichai Power Shareholder

The dissenting right under article 175 of the Weichai Power Articles to make the Dissenting Weichai Power Shareholder Request as referred to above is only available to the registered holders of Weichai Power shares. Accordingly, any investor who has its Weichai Power H Shares held by nominee (including, for example, but without limitation, any Weichai Power H Shares held through CCASS operated by Hong Kong Securities Clearing Company Limited (‘‘HKSCC’’) by any CCASS broker/custodian participant) or trustee and wishes to exercise such dissenting right should:

(a) take steps (including, for example, without limitation, if appropriate, contacting and requesting its nominee or trustee to arrange for such Weichai Power H Shares to be transferred to such investor, but all associated costs and fees shall be borne by such investor absolutely) to register such Weichai Power H Shares under the name of such investor and take delivery of its Weichai Power H Shares so as to become registered shareholder of Weichai Power prior to the Weichai Power Shareholders’ EGM or the Weichai Power H Shareholders’ EGM (as the case may be) (and an investor should note the procedures set out in the sub-section below headed ‘‘Important notice’’ for details); or
(b) give instructions to and/or enter into private arrangements with its nominee or trustee such that such nominee or trustee will make the Dissenting Weichai Power Shareholder Request in strict compliance with the Dissenting Weichai Power Shares Qualifying Conditions as well as the other terms, conditions and procedures set out in this section.

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Important notice

Without prejudice to the above, the above dissenting right to request Weichai Power or Assenting Weichai Power Shareholders to purchase Dissenting Weichai Power Shares at a fair price can only be exercised by a registered shareholder of Weichai Power. Accordingly:

(i) any investor in H Shares who would like to become a registered shareholder of Weichai Power prior to the Weichai Power Shareholders’ EGM or the Weichai Power H Shareholders’ EGM (as the case may be) should lodge the relevant transfer documents by the ‘‘Latest time for lodging transfers of the H Shares in order to be entitled to attend and vote at the Weichai Power Shareholders’ EGM and the Weichai Power H Shareholders’ EGM’’ specified in the ‘‘Expected timetable’’ contained in this circular (being 4: 00 p.m., 28 November 2006); any transfer lodged after that time will not be processed and the transferee will not become registered shareholder of Weichai Power prior to the Weichai Power EGMs; and
(ii) any investor who has Weichai Power H Shares held by nominee or trustee (including, for example, without limitation, any shares held through CCASS by any CCASS broker/custodian participant) and who wishes personally to exercise the above dissenting right should take the steps and follow the procedures set out in the immediately preceding paragraph (i) above.

Without prejudice to the above, the dissenting right under the said article 175 can only be exercised by a registered shareholder of Weichai Power and, accordingly, Weichai Power will only enter into discussion with a registered shareholder in relation thereto.

Furthermore, there is no law or administrative guidance on the substantive as well as procedural rules as to how the fair price under article 175 of the Weichai Power Articles will be determined. Thus, (i) Weichai Power or an Assenting Weichai Power Shareholder or any third party arranged by Weichai Power to purchase Dissenting Weichai Power Shares (as referred to above) is not obliged to pay the price requested by a Dissenting Weichai Power Shareholder for its Dissenting Weichai Power Shares, and (ii) if any Dissenting Weichai Power Shareholder shall exercise such right, no assurance can be given as to how long the process will take.

10. PROCEDURES FOR DEMANDING A POLL AT THE WEICHAI POWER EGMS

Under the Weichai Power Articles, at any general meeting of Shareholders, a resolution shall be decided on a show of hands unless a poll is demanded by any of the following persons before (or after) any vote by a show of hands:

(a) the chairman of the meeting;
(b) at least two Shareholders, who have the right to vote, present in person or by proxy;
(c) one or more Shareholders (including proxies) representing, either calculated separately or in aggregate, one-tenth or more of all shares carrying the right to vote at the meeting.

11. GENERAL

(a) The secretary and qualified accountant of the Company is Mr. Zhang Yuanfu. Mr. Zhang is a member of the Hong Kong Institute of Certified Public Accountants.

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(b) The registered office of the Company is at 197, Section A, Fu Shou East Street, High Technology Industrial Development Zone, Weifang City, Shandong Province, The People’s Republic of China.
(c) The principal place of business of the Company in Hong Kong is at Suite 2501–2, 25th Floor, One International Finance Centre, 1 Harbour View Street Central, Hong Kong.
(d) The H share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops 1712–16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(e) In the event of any discrepancy, the English text of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any weekday (except public holidays) at the principal place of business of the Company in Hong Kong at Suite 2501–2, 25th Floor, One International Finance Centre, 1 Harbour View Street Central, Hong Kong, for a period of 14 days from 13 November 2006:

(a) the annual reports of the Company for the two financial years ended 31 December 2004 and 2005;
(b) the accountants’ report of the TAGC Group, the text of which is set out in appendix IIA to this circular;
(c) the report from Deloitte Touche Tohmatsu on the pro forma financial information of the Enlarged Group, the text of which is set out in appendix III to this circular;
(d) the valuation report from Vigers Appraisal & Consulting Limited, the text of which is set out in appendix V to this circular;
(e) the letter from the Board as set out in this circular;
(f) the written consents referred to in paragraph 7 of this appendix;
(g) copies of the material contracts referred to in paragraph 8 of this appendix;
(h) the memorandum of association of Weichai Power and the Weichai Power Articles;
(i) a copy of each circular issued pursuant to the requirements set out in Chapter 14 and/or Chapter 14A of the Listing Rules since 31 December 2005, being the date of the latest published audited accounts of the Company were made up;
(j) the Merger Agreement; and
(k) the service contracts of the Directors referred to in the section headed ‘‘4. Arrangements and matters concerning Directors’’ in this appendix VII.

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==> picture [190 x 103] intentionally omitted <==

WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

NOTICE OF EXTRAORDINARY GENERAL MEETING OF THE SHAREHOLDERS OF WEICHAI POWER CO., LTD.

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the ‘‘Weichai Power Shareholders’ EGM’’) of Weichai Power Co., Ltd. (the ‘‘Company’’) will be held at the Company’s conference room at 26 Minsheng East Street, Weifang, Shandong Province, the People’s Republic of China (the ‘‘PRC’’) on 29 December 2009 at 10: 00 a.m. for the purpose of considering and, if thought fit, approving the matters set out below. Unless the context requires otherwise, terms defined in the circular to the shareholders of the Company (the ‘‘Shareholders’’) dated 12 November 2006 of which this notice forms part (the ‘‘Circular’’) shall have the same meanings when used herein.

THE FOLLOWING AS SEPARATE ORDINARY RESOLUTIONS:

(a) ‘‘THAT the supplemental agreement to the general services agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — I.1. Provision of general services by Weichai Factory to Weichai Power’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the provision of general services by Weichai Factory (as defined in the Circular) to the Company and the amount of RMB7 million, RMB7.5 million and RMB8 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(b) ‘‘THAT the supplemental agreement to the utility services agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — I.2. Supply and/or connection of utilities by Weichai Factory to Weichai Power’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the supply and/or connection of utilities by Weichai Factory (as defined in the Circular) to the Company and the amount of RMB110 million, RMB125 million and RMB140 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(c) ‘‘THAT the supplemental agreement to the framework agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — I.3. Supply of WD615 Engines by Weichai Power to Weichai Factory’’ in the section headed ‘‘II.

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Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the supply of WD615 Engines (as defined in the Circular) by the Company to Weichai Factory (as defined in the Circular) and the amount of RMB26 million, RMB29 million and RMB34 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.

(d) ‘‘THAT the supplemental agreement to the finished diesel engine parts supply agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — I.4. Supply of finished diesel engine parts by Weichai Factory to Weichai Power’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the supply of finished diesel engine parts by Weichai Factory (as defined in the Circular) to the Company and the amount of RMB136 million, RMB160 million and RMB185 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(e) ‘‘THAT the supplemental agreement to the semi-finished diesel engine parts supply agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — I.5. Supply of semi-finished diesel engine parts by Weichai Power to Weichai Factory’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the supply of semi-finished diesel engine parts by the Company to Weichai Factory (as defined in the Circular) and the amount of RMB220 million, RMB250 million and RMB290 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(f) ‘‘THAT the supplemental agreement to the master sales and warranty period repair services agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — I.6. Provision of sales and warranty period repair services by Weichai Power to Weichai Factory’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the provision of sales and warranty repair services by the Company to Weichai Factory (as defined in the Circular) and the amount of RMB11.5 million, RMB13 million and RMB15 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(g) ‘‘THAT the supplemental agreement to the general services agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — II.1. Provision of general services by Chongqing Weichai to Weichai Power’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the provision of general services by Chongqing Weichai (as defined in the Circular) to the Company and the amount of RMB8.5 million, RMB9.5 million and

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RMB10.5 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.

(h) ‘‘THAT the supplemental agreement to the utility services agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — II.2. Supply and/or connection of utilities by Chongqing Weichai to Weichai Power’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the supply and/or connection of utilities by Chongqing Weichai (as defined in the Circular) to the Company and the amount of RMB16 million, RMB17 million and RMB18 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(i) ‘‘THAT the supplemental agreement to the processing agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — II.3. Provision of processing services by Chongqing Weichai to Weichai Power’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the provision of processing services by Chongqing Weichai (as defined in the Circular) to the Company and the amount of RMB70 million, RMB80 million and RMB90 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(j) ‘‘THAT the supplemental agreement to the framework agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — III. Continuing connected transactions between Weichai Power and Guangxi Liugong Machinery’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the supply of WD615 Engines (as defined in the Circular) and parts by the Company to Guangxi Liugong Machinery (as defined in the Circular) and the amount of RMB500 million, RMB520 million and RMB610 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(k) ‘‘THAT the supplemental agreement to the framework agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — IV. Continuing connected transactions between Weichai Power and Fujian Longgong’’ in the section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the supply of diesel engines and parts by the Company to Fujian Longgong (as defined in the Circular) and the amount of RMB135 million, RMB150 million and RMB165 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.
(l) ‘‘THAT the supplemental agreement to the framework agreement dated 12 November 2006 referred to in the section headed ‘‘1. Weichai Power Continuing Connected Transactions — V. Continuing connected transactions between Weichai Power to Shanghai Longgong’’ in the

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section headed ‘‘II. Continuing Connected Transactions of the Enlarged Group after the Merger Proposal’’ in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’) relating to the supply of diesel engines and parts by the Company to Shanghai Longgong (as defined in the Circular) and the amount of RMB500 million, RMB520 million and RMB570 million for the three years ending 31 December 2009, respectively (being the New Caps (as defined in the Circular) referred to in the said section of the Circular) be and are hereby approved’’.

AS SPECIAL RESOLUTIONS:

‘‘THAT the issue of domestic listed Renminbi (‘‘RMB’’) denominated ordinary shares (the ‘‘A Shares’’) by Weichai Power Co., Ltd. (the ‘‘Company’’) to the shareholders of Torch Automobile Group Co., Ltd. (‘‘TAGC’’) (other than Weichai Power (Weifang) Investment Co., Ltd. (‘‘InvestCo’’)) as consideration for the merger by absorption of TAGC (the ‘‘Merger’’) by share exchange, with the deregistration of TAGC at the same time, and the application for the listing of the A Shares on the Shenzhen Stock Exchange (the ‘‘Issue and Listing’’) by the Company as the surviving entity, be and are hereby approved and that each of the following be and is hereby approved:
(a) Merger by absorption by means of share exchange The Company shall merge with and absorb TAGC by means of share exchange. As consideration for the Merger and share exchange, the Company shall issue the A Shares to the shareholders of TAGC (other than InvestCo) and, at the same time, TAGC shall be deregistered with the Company being the surviving entity, and the Company will apply for a listing on the Shenzhen Stock Exchange.

For this purpose, the Company and TAGC have entered into the Merger Agreement between Weichai Power Co., Ltd. and Torch Automobile Group Co., Ltd. (the ‘‘Merger Agreement’’);

(b) Initial public offering of A Shares This initial issue of A Shares shall be on the terms and conditions as follows:
(i) Type of shares: RMB denominated ordinary shares (A Shares);
(ii) Nominal value: RMB1.00 per share;
(iii) Place of listing: Shenzhen Stock Exchange;
(iv) Number of shares to be issued: Under the arrangements of the Merger, the Company shall issue 190,653,552 A Shares as consideration for the Merger;
(v) Target of the issue: Under the arrangements of the Merger, the target of the issue shall be the shareholders of TAGC (other than InvestCo);
(vi) Pricing: Under the arrangements of the Merger, the price of the TAGC shares shall be RMB 5.80 per share and the price of the A Shares shall be RMB 20.47 per share; the share exchange ratio shall be 3.53: 1, being one A Share to be issued for every 3.53 TAGC shares;
(vii) Use of proceeds: Since the A Shares shall be issued as the consideration for the Merger, no fund-raising will be involved;

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(viii) Distribution of retained profits prior to the issue: According to the Merger Agreement, if completion of the Merger does not occur by 30 April 2007, the board of directors of Weichai Power may propose a final dividend for 2006 (the dividend per share shall be referred to as the ‘‘Final Dividend Per Weichai Share’’), subject to the approval by the 2006 annual general meeting of the Company, provided that the amount of such final dividend shall not exceed that of the interim dividend paid by Weichai Power for 2006. If Weichai Power shall pay its final dividend, the board of directors of TAGC may also propose to pay a final dividend for 2006 at a rate per TAGC share equal to the amount of the Final Dividend Per Weichai Share divided by 3.53. The aforesaid arrangement of dividend distribution may only be implemented when both parties to the Merger are legally qualified to do so. Save as aforesaid, the parties have agreed not to distribute their respective undistributed profits prior to the date of the completion of the Merger. The undistributed profits of the parties up to the date of completion of the Merger shall belong to all the shareholders of the Company after completion of the Merger;
(ix) Effective period of this resolution: This resolution shall be effective for a period of 12 months from the date of the passing of this Resolution;
(x) Others: After the completion of the Merger and the Issue and Listing, the Company’s domestic shares and unlisted foreign shares shall become listed A Shares; and
(xi) Authorisation: The board of directors of the Company and its authorized representative(s) shall be authorised to do and process procedures relating to the approval, registration, filing, ratification and application for share listing with relevant domestic and overseas government authorities and regulatory departments in respect of the implementation of the Merger and the Issue and Listing; to execute, implement, amend and complete documents, contracts or agreements to be submitted to relevant domestic and overseas governments, authorities, organizations and individuals; to do all acts and matters that any of them deems necessary or appropriate for the implementation of the Merger and the Issue and Listing, and to process and amend the relevant business registration after the completion of the Merger and the Issue and Listing.
‘‘THAT the amendments to the Weichai Power Articles (as defined in the circular of the Company dated 12 November 2006 (the ‘‘Circular’’)) in the manner set out in appendix VI to the Circular (a copy of the full set of which incorporating the said amendments is tabled at the Meeting and signed by the Chairman of the Meeting for identification purpose) be and are hereby approved’’.

AND THE MEETING SHALL DISCUSS, CONSIDER AND, IF APPROPRIATE, APPROVE any matters with respect to the election and/or resignation of director(s) and/or supervisor(s) of the Company that may be proposed by any shareholder for the purposes of the Merger (as defined in the Circular) and/or the listing of the Weichai A Shares (as defined in the Circular) on the Shenzhen Stock Exchange.

By Order of the Board of Directors Weichai Power Co., Ltd. Zhang Yuanfu Company Secretary

Hong Kong, 12 November 2006

— 421 —

NOTICE OF THE WEICHAI POWER SHAREHOLDERS’ EGM

Notes:

(A) The Company will not process registration of transfers of the H Shares of the Company from 29 November 2006 to 29 December 2006 (both days inclusive). Holders of H Shares of the Company whose names appear on the register of H Shares of the Company kept at Computershare Hong Kong Investor Services Limited at the end of 29 November 2006 are entitled to attend and vote at the Weichai Power Shareholders’ EGM following completion of the registration procedures.

To qualify for attendance and voting at the Weichai Power Shareholders’ EGM, documents on transfers of H Shares of the Company, accompanied by the relevant share certificates, must be lodged with the Company’s H-Share Registrar and Transfer Office, not later than 4: 00 p.m. on 28 November 2006. The address of the Company’s H-Share Registrar and Transfer Office is as follows:

Computershare Hong Kong Investor Services Limited Shops 1712–16, 17th Floor, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

The Company will not process registration of transfers of Domestic Shares and Foreign Shares (other than H Shares) from 29 November 2006 to 29 December 2006 (both days inclusive). Holders of Domestic Shares and Foreign Shares (other than H Shares) whose names appear on the register of Shares of the Company at the end of 29 November 2006 are entitled to attend and vote at the Weichai Power Shareholders’ EGM. Holders of Domestic Shares and Foreign Shares (other than H Shares) should contact the Secretary to the Board (whose contact details are set out in Note (B) below) for details concerning registration of transfers of Domestic Shares and Foreign Shares (other than H Shares).

(B) Holders of H Shares, Domestic Shares and Foreign Shares of the Company intending to attend the Weichai Power Shareholders’ EGM should complete and return the reply slip for attending the Weichai Power Shareholders’ EGM personally, by facsimile or by post to the Secretary to the Board of the Company 20 days before the Weichai Power Shareholders’ EGM (i.e. on or before 9 December 2006).

The contact details of the Secretary to the Board of the Company are as follows:

Securities Department 197, Section A, Fu Shou East Street High Technology Industrial Development Zone Weifang Shandong Province The People’s Republic of China Postal Code: 261061 Telephone No.: 86 (536) 229 7068 Facsimile No.: 86 (536) 819 7073

(C) Each holder of H Shares of the Company entitled to attend and vote at the Weichai Power Shareholders’ EGM may, by completing the form of proxy of the Company, appoint one or more proxies to attend and vote at the Weichai Power Shareholders’ EGM on its behalf. A proxy need not be a Shareholder of the Company. With respect to any Shareholder who has appointed more than one proxy, the proxy holders may only vote on a poll.

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NOTICE OF THE WEICHAI POWER SHAREHOLDERS’ EGM

(D) Holders of H Shares of the Company must use the form of proxy of the Company for appointing a proxy and the appointment must be in writing. The form of proxy must be signed by the relevant Shareholder or by a person duly authorised by the relevant Shareholder in writing (a ‘‘power of attorney’’). If the form of proxy is signed by the person authorised by the relevant Shareholder as aforesaid, the relevant power of attorney and other relevant documents of authorization (if any) must be notarised. If a corporate Shareholder appoints a person other than its legal representative to attend the Weichai Power Shareholders’ EGM on its behalf, the relevant form of proxy must be affixed with the company seal/chop of the corporate Shareholder or duly signed by its director or any other person duly authorised by that corporate shareholder as required by the Weichai Power Articles.
(E) To be valid, the form of proxy and the relevant notarized power of attorney (if any) and other relevant documents of authorization (if any) as mentioned in Note (D) above must be delivered to the Company’s H-Share Registrar and Transfer Office, Computershare Hong Kong Investor Services Limited (address: 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong), not less than 24 hours before the time appointed for the Weichai Power Shareholders’ EGM.
(F) Each holder of Domestic Shares or Foreign Shares (excluding H Shares) of the Company who is entitled to attend and vote at the Weichai Power Shareholders’ EGM may also, by completing the form of proxy of the Company, appoint one or more proxies to attend and vote at the Weichai Power Shareholders’ EGM on his behalf. A proxy need not be a shareholder of the Company. Notes (C) and (D) above also apply to the holders of Domestic Shares and Foreign Shares (excluding H Shares) of the Company, except that, to be valid, the form of proxy and the relevant power of attorney (if any) and other relevant documents of authorization (if any) must be delivered to the Secretary to the Board of the Company not less than 24 hours before the time appointed for the Weichai Power Shareholders’ EGM. The address of the Secretary to the Board of the Company is stated in Note (B) above.
(G) A Shareholder or his proxy should produce proof of identity when attending the Weichai Power Shareholders’ EGM. If a corporate Shareholder’s legal representative or any other person authorised by the board of directors or other governing body of such corporate Shareholder attends the Weichai Power Shareholders’ EGM, such legal representative or other person shall produce his proof of identity, and proof of designation as legal representative and the valid resolution or authorisation document of the board of directors or other governing body of such corporate Shareholder (as the case may be) to prove the identity and authorization of that legal representative or other person.
(H) The Weichai Power Shareholders’ EGM is expected to last for not more than half a day. Shareholders who attend the Weichai Power Shareholders’ EGM shall bear their own travelling and accommodation expenses.
(I) As Weichai Power is a PRC incorporated company and the official Weichai Power Articles are in the Chinese language, the proposed amendments to the Weichai Power Articles set out in appendix VI to the English version of the Circular are an unofficial English language translation (the ‘‘English Translation’’) of the official proposed amendments in the Chinese language as set out in appendix VI to the Chinese version of the Circular (the ‘‘Official Amendments’’). Accordingly, in the event of any inconsistency between the English Translation and the Official Amendments, the Official Amendments shall prevail.

— 423 —

NOTICE OF THE WEICHAI POWER H SHAREHOLDERS’ EGM

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WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

NOTICE OF EXTRAORDINARY GENERAL MEETING OF THE HOLDERS OF H SHARES

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the ‘‘Weichai Power H Shareholders’ EGM’’) of the holders of H shares (‘‘H Shares’’) in Weichai Power Co., Ltd. (the ‘‘Company’’) will be held at the Company’s conference room at 26 Minsheng East Street, Weifang, Shandong Province, the People’s Republic of China (the ‘‘PRC’’) on 29 December 2006 at 11: 30 a.m. (or, if later, as soon as practicable after the completion of the Weichai Power Shareholders’ EGM) for the purpose of considering and, if thought fit, approving the matters set out below. Unless the context requires otherwise, terms defined in the circular to the shareholders of the Company (the ‘‘Shareholders’’) dated 12 November 2006 of which this notice forms part (the ‘‘Circular’’) shall have the same meanings when used herein.

AS SPECIAL RESOLUTION:

‘‘THAT the issue of domestic listed Renminbi (‘‘RMB’’) denominated ordinary shares (the ‘‘A Shares’’) by Weichai Power Co., Ltd. (the ‘‘Company’’) to the shareholders of Torch Automobile Group Co., Ltd. (‘‘TAGC’’) (other than Weichai Power (Weifang) Investment Co., Ltd. (‘‘InvestCo’’)) as consideration for the merger by absorption of TAGC (the ‘‘Merger’’) by share exchange, with the deregistration of TAGC at the same time, and the application for the listing of the A Shares on the Shenzhen Stock Exchange (the ‘‘Issue and Listing’’) by the Company as the surviving entity, be and are hereby approved and that each of the following be and is hereby approved:

(a) Merger by absorption by means of share exchange The Company shall merge with and absorb TAGC by means of share exchange. As consideration for the Merger and share exchange, the Company shall issue the A Shares to the shareholders of TAGC (other than InvestCo) and, at the same time, TAGC shall be deregistered with the Company being the surviving entity, and the Company will apply for a listing on the Shenzhen Stock Exchange.

For this purpose, the Company and TAGC have entered into the Merger Agreement between Weichai Power Co., Ltd. and Torch Automobile Group Co., Ltd. (the ‘‘Merger Agreement’’);

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NOTICE OF THE WEICHAI POWER H SHAREHOLDERS’ EGM

(b) Initial public offering of A Shares This initial issue of A Shares shall be on the terms and conditions as follows:
(i) Type of shares: RMB denominated ordinary shares (A Shares);
(ii) Nominal value: RMB1.00 per share;
(iii) Place of listing: Shenzhen Stock Exchange;
(iv) Number of shares to be issued: Under the arrangements of the Merger, the Company shall issue 190,653,552 A Shares as consideration for the Merger;
(v) Target of the issue: Under the arrangements of the Merger, the target of the issue shall be the shareholders of TAGC (other than InvestCo);
(vi) Pricing: Under the arrangements of the Merger, the price of the TAGC shares shall be RMB 5.80 per share and the price of the A Shares shall be RMB 20.47 per share; the share exchange ratio shall be 3.53: 1, being one A Share to be issued for every 3.53 TAGC shares;
(vii) Use of proceeds: Since the A Shares shall be issued as the consideration for the Merger, no fund-raising will be involved;
(viii) Distribution of retained profits prior to the issue: According to the Merger Agreement, if completion of the Merger does not occur by 30 April 2007, the board of directors of Weichai Power may propose a final dividend for 2006 (the dividend per share shall be referred to as the ‘‘Final Dividend Per Weichai Share’’), subject to the approval by the 2006 annual general meeting of the Company, provided that the amount of such final dividend shall not exceed that of the interim dividend paid by Weichai Power for 2006. If Weichai Power shall pay its final dividend, the board of directors of TAGC may also propose to pay a final dividend for 2006 at a rate per TAGC share equal to the amount of the Final Dividend Per Weichai Share divided by 3.53. The aforesaid arrangement of dividend distribution may only be implemented when both parties to the Merger are legally qualified to do so. Save as aforesaid, the parties have agreed not to distribute their respective undistributed profits prior to the date of the completion of the Merger. The undistributed profits of the parties up to the date of completion of the Merger shall belong to all the shareholders of the Company after completion of the Merger;
(ix) Effective period of this resolution: This resolution shall be effective for a period of 12 months from the date of the passing of this Resolution;
(x) Others: After the completion of the Merger and the Issue and Listing, the Company’s domestic shares and unlisted foreign shares shall become listed A Shares; and
(xi) Authorisation: The board of directors of the Company and its authorized representative(s) shall be authorised to do and process procedures relating to the approval, registration, filing, ratification and application for share listing with relevant domestic and overseas government authorities and regulatory departments in respect of the implementation of the Merger and the Issue and Listing; to execute, implement, amend and complete documents, contracts or agreements to be submitted to relevant domestic and overseas governments, authorities, organizations and individuals; to do all acts and matters that any of them

— 425 —

NOTICE OF THE WEICHAI POWER H SHAREHOLDERS’ EGM

deems necessary or appropriate for the implementation of the Merger and the Issue and Listing, and to process and amend the relevant business registration after the completion of the Merger and the Issue and Listing.

By Order of the Board of Directors Weichai Power Co., Ltd. Zhang Yuanfu Company Secretary

Hong Kong, 12 November 2006

Notes:

(A) The Company will not process registration of transfers of H Shares of the Company from 29 November 2006 to 29 December 2006 (both days inclusive). Holders of H Shares of the Company whose names appear on the register of H Shares of the Company kept at Computershare Hong Kong Investor Services Limited at the end of 29 November 2006 are entitled to attend and vote at the Weichai Power H Shareholders’ EGM following completion of the registration procedures.

To qualify for attendance and voting at the Weichai Power H Shareholders’ EGM, documents on transfers of H Shares of the Company, accompanied by the relevant share certificates, must be lodged with the Company’s H-Share Registrar and Transfer Office, not later than 4: 00 p.m. on 28 November 2006. The address of the Company’s H-Share Registrar and Transfer Office is as follows:

Computershare Hong Kong Investor Services Limited Shops 1712–16, 17th Floor, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

(B) Holders of H Shares intending to attend the Weichai Power H Shareholders’ EGM should complete and return the reply slip for attending the Weichai Power H Shareholders’ EGM personally, by facsimile or by post to the Secretary to the Board of the Company 20 days before the Weichai Power H Shareholders’ EGM (i.e. on or before 9 December 2006).

The contact details of the Secretary to the Board of the Company are as follows:

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NOTICE OF THE WEICHAI POWER H SHAREHOLDERS’ EGM

(C) Each holder of H Shares of the Company entitled to attend and vote at the Weichai Power H Shareholders’ EGM may, by completing the form of proxy of the Company, appoint one or more proxies to attend and vote at the Weichai Power H Shareholders’ EGM on its behalf. A proxy need not be a Shareholder of the Company. With respect to any Shareholder who has appointed more than one proxy, the proxy holders may only vote on a poll.
(D) Holders of H Shares of the Company must use the form of proxy of the Company for appointing a proxy and the appointment must be in writing. The form of proxy must be signed by the relevant Shareholder or by a person duly authorised by the relevant Shareholder in writing (a ‘‘power of attorney’’). If the form of proxy is signed by the person authorised by the relevant Shareholder as aforesaid, the relevant power of attorney and other relevant documents of authorization (if any) must be notarised. If a corporate Shareholder appoints a person other than its legal representative to attend the Weichai Power H Shareholders’ EGM on its behalf, the relevant form of proxy must be affixed with the company seal/chop of the corporate Shareholder or duly signed by its director or any other person duly authorised by that corporate Shareholder as required by the Weichai Power Articles.
(E) To be valid, the form of proxy and the relevant notarized power of attorney (if any) and other relevant documents of authorization (if any) as mentioned in Note (D) above must be delivered to the Company’s H-Share Registrar and Transfer Office, Computershare Hong Kong Investor Services Limited (address: 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong), not less than 24 hours before the time appointed for the Weichai Power H Shareholders’ EGM.
(F) A Shareholder or his proxy should produce proof of identity when attending the Weichai Power H Shareholders’ EGM. If a corporate Shareholder’s legal representative or any other person authorised by the board of directors or other governing body of such corporate Shareholder attends the Weichai Power H Shareholders’ EGM, such legal representative or other person shall produce his proof of identity, and proof of designation as legal representative and the valid resolution or authorisation document of the board of directors or other governing body of such corporate Shareholder (as the case may be) to prove the identity and authorization of that legal representative or other person.
(G) The Weichai Power H Shareholders’ EGM is expected to last for not more than half a day. Shareholders who attend the Weichai Power H Shareholders’ EGM shall bear their own travelling and accommodation expenses.

— 427 —

NOTICE OF THE WEICHAI POWER DOMESTIC AND FOREIGN SHAREHOLDERS’ EGM

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WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

NOTICE OF EXTRAORDINARY GENERAL MEETING OF THE HOLDERS OF DOMESTIC SHARES AND FOREIGN SHARES

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the ‘‘Weichai Power Domestic and Foreign Shareholders’ EGM’’) of the holders of domestic shares (the ‘‘Domestic Shares’’) and the holders of foreign shares (the ‘‘Foreign Shares’’) in Weichai Power Co., Ltd. (the ‘‘Company’’) will be held at the Company’s conference room at 26 Minsheng East Street, Weifang, Shandong Province, the People’s Republic of China (the ‘‘PRC’’) on 29 December 2006 at 12: 00 noon (or, if later, as soon as practicable after the completion of the Weichai Power H Shareholders’ EGM) for the purpose of considering and, if though fit, approving the matters set out below. Unless the context requires otherwise, terms defined in the circular to the shareholders of the Company (the ‘‘Shareholders’’) dated 12 November 2006 of which this notice forms part (the ‘‘Circular’’) shall have the same meanings when used herein.

AS SPECIAL RESOLUTION:

(a) Merger by absorption by means of share exchange The Company shall merge with and absorb TAGC by means of share exchange. As consideration for the Merger and share exchange, the Company shall issue the A Shares to the shareholders of TAGC (other than InvestCo) and, at the same time, TAGC shall be deregistered with the Company being the surviving entity, and the Company will apply for a listing on the Shenzhen Stock Exchange.

For this purpose, the Company and TAGC have entered into the Merger Agreement between Weichai Power Co., Ltd. and Torch Automobile Group Co., Ltd. (the ‘‘Merger Agreement’’);

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NOTICE OF THE WEICHAI POWER DOMESTIC AND FOREIGN SHAREHOLDERS’ EGM

(b) Initial public offering of A Shares This initial issue of A Shares shall be on the terms and conditions as follows:
(i) Type of shares: RMB denominated ordinary shares (A Shares);
(ii) Nominal value: RMB1.00 per share;
(iii) Place of listing: Shenzhen Stock Exchange;
(iv) Number of shares to be issued: Under the arrangements of the Merger, the Company shall issue 190,653,552 A Shares as consideration for the Merger;
(v) Target of the issue: Under the arrangements of the Merger, the target of the issue shall be the shareholders of TAGC (other than InvestCo);
(vi) Pricing: Under the arrangements of the Merger, the price of the TAGC shares shall be RMB 5.80 per share and the price of the A Shares shall be RMB 20.47 per share; the share exchange ratio shall be 3.53: 1, being one A Share to be issued for every 3.53 TAGC shares;
(vii) Use of proceeds: Since the A Shares shall be issued as the consideration for the Merger, no fund-raising will be involved;
(viii) Distribution of retained profits prior to the issue: According to the Merger Agreement, if completion of the Merger does not occur by 30 April 2007, the board of directors of Weichai Power may propose a final dividend for 2006 (the dividend per share shall be referred to as the ‘‘Final Dividend Per Weichai Share’’), subject to the approval by the 2006 annual general meeting of the Company, provided that the amount of such final dividend shall not exceed that of the interim dividend paid by Weichai Power for 2006. If Weichai Power shall pay its final dividend, the board of directors of TAGC may also propose to pay a final dividend for 2006 at a rate per TAGC share equal to the amount of the Final Dividend Per Weichai Share divided by 3.53. The aforesaid arrangement of dividend distribution may only be implemented when both parties to the Merger are legally qualified to do so. Save as aforesaid, the parties have agreed not to distribute their respective undistributed profits prior to the date of the completion of the Merger. The undistributed profits of the parties up to the date of completion of the Merger shall belong to all the shareholders of the Company after completion of the Merger;
(ix) Effective period of this resolution: This resolution shall be effective for a period of 12 months from the date of the passing of this Resolution;
(x) Others: After the completion of the Merger and the Issue and Listing, the Company’s domestic shares and unlisted foreign shares shall become listed A Shares; and
(xi) Authorisation: The board of directors of the Company and its authorized representative(s) shall be authorised to do and process procedures relating to the approval, registration, filing, ratification and application for share listing with relevant domestic and overseas government authorities and regulatory departments in respect of the implementation of the Merger and the Issue and Listing; to execute, implement, amend and complete documents, contracts or agreements to be submitted to relevant domestic and overseas governments, authorities, organizations and individuals; to do all acts and matters that any of them

— 429 —

NOTICE OF THE WEICHAI POWER DOMESTIC AND FOREIGN SHAREHOLDERS’ EGM

By Order of the Board of Directors Weichai Power Co., Ltd. Zhang Yuanfu Company Secretary

Hong Kong, 12 November 2006

Notes:

(A) The Company will not process registration of transfers of Domestic Shares and Foreign Shares of the Company from 29 November 2006 to 29 December 2006 (both days inclusive). Holders of Domestic Shares and Foreign Shares of the Company whose names appear on the register of Shares of the Company at the end of 29 November 2006 are entitled to attend and vote at the Weichai Power Domestic and Foreign Shareholders’ EGM.

Holders of Domestic Shares and Foreign Shares (other than H Shares) should contact the Secretary to the Board (whose contact details are set out in Note (B) below) for details concerning registration of transfers of Domestic Shares and Foreign Shares (other than H Shares).

(B) Holders of Domestic Shares and Foreign Shares intending to attend the Weichai Power Domestic and Foreign Shareholders’ EGM should complete and return the reply slip for attending the Weichai Power Domestic and Foreign Shareholders’ EGM personally, by facsimile or by post to the Secretary to the Board of the Company 20 days before the Weichai Power Domestic and Foreign Shareholders’ EGM (i.e. on or before 9 December 2006).

The contact details of the Secretary to the Board of the Company are as follows:

(C) Each holder of Domestic Shares and Foreign Shares of the Company entitled to attend and vote at the Weichai Power Domestic and Foreign Shareholders’ EGM may, by completing the form of proxy of the Company, appoint one or more proxies to attend and vote at the Weichai Power Domestic and Foreign Shareholders’ EGM on its behalf. A proxy need not be a Shareholder of the Company. With respect to any Shareholder who has appointed more than one proxy, the proxy holders may only vote on a poll.
(D) Holders of Domestic Shares and Foreign Shares of the Company must use the form of proxy of the Company for appointing a proxy and the appointment must be in writing. The form of proxy must be signed by the relevant Shareholder or by a person duly authorised by the relevant Shareholder in

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NOTICE OF THE WEICHAI POWER DOMESTIC AND FOREIGN SHAREHOLDERS’ EGM

writing (a ‘‘power of attorney’’). If the form of proxy is signed by the person authorised by the relevant Shareholder as aforesaid, the relevant power of attorney and other relevant documents of authorization (if any) must be notarised. If a corporate Shareholder appoints a person other than its legal representative to attend the Weichai Power Domestic and Foreign Shareholders’ EGM on its behalf, the relevant form of proxy must be affixed with the company seal/chop of the corporate Shareholder or duly signed by its director or any other person duly authorised by that corporate Shareholder as required by the Weichai Power Articles.

(E) To be valid, the form of proxy and the relevant notarized power of attorney (if any) and other relevant documents of authorization (if any) as mentioned in Note (D) above must be delivered to the Secretary to the Board of the Company, not less than 24 hours before the time appointed for the Weichai Power Domestic and Foreign Shareholders’ EGM. The address of the Secretary to the Board of the Company is stated in Note (B) above.
(F) A Shareholder or his proxy should produce proof of identity when attending the Weichai Power Domestic and Foreign Shareholders’ EGM. If a corporate Shareholder’s legal representative or any other person authorised by the board of directors or other governing body of such corporate Shareholder attends the Weichai Power Domestic and Foreign Shareholders’ EGM, such legal representative or other person shall produce his proof of identity, and proof of designation as legal representative and the valid resolution or authorisation document of the board of directors or other governing body of such corporate Shareholder (as the case may be) to prove the identity and authorization of that legal representative or other person.
(G) The Weichai Power Domestic and Foreign Shareholders’ EGM is expected to last for not more than half a day. Shareholders who attend the Weichai Power Domestic and Foreign Shareholders’ EGM shall bear their own travelling and accommodation expenses.

— 431 —

AI assistant

Weichai Power Co., Ltd. — Proxy Solicitation & Information Statement 2006

50534_rns_2006-11-13_5732a527-f446-4289-9363-af35b1c4734f.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

WEICHAI POWER CO., LTD.

VERY SUBSTANTIAL ACQUISITION INVOLVING A MERGER BY ABSORPTION OF TAGC AND CONTINUING CONNECTED TRANSACTIONS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

WEICHAI POWER CO., LTD.

VERY SUBSTANTIAL ACQUISITION INVOLVING A MERGER BY ABSORPTION OF TAGC AND CONTINUING CONNECTED TRANSACTIONS

I. THE MERGER PROPOSAL

1. INTRODUCTION

LETTER FROM THE BOARD

2. BACKGROUND

3. MERGER AGREEMENT

Salient terms and consideration

Conditions precedent

Termination

Others

Effect of the Merger Agreement

4. BASIS OF DETERMINATION OF CONSIDERATION

5. CASH ALTERNATIVE

6. UNDERTAKINGS

7. EFFECT OF THE MERGER PROPOSAL ON THE SHAREHOLDINGS IN WEICHAI POWER

8. REASONS FOR AND BENEFITS OF THE MERGER PROPOSAL

(a) Enhance positioning in the heavy-duty truck value chain

(b) Create effectiveness and synergies

Cost Synergies

LETTER FROM THE BOARD

Revenue Synergies

Finance Synergies

(c) Create a more streamlined organisation

Current structure Post-Merger structure

9. INFORMATION ON WEICHAI POWER

10. INFORMATION ON THE TAGC GROUP

TAGC

SFGC

Products

Sales and after-sales services networks

Shaanxi Zhongqi

Products

LETTER FROM THE BOARD

Production facilities

Sales and after-sales services networks

Other TAGC subsidiaries

11. BUSINESS TRENDS

Overview

Heavy-duty vehicles industry

Construction machinery industry

Coaches industry

12. CREDITORS’ RIGHT AS A RESULT OF THE MERGER PROPOSAL

Weichai Power’s indebtedness position

TAGC’s indebtedness position

13. LISTING RULES IMPLICATIONS

14. FINANCIAL EFFECTS OF THE MERGER PROPOSAL

Pro forma financial information of the Enlarged Group as at 30 June 2006

15. FINANCIAL AND TRADING PROSPECTS OF THE WEICHAI POWER GROUP AND THE TAGC GROUP

(a) General

LETTER FROM THE BOARD

(b) Operating performance in second half of 2006

LETTER FROM THE BOARD

(c) PRC disclosures

16. WORKING CAPITAL

17. INDEBTEDNESS

Borrowings

Debt Securities

Securities and guarantees

Contingent liabilities

Disclaimer

18. AMENDMENTS TO THE WEICHAI POWER ARTICLES

1. WEICHAI POWER CONTINUING CONNECTED TRANSACTIONS

A. Introduction

Weichai Power Co., Ltd. Proxy Solicitation & Information Statement 2006