XD Inc. — Annual Report 2001

Apr 10, 2002

Chongqing iron & steel Company Limited

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

Announcement of the 2001 Final Results

Financial Highlights

Audited

Year ended 31st December

2001 2000 Increase

Rmb'000 Rmb'000

Turnover 3,760,029 3,722,756 1.00%

Profit for the year 207,271 198,686 4.32%

Earnings per share Rmb0.195 Rmb0.187 4.28%

Operation Highlights

* 2001 for the Group was the "Year of Cost Management". The Group asserts strength and niche on its well established sales network, its reputation on quality, its resources on expertise, its competitiveness on cost control and its belief in applying technology to production process. Production and operations are progressing steadily, and pre-set targets were achieved.

* During the year, the production volume of the Group increased. Fixed costs were reduced by approximately Rmb38,000,000, major consumption had declined and thus, production cost dropped by approximately Rmb24,600,000. As a result of the application of tendering system and the optimisation of transportation, purchasing costs of main raw and ancillum materials had reduced by approximately Rmb12,300,000.

* During the year, the Group sold 1,508,000 tonnes of steel products, representing an increase of 5.90% over last year; and the average selling price of steel products was Rmb2,256/tonne , representing an increase of 3.43% over last year.

* Successful development of 10 new and tailor-made products and achieved 200% of the target new product development plan for the year.

The Board of Directors of Chongqing Iron & Steel Company Limited (the "Company") hereby presents the audited consolidated results of the Company and its subsidiaries (collectively referred to as the "Group") for the year ended 31st December 2001, together with the comparative figures for 2000.

Year ended 31st December

2001 2000

Note Rmb'000 Rmb'000

Turnover 2 3,760,029 3,722,756

Cost of sales (3,218,785 ) (3,225,552 )

Gross profit 541,244 497,204

Other revenues 9,010 5,241

Distribution costs (87,857 ) (111,349 )

Administrative expenses (148,350 ) (113,931 )

Other operating expenses (43,238 ) (14,978 )

Operating profit 3 270,809 262,187

Net finance costs 4 (58,697 ) (55,812 )

Profit before taxation 212,112 206,375

Taxation 5 (1,538 ) -

Profit after taxation 210,574 206,375

Minority interests (3,303 ) (7,689 )

Profit for the year 207,271 198,686

Transfer to reserves 6 30,461 24,687

Dividend 7 31,918 31,918

Earnings per share 8 Rmb0.195 Rmb0.187

Notes:

1. Organisation

The Company is a joint stock limited liability company established in the People's Republic of China (the "PRC") on 12th August 1997 as part of the restructuring ("Restructuring") of a State-owned enterprise known as Chongqing Iron & Steel Company (Group) Limited (the "Holding Company"). Pursuant to the Restructuring, the principal iron and steel business undertakings and one of the subsidiaries, Chongqing Hengda Steel Industrial Co. Ltd. ("Hengda"), of the Holding Company were taken over by the Company, whereupon the Company issued 650,000,000 State-owned shares of Rmb1 each to the Holding Company.

1. Turnover

The Group is principally engaged in the manufacture and sale of steel products. An analysis of the Group's turnover is as follows:

Year ended 31st December

2001 2000

Rmb'000 Rmb'000

Sales of steel products 3,401,259 3,383,870

Other sales 358,770 338,886

3,760,029 3,722,756

No business segment information is presented as over 90% of the Group's turnover and operating profit are earned from sale of steel and its by-products.

No geographical segment information is presented as all of the Group's turnover and operations in 2001 were carried out within the PRC, and all assets of the Group are located in the PRC.

1. Operating profit

Operating profit is stated after charging depreciation of fixed assets of Rmb156,970,000 (2000: Rmb153,590,000) and amortisation of relining cost of blast furnaces of Rmb10,829,000 (2000: Rmb10,799,000).

1. Net finance costs

Year ended 31st December

2001 2000

Rmb'000 Rmb'000

Interest expenses on bank loans 62,616 63,498

Less: Amount capitalised in

construction in progress (70 ) (5,203 )

62,546 58,295

Interest income on bank balances (3,849 ) (2,483 )

58,697 55,812

1. Taxation

No Hong Kong profits tax has been provided as the Group had no taxable profit in Hong Kong for the year (2000: nil).

In accordance with an approval document issued by the Ministry of Foreign Trade and Economic Co-operation of the PRC on 7th December 1998 and the tax registration certificate received by the Company on 31st August 1999, the Company's status has been changed to that of the joint stock company with foreign investment. In accordance with Article 8 of the Income Tax Law of the PRC Enterprises with Foreign Investment and Foreign Enterprises, enterprises with foreign investment engaged in production business activities are entitled to two years exemption from income tax followed by three years of 50% reduction in income tax commencing from the first profitable year. The year ended 31st December 2001 is the Company's second profitable year after the change; accordingly, no taxation has been provided in the Company's accounts.

In accordance with the relevant regulations, the subsidiary of the Company, Hengda, is also qualified as a foreign investment production enterprise following the change in the Company's status, and is therefore entitled to two years exemption from income tax followed by three years of 50% reduction in income tax commencing from the first profitable year. The year ended 31st December 2001 is Hengda's third profitable year after the change, income tax has been provided at 50% of the standard income tax rate (i.e. 12%) on its estimated taxable income for the year (2000: nil).

1. Transfer to reserves

(a) According to the Company' Articles of Association, the Company is required to transfer 10% of its net profit calculated under the PRC accounting regulations to the statutory common reserve until the reserve reaches 50% of the registered capital. The transfer to this reserve must be made before the distribution of dividend to shareholders.

The statutory common reserve shall only be used to make up losses, to expand the Company's production operations, or to increase the capital of the Company. Upon approval by a resolution of shareholders' general meeting, the Company may convert its statutory common reserve into share capital and issue bonus shares to existing shareholders in proportion to their existing shareholdings or increase the nominal value of each share. After converting the Company's statutory common reserve into capital, the balance of such reserve must not be less than 25% of the registered capital.

In 2001, the directors recommended the transfer of 10% (2000: 10%) of the net profit for the year calculated under the PRC accounting regulations to the statutory common reserve.

(b) According to the Company's Articles of Association, the Company is required to transfer 5% to 10% of its net profit calculated under the PRC accounting regulations to the statutory provident fund. The transfer to this fund must be made before the distribution of dividend to shareholders. This fund shall only be used for the collective welfare of employees.

In 2001, the directors recommended the transfer of 5% (2000: 5%) of the net profit for the year calculated under the PRC accounting regulations to the statutory welfare fund.

1. Dividend

2001 2000

Rmb'000 Rmb'000

Final, proposed, of Rmb0.03

(2000: Rmb0.03) per share 31,918 31,918

The Board of Directors proposed a final dividend of Rmb0.03 per share, amounting to Rmb31,918,320 for 2001. The final dividend will be distributed to the shareholders on or before 20th June 2002 after the proposed dividend is approved by the shareholders at the 2001 Annual General Meeting which will be held on 3rd June 2002. Dividends for H shares will be paid in Hong Kong dollars and is translated into HK dollars at the average exchange rate of Renminbi to Hong Kong dollar as quoted by the People's Bank of China for the week before the date of the 2001 Annual General Meeting of the Company.

According to the provisions of the document Hui Fa (1999) No. 372 issued by the Foreign Exchange Administration Bureau of the State and the State Taxation Bureau, the final dividends for 2001 which had been paid by the Company to its shareholders were tax free.

1. Earnings per share

The calculation of earnings per share is based on the profit for the year of Rmb207,271,000 (2000: Rmb198,686,000) and the 1,063,944,000 (2000: 1,063,944,000) shares in issue during the year.

Operating results

In 2001, the total domestic production volume of steel increased rapidly, in addition, the import of steel increased significantly and the export of steel decreased sharply. The level of consumption of steel continued to decrease and the steel prices were falling month by month since May, as a result, competition in steel market was more severe than 2000. In view of the fierce competition in the steel market, the Group strived to strengthen marketing force; to reinforce internal management; to enhance product mix; to improve various technical and economic targets; to put efforts in reducing production costs; and to maximise effectively the utilisation of production capacity. The Group was therefore able to maintain stable development in production and operation and achieved the profit target of Rmb207,271,000.

1. Adjusting marketing strategies to strengthen sales

In line with the changes in the market conditions, the Group continued to consolidate and expand the markets in the East, Middle South, Northeast and Northwest regions. The Group also strived to expand the market in the Southwest region. The Group strictly applied the policies on maintaining the prices, increasing the sales and speeding up the debt collection. As a result, the sales volume of steel increased significantly. During the year, the Group sold 1,508,000 tonnes of steel, representing an increase of 5.90% as compared with 2000. The ratio of debt collection to sales was 103.59%, representing an increase of percent 2.58 as compared with the previous year.

1. Well organised production schedules to maintain stable growth in production volume

During the year, the Group strictly organised production schedules based on market demand, strengthened the production management with focus on fulfilling sales orders on hand, implemented the principle of best quality and strengthened the maintenance of equipment. Accordingly, the Group was able to achieve new records in the production targets and approached towards new stage of development.

During the year, the Group produced 1,068,700 tonnes of coking coal, 1,595,600 tonnes of pig iron, 1,719,800 tonnes of steel and 1,524,800 tonnes of steel products, representing an increase of 2.39%, 4.53%, 6.29% and 8.88% respectively as compared with 2000. In accordance with the customers' demand in specialised products, the Group increased the production of products with better quality and higher profit margin. During the year, the production volume of high quality steel represented more than 70% of the total production volume.

1. Dynamic cost control to reduce cost and enhance effectiveness

The Group further refined the system of analysing production cost targets; strengthened cost forecast and analysis; and implemented dynamic control over production costs. The Group controlled the costs from the beginning of the purchasing cycle by applying the tendering system for purchases of raw and ancillary materials, equipment and other spare parts; and effective monitoring controls throughout the whole process to ensure the reduction of purchasing costs. In addition, the Group implemented the balanced supply of goods and appropriate level of inventories to reduce the amount of working capital employed. The Group focused on costs control in every stage of production and tackled the technical bottlenecks in key production processes and major segments. During the year, there was obvious improvement in major technical and economic targets as compared with 2000, of which 27 items surpassed historical high records. As compared with previous year, the aggregate energy consumption rate of steel was reduced by 27kg per tonne of standard coal; the ratio of blast-furnace composite coking was reduced by 19kg per tonne; the consumption rate for steel and iron materials was reduced by 2kg per tonne; the utilisation rate of high-furnace was increased by 0.162 tonne for each cubic meter per day (representing an increase of 9.13% as compared with previous year).

1. Strengthening quality control and enhancing product quality

The Group strictly implemented the "Law of Product Quality" and complied with the system of ISO9002 quality standards. All quality targets in the quality control plan for the year were achieved, of which 23 items achieved or surpassed historical records. The quality of major products was stabilised and improved. The pass rates of coking coal, pig iron, steel and steel products were 100%, 99.99%, 99.77% and 99.36% respectively, representing an increase of 0.50%, 0.29%, 0.17% and respectively as compared with 2000. On the basis of maintaining the reputation and brand name of existing product quality, steel plates for shipbuilding was awarded the "for Customers Nationwide" again and steel plates for welding gas bottle was awarded "Golden Cup Award For Metallurgical Product Tangible Quality".

1. Adjusting product mix and developing products with high quality and profit margin

The Group continued to adopt "micro-alloyed", "product series" and "high value-added" as its products development principles. During the year, the Group successfully developed 10 new products and achieved 200% of the new product development target. The Group carried out trial production of 132,800 tonnes specialised products with higher returns but required sophisticated technology. During the year, the Group also achieved 189.71% of the total target volume for trial production of new products, representing an increase of 32,800 tonnes as compared with the previous year.

1. Speeding up development of new technology and strengthening of technological renovation and policies

In 2001, the Group strengthened technological renovation works. The Group arranged 11 technological renovation projects with the aim of adjusting product mix, increasing production capacity, improving the mix of furnace materials, enhancing product quality, reducing energy and material consumption, improving the environment and solving the pollution problem. The projects of spherical project, Jinxing dolomite mining project, expansion project for increasing production volume of 1# steel plate slab casting machines, blast furnace coal blower, coking coal gas desulphurisation and decynanidisation, middle plate plant 9-11 roller straight machine regional renovation project were completed and commenced operation during the year. Constructions in progress included 3#, 4# blast furnace purified recycled water, 2# electrical transformer renovation, 1# moulding machine production capacity (900,000 tonnes) expansion renovation, and the preparatory works for high-speed wire rods plant finished goods warehouse extension project and spherical minerals polishing system expansion project. In addition, the Group also carried out 47 technological renovation and equipment upgrading projects, of which 33 projects were completed and commenced operation.

Business Prospect

In 2002, the State will continue to implement the policy of increasing domestic demand, maintaining the trend of stable national economic growth. Furthermore, the State will expedite the economic development of the western region. These will lead to the growth in demand for steel products. The Group will benefit from the opportunities arising from the speedy construction of infrastructure of the Northwestern region. However, after the PRC's accession to the WTO, a more severe market competition is anticipated due to the increasing impacts from the international import and export market, as well as the continuous growth in the total supply of the domestic steel market. In response to the situation, the Group will adopt the measures as follows:

1. Strive to manage market position

The Group will take all measures to utilise the regional competitive advantages and seize the opportunities of developing the Western regions in order to penetrate into the market in the Southwest region. The Group will increase the production and sale of steel with high quality and profit margin in accordance with customers' demand. The Group will further strengthen market research and strive to develop new products with good market potential and high profit margin. The Group will continue to improve the sales network, enhance efficiency and service quality and endeavour to achieve a sales/production ratio of 100%.

1. Effectively utilise the production capacity

The Group will base on the foundation of iron-smelting to organise the Group's production. The Group will place emphasis on the development of new techniques and technology for coal blower to reduce the coking rate and enhance the utilisation rate of blast furnace. The Group will also place emphasis on steel smelting and steel rolling to enhance steel plate quality and increase production volume to ensure the requirements of customers are satisfied.

1. Further reduction on costs and material consumption

The Group will focus on the overall target of reducing cost for the year. The Group will implement and improve the three major components of target setting, recording and analysis, and evaluation and rewarding. The Group will strive to reduce costs by focusing in four key areas, i.e. the processes of purchasing; increasing production volume; reducing material consumption and expenditures; and achieving targets in various technical renovation, technological research, technology development policies, so that overall costs are reduced.

1. Steady enhancement of product quality

The Group will rely on development in technology to tackle the works on enhancing product quality so as to continuously enhance the market reputation and strengthen its competitiveness in the market. Based on the foundation of the Golden Cup Award For Metallurgical Product Tangible Quality and awards of products with good reputation, the Group will build a new brand product (Hot Cutting Spheric Plate) in Chongqing and endeavour to obtain the award for enterprise with good quality management in Chongqing.

1. Speed up the works in technological renovation

The Group will fully utilise the capacity of the newly constructed plant which have been completed and commenced production, and to speed up the completion of construction in progress. The proposed projects in 2002 are as follows:

Technological project Benefits after completion

2# electrical transformer Increase the supply of oxygen and fully utilise

steel refining potential and increase the production

capacity of steel

High-speed wire rods plant Resolve storage problem of high-speed

warehouse wire rods in order to cater for the increasing

market demand for wire rods

1# moulding machine production Increase the production capacity of

capacity expansion billets in order to cater for the market demand for

steel section products

Coking plant waste Control release of toxic materials and

water treatment further improve the environment

Steel rods production Satisfy the demand for steel rods

line project in the development of the western region and to

further expand the market share

3#, 4# blast furnace purified To step up the safety measures of the

recycled water projects existing depository pool and to reduce energy

consumption

management discussion and analysis

Operating Results

The Group achieved steady growth in its results in 2001 amid growth in domestic production and falling prices of steel products. This year was designated as "Year of Cost Management", the Group strived to increase production and sales, to ensure full collection of sales revenues and to reduce consumption and production costs. For the year ended 31st December, 2001, the Group's turnover amounted to Rmb3,760,029,000 and profit for the year amounted to Rmb207,271,000, representing growth of 1.00% and 4.32% as respectively. Earnings per share amounted to Rmb0.195.

1. Maintaining prices while boosting sales, average steel prices increased

The steel market started to recover in March 2000, and prices recorded month-on-month increases. Prices of the Company's steel products remained stable during the five months to May 2001. The average selling price for the first half of the year was Rmb2,277 per tonne. However, steel prices slided since June 2001 and onwards, and reached Rmb2,136 per tonne by December. In view of falling prices, the Group made swift efforts to re-align its product mix and adjust its pricing strategy in a timely manner. The average selling price of the Group's steel products for the year was Rmb2,256 per tonne, representing an increase of 3.43% as compared to the previous year and contributed approximately Rmb112,800,000 in profits. The average selling prices of medium-gauge steel plates and steel sections (including spiral-grained steel) were Rmb2,441 and Rmb2,287 per tonne respectively, up by 5.90% and 4.43% respectively as compared to the previous year. The average selling price of rolled billets maintained at Rmb2,008 per tonne as compared to the previous year. Wire rods were sold at an average price of Rmb1,910, down by 1.50% as compared to previous year.

1. Exploring new markets to increase sales

The Group continued to seek breakthroughs in its marketing efforts in 2001, with particular focus on peripheral regions. New customers were secured while existing customer bases were reinforced. Strong efforts were made to ensure compliance with the requirements of the sales contracts. The Group sold a total of 1,508,000 tonnes of steel products in the year, representing a year-on-year increase of 5.90%, including 694,300 tonnes of medium-gauge steel plates, 317,900 tonnes of steel sections (including spiral-grained steel), 164,700 tonnes of wire rods and 331,100 tonnes of rolled billets. Sales of medium-gauge steel plates and rolled billets increased slightly as compared to the previous year, while sales of steel sections and wire rods grew by 15.85% and 27.28% respectively. The Group did not market any continuous casting billets or export any steel products (billets) in 2001, while 145,000 tonnes of continuous casting billets were sold and 160,000 tonnes of steel products (billets) were exported in 2000.

1. Increased production with lower consumption and product costs

The Group considers that cost control is the key to maintain its competitiveness, and continued to strengthen its internal management and procure cost reductions during the year. Despite the overhaul of Blast Furnace 5# and Sintering Unit 3# together with the maintenance works of their auxiliary units, the Group achieved steady growth in its production. The production volumes of coking coal, pig iron, steel and steel products achieved historical high records of 1,068,700 tonnes, 1,595,600 tonnes, 1,719,800 tonnes and 1,524,800 tonnes respectively, marking year-on-year increases of 2.39%, 4.53%, 6.29% and 8.88% respectively. Fixed costs were reduced by Rmb38,000,000. Major consumption indicators were lowered to achieve cost reductions of approximately Rmb24,600,000, through technological breakthroughs. The aggregate energy consumption rate per tonne was 866 kg of standard coal, a 3% reduction as compared to the previous year. The consolidated output ratio was 90.50%, representing a year-on-year increase of 0.50%. Through the tendering system on purchases and optimized transportation arrangements, the procurement costs for major raw materials and auxiliary materials were reduced by approximately Rmb12,300,000.

1. Increase in certain expenditures owing to external factors

The Group incurred repairs and maintenance costs of approximately Rmb246,657,000 in 2001 for the overhaul of Blast Furnace 5# and Sintering Unit 3# together with the maintenance of their auxiliary units, which was approximately Rmb39,217,000 more as compared to the previous year.

The Group implemented a remunerations system in 2001 that linked to working efficiency. As a result of improved performance, expenditure relating to wages and bonuses increased by approximately Rmb65,378,000 as compared to previous year.

The Group also processed 140,000 tonnes of melted steel using the LF furnace in 2001 with a view to enhance steel quality, resulting in additional costs of approximately Rmb18,200,000. Additional costs of approximately Rmb17,000,000 was incurred in relation to the spherical ore plant, which commenced operation in May, as it was not yet at full operating capacity and affected by changes in iron ore conditions. In addition, expenses of approximately Rmb20,200,000 were incurred in relation to the disposal of obsolete spare parts.

In 2001, provisions have been made in respect of impairment of fixed assets and doubtful debts amounted to approximately Rmb39,671,000 and Rmb32,290,000 respectively, resulting in the increase of other operating expenses and administrative expenses by Rmb28,260,000 and Rmb34,419,000 respectively.

Financial Position

The Group further enhanced its cash management in 2001, which is evidenced by the increased collection of receivables, improved cashflow, a lower gearing ratio and normalised payment schedules. A sound financial position was maintained.

1. At 31st December 2001, the Group's total assets amounted to Rmb4,306,474,000. The Group's gearing ratio (total liabilities / total assets X 100%) was 48.73%, 1.67% lower as compared to the previous year; and the liquidity ratio (current assets / current liabilities X 100%) was 87.72%, 20.14% lower as compared to the previous year. This was mainly due to the increase in short-term bank loans, for which the bankers had agreed to extend upon maturity.

2. At 31st December 2001, the Group's cash and bank balances amounted to Rmb319,374,000, reflecting a reduction of Rmb12,915,000 as compared to the previous year. This was the net result of a net cash inflow from operating activities amounting to Rmb633,236,000, interest and dividend payments amounting to Rmb101,031,000, expenditure for investment in fixed assets amounting to Rmb495,381,000 and repayment of amounts owed to the parent company amounting to Rmb49,139,000.

3. At 31st December 2001, the Group's bank loans amounted to Rmb1,004,200,000, a net increase of Rmb17,000,000 as compared to the previous year. This included long-term borrowings due after 1 year amounting to Rmb363,000,000, long-term borrowings due within 1 year amounting to Rmb75,000,000 and short-term borrowings amounting to Rmb566,200,000.

4. At 31st December 2001, the carrying amount of the Group's inventories amounted to Rmb739,677,000, a net increase of Rmb74,856,000 as compared to the previous year. This included an increase of approximately Rmb22,627,000 in raw materials as a result of purchase of additional iron ores, an increase of approximately Rmb38,495,000 in works-in-progress as a result of purchase of steel billets and an increase of approximately Rmb21,941,000 in finished goods as a result of additional production of steel products.

5. The Group's revenue collection rate in 2001 was 103.59%, As such, the net realisable value of the Group's trade and other receivables amounted to Rmb425,646,000, representing a net decrease of Rmb161,509,000 as compared to the previous year. Trade receivables decreased by Rmb109,373,000, amounts receivable from fellow subsidiaries decreased by Rmb14,285,000 and prepayments decreased by Rmb 29,689,000. The Group continued to require payments prior to the delivery of goods. Payments were mainly through bank acceptance notes.

6. The Group's capital expenditure in 2001 amounted to Rmb425,328,000. This included approximately Rmb64,220,000 for the blast furnace coal blower project, approximately Rmb86,780,000 for the spherical furnace, approximately Rmb49,170,000 for the desulfirization and dehydrogenation of coking coal, approximately Rmb20,420,000 for the modification of the 11-roll straightener, approximately Rmb15,750,000 for the Jingxi Dolomite Mine, and approximately Rmb10,590,000 for the Dabaopo Mine. At 31st December 2001, approximately Rmb292,841,000 was reclassified to fixed assets following the completion of the spherical furnace, Jingxi Dolomite Mine and Dabaopo Mine projects.

Pledge of Assets and Contingent Liabilities

The Group has pledged certain of its fixed assets as security for bank loans. As at 31st December 2001, the net book value of the Group's pledged fixed assets amounted to Rmb321,689,000 (2000: Rmb203,232,000).

As at 31st December 2001, the Group had no contingent liabilities (2000: nil).

Foreign Exchange Risk

During the year, the Group had no foreign currency borrowings or deposits. Accordingly, there was no foreign exchange risk for the Group (2000: nil).

Designated Deposits and Overdue Time Deposits

During the Year, the Group had not placed any designated deposits with any financial institutions in the PRC, nor had it failed to collect any time deposits upon maturity during the year.

Material Litigation

During the year, the Company had not involved in any significant litigation or arbitration.

Significant Events

1. At 18:20 on 31st March 2001, the first trial run of two vertical furnaces of the Company's spherical minerals technological renovation project was successful. This represented the completion of the major construction works for spherical minerals project.

2. The first and second meetings of the Company's first Audit Committee were held on 9th April 2001 and 29th August 2001 respectively. Mr Chiu Chi Cheong, Clifton, acted as the chairman of the meetings. The Company's directors, supervisors, chief accountant, deputy general managers and external auditors had attended the meetings. The Company's 2000 annual results and 2001 interim results were reviewed and recommendations submitted to the Board of Directors on certain issues.

3. On 7th June 2001, the Company's 2000 annual general meeting was held.

4. On 25th August 2001, the No. 1 rolling furnace of the Group's steel-smelting plant exceeded the furnace age of 10,000 times, becoming an enterprise with advanced target of furnace age for rolling furnace in the industry nationwide.

5. On 19th November 2001, the Company's Board of Directors approved by written resolutions the investment of Rmb14,750,000 and Rmb16,114,700 in respect of the line extension renovation project (increasing from 4 lines to 5 lines) of continuous casting machine for steel plates slab of 1# steel-smelting plant and the electricity supply renovation project of the electrical transformer of 2# power plant. The completion of these projects will enhance product quality and production volume; and thus, reduce production costs and improve the competitiveness of the Group's products.

6. At 11:30 a.m. on 28th November 2001, the Company's 3# and 4# blast furnace coal blowers successfully commenced operation.

7. On 11th December 2001, the "E" Graded series ( E, E32, E36) of the product for shipbuilding plates produced by the Company's middle plates plant were also accredited by Det Norske Veritas (DNV). The success in the development of "E" Graded series of shipbuilding plates filled in the gap of the Company's production of high-ended shipbuilding plates products.

8. On 15th December 2001, the Company's coking coal gas desulphurisation and decynanidisation project was smoothly completed and commenced production after renovation works for more than one year. The renovation project will reduce the content of sulphur in coking coal gas during the process of smelting and coking. The purified gas can be reused for energy generation. This project has prominent impacts on social benefits, economic effectiveness and environmental protection.

9. On 6th January 2002, the trial run of heat co-generation for the Company's middle plate plant 9-11 roller straight machine renovation project was successful and commenced production. The renovation project will increase the width of steel plates, strengthen the competitiveness in the market and increase the production volume.

10. At 14:35 on 20th January 2002, the greatest repairs and maintenance project in the history of the Company, the repairs and maintenance works of No 5 blast furnace of steel-smelting plant was completed, which was 2 days 17 hours and 25 minutes earlier than the planned completion date.

11. On 29th January 2002, the Company's Board of Directors approved the written proposals of "2002 production and operation plan" and the "2002 staff wages plan" and clearly laid down the Company's production and operation target for 2002 and the staff remunerations policy.

Human Resources and Staff Remunerations

To adjust and optimise the human resource structure and enhance productivity, the Group has rationalised the human resource structure and reduced the number of staff by 930. As at 31st December 2001, the Group had 12,431 employees, including 10,637 production operators, 974 technical staff and 820 management staff.

The Group's remunerations system is linked to working efficiency. The staff remunerations were based on the evaluation and appraisal of the job responsibilities, technical skill requirements, work load, working environment and contributions. During the year, the staff cost of the Group amounted to Rmb267,961,000.

The Group's most valuable assets are its highly-skilled staff. The Group always place emphasis on staff training and their knowledge upgrading. During the year the Group had trained 8,137 staff, representing 63.70% of total staff. In 2002, the Group will strive to place emphasis on the development of human resources, focus on development of new technology, provide priority in training for well-performing staff, put more resources in training key staff and speed up training to solve the problem of staff shortage. In addition, the Group will provide training to various types of staff in different areas such as technical skills, operation management and production operation in order to improve the staff mix and enhance human resources in all aspects. The Group plans to provide training to 50% of the production operators in the coming year. The Group will also provide training to 50% of technical staff and 40% management staff to improve their quality.

ANNUAL GENERAL MEETING

The 2001 Annual General Meeting of the Company is scheduled to be held on 3rd June 2002.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from 6th May 2002 to 3rd June 2002 (both days inclusive). The shareholders whose names appear on the register of members before the closing of 3rd May 2002 are entitled to attend the 2001 Annual General Meeting.

Publication of annual report on the stock exchange'S Website

The Annual Report of the Company containing all the information required by paragraphs 45(1) to 45(3) of Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited will be published on the website of the Stock Exchange in due course.

By Order of the Board

Tang Min Wei

Chairman

Chongqing, PRC

9th Apirl 2002

Notice of 2001 annual general meeting

NOTICE IS HEREBY GIVEN that the 2001 Annual General Meeting of Chongqing Iron & Steel Company Limited (the "Company") will be held at the 4th Conference Hall of the Company on Thursday, 3rd June 2002 at 10:00 a.m. for the following purposes:

1. to review and approve the report of the Board of Directors for the year 2001;

2. to review and approve the report of the Supervisory Committee for the year 2001;

3. to review and approve the audited accounts and the auditors' report for the year 2001;

4. to review and approve the profit distribution proposal for the year 2001;

5. to reappoint Messrs. PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian Certified Public Accountants as the international auditors and the PRC auditors of the Company respectively, and authorise the Board of Directors of the Company to fix their remuneration.

By order of the Board

You Xiao An

Secretary to the Board of Directors

9th April 2002

Notes:

I. Eligibility for attending the Annual General Meeting

Shareholders whose names appear on the register of members of the Company at the close of business on 3rd May 2002 are entitled to attend the Annual General Meeting upon completion of the necessary registration procedures.

II. Registration procedures for attending the Annual General Meeting

1. Shareholders intending to attend the Annual General Meeting are required to deposit the written reply slip with the Company by 4:00p.m. on 13th May 2002.

2. Register of members of the Company will be closed from 6th May 2002 to 3rd June 2002 (both days inclusive) during which no transfer of shares will be effected. Holders of H Shares of the Company intending to attend the Annual General Meeting are required to lodge their respective instrument of transfer and the relevant share certificates to HKSCC Registrars Limited ("HKSCC"), the Registrars of the Company, by 4:00 p.m. on 3rd May 2002.

III. Proxies

1. Any shareholders entitled to attend the Annual General Meeting are entitled to appoint one or more proxies (whether he is a shareholder or not) to attend and vote at the meeting on his behalf. Each shareholder (or his proxy) shall have one vote for each share held.

2. To be valid, shareholders appointing a proxy must be made in writing under the hand of the appointee or his attorney duly authorised in writing. If the form of proxy is signed by the attorney on behalf of the appointee, the power of attorney or other authority must be notarized. The notarized power of attorney or other authority must be lodged with the HKSCC no less than 24 hours before the time appointed for the holding of the Annual General Meeting (or appointed for voting).

3. For the shareholders appointing more than one proxy, the voting right can only be exercised when a poll is taken.

IV. Miscellaneous

1. Shareholders attending the Annual General Meeting shall be responsible for their own travel and accommodation expenses.

2. Information may be despatched by hand, post or facsimile.

3. Address of the HKSCC Registrars Limited is as follows:

2/F, Vicwood Plaza, 199 Des Voeux Road Central,Hong Kong

Office of the Board Secretary of Chongqing Iron & Steel Company Limited

Address: No. 30, Gangtie Road, Dadukou District, Chongqing

Postal Code: 400084

Tel: 8623-68842582/68845030

Fax: 8623-68849520/68846070

Please also refer to the published version of this announcement in Hong Kong iMail / Wen Wei Po.