ZTE Corporation - Proxy Solicitation & Information Statement 2009

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold all your shares in ZTE Corporation, you should hand this circular together with the enclosed form of proxy to the purchaser or the transferee or to the bank, licensed securities dealers or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

ZTE CORPORATION 中興通訊股份有限公司

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

(Stock Code: 763)

PROPOSED BONUS SHARES ISSUE

BY CONVERSION OF CAPITAL RESERVE AND DIVIDENDS AND PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION PROPOSED AMENDMENTS TO THE RULES OF GENERAL MEETINGS

A letter from the Board is set out on pages 5 to 20 of this circular.

A notice convening the AGM to be held at 4/F, A Wing, ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, Guangdong Province, the People’s Republic of China at 9: 00 a.m. on Tuesday, 19 May 2009 is enclosed with this circular.

A notice convening the H Shareholders Class Meeting to be held at 4/F, A Wing, ZTE Plaza, Keji Road South, HiTech Industrial Park, Nanshan District, Shenzhen, Guangdong Province, the People’s Republic of China at 11: 00 a.m. (or immediately after the conclusion or adjournment of the AGM and the A Shareholders Class Meeting) on Tuesday, 19 May 2009 is enclosed with this circular.

Forms of proxy for use at the respective AGM and the H Shareholders Class Meeting are enclosed with this circular. Whether or not you are able to attend the meeting, please complete and return the enclosed forms of proxy in accordance with the instructions printed thereon as soon as practicable and in any event not less than 24 hours before the time appointed for holding the meeting or any adjourned meeting thereof. Completion and return of the forms of proxy will not preclude you from attending and voting at the meetings or any adjournment thereof should you so wish.

Reply slips for use at the respective AGM and the H Shareholders Class Meeting are enclosed with this circular. Any H Shareholder intending to attend the AGM and the H Shareholder Class Meeting shall deliver the respective reply slip to the Company by courier, registered mail or fax on or before Wednesday, 29 April 2009.

The Company is incorporated, and its businesses are located, in the PRC. Potential investors in the Company should be aware of the differences in the legal, economic, and financial systems between the mainland of the PRC and Hong Kong and that there are different risk factors relating to making an investment in PRC-incorporated companies. Potential investors should also be aware that the regulatory framework in the PRC is different from the regulatory framework in Hong Kong and should take into consideration the different market nature of the Shares of the Company. Such differences and risk factors are set out in the sections entitled ‘‘Appendix II — Risk Factors’’, ‘‘Appendix III — Summary of Principal PRC Legal and Regulatory Provisions’’ and ‘‘Appendix IV — Summary of Articles of Association’’.

H Shareholders should note existing H Shares are expected to be dealt in on an ex-entitlements basis from Thursday, 16 April 2009. The Bonus Shares Issue is conditional upon the fulfillment of the conditions set out under the paragraph headed ‘‘Conditions of the Proposed Bonus Shares Issue’’ in this circular. If the conditions of the Bonus Shares Issue are not fulfilled, the Bonus Shares Issue will not proceed. If in any doubt, investors are recommended to consult their professional advisers.

1 April 2009

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
A. PROPOSED BONUS SHARES ISSUE AND DIVIDENDS . . . . . . . . . . . . . .	6
B. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION
AND THE RULES OF THE GENERAL MEETINGS . . . . . . . . . . . . . . . . . . .	8
C. AGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
D. H SHAREHOLDERS CLASS MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
E. RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
F. GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
APPENDIX I — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
APPENDIX II — RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
APPENDIX III — SUMMARY OF PRINCIPAL LEGAL AND
REGULATORY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
APPENDIX IV — SUMMARY OF ARTICLES OF ASSOCIATION . . . . . . . . . . . . . .	60
APPENDIX V — TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	92
APPENDIX VI — FOREIGN EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	96

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DEFINITIONS

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

‘‘A Share(s)’’ ordinary share(s) of par value of RMB1.00 each in the registered capital of the Company, which are listed and traded on the Shenzhen Stock Exchange
‘‘A Shareholder(s)’’ holder(s) of the A Share(s)
‘‘A Shareholders Class the class meeting of the A Shareholders to be held at 4/F, A Meeting’’ Wing, ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, Guangdong Province, the People’s Republic of China at 10: 00 a.m. (or immediately after the conclusion or adjournment of the AGM) on Tuesday, 19 May 2009 to consider, and if thought fit, approve, among the other things, the Bonus Shares Issue, the Dividends and the proposed amendments to the Articles of Association relating to the Bonus Shares Issue
‘‘AGM’’ the annual general meeting of the Company to be held at 4/F, A Wing, ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, Guangdong Province, the People’s Republic of China at 9: 00 a.m. on Tuesday, 19 May 2009
‘‘Articles of Association’’
the Articles of Association of ZTE Corporation
‘‘Board’’ the board of Directors
‘‘Bonus Shares Issue’’ proposed issue of a total of 402,999,093 Bonus Shares (through capitalisation of the Company’s capital reserve) on the basis of 1,343,330,310 Shares in issue as at the Latest Practicable Date, to the Shareholders whose names appear on the register of members of the Company at the close of business on the respective record date for the A Shareholders and the H Shareholders on the basis of three Bonus Shares for every 10 existing Shares held by them on such record date
‘‘Bonus Share(s)’’
new Share(s) to be issued pursuant to the Bonus Shares Issue
‘‘Bonus H Share(s)’’
new H Share(s) to be issued pursuant to the Bonus Shares Issue
‘‘CCASS’’
the Central Clearing and Settlement System established and operated by HKSCC
‘‘Company’’, ZTE Corporation, a joint stock limited company incorporated “Our Company”, on 11 November 1997 under the PRC Company Law in the PRC “we”, “us” or “our” whose shares are listed on the Hong Kong Stock Exchange and the Shenzhen Stock Exchange
‘‘Company’’,

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DEFINITIONS

‘‘Director(s)’’ the director(s) of the Company
‘‘Dividends’’ proposed final dividend of RMB3.00 for every 10 existing Shares (including tax) for 2008 on the basis of a total of 1,343,330,310 Shares in issue as at the Latest Practicable Date
‘‘Group’’ the Company and its subsidiaries
‘‘H Share(s)’’ ordinary share(s) of par value of RMB1.00 each in the registered capital of the Company, which are listed and traded on the Hong Kong Stock Exchange
‘‘H Share Record Date’’ 4: 30 p.m., 17 April 2009, the time determined by the Board for determining the H Shareholders’ entitlements to the Bonus Shares Issue and the Dividends
‘‘H Shareholder(s)’’ holder(s) of the H Shares
‘‘H Shareholders the class meeting of the H Shareholders to be held at 4/F, A Class Meeting’’ Wing, ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, Guangdong Province, the People’s Republic of China at 11: 00 a.m. (or immediately after the conclusion or adjournment of the AGM and the A Shareholders Class Meeting) on Tuesday, 19 May 2009 to consider, and if thought fit, approve, among the other things, the Bonus Shares Issue, the Dividends and the proposed amendments to the Articles of Association relating to the Bonus Shares Issue
‘‘HKSCC’’ Hong Kong Securities Clearing Company Limited
‘‘Hong Kong’’ The Hong Kong Special Administrative Region of the People’s Republic of China
‘‘Hong Kong Listing the Rules Governing the Listing of Securities on The Stock Rules’’ Exchange of Hong Kong Limited
‘‘Hong Kong Stock The Stock Exchange of Hong Kong Limited Exchange’’
‘‘Latest Practicable 25 March 2009, being the latest practicable date prior to the Date’’ printing of this circular for the purpose of ascertaining certain information for inclusion herein
‘‘PRC’’ The People’s Republic of China
‘‘PRC GAAP’’ generally accepted accounting principles in China
‘‘RMB’’ Renminbi, the lawful currency of the PRC ‘‘Rules of General the Rules of Procedures for Shareholders’ General Meetings of Meetings’’ ZTE Corporation

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DEFINITIONS

‘‘Share(s)’’ A Share(s) and H Share(s) ‘‘Shareholder(s)’’ holder(s) of the Share(s) ‘‘Shenzhen Stock The Shenzhen Stock Exchange Exchange’’ ‘‘%’’ per cent

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EXPECTED TIMETABLE

2009

Last day of dealings in the H Shares cum-entitlements to the Bonus H Shares and the Dividends . . . . . . . . . . . . . . . . Wednesday, 15 April
First day of dealings in the H Shares ex-entitlements to the Bonus H Shares and the Dividends . . . . . . . . . . . . . . . . . . Thursday, 16 April
Latest time for lodging transfers of the H Shares to qualify for entitlements to the Bonus H Shares and the Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4: 30 p.m., Friday, 17 April
H Share Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4: 30 p.m., Friday, 17 April H Shareholders’ register closed . . . . . . . . . . . . . . . . . . . . . From Saturday, 18 April to Monday, 18 May
(both days inclusive)
Latest date for lodging reply slips for the AGM and the H Shareholders Class Meeting . . . . . . . . . . . . . . . . . . . . . Wednesday, 29 April
Latest time for lodging forms of proxy for the AGM and the H Shareholders Class Meeting . . . . . . . . . . . . . . . . 9: 00 a.m., Monday, 18 May
AGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9: 00 a.m., Tuesday, 19 May H Shareholders Class Meeting . . . . . . . . . . . . . . . . . . 11: 00 a.m. (or immediately after the conclusion of the AGM and the A Shareholders Class
Meeting) Tuesday, 19 May
H Shareholders’ register re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 19 May

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LETTER FROM THE BOARD

ZTE CORPORATION 中興通訊股份有限公司

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

(Stock Code: 763)

Executive Directors: Yin Yimin Shi Lirong He Shiyou

Non-executive Directors: Hou Weigui Wang Zongyin Xie Weiliang Zhang Junchao Li Juping Dong Lianbo

Legal address ZTE Plaza Keji Road South Hi-Tech Industrial Park Nanshan District Shenzhen, 518057 The Peoples’ Republic of China

Place of business in Hong Kong 8/F Gloucester Tower The Landmark 15 Queen’s Road Central Hong Kong

Independent Non-executive Directors: Zhu Wuxiang Chen Shaohua Qiao Wenjun Mi Zhengkun Li Jin

1 April 2009

To the Shareholders

Dear Sirs or Madam,

PROPOSED BONUS SHARES ISSUE

BY CONVERSION OF CAPITAL RESERVE AND DIVIDENDS AND PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION PROPOSED AMENDMENTS TO THE RULES OF GENERAL MEETINGS

BACKGROUND

It was announced on 19 March 2009 in conjunction with the announcement of the Company’s results for the year ended 31 December 2008 that, in addition to the recommendation of the Dividends (i.e., a final dividend of RMB3.00 per every 10 existing Shares (including tax)), a Bonus Shares Issue would be proposed to the

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LETTER FROM THE BOARD

Shareholders, whose names appear on the register of holders of H Shares or the register of holders of A Shares on the respective record dates for the A Shareholders and the H Shareholders. The Board further proposed to amend the Articles of Association and the Rules of General Meetings to reflect the changes in (i) the total issued shares and the registered capital of the Company as the result of the Bonus Shares Issue; (ii) the Hong Kong Listing Rules which came into effect on 1 January 2009; and (iii) the regulations issued by China Securities Regulatory Commission in relation to distribution of cash dividends which came into effect on 9 October 2008. The aforesaid proposals are subject to the conditions set out in this circular.

The purpose of this circular is to provide you with further details of the proposed Bonus Shares Issue and Dividends and the proposed amendments to the Articles of Association and the Rules of General Meetings, and to seek your approval at the AGM in respect of such matters.

A. PROPOSED BONUS SHARES ISSUE AND DIVIDENDS

As at 31 December 2008, the Company’s capital reserve under the PRC GAAP was RMB6,298,172,000. A special resolution will be proposed at the AGM to consider and, if thought fit, approve (i) the declaration and payment of the Dividends; and (ii) subject to fulfillment of conditions set out in the section headed ‘‘Conditions of the Proposed Bonus Shares Issue’’ below, the Bonus Shares Issue will be made on the basis of three Bonus Shares (through capitalization of the capital reserve of the Company), credited as fully paid, for every 10 existing Shares held by the Shareholders whose names appear on the register of members of the Company at the close of business on the respective record dates for the A Shareholders and the H Shareholders. A special resolution will also be proposed to each of the A Shareholders Class Meeting and the H Shareholders Class Meeting to consider and, if thought fit, approve (i) the declaration and payment of the Dividends; and (ii) the Bonus Shares Issue subject to fulfillment of conditions set out in the section headed ‘‘Conditions of the Bonus Shares Issue’’ below.

Based on a total of 1,343,330,310 Shares (comprising a total of 224,211,456 H Shares and a total of 1,119,118,854 A Shares) in issue as at Latest Practicable Date and on the assumption that no new Shares will be allotted or issued prior to the H Share Record Date, (i) the Dividends in the total amount of RMB402,999,000, namely, RMB3.00 for every 10 existing Shares (including tax), will be paid to, and (ii) subject to the fulfillment of the conditions set out in the section headed ‘‘Conditions of the Proposed Bonus Shares Issue’’ below, a total of 402,999,093 Bonus H Shares will be issued to, the H Shareholders whose names appear on the H Shareholders’ register at the close of business on the H Share Record Date.

Conditions of the Proposed Bonus Shares Issue

The proposed Bonus Shares Issue is conditional, among the other things, upon:

(i) the passing of the special resolution to approve the Bonus Shares Issue and the Dividends by the Shareholders at the AGM;

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LETTER FROM THE BOARD

(ii) the passing of a special resolution to approve the Bonus Shares Issue and the Dividends by the A Shareholders and the H Shareholders at the respective A Shareholders Class Meeting and the H Shareholders Class Meeting; and
(iii) the Listing Committee of the Hong Kong Stock Exchange granting listing of, and permission to deal in, the Bonus H Shares.

Rights of Overseas H Shareholders

If at any time before the H Share Record Date, the registered address of any of the H Shareholders as shown on the register of members of the Company is in a territory other than Hong Kong, the Directors will, in compliance with Rule 13.36(2)(a) of the Hong Kong Listing Rules, seek legal advice as to whether or not it would be or might be unlawful or impracticable to offer the Bonus H Shares in such places. Subject to the legal advice, the Directors will exclude the overseas H Shareholders from the Bonus Shares Issue only if they consider that it is necessary or expedient not to offer the Bonus H Shares to the overseas H Shareholders on account either of the legal restrictions under the laws of the place of his/her registered address or the requirements of the relevant regulatory body or stock exchange in that place and such shares will be aggregated and sold for the benefit of the Company except when proceeds from such share sales amounted to HK$100 or more for any single H Shareholder, such proceeds will be distributed to the H Shareholders concerned.

Based on the register of members of the Company as at the Latest Practicable Date, there was no H Shareholder who is a resident in a place outside Hong Kong.

Warning of Risks of Dealing in the H Shares

H Shareholders should note that the existing H Shares are expected to be dealt in on an ex-entitlements basis from Thursday, 16 April 2009. If the conditions of the Bonus Shares Issue (as set out above under the paragraph headed ‘‘Conditions of the Proposed Bonus Shares Issue’’) are not fulfilled, the Bonus Shares Issue will not proceed. If in any doubt, investors are recommended to consult their professional advisers.

Reasons for the Proposed Bonus Shares Issue

The Board believes that the proposed Bonus Shares Issue will allow the Shareholders to participate in the growth of the Company by way of capitalisation of the reserve fund. In addition, it will provide the Company with a wider capital base and therefore increase the marketability of the Shares.

Ranking of the Bonus Shares and Fractional Entitlements

The Bonus Shares shall rank pari passu in all respects with the existing Shares, save and except for that holders of the Bonus Shares will not be entitled to the Bonus Shares Issue. Fractional entitlement shall be dealt with in accordance with the relevant rules of the stock Exchange(s) and the clearing house(s) of the place where the Shares are listed.

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LETTER FROM THE BOARD

Listing and Dealings

The H Shares are listed on the Hong Kong Stock Exchange whereas the A Shares are listed on the Shenzhen Stock Exchange. Application will be made to the Listing Committee of the Hong Kong Stock Exchange for listing of, and permission to deal in, the Bonus H Shares. Subject to the satisfaction of the conditions as set out in this circular (including but not limited to the granting of the aforesaid approval by the Hong Kong Stock Exchange), the Bonus H Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS. All necessary arrangements will be made for the Bonus H Shares to be admitted into CCASS. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. The Bonus Shares to be allotted and issued to the A Shareholders pursuant to the Bonus Shares Issue will be listed on the Shenzhen Stock Exchange.

Subject to the proposed Bonus Shares Issue becoming unconditional, the certificates for the Bonus H Shares and the cheque for the Dividends will be delivered by ordinary post to the H Shareholders who are entitled thereto at their own risk. In case of a joint shareholding, the certificate(s) of the Bonus H Shares will be posted to the first named person on the H Shareholder’s register in respect of such joint shareholding. The Company will issue a separate announcement regarding the date of delivery of the certificates for the Bonus H Shares and the date of the commencement of dealings in the Bonus H Shares.

B. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND THE RULES OF THE GENERAL MEETINGS

Proposed Amendments to Articles 24 and 27 under Chapter 3 of the Articles Association

(1) Article 24

The original article which reads: Upon its incorporation, the Company shall have 1,343,330,310 ordinary shares in issue, comprising 224,211,456 H shares (representing 16.7% of the Company’s issuable ordinary shares) and 1,119,118,854 domestic shares (representing 83.3% of the Company’s issuable ordinary shares).

Is amended to read: Upon its incorporation, the Company shall have 1,746,329,403 ordinary shares in issue, comprising 291,474,893 H shares (representing 16.7% of the Company’s issuable ordinary shares) and 1,454,854,510 domestic shares (representing 83.3% of the Company’s issuable ordinary shares).

(2) Article 27

The original article which reads: The registered capital of the Company shall be RMB1,343,330,310.

Is amended to read: The registered capital of the Company shall be RMB1,746,329,403.

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LETTER FROM THE BOARD

Note: The Board of Directors has submitted a proposed resolution to the AGM for an authorization to amend the relevant articles in the Articles of Association based on the result of the Bonus Shares Issue to reflect the increase in the registered capital and the new capital structure of the Company upon the completion of the Bonus Shares Issue, and to deal with the filings of the changes in the registered share capital of the Company with the relevant administrative authorities for industry and commerce.

Proposed Amendments to Articles 83, 87, 116, 119, 225, 247, 275, 276 and 277 of the Articles of Association

(1) Article 83

In accordance with the requirements of the Listing Rules, the delivery of notices of general meetings, circulars to shareholders and relevant documents to holders of overseas-listed foreign shares may also be conducted by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules. The Listing Rules have also provided for the rights of and the procedures for holders of overseas-listed foreign shares to elect the language in which they would receive such documents. As such, Article 83 is proposed to be amended accordingly.

The original article which reads: Notices of general meetings shall be delivered to shareholders (whether or not entitled to vote at the general meetings) by courier or by prepaid mail sent to their respective addresses as recorded in the shareholders’ register. Notices of general meetings for domestic shareholders may also be delivered by way of announcements.

The announcements referred to in the foregoing paragraph shall be published in on or several approved newspapers designated by the securities regulatory authorities under the State Council during the period which is 45-50 days prior to the meeting. All domestic shareholders shall be deemed to have received the relevant notices of general meetings once such announcements have been published.

It is proposed that such entry be amended to read: Notices of general meetings and relevant documents shall be delivered to shareholders (whether or not entitled to vote at the general meetings) in person or by prepaid mail sent to their respective addresses as recorded in the shareholders’ register. Notices of general meetings, circulars to shareholders and relevant documents for domestic shareholders may also be delivered by way of announcements. The delivery of notices of general meetings, circulars to shareholders and relevant documents to holders of overseas-listed foreign shares may be conducted by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules.

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LETTER FROM THE BOARD

the meeting. All domestic shareholders shall be deemed to have received the relevant notices of general meetings once such announcements have been published.

Where notices of general meetings and relevant documents are delivered by the Company to holders of overseas-listed foreign shares, such notices of general meetings and relevant documents may be delivered in either the English or Chinese version in accordance with the requirements and procedures set out in the Listing Rules.

(2) Article 87

In accordance with the requirements of the Listing Rules, voting at general meetings must be decided by a poll. As such, Article 87 is proposed to be amended accordingly.

The original article which reads: Any shareholder who is entitled to attend and vote at a general meeting shall be entitled to appoint one or more persons as his proxies (whether such person is a shareholder or not) to attend and vote on his behalf. A proxy so appointed shall be entitled to exercise the following rights pursuant to the authorisation from that shareholder:

(i) the shareholder’s right to speak at the general meeting;
(ii) the right to demand or join in demanding a poll; and
(iii) the right to vote by a show of hands or on a poll, but if more than one proxy have been appointed, such proxies may only vote on a poll.

If the shareholder is a recognised clearing house (the ‘‘Recognised Clearing House’’) (or its agent) as defined under the laws of Hong Kong, such shareholder is entitled to authorise one or more persons as it deems appropriate as it proxies to attend on his behalf any general meeting or any class meeting provided that, if more than one person are so authorised, the letter of authorisation shall specify the number and class of shares of each of such persons in connection with such authorisation. Such persons can exercise the right on behalf of the Recognised Clearing House (or its agent) as if he were an individual shareholder of the Company.

It is proposed that such entry be amended to read: Any shareholder who is entitled to attend and vote at a general meeting shall be entitled to appoint one or more persons as his proxies (whether such person is a shareholder or not) to attend and vote on his behalf. A proxy so appointed shall be entitled to exercise the following rights pursuant to the authorisation from that shareholder:

(i) the shareholder’s right to speak at the general meeting; and
(ii) the right to vote.

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LETTER FROM THE BOARD

(3) Article 116

In accordance with the requirements of the Listing Rules, voting at general meetings must be decided by a poll. As such, Article 116 is proposed to be amended accordingly.

The original article which reads: Voting at general meetings shall be decided on a show of hands unless a poll is otherwise required under the Listing Rules or the Articles or a poll is demanded before the show of hands by the following persons, in which case the vote shall decided by a poll:

(i) the chairman of the meeting;
(ii) at least two shareholders entitled to vote present in person or by proxy; or
(iii) any shareholder or shareholders (including proxies) representing individually or in aggregate more than one tenth of the total voting rights at the meeting.

Unless a poll be required under the Listing Rules or the Articles or so demanded, a declaration by the chairman that a resolution has on a show of hands been carried and an entry to that effect in the minutes of the meeting shall be conclusive evidence of the fact without requiring proof of the number or proportion of the votes recorded in favour of or against such resolution.

The demand for a poll may be withdrawn by the person who makes such demand.

It is proposed that such entry be amended to read: Voting at general meetings must be decided by a poll. The Company shall announce the results of the poll in accordance with relevant laws and regulations and the Listing Rules.

(4) Article 119

In accordance with the requirements of the Listing Rules, voting at general meetings must be decided by a poll. As such, Article 119 is proposed to be amended accordingly.

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LETTER FROM THE BOARD

The original article which reads: In case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting shall have a casting vote.

Is amended to read: In case of an equality of votes, the chairman of the meeting shall have a casting vote.

(5) Article 225

In accordance with the requirements of the Listing Rules, the delivery by the Company of notices, circulars, relevant documents and written statements to holders of overseas-listed foreign shares may also be conducted by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules. As such, Article 225 is proposed to be amended accordingly.

The original article which reads: The Company’s financial statements shall be made available for inspection by the shareholders of the Company twenty days before the date of every annual general meeting. Each shareholder shall be entitled to a copy of the financial reports referred to in this Chapter.

The Company shall deliver or send by prepaid mail to each holder of overseas-listed foreign shares: (i) the directors’ report, balance sheet (including various documents as required to be attached by law) and a profit and loss statement or the income and expense statement; or (ii) the summary financial report prepared in accordance with the relevant laws not later than twenty one days before the date of the general meeting of shareholders at the recorded registered in the register of members.

It is proposed that such entry be amended to read: The Company’s financial statements shall be made available for inspection by the shareholders of the Company twenty days before the date of every annual general meeting. Each shareholder shall be entitled to a copy of the financial reports referred to in this Chapter.

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LETTER FROM THE BOARD

(6) Article 247

The original article which reads: Any merger or division of the Company shall be proposed by the Company’s Board of Directors and approved according to the procedures stipulated in the Articles of Association, subject to the completion of relevant approval procedures according to the law. A shareholder who objects to the plan of merger or division shall have the right to demand the Company or the shareholders who consent to the plan of merger or division to acquire such dissenting shareholders’ shareholding at a fair price. The content of the resolutions approving the Company’s merger and division shall constitute a special document, which shall be available for the shareholders’ inspection.

As to the holders of the overseas-listed foreign shares, the above-mentioned documents shall also be sent by mail.

It is proposed that such entry be amended to read: Any merger or division of the Company shall be proposed by the Company’s Board of Directors and approved according to the procedures stipulated in the Articles of Association, subject to the completion of the relevant approval procedures according to the law. A shareholder who objects to the plan of merger or division shall have the right to demand the Company or the shareholders who consent to the plan of merger or division to acquire such dissenting shareholders’ shareholding at a fair price. The content of the resolutions approving the Company’s merger and division shall constitute a special document, which shall be available for the shareholders’ inspection.

As to the holders of the overseas-listed foreign shares, the above-mentioned documents shall also be delivered by mail or by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules.

(7) Article 275

In accordance with the requirements of the Listing Rules, notices of the Company may be given by electronic mails or by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules, to the extent permitted under all the applicable laws and regulations. In addition, the Listing Rules provide for the rights of and procedures for holders of overseas-listed foreign shares to elect the language in which they would receive such documents. As such, Article 275 is proposed to be amended accordingly.

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LETTER FROM THE BOARD

The original article which reads: Notices of the Company shall be given by way of the following:

(i) by courier;
(ii) by mail;
(iii) by announcement;
(iv) other means stipulated in the Articles.

It is proposed that such entry be amended to read: Notices of the Company shall be given by way of the following:

(i) by courier;
(ii) by mail;
(iii) by announcement;
(iv) by electronic mails or by making them available on the websites designated by the Company and the relevant stock exchange(s), to the extent permitted under the laws, administrative regulations and rules of the securities regulatory authorities of the jurisdiction(s) where the shares of the Company are listed; or
(v) other means stipulated in the Articles.
(8) Article 276

In accordance with the requirements of the Listing Rules, announcements to the H Shareholders or announcements which are required to be made in Hong Kong pursuant to the Listing Rules must be published on the websites of the Company and the Hong Kong Stock Exchange in accordance with the relevant requirements of the Listing Rules. As such, Article 276 is proposed to be amended accordingly.

The original article which reads: Notices given by the Company by way of announcements shall be deemed as received by all parties concerned once published.

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LETTER FROM THE BOARD

and the Articles to be published in Hong Kong, such announcements that must be published in designated Hong Kong newspapers in accordance with the requirements of the Listing Rules.

It is proposed that such entry be amended to read: Notices given by the Company by way of announcements shall be deemed to be received by all parties concerned once published.

Unless the context otherwise requires, ‘‘announcements’’ referred to in the Articles shall mean, in relation to announcements to holders of domestics shares or announcements required by the relevant provisions and the Articles to be published in the PRC, such announcements published in PRC newspapers designated under the PRC laws and regulations or by the securities regulatory authorities under the State Council; or, in relation to announcements to shareholders of H shares or announcements required by the relevant provisions and the Articles to be published in Hong Kong, such announcements that must be published in the Company’s website, the website of the Hong Kong Stock Exchange and other websites stipulated by the Listing Rules from time to time in accordance with the requirements of the Listing Rules.

(9) Article 277

In accordance with the requirements of the Listing Rules, notices, circulars, relevant documents or written statements to be delivered by the Company to holders of overseas-listed foreign shares may be so delivered by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules. As such, Article 277 is proposed to be amended accordingly.

The original article which reads: Notices, information or written statements to be delivered by the Company to holders of overseas-listed foreign shares must be delivered by courier or by prepaid mail at the registered address of each such holder of overseas-listed foreign shares.

It is proposed that such entry be amended to read: Notices, circulars, relevant documents or written statements to be delivered by the Company to holders of overseas-listed foreign shares must be delivered by courier or by prepaid mail at the registered address of each such holder of overseas-listed foreign shares; notices, information or written statements may be delivered to such shareholders in either the English or Chinese version in accordance with the requirements and procedures set out in the Listing Rules, and may also be delivered by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules.

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LETTER FROM THE BOARD

Where notices, circulars, relevant documents or written statements are being delivered by the Company to holders of overseas-listed foreign shares, such notices of general meetings, circulars, relevant documents or written statements and relevant documents may be delivered in either the English or Chinese version in accordance with the requirements and procedures set out in the Listing Rules.

Proposed Amendments to Article 234 of the Articles of Association

Article 234

‘‘Certain Regulations on Cash Dividend’’ has provided that a listed company may conduct interim dividend distribution and has made the ‘‘accumulated distribution of profit by way of cash in the three preceding years being no less than 30% of the annual average profit available for distribution realized in the three preceding years’’ as a condition to the conduct of any refinancing exercise by the listed company in any given year. Hence Article 234 is amended accordingly.

The original article which reads: The Company may distribute dividend by way of the following:

(i) cash; and/or
(ii) shares.

Cash dividends and other amounts payable by the Company to domestic shareholders shall be payable in RMB. Cash dividends and other amounts payable by the Company to H Shareholders shall be computed and declared in RMB and payable in Hong Kong Dollars. Foreign currency requirements of the Company for the payment of cash dividend and other amounts to holders of overseas-listed foreign shares shall be procured in accordance with the relevant foreign exchange administration regulations of the State.

It is proposed that such entry be amended to read: The profit distribution policy of the Company shall be as follows:

(i) Reasonable investment returns for investors should be a key consideration in the profit distribution of the Company and continuity and stability should be maintained in its profit distribution policy;
(ii) Cash dividends and other amounts payable by the Company to domestic shareholders shall be computed, declared and payable in RMB. Cash dividends and other amounts payable by the Company to H Shareholders shall be computed and declared in RMB and payable in Hong Kong Dollars. Foreign currency requirements of the Company for the payment of cash dividends and other amounts to holders of overseas-listed foreign shares shall be procured in accordance with the relevant foreign exchange administration regulations of the State;

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LETTER FROM THE BOARD

(iii) Dividends may be distributed by the Company by way of cash and/or shares. Interim cash dividend may be distributed. Accumulated distribution of profit by way of cash by the Company in the three preceding years shall be no less than 30% of the annual average profit available for distribution realized in the three preceding years;
(iv) Where the Board of Directors of the Company has not made any proposal for cash profit distribution, the reason for the non-distribution and the use of the undistributed funds retained by the Company should be disclosed in its periodic reports, and the Independent Directors should furnish an independent opinion thereon; and
(v) Where fund appropriation by a shareholder against regulation has been identified, deductions should be made by the Company against the cash dividend which should otherwise be distributed to such shareholder in reimbursement of the funds appropriated.

Proposed Amendments to the Rules of the General Meetings

The following rules of the Rules of General Meetings are proposed to be amended according to certain proposed amendments to the Articles of Association as set out above:

Rule 9

It is proposed to be amended to read:

Notices of general meetings and relevant documents shall be delivered to shareholders (whether or not entitled to vote at the general meetings) by courier or by pre-paid mails to their respective addresses as recorded in the shareholders’ register. Notices of general meetings, circulars to shareholders and relevant documents for domestic shareholders may also be delivered by way of announcements. The delivery of notices of general meetings, circulars to shareholders and relevant documents to holders of overseas-listed foreign shares may be conducted by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules.

The announcements referred to in the foregoing paragraph shall be published in one or several approved newspapers designated by the securities regulatory authorities under the State Council during the period which is 45-50 days prior to the meeting. All domestic shareholders shall be deemed to have received the relevant notices of general meetings once such announcements have been published.

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LETTER FROM THE BOARD

Where notices of general meetings and relevant documents are being dispatched by the Company to holders of overseas-listed foreign shares, such notices of general meetings and relevant documents may be delivered in either the English or Chinese version in accordance with the requirements and procedures set out in the Listing Rules.

Rule 13

It is proposed to be amended to read:

Any shareholder who is entitled to attend and vote at a general meeting shall be entitled to appoint one or more persons as his proxies (whether such person is a shareholder or not) to attend and vote on his behalf. A proxy so appointed shall be entitled to exercise the following rights pursuant to the authorisation from that shareholder:

(1) the shareholder’s right to speak at the meeting; and
(2) the right to vote.

If the shareholder is a recognised clearing house (the ‘‘Recognised Clearing House’’) (or its agent) as defined under the laws of Hong Kong, such shareholder is entitled to authorise one or more persons as it deems appropriate as it proxies to attend on his behalf any general meeting or any class meeting provided that, if one or more persons are so authorised, the letter of authorisation shall specify the number and class of shares in connection with such authorisation. Such persons can exercise the right on behalf of the Recognised Clearing House (or its agent) as if he were an individual shareholder of the Company.

Rule 44

It is proposed to be amended to read:

Voting at general meetings must be decided by a poll. The Company shall announce the results of the poll in accordance with relevant laws and regulations and the Listing Rules.

Rule 49

It is proposed to be amended to read:

In case of an equality of votes, the chairman of the meeting shall have a casting vote.

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LETTER FROM THE BOARD

C. AGM

Notice, Proxy Form and Reply Slip

The AGM will be held at 4/F, A Wing, ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, Guangdong Province, the People’s Republic of China at 9: 00 a.m. on Tuesday, 19 May 2009, at which resolutions will be proposed to the Shareholders to consider and, if thought fit, approve, among the other things, the Bonus Shares Issue, the Dividends and the proposed amendments to the Articles of Association and the Rules of General Meetings. A notice convening the AGM is enclosed with this circular.

A proxy form for use at the AGM is also enclosed with this circular. Whether or not you are able to attend the meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as practicable and in any event not less than 24 hours before the time appointed for holding the AGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting should you so wish.

A reply slip for use at the AGM is also enclosed with this circular. Any Shareholder intending to attend the AGM shall deliver the reply slip to the Company by courier, registered mail or fax on or before Wednesday, 29 April 2009.

Closure of Share Registers

According to the Articles of the Association, the Company will close its share register from Saturday, 18 April 2009 to Monday, 18 May 2009 (both days inclusive). H Shareholders should note that during such period no share transfer will be registered.

All the H Shareholders registered on the Company’s share register maintained by Computershare Hong Kong Investor Services Limited on Friday, 17 April 2009 will be entitled to (i) attend the AGM; (ii) be allotted and issued the Bonus H Shares; and (iii) receive the Dividends. H Shareholders who wish to attend the AGM and be entitled to the Bonus Shares Issue and the Dividends must lodge the transfers of the H Shares no later than 4: 30 p.m. on Friday, 17 April 2009.

D. H SHAREHOLDERS CLASS MEETING

Notice, Proxy Form and Reply Slip

The H Shareholders Class Meeting will be held at 4/F, A Wing, ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, Guangdong Province, the People’s Republic of China at 11: 00 a.m. (or immediately after the conclusion of the AGM and the A Shareholders Class Meeting) on Tuesday, 19 May 2009, at which resolutions will be proposed to the H Shareholders to consider and, if thought fit, approve among the other things, the Bonus Shares Issue, the Dividends

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LETTER FROM THE BOARD

and the proposed amendments to the Articles of Association relating to the Bonus Shares Issue. A notice convening the H Shareholders Class Meeting is enclosed with this circular.

A proxy form for use at the H Shareholders Class Meeting is also enclosed with this circular. Whether or not you are able to attend the meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as practicable and in any event not less than 24 hours before the time appointed for holding the H Shareholders Class Meeting or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting should you so wish.

A reply slip for use at the H Shareholders Class Meeting is also enclosed with this circular. Any H Shareholder intending to attend the H Shareholders Class Meeting shall deliver the reply slip to the Company by courier, registered mail or fax on or before Wednesday, 29 April 2009.

Closure of Share Registers

All the H Shareholders registered on the Company’s share register maintained by Computershare Hong Kong Investor Services Limited on Friday, 17 April 2009 will be entitled to (i) attend the H Shareholders Class Meeting; (ii) be allotted and issued the Bonus H Shares; and (iii) receive the Dividends. H Shareholders who wish to attend the H Shareholders Class Meeting and be entitled to the Bonus Shares Issue and the Dividends must lodge the transfers of the H Shares no later than 4: 30 p.m. on Friday, 17 April 2009.

E. RECOMMENDATION

The Board considers that (i) the proposed Bonus Shares Issue and the declaration of the Dividends; and (ii) the proposed amendments to the Articles of Association and the Rules of the General Meeting, are in the best interests of the Company and the Shareholders as a whole and accordingly recommended the Shareholders to vote in favour of the relevant resolutions at the respective AGM and the H Shareholders Class Meeting.

F. GENERAL INFORMATION

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

Yours faithfully Hou Weigui ZTE CORPORATION Chairman

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APPENDIX I

GENERAL INFORMATION

MATERIAL CONTRACTS

Save as disclosed below, there are no material contracts (other than contracts entered into in the ordinary course of business) which have been entered into by the Group in the two years immediately preceding the date of this circular and are or may be material.

(i) Joint Venture Agreement dated 23 August 2007 entered into between the Corporation of Intermediate Industries of Venezuela (‘‘Corpivensa’’) and ZTE (H.K.) LIMITED pursuant to which, Corpivensa and ZTE (H.K.) LIMITED agreed to establish a joint venture in Venezuela with a registered capital of US$19,646,990 to be engaged in the manufacturing of mobile phones. Pursuant to such agreement, ZTE agreed to make a US$3,085,440 capital contribution to the joint venture in the form of technical training (with a value of US$1,208,000), automatic mobile phone testing equipment (with a value of US$368,800) and other key equipment (with a value of US$1,508,640) in consideration for a 15.7% equity interest in the joint venture.
(ii) Preference Shares Subscription Agreement dated 12 June 2008 entered into among Malachim Fund, L.L.P, ZTE (H.K.) Limited and Iitbia Technologies pursuant to which, ZTE (H.K.) Limited agreed to subscribe for a total of 500,000 new preference shares in Iitbia Technologies, representing 5.13% of the equity interest in Iitbia Technologies, at a total subscription price of US$500,000 in cash.
(iii) 股東協議 (Shareholders’ Agreement) dated 28 September 2008 entered into among 中國航天科技集團公司 (China Aerospace Science and Technology Corporation*)、中國運載火箭技術研究院 (China Academy of Launch Vehicle 、、
Technology) 中國空間技術研究院 (China Academy of Space Technology) 上海航天技術研究院 (Shanghai Academy of Spaceflight Technology)、西安向陽航天工業總公司 (Xi’an Xiangyang Aerospace Industry Corporation)、西安航天科技工業公司 (Xi’an Aerospace Industry Corporation)、北京航天衞星應用總公司 (Beijing Aerospace Satellite Application Corporation)、中國航天時代電子公司 (China Aerospace Times Electronics Corporation*)、四川航天工業總公司、
(Sichuan Aerospace Industry Corporation) 中國航天空氣動力技術研究院 (China Academy of Aerospace Aerodynamics) and ZTE. Pursuant to such agreement, ZTE agreed to make a RMB201,734,000 capital contribution to 航天科技投資控股有限公司 (Aerospace Technology Investment Holdings Limited) in cash in consideration for a 9.524% equity interest in 航天科技投資控股有限公司 (Aerospace Technology Investment Holdings Limited).

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GENERAL INFORMATION

APPENDIX I

(iv) 股權合作協議 (Capital Contribution and Cooperation Agreement) dated 11 November 2007 entered into between 深圳市中聯成電子發展有限公司 (Shenzhen Zhonglian Electronics Development Co., Ltd.) and 北京千禧興業投資有限公司 (Beijing Qianxi Xingye Investment Co., Ltd.) in relation to the establishment of 北京中鼎盛安科技有限公司 (Beijing Zhongding Shengan Technology Co., Ltd.) pursuant to which, 深圳市中聯成電子發展有限公司 (Shenzhen Zhonglian Electronics Development Co., Ltd.), agreed to make a RMB490,000 capital contribution to 北京中鼎盛安科技有限公司 (Beijing Zhongding Shengan Technology Co., Ltd.) in consideration for a 49% equity interest in 北京中鼎盛安科技有限公司 (Beijing Zhongding Shengan Technology Co., Ltd.).
(v) Joint Venture Agreement dated 25 May 2008 entered into between SITRONICS, a company incorporated in Russia, and ZTE in relation to the establishment of a joint venture in China with a registered capital of US$1 million pursuant to which, ZTE agreed to make a US$490,000 capital contribution to the joint venture in cash, representing 49% of the equity interest of the joint venture.
(vi) Joint Venture Agreement dated 20 September 2008 entered into among Post and Telecommunications Investment and Construction Joint-Stock Company, Post and Telecommunications Finance Company, which are all incorporated in Vietnam, and ZTE (H.K.) Limited in relation to the establishment of PTICZTE Telecom Technology Joint Stock Company, a joint venture with a registered capital of US$5.8 million in Vietnam. Pursuant to such agreement, ZTE (H.K.) Limited agreed to make a US$104,4000 capital contribution to the joint venture in the form of equipment (with a value of US$374,000), training (with a value of US$500,000), software (with a value of RMB70,000) and cash in the amount of US$100,000 for a consideration of a 18% equity interest in the joint venture.
(vii) 公司章程 (Articles of Association) of 南昌興飛科技有限公司 (Nanchang Xingfei Technology Co., Ltd.) dated 6 January 2009 entered into among 沈湘蓀 (Shen Xiang Sun), 深圳市興飛科技有限公司 (Shenzhen Xingfei Technology Co., Ltd.) and 中興軟件技術（南昌）有限公司 (Zhongxing Software Technology (Nanchang) Co., Ltd.) in relation to the establishment of 南昌興飛科技有限公司 (Nanchang Xingfei Technology Co., Ltd.) with a registered capital of RMB15 million pursuant to which, 深圳市興飛科技有限公司 (Shenzhen Xingfei Technology Co., Ltd.) agreed to make a RMB4.5 million capital contribution to 南昌興飛科技有限公司 (Nanchang Xingfei Technology Co., Ltd.), representing 30% equity interest in 南昌興飛科技有限公司 (Nanchang Xingfei Technology Co., Ltd.*).
For identification purposes only

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APPENDIX I

GENERAL INFORMATION

FOREIGN EXCHANGE LIABILITIES

The Board considers that the Group will have sufficient foreign exchange to pay forecasted or planned dividends on H Shares and to meet its foreign exchange liabilities as they become due, with the Group’s existing internal resources.

STATEMENTS TO BE MADE ON ACQUISITION OF SHARES

The Company shall ensure that all its listing documents and share certificates include the statements stipulated below and shall instruct and cause its share registrars not to register the subscription, purchase or transfer of any of its Shares in the name of any particular holder unless and until such holder delivers to such share registrar a signed form in respect of such Shares bearing statements to the following effect:

(i) the acquirer of Shares agrees with the Company and each of its shareholder, and the Company agrees with each shareholder, to observe and comply with the Chinese Company Law, the Special Regulations of the State Council of the PRC on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies and its Articles of Association;
(ii) the acquirer of Shares agrees with the Company, each of its shareholders, Directors, Supervisors, Presidents and officers and itself (acting for the Company and for each Director, Supervisor, Presidents and officer) agrees with each shareholder, to refer all differences and claims arising from its Articles of Association or any rights or obligations conferred or imposed by the Chinese Company Law or other relevant laws and administrative regulations concerning the affairs of the Company to arbitration in accordance with its Articles of Association. Any reference to arbitration will be deemed to authorize the arbitration tribunal to conduct its hearing in open session and to publish its award. Such arbitration will be final and conclusive;
(iii) the acquirer of Shares agrees with the Company of its shareholders that H Shares in the Company are freely transferable by the holder of such Shares; and
(iv) the acquirer of Shares authorizes the Company to enter into a contract on his behalf with each Director and officer whereby such Directors and officers undertake to observe and comply with their obligations to shareholders stipulated in its Articles of Association.

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APPENDIX I

GENERAL INFORMATION

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Company’s principal place of business in Hong Kong, 8/F Gloucester Tower, The Landmark, 15 Queen’s Road, Central, Central, Hong Kong, during normal business hours on any weekday (public holidays excepted) from the date of this circular up to and including the 14th day from the date of this circular.

(i) the articles of association of the Company;
(ii) any service contracts of any existing directors or any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation));
(iii) the annual reports of the Company for the three years ended 31 December 2006, 2007 and 2008;
(iv) the material contracts referred to in paragraph headed ‘‘Material Contracts’’ of this appendix;
(v) the Company Law of the People’s Republic of China, the Special Regulations of the State Council of the PRC on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies, the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas;
(vi) the Telecommunications Regulations of the People’s Republic of China; and
(vii) this circular.

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APPENDIX II

RISK FACTORS

You should carefully consider all of the information in this circular including the risks and uncertainties described below before making an investment in our H Shares. You should pay particular attention to the fact that we are a company incorporated in China and are governed by a legal and regulatory environment which in some respects may differ from that which prevails in other jurisdictions. Our business, financial condition or results of operations could be materially adversely affected if any of these risks materializes. The trading price of our H Shares could decline if any of these risks materializes, and you may lose all or part of your investment. For more information concerning China and certain related matters discussed below, see the sections headed ‘‘Appendix III - Summary of Principal Legal and Regulatory Provisions’’ and ‘‘Appendix IV - Summary of Articles of Association’’ to this circular.

The Chinese legal system has inherent uncertainties that could limit the legal protections available to you.

We are organized under the laws of China and are governed by our Articles of Association, which have been amended to comply with the Hong Kong Listing Rules. The Chinese legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the Chinese government has promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties. In addition, as the legal system in China develops, changes in such laws and regulations, their interpretation or their enforcement may have a negative effect on our business, financial condition and results of operations.

The direct enforcement by our shareholders of any rights of shareholders in respect of violations of corporate governance procedures may be limited. In this regard, our Articles of Association and the Hong Kong Listing Rules provide that most disputes between holders of H shares and our Company, directors, supervisors, officers or holders of legal person shares, arising out of our Articles of Association or Chinese Company Law and related regulations concerning the affairs of our Company, including the transfer of our shares, are to be resolved through arbitration by arbitration tribunal in Hong Kong or China, rather than by a court of law. See ‘‘Appendix IV -Summary of Articles of Association’’ to this circular for more information. Awards that are made by China arbitral authorities recognized under the Arbitration Ordinance of Hong Kong can be enforced in Hong Kong. Hong Kong arbitration awards are also enforceable in China. However, to our knowledge, no action has been brought in China by any holder of H shares of other companies to enforce an arbitral award, and we are uncertain as to the outcome of any action brought in China to enforce an arbitral award made in favor of holders of H shares.

Current applicable laws of China do not expressly confer on shareholders the right to sue the directors, supervisors, officers or other shareholders on behalf of the corporation to enforce a claim against such party or parties that the corporation has failed to enforce itself.

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RISK FACTORS

APPENDIX II

However, the Supreme People’s Court is proposing to adopt a new interpretation of the relevant laws to allow for such rights. Unless and until such amendments are made, our shareholders may have to rely on other means to enforce directly their rights, such as through administrative proceedings. In addition, our minority shareholders may not have the same protections afforded to them by companies incorporated under the laws of other jurisdictions.

Although we will be subject to the Hong Kong Listing Rules and the Hong Kong Codes on Takeovers and Mergers and Share Repurchases, the holders of H Shares will not be able to bring actions on the basis of violations of the Hong Kong Listing Rules or such Codes, and must rely on the Stock Exchange and the SFC to enforce the Hong Kong Listing Rules or such Codes, as the case may be.

Economic, political and social conditions and government policies in China could have a material adverse effect on our business, financial condition and results of operations.

The economy of China differs from the economies of most developed countries in many respects, including, but not limited to:

. capital re-investment
. structure . capital re-investment . government involvement . allocation of resources . level of development . control of foreign exchange . growth rate . rate of inflation

The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industries by imposing industrial policies. It also exercises significant control over China’s economic growth through allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

Policies and other measures taken by the Chinese government to regulate the economy could have a significant negative impact on economic conditions in China, with a resulting negative impact on our business. For example, our financial condition and results of operations may be materially and adversely affected by:

. new laws and regulations and the interpretation of those laws and regulations;
. the introduction of measures to control inflation or stimulate growth;
. changes in the rate or method of taxation;

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APPENDIX II

RISK FACTORS

. the imposition of additional restrictions on currency conversion and remittances abroad; and
. any actions which limit our ability to develop, manufacture, import or sell our products in China, or to finance and operate our business in China.

Future movements in exchange rates may have a material adverse effect on our financial condition and results of operations.

At present, most of our sales are denominated in Renminbi, while we incur a portion of our cost of sales in US dollars and Japanese yen in the course of our purchase of imported production equipment, components and raw materials. Since 1994, the conversion of the Renminbi into foreign currencies has been based on rates set by the PBOC, and the exchange rate for the conversion of the Renminbi to US Dollars has generally been stable. However, the exchange rate may become volatile, the Renminbi may be devalued against the US Dollar or other currencies or the Renminbi may be permitted to enter into a full or limited free float, which may result in an appreciation in the value of the Renminbi against the US Dollar or other currencies, any of which could have a material adverse effect on our financial condition and results of operations.

Government control of foreign currency conversion may limit our foreign exchange transactions.

The Renminbi currently is not a freely convertible currency. Under the existing foreign exchange regulations in China, we may undertake current account foreign exchange transactions, including payment of dividends, without prior approval from SAFE, by complying with certain procedural requirements. However, foreign exchange transactions for capital account purposes, which may include overseas investment and various international loans, require the prior approval of SAFE. If we are unable to obtain SAFE’s consent to convert Renminbi into foreign currencies for such purposes, our capital expenditure plan and, consequently, our ability to grow our business could be affected.

The telecommunications industry in China is subject to extensive government regulation, which is still evolving.

We supply telecommunications equipment to the telecommunications industry, which is heavily regulated in China by The Ministry of Industry and Information Technology of the PRC (‘‘MII’’). The MII has broad discretion and authority to regulate all aspects of the telecommunications and information technology industry in China, including arranging the setting of network equipment specifications and standards, approving equipment for access to telecommunications networks, supervising the tender process for telecommunications infrastructure construction projects and formulating policies and regulations related to the telecommunications industry. In addition, the telecommunications regulatory framework in China is still in the process of being developed. The MII is in the process of drafting a national telecommunications law, which may include new legislation governing the telecommunications equipment industry. If the MII sets standards with which we are unable to comply or which render our products non-competitive, our ability to sell products in China may be limited.

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APPENDIX II

RISK FACTORS

The telecommunications equipment industry is dependent on capital expenditures by the telecommunications services industry.

In 2002, telecommunications service providers significantly reduced capital expenditures in developed countries due to overcapacity and generally adverse economic conditions. A number of telecommunications service providers outside of China filed for bankruptcy protection for a variety of reasons, further constraining demand for telecommunications equipment over such period. These developments had an adverse effect on the telecommunications equipment industry. Any future downturn of the industry or reduction in capital expenditure by telecommunications service providers would directly harm our sales. In addition, the growth rate of the telecommunications services industry in China may begin to decline as basic telecommunications infrastructure in major cities is largely complete, and the growth rates may be slower in less prosperous cities and in the Chinese countryside, where the majority of the Chinese population lives. Any decline in the growth rate of telecommunications services in China could also have an adverse effect on our business.

Actual or perceived health risks associated with the use of handsets or other telecommunications equipment could negatively affect our business.

There have been public concerns about health risks arising from electromagnetic fields generated by handsets. Any perceived risk or new findings, regardless of their scientific basis, concerning the adverse health effects of telecommunications equipment could negatively affect our reputation and brand value and result in a reduction in sales. Although we comply with all current electromagnetic field safety standards and recommendations in China and other countries in which we sell our products, we cannot assure you that we will not become the subject of product liability claims or be held liable for such claims or be required to comply with future regulatory changes that may have an adverse effect on our business.

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PRC LAWS AND REGULATIONS

This summary outlined major provisions of current company laws, securities laws, and laws, regulations and regulatory provisions governing dispute resolution of China applicable to our Company. Its objective is to provide investors with brief information concerning Chinese regulations applicable to our Company.

I. COMPANY AND SECURITIES LAWS, REGULATIONS AND REGULATORY PROVISIONS

A. COMPANY LAWS, REGULATIONS AND REGULATORY PROVISIONS

Since we are an A Share listed company, principal Chinese company laws, regulations and regulatory provisions applicable to us include, without limitation, the following:

I. Chinese Company Law and Regulatory Provisions;
II. Shenzhen Stock Exchange, Share Listing Rules (Amended Version 2008);
III. Regulatory Rules on Listed Companies;
IV. Opinion on Further Promoting the Normative Operations and Deepening the Reform of Companies Listed Outside China;
V. Rules on Shareholders’ General Meetings of Listed Companies;
VI. Inspection Measures for Listed Companies; and
VII. Administrative Measures on Takeovers of Listed Companies (Amended Version 2008).

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(I) Chinese Company Law and Regulatory Provisions

On December 29, 1993, the Standing Committee (the ‘‘Standing Committee’’) of the Eighth National People’s Congress (the ‘‘NPC’’) adopted the Chinese Company Law which came into effect on July 1, 1994 and was amended on December 25, 1999 by the Standing Committee of the Ninth NPC and further amended on August 28, 2004 and on October 27, 2005 by the Standing Committee of the Tenth NPC. The Chinese Company Law is the basic law that standardizes the organization and activities of companies, and protects the legitimate interests of companies, shareholders and creditors. It mainly provides for the definition of a company (including a limited liability company and a company limited by shares), the rights and obligations, forms of establishment and organizational structure of a company, issue and transfer of shares of companies limited by shares, the issue of corporate bonds, financial affairs and accounts of a company, and conditions and procedures of merger, division, insolvency, dissolution, liquidation of a company. The main provisions applicable to a company limited by shares are summarized as follows:

1. Definition

The Chinese Company Law classifies Chinese companies into limited liability companies and companies limited by shares. A company limited by shares (a ‘‘Stock Company’’) is a corporate legal person incorporated under the Chinese Company Law, whose registered capital is divided into shares of equal par value. The liability of its shareholders is limited to the extent of the shares held by them, and the liability of the Stock Company is limited to the full amount of all the assets owned by it.

2. External Investment

A Stock Company may invest in other limited liability companies and companies limited by shares, and the Stock Company’s liabilities with respect to such invested companies are limited to the amount invested. However, except as otherwise provided for under the laws, a Stock Company shall not act as a capital contributor subject to joint liability for the debts of its investee enterprises.

3. Incorporation

A Stock Company may be incorporated by promotion or public subscription.

The registered capital of a Stock Company is the amount of its total paid up capital as registered with the relevant administration of industry and commerce. The minimum registered capital of a Stock Company is RMB5 million. In accordance with the Securities Law of the People’s Republic of China, the total capital of a Stock Company proposing to apply for listing of its shares on a stock exchange must not be less than RMB30 millions.

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A Stock Company’s promoters are individually and collectively liable for: (i) the payment of all expenses and liabilities incurred in the incorporation process if the Stock Company cannot be incorporated; (ii) the repayment of subscription monies to the subscribers together with interest at bank rates for a deposit of the same term if the Stock Company cannot be incorporated; and (iii) damages suffered by the Stock Company as a result of the default of the promoters in the course of incorporation of the Stock Company.

4. Share Capital

(a) Forms of contribution

The promoters may make capital contribution in cash, or in kind or by way of injection of non-monetary physical assets, property rights or land use rights that may be valued in monetary terms and are lawfully transferrable based on their appraised value. The amount of monetary capital contributions of all shareholders shall not be less than 30% of the registered capital of the Stock Company. If a capital contribution is made other than in cash, a valuation and verification of the property contributed must be carried out to ascertain its value for conversion into shares.

(b) Issuance of shares

A Stock Company may issue registered or bearer shares. However, shares issued to promoters and legal persons must be in registered form. The share offering price may be equal to or greater than the par value, but may not be less than par value. In accordance with the Securities Law of the People’s Republic of China, a Stock Company may offer its shares to the public outside China upon approval by the securities administration department of the State Council.

(c) Increase in share capital

A Stock Company may increase its capital by means of issuing new shares, if it meets the conditions under the Chinese Company Law. After full payment for the new shares issued, a Stock Company must change its registration with the relevant administration for industry and commerce and issue a public notice accordingly.

(d) Reduction of share capital

Subject to the minimum registered capital requirements, a Stock Company may reduce its registered capital in accordance with certain procedures prescribed by the Chinese Company Law. The Stock Company will be required to prepare a balance sheet and statement of assets. In addition, the Stock Company will need to modify its registration with the relevant authorities following the reduction of capital.

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(e) Repurchase of shares

A Stock Company may not purchase its own shares other than to:

(i) to reduce the share capital of the stock company;
(ii) to merge with another company which holds the shares of the Stock Company;
(iii) to grant shares to employees of the Stock Company as rewards;
(iv) to acquire shares held by shareholders in dissent of resolutions of the shareholders’ general meeting on mergers or divisions who call for such acquisition.
(f) Transfer of Shares

Shares may be transferred in accordance with relevant laws and regulations.

Shares issued to promoters may not be transferred within one year following the establishment of the company. Shares held by directors, supervisors and managers of a Stock Company may not be transferred during their term of office with the Stock Company. Directors, Supervisors and senior officers of a Stock Company shall declare to the Stock Company their holdings of Stock Company shares and the changes in such holdings. During their term of office, their trading in the shares shall be subject to an annual cap of 25% of their total shareholdings in the Company. No Company shares held may be traded within one year from the date of listing of the shares. No Company shared held may be traded within six months after their departure.

5. Organizational Structure

(a) Shareholders and the shareholders’ general meeting

Shareholders have the rights and obligations as are set down in the articles of association of the Stock Company. The articles of association of a Stock Company are binding on each shareholder.

Under the Chinese Company Law, the rights of a shareholder include:

(i) to attend in person or appoint a proxy to attend shareholders’ general meetings, and to vote in respect of the number of shares held by him;
(ii) to transfer his shares at a legally established stock exchange in accordance with the Chinese Company Law and the articles of association of the Stock Company;

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(iii) to inspect the Stock Company’s articles of association, minutes of shareholders’ general meeting and financial and accounting reports and to make proposals or enquiries in respect of the Stock Company’s operations;
(iv) if a resolution adopted by a shareholders’ general meeting or the board of directors violates any law and administrative regulations or infringes the lawful rights and interests of shareholders, to institute an action in the People’s Court demanding that the illegal infringing action be stopped;
(v) to receive dividends in respect of the number of shares held;
(vi) to receive surplus assets of the Stock Company upon its dissolution or liquidation in proportion to his shareholding; and
(vii) any other shareholders’ rights specified in the Stock Company’s articles of association.

A shareholder is required to abide by the Stock Company’s articles of association, to pay the subscription money in respect of shares subscribed for, to be liable for the Stock Company’s debts and liabilities but only to the extent of the amount of subscription money agreed to be paid in respect of the shares taken up by him and to comply with any other shareholders’ obligation specified in the Stock Company’s articles of association.

The shareholders’ general meeting is the organ of authority of the Stock Company and is able to exercise the following powers in accordance with the Company Law:

(i) to decide on the Stock Company’s operational policies and investment plans;
(ii) to elect or remove the directors and decide on matters relating to the remuneration of directors;
(iii) to elect or remove the supervisors who are representatives of shareholders and decide on matters relating to the remuneration of supervisors;
(iv) to examine and approve reports of the board of directors;
(v) to examine and approve reports of the supervisory committee;
(vi) to examine and approve the Stock Company’s proposed annual financial budget and final accounts;
(vii) to examine and approve the Stock Company’s proposals for profit distribution and for recovery of losses;

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(viii) to decide on any increase or reduction in the Stock Company’s registered capital;
(ix) to decide on the issue of bonds by the Stock Company;
(x) to decide on issues such as merger, division, dissolution and liquidation or conversion of the Stock Company and other matters; and
(xi) to amend the articles of association of the Stock Company.

The Chinese Company Law does not specify any quorum requirement for a shareholders’ general meeting. However, pursuant to Provisions 55 and 83 of the Mandatory Provisions, a Stock Company listed overseas may not hold a shareholders’ general meeting or class meeting unless shareholders representing more than half of the voting rights of the company indicate an intention to attend such meeting. Otherwise, the Stock Company must within five days of the deadline for shareholders to indicate their intention to attend the meeting, give the shareholders further notice of the matters to be considered, the date and the place of the meeting by way of public announcement. The Stock Company may then hold the shareholders’ general meeting or class meeting after such public announcement has been made. Notice of the shareholders’ general meeting must be given to all shareholders 20 days before the meeting under the Chinese Company Law and 45 days before the meeting in case of stock companies listed outside China, stating the matters to be considered at the meeting.

Resolutions of the shareholders’ general meeting must be adopted by more than half of the voting rights of the shareholders present at the meeting, with the exception of matters relating to the increase or reduction of registered capital, merger, division, or dissolution or conversion of the Stock Company, and amendments to the articles of association of the Stock Company, which must be adopted by more than two thirds of the voting rights of the shareholders present at the meeting. In addition, the Directions to Articles of Association of Listed Companies promulgated by the CSRC on December 16, 1997 require the approval by a shareholder resolution of more than two thirds of the voting rights represented at the meeting for any issue of corporate bonds, for a repurchase of shares or for any matters where a special resolution of shareholders at shareholders’ general meeting is required.

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(b) Directors and the Board of Directors

A Stock Company must have a board of directors, which must consist of five to nineteen members. Each term of office of a director must not exceed three years. A director may serve consecutive terms if re-elected. Under the Chinese Company Law, the following persons may not serve as a director of a Stock Company:

(i) persons without civil capacity or with restricted civil capacity;
(ii) persons who have committed the offence of corruption, bribery, taking of property, misappropriation of property or destruction of the social economic order, and have been sentenced to criminal punishment, where less than five years have elapsed since the date of completion of the sentence; or persons who have been deprived of their political rights due to criminal offense, where less than five years have elapsed since the date of the completion of the implementation of this deprivation;
(iii) persons who are former directors, factory managers or managers of a Stock Company or enterprise which has become bankrupt and been liquidated due to a mismanagement and who are personally liable for the bankruptcy of such Stock Company or enterprise, where less than three years have elapsed since the date of the completion of the bankruptcy and liquidation of the Stock Company or enterprise;
(iv) persons who were legal representatives of a Stock Company or enterprise which had its business license revoked due to violation of the law and who are personally liable, where less than three years have elapsed since the date of revocation of the business license; or
(v) persons who have a relatively large amount of debt due and outstanding.

Meetings of the board of directors must be convened at least twice a year. Notice of meeting must be given to all directors at least ten days before the meeting. The board of directors may provide for a different method of giving notice and notice period for convening an extraordinary meeting of the board of directors.

The board of directors may exercise the following powers:

(i) to convene the shareholders’ general meeting and report on its work to the shareholders;
(ii) to implement the resolutions of the shareholders’ general meeting;

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(iii) to decide on the Stock Company’s business plans and investment plans;
(iv) to formulate the Stock Company’s proposed annual financial budget and final accounts;
(v) to formulate the Stock Company’s proposals for profit distribution and for recovery of losses;
(vi) to formulate proposals for the increase or reduction of the Stock Company’s registered capital and the issue of corporate bonds;
(vii) to prepare plans for the merger, division or dissolution of the Stock Company;
(viii) to decide on the Stock Company’s internal management structure;
(ix) to appoint or dismiss the Stock Company’s general manager, and based on the general manager’s recommendation, to appoint or dismiss deputy general managers and financial officers of the Stock Company and to decide on their remuneration; and
(x) to formulate the Stock Company’s basic management system.
(c) Supervisors and Supervisory Committee

A Stock Company must have a supervisory committee composed of not less than three members. Each term of office of a supervisor is three years and he or she may serve consecutive terms if re-elected.

The circumstances under which a person is disqualified from being a director of a Stock Company described above apply equally to supervisors of a Stock Company.

The supervisory committee is made up of representatives of the shareholders and an appropriate proportion of representatives of the Stock Company’s staff and workers. Directors, managers and financial officers may not act concurrently as supervisors.

The supervisory committee may exercise the following powers:

(i) to review the Stock Company’s financial position;
(ii) to supervise the acts carried out by the directors and managers in their performance of their duties and to ascertain whether or not they have violated laws, regulations or the articles of association;
(iii) when the acts of a director or manager are harmful to the Stock Company’s interests, to require correction of those acts;

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(iv) to propose the convening of extraordinary shareholders’ general meetings; and
(v) other powers specified in the Stock Company’s articles of association.
(d) Managers and officers

A Stock Company shall have a manager who shall be appointed or removed by the board of directors. The manager is accountable to the board of directors and may exercise the following powers:

(i) to supervise the production, business and administration of the Stock Company and arrange for the implementation of resolutions of the board of directors;
(ii) to arrange for the implementation of the Stock Company’s annual business and investment plans;
(iii) to formulate plans for the establishment of the Stock Company’s internal management structure;
(iv) to formulate the basic administration system of the Stock Company;
(v) to formulate the Stock Company’s internal rules;
(vi) to recommend the appointment and dismissal of deputy managers and any financial controller and appoint or dismiss other administration officers (other than those required to be appointed or dismissed by the board of directors);
(vii) to attend board meetings as a non-voting attendant; and
(viii)other powers conferred by the board of directors or the Stock Company’s articles of association.

The circumstances under which a person is disqualified from being a director of a Stock Company described above apply equally to managers of a company.

(e) Duties of directors, supervisors, managers and officers

A director, supervisor, manager or an officer of a Stock Company are required to comply with the relevant laws, regulations and the Stock Company’s articles of association, carry out their duties honestly and protect the interests of the Stock Company. A director, supervisor, manager or an

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officer who contravenes any law, regulation or the Stock Company’s articles of association in the performance of his duties which results in any loss to the Stock Company will be personally liable to the Stock Company.

6. Finance and Accounting

A Stock Company must establish its financial and accounting systems according to laws, administrative regulations and the regulations of the responsible financial department of the State Council. At the end of each financial year, a Stock Company must prepare a financial report which must be audited and verified as provided by law. A Stock Company must deposit its financial statements at the registered office for inspection by the shareholders at least 20 days before the convening of the annual general meeting of shareholders. A Stock Company established by the public subscription method must publish its financial statements.

Prior to distributing profits to shareholders, a Stock Company must distribute its after-tax profits for the current year as follows:

(a) to set aside 10% of its after-tax profits for the Stock Company’s statutory common reserve fund, except where the fund has reached 50% of the Stock Company’s registered capital;
(b) to transfer any amount from the after-tax profits of the Stock Company to the discretionary common reserve after transferring the requisite amount to the statutory common reserve fund, which must be approved by shareholders in the shareholders’ general meeting; and
(c) after the Stock Company has made good its losses and made allocations to its statutory common reserve fund and statutory common welfare fund, the remaining profits are distributed in proportion to the number of shares held by the shareholders.

If the amount standing to the credit of the Stock Company’s statutory common reserve is insufficient to make up for the accumulated losses from previous years, the Stock Company is required to transfer such amounts as may be necessary to make up for the loss prior to making its statutory allocations to the statutory common reserve fund and the discretionary common welfare fund.

7. Termination and Liquidation

Under the Chinese Company Law, a Stock Company must be dissolved in any of the following event:

(a) the term of its operation as set down in the Stock Company’s articles of association has expired or events of dissolution specified in the Stock Company’s articles of association have occurred;

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(b) the shareholders in shareholders’ general meeting have resolved to dissolve the Stock Company;
(c) the Stock Company is dissolved by reason of its merger or division;
(d) the business licence is suspended, business ordered to be closed down or revoked in accordance with the law; or
(e) dissolution is ordered by the People’s Court.

Where a Stock Company is dissolved in the circumstances described in (a), (b), (d) or (e) above, a liquidation committee must be established within 15 days. Members of the liquidation committee must be appointed by the Board of Directors or the shareholders’ general meeting.

If a liquidation committee is not established within the stipulated period, the Stock Company’s creditors can apply to the People’s Court for its establishment.

The liquidation committee must notify the Stock Company’s creditor of its establishment within ten days, and issue public notices in the newspapers within 60 days. A creditor must lodge his claim with the liquidation committee within 30 days after receiving such notification, or within 45 days of the public notice if he did not receive any notification.

If the Stock Company’s assets are sufficient to meet its liabilities, the assets will be applied towards the payment of the liquidation expenses, wages owed to the employees, labor insurance expenses and statutory compensation, overdue tax and debts of the Stock Company. Any surplus assets will be distributed to the shareholders of the Stock Company in proportion to the number of shares held by them.

8. Merger and Division

Stock companies may merge through merger by absorption or through the establishment of a newly merged entity. Upon a merger by absorption, the company which is absorbed will be dissolved. Upon a merger through establishment of a new corporation, both original companies will be dissolved. The relevant companies must draw up their respective balance sheets and inventory of property.

When a Stock Company divides into two companies, their respective assets must be separated and separate financial accounts must be drawn up.

A Stock Company must, within ten days of the resolution of the merger or division, inform its creditors and publish a notice to the creditors in newspapers at least three times, within 30 days of the resolution to merge. Creditors may, within

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30 days after receiving written notice or within 45 days of the published notice where no written notice was received, request the Stock Company to satisfy any unpaid debt or provide corresponding guarantees.

Changes in register particulars of the companies caused by merger or division must be registered in accordance with applicable laws.

(II) Shenzhen Stock Exchange, Share Listing Rules (Amended Version 2008)

The Shenzhen Stock Exchange on September 2008 issued the Rules Governing the Listing Stocks on The Shenzhen Stock Exchange (Amended Version 2008) (the ‘‘Shenzhen Listing Rules’’), the main purpose of which is to regulate share listing, and information disclosure by the listed companies and its relevant obligators, to maintain the order of the stock exchange market, and to protect the lawful rights of the investors and share issuers. The principal provisions of the Shenzhen Listing Rules are summarized as follows:

1. Listing agreement

Prior to an initial listing of its shares, Stock Companies proposing to list on the Shenzhen Stock Exchange must apply to the Shenzhen Stock Exchange and enter into a listing agreement with the Shenzhen Stock Exchange.

Directors, Supervisors and senior officers of listed companies shall sign a Declaration and Undertaking of Directors (Supervisors and Senior Officers) in three copies prior to the initial public offer listing of the shares of the Company (or within one month after approval of appointment by the shareholders’ general meeting or the staff representatives’ meeting in the case of newly elected Directors or Supervisors), and report the same to The Shenzhen Stock Exchange and Board of Directors of the Company for record.

The Shenzhen Stock Exchange adopts a listing sponsorship system for share listings. The application for the listing of company shares on Shenzhen Stock Exchange must be endorsed by a sponsor.

2. Share listing applications, examination, and information disclosure

Stock companies whose shares are proposed to be subject to an initial public offering and listing on Shenzhen Stock Exchange, or listed companies that are proposing to issue rights issue shares, new shares, or bonus shares, or who are proposing to convert some or all of their common reserve fund into additional shares, or who are applying for shares that are held by company employees, internal employees, directors, supervisors, senior management personnel, security investment funds, legal persons, or strategic investors to be listed on the Shenzhen Stock Exchange, must apply to the Shenzhen Stock Exchange and comply with the information disclosure obligations.

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3. The basic principles for information disclosure

Listed companies must disclose all information that may have a material impact upon their share price, and ensure that the contents of disclosed information is true, accurate and complete, without any false and/or materially misleading statement or material omission.

4. Secretary to the board of directors, equity interest administration and information disclosure matters

Listed companies must appoint a secretary to the board of directors, who is responsible for equity interest administration and information disclosure matters.

5. Periodic report

Within four months after the end of every fiscal year, listed companies must publish an annual report, and disclose such report on a designated website and the summary thereof in the designated newspaper. In addition, within two months after the first half of every fiscal year, listed companies must publish an interim report. Quarterly reports shall be published within one month after the conclusion of the first three-month period and first nine-month period of each accounting year.

6. Announcements

Listed companies must make announcements in relation to certain matters, including, without limitation:

(a) resolutions passed by board of directors, supervisory committee, and shareholders at shareholders’ general meeting;
(b) acquisition and sale of assets;
(c) inter-affiliate transactions;
(d) material events;
(e) unusual fluctuation of share trading; and
(f) merger and/or division of companies.

7. Suspension and resumption of trading

Listed companies may, based on such grounds as the Shenzhen Stock Exchange considers reasonable, apply for suspension or resumption of trading. The Shenzhen Stock Exchange may, according to the actual situations or the requirements of the CSRC, decide on suspensions or resumptions of trading in stock or its derivatives.

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8. Withdrawal risk warning and special treatment

(a) Withdrawal risk warning

The Shenzhen Stock Exchange shall have the right to issue withdrawal risk warnings in respect of the trading in shares of a listed company which has:

(i) reported losses for the last two consecutive years (based on the audited net profit disclosed in the annual reports for the last two years);
(ii) reported losses for the last two consecutive years as a result of retrospective rectifications of previous-year financial and accounting reports, either proactively or as ordered by the CSRC, to correct significant accounting errors or false information in such financial and accounting reports;
(iii) failed to rectify within the stipulated period after being so ordered by the CSRC because of significant accounting errors or false information in its financial and accounting reports and has been subject to share trading suspension for two months;
(iv) failed to publish its annual report or interim report within the statutorily stipulated period and has been subject to share trading suspension for two months;
(v) obtained approval of The Shenzhen Stock Exchange to implement a plan of shareholding distribution issues proposed within the stipulated period to resolve shareholding distribution that does not meet the listing conditions;
(vi) been subject to corporate restructuring, settlement or bankruptcy or liquidation, the filing of which has been accepted by the court;
(vii) been subject to events that might cause the company to be dissolved;
(viii) been subject to other situations deemed by The Shenzhen Stock Exchange to be prone to withdrawal risks.
(b) Special treatment

When the financial situation or other circumstances of a listed company becomes unusual, and it is difficult for investors to determine the prospects of the company, and the rights and interests of investors may be harmed, the Shenzhen Stock Exchange will subject the trading of the listed company’s stock to special treatment. Where a company’s stock is being subject to

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special treatment, will set a maximum and a minimum price for the stock, based on a 5% increase or decrease from its closing price of the previous trading day. The Shenzhen Stock Exchange will annotate ‘‘ST’’ against the stock name to highlight the special treatment.

9. Suspension, resumption and termination of listing

(a) Suspension of listing

There may be a suspension of listing of a listed company’s stock in the event of any one of the following:

(i) Continued loss of a listed company indicated in its audited results for the first accounting year following the issuance of a withdrawal risk warning by The Shenzhen Stock Exchange in respect of the trading of its shares for reasons described in paragraphs 8(a)(i) and (ii) above;
(ii) Failure of a listed company to rectify its financial and accounting reports within two months following the issuance of a withdrawal risk warning by The Shenzhen Stock Exchange in respect of the trading of its shares for reasons described in paragraphs 8(a)(iii) above;
(iii) Failure of a listed company to publish its annual report or interim report within two months following the issuance of a withdrawal risk warning by The Shenzhen Stock Exchange in respect of the trading of its shares for reasons described in paragraph 8(a)(iv) above;
(iv) Failure of the shareholding distribution of a listed company to meet the listing conditions within six months following the issuance of a withdrawal risk warning by The Shenzhen Stock Exchange in respect of the trading of its shares for reasons described in paragraph 8(a)(v) above;
(v) the listed company no longer satisfies the listing conditions due to a change in the total amount of its share capital or the spread of its equity interest;
(vi) the listed company commits serious illegal acts; or
(vii) Other situations stipulated by The Shenzhen Stock Exchange.

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(b) Resumption of listing

(i) A listed company which has met the following conditions during share listing suspension for reasons described in paragraph (a)(i) above and may submit a written application to The Shenzhen Stock Exchange for resumption of listing within five trading days after the publication of its first annual report:
- (1) Publication of the first audited annual report after the suspension within the statutory period for publication;
- (2) Profit indicated in the audited annual financial and accounting report.
(ii) A listed company which has published its rectified financial and accounting report, relevant annual report or interim report within two months after share listing suspension for reasons described in paragraph (a)(ii) or (a)(iii) above may submit a written application to The Shenzhen Stock Exchange for resumption of listing within five trading days after the publication of the relevant report.
(iii) A listed company whose shareholding distribution has been in compliance with the listing conditions again within six months after share listing suspension for reasons described in paragraph (a)(iv) above may submit a written application to The Shenzhen Stock Exchange for resumption of listing within five trading days after the compliance of its shareholding distribution with the listing conditions again.
(iv) Where the reasons for suspension have been removed within the period stipulated by The Shenzhen Stock Exchange after share listing suspension for reasons described in paragraph (a)(v) or (a) (vi) above, a listed company may submit a written application to The Shenzhen Stock Exchange for resumption of listing within five trading days after the removal.
(c) Termination of listing

In the event of paragraph (a)(i) above in relation to a listed company, The Shenzhen Stock Exchange shall order suspension of trading in its shares and derivatives from the date of publication of its annual report and determine within fifteen trading days after the suspension whether a share listing suspension should be ordered.

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In the event of paragraph (a)(i) or (a)(iii) above in relation to a listed company, The Shenzhen Stock Exchange shall order suspension of trading in its shares and derivatives on the trading date immediately following the expiry of a two-month period and determine within fifteen trading days after the suspension whether a share listing suspension should be ordered.

In the event of paragraph (a)(iv) above in relation to a listed company, The Shenzhen Stock Exchange shall order suspension of trading in its shares and derivatives on the trading date immediately following the expiry of the stipulated period and determine within fifteen trading days after the suspension whether a share listing suspension should be ordered.

In the event of paragraph (a)(v) or (a)(vi) above in relation to a listed company, The Shenzhen Stock Exchange shall order suspension of trading in its shares and derivatives on the trading date immediately following the expiry of the stipulated period and determine within fifteen trading days after the suspension whether a share listing suspension should be ordered.

10. Co-ordination of matters concerning listing inside and outside China

A listed company whose shares are simultaneously listed on another stock exchange shall ensure that information that is required to be disclosed by the other stock exchange markets is also disclosed simultaneously in media designated by the CSRC in accordance with the rules and the requirements of other pertinent regulations of The Shenzhen Stock Exchange.

Whenever a listed company performs its obligations in reporting and announcement in respect of the same matter, it shall ensure that the reporting and announcement to The Shenzhen Stock Exchange and those to the overseas stock exchange are consistent. In the event of material differences, the Company shall furnish an explanation to The Shenzhen Stock Exchange and publish clarifications or supplementary announcements in accordance with the requirements of The Shenzhen Stock Exchange.

11. Penalties

The Shenzhen Stock Exchange may, depending on the seriousness of the violations, impose penalties upon listed companies, their directors, supervisors, board secretaries, on listing sponsors, for violations of listing rules.

(III) Regulatory Rules on Listed Companies

CSRC and the former State Economic and Trade Commission (‘‘SETC’’), on January 7, 2002, issued the Regulatory Rules on Listed Companies, which are applicable to listed companies within China, principally prescribing regulations on the following aspects:

(i) the rights of the shareholders of listed companies;

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(ii) the listed companies’ shareholders’ general meetings, board meetings and supervisory committee meeting;
(iii) the listed companies’ controlling shareholder;
(iv) the composition and responsibility of listed companies’ board of directors and supervisory committee;
(v) the mechanism for performance assessment, motivation and restrictions; and
(vi) listed companies’ information disclosure.

(IV) Opinion on Further Promoting the Normative Operations and Deepening the Reform of Companies Listed Outside China

This opinion was issued by the former SETC and CSRC on March 29, 1999, to standardize operations and intensify reform of companies listed outside China (‘‘Overseas Listed Companies’’) by providing for, among other things, the following:

(i) separating the operational organization of Overseas Listed Companies from the controlling entities;
(ii) further intensifying the restructuring of the controlling entities and Overseas Listed Companies;
(iii) specifying procedures for Overseas Listed Companies’ decision-making and strengthening director responsibility;
(iv) strengthening the strategic policy-making function of the board of the directors, and encouraging the making of active and proper use of outside consulting organizations;
(v) maintaining the stability of Overseas Listed Companies’ senior management, and raising the standards of Overseas Listed Companies’ senior management;
(vi) progressively establishing a sound corporate governance system involving external director and independent director;
(vii) strengthening the functions of Overseas Listed Companies’ supervisory committees;
(viii) further enforcing the functions of the secretary of the board of directors;
(ix) exploring the methods to motivate senior management personnel of Overseas Listed Companies;
(x) intensifying the internal reform of Overseas Listed Companies; and

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(xi) separating government from enterprise unit, and standardizing the capital contribution relationships between shareholders and Overseas Listed Companies.

(V) Rules on Shareholders’ General Meetings of Listed Companies

The CSRC issued the Rules on March 16, 2006 to regulate the procedure for listed companies’ annual general meeting and extraordinary shareholders’ general meeting. The Opinion regulates, among other things, how annual general meetings and extraordinary general meetings are convened and how resolutions are proposed and taken at such meetings. According to the Opinion, an annual general meeting is required to be convened once a year, within six months from the expiration of the preceding financial year. A shareholders’ general meeting is required to be convened by 20 days’ prior notice, made by the directors through public announcement. The notice of the shareholders’ general meeting must specify the issues to be discussed at the meeting, and contain a description of any proposals to be put forward by the directors at such meeting. Shareholders holding (individually or jointly) at least 3% of the voting rights of a listed company or the supervisory committee of a listed company may propose resolutions to be adopted by shareholders at an annual general meeting. In addition, the board of directors of a listed company is required to present proposals for the distribution of profits to the shareholders at the annual general meeting.

(VI) Inspection Measures for Listed Companies

The CSRC issued the Inspection Measures for Listed Companies on March 19, 2001, in order to strengthen the regulation of companies listed on the Shenzhen Stock Exchange and the Shanghai Stock Exchange, to promote the standards of operations of listed companies, and to protect the lawful interests of investors. There are two types of inspections of listed companies: routine inspections and special inspections. Routine inspections are conducted to monitor general compliance by listed companies with relevant laws and regulations. Special inspections are conducted to ascertain whether a particular problem exists in the listed company. Inspection institutions which discover problems in companies during inspection must issue a notification of the issues to the listed company and grant a period during which the listed company must rectify the problems. The listed company must, within one month after the receipt of the notification, submit to the local branch office of the CSRC a rectification report, which must include the resolutions of its board of directors in relation to the measures for rectification in respect of the identified problems, the implementation of such rectification measures, and the effectiveness of such measures.

(VII) Administrative Measures on Takeovers of Listed Companies

On August 27, 2008, the CSRC promulgated the Administrative Measures on Takeovers of Listed Companies, to further regulate the takeovers of listed companies. These regulations apply where a purchaser makes any on or off market purchases of a listed company’s shares, thereby acquiring or potentially acquiring control of the listed company. A purchaser may acquire shares of a listed company through acquisition

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contracts, offers for acquisition or purchases made through the aggregate auction system operated by the Shenzhen Stock Exchange. The Administrative Measures prescribe certain requirements in relation to each of these methods of acquisition.

B. SECURITIES LAWS, REGULATIONS AND SUPERVISORY PROVISIONS

In early 1993, the State Council established the State Council Securities Commission and the CSRC. The State Council Securities Commission was responsible for coordinating the drafting of securities regulations, formulating securities-related policies, planning the development of securities markets, directing, coordinating and supervising all securitiesrelated institutions in China and administering the CSRC. The CSRC was the regulatory arm of the State Council Securities Commission and was responsible for the drafting of regulatory provisions governing the securities markets, supervising securities companies, governing stock companies’ public offers of securities in China or overseas, regulating the trading of securities, compiling securities-related statistics and undertaking research and analysis. In early 1998, the State Council dissolved the State Council Securities Commission, and the former functions of the State Council Securities Commission were assumed by the CSRC.

Since 1993, China has promulgated many regulations concerning the issuing and trading of securities and disclosure. The principal ones applicable to us are summarized as follows:

1. Provisional Regulations Concerning the Issue and Trading of Shares, promulgated by State Council on April 22, 1993

These regulations deal with the application and approval procedures for public offerings of equity securities, trading in equity securities, the acquisition of listed companies, deposit, settlement, and transfer of listed equity securities, the disclosure of information with respect to a listed company, inspection and penalties and dispute settlement. These regulations specifically provide that separate provisions will be promulgated in relation to the issue of and trading in special Renminbi-denominated shares. However, if a Stock Company proposes to issue Renminbi-denominated ordinary shares as well as special Renminbi-denominated shares, it has to comply with these regulations in respect of its issue of Renminbi-denominated ordinary shares. In addition, if a Stock Company proposes to place shares directly or indirectly outside China, it will require the approval of the State Council Securities Commission (now the CSRC). Furthermore these regulations apply in relation to acquisitions of listed companies in general without being confined to listed companies on any particular stock exchange. Hence it is possible that these regulations may be applicable to joint stock limited companies with shares listed on a stock exchange outside China.

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Provisional Measures Prohibiting Fraudulent Conduct Relating to Securities, promulgated by the former State Council Securities Commission on September 2, 1993

The prohibitions imposed by these measures include the use of insider information in connection with issue of, or trading in, securities (insider information being defined to include undisclosed material information known to any insider, which may affect the market price of securities); the use of funds or information, or the abuse of power in creating a false or disorderly market, or influencing the market price of securities, or inducing investors to make investment decisions without knowledge of actual circumstances; and the making of any statement, in connection with the issues of or trading in securities, which is false or materially misleading or in respect of which there is any material omission. Penalties imposed for contravention of the measures include fines, confiscation of profits and suspension or termination of listing of the shares. In serious cases, criminal liability may be imposed.

The Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies, promulgated by the State Council on August 4, 1994 (the ‘‘Special Regulations’’).

The Special Regulations are formulated according to the provisions of Sections 85 and 155 of the Company Law promulgated in 2994 for the need of the overseas share subscription and listing of stock limited companies. The Special Regulations provided that subject to the approval by the CSRC, a stock limited company may issue shares to specified or unspecified foreign investors in foreign investment, and their shares may be listed on securities exchanges outside China. Shares issued to foreign investors and listed overseas shall be issued in registered form and shall be denominated in Renminbi and subscribed for in foreign currency. Subject to the approval by the CSRC, a stock limited company whose shares are issued to foreign investors and listed overseas may issue shares to investors within China (domestic invested shares).

Opinion on Further Proper Disclosures of Information of Companies Listed Overseas, promulgated by CSRC on March 26, 1999

This Opinion prescribed certain requirements to ensure proper disclosure of information by companies listed overseas. Companies listed overseas are required to strictly comply with their disclosure of information obligations pursuant to the relevant Chinese and overseas requirements of the relevant stock exchanges, and attach importance to the disclosure of the major events and associated transactions. Companies listed both within and outside China must disclose information at the same time within and outside China.

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Notice on Relevant Issues concerning Application for Overseas Listing by Enterprises, promulgated by the CSRC on July 14, 1999

The Notice provided that a Stock Company seeking an overseas listing and which satisfies the overseas listing requirements, may voluntarily submit its application for overseas listing to the CSRC. It also sets out the requirements for overseas listings of Stock Companies, documents required to be submitted to the CSRC for approval, the application procedure, and the approval procedure of the CSRC.

Certain Regulations on Enhancing Protection of Public Shareholders’ Interests, promulgated by the CSRC on December 7, 2004

The Regulations contain specific provisions for curbing the abuse of control over a listed company and the protection of the interests of investors, especially the public investors. Such provisions include: approval of significant matters by voting of public shareholders, perfection of the system of independent directorship, full leveraging of the role of independent directors, enhancement of information disclosure of listed companies, call for listed companies to implement proactive profit distribution and enhanced supervisions over listed companies and their senior officers.

The Securities Law of the People’s Republic of China, as revised by the Standing Committee of the NPC on October 27, 2005

This is the national securities law in China and is the fundamental law comprehensively regulating activities (including the issuance and trading of securities) in the Chinese securities market. The Securities Law became effective on July 1, 1999 and was amended on August 28, 2004 and October 27, 2005. The Securities Law is mainly applicable to the issuance and trading in China of shares, corporate bonds and other securities designated by the State Council according to law

Administrative Measures for Share Incentive Schemes of Listed Companies (Trial), promulgated by the CSRC on December 31, 2005

The Measures provide for the conditions, restrictions, procedures, information disclosure rules and relevant supervisory requirements and disciplinary measures relating to the implementation of share incentive schemes by listed companies. According to the Measures, a listed company may implement share incentive schemes by granting restricted shares, share options or other methods permitted under the law and administrative regulations.

Administrative Measures for the Offering of Securities by Listed Companies, promulgated by CSRC on April 26, 2006

The Measures contain detailed provisions on the conditions, information disclosure obligations and submission of documentation to the CSRC and data auditing relating to the issue of new shares by listed companies.

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Regulations on Securities Market Entry Censorships, promulgated by CSRC on June 7, 2006

These Provisions were formulated to protect the interests of investors. Persons who have been prohibited by the CSRC from involvement in the securities market may not hold senior management posts in listed companies or engage in securities business, either for a specific period or permanently

Administrative Measures on Information Disclosure by Listed Companies, promulgated by the CSRC on December 13, 2006

Pursuant to the Measures, the CSRC is responsible for supervising the disclosure of information by Stock Companies which have offered shares to the public both in China and overseas. These measures contain provisions regarding prospectuses issued in connection with a public offering and regular and provisional reports of listed companies, as well as relevant requirements on the management of information disclosure.

II. DISPUTE RESOLUTION LAWS, REGULATIONS AND REGULATORY PROVISIONS

The principal applicable laws and regulations in China governing the resolution of civil disputes and economic disputes are:

Civil Procedure Law of the People’s Republic of China, enacted in fourth convention of the Seventh National People’s Congress on April 9, 1991 and revised by the Standing Committee of the Tenth National People’s Congress on October 28, 2007;
Arbitration Law of the People’s Republic of China, enacted in 9th meeting of the Standing Committee of the Eighth National People’s Congress on August 31, 1994;
China International Economic and Trade Arbitration Commission Arbitration Rules, revised by China Chamber of International Commerce and China Council for the Promotion of International Trade on September 5, 2000 and put in force on October 10, 2000; and
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘‘CREFAA’’), formulated on June 10, 1958 and entered into by the Chinese government on December 2, 1986.

The Civil Procedure Law of the People’s Republic of China sets forth the criteria for instituting a civil action, the jurisdiction of the People’s Court, the procedures to be followed for conducting a civil action and the procedures for enforcement of a civil judgment or order. All parties to a civil action conducted within China must comply with the Civil Procedure Law of the People’s Republic of China. A civil case involving foreign parties is generally heard by a local court of the municipality or province in which the

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defendant resides. The parties to a contract may, by express agreement, select a jurisdiction where civil actions may be brought, provided that the jurisdiction is either the plaintiff’s or the defendant’s place of residence, the place of execution or implementation of the contract or the object of the action.

A foreign national or enterprise generally has the same litigation rights and obligations as a citizen or legal person of China. If a foreign country’s judicial system limits the litigation rights of Chinese citizens and enterprises, Chinese courts may apply the same limitations to the citizens and enterprises of that foreign country within China. If any party to a civil action refuses to comply with a judgment or order made by a People’s Court or an award granted by an arbitration panel in China, the aggrieved party may apply to the People’s Court to request enforcement of the judgment, order or award. The right to apply for such enforcement must be exercised within two years. If a person fails to satisfy a judgment made by a People’s Court within the stipulated time, the People’s Court may, upon application by either party, mandatorily enforce the judgment. A party seeking to enforce a judgment or order of a People’s Court against a party who is not located within China and does not own any property in China, may apply to a foreign court with proper jurisdiction for recognition and enforcement of the judgment or order. A foreign judgment or ruling may also be recognized and enforced by the People’s Court according to enforcement procedures if China has entered into, or acceded to, an international treaty with the relevant foreign country which provides for such recognition and enforcement, unless the People’s Court finds that the recognition or enforcement of such judgment or ruling will result in a violation of the basic legal principles of China, its sovereignty or security, or is otherwise undesirable for reasons of social and public interest.

The China International Economic and Trade Arbitration Commission (‘‘CIETAC’’) is responsible for foreign-related economic arbitration inside China. In order for disputes to be settled through arbitration, an agreement or clause to engage in arbitration must first be reached by parties concerned upon free will. Without such an agreement or clause, the arbitration commission will refuse to accept the application for arbitration by any one party. Where the parties concerned have reached an agreement or clause for arbitration, the People’s Court will not accept the suit brought to the People’s Court by any one party involved, except in cases where the agreement or clause for arbitration is invalid.

Where a party involved in a foreign arbitration case is applying for the enforcement of an award that has taken legal effect, the party must, in accordance with CREFAA, apply directly to the foreign court with the jurisdiction for recognition and enforcement if the party against whom the award has been given or its property is not in the territory of China.

When China entered into the CREFAA, it had made two reservations. First, China will only recognize and enforce a foreign arbitration award on a mutual benefit basis. Second, China will only apply the convention in disputes arising out of contractual or noncontractual commercial legal relationships under the laws of the China. After China resumed exercise of sovereignty over Hong Kong, CREFAA ceased to be applicable to the enforcement of arbitration awards between China and Hong Kong. China and Hong Kong have signed the Memorandum of Understanding on mutual enforcement of arbitration awards. Pursuant to this memorandum of understanding, Hong Kong will enforce

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APPENDIX III

arbitration awards delivered by any of the over 100 arbitration tribunals that have been specified as having relevant experience, and arbitration awards delivered in Hong Kong are enforceable in China. This memorandum of understanding became effective on February 1, 2000. In addition, under the Arrangement of Supreme People’s Court on Reciprocal Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the HKSAR pursuant to Choice of Court Agreements between Parties Concerned which took effect on August 1, 2008 from on entered into between China and Hong Kong, a party may apply to a Mainland People’s Court or a Hong Kong Court for the recognition and enforcement of an enforceable final judgment involving payments handed down by a Mainland People’s Court or a Hong Kong Court for civil and commercial cases to which written choice of court agreements apply.

In addition, pursuant to the Mandatory Provisions, disputes or claims arising out of rights and obligations provided by articles of association, Chinese Company Law and other related laws and administrative regulations between a company, its directors, supervisors, managers and other senior management, holders of overseas listed shares and holders of domestic shares must be submitted to arbitration. The party that applies for arbitration may either choose CIETAC to arbitrate according to its arbitration rules, or Hong Kong International Arbitration Centre to arbitrate according to its Securities Arbitration Rules. Upon the submission of the disputes or claims to arbitration by a party, the counter party must submit to the arbitration tribunal chosen by the applying party. If the party seeking arbitration elects to arbitrate the dispute or claim at the Hong Kong International Arbitration Centre, then either party may apply to have such arbitration conducted in Shenzhen according to the Securities Arbitration Rules of the Hong Kong International Arbitration Centre.

Hong Kong Company Law and its Comparison with the Chinese Laws Applicable to a Joint Stock Limited Company Incorporated under the Chinese Company Law

Hong Kong company law is primarily set out in the Hong Kong Companies Ordinance and its subsidiary legislation and supplemented by common law. There are material differences between Hong Kong company law and the Chinese laws applicable to a Stock Company incorporated under the Chinese Company Law, to which our Company will be subject, particularly in the area of investor protection. Certain of the material differences between the Chinese Company Law and Hong Kong company law are summarized below. This summary, however, is not intended to be an exhaustive comparison. It should also be noted that the summary relates only to Stock Companies incorporated under the Chinese Company Law.

A. Derivative Action by Minority Shareholders

Hong Kong law allows minority shareholders to start a derivative action on behalf of the general body of shareholders in cases where, for example, one or more of the directors are in breach of duty and where their actions are shielded by the majority shareholders. The Civil Procedure Law of the People’s Republic of China does not provide for such a procedure. Although the Chinese Company Law gives a shareholder or shareholders of a company the right to initiate proceedings in the People’s Court to restrain any resolution

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APPENDIX III

adopted by shareholders in general meeting or at a meeting of the board of directors which is in violation of any law or infringes the lawful rights and interests of the shareholder(s), there is no form of proceedings which is the same as a derivative action under Hong Kong company law. However, each of our Directors and Supervisors (as required by the Hong Kong Listing Rules) has given a written undertaking to our Company (acting as agent for each shareholder) to observe and comply with his obligations to shareholders stipulated in our Articles of Association. This allows minority shareholders to commence actions directly against defaulting Directors.

B. Remedies of Our Company

Under the Chinese Company Law, if a director, supervisor or manager in carrying out his duties infringes any law or administrative regulation or the articles of association of a company resulting in damage to the company, that director, supervisor or manager will be responsible to the company for such damages. In addition, in compliance with the Hong Kong Listing Rules, our Articles of Association set out remedies for our Company similar to those available under Hong Kong law (including rescission of the relevant contract and recovery of profits made by a Director, Supervisor or officer).

C. Directors, Supervisors and Officers

The Chinese Company Law provides for the disqualification of directors, supervisors and managers in circumstances where they enter into certain prohibited business contracts with a company, and for prohibitions of certain unauthorized benefits, but contain no provision restricting the authority of the directors to make major dispositions or prohibiting payment to them for loss of office without shareholders’ approval. However, the Mandatory Provisions contain certain restrictions on major dispositions and specify the circumstances under which a director may receive compensation for loss of office, all of which provisions have been incorporated in our Articles of Association, a summary of which is set out in Appendix IV to this circular.

Under Hong Kong company law, there is no concept of a supervisory committee for a company in addition to its board of directors. However, a Chinese Stock Company must have supervisors whose main duties include ensuring compliance by its directors and managers with laws and regulations and the articles of association of the company. Each director owes a duty, in the exercise of his powers, to act in good faith and honestly in what he considers to be the best interests of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

D. Minority Protection

There is no specific provision in the Chinese Company Law to guard against oppression by the majority shareholders of minority shareholders. However, our Company, as required by the Mandatory Provisions and the Hong Kong Listing Rules, has adopted in our Articles of Association minority protection provisions similar to (though not as comprehensive as) those available under Hong Kong company law, to the effect that a controlling shareholder may not exercise its voting rights in a manner prejudicial to the interests of other shareholders to achieve certain objectives.

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E. Receiving Agent

Under both Chinese and Hong Kong company law, dividends once declared become debts payable to shareholders, but the period for limitation of action is two years in China as opposed to six years in Hong Kong. Our Articles of Association provide for the appointment of an agent in Hong Kong, which must be a trust corporation registered under the Trustee Ordinance in Hong Kong, to receive all dividends payable to H Share holders on behalf of such shareholders as required by the Hong Kong Listing Rules.

F. Variation of Class Rights

The Chinese Company Law contains no specific provisions relating to variation of class rights. However, the Chinese Company Law states that the State Council can promulgate regulations relating to other kinds of shares. The Mandatory Provisions contain elaborate provisions relating to the circumstances which are deemed to be variations of class rights and the approval procedures required to be followed in respect of such variations. These provisions have been incorporated in our Articles of Association, which are summarized in Appendix IV to this circular. Under the Hong Kong company law, no rights attached to any class of shares can be varied except with the approval of a special resolution of the holders of the relevant class at a separate meeting or the consent in writing of the holders of three-fourths in nominal value of the issued shares of the class in question. Our Company (as required by the Hong Kong Listing Rules and the Mandatory Provisions) has adopted in our Articles of Association provisions protecting class rights in a similar manner to those found in Hong Kong company law. Domestic invested shares and overseas listed foreign invested shares are generally treated as separate classes of shares, except in the case of (i) an issue and allotment, in any 12-month period, of domestic shares or overseas listed foreign invested shares (either separately or concurrently following the approval by a special resolution of the shareholders in a general meeting) not exceeding 20% of each respective class of shares existing as at the date of such special resolution; and (ii) the plan for the issue of domestic invested shares and overseas listed foreign invested shares upon our Company’s establishment is implemented within 15 months following the date of approval by the CSRC.

G. Corporate Reorganizations

Corporate reorganizations involving compromises with creditors and members in respect of Hong Kong incorporated companies are dealt with under Section 166 of the Hong Kong Companies Ordinance and require court sanction. For Chinese companies, such reorganizations are subject to the Chinese Company Law and other relevant regulations and under certain circumstances administrative approvals are necessary.

H. Share Capital

For a Stock Company formed under the Chinese Company Law, the registered share capital is the amount of its issued share capital. For a Hong Kong company, the authorized share capital may be larger than the issued share capital. Hence, the directors of a Hong Kong company may, with the prior approval of the shareholders if required, cause the company to issue new shares. In the case of a Chinese company, any increase of the

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registered capital must be approved by the shareholders in general meeting, and may also require approvals from relevant Chinese regulatory authorities. After completion of an approved new issue, the company has to register the increase in share capital with the relevant administration of industry and commerce.

The minimum registered capital of a company seeking a listing of its shares on a stock exchange is RMB30 million under the Chinese Securities Law. Hong Kong company law does not prescribe any minimum capital requirements for a Hong Kong company seeking a listing.

Under the Chinese Company Law, the promoters may make capital contribution by way of injection of non-monetary assets, including physical assets, intellectual property rights and land use rights, which may be valued in monetary terms and are lawfully transferrable based on their appraised value. The amount of monetary capital contributions of all shareholders shall not be less than 30% of the registered capital of the Stock Company.

I. Restriction on Shareholding and Transfer of Shares

The Chinese Company Law does not prescribe the class of shares which may be subscribed for or traded by overseas investors but has provisions that companies proposing to list its shares overseas must comply with the Special Regulations. The Special Regulations and the Mandatory Provisions provide, among other things, that H shares must be in registered form and include other matters some of which are referred to below. There is no restriction under Hong Kong company law on a person’s ability to deal in shares in a Hong Kong company on the basis of his residence or nationality.

Under the Chinese Company Law, shares in a Stock Company held by its promoters, directors or managers may not be transferred within certain periods of time. There is no such restriction under Hong Kong law.

J. Notice of Meetings

Under the Chinese Company Law, shareholders of a Stock Company must be given 30 days’ notice of a general meeting or, in the case of bearer shares, such notice must be published 45 days before the meeting. Under the Special Regulations and the Mandatory Provisions (which apply to our Company) 30 days written notice must be given to all shareholders, and shareholders wishing to attend the meeting must reply in writing to the company at least 20 days before the date of the meeting. For a Hong Kong company, the minimum period of notice of a general meeting where convened for the purpose of considering ordinary resolutions is 14 days and, where convened for the purpose of considering special resolutions 21 days. The notice period for an annual general meeting is also 21 days.

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K. Quorum

Under Hong Kong company law, any two shareholders personally present will constitute a quorum for a general meeting, except for single-shareholder companies and unless the articles of association provide otherwise. The Chinese Company Law does not prescribe when a quorum is regarded as being present. However, the Special Regulations and the Mandatory Provisions provide that a company’s annual general meeting can be convened when written replies to the notice of that meeting have been received from shareholders whose shares represent 50% or more of the voting rights in the company at least 20 days before the proposed date. If that 50% level is not achieved, the company must within five days notify shareholders in a public announcement and the annual general meeting may then be held.

L. Voting

Under Hong Kong company law, ordinary resolutions are passed, if on a show of hands, by more than one-half in number of the shareholders voting in person or by proxy at a general meeting and special resolutions are passed by not less than three-quarters of such shareholders voting. On a poll, ordinary resolutions and special resolutions are passed by not less than one-half and not less than three-fourths, respectively, of the number of all the votes attached to the shares which are voted. Under the Chinese Company Law, the passing of any resolution requires the approval by more than one-half of the votes of the shareholders attending the meeting who have rights to vote on the meeting, except in cases of proposed amendment to the articles of association, merger, division or dissolution of a company where the approval of a two-thirds majority is required. In addition, the Directions to Articles of Association of Listed Companies promulgated by the CSRC on December 16, 1997 require the approval by a shareholder resolution of more than twothirds of the voting rights represented at the meeting for an increase or reduction of share capital, for any issue of corporate bonds, for a repurchase of shares or for any matters which either the articles of association or the shareholders by ordinary resolution at a previous general meeting determined to have a material impact on the Stock Company and therefore requires a special resolution to be passed.

M. Dividends

Our Articles of Association empower our Company to withhold, and pay to the relevant tax authorities, any tax payable under Chinese law on any dividends or other distributions payable to a shareholder. Under Hong Kong law, the limitation period for an action to recover a debt (including the recovery of dividends) is six years, whereas under Chinese laws the relevant limitation period is two years.

N. Financial Disclosure

A Stock Company is required under the Chinese Company Law to make available at its office for inspection by shareholders its financial statements and other relevant annexures 20 days before the annual general meeting of shareholders. In addition, a company established by the public subscription method under the Chinese Company Law must publish its financial statements. The financial statements must be verified by registered

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accountants. The Hong Kong Companies Ordinance requires a company to send to every shareholder a copy of its balance sheet, auditors’ report and directors’ report which are to be laid before the company in its annual general meeting not less than 21 days before such meeting.

Under our Articles of Association (as required by the Hong Kong Listing Rules and the Mandatory Provisions), in addition to preparing accounts according to PRC GAAP, our Company must have its accounts prepared and audited in accordance with international accounting standards or HK GAAP. Our Company is further required to publish its interim and annual accounts within 60 days from the end of the first six months of a financial year and within 120 days from the end of a financial year respectively.

The Special Regulations require that there must not be any inconsistency between the information disclosed within and outside China and that, to the extent that there are differences in the information disclosed in accordance with the relevant Chinese and overseas laws, regulations and requirements of the relevant stock exchanges, such differences must also be disclosed simultaneously.

O. Information on Directors and Shareholders

The Chinese Company Law gives shareholders the right to inspect our Articles of Association, minutes of the shareholders’ general meetings and financial reports. Under our Articles of Association, shareholders have the right to inspect and copy (at reasonable charges) certain information on shareholders and on Directors similar to that available to shareholders of Hong Kong companies under Hong Kong law.

P. Arbitration of Disputes

In Hong Kong, disputes between shareholders and a company or its directors, managers and other senior officers can be resolved through the courts. Our Articles of Association provide that disputes between a holder of H Shares and our Company, our Directors, managers or other senior officers or a holder of domestic shares, arising from our Articles of Association, the Chinese Company Law or other relevant law or administrative regulation which concerns the affairs of our Company must, with certain exceptions, be referred to arbitration at either the Hong Kong International Arbitration Centre or CIETAC. Such arbitration will be final and binding.

Q. Mandatory Deductions

Under the Chinese Company Law, after-tax profits of a company are subject to deductions of contributions to the statutory common reserve fund of the company before they can be distributed to shareholders. There is also prescribed limit under the Chinese Company Law for such deductions. There are no corresponding provisions under the Hong Kong Companies Ordinance.

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R. Fiduciary Duties

In Hong Kong, there is the common law concept of the fiduciary duties of directors. Under the Chinese Company Law, the Special Regulations and our Articles of Association, Directors and managers owe a fiduciary duty towards our Company and our shareholders and are not permitted to engage in any activities which compete with or damage the interests of our Company.

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APPENDIX IV

SUMMARY OF ARTICLES OF ASSOCIATION

Set out below is a summary of the principal provisions of our Articles of Association. Copies of the full English and Chinese texts of our Articles of Association are available for inspection as mentioned in the section headed ‘‘Documents Available for Inspection’’ in Appendix I.

The original Articles of Association of our Company took effect on November 11, 1997, when our Company was established. Our Articles of Association were subsequently revised on several occasions.

BOARD OF DIRECTORS

(1) Power to allot and issue shares

There are no provisions in our Articles of Association empowering our Directors to allot and issue shares. In order to increase the share capital of our Company, our Board of Directors must prepare a proposal for an allotment of shares in our Company, and submit the same to shareholders in shareholders’ general meeting for their approval by way of a special resolution. Our Board of Directors must then submit the proposal for the share allotment to CSRC for approval, and, subject to such approval being obtained, make separate arrangements to implement the share allotment.

(2) Power to dispose of our Company’s assets

Our Directors may not, without the prior approval of shareholders in shareholders’ general meeting, dispose or agree to dispose of any fixed assets of our Company if the aggregate of:

(i) the expected value of the fixed assets proposed to be disposed of; and
(ii) the total consideration received by our Company for all disposals of fixed assets which took place within the period of four months immediately preceding the proposed disposal, exceeds 33% of the value of our Company’s fixed assets as shown in the last balance sheet placed before the shareholders in shareholders’ general meeting.

For the purposes of this provision, a disposal of fixed assets includes an act involving the transfer of an interest in fixed assets but does not include the provision of security in the form of fixed assets under a guarantee. The validity of a transaction entered into by our Company for the disposal of fixed assets by our Company shall not be affected by a breach of this provision.

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(3) Compensation or payments for loss of office

A contract of remuneration entered into between our Company and our Director or Supervisor shall make provisions for that Director or Supervisor to receive compensation for loss of office or upon retirement in the event of a takeover of our Company, subject to the prior approval of shareholders at a shareholders’ general meeting. ‘‘Takeover of our Company’’ refers to any one of the following circumstances:

(i) a takeover offer made by any person to all shareholders of our Company; or
(ii) a takeover offer made by any person with the objective to becoming a controlling shareholder of our Company.

If the relevant Director or Supervisor does not comply with the above provision, any monies received by him shall belong to those persons who have sold their shares by reason of their acceptance of the offer made, and the expenses incurred in distributing the monies pro rata amongst those persons shall be borne by such Director or Supervisor and shall not be deducted out of the monies to be distributed.

(4) Loans to Directors

Our Company may not, directly or indirectly, make a loan or provide any guarantee for a loan to a Director, Supervisor, President or other senior officer, or to a Director, Supervisor, President or other senior officer of our parent company, or to a person connected with the aforementioned officers. The foregoing prohibitions shall not apply in the following circumstances:

(i) the provision of a loan or a guarantee for a loan by our Company to a subsidiary of our Company;
(ii) the provision by our Company to a Director, Supervisor, President or other senior officer pursuant to an employment contract approved by the shareholders’ general meeting of a loan or a guarantee for a loan or other funds to meet expenditure incurred by him in the interest of our Company or for the purpose of enabling him to perform his duties for our Company; and
(iii) where the ordinary course of business of our Company includes the provision of loans or guarantees for loans, our Company may make a loan to or provide a guarantee for a loan to a Director, Supervisor, President or other senior officer or persons connected with them, provided that the terms of the loan or guarantee for a loan are on ordinary commercial terms.

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A loan made by our Company in breach of the prohibition described above shall be repaid immediately by the recipient of the loan, regardless of the terms of the loan. A guarantee for a loan provided by our Company in breach of the foregoing provision shall not be enforceable against our Company, except in the following circumstances:

(i) the lender was not aware of the relevant circumstances at the time: the loan was advanced to the connected person of a Director, Supervisor, President or other senior officer of our Company or our parent company; and
(ii) the security provided by our Company has been lawfully sold by the lender to a bona fide purchaser.

(5) Giving of financial assistance to purchase our Company’s shares

Our Company and our subsidiaries may not at any time give any form of financial assistance by way of gift, advance, guarantee, reimbursement or loan, etc to a person purchasing or who intends to purchase the shares of our Company. For the purpose of this provision, a purchaser of our Company’s shares includes a person who directly or indirectly undertakes any form of obligations as a result of a purchase of our Company’s shares. Our Company and our subsidiaries shall not at any time and in any manner provide any form of financial assistance for the purpose of reducing or discharging such obligations.

For the purpose of Chapter V of our Articles of Association,

(i) ‘‘financial assistance’’ includes (but is not limited to) financial assistance provided by way of:
(a) gift;
(b) guarantee (including cases where the guarantor assumes any obligation(s) or provides security in the form of its assets in order to guarantee the performance of obligations by the obligor), indemnity (other than an indemnity given in respect of our own default), release or waiver;
(c) a loan or a contract under which our obligations have to be fulfilled before the other parties’ obligations are fulfilled, or a change of the parties to that loan or contract, or the assignment of any rights under the loan or contract; or
(d) financial assistance given in any other form under circumstances whereby we are unable to pay our debts or have no net assets, or whereby our net assets may be reduced to a material extent; and
(ii) any reference to an assumption of obligation(s) includes the obligations to be assumed by the obligor under situations where the obligor changes its financial situation by entering into a contract or making any arrangement (whether or not

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such contract or arrangement is enforceable, and whether or not the obligations under such a contract or arrangement are to be borne by that one party alone or together with other party or parties), or by any other means.

The following acts shall not be deemed prohibited by Article 40 of our Articles of Association:

(i) where the financial assistance is provided by us in good faith and in the interests of our Company, and the main purpose of that assistance is not to facilitate the acquisition of shares in our Company or that financial assistance is an incidental part of some broader purpose of our Company;
(ii) where we are lawfully distributing its assets by way of dividend;
(iii) the distribution of a dividend by way of an allotment of bonus shares;
(iv) a reduction of our registered capital, a repurchase of our shares or a reorganization of the structure of our share capital effected in accordance with our Articles of Association;
(v) where we provide a loan which is within our business scope and which is in the ordinary course of our business (provided that our net assets are not reduced as a result of such a loan or where our net assets are reduced, to the extent that those assets are reduced, the financial assistance is provided out of our distributable profits); and
(vi) contributions of money by us to employee-held share schemes (provided that our net assets are not reduced as a result of such contributions or where our net assets are reduced, to the extent that those assets are reduced, the financial assistance is provided out of our distributable profits).

(6) Disclosure of interests in contracts with our Company

Where a Director, Supervisor, President or other senior officer of our Company has, directly or indirectly, a material interest in a contract, transaction or arrangement entered into or proposed to be entered into by our Company (other than his contract of employment), he shall declare the nature and extent of his interest to our Board of Directors at the earliest opportunity, whether or not the matters in question are otherwise subject to the approval of our Board of Directors in the ordinary circumstances. A Director shall not be entitled to vote (nor shall he be counted in the quorum in relation thereto) on any resolution of our Board of Directors in respect of any contract or arrangement or other proposal in which he or his associate (as defined in the Stock Exchange Listing Rules) is materially interested. Unless the Director, Supervisor, President or other senior officer with an interest makes a disclosure to our Board of Directors in the manner just described in this paragraph and the matter is approved by our Board of Directors at a meeting at which he was not counted in the quorum and did not vote, our Company may rescind that contract transaction or arrangement except as against a bona fide party acting in good faith and without notice of the breach of duty by that Director, Supervisor, President or other senior

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officer. For the purposes of this provision, a Director, Supervisor, President or other senior officer is deemed to have an interest in a contract, transaction or arrangement in which a person connected to him has an interest.

If, prior to the date on which our Company first considered the question of entering into the relevant contract, transaction or arrangement, our Directors, Supervisors, President or other senior officer gives our Board of Directors a notice in writing stating that by reason of the matters stated in the notice, he has an interest in a contract, transaction or arrangement proposed to be entered into by our Company, then that Director, Supervisor, President or other senior officer shall be deemed to have made a disclosure for the purpose of and in accordance with our Articles of Association to the extent of the matters disclosed in that notice.

A Director, Supervisor, President or other senior officer may not cause the following persons or entities to engage in conduct that are not permissible if undertaken by that Director, Supervisor, President or other senior officer:

(i) the spouse or minor child of that Director, Supervisor, President or other senior officer;
(ii) a person acting as trustee for that Director, Supervisor, President or other senior officer or as a trustee for any person referred to in (i) above;
(iii) a person who is a partner of that Director, Supervisor, President or other senior officer or a partner of any person referred to in (i) and (ii) above;
(iv) a company in which that Director, Supervisor, President or other senior officer, alone or together with any persons referred to in (i), (ii) and (iii) above, or together with other Director(s), Supervisor(s), manager(s) or senior officer(s) have de facto control; or
(v) a director, supervisor, President or other senior officer of a company referred to in (iv) above.

(7) Remuneration

Our Company shall enter into a contract in writing with each Director and Supervisor in respect of remuneration for his services, with the prior sanction of the shareholders’ general meeting. Such remuneration shall include:

(i) remuneration for his services as Director, Supervisor, President or other senior officer of our Company;
(ii) remuneration for his services as Director, Supervisor, President or other senior officer of a subsidiary of our Company;
(iii) remuneration in respect of other services provided in connection with the management of the affairs of our Company or its subsidiaries; and

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(iv) monies payable to our Director or Supervisor as compensation for loss of his office or upon his retirement from office.

Except pursuant to a contract as described above, a Director or Supervisor shall not institute any proceedings against our Company for any benefit due to him in respect of the above matters.

The Company shall disclose remunerations received from the Company by the Directors, Supervisors and senior officers on a regular basis.

(8) Appointment, retirement and removal

All Directors shall be elected by the shareholders’ general meeting. Our board of Directors shall consist of fourteen Directors, comprising one Chairman, two Vice Chairmen and five independent Directors. The number of the Directors who concurrently hold senior management positions in the Company shall not be less than one fifth of the total number of the Directors.

Directors shall serve a term of no more than three years from the date of approval at the shareholders’ general meeting by way of resolution until the conclusion of the current session of the Board of Directors. Upon the expiry of his term of office, a Director may be re-elected to serve consecutive terms. The Chairman and Vice Chairmen shall be appointed and removed by a majority of our Directors. The Chairman and Vice- Chairman shall serve a term of three years and may be re-elected to serve consecutive terms upon the expiry of the terms of their offices. The Chairman must be elected among Directors or senior officers of the Company who have been in office for three years or above. A Director is not required to hold shares in our Company.

A Director may resign prior to the conclusion of his/her term of office. A Director shall tender his/her resignation by submitting a resignation report to the Board of Directors. If the resignation of a Director results in a Board meeting falling short of its quorum, the resigning Director shall continue to perform his/her duties as a Director in accordance with the laws, administrative regulations, departmental rules and the Articles until a newly elected Director has taken office. The Board of Directors comprising the remaining members shall convene an extraordinary general meeting as soon as practicable to elect a Director to fill the vacancy resulting from the resignation. The duties and powers of the resigning Director and the Board of Directors comprising the remaining members shall be subject to reasonable restrictions before a resolution has been made by the shareholders’ general meeting in respect of the election of Director. Save for the foregoing, the resignation of a Director shall take effect upon delivery of his/her resignation report to the Board of Directors.

A Director who has tendered his/her resignation or whose term of office has concluded shall duly process handover to the Board of Directors. He/she shall not be automatically released of his/her obligation of fidelity to the Company and the shareholders before and within a reasonable period after his/her resignation report takes effect and within a reasonable period after the conclusion of his/her term of office. His/her obligation to keep confidential the commercial secrets of the Company shall remain in effect after the

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conclusion of his/her term of office, until such secret has become publicly available information. Durations for which other obligations remain in force shall be determined on an arm’s length basis, depending on the length of the period between occurrence and departure as well as the circumstances of and conditions to the termination of relationship with the Company.

Notice of an intention to nominate a person for election as a Director and a notice in writing by that person of his acceptance of such nomination shall be given to our Company no earlier than the day following despatch of such shareholders’ general meeting notice, but at least seven days before the date on which the shareholders’ general meeting is convened.

The election of Directors shall employ a cumulative voting method. Each share held by shareholders attending the general shareholders’ meeting shall carry a number of votes equal to the number of Directors to be elected. Thus, any shareholder attending the general shareholders’ meeting holds a number of votes equal to the product of the number of shares represented by him multiplied by the number of Directors to be elected, which may be voted by him in any combination in favour of any Director candidate.

However, the voted so cast, in aggregate, cannot exceed the total number of votes such voting shareholder holds. Candidates receiving more votes shall be elected. However, a Director is required to obtain more than a half of the number of voting shares represented by this general shareholders’ meeting.

Subject to compliance with the relevant laws and administrative regulations, a shareholders’ general meeting may by way of an ordinary resolution remove any Director before the expiry of the term of his office (but without prejudice to any claim for compensation pursuant to any contract).

(9) Borrowing powers

Our Board of Directors has the powers to formulate proposals for an increase or reduction of our Company’s registered capital, the issue of debt and other securities, and listing. Within the scope of authorization by the shareholders’ general meeting, our Board of Directors has the powers to make decisions regarding venture investment, mortgaging of assets, and other matters of guarantee of our Company.

(10) Qualification shares

There is no requirement for Directors to hold qualification shares.

ALTERATIONS TO CONSTITUTIONAL DOCUMENTS

Our Company may amend any provision contained in our Articles of Association in accordance with the provisions of the relevant laws, administrative regulations and our Articles of Association.

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The occurrence of any of the following situations will require us to amend our Articles of Association:

(i) revisions of the Chinese Company Law or any other relevant laws and regulations resulting in certain provisions of our Articles of Association being at variance with such laws and regulations as revised;
(ii) the circumstances of the Company having changed in a way not consistent with the provisions of our Articles of Association; and
(iii) the shareholders’ general meeting resolving to amend our Articles of Association.

Any amendment to our Articles of Association which involves amending the Mandatory Provisions shall become effective only after the approvals of the company approval authorities and the Securities Commission under the State Council, and with the authorizations of the State Council. If the amendment involves any company matter registered with the relevant administration of industry and commence, a registration of such amendments must be made in accordance with the law. Our Board of Directors may amend our Articles of Association pursuant to any resolution of the shareholders in general meeting and the following examination and approval opinion of relevant supervisory authorities. Because amendment of our Articles of Association involves information required by laws and regulations to be disclosed, public disclosure regarding amendment to our Articles of Association shall be made as required.

VARIATION OF RIGHTS OF EXISTING SHARES OR DIFFERENT CLASSES OF SHARES

Rights conferred on any class of shareholders in the capacity of shareholders (‘‘class rights’’) may not be varied or abrogated unless approved by a special resolution of shareholders in shareholders’ general meeting and by holders of shares of that class at a separate meeting conducted in accordance with our Articles of Association.

The following circumstances shall be deemed to be a variation or abrogation of class rights:

(i) any increase or decrease of the number of shares of such class, or increase or decrease of the number of shares of such class having voting or equity rights or privileges equal or superior to these of the shares of such class;
(ii) any exchange of all or part of the shares of such class into shares to another class or to exchange or create a right of exchange all or part of the shares of another class into the shares of such class;
(iii) any cancellation or reduction of rights to accrued dividends or rights to cumulative dividends attached to such class of shares;

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(iv) any cancellation or reduction of preferential rights to receive dividends or to a distribution of assets in the event that our Company is liquidated, attached to such class of shares:
(v) any increase, cancellation or reduction of conversion rights, options, voting rights, rights of transfer or preemption rights, or rights to acquire securities of our Company attached to such class of shares;
(vi) any cancellation or reduction of rights to receive payment payable by our Company in particular currencies attached to such class of shares:
(vii) the creation of a new class of shares with voting or equity rights or privileges equal or superior to those shares of such class:
(viii) any restriction of or any increase in restriction on the transfer of ownership attached to such class of shares;
(ix) the issue of subscription rights or conversion rights for such class of shares or of another class;
(x) any increase in the rights or privileges of shares of another class;
(xi) any restructuring of our Company where the proposed restructuring will result in different classes of shareholders bearing a disproportionate burden of obligation; and
(xii) any variation or abrogation of provisions under this chapter.

Shareholders of the affected class, whether or not otherwise having the right to vote at shareholders’ general meetings, shall nevertheless have the right to vote at class meetings in respect of matters concerning paragraphs (ii) to (viii), (xi) and (xii) above, but interested shareholder(s) (as defined below) shall not be entitled to vote at class meetings.

Resolutions of a class of shareholders shall be passed by votes representing more than two-thirds of the voting rights of shareholders of that class present at the relevant meeting who are entitled to vote at class meetings.

Written notice of a class meeting shall be given 45 days before the date of the class meeting to notify all of the shareholders on the share register of the class of the matters to be considered, the date and the place of the class meeting. A shareholder who intends to attend the class meeting shall deliver his written reply concerning attendance at the class meeting to our Company twenty (20) days before the date of the class meeting.

If the number of shares carrying voting rights at the meeting represented by the shareholders who intend to attend the class meeting reaches more than one half of the voting shares at the class meeting, our Company may hold the class meeting; if not, our Company shall within five days of the deadline for notifying intention to attend, notify the shareholders of the class, again by public announcement, of the matters to be considered,

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the date and the place for the class meeting. Our Company may then hold the class meeting after such publication of such announcement. Notice of class meetings need only be served on shareholders entitled to vote thereat. Meetings of any class of shareholders shall be conducted in a manner as similar as possible to that of shareholders’ general meetings. The provisions of our Articles of Association relating to the manner of conducting any shareholders’ general meeting shall apply to any meeting of a class of shareholders. Holders of domestic-invested shares and foreign-invested shares are deemed to be shareholders of different classes.

The special procedures for voting at a meeting of a class of shareholders shall not apply in the following circumstances:

(i) where our Company issues, upon the approval by a special resolution of its shareholders in shareholders’ general meeting, either separately or concurrently once every 12 months, not more than 20% of each of its existing domesticinvested shares and overseas-listed foreign-invested shares; or
(ii) where our Company’s plan to issue domestic-invested shares and overseas-listed foreign-invested shares at the time of its establishment is carried out within fifteen (15) months from the date of approval of the Securities Committee of the State Council.

For the purposes of the class rights provisions of our Articles of Association, an ‘‘interested shareholder’’ means:

(i) in the case of a repurchase of Shares by way of general offer to all shareholders or public dealing on a stock exchange, a ‘‘controlling shareholder’’ within the meaning of our Articles of Association;
(ii) in the case of a repurchase of Shares by an off-market contract, a holder of our Shares to which the proposed contract relates; and
(iii) in the case of a restructuring of our Company, a shareholder within a class who bears less than a proportionate burden imposed on that class under the proposed restructuring or who has an interest in the proposed restructuring different from the interest of shareholders of that class.

SPECIAL RESOLUTIONS

Resolutions of shareholders’ passed at shareholders’ general meetings may be divided into ordinary resolutions and special resolutions. An ordinary resolution shall be passed by more than one half of the votes represented by the shareholders (including proxies), having the right to vote and be present at the shareholders’ general meeting, being exercised in favor of the resolution. A special resolution shall be passed by more than two-thirds of the votes represented by the shareholders (including proxies), having the right to vote and be present at the shareholders’ general meeting, being exercised in favor of the resolution.

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The shareholders’ general meeting may resolve the following matters by way of a special resolution:

(i) increase or reduction of the stock capital of our Company, and issue of any class of shares, warrant or any other similar securities;
(ii) issue of corporate bonds;
(iii) division, merger, conversion, dissolution and liquidation of our Company;
(iv) Purchase or disposal of significant assets by the Company or provision of guarantee by the Company with an amount exceeding 30% of its latest audited total assets;
(v) amendment to our Articles of Association;
(vi) repurchase of the shares of our Company;
(vii) share incentive schemes; and
(viii) other matters which the shareholders’ general meeting has resolved (by way of an ordinary resolution) as having a potentially material effect on our Company, which should be approved by way of a special resolution.

VOTING RIGHTS

Shareholders (including proxies) may exercise such voting rights at shareholders’ general meeting as they may have in accordance with the number of shares they hold which carry the right to vote, with each share carrying one vote, provided that shares of the Company held by the Company shall not carry any voting rights, nor shall they be counted in the total number of shares carrying voting rights present at the shareholders’ general meeting.

Voting at shareholders’ general meetings must be decided by a poll. The Company shall announce the results of the poll in accordance with relevant laws and regulations and the Listing Rules of The Hong Kong Stock Exchange.

A poll demanded on a vote regarding the election of the chairman of the meeting, or on a question of adjournment of the meeting, shall be taken immediately. A poll demanded on any other matters shall be taken at such time as the chairman of the meeting decides, and the meeting may proceed to other matters. The results of a poll shall be deemed to be a resolution of the meeting at which the poll was demanded.

Shareholders attending the shareholders’ general meeting shall indicate whether they are in favour of, against or abstaining from a resolution tabled for voting. Ballots that are blank, wrongly filled, illegibly filled or withheld shall be deemed as abstaining on the part of the voters concerned and the voting result in respect of the number of shares held by these voters shall be stated as ‘‘abstained’’. On a poll taken at a meeting, a shareholder (including

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his proxy) entitled to two or more votes need not cast all his votes in the same way. In the case of an equality of votes, the chairman of the meeting shall be entitled to an additional vote.

Connected shareholders shall not take part in the voting in respect of connected transactions being considered by the shareholders’ general meeting. Voting shares held by them shall not be counted in the total number of valid voting shares. The voting results of shareholders other than the connected shareholders shall be adequately disclosed in the announcement on the resolutions of the shareholders’ general meeting.

A vote may only be cast once by way of on-site voting, online voting or other voting methods. In case of repetition, the result of the first vote shall prevail.

REQUIREMENTS FOR ANNUAL GENERAL MEETINGS

Shareholders’ general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders’ general meetings shall be convened by our board of Directors. Annual general meetings shall be held once every year within six months after the end of each financial year.

ACCOUNTS AND AUDIT

(1) Financial and accounting system

Our Company shall formulate its financial accounting system in accordance with the relevant laws, administrative regulations and accounting standards in China formulated by the financial supervisory authorities of the State Council. Our Company shall prepare a financial report at the end of every financial year and shall have it audited in accordance with law. Our Board of Directors shall place before the shareholders at every annual general meeting such financial reports as required by the relevant laws, administrative regulations or normative documents promulgated by regional governments and supervisory authorities to be prepared by our Company. The financial reports of our Company shall be made available at our Company’s registered office 20 days prior to the annual general meeting of our Company, for inspection by shareholders. Every shareholder of our Company shall have the right to obtain a copy of the financial reports referred to above. Copies of the above financial reports shall, at least 21 days before the date of the annual general meeting, be sent or mailed by us to every holder of overseas listed foreign shares at his/her address as entered in the register of shareholders, or by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules.

The financial statements of our Company shall, in addition to complying with accounting standards, rules and regulations in China, be prepared in accordance with either international accounting standards or overseas accounting standards of the place at which foreign-invested shares of our Company are listed. If there are material differences between the financial statements prepared in accordance with the aforesaid accounting standards, then the notes to those financial statements shall state and explain such differences. For the purposes of distributing our profits after tax in a financial year, our profits after tax shall be

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deemed to be the lesser of the amounts stated in the different sets of financial statements. Any interim results or financial information announced or disclosed by our Company shall be prepared in accordance with accounting standards, rules and regulations in China as well as in accordance with either international accounting standards or overseas accounting standards of our place where the foreign-invested shares of our Company are listed. Our Company shall announce our financial reports twice in each financial year. The interim report shall be announced within 60 days after the end of the first six months of a financial year and the annual report shall be announced within 120 days after the end of a financial year.

(2) Appointment and removal of auditors

Our Company shall engage an independent audit firm in compliance with relevant state regulations to audit the annual financial report and other financial documents of our Company. The first auditor of our Company may be appointed at our inaugural meeting before the first annual general shareholders meeting and the auditor so appointed shall hold office until the conclusion of the first annual general meeting. If the first auditor is not appointed by our Company at the inaugural meeting, those powers may be exercised by our Board of Directors. The term of appointment of an audit firm appointed by our Company shall commence from the conclusion of the annual general meeting at which the appointment took place until the conclusion of the next annual general meeting of our Company. Our board of Directors may appoint an audit firm to fill any casual vacancy in the office of auditor, provided may continue to act. Shareholders in the shareholders’ general meeting may by ordinary resolution remove an auditor before his term of office expires. Any right of the auditor to claim compensation against our Company for the termination of this office shall not be affected by such termination. Remuneration of the auditor and the manner by which it is determined shall be decided by shareholders in the shareholders’ general meeting. Where the auditor is appointed by our Board of Directors, his remuneration shall be determined by our Board of Directors. The appointment, dismissal or termination of employment of an auditor shall be determined at shareholders’ general meetings and filed with the securities regulatory authorities of the State Council. In the event of the termination or non-renewal of employment of an auditor, the auditor whose employment is to be terminated or not to be renewed shall be given notice in advance. Such auditor shall have the right to present his views at the shareholders’ general meeting.

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(3) Rights of auditors

The auditor(s) appointed by our Company shall have the right to:

(i) inspect at any time the books, records and certificates of our Company, and to require our Directors, President or other senior officers to provide any necessary information and explanations;
(ii) require our Company to take all reasonable steps to obtain from our subsidiaries such information and explanations as are necessary for the auditor(s) to perform his duties; and
(iii) attend shareholders’ general meetings, obtain all notices of, and other information relating to, such meetings which shareholders are entitled to receive, and to present its views at any shareholders’ general meetings on matters that are of his concern as auditor of our Company.

NOTICE OF MEETINGS AND BUSINESS TO BE CONDUCTED THEREAT

(1) Notice of the the shareholders’ general meeting

When our Company convenes a shareholders’ general meeting, the written notice containing information on the proposed meeting agenda, date, and place shall be given not less than 45 days before the date of the meeting to all shareholders registered on the register of shareholders. Any shareholder who plans to attend the shareholders’ general meeting shall notify our Company in writing no less than 20 days before the date of the meeting. The notice to shareholders shall:

(i) be given in writing;
(ii) specify the place, the date and the time of the meeting;
(iii) state the matters to be considered at the meeting;
(iv) provide such information and explanation as necessary for the shareholders to make an informed decision on the matters proposed to be considered. Without limitations to the generality of the foregoing principle, such information and explanation shall include, where our Company proposes to merge with another, to repurchase its shares, to reorganize its share capital, or to restructure in any other way, the details of the terms of, and the contract (if any) for, the proposed transaction, and the reason for and the effect of such proposal;
(v) disclose the nature and extent of the material interests, if any, of any Director, Supervisor, President or other senior officer in a matter to be considered at the shareholders’ general meeting, and the effect of such matter, if any, on our Director, Supervisor, President or other senior officer in his capacity as shareholder in so far as it is different from the effect on other shareholders of the same class;

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(vi) contain the full text of any special resolution proposed to be passed at the shareholders’ general meeting;
(vii) contain, in conspicuous wording, a statement that a shareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and vote on behalf of him and that a proxy so appointed need not be a shareholder; and
(vii) specify the time and place for lodging the proxy form(s) for the shareholders’ general meeting, the share registration date of any shareholder who is entitled to attend the shareholders’ general meeting, and the name and telephone number of the contact person for the affairs of the meeting.

Notices of general meetings shall be served on all shareholders (whether or not they are entitled to vote) by personal delivery or pre-paid post at their addresses registered in the register of shareholders. In respect of holders of domestic-invested shares, notices of general meetings may also be given by way of a public announcement. Once the public announcement is made according to the relevant regulations, all holders of domesticinvested shares shall be deemed to have received notice of the relevant shareholders’ general meeting. The delivery of notices of general meetings, circulars to shareholders and relevant documents to holders of overseas-listed foreign shares may also be conducted by making them available on the websites of the Company and the Hong Kong Stock Exchange in accordance with the requirements and procedures set out in the Listing Rules.

(2) Functions and powers of the shareholders’ general meeting

The shareholders’ general meeting shall have the following functions and powers:

(i) to determine the operational policies and investment plans of our Company;
(ii) to elect and replace directors and to decide matters concerning directors’ remuneration;
(iii) to elect and replace the shareholders’ representatives to sit on the supervisory committee and to decide on matters concerning Supervisors’ remuneration;
(iv) to consider and approve reports of our Board of Directors;
(v) to consider and approve reports of the supervisory committee;
(vi) to consider and approve the annual financial budgets and final accounts of our Company;
(vii) to consider and approve proposals for the distribution of our Company’s profits and plans from making up any losses of our Company;
(viii) to consider guarantees in accordance with relevant provisions of the Articles;
(ix) to consider and decide on proposals to increase or reduce the registered capital of our Company;

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(x) to consider and decide matters concerning the merger, division, conversion, dissolution and liquidation of our Company;
(xi) to consider and decide on the issue of debt securities by our Company;
(xii) to consider and decide the appointment, dismissal or renewal of appointment of a firm of accountants;
(xiii) to make amendments to our Articles of Association;
(xiv) to consider any resolution(s) proposed by shareholders representing 3% or more of the shares carrying voting rights, and to decide such proposals; and
(xv) to consider any purchase or disposal of significant assets by the Company with an amount exceeding 30% of its latest audited total assets;
(xvi) to consider and approve alterations in the use of issue proceeds;
(xvii) to consider share incentive schemes; and
(xviii) to consider and decide any other matters required by law, administrative regulations or our Articles of Association to be dealt with in a shareholders’ general meeting.

TRANSFER OF SHARES

Unless otherwise prescribed by law and/or administrative regulations, shares of our Company are freely transferable without any liens.

All fully paid up foreign-invested shares listed in Hong Kong shall be freely transferable in accordance with our Articles of Association, subject to the right of the Board of Directors to refuse recognition of any transfer document, without providing any reason for such refusal, unless and until the following conditions are satisfied:

(i) payment of a fee of HK$2.50, or such larger amount as may from time to time be specified in the Stock Exchange Listing Rules by the Stock Exchange, to our Company for the registration of any transfer document(s) or other document(s) relating to or affecting the ownership of the shares in question or the change of ownership of those shares;
(ii) the transfer document relates only to foreign-invested shares listed in Hong Kong;
(iii) payment in full of any stamp duty due on the transfer document;
(iv) production of the relevant share certificates and any other evidence reasonably required by our Board of Directors to prove the transferor’s right to make the transfer;

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(v) if the shares are to be transferred to joint holders, the number of joint holders does not exceed four; and
(vi) the relevant shares of our Company are free from all liens.

REPURCHASE OF SHARES

In accordance with the provisions of our Articles of Association, we may reduce our registered capital.

Subject to the approval of the relevant Chinese regulatory authorities and to the procedures provided in our Articles of Association, we may repurchase our issued shares in the following circumstances:

(i) to reduce our share capital;
(ii) to merge with another company which holds the shares of our Company;
(iii) to grant shares to employees of the Company as rewards;
(iv) to acquire shares held by shareholders in dissent of resolutions of the shareholders’ general meeting on mergers or divisions who call for such acquisition; or
(v) under any other circumstances permitted by law and administrative regulations.

The acquisition by the Company of its own shares for reasons stated in the foregoing paragraphs (i) to (iii) shall require approval of the shareholders’ general meeting by way of resolution. Shares acquired by the Company shall be cancelled within ten days after the acquisition in case of paragraph (i) or transferred or cancelled within six months after the acquisition in case of paragraph (ii) or paragraph (iv).

Shares acquired by the Company in accordance with paragraph 1 (iii) shall not exceed 5% of the total issued shares of the Company. Funds used for such acquisition shall be derived from the after-tax profit of the Company. All shares acquired shall be transferred to employees within one year.

Upon the approval of the relevant Chinese regulatory authorities, we may repurchase our own shares by one of the following methods:

(i) by way of a general offer to all shareholders in proportion to their respective shareholdings;
(ii) through open trading on a stock exchange; or
(iii) by entering into an independent agreement for the repurchase of our Company’s shares outside a stock exchange (‘‘off-market agreement’’); or
(iv) other methods permitted by law and administrative regulations.

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Where we repurchase our own shares by an off-market agreement, we must first obtain the prior approval of our shareholders’ in shareholders’ general meeting in accordance with our Articles of Association. Our Company may rescind or vary an off-market agreement previously approved by shareholders, or waive its rights under any such contract, if the prior approval of our shareholders in shareholders’ general meeting is obtained.

Unless our Company is in liquidation, any repurchase of our issued shares must comply with the following:

(i) where we repurchase our shares at par value, payment shall be made out of the available balance of our distributable profits and/or out of the proceeds from any issue of new shares made for the purpose of repurchasing these shares;
(ii) where we repurchase its shares at a premium, payment up to the par value of those shares may be made out of the available balance of our distributable profits and/ or out of the proceeds from any issue of new shares made for the purpose of repurchasing these shares. Payment of the portion in excess of the par value of those shares shall be made as follows:
(1) if the shares being repurchased were issued at their par value, payment shall be made out of the available balance of our distributable profits;
(2) if the shares being repurchased were issued at a premium, payment shall be made out of the available balance of our distributable profits and/or out of the proceeds from any issue of new shares made for the purpose of repurchasing those shares, provided that the amount paid out of the said proceeds does not exceed the aggregate amount of the premiums received by our Company on the issue of the shares being repurchased nor the current amount of our capital reserve fund account (including the aggregate of premiums received on the new shares issued at the time of the repurchase);
(iii) any payment made by our Company for the following purposes shall be paid out of our distributable profits:
(1) to acquire the right to repurchase our own shares;
(2) to vary a contract to repurchase our own shares; or
(3) to release any of our obligations under a contract to repurchase our own shares.
(iv) following the deduction of the aggregate par value of cancelled shares from the registered capital of our Company in accordance with the relevant regulations, the amount of distributable profits used for payment of the par value of such shares shall be charged to our capital reserve fund account.

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POWER OF ANY OF OUR SUBSIDIARIES TO OWN SHARES IN OUR COMPANY

There are no provisions in our Articles of Association limiting ownership of shares in our Company by our subsidiaries.

PROFIT DISTRIBUTION POLICY OF THE COMPANY

The profit distribution policy of the Company shall be as follows:

(i) Reasonable investment returns for investors should be emphasised in the profit distribution of the Company and continuity and stability should be maintained in its profit distribution policy;
(ii) Cash dividend and other amounts payable by the Company to domestic shareholders shall be computed, declared and payable in RMB. Cash dividend and other amounts payable by the Company to H shareholders shall be computed and declared in RMB and payable in Hong Kong Dollars. Foreign currency requirements of the Company for the payment of cash dividend and other amounts to holders of overseas-listed foreign shares shall be procured in accordance with relevant foreign exchange administration regulations of the State;
(iii) Dividend may be distributed by the Company by way of cash or shares. Interim cash dividend may be distributed. At least one cash dividend distribution should be conducted by the Company for every three consecutive years. The actual ratio of distribution shall be proposed by the Board of Directors on the basis of the Company’s business conditions and relevant provisions of the CSRC, subject to the consideration and approval of the shareholders’ general meeting. The Company shall not issue new shares or convertible bonds to the public or place shares to existing shareholders in any given year where it has not conducted any cash profit distribution in the three preceding years;
(iv) Where the Board of Directors of the Company has not made any proposal for cash profit distribution, the reason for the non-distribution and the use of the undistributed funds retained by the Company should be disclosed in its regular reports, and the Independent Directors should furnish an independent opinion thereon;
(v) Where irregular fund appropriation by a shareholder has been identified, deductions should be made by the Company against the cash dividend which should otherwise be distributed to such shareholder in reimbursement of the funds appropriated.

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PROXIES

Any shareholder entitled to attend and vote at a shareholders’ general meeting shall be entitled to appoint one or more persons (whether or not a shareholder) as his proxy or proxies to attend and vote instead of him. The proxy of a shareholder may exercise the following rights in accordance with the authorization of that shareholder:

(i) that shareholder’s right to speak at the meeting; and
(ii) the right to vote on a show of hands or on a poll, but a proxy of a shareholder who has appointed more than one proxy may only vote on a poll.

If the shareholder of our Company is an authorized clearing house, it may authorize any appropriate person(s) as it thinks fit to act as its representative(s) at any shareholders’ general meeting or any class meeting. If more than one person is so authorized, the instrument of authorization must clearly state the class(es) and number of shares in respect of which each such person is so authorised. The aforementioned authorised person is entitled to exercise rights on behalf of the authorized clearing house (or its proxy(ies)), as if such person is an individual shareholder of our Company.

A shareholder shall appoint a proxy in the form of a written instrument, signed by the appointing shareholder(s) or the agent of the appointing shareholder(s) duly authorised in writing. If the appointing shareholder is a legal person, the legal person’s seal or the signature(s) of its director(s) or representative(s) duly authorised in writing is required. Such a written instrument shall state the number of shares represented by the proxy. If there are several proxies, such a written instrument shall state the number of shares represented by each proxy.

The instrument appointing a proxy shall be deposited at the domicile of our Company, or at such other place as prescribed in the notice convening the meeting, either 24 hours before the meeting in question or 24 hours before the time specified for conducting the vote. If the instrument of appointment is signed by a person (other than the appointing shareholder) who is authorised by the appointing shareholder, the power of attorney or other document empowering that person to sign the instrument on behalf of the appointing shareholder must be notarised.

The notarised document(s) shall then be deposited, together with the instrument appointing the proxy, at the domicile of our Company or such other place as prescribed in the notice convening the meeting.

If the appointing shareholder is a legal person, its legal representative or a representative(s) appointed by our Board of Directors or any other decision-making body shall, on behalf of the appointing shareholder, attend the general shareholders’ meeting.

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The format of any form issued to shareholders by our Board of Directors for the purpose of appointing a proxy shall enable a shareholder, according to his free choice, to instruct his proxy to vote in favor of or against each resolution proposed at the meeting. Such a form shall contain a statement that in the absence of instructions from the appointing shareholder(s), the proxy may vote as he considers fit.

The vote of a proxy at a shareholders’ general meeting which is in accordance with the terms of the instrument of his appointment shall be valid notwithstanding the appointing shareholder’s death, loss of capacity, revocation of his appointment or the authority under which the instrument of his appointment was executed, or a transfer of the relevant shares, provided that our Company did not receive notice in writing of such event before the commencement of the relevant meeting.

CALLS ON SHARES AND FORFEITURE OF SHARES

Our Articles of Association do not contain any provisions relating to calls on shares and forfeiture of shares.

INSPECTION OF REGISTER OF MEMBERS

Our Company shall maintain a register of shareholders as a record of the following matters:

(i) the name (title), address (residential) and occupation/nature of occupation of each shareholder;
(ii) the class(es) and number of shares held by each shareholder;
(iii) the amount(s) paid up or payable on the shares held by each shareholder;
(iv) the serial numbers of the shares held by each shareholder;
(v) the date on which each person registers to become a shareholder; and
(vi) the date on which a person ceases to be a shareholder.

The register of shareholders shall be the sufficient evidence for the holding of shares of our Company by a shareholder, except in cases with contrary evidence.

Our Company shall keep a complete register of shareholders.

Ordinary shareholders of our Company shall enjoy, inter alia, the right to receive relevant information in accordance with our Articles of Association including:

(1) all parts of the register of shareholders;
(2) the personal particulars of each of our Directors, Supervisors, Presidents and other senior officers;

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(3) the status of our Company’s share capital;
(4) a report showing the aggregate par value, the number and the highest and lowest prices paid by our Company in respect of each class of the shares repurchased by our Company since the previous financial year, and all expenses paid by our Company for this purpose;
(5) minutes of shareholders’ general meetings;
(6) Stubs of corporate bonds;
(7) Board resolutions;
(8) Resolutions of the supervisory committee; and
(9) Financial and accounting reports.

QUORUM FOR MEETINGS AND SEPARATE CLASS MEETINGS

Shareholders who intend to attend a shareholders’ general meeting shall deposit at our Company written replies confirming their intention to attend at least 20 days prior to the date of the meeting. Our Company shall, according to the written replies received 20 days prior to the shareholders’ general meeting, calculate the number of shares carrying rights to vote represented by the shareholders proposing to attend the meeting. If the number of shares carrying rights to vote represented by shareholders proposing to attend the meeting is more than half of the total number of shares in our Company which carry rights to vote, our Company may proceed to hold the shareholders’ general meeting; if that number is not reached, our Company shall within five days of the deadline for notifying intention to attend, notify the shareholders again of the matters proposed to be discussed at the meeting, the date and venue of the meeting by way of public announcement. After such public announcement is made, our Company may proceed to hold the shareholders’ general meeting.

RIGHTS OF THE MINORITIES IN RELATION TO FRAUD OR OPPRESSION THEREOF

In addition to complying with the obligations imposed by law, administrative regulations or the listing rules of the stock exchanges on which shares of our Company are listed, a controlling shareholder when exercising his rights as a shareholder shall not, by virtue of the exercise of his voting rights, cause a decision to be made such as to prejudice the interests of the general body of shareholders or a group of shareholders in connection with the following matters:

(i) to release a Director or Supervisor of his duty to act honestly in the best interests of our Company;

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(ii) to approve an expropriation in any form by a Director or Supervisor (for his own benefit or for the benefit of another person) of our Company’s assets including, without limitation, opportunities beneficial to our Company; and
(iii) to approve an expropriation by a Director or Supervisor (for his own benefit or for the benefit of another person) of the personal rights of other shareholders, including without limitation, rights to distributions and voting rights, but not including a restructuring of our Company submitted to and approved by, shareholders in shareholders’ general meeting in accordance with our Articles of Association.

For these purposes, a controlling shareholder means a person who satisfies any one of the following conditions:

(i) he, when acting alone or in concert with others, has the power to elect more than half of our Directors;
(ii) he, when acting alone or in concert with others, has the power to exercise 30%, or more of the voting rights in our Company or to control the exercise of 30% or more of the voting rights in our Company;
(iii) he, when acting alone or in concert with others, holds 30% or more of the issued shares of our Company; or
(iv) he, when acting alone or in concert with others, has de facto control of our Company in any other way.

‘‘Acting in concert’’ refers to the act that two or more people by way of agreement (whether orally or in writing), through any one of them to acquire voting power in our Company, accomplish or consolidate control of our Company.

PROCEDURES ON LIQUIDATION

Our Company shall be dissolved and liquidated in accordance with law under any one of the following circumstances:

(i) where the shareholders’ general meeting resolves to dissolve our Company;
(ii) where dissolution is necessary by reason of the merger or division of our Company;
(iii) where our Company is declared insolvent in accordance with law because it is unable to pay its debts as they fall due;
(iv) where dissolution is ordered by the People’s Court pursuant to Article 183 of the Company Law;
(v) where the business licence is suspended, business ordered to be closed down or revoked in accordance with the law; or

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(vi) where the business term stipulated in the Articles has expired or other dissolution events stipulated in the Articles have occurred.

In case of (vi) in the foregoing, the Company may continue to operate by amending the Articles.

Where our Board of Directors decides to liquidate our Company (for reasons other than the insolvency of our Company), our Board of Directors shall, in the notice convening a shareholders’ general meeting for this purpose, state that, after having made full investigation into the affairs of the Company, it is of the opinion that our Company will be able to pay its debts in full within 12 months from the date of commencement of our Company’s liquidation. Upon the passing of a resolution by the shareholders’ in the shareholders’ general meeting to liquidate our Company, the functions and powers of our board of Directors shall cease immediately.

The liquidation committee shall notify creditors within ten days of its establishment and shall make at three public announcements in newspapers in accordance with relevant regulations within 60 days of its establishment. The liquidation committee shall carry out registration of creditors’ rights. After the liquidation committee has administered the assets of our Company and prepared a balance sheet and an inventory of our Company’s assets, it shall draw up a proposal for the liquidation and submit the same to the shareholders’ general meeting or the relevant supervisory authorities for approval.

The assets of our Company shall be distributed in the following order:

(i) liquidation fees and expenses;
(ii) wages, labour insurance premiums and statutory compensation for employees;
(iii) outstanding taxes due;
(iv) debts of our Company.

Any surplus assets remaining after the above payments have been made in full shall be distributed to the shareholders according to the class(es) and proportion of shares they hold.

If our Company is being liquidated as a result of its dissolution and, subsequent to the administration of our Company’s assets and preparation of the balance sheet and inventory of assets, the liquidation committee discovers that our Company’s assets are insufficient to repay its debts in full it shall immediately apply to the people’s court for a declaration of insolvency. Once the people’s court has declared our Company to be insolvent, the liquidation committee shall hand all matters relating to the liquidation over to the People’s Court.

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OTHER PROVISIONS

(1) Limited liability

Our Company is a joint stock limited company of 50 years’ duration. The liability of shareholders to our Company is limited by the shares held by them. Our Company shall be liable for our debts up to the extent of all our assets.

(2) Nature of our Articles of Association

Once our Articles of Association becomes effective, it constitutes a legally binding document governing the constitution and activities of our Company, the rights and obligations between our Company and our shareholders and the shareholders inter se. Our Articles of Association are binding upon our Company and our shareholders, Directors, Supervisors, President and other senior officers. Such persons may bring claims on matters relating to affairs of our Company in accordance with our Articles of Association. Shareholders may bring actions against our Company in accordance with our Articles of Association; our Company may bring actions against shareholders, Directors, Supervisors, the President and other senior officers in accordance with our Articles of Association; shareholders may bring actions against other shareholders in accordance with our Articles of Association, and shareholders may bring actions against Directors, Supervisors, President, and other senior officers of our Company in accordance with our Articles of Association.

(3) Structure of Share Capital

Our Company shall at all times have ordinary shares. Ordinary shares issued by the company include domestic-invested shares and foreign-invested shares. Our Company may, according to its needs, and upon obtaining approval by the companies supervisory authorities authorized by the State Council, create other types of shares. Upon approval from the securities regulatory authorities of the State Council, our Company may issue shares to both domestic investors and foreign investors.

Pursuant to the approval of the companies supervisory authorities authorized by the State Council, the total number of ordinary shares issued by our Company at the time of our incorporation was 250,000,000, of which 185,000,000 shares were issued to the promoters, representing 74% of the total number of ordinary shares issues at the time of our incorporation. After our Company’s incorporation, we further issued ordinary shares, including 224,211,456 overseas listed foreign-invested shares representing 16.7% of the total number of ordinary shares. Other ordinary shares include domestic-invested shares issued to the public.

The structure of our Company’s shares is as the following: the number of ordinary shares is 1,343,330,310; of them other domestic shareholders hold 1,119,118,854 shares and foreign shareholders hold 224,211,456 shares.

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(4) Increase of Share Capital

Our Company may, based on our business and development needs, and in accordance with the provisions of our Articles of Association, increase our share capital.

The following methods may be used for increasing the capital of our Company:

(i) by the public offering of new shares to unspecified investors;
(ii) by the private placing of new shares with existing shareholders;
(iii) by a bonus issue of shares to existing shareholders;
(iv) by capitalisation of capital reserves; or
(v) by any other methods permitted under Chinese laws and administrative regulations and approved by the CSRC.

In increasing the capital of our Company through a new issue of shares, our Company shall, after obtaining necessary approval in accordance with our Articles of Association, implement such increase in accordance with the procedures prescribed by the relevant Chinese laws and administrative regulations.

(5) Functions and Powers of our Board of Directors

Our Board of Directors is accountable to the shareholders’ general meeting and shall have the following functions and powers:

(i) to convene shareholders’ general meetings and to report on its work at shareholders’ general meetings;
(ii) to implement resolutions passed at shareholders’ general meetings;
(iii) to decide our Company’s operational plans and investment proposals;
(iv) to formulate proposals for our Company’s annual financial budgets and final accounts;
(v) to formulate proposals for distributing the profits of our Company and proposals to make up any losses of our Company;
(vi) to formulate proposals for an increase or reduction of our Company’s registered capital and for the issue of debt securities of our Company;
(vii) to prepare plans for important purchase or buyback of our Company’s shares and merger, division, conversion or dissolution of our Company;
(viii) to decide matters concerning the internal management structure of our Company (including its establishment);

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(ix) to appoint or dismiss the President and Secretary to the Board of Directors of our Company and, upon the nomination of the President, to appoint and dismiss Senior Vice President(s), Vice President(s) and other senior officers (including financial controller) of our Company and to decide matters concerning the remuneration, reward or punishment of such officers;
(x) to determine the basic management system of our Company;
(xi) to formulate proposals for amendments to our Articles of Association;
(xii) to administer matters concerning our Company’s information disclosure;
(xiii) to decide on matters concerning venture investment, acquisition and disposal of assets, mortgage, surety, entrusted financial management and connected transactions, etc. within the limits of the authorization of shareholders’ general meetings;
(xiv)to propose to shareholders’ general meetings the employment or alteration of accounting firms to audit our Company;
(xv) to hear the working report of our President and to review our President’s work;
(xvi)to approve acquisition, sale or lease of the assets whose amount is less than 10% of the latest audited net asset value of our Company;
(xvii) to approve the provision of securities (including but not limited to guarantees, mortgages, pledges, liens or deposits) amounting to less than 10% of the latest audited net assets value of our Company;
(xviii) to approve applications for credit facilities to banks or other financial institutions by our Company;
(xix)to approve investments relevant to the main business of our Company amounting to less than 10% of the latest audited net assets value and to approve investments unrelated to the main business of our Company and amounting to less than 5% of the latest audited net assets value of our Company; and
(xx) any other functions and powers conferred by shareholders’ general meetings or provided by laws, regulations and our Articles of Association.

The matters involving an amount exceeding the limits specified in items (xvi), (xvii), and (xix) shall be approved by shareholders’ general meeting. Resolutions passed by our Board of Directors in respect of items (vi), (vii), (xi) and (xvii) above shall be passed by twothirds or more of our Board of Directors voting in favour thereof. In respect of other matters, resolutions may be passed by more than one-half of our Board of Directors voting in favour thereof.

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(6) Secretary of our Board of Directors

Our Company shall appoint a secretary to our Board of Directors. The secretary shall be a senior officer of our Company. The Secretary to the Board of Directors shall be a natural person who has the requisite professional knowledge and experience. The main responsibilities of a company secretary are:

(i) to ensure that our Company will have a complete set of constitutional documents and records;
(ii) to ensure that our Company will prepare and deliver according to law such reports and documents as required by the competent authorities;
(iii) to ensure that our Company’s registers of members are properly established, and that persons entitled to receive our Company’s records and documents are furnished in a timely fashion;
(iv) to organise and prepare for the board meetings and shareholders’ meetings, to prepare documents for such meetings, to make relevant arrangements for the meetings, to be responsible for taking minutes of the meeting, to ensure the accuracy of the minutes, to keep documents and minutes of the meeting and to actively learn about the implementation of relevant resolutions; to report and make recommendations to the board of directors on important implementation issues;
(v) to ensure that important decisions of our Board of Directors will be implemented in strict compliance with the required procedures; at the request of our Board of Directors, to participate in, and organise the consultation and analysis of matters to be decided by our Board of Directors and provide relevant advice and recommendations thereon; to carry out the day-to-day work of our Board of Directors and its relevant committees upon authorization;
(vi) to act as the contact person of our Company with securities regulatory authorities, to be responsible for the organisation and preparation and timely submission of documents required by the regulatory authorities, to be responsible for undertaking and organising completion of the tasks entrusted by the regulatory authorities;
(vii) to be responsible for coordinating and organizing our Company’s information disclosure matters, setting up a sound information disclosure system, participating in all meetings of our Company in relation to information disclosure, to timely gain knowledge of important business decisions and relevant information of our Company;
(viii) to be responsible for keeping confidential price-sensitive information of our Company and formulating effective confidentiality rules and measures; in the event of the disclosure of any price-sensitive information of our Company for

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whatever reason, to take necessary remedial measures, make prompt explanation and clarification of such matters and notify the regulatory authority at the place of relevant overseas listing and the CSRC;

(ix) to be responsible for the coordination and organisation of market promotions, to coordinate visits to our Company, to deal with investor relationships, to maintain contact with investors, intermediaries and the media, to be responsible for coordinating and answering questions raised by the public, to ensure that investors can promptly obtain the information disclosed by our Company, to organise and prepare for marketing and promotion activities within and outside China, to draw up summary reports on market promotion activities and important visits to our Company and organise the reporting of the same to the CSRC;
(x) to be responsible for administering and keeping our Company’s register of members, register of the directors, records of shareholdings of major shareholders and directors and list of the holders of the outstanding debentures of our Company in issue; to be permitted to keep the company seal and to establish comprehensive measures for the management of the company seal;
(xi) to assist our Directors and the President in implementing domestic and foreign laws, regulations, our Articles of Association and other relevant regulations in exercising their powers; after becoming aware that any resolutions made or likely to be made by our Company are in breach of relevant regulations, to promptly give a reminder of such circumstances, and to have the right to report such facts to the CSRC and other regulatory authorities;
(xii) to coordinate the provision of necessary information to facilitate our Company’s supervisory committee and other auditing institutions in performing their supervisory duties, and to assist in the investigations concerning the matters of whether our Company’s financial controller, Directors and President have performed their fiduciary duties; and
(xiii) to perform other functions and powers conferred by our Board of Directors and as required in the overseas jurisdiction where our Company is listed.

(7) Functions and Powers of the Supervisory Committee

Our Supervisory Committee shall be accountable to the shareholders’ general meeting and shall exercise the following functions and powers in accordance with law:

(i) to examine our Company’s financial affairs;
(ii) to supervise the conduct of the Directors, President and other senior officers of the Company in their discharge of duties for the Company and to propose removal of Directors, President and other senior officers who have violated the laws, administrative regulations or the Articles of Association or resolutions of the shareholders’ general meeting;

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(iii) if the conduct of a Director, President or other senior officer is detrimental to the interests of our Company, to require him to rectify such conduct;
(iv) to review and audit regular reports prepared by the Board of Directors and to furnish an audit opinion, to review our Company’s financial reports, business reports and profit distribution plans which our Board of Directors proposes to be submitted to the shareholders’ general meeting, and in appropriate cases, to appoint on behalf of our Company certified public accountants or practicing auditors to assist rechecking;
(v) to propose the convening of extraordinary general meetings and to convene and hold shareholders’ general meetings when the Board of Directors is unable to fulfill its duty to convene and hold shareholders’ general meetings;
(vi) to propose resolutions at the shareholders’ general meetings;
(vii) to institute lawsuits against Directors, the President and other senior officers pursuant to relevant laws;
(viii) To investigate irregularities in the Company’s operations and to negotiate with or institute litigation against Directors; and
(ix) other functions and powers provided by our Articles of Association and shareholders’ general meeting.

A Supervisor may resign prior to the conclusion of his/her term of office. A Supervisor shall tender his/her resignation by submitting a resignation report to the Supervisory Committee. Other provisions of the Articles of Association relating to the resignation of Directors shall also apply to the Supervisors.

(8) Obligations of Directors, Supervisors, and Other Senior Officers of our Company

In addition to the obligations imposed by laws, administrative regulations or the rules of the stock exchanges on which shares of our Company are listed, each Director, Supervisor, and other senior officer, when exercising the functions and powers conferred upon him by our Company, owes the following obligations to every shareholder:

(i) not to cause our Company to operate outside the business scope stipulated in our business license;
(ii) to act in good faith in the best interests of our Company;
(iii) not to expropriate in any manner our Company’s assets, including (but not limited to) opportunities beneficial to our Company; and
(iv) not to expropriate personal interests of shareholders, including (but not limited to) distribution rights and voting rights, but not including structuring of our Company submitted to and approved by the shareholders’ general meeting in accordance with our Articles of Association.

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Each Director, Supervisor, Chairman and other senior officer, in exercise of his rights or performance of his duties, has the duty to act with prudence, diligence, and skills as a reasonable and prudential person may act with in similar situations.

(9) Rights and Obligations of Shareholders

Shareholders of ordinary shares of our Company have the following rights:

(i) to receive dividends and other distributions in proportion to the number of shares held by him;
(ii) to demand, convene, hold and attend shareholders’ general meetings in person or by proxies and to vote thereat in accordance with the law;
(iii) to supervise the business operations of our Company, to make suggestions or to raise queries;
(iv) to transfer, gift or pledge his shares in accordance with the applicable laws, administrative regulations and our Articles of Association;
(v) to acquire relevant information in accordance with provisions of our Articles of Association;
(vi) in the event of the termination or liquidation of our Company, to participate in the distribution of surplus assets of our Company according to the proportion of shares held by him at that time; and
(vii) to call for the Company to acquire their shares where they are in dissent of resolutions of the shareholders’ general meeting on mergers or divisions; and
(viii) other rights conferred by relevant laws and administrative regulations, and our Articles of Association.

Shareholders of ordinary shares in our Company shall have the following obligations:

(i) to abide by the laws, administrative regulations and our Articles of Association;
(ii) to pay subscription monies in accordance with the shares subscribed by him and the method of subscription;
(iii) to refrain from disposing of their shares except in accordance with laws and regulations;
(iv) to refrain from abusing shareholders’ rights in detriment to the interests of the Company or other shareholders; to refrain from abusing the independent status of a corporate legal person and the limited liability of shareholders in detriment to the interests of creditors of the Company; Shareholders who cause or other shareholders to suffer losses because of their abuse of shareholders’ rights shall undertake responsibilities for compensation in accordance with the law.

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Shareholders who cause serious detriment to the interests of creditors by abusing the independent status of a corporate legal person and the limited liability of shareholders to evade debts undertake joint responsibilities for the Company’s debts; and

(v) other obligations imposed by relevant laws, administrative regulations and our Articles of Association.

Save in respect of terms agreed by the subscriber at the time of subscription, a shareholder shall not be liable to subscribe for any further share capital.

(10) Dispute Resolution

Our Company will abide by the following rules of disputes resolution:

(i) disputes or claims involving any rights or obligations provided in our Articles of Association, the Chinese Company Law, Special Provisions and other relevant laws and administrative regulations, concerning the affairs of our Company, between a holder of overseas listed foreign-invested shares and our Company, a holder of overseas listed foreign-invested shares and our Directors, Supervisors, President or other senior officers, and between a holder of overseas listed foreigninvested shares and a holder of domestic-invested shares shall be submitted to arbitration;
(ii) the party that applies for arbitration may choose either CIETAC to arbitrate in accordance with its rules or Hong Kong International Arbitration Centre to arbitrate in accordance with its securities arbitration rules;
(iii) The settlement of disputes or claims under paragraph (i) by way of arbitration shall be governed by the laws of the People’s Republic of China, unless otherwise required under the laws and administrative regulations; and
(iv) the rulings delivered by arbitration tribunals shall be final and binding on all parties involved.

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APPENDIX V

TAXATION

TAXATION OF SECURITIES HOLDERS

The following is a summary of certain Chinese tax consequences of the ownership of H Shares by an investor that purchases such H Shares in connection with the Global Offering and holds the H Shares as capital assets. This summary does not purport to address all tax consequences of the ownership of H Shares, and does not take into account the specific circumstances of any particular investors (such as tax-exempt entities, certain insurance companies, broker-dealer, investors liable for alternative minimum tax, investors that actually or constructively own 10% or more of the voting shares of our Company, or investors that hold H Shares as part of a straddle or a hedging or conversion transaction whose functional currency is not the US dollar), some of which may be subject to special rules. This summary is based on the tax laws of China in effect as at the latest practicable date, as well as on the Agreement Between the United States of America and the People’s Republic of China for the Avoidance of Double Taxation (the ‘‘Treaty’’) and Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (‘‘Double Taxation and Fiscal Evasion Arrangement’’), all of which are subject to change (or changes in interpretation), possibly with retroactive effect.

For purposes of this section, a ‘‘US Holder’’ is any beneficial owner of H Shares that is (i) a citizen or resident of the United States, (ii) a corporation organized under the laws of the United States which pays federal income tax on a net income basis in respect of a Share, or (iii) an estate or trust the income of which is subject to United States Federal income tax without regard to its source. In the case of a partnership that owns H Shares, any partner who falls within the above descriptions is generally also a US Holder. A ‘‘Non-US Holder’’ is any beneficial owner of H Shares, generally also including any partner in a partnership that owns H Shares, that is not a US Holder for United States federal income tax purposes. An ‘‘Eligible US Holder’’ is a US Holder that (i) is a resident of the United States for purposes of the Treaty, (ii) does not maintain a permanent establishment or fixed base in China to which H Shares are attributable and through which the beneficial owner carries on or has carried on business (or, in the case of an individual, performs or has performed independent personal services) and (iii) who is not otherwise ineligible for benefits under the Treaty with respect to income and gains derived in connection with the H Shares.

The discussion does not address any aspects of Hong Kong or Chinese taxation other than income taxation, capital taxation, stamp taxation and estate taxation. Prospective investors are urged to consult their tax advisers regarding Chinese, Hong Kong and other tax consequences of owning and disposing of H Shares.

Taxation of Dividends

Taxation in China

Individual Investors

Under the Provisional Regulations of China Concerning Questions of Taxation on Enterprises Experimenting with the Share System (the ‘‘Provisional Regulations’’) and the Individual Income Tax Law of the People’s Republic of China (amended on December 29,

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APPENDIX V

TAXATION

2007 and effective from March 1, 2008), dividends paid by Chinese companies to individuals are generally subject to a Chinese withholding tax levied at a flat rate of 20%. For a foreign individual who is not resident of the China, the receipt of dividends from a Chinese company is normally subject to a withholding tax of 20% unless reduced by an applicable tax treaty. However, on July 21, 1993 the Chinese State Administration of Taxation of the People’s Republic of China (the ‘‘SAT’’), the Chinese central government tax authority which succeeded the State Tax Bureau, issued the Notice of the State Administration of Taxation Concerning the Taxation of Gains on Transfer and Dividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals (the ‘‘Tax Notice’’) which provided that dividends paid by a Chinese company to foreign individuals with respect to shares listed on an overseas stock exchange (‘‘Overseas Shares’’), including H Shares, are not subject to Chinese withholding tax for the time being. The relevant tax authority has not collected withholding tax on dividend payments on Overseas Shares.

The first Amendments to the Individual Income Tax Law of China (the ‘‘Amendments’’) were promulgated on October 31, 1993 and became effective on January 1, 1994. The amended Individual Income Tax Law can be interpreted as subjecting foreign individuals to withholding tax on dividends paid by a Chinese company at a rate of 20% unless specifically exempted by the tax authority of the State Council. However, in a letter dated July 26, 1994 to the State Restructuring Commission, the State Council Securities Commission and the CSRC, the SAT restated its policy of temporary tax exemption. In the event that the Tax Notice and the letters are withdrawn, a 20% tax may be withheld on dividends paid to foreign individuals by Chinese companies, subject to reduction by an applicable tax treaty between China and the country of residence of the foreign investor.

Enterprises

According to the Enterprise Income Tax Law of the People’s Republic of China promulgated on March 16, 2007 and effective from January 1, 2008 (the ‘‘New Enterprise Income Tax Law’’), dividend paid by PRC companies to foreign enterprises with no permanent establishment in China or foreign enterprises with permanent establishment in China but whose income is unrelated to such no permanent establishment is subject to a PRC withholding tax of 20%. The implementation measures of the New Enterprise Income Tax Law further provide that the tax rate of such withholding tax may be reduced to 10%. The withholding tax could also be reduced pursuant to an applicable double taxation treaty.

Tax Treaties

Investors, who do not reside in China and reside in countries which have entered into double taxation treaties with China, may be entitled to a reduction in the withholding tax imposed on the payment of dividends on, and any gains realised on the sale or disposition, of H Shares by them. China currently has double taxation treaties with a number of other countries, which include Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States.

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APPENDIX V

TAXATION

Under the Treaty, China may tax a dividend paid by our Company to an Eligible US Holder up to a maximum of 10% of the gross amount. A possible interpretation of the Treaty is that only tax gains from the sale or disposition by an Eligible US Holder of H Shares representing an interest in our Company of 25% or more are taxable. However, this interpretation has not been tested and Chinese authorities may take a different view.

Taxation of Capital Gains

Taxation in China

The Tax Notice provides that gains realised by enterprises that are holders of H Shares will not be subject to capital gains taxes. The Provisions for Implementation of Individual Income Tax Law of the People’s Republic of China (the ‘‘Provisions’’), issued on January 28, 1994 and amended on February 18, 2008, stipulated that gains realised by individual holders of it shares on the sale of equity shares will be subject to income tax at a rate of 20% on the gains, and empowered the Ministry of Finance to draft detailed tax rules on the mechanism for collecting such tax. However, gains on the sale of shares by individuals were temporarily exempted from individual income tax pursuant to notices issued by the State Administration of Taxation on June 20, 1994, February 9, 1996 and March 30, 1998. In the event such temporary exemption is withdrawn or ceases to be effective, individual holders of H Shares may be subject to capital gains tax at the rate of 20% unless such tax is reduced or eliminated by an applicable double taxation treaty. If tax on capital gains from the sale of H Shares, becomes applicable, a possible interpretation of the Treaty is that only tax gains from the sale or disposition by an Eligible US Holder of H Shares representing an interest in the Company of 25% or more are taxable. However, this interpretation has not been tested and the Chinese authorities may take a different view.

According to the New Enterprise Income Tax Law, capital gains received from PRC companies by foreign enterprises with no permanent establishment in China or foreign enterprises with permanent establishment in China but whose income is unrelated to such no permanent establishment is subject to an enterprise income tax of 20%. The implementation measures of the New Enterprise Income Tax Law separately provide that the such tax rate may be reduced to 10%. The withholding tax could also be reduced pursuant to an applicable double taxation treaty.

Implementation measures of the New Enterprise Income Tax Law also provide that the lower income tax rate of 10% is also applicable to interest, rental income, license fees and other income received by foreign enterprises with no corporate establishment in China.

Additional Chinese Tax Considerations

Stamp Tax

Chinese stamp tax is imposed on the transfer of shares in publicly-traded companies in China pursuant to the Provisional Regulations. However, the Provisional Regulations of the People’s Republic of China Concerning Stamp Tax, which became effective on

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APPENDIX V

TAXATION

October 1, 1988, provided that Chinese stamp tax is imposed only on documents executed or received within China which are legally binding in China and are protected under the Chinese law.

Estate Tax

No liability for estate tax under Chinese law will arise from non-Chinese nationals holding H Shares.

TAXATION OF OUR GROUP BY THE CHINESE AUTHORITIES

Income Tax

In accordance with the New Enterprise Income Tax Law, all enterprises incorporated in the PRC (including foreign-invested enterprises) shall be subject to an enterprise income tax rate of 25%, save as being entitled to tax concessions under laws, administrative regulations and State Council regulations on tax reduction or exemption.

Value-added Tax

Pursuant to the Provisional Regulations of the People’s Republic of China Concerning Value Added Tax effective from January 1, 1994 and their implementing rules, all units or individuals who are engaged in the sale of goods, the provision of processing, repairs and replacement services, and the importation of goods within the territory of China are required to pay VAT. The amount of VAT payable is calculated as ‘‘output VAT’’ minus ‘‘input VAT’’. With the exception of the sale or import of certain designated categories which are subject to sales tax or import VAT at a rate of 13%, the tax rate applicable to the sale or import, processing and repair services in respect of commodities is 17%.

Business Tax

Pursuant to the Provisional Regulations of the People’s Republic of China Concerning Business Tax effective from January 1, 1994 and the implementing rules, business tax is imposed on enterprises which provide taxable services, transfer intangible property or sell real estate in China. Business tax is levied at a rate between 3% to 20% on the provision of taxable services, transfer of intangible property or sale of real estate in China.

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APPENDIX VI

FOREIGN EXCHANGE

The lawful currency of China is the Renminbi, which is subject to foreign exchange controls and is not freely convertible into foreign exchange. SAFE is authorised by the People’s Bank of China (‘‘PBOC’’)to administer all matters relating to foreign exchange, including the enforcement of foreign exchange control regulations.

On December 28, 1993, the PBOC, under the authority of the State Council, promulgated the Notice of the People’s Bank of China Concerning Further Reform of the Foreign Currency Control System (the ‘‘Notice’’), effective from January 1, 1994. The Notice announced the abolition of the system of foreign exchange quotas, the implementation of conditional convertibility of Renminbi for current account items, the establishment of a system of settlement and payment of foreign exchange by banks, and the unification of the official Renminbi exchange rate and the market rate for Renminbi established at swap centres. On March 26, 1994, the PBOC promulgated the Provisional Regulations for the Administration of Settlement, Sale and Payment of Foreign Exchange (the ‘‘Provisional Regulations’’). The Provisional Regulations set out detailed provisions regulating the sale and purchase of foreign exchange by enterprises, economic organisations and social organizations in China.

On January 29, 1996, the State Council promulgated new Regulations of the People’s Republic of China for the Control of Foreign Exchange (‘‘Control of Foreign Exchange Regulations’’) which became effective from April 1, 1996. The Control of Foreign Exchange Regulations classify all international payments and transfers into current account items and capital account items. Current account items are no longer subject to SAFE approval while capital account items still are. The Control of Foreign Exchange Regulations were subsequently amended on January 14, 1997. This latest amendment provided that the State will not restrict international current account payments and transfers.

On June 20, 1996, the PBOC promulgated the Regulations for Administration of Settlement, Sale and Payment of Foreign Exchange (the ‘‘Settlement Regulations’’) which became effective on July 1, 1996. The Settlement Regulations supersede the Provisional Regulations and abolish the remaining restrictions on convertibility of foreign exchange in respect of current account items while retaining the existing restrictions on foreign exchange transactions in respect of capital account items. Pursuant to the Settlement Regulations, the PBOC also published the Announcement on the Implementation of Foreign Exchange Settlement and Sale at Banks by Foreign-invested Enterprises (the ‘‘Announcement’’). The Announcement permits foreign-invested enterprises to open, on the basis of their needs, foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments at designated foreign exchange banks.

On January 1, 1994, the former dual exchange rate system for Renminbi was abolished and replaced by a managed floating exchange rate system, which is determined by demand and supply. The PBOC sets and publishes daily the Renminbi-US dollar base exchange rate. This exchange rate is determined with reference to the transaction price for Renminbi-US dollar in the inter-bank foreign exchange market on the previous day. The PBOC will also, with reference to exchange rates in the international foreign exchange market, announce the exchange rates of Renminbi against other major currencies. In relation to foreign exchange

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APPENDIX VI

FOREIGN EXCHANGE

transactions, designated foreign exchange banks may, within a specified range, freely determine the applicable exchange rate in accordance with the exchange rate announced by the PBOC.

PBOC announced that a ‘‘managed’’ floating exchange rate system will be implemented in the PRC starting from July 21, 2005, under which the RMB exchange rate are determined on the basis of market demand and supply and by reference to a basket of currencies, instead of pegged solely to US dollar. The closing exchange rates of RMB against US dollar and other currencies in the inter-bank foreign exchange market are announced by PBOC after the close of each business day, on the basis of which the central parity of RMB trading for the next trading day will be determined.

On January 4, 2006, PBOC introduced the price-enquiry transaction approach to the inter-bank spot foreign exchange market in a bid to improve the formation of central parity for RMB exchange rate, while the price-matching approach was retained. Meanwhile, a market-making system was also introduced to the inter-bank foreign exchange market to provide liquidity in the market. Following the introduction of the price-enquiry approach, the announced central parity of the RMB/US dollar exchange rate of each trading day shall be determined by the China Foreign Exchange Trading System at 9: 15 am that day based on price enquiries, as opposed to the closing price determined through price matching in the inter-bank foreign exchange market.

Save for foreign-invested enterprises or other enterprises which are specially exempted by relevant regulations, all entities in China must sell their foreign exchange income to designated foreign exchange banks. Foreign exchange income from loans issued by organizations outside the territory or from the issuance of bonds and shares (for example foreign, exchange income received by us from the sale of shares overseas) is not required to be sold to designated foreign exchange banks, but may be deposited in foreign exchange accounts at the designated foreign exchange banks.

Chinese enterprises (including foreign-invested enterprises) which require foreign exchange for transactions relating to current account items, may, without the approval of SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks, on the strength of valid receipts and proof of transaction. Foreign-invested enterprises which need foreign exchange for the distribution of profits to their shareholders, and Chinese enterprises which in accordance with regulations are required to pay dividends to shareholders in foreign currencies (such as our Company), may on the strength of board resolutions on the distribution of profits, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks.

Convertibility of foreign exchange in respect of capital account items, like direct investment and capital contribution, is still subject to restriction, and prior approval from SAFE must be obtained.

Dividends to holders of H Shares are fixed in Renminbi but must be paid in Hong Kong dollars.

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AI assistant

ZTE Corporation — Proxy Solicitation & Information Statement 2009

49452_rns_2009-03-31_8940791c-ca52-4581-a227-375a18616584.pdf

ZTE CORPORATION 中 興 通 訊 股 份 有 限 公 司

PROPOSED BONUS SHARES ISSUE

BY CONVERSION OF CAPITAL RESERVE AND DIVIDENDS AND PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION PROPOSED AMENDMENTS TO THE RULES OF GENERAL MEETINGS

DEFINITIONS

ZTE CORPORATION 中 興 通 訊 股 份 有 限 公 司

PROPOSED BONUS SHARES ISSUE

BY CONVERSION OF CAPITAL RESERVE AND DIVIDENDS AND PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION PROPOSED AMENDMENTS TO THE RULES OF GENERAL MEETINGS

BACKGROUND

LETTER FROM THE BOARD

A. PROPOSED BONUS SHARES ISSUE AND DIVIDENDS

Conditions of the Proposed Bonus Shares Issue

Rights of Overseas H Shareholders

Warning of Risks of Dealing in the H Shares

Reasons for the Proposed Bonus Shares Issue

Ranking of the Bonus Shares and Fractional Entitlements

Listing and Dealings

B. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND THE RULES OF THE GENERAL MEETINGS

(1) Article 24

(2) Article 27

Proposed Amendments to Articles 83, 87, 116, 119, 225, 247, 275, 276 and 277 of the Articles of Association

(1) Article 83

LETTER FROM THE BOARD

(3) Article 116

(6) Article 247

(7) Article 275

(9) Article 277

Proposed Amendments to Article 234 of the Articles of Association

Article 234

Proposed Amendments to the Rules of the General Meetings

Rule 9

LETTER FROM THE BOARD

Rule 13

Rule 44

Rule 49

C. AGM

Notice, Proxy Form and Reply Slip

Closure of Share Registers

D. H SHAREHOLDERS CLASS MEETING

Notice, Proxy Form and Reply Slip

Closure of Share Registers

E. RECOMMENDATION

F. GENERAL INFORMATION

MATERIAL CONTRACTS

APPENDIX I

FOREIGN EXCHANGE LIABILITIES

STATEMENTS TO BE MADE ON ACQUISITION OF SHARES

DOCUMENTS AVAILABLE FOR INSPECTION

APPENDIX II

Economic, political and social conditions and government policies in China could have a material adverse effect on our business, financial condition and results of operations.

Future movements in exchange rates may have a material adverse effect on our financial condition and results of operations.

Government control of foreign currency conversion may limit our foreign exchange transactions.

The telecommunications industry in China is subject to extensive government regulation, which is still evolving.

PRC LAWS AND REGULATIONS

A. COMPANY LAWS, REGULATIONS AND REGULATORY PROVISIONS

(I) Chinese Company Law and Regulatory Provisions

1. Definition

2. External Investment

3. Incorporation

4. Share Capital

(a) Forms of contribution

(b) Issuance of shares

(c) Increase in share capital

(d) Reduction of share capital

5. Organizational Structure

6. Finance and Accounting

7. Termination and Liquidation

8. Merger and Division

(II) Shenzhen Stock Exchange, Share Listing Rules (Amended Version 2008)

1. Listing agreement

2. Share listing applications, examination, and information disclosure

3. The basic principles for information disclosure

4. Secretary to the board of directors, equity interest administration and information disclosure matters

5. Periodic report

6. Announcements

7. Suspension and resumption of trading

8. Withdrawal risk warning and special treatment

9. Suspension, resumption and termination of listing

ZTE Corporation Proxy Solicitation & Information Statement 2009

ZTE CORPORATION 中興通訊股份有限公司

ZTE CORPORATION 中興通訊股份有限公司