BUSINESS

OVERVIEW A1A-28(1)a

We are the largest integrated construction group in the PRC and in Asia, the third largest construction 3rd Sch.-1 contractor in the world in 2006 (up from fourth largest in 2005), based on total contracting revenue, and a R11.07 Fortune Global 500 company. We offer a full range of construction-related services, including infrastructure construction, survey, design and consulting services and engineering equipment and component manufacturing, which enables us to provide integrated one-stop solutions to our customers and compete effectively in large-scale and complex projects. We have enjoyed a leading market position in the railway construction industry in the PRC since the 1950s. We also hold leading positions in the design and construction of bridges, tunnels and electrified railways, and the research, development and manufacturing of turnouts and bridge steel structures in the PRC. Our products and services in these businesses have attained advanced international standards. In addition, we are leveraging on our established platform in the infrastructure construction industry to expand into other industries such as property development and mining. We operate in every province, autonomous region and municipality across the PRC and have A1A-29(2) established a growing international presence, having undertaken more than 230 construction projects across more than 55 countries and regions globally. Since the 1980s, we have received more than 200 of the most prestigious awards in the fields of engineering, construction, research and design. Our total revenue was RMB153.6 billion for the year ended 31 December 2006 and RMB72.5 billion for the six months ended 30 June 2007, and our profit attributable to equity holders for the same periods were RMB2,046 million and RMB643 million, respectively.

The table below summarizes our business segments and the major services and products we provide in each business segment:

Business Segment Key Services and Products Infrastructure Construction ********** Construction of railways, highways, bridges, tunnels, metropolitan railways (including subways and light railways), buildings, irrigation works, hydroelectricity projects, ports, docks, airports and other municipal works

Survey, Design and Consulting Services ************************ Survey, design, consulting, research and development, feasibility study and compliance certification services with respect to infrastructure construction projects

Engineering Equipment and Component Manufacturing******** Design, research and development, manufacture and sale of turnouts and other railway-related equipment and materials, steel structures and engineering machinery

Property Development ************** Development, sale and management of residential and commercial properties

Other Businesses******************* Railway and road investment and operation projects, mining, raw material trading and other ancillary businesses

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The following table sets out the amount and percentage of our total revenue provided by each of our five business segments for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007:

For the year ended 31 December For the six months ended 30 June 2004 2005 2006 2006 2007 % of % of % of % of % of Revenue Total Revenue Total Revenue Total Revenue Total Revenue Total (unaudited) (RMB in millions, except for percentages) Infrastructure Construction *********** 77,249 87.8 99,204 87.9 140,399 89.6 54,423 88.6 67,637 88.0 Survey, Design and Consulting Services 2,780 3.2 3,480 3.1 4,124 2.6 1,565 2.6 1,507 2.0 Engineering Equipment and Component Manufacturing ******** 3,024 3.4 3,814 3.4 4,095 2.6 1,955 3.2 2,222 2.9 Property Development *************** 863 1.0 1,622 1.4 1,879 1.2 932 1.5 1,408 1.8 Other Businesses******************** 4,018 4.6 4,747 4.2 6,278 4.0 2,544 4.1 4,043 5.3 Subtotal *************************** 87,934 100.0 112,867 100.0 156,775 100.0 61,419 100.0 76,817 100.0 Inter-Segment eliminations *********** (1,105) (1,444) (3,207) (1,045) (4,328) Total ****************************** 86,829 111,423 153,568 60,374 72,489

The following table sets out the amount and percentage of our segment results provided by each of our five business segments for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007:

For the year ended 31 December For the six months ended 30 June 2004 2005 2006 2006 2007 Operating % of Operating % of Operating % of Operating % of Operating % of Profit Total Profit Total Profit Total Profit Total Profit Total (unaudited) (RMB in millions, except for percentages) Infrastructure Construction *** 157 19.6 566 36.3 2,227 61.3 607 45.7 715 57.2 Survey, Design and Consulting Services****************** 169 21.1 132 8.5 351 9.7 115 8.7 67 5.4 Engineering Equipment and Component Manufacturing 379 47.4 432 27.7 445 12.3 168 12.6 67 5.4 Property Development ******* 90 11.3 344 22.0 426 11.7 257 19.3 285 22.8 Other Businesses************ 5 0.6 87 5.5 181 5.0 182 13.7 116 9.2 Subtotal ******************* 800 100.0 1,561 100.0 3,630 100.0 1,329 100.0 1,250 100.0

Adjustment(1) *************** 45 58 52 (110) 189 Total ********************** 845 1,619 3,682 1,219 1,439

(1) Operating profit for individual business segments in this Prospectus is segment result, which includes the addition of net allocated finance income or the deduction of net allocated finance expenses. Total operating profit for the Group represents the total of operating profit for individual business segments after adjustment to include net unallocated income (expenses) and to eliminate inter-segment transactions and net allocated finance income (expenses).

Infrastructure Construction

We are the largest integrated construction group in the PRC and in Asia and the third largest construction contractor in the world in 2006 (up from fourth largest in 2005), in terms of total contracting revenue. Our track record of successfully completing numerous large-scale construction projects and developing and applying innovative technologies and engineering methods in such projects has enabled us

88 BUSINESS to become a leading company in the infrastructure construction industry in the PRC and various other countries in the world. Our principal focus is on railway construction and we have participated in the construction of all main railway lines built in the PRC since the 1950s. We also focus on the construction of large-scale, complex bridges and tunnels and are one of the market leaders in the construction of expressways, highways and metropolitan railways in the PRC. Our major infrastructure construction activities throughout the PRC also include construction of buildings, irrigation works, hydroelectricity projects, ports, docks, airports and other municipal works. We have also established a growing portfolio of international infrastructure construction projects, and have undertaken over 230 construction projects in more than 55 countries and regions. For the six months ended 30 June 2007, our Infrastructure Construction Business accounted for approximately RMB67.6 billion, or 88.0%, of our total revenue and RMB715 million, or 57.2%, of our operating profit before adjustment.

Survey, Design and Consulting Services We are one of the leading players in the infrastructure survey, design and consulting services industry in the PRC and offer a full range of survey, design and consulting services (including integrated one-stop solutions and specialized services in the areas of railway electrification, bridge and tunnel design). In particular, we are a leader in the railway survey, design and consulting services market and play an important role in assisting the MOR to formulate railway industry standards on design, construction and implementation specifications and quality inspection. Having a market share of more than 31% of the PRC metropolitan railway survey and design services market, in which there are a large number of participants each with a small market share, we, along with our associates, dominate the PRC market for metropolitan railway survey and design services. We also hold a leading position in the bridge, tunnel and electrified railway survey and design markets, and the airborne and remote sensing survey and design market in the PRC. For the six months ended 30 June 2007, our Survey, Design and Consulting Services Business accounted for approximately RMB1.5 billion, or 2.0%, of our total revenue and RMB67 million, or 5.4%, of our operating profit before adjustment.

Engineering Equipment and Component Manufacturing We are the largest manufacturer of several railway-related engineering equipment and components in the PRC. Our major product lines include turnouts and other railway equipment, steel structures, tracked machines and engineering machinery. We are one of the largest developers and manufacturers of turnouts in the world based on total number of units produced. We dominate the turnout market in the PRC and are the sole developer and manufacturer of high manganese steel welded frogs and the only manufacturer currently producing acceleration turnouts in the PRC, being the only entity granted the permit by the MOR to manufacture high manganese steel welded frogs and one of two entities granted permits by the MOR to manufacture acceleration turnouts. We are also one of the leading manufacturers of bridge steel structures and the sole manufacturer of railway-related large bridge steel structures in the PRC. We are one of the few manufacturers that have been licensed by the MOR to manufacture tracked machines such as rail trolleys and electrified railway work vehicles. We are committed to building our research and development and design capabilities and providing pre-sales and after-sales services, including the installation of our manufactured products. For the six months ended 30 June 2007, our Engineering Equipment and Component Manufacturing Business accounted for approximately RMB2.2 billion, or 2.9%, of our total revenue and RMB67 million, or 5.4%, of our operating profit before adjustment.

Property Development Our Property Development Business consists primarily of the development, sale and management of a wide range of residential properties targeting middle and upper-middle income purchasers and commercial properties in the PRC. To date, our developments have been located primarily in large and mid-sized cities,

89 BUSINESS such as Beijing, Chengdu, Shenzhen, Guiyang, Guangzhou, Wuhan, Shijiazhuang and Anqing. We intend to continue our focus on our property development activities in cities in the Pearl River Delta, the Yangtze River Delta and the Bohai Bay regions and other provincial capitals and cities in the PRC. We will commit our resources in property development projects to upgrade old towns or develop new towns and districts or previously undeveloped land. As at 30 September 2007, we had 47 projects in various stages of development. These projects had an aggregate site area of approximately 3,743,643 square meters and a total GFA of approximately 6,308,816 square meters. As at 30 September 2007, our property development and investment portfolio was valued by Sallmanns (Far East) Ltd. at approximately RMB8 billion. See ‘‘Appendix IV — Property Valuation’’. For the six months ended 30 June 2007, this business accounted for approximately RMB1.4 billion, or 1.8%, of our total revenue and RMB285 million, or 22.8%, of our operating profit before adjustment.

Other Businesses

We are also engaged in the development and operation of a number of other businesses including railway and road investment and operation projects, mining, raw material trading and certain other ancillary businesses. We have been granted permission by the MOR to build, operate and own railways and concession rights by the local governments to build, operate and transfer toll roads. In addition, we hold controlling interests in one gold mine located in the Inner Mongolia Autonomous Region of the PRC and two copper and cobalt mines located in the Democratic Republic of the Congo. All of our mines are currently engaged in exploration activities. We expect our gold mine to commence production in 2008 and our two copper and cobalt mines to commence production in the second half of 2008 and the first half of 2009, respectively. Our raw material trading activities primarily consist of the purchase and resale of construction-related raw materials. In addition, our Other Businesses include provision of property management services and logistics, among others. For the six months ended 30 June 2007, our Other Businesses accounted for approximately RMB4.0 billion, or 5.3%, of our total revenue and RMB116 million, or 9.2%, of our operating profit before adjustment.

COMPETITIVE STRENGTHS

We are the largest construction group in the PRC and in Asia, and the third largest and one of the most competitive integrated construction groups in the world.

We are the largest integrated construction group in the PRC and in Asia and the third largest in the world in 2006, based on total contracting revenue. We have a long, proven operating history and a widely recognized brand name in the PRC and globally. We were ranked 342 in Fortune Magazine’s ‘‘Global 500’’ list published in 2007 (up from 441 in 2006). We were also ranked 417 in the World Brand Laboratory’s ‘‘World’s 500 Most Influential Brands’’ list published in 2007 (up from 476 in 2006).

We have extensive business coverage within the construction industry and have established leading positions in several construction and construction-related businesses.

( We are the largest railway construction group in the PRC, having constructed, rebuilt and/or extended more than two thirds of the current total operating railways in the PRC and have independently undertaken or participated in almost all large-scale and complex railway construction projects in the PRC. We are particularly experienced in the construction of electrified railways.

( We are a leading highway construction group in the PRC, specializing in the construction of expressways. We have a significant market share in the highly-fragmented highway construction market in the PRC.

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( We are one of the leading enterprises in the bridge and tunnel construction market in the PRC, and are particularly experienced in the design and construction of ultra-long bridges and ultra- long tunnels. We have independently constructed or participated in the construction of all railway bridges and all railway and road dual-purpose bridges crossing the Yangtze River or the Yellow River. ( We are one of the leading players in the metropolitan railway market in the PRC, having participated in the survey, design and construction of all metropolitan railway projects completed or in progress. We also participated in the construction of metropolitan railways in all major cities in the PRC that have metropolitan railways. ( We are a leader in the infrastructure survey and design market in the PRC. In 2005 and 2006, we were first on the Top 60 Foreign Construction Contract, Survey and Design, and Construction Companies list prepared by the U.S. Engineering News-Record and China Construction Newspaper. Our subsidiary, China Railway Eryuan Engineering Group Co., Ltd., was ranked first among the top 50 survey and design enterprises in the PRC by the Ministry of Construction in 2005 and 2006, in terms of revenue generated from survey, design and consulting business. ( We are the largest manufacturer of several railway-related engineering equipment and components, including bridge steel structures, turnouts, other railway engineering equipment in the PRC. We were one of the largest developers and manufacturers of turnouts in the world during the Track Record Period, based on total number of units produced. We dominate the turnout market and are the sole developer and manufacturer of currently producing high manganese steel welded frogs and the only manufacturer currently producing acceleration turnouts in the PRC. We are also the sole manufacturer of railway-related large bridge steel structures in the PRC. ( We have over 30 years of overseas experience and have undertaken over 230 construction projects, including railway, expressway, bridge, tunnel, municipal construction, building construction, irrigation work and hydroelectricity projects in more than 55 countries and regions. We have one of the widest spectrums of relevant qualifications in the PRC construction industry. We have obtained a full range of top-tier construction qualifications covering areas such as railway, highway, building, utility infrastructure and other municipal works construction as well as qualifications for overseas contracting projects and various survey and design and consulting qualifications. Our status as the largest construction group in the PRC and in Asia and our successful track record has allowed us to build a premium brand globally. We believe our status as an industry leader and our established market reputation will continue to provide us with significant advantages in competing for construction services contracts and the opportunity to leverage on our reputable brand equity to expand into other related services and industries.

We are well positioned to capture opportunities in the rapidly growing PRC construction industry and have promising growth prospects. As a leading construction group that conducts a vast majority of our operations in the PRC, we are well positioned to benefit from robust growth in the PRC economy and particularly in the construction industry. Between 1997 and 2006, the PRC GDP grew at a CAGR of 11.5%. Economic growth, bolstered by increasing urbanization and industrialization and continued development of less economically developed regions in the PRC, has served to further enhance the level of infrastructure construction and transportation activities in the PRC. According to Datamonitor, the PRC construction and engineering market grew at a CAGR of 11.1% between 2000 and 2004. In order to continue to develop the transportation system and other infrastructure to sustain the country’s economic growth, the PRC government has announced a

91 BUSINESS budget of RMB3.8 trillion for transportation infrastructure (including highways and waterways) projects and RMB1.25 trillion for railway infrastructure projects during the Eleventh Five-Year Plan period. Pursuant to the Eleventh Five-Year Plan, during the period from 2006 to 2010, the PRC government will:

( invest over RMB1,250 billion in the construction of 17,000 kilometers of new railways, upgrade of the technology used in the existing railway network and expansion of the existing railway network into more remote western regions;

( invest an average of approximately RMB140 billion to RMB160 billion each year in the construction of 380,000 kilometers of highways, including 24,000 kilometers of expressways; and

( invest a total of approximately RMB200 billion during the period in the subway networks. The robust economic growth and rapid urbanization and development in the PRC have also helped stimulate the growth of investments in municipal works and of the property sector, including the growth of property development business to upgrade old towns or develop new towns and districts or previously undeveloped land. We believe these trends will continue to provide us with significant market opportunities and growth prospects. As the leading integrated construction group in the PRC, we are well positioned to capture the opportunities presented by the growth of the PRC economy, in particular those arising from the fast growing railway and highway construction markets and the property development business. For the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, we had a strong backlog amounting to approximately RMB69.2 billion, RMB130.7 billion, RMB159.0 billion and RMB191.7 billion, respectively.

Our broad business scope and economies of scale allow us to provide integrated one-stop solutions and achieve synergies across businesses. As the largest integrated construction group in the PRC, we believe the breadth of our operations and the strength of our service capability provide us with significant advantages as compared to smaller Chinese enterprises. Our infrastructure construction projects include railway, highway, bridge, tunnel, municipal work, building construction, irrigation work, hydroelectricity, port and waterway engineering works, among others. In addition to our infrastructure construction and survey, design and consulting services businesses, we also engage in engineering equipment and component manufacturing, property development and mining businesses. We are able to provide our clients with a full spectrum of integrated services across different phases of a project, including survey, design, and consulting services, construction, construction supervision, equipment design and manufacture, and maintenance and repair services. We believe our ability to offer one-stop solutions to our clients provides us with a key competitive advantage, particularly with respect to larger and more complex projects, such as the Neijiang-Kunming Railway, the Beijing — Kowloon Railway, Fuyang to Jiujiang Section and the Dezhou — Shangqiu Expressway, which tend to be awarded to integrated service providers like us. In addition, our integrated business model and economies of scale allow us to realize synergies among different businesses such as:

( sharing market information and cross-selling across our different operations;

( coordinating sales and sourcing of raw materials among different operations, in order to increase our bargaining power;

( leveraging established platforms in the infrastructure construction business to expand into and grow other profitable businesses; and

( rationalizing and consolidating management functions across different business segments.

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These methods provide us opportunities to increase our market share and strengthen our leading market position and to capture different growth trends and opportunities in the infrastructure construction industry.

Our research and development capabilities, leading technologies and advanced equipment enable us to win and carry out large-scale and complex landmark projects. Research and development capabilities: We possess one of the most advanced research and development capabilities in the PRC infrastructure construction industry. We have five research institutes, three post-doctoral workstations and 15 technology centers (including three provincial-level technology centers). We also intend to set up a state-certified laboratory specializing in developing technologies for high-speed railway construction and key related equipment and we are also in the process of setting up the first professional research and development center for turnouts in the PRC. We are also sponsored by the PRC government under the National Project 863 to establish a professional research and development and production base for tunnel boring machinery in Xinxiang City, Henan Province. Leading technologies: We have world-class construction expertise that represents some of the most advanced methods and know-how in the PRC construction industry. Our professional capabilities in designing, constructing and manufacturing are of the highest level, and include expertise in designing and constructing electrified railways, ultra-large bridges, deep-water foundations and ultra-long tunnels and designing and manufacturing of bridge steel structures and turnouts. As at 30 June 2007, we owned 202 patents, 61 National-Level Engineering Methods and 359 Provincial and Ministry-level Engineering Methods. Advanced equipment: We own 48 tunnel boring machines, which are crucial for subway and tunnel construction, a ship-mounted crane (‘‘Tian Yi’’) with the largest lifting capacity in Asia, most of the bridge erecting machinery and track laying machinery in the PRC, for the construction of new railway lines, and most of the overhead contact line operating equipment in the PRC, for the construction of electrified railway lines. In addition, we own a variety of advanced, international-standard heavy machinery used in our Engineering Equipment and Component Manufacturing Business. Our strong research and development capabilities and advanced equipment and technologies allow us to complete large-scale, complex projects in an innovative and cost-effective manner. Our innovation and excellence in the industry have earned us a large number of awards. As at 30 June 2007, we had won a total of 72 National Advanced Science and Technology Prizes, 70 Luban Prizes, 64 National Supreme Quality Project Prizes, 25 Zhan Tianyou Prizes for Civil Engineering and 67 National Prizes for Outstanding Survey and Design, as well as many other governmental awards in the fields of engineering, construction, research and design. We have also participated in formulating relevant national and industry standards and technical specifications. We believe our research and development capabilities, leading technologies and advanced equipment will continue to serve as a strong basis for us to win and complete the largest and most challenging projects.

We have extensive experience in domestic and overseas operations, and a long history of close partnership with authorities in the PRC and abroad. We have over 50 years of experience working in the PRC engineering and construction industry. Through our subsidiaries, we have achieved extensive experience in project operations and a thorough understanding of different business environments across the country. We regard this experience and our wide geographical coverage as major strengths that give us a leading position in the PRC construction industry. We have maintained good long-term relationships with our major clients in the PRC, including our largest client, the MOR. We have a long history of working successfully with the MOR in railway

93 BUSINESS construction and the MOR continues to play a central role in the management of railways in the PRC, including approval of new railway lines and strategic planning for the sector, and is the primary customer of railway construction services in the PRC. We believe our track record of consistently completing contracts on schedule and to high quality standards has earned us the trust and support of the MOR and other relevant governmental departments, including the Ministry of Construction, the Ministry of Communications, the Ministry of Commerce, the NDRC and various local-level governmental authorities. We believe our successful track record and our good relationship with the MOR and other relevant governmental departments has put us in a competitive position to win new business going forward.

We have a long history of cooperation and solid working experience with foreign governments and government entities. For example, we participated in the Tanzania-Zambia Railway Project as early as the 1970s. We have engaged in cooperation with an extremely wide and diverse group of regional and national government entities, including those in countries in the Middle-East, Southeast Asia, South America and Africa. We believe the goodwill and patronage that we have built up with many of these governments and governmental authorities has put us in a competitive position for future business opportunities and will facilitate the further expansion of our international operations.

We have an experienced management team, a strong technical team of professional experts and a corporate culture of striving for excellence.

Our senior management team has extensive management skills and operating experience, and an average of over 20 years of experience and an extensive knowledge of the PRC construction industry. In particular, our management team has extensive experience and expertise in operating large-scale and complex construction projects, which has enabled us to operate successfully for more than 50 years and establish ourselves as the leading integrated construction group in the PRC and in Asia. We believe that our management team’s extensive expertise and business experience has been and will continue to be a solid foundation for our success.

We also have a strong technical team. As at 30 June 2007, we had approximately 121,000 technical professionals of various specialties including a number of the most distinguished scientists and engineers in the PRC, such as three members of the Chinese Academy of Engineering, seven National Survey and Design Masters, six National Young and Middle-aged Experts with Outstanding Contributions and 295 tenured government experts. We also had technical professionals, specializing in different disciplines, including approximately 390 professor-level senior engineers, approximately 8,000 senior technical personnel and approximately 230 property and mining senior experts and technical personnel as at 30 June 2007. We had approximately 4,200 first-grade certified project managers and 4,231 first-grade certified architects as at 30 June 2007, more than any other PRC construction firm. We believe that our high quality technical experts have been and will continue to be a core element of our success.

Our excellence-oriented culture encourages creativity and problem-solving. Our long history of corporate structural evolution throughout which we have developed our corporate objectives, vision and values, and our management principles and spirit of entrepreneurship, illustrates our corporate mission of ‘‘managing and operating in good faith, making our customers the top priority, achieving returns for our shareholders and giving back to society’’ (‘‘ ’’), and our corporate motto of ‘‘strive to challenge limits and achieve excellence’’ (‘‘ ’’). We believe our corporate culture, as embodied in our corporate mission and motto, has encouraged our employees to work as a team, execute projects efficiently and use new, innovative technologies and engineering methods to complete complex and landmark projects. We believe that our corporate culture is one of the key factors that has helped us to differentiate ourselves from our competitors in the past and will continue to serve as the foundation of our future development.

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STRATEGIES

Our primary objective is to further strengthen our leading position in the PRC and Asian construction industries and become an established internationally competitive construction group. Our key strategies to achieve this objective are as follows:

Strengthen our leading position in the PRC’s rapidly growing infrastructure construction market and enlarge our market share.

We will continue to dedicate significant resources to our Infrastructure Construction Business, especially the construction of high-speed railways, heavy-haul railways, electrified railways and highways. Specific plans to develop further business include continued fostering of our professional and technical teams through intensive training, advancement in high-speed railway, bridge and tunnel construction technology, continuous improvement of quality control and project management standards and reduction of project costs. We intend to target the opportunities arising from the Mid- to Long-Term Railway Network Development Plan and the national ‘‘7-9-18 Expressway Network Plan’’ (the national expressway network plan) to win more highway, expressway and railway construction contracts. We plan to centralize and coordinate our bid preparation process for railway construction project tenders as part of our effort to further increase market share. In particular, we aim to obtain a larger market share in providing construction services in each of the Beijing-Shanghai Railway Project and the Harbin-Dalian Railway Project. We also plan to maintain and increase our market share in metropolitan railway and municipal works markets and increase construction of ports, airports and environmental conservation projects.

We will also dedicate resources to our Survey, Design and Consulting Services Business and our Engineering Equipment and Component Manufacturing Business, with the aim of reinforcing our leading market positions and capturing additional market share.

Leverage our advanced technical capabilities and equipment to continue to pursue high-margin, large-scale and complex projects and produce high-margin products.

We enjoy relatively high levels of technical expertise and have advanced equipment which allows us to be competitive in the market for large-scale and complex projects and high-margin products. We plan to continue to focus on high-margin projects and products, including subway and tunnel construction projects that require advanced tunnel boring machinery, design projects, manufacture of high-speed railway turnouts and manufacture of construction equipment. We also plan to focus on large-scale projects, which, in addition to requiring high levels of technical expertise, are also more likely to allow us to provide integrated solutions across different phases and aspects of a project. Such high-end and/or large-scale projects also tend to offer higher margins.

To facilitate this strategy, we will continue to concentrate our research and development activities and deploy significant financial and other resources to develop advanced technologies and maintain high levels of technical expertise with a primary focus on developing key technologies relating to high-speed railway, heavy-haul railway, railway speed upgrades, bridges and tunnels, railway communication and signaling projects, and electrified railway projects. Such technologies include packaged construction techniques for non-ballasted tracks for high-speed railways, cross-harbour tunnel building techniques, construction techniques for new types of high-speed multi-passageway, heavy-haul and large-span bridges, manufacturing techniques for high-speed railway turnouts and system integration techniques for electrified railways. We are in the process of building a stable and efficient mechanism to provide timely protection for our newly-developed technologies and various other intellectual property rights. We will continue to work to strengthen and improve the utilization of technology in our business segments in order to enhance the value of such technology to our products and services.

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Leverage our expertise in the infrastructure construction industry to continue to expand into property development, infrastructure investment and operation projects and mining operations.

We intend to leverage the expertise, reputation and relationships from our infrastructure construction business to expand our business scope into other areas, including property development, infrastructure investment and operation projects and mining operations, allowing us to adapt to changing industry trends, improve our profitability and diversify our business profile. We intend to do the following:

( Continue to grow our property development business and focus our property development activities in cities in the Pearl River Delta, the Yangtze River Delta and the Bohai Bay regions and in other provincial capitals and cities in the PRC. In order to better leverage our existing strengths, we will dedicate more resources on property development projects to upgrade old towns or develop new towns and districts or previously undeveloped land. As part of our strategy, we have combined certain of our existing property development operations into a newly-established wholly-owned subsidiary, China Railway Real Estate Group Co., Ltd. This new subsidiary is in charge of planning and development for our property development business at the Group level and coordination of our property development operations carried out by our other subsidiaries. Our goal is to build our ’’China Railway Real Estate’’ brand name into one of the leading property development brands in the PRC.

( Increase the number of projects in which we invest and ultimately operate the infrastructure we build. Such projects generally give us the opportunity to both provide main contractor services and operate the infrastructure after construction, allowing for the benefit of higher investment returns and stable long-term cash flows.

( Continue to develop our existing mines to the stage where they are fully operational and profitable. In addition, we will continue to explore new opportunities to expand our mining operations. We plan to utilize our infrastructure construction capabilities to build transportation lines that transport minerals to our target markets.

Continue to selectively explore new overseas growth opportunities.

Over the past 30 years, through participation in numerous railway, expressway, bridge, tunnel and municipal work projects in over 55 countries and regions, we have built a strong reputation internationally. The PRC government has announced policies encouraging international contracting, which we expect will further facilitate our overseas expansion. In particular, the PRC government has recently committed to contributing more to infrastructure development in Africa under the framework of the China-Africa Cooperation Forum. By capitalizing on these policies, our experience and business relationships, we will continue to actively seek opportunities to grow our overseas business while maintaining prudent risk control over overseas projects. As such, we will continue to target profitable international construction projects, including railways, highways, bridges, communication and signaling systems projects, and other civil construction works, and expand into the overseas market for our railway turnouts and other manufactured components. Geographically, we will focus on opportunities in developing countries in Africa, Southeast Asia and South America, where natural resources are abundant and market demand is large. We believe our focus on high-profile and more complex infrastructure construction projects domestically will help us to maintain and strengthen our market position in overseas markets. We are in the process of establishing a new company, China Railway International ( ), which, together with China Overseas Engineering Group Co., Ltd., will be responsible for managing all of our overseas operations at the Group level.

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Further improve our cost structure and operational efficiency. We plan to further increase our profitability through cost reduction and efficiency initiatives such as the following: ( Improving management structure and operational efficiency — We will continue to improve our management structure and strengthen our project management, so as to reduce management costs and enhance our profitability. Specific plans for enhancing our management efficiency include the restructuring of our internal process and streamlining our management hierarchy and management structure. In addition, we consider comprehensive and refined project management key to enhancing our overall operational efficiency. Mechanisms will also be put in place to gradually implement the coordination of tender and bid management among various operational units. We will also improve our operational efficiency by continuing to allocate more resources to our research and development activities on manufacturing and gradually implementing a centralized management for fixed assets such as key technical equipment. ( Improving our financial resource allocation and capital structure to reduce financing costs — Our earnings and cash flow are derived from thousands of projects. Relevant interested parties at all levels within our Company are required to consolidate resources on multi-project management and strive a balance between resources such as management personnel, equipment, capital and technology. We will strengthen the centralized management of financial resources (in particular cash flow), reduce financing costs and optimize our capital structure by establishing an effective internal resource allocation mechanism. We will continue to strengthen our financial control and implement a centralized investment and financing policy and allocation policy to intensify our efforts on budget control and performance assessment and to monitor our capital expenditure on non-production items. ( Enhancing our information technology infrastructure to strengthen centralized management and control — We will prioritize the upgrading our computer systems, in particular, enhancing our standardized financial information system. We also plan to establish a single internal information database containing all information in respect of research and development, clients and marketing in order to improve our management control, enhance our operations and improve information flow. ( Implementing various measures to reduce exposure to price volatility of raw materials — We intend to reduce exposure to price volatility of raw materials and rising costs by centralizing raw material sourcing and procurement and entering into long-term supply contracts for key raw materials.

OUR BUSINESSES

Our Infrastructure Construction Business

Overview We are the largest integrated construction group in the PRC and in Asia and the third largest construction contractor in the world in 2006 (up from fourth largest in 2005), based on total contracting revenue. ( We are the largest railway construction contractor in the PRC. Since the 1950s, we have participated in the construction of all major railway lines in the PRC, and constructed, rebuilt and extended a total length of over 50,000 kilometers, accounting for more than two thirds of the total operating length of railway lines constructed in the PRC. We have participated in the construction of over 22,600 kilometers of electrified railway lines, accounting for approximately

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95% of the total operating length of electrified railway lines in the PRC as at 30 June 2007. We hold a leading position in the heavy-haul railway, high-speed railway and railway speed upgrade construction markets in the PRC. To date, we have successfully participated in the construction of more than 100 railway lines, including the Qinghai — Tibet Railway (the highest railway line in the world), the Datong — Qinhuangdao Railway (the longest heavy-haul railway in the PRC), the Chengdu — Kunming Railway (one of the most geologically challenging railway construction projects), and the Beijing — Kowloon Railway (the longest south to north trunk railway line in the PRC, linking Beijing to Hong Kong), among others.

( We are a leading expressway and highway construction group in the PRC. Since the 1980s, we have constructed over 7,400 kilometers of highways, including 3,400 kilometers of expressways.

( We are also one of the leaders in the construction of ultra-long bridges and ultra-long tunnels (for both railway and highway). We have constructed more than 4,230 kilometers of bridges, and independently constructed or participated in the construction of all the railway and road dual- purpose bridges and railway bridges crossing the Yangtze River or the Yellow River, including the four major landmark bridges in the PRC — Wuhan Yangtze River Bridge, Nanjing Yangtze River Bridge, Jiujiang Yangtze River Bridge and Wuhu Yangtze River Bridge. We have also independently constructed or participated in the construction of more than 3,900 kilometers of tunnels (excluding subways), including Wushaoling Tunnel (the longest tunnel in the PRC), Dayaoshan Tunnel (the longest double-track electrified tunnel in the PRC), Wuhan Cross-river Tunnel (the first tunnel that was built underwater across the Yangtze River) and Xiamen — Xiang’an Undersea Tunnel (the first undersea tunnel in the PRC that was designed and constructed independently by the Chinese).

( We are one of the leading players in the metropolitan railway market in the PRC.

( We also engage in infrastructure construction activities such as building construction, irrigation works, hydroelectricity projects, ports, docks, airports and other municipal works.

We conduct our Infrastructure Construction Business mainly through 19 of our direct subsidiaries and associates.

Projects ‘‘independently undertaken’’ or ‘‘independently constructed’’ by us refer to projects in which we were engaged singly to complete the services required, as opposed to projects in which we were engaged jointly, with other joint venture partners or consortium members, to complete the services required.

All the projects disclosed in the sections headed ‘‘Our Infrastructure Construction Business’’ and ‘‘Our Survey, Design and Consulting Business’’ of this Prospectus are conducted by us as main contractor and represent our core capabilities, scope of operations and our significant sources of current and future revenue. These projects include those representing global or domestic milestones in engineering and/or construction, those involving highly complex works or wide scope of services, those requiring technological sophistication, and those with high contract value.

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The following table sets forth certain key financial information for our Infrastructure Construction Business for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007: For the year ended For the six months 31 December ended 30 June 2004 2005 2006 2006 2007 (unaudited) (RMB in millions, except for percentages) Revenue *************************************** 77,249 99,204 140,399 54,423 67,637 Revenue as a percentage of total Group revenue before elimination of inter-segment transactions*** 87.8% 87.9% 89.6% 88.6% 88.0% Segment result ********************************* 157 566 2,227 607 715 Segment result as a percentage of total adjusted Group operating profit(1) *********************** 19.6% 36.3% 61.3% 45.7% 57.2%

(1) Total operating profit for the Group represents the total of operating profit for individual business segments after adjustment to include net unallocated income (expenses) and to eliminate inter-segment transactions and net allocated finance income (expenses). Adjusted operating profit for the Group is equivalent to the sum of operating profit for individual business segments. The following table sets forth a breakdown by business category of total revenue provided by our Infrastructure Construction Business for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007: For the year ended 31 December For the six months ended 30 June 2004 2005 2006 2006 2007 % of % of % of % of % of Total Total Total Total Total Turn- Segment Turn- Segment Turn- Segment Turn- Segment Turn- Segment over Revenue(1) over Revenue(1) over Revenue(1) over Revenue(1) over Revenue(1) (unaudited) (RMB in millions, except for percentages) Railway Construction 28,291 36.6 37,891 38.2 61,373 43.7 23,309 42.8 31,293 46.3 Highway Construction 24,222 31.4 33,131 33.4 42,051 30.0 16,732 30.8 18,547 27.4 Municipal Works and Other Construction 24,736 32.0 28,182 28.4 36,975 26.3 14,382 26.4 17,797 26.3 Total ************* 77,249 100.0 99,204 100.0 140,399 100.0 54,423 100.0 67,637 100.0

(1) Revenue as a percentage of the total revenue of Infrastructure Construction Business before elimination of inter-segment transactions.

Operations Railway Construction We are the largest PRC railway construction contractor in terms of total contracting revenue and have participated in almost all large-scale and complex railway construction projects in the PRC. In particular, we dominate the heavy-haul railway, high-speed railway and railway speed upgrade construction markets in the PRC. Since the 1950s, we have participated in the construction of all major railway lines in the PRC including the construction, rebuilding and extension of a total length of over 50,000 kilometers, accounting for more than two thirds of the total operating length, of railway lines in the PRC. We have also participated in the construction of over 22,600 kilometers of electrified railway lines, accounting for approximately 95% of the total operating length of electrified railway lines in the PRC as at 30 June 2007. We are also one of the leaders in the railway bridge and tunnel construction sector in the PRC and have been involved in the construction of numerous complex railway bridges and tunnels that require innovative and world-class techniques and technologies. We specialize and hold a dominant market share

99 BUSINESS in building highly complex ultra-long railway bridges in the PRC. We have independently constructed or participated in the construction of all railway bridges and railway and road dual-purpose bridges crossing the Yangtze River or the Yellow River. We have completed a total length of over 2,700 kilometers of railway bridges (including railway and road dual-purpose bridges) and over 2,800 kilometers of railway tunnels in the PRC. We also construct signaling and communication systems for railway use, and have constructed several major railway stations in the PRC, including the Beijing Railway Station, Shenzhen Railway Station (Phase I), Nanjing Railway Station and Lhasa Railway Station. As at 30 June 2007, 13 of our subsidiaries had been granted special grade main contractor qualifications in railway construction and 26 of our subsidiaries had been granted first grade main contractor qualifications in railway construction by the Ministry of Construction.

Completed Projects The following table sets forth certain notable railway (including railway bridge, railway tunnel and railway and road dual-purpose bridge) construction projects in which we had significant involvement: Year of Project Completion Contract Value Brief Description (RMB in millions)

Qinghai — Tibet 2006 10,014 This project was part of the first railway in the Railway, Golmud to Tibetan Autonomous Region. Construction Lhasa Section commenced in 2001. The total length of this project was approximately 1,100 kilometers, of which we independently constructed approximately 61%. The Qinghai — Tibet Railway is the highest and longest plateau railway in the world with a maximum altitude of 5,072 meters above sea level. Approximately 965 kilometers of the total length of this project is more than 4,000 meters above sea level. Numerous natural difficulties, including high altitude, lack of oxygen, permafrost and fragile biosphere, had to be overcome in order to construct the railway. Qinhuangdao — 2002 6,235 This project was a double-track electrified high- Shenyang High-Speed speed railway line connecting Qinhuangdao and Passenger Railway Shenyang. Construction commenced in 1999. Line The total length of this project was approximately 404 kilometers, of which we independently constructed approximately 60%. This was the first high-speed passenger railway line that was designed and constructed independently by a PRC enterprise. This project was awarded the coveted Luban Prize.

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Year of Project Completion Contract Value Brief Description (RMB in millions) Beijing — Kowloon 1996 13,633 This project was one of the trunk railway line Railway projects connecting northern and southern China. It links Beijing and Shenzhen and connects to the Kowloon — Canton Railway in Hong Kong. Construction commenced in 1993. The total length of this project was approximately 2,397 kilometers, of which we independently constructed approximately 60%. This project was awarded the Luban Prize and the National Supreme Quality Project Gold Prize. Qinling Tunnel on the 2005 1,876 This project was the longest railway tunnel in the Xi’an — Ankang PRC and the second longest in Asia at the time of Railway completion. Construction commenced in 1995. The total length of this project was 18 kilometers, of which we independently constructed approximately 60%. This project involved the use of large-scale tunnel boring equipment for the first time in tunnel construction projects in the PRC and was awarded the Luban Prize, the Zhan Tianyou Prize for Civil Engineering and the National Advanced Science and Technology Prize — Grade I. Nanjing Yangtze River 1968 292 This project was the second railway and road Bridge dual-purpose bridge that was constructed across the Yangtze River. Construction commenced in 1960. The total length of the railway bridge is approximately 6,772 meters and the road bridge is approximately 4,589 meters, and we independently constructed the entire bridge. It involved great complexity and was awarded the National Advanced Science and Technology Prize — Special Grade. Dayaoshan Tunnel 1989 413 This project was part of the Hengyang — Guangzhou Railway. Construction commenced in 1981. The total length of the tunnel is approximately 14 kilometers, and we constructed the entire tunnel. At the time of completion, it was the longest double-track electrified railway ultra-long mountain tunnel in the PRC and the tenth longest double-track railway tunnel in the world. This project adopted the New Austrian Tunnelling Method for the first time in the PRC and was awarded the National Advanced Science and Technology Prize — Premium Grade.

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Ongoing Projects The following table sets forth certain notable ongoing railway (including railway bridge, railway tunnel and railway and road dual-purpose bridge) construction projects in which we were significantly involved as at 30 June 2007: Expected Year of Expected Project Completion Contract Value Brief Description (RMB in millions) Wuhan — Guangzhou 2010 34,341 This project is a railway that links Wuhan and Passenger Railway Guangzhou. Construction commenced in 2005. Line This project is designed to have a total length of approximately 995 kilometers, of which we have been mandated to construct approximately 40%. This project is the longest in length and the largest in terms of capital expenditure amongst all the passenger railway lines currently under construction in the PRC. Nanjing Dashengguan 2010 3,684 This project is a railway and road dual-purpose Yangtze River Bridge bridge with six tracks and capable of accommodating trains travelling up to 300 kilometers per hour. Construction commenced in 2006. This project is designed to have a total length of approximately 9.3 kilometers, and we have been mandated to construct the entire bridge independently. The bridge is designed to accommodate fast speeds and to have a higher load capacity and a longer span than any other high-speed railway bridge in the world. Beijing — Tianjin 2008 3,250 This project is one of the infrastructure Inter-city Passenger construction projects related to the 2008 Beijing Railway Line Olympics. Construction commenced in 2005. This project is designed to have a total length of approximately 115 kilometers, of which we have been mandated to construct approximately 47%. Upon completion, this railway will accommodate trains traveling up to 350 kilometers per hour.

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Expected Year of Expected Project Completion Contract Value Brief Description (RMB in millions) Wuhan Tianxingzhou 2009 3,068 This project is a railway and road dual-purpose Yangtze River Bridge bridge connecting Hankou and Wuchang in Wuhan city. It will be the first passenger railway bridge crossing the Yangtze River. Construction commenced in 2004. This project is designed to have a total length of approximately 4,657 meters, of which we have been mandated to construct approximately 61%, including the section which crosses the Yangtze River. Upon completion, the bridge will have a main span of 504 meters and is expected to be the railway and road dual-purpose cable-stayed bridge with the longest span in the world. It is designed to support loads up to approximately 20,000 tons, which will make it the highest load capacity railway and road dual-purpose bridge in the world. Taihangshan Tunnel 2008 698 This project is a tunnel which is part of the Shijiazhuang — Taiyuan Passenger Railway Line. Construction commenced in 2005. The project is designed to have a total length of approximately 28 kilometers, of which we have been mandated to construct approximately 35%. Upon completion, this project is expected to be the longest railway tunnel in the PRC.

Highway Construction We are one of the leading players in the PRC highway construction sector. In particular, we specialize in building expressways and major highways. We have engaged in highway construction in the PRC since the 1980s. During this period, we undertook the construction of over 7,400 kilometers of highway, including over 3,400 kilometers of expressways, and a total of more than 90 expressway, highway and other road projects, including some of the largest and most complex in the PRC. We are also one of the major players in the PRC road bridge and tunnel construction sector and have participated in a number of very complex road bridge and tunnel construction projects. We have completed a total length of more than 1,494 kilometers of road bridges (including railway and road dual-purpose bridges) and more than 1,115 kilometers of road tunnels in the PRC. As at 30 June 2007, one of our subsidiaries had been granted special grade main contractor qualifications in road construction by the Ministry of Construction, and 36 of our subsidiaries had been granted first grade main contractor qualifications in road construction.

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Completed Projects The following table sets forth certain notable highway construction projects (including road bridge and road tunnel projects) in which we have participated: Year of Project Completion Contract Value Brief Description (RMB in millions) Donghai Bridge 2005 1,120 This project connected Yangshan Deepwater Container Port and Shanghai. Construction commenced in 2002. The total length of this project was approximately 33 kilometers, of which we independently constructed approximately 35%. The Donghai Bridge is currently one of the longest cross-sea bridges in the world. This project was awarded the Luban Prize and the National Advanced Science and Technology Prize — Grade II (under publication). Zhongnanshan Tunnel 2007 629 This project was built under the Zhongnan Mountain in Shaanxi Province. Construction commenced in 2002. The total length of this project was approximately 18 kilometers, of which we independently constructed approximately 49%. This highway tunnel, as at 30 June 2007, was the longest highway twin mountain tunnel. Beijing — Shanghai 2000 516 This project was an important part of the State Expressway highway trunk line network plan (‘‘ ’’) and was the first south to north major highway that was completed pursuant to the ‘‘Two North-to-South and Two East-to-West’’ (‘‘ ’’) expressway network plan. Construction commenced in 1987. The total length of this project was approximately 1,262 kilometers, of which we constructed approximately 5%. Chengdu — Chongqing 1995 364 This project was the first expressway constructed Expressway in the western region of the PRC. Construction commenced in 1990. The total length of this project was approximately 340 kilometers, of which we constructed approximately 29%. This project was awarded the Luban Prize.

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Year of Project Completion Contract Value Brief Description (RMB in millions) Shantou Bay Bridge 1995 247 This project connected the Shenzhen — Shantou Expressway and the Shantou — Shanfen Expressway. Construction commenced in 1992. The main span is 452 meters long and the total length of this bridge is approximately 2,400 meters, and we constructed the entire bridge. This bridge is the first modern suspension bridge that was built in the PRC. The project was awarded the Luban Prize, the National Supreme Quality Project Gold Prize and the National Advanced Science and Technology Prize — Grade II.

Ongoing Projects The following table sets forth certain notable ongoing expressway and highway construction projects (including road bridge and road tunnel projects) in which we were engaged as at 30 June 2007: Expected Year of Expected Project Completion Contract Value Brief Description (RMB in millions) Hangzhou Bay Cross-Sea 2008 3,588 This project connects Jiaxing and Ningbo. Bridge Construction commenced in 2003. This bridge is designed to have a length of 36 kilometers, of which we have been mandated to construct approximately 51%. Upon completion, the Hangzhou Bay Cross-Sea Bridge will be the longest cross-sea bridge in the world. We used world-class construction techniques and equipment to overcome many challenges during the construction of this project. Caiyuanba Yangtze River 2007 2,240 This project is located in Chongqing and spans Bridge the Yangtze River. Construction commenced in 2003. This project is designed to have a length of 1,867 meters, and we have been mandated to construct the entire bridge. Upon completion, this project is expected to be the longest arch bridge designed to carry both highway and metropolitan railway traffic in the PRC. Dezhou — Shangqiu 2009 1,811 This project is an important part of the Jinan- Expressway Guangzhou Expressway and part of the national major highway network. Construction commenced in 2006. This project is designed to have a length of 87 kilometers, and we have been mandated to construct the entire project.

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Expected Year of Expected Project Completion Contract Value Brief Description (RMB in millions) Wuhan Yangtze River 2008 998 This project is a road tunnel that connects Tunnel Hankou and Wuchang, two districts of the city of Wuhan situated on the two banks of the Yangtze River. Construction commenced in 2004. This project is designed to have a length of approximately 3.6 kilometers, for which we have been mandated to construct and provide engineering design and procurement services for the construction of the entire tunnel. Upon completion, this will be the first underwater tunnel crossing the Yangtze River. Xiamen — Xiang’an 2008 876 This project is an undersea tunnel connecting Undersea Tunnel Xiamen and Xiang’an island. Construction commenced in 2005. This project is designed to have a length of approximately nine kilometers with an undersea tunnel length of approximately six kilometers, of which we have been mandated to construct approximately 50%. This will be the first undersea tunnel entirely designed and constructed in the PRC by the Chinese.

Municipal Works and Other Construction We have also participated in the construction of metropolitan railways, ports, docks, airports and other municipal works. We are one of the leading players in the PRC metropolitan railway market. Although development of the PRC metropolitan railway market is at a relatively early stage, it is experiencing continual growth primarily due to urbanization and modernization of suburban areas in the PRC. We also participated in the construction of metropolitan railways in all cities in the PRC that have metropolitan railways. As at 30 June 2007, the Ministry of Construction had granted: ) two of our subsidiaries special grade main contractor qualifications in building construction; ) 32 of our subsidiaries first grade main contractor qualifications in building construction; ) 55 of our subsidiaries first grade main contractor qualifications in municipal works; ) one of our subsidiaries a first grade contractor qualification in port and waterway engineering works; and ) 18 of our subsidiaries professional contractor qualifications in metropolitan railway construction:

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Completed Projects The following table sets forth certain notable municipal works and other construction projects in which we have participated: Year of Contract Project Completion Value Brief Description (RMB in millions) Line 1, Line 5 and Line 1: 1999 374 These projects are part of the Beijing Batong Line of the Line 5: 2007 1,142 subway network. We participated in the Beijing Subway Batong Line: 2003 515 construction of Line 1, Line 5 and Batong Line of the Beijing Subway. Construction commenced as early as 1965. The total length of the lines is approximately 78 kilometers, of which we independently constructed approximately 23%. We formulated certain innovative engineering methods during the construction phase and we were awarded one Luban Prize, one Provincial Advanced Science and Technology Prize and three national awards for construction for this project. Lines 1, 2, 4 and 5 of Line 1: 1993 180 These projects are part of the Shanghai the Shanghai Subway Line 2: 1999 265 subway network. We participated in the Line 4: 2005 127 construction of Lines 1, 2, 4 and 5 of the Line 5: 2003 112 Shanghai Subway. Construction commenced as early as 1988. The total length of the lines is approximately 102 kilometers, of which we independently constructed approximately 9%. Our construction work was awarded the Zhan Tianyou Prize for Civil Engineering (the highest national level award for civil engineering works in the PRC) and the National Gold Cup Prize for Civil Engineering Projects. Lines 1, 2, 3 and 4 of Line 1: 1997 519 These projects are part of the Guangzhou the Guangzhou Line 2: 2002 488 subway network. We participated in the Subway Line 3: 2005 1,240 construction of Lines 1, 2, 3 and 4 of the Line 4: 2007 1,258 Guangzhou Subway. Construction commenced as early as 1993. The total length of the lines is approximately 146 kilometers, of which we independently constructed approximately 23%. We received nine awards related to construction on these subway lines, including the MOR Locomotive Quality Works Award.

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Year of Contract Project Completion Value Brief Description (RMB in millions) Shenzhen Yayuan 1993 73 This project was the largest interchange Interchange Bridge bridge in Shenzhen and a highly complex project in the PRC. Construction commenced in 1992. We constructed the entire bridge. It involved the integration of bridges, roads, load-bearing walls, communication, electricity, gas and water drainage systems into one interchange bridge. This project was awarded the Luban Prize. Shanghai International 2004 520 This project is located in the northeast Circuit Formula One region of Jiading Anting Town, Shanghai. Racetrack Construction commenced in 2002. This project had a total field area of approximately 700,000 square meters, of which we independently constructed approximately 68%. This project was extremely challenging and required the use of complex construction techniques in order for the racetrack to meet the high standards for Formula One racing. This project was awarded the Luban Prize.

Ongoing Projects The following table sets forth certain notable ongoing municipal work and other construction projects in which we were engaged as at 30 June 2007: Expected Year Expected Project of Completion Contract Value Brief Description (RMB in millions) Beijing Subway Airport 2008 2,090 This project is a light railway linking Beijing Extension Capital International Airport and downtown Beijing. Construction commenced in 2005. This project is designed to have a total length of approximately 27 kilometers, of which we have been mandated to construct approximately 57%. Upon completion, this project will be the first fully automated metropolitan railway system in the PRC. Lines 4 and 10 of the Line 4: 2009 1,062 These projects are part of the Beijing subway Beijing Subway Line 10: 2008 868 network. Construction commenced in 2003. These projects of the Beijing Subway are designed to have a total length of approximately 61 kilometers, of which we have been mandated to construct approximately 6%.

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Expected Year Expected Project of Completion Contract Value Brief Description (RMB in millions) 2008 Beijing Subway 2008 1,095 This project is one of the infrastructure Olympic Branch Line construction projects related to the 2008 Beijing Olympics. Construction commenced in 2005. This project is designed to have a total length of approximately 4,398 meters, and we have been mandated to construct the entire project. National Library of 2008 610 This is a pilot project to build a science and China (Phase II) and technology building that is mandated by the National Digital Ministry of Construction. Construction Library of China commenced in 2005. This project has a total GFA of 80,538 square meters. The library will consist of three underground and five above- ground storeys. We have been mandated to construct the entire library. Upon completion, the library will have the third largest GFA in the world. Yellow River Water 2010 525 This project is part of the South-to-North Tunnel Project, South- Water Diversion Project. Construction to-North Water commenced in 2005. The tunnel is designed Diversion Project to have a total length of approximately (Phase 1 of Central 4,250 meters, and we have been mandated Tunnel, Tender 2-A) to construct the entire tunnel. Tunnel boring machines will be used to excavate continuously for a distance of 3,450 meters under the Yellow River.

Overseas Operations We are well-established in the international construction market. Our Infrastructure Construction Business commenced overseas operations in the 1970s with the construction of the approximately 1,861 kilometers long Tanzania — Zambia Railway Project. During the early days of our overseas operations, our activities were mainly related to foreign-aid construction projects sponsored by the PRC government. In 1987, we were granted the qualification for undertaking foreign contracting projects by the Ministry of Commerce. We have undertaken the construction of and provided construction-related services for more than 230 overseas projects including railway, expressway, highway, bridge, tunnel, building construction, dredging, airport and municipal work projects in more than 55 countries and regions globally since the 1970s. We usually undertake our overseas projects independently. However, we may sub-contract parts of our projects where permitted and when the scale of a project is particularly large or where local regulations require. We will occasionally form a project team with other companies to manage overseas projects. We had 96 overseas business establishments in 52 countries across five continents with 152 ongoing projects as at 30 June 2007. We are well-established in the international construction market, especially in Africa,

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South East Asia, the Pacific Islands, the Middle East, and South America. In particular, we focus our overseas business in African countries for the following reasons:

( abundant business opportunities due to inadequate and insufficient local infrastructure development;

( relative strength of our abilities and competitiveness compared to local players;

( favorable diplomatic relations between the PRC government and African countries; and

( the PRC government’s policy to support building closer economic relationship between Chinese enterprises and African countries. The PRC government is encouraging PRC companies to undertake international contracting projects and has recently committed to contributing more to infrastructure development in Africa, which we expect will further facilitate overseas expansion and provide more overseas opportunities for Chinese contractors. We have therefore made overseas expansion a part of our strategy to further increase the scale of our Infrastructure Construction Business. We intend to continue to develop our business in Africa, the Middle East, South America and the Pacific Islands, and also plan to enter the markets in Europe and America. Expansion in these overseas markets may require us to overcome various barriers, which may include difficulties in language and communication, differences in culture, market practices and regulatory regimes. The political and environmental conditions of the overseas markets vary and we may face difficulties in dealing with such conditions as a foreign participant.

Completed Projects The following table sets forth certain notable overseas construction projects in which we had significant involvement: Year of Project Completion Contract Value Brief Description (US$ in millions) Palm Island Project in 2006 300 This project was a dredging and reclamation the United Arab project. Construction commenced in 2002. This Emirates project involved the reclamation of an island in the shape of a palm with a land area of 64 square kilometers and a reclamation volume of 124 million cubic meters. We independently completed the entire project. This was the first large-scale project in the United Arab Emirates that was awarded to a PRC construction company. Project 602 of the 2002 128 This project involved the construction of a subway Hong Kong Main of the Tseung Kwan O Line of Hong Kong’s mass Transit Railway transit railway. Construction commenced in 1999. We constructed 40% of the entire project. Paksey Bridge Project 2004 127 This project involved the construction of the first in the People’s bridge crossing the River Padma. Construction Republic of commenced in 2000. The total length of this Bangladesh bridge is approximately 1,786 meters, and we independently constructed the entire bridge.

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Year of Project Completion Contract Value Brief Description (US$ in millions) Road 13, Laos 1997 45 This project was an upgrade of Road 13 of the Highway Project Laos Highway. Construction commenced in 1992. The total length of the project was approximately 276 kilometers, of which we independently constructed the entire project. Road Upgrade Project 2006 21 This road project was one of the foreign aid in the Republic of projects awarded by the PRC government. Ghana Construction commenced in 2004. The total length of this project was approximately 17 kilometers, and we independently constructed the entire project.

Ongoing Projects The following table sets forth certain ongoing notable overseas construction projects in which we were engaged as at 30 June 2007: Expected Year of Expected Project Completion Contract Value Brief Description (RMB in millions) North Luzon Railway 2009 1,350 This project is part of the Northern Railway of the Project in the Philippines from Caloocan to Malolos. Republic of the Construction commenced in 2007. The railway is Philippines designed to have a total length of approximately 32 kilometers, and we have been mandated to independently construct the entire railway. Sha Tin Leng Tunnel 2007 1,041 This project is a road tunnel construction project. Project in Construction commenced in 2002. The tunnel is Hong Kong designed to have a total length of approximately two kilometers, of which we have been mandated to construct 40%. Advanced equipment and high-technology materials have been used in the construction of this project, in particular, for the soundproof entrance into the tunnel. This project requires high standards of quality, safety and environmental protection which we have been able to achieve and for which we have received a number of awards from the Hong Kong government and various organizations.

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Expected Year of Expected Project Completion Contract Value Brief Description (RMB in millions) River Vaal Water 2008 533 This project is the expansion of the irrigation Supply Project in system on the eastern bank of the River Vaal. the Republic of Construction commenced in 2006. The irrigation South Africa channels are designed to have a total length of approximately 150 kilometers, and we have been mandated to construct the entire project. This project involves the coordination and completion of road construction, underground water excavation and building of steel structure stations, and electricity and cable installation. Section A, Railway 2008 285 This project is the upgrade of the Malaysian Upgrade Project in railway. Construction commenced in 2005. This Malaysia project is designed to have a total length of approximately 136 kilometers, of which we have been mandated to construct approximately 40%. Road Project in the 2008 246 This project, which is located in the northern Federal Democratic mountainous region of Ethiopia, is an upgrade of Republic of the highway linking Adigrat and Addis Ababa. Ethiopia Construction commenced in 2005. This project is designed to have a total length of approximately 109 kilometers, and we have been mandated to construct the entire project.

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Technology

Our outstanding technological capabilities provide us with a substantial competitive advantage over our counterparts in the PRC infrastructure construction industry. We own leading technologies relating to the construction of passenger railway lines, structurally complex ultra-large bridges and geologically complex ultra-long tunnels, as well as ballastless tracks for railway passenger lines. In addition, we have developed several innovative technologies in large span structure system, deep foundation construction works and high-rise building construction. In particular:

) We own innovative ballastless track systems technology.

We developed the Chinese ballastless track systems technology and acquired intellectual property rights for such technology through the introduction of foreign advanced technology into the PRC as well as our research and development work in the ballastless track system of the Qinhuangdao — Shenyang Passenger Railway Line, the Ganzhou — Longyan Railway and the Chongqing — Huaihua Railway. We applied this technology in the design and construction of the Suining — Chongqing Railway (pilot section), the first PRC ballastless track passenger railway line which has a total length of approximately 13 kilometers and can accommodate a test speed of up to 232 kilometers per hour.

) Our integrated construction technology for permafrost regions has reached internationally advanced standards.

Our technology for construction in permafrost regions, especially the technology in the design and construction of roadbeds, bridges and tunnels in permafrost regions, has reached internationally advanced standards. Such technology includes technology relating to oxygen-producing stations in plateau railway construction, key technology in track laying in extremely cold and plateau regions and technology relating to the construction of bridge arches and tunnels and concrete control in permafrost and plateau regions.

We also developed and own certain technology, jointly with various partners, who are each a leader in their respective fields, in particular:

) Weldable Mn-B series air-cooling bainite steel with high strength and toughness specifically used for rail frogs. As bainite steel is essential for the manufacture of high-performance rail frogs, our subsidiary, China Railway Turnout & Bridge Co., Ltd., financed and cooperated with Tsinghua University on the research and development of technology to improve the quality and functions of such steel, and jointly developed this technology with a professor of the Tsinghua University who is a leading expert on the knowledge of bainite steel. China Railway Turnout & Bridge Co., Ltd. owns the registered patent of this technology jointly with Tsinghua University and having paid RMB0.65 million to Tsinghua University, it is entitled to all income arising from this patented right.

) Magnetically levitated joint turnout and the reconnecting method and handle driving devices for magnetically levitated turnouts. China Railway Turnout & Bridge Co., Ltd. owns the registered patent of magnetically levitated joint turnout and the reconnecting method jointly with Shanghai Magnetic Levitation Jiaotong Engineering and Technology Research Center (‘‘SMLJ’’). China Railway Turnout & Bridge Co., Ltd. is the sole owner of the registered patent of handle driving devices for magnetically levitated turnouts although SMLJ was responsible for all the research and development costs. Through our cooperative effort with Shanghai Magnetic Levitation Jiaotong Engineering and Technology Research Center, we have developed an expertise in the field of magnetic levitation and expect to generate income from these technologies in the future.

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Equipment We own and use a large variety of heavy machinery and other equipment in our Infrastructure Construction Business, including the following noteworthy equipment: ) we own a substantial portion of the tunnel boring machinery in the PRC which are crucial for subway and tunnel construction; ) we own Tian Yi, our ship-mounted crane with the largest lifting capacity in Asia (up to 3,000 tons) and a complete set of key equipment for marine construction; ) we own a majority of all track laying machines and bridge erecting machines in the PRC, which are crucial for the construction of new railway lines and bridges; and ) we own a majority of all overhead contact line operating vehicles and equipment in the PRC, which are crucial for the construction of electrified railway lines. We purchase our equipment both domestically and overseas. We also develop and manufacture, on our own, some large-scale equipment needed for our operations. As at 30 June 2007, we owned over 44,600 pieces of equipment that we used in our Infrastructure Construction Business. Some of these equipment are set out below: Name Number of Units Tunnel Boring Machinery 48

Marine Engineering Vessels 6

Bridge Fabricating Machines/Bridge Erecting Machines 14/91

Electrified Railway Work Vehicles/ Overhead Contact Line Operating Vehicles 246

Hydraulic Rock Drill Rigs 30

Track Laying Machines 22

Asphalt Paving Machines 40

Hydraulic Excavating Machines 454

Contracting Process/Contract Terms/Operation Management Contracting Process The process of identifying and negotiating new projects for our Infrastructure Construction Business generally involves the following steps:

( information collection;

( project evaluation;

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( pre-qualification (or post-qualification) procedures; ( tendering; and ( engagement negotiation.

Information collection We collect timely and reliable information to assist us in identifying potential projects. The information sources that we use to identify potential projects include contacts with our Survey, Design and Consulting Services Business, government public tender notices, communications with relevant government departments, in particular the planning and construction departments, professionals in the infrastructure construction industry and on-going communication with our existing customers.

Project evaluation After we become aware of a potential project, we will conduct an initial evaluation to assess: (a) whether we meet the qualification criteria specified for the project; (b) the sufficiency of our resources, (c) the costs and potential profitability of the project; and (d) certain other factors prior to deciding whether or not to pursue such project. If our initial evaluation of a potential project is favorable, we will then conduct a detailed assessment of the technical and commercial characteristics of the project, which may involve onsite inspections to allow us to accurately estimate timing and resource requirements in order to prepare a competitive and profitable bid. Such an assessment usually involves the following analysis: ( cost analysis on raw material costs, labor costs and the like; ( site analysis with respect to water supply, electricity supply, transportation and other infrastructure; ( capital expenditure analysis on the equipment needed and the projected length of use; and ( credit analysis on our customers and the terms of payment. This assessment will need to be reviewed and approved by an internal evaluation committee of the relevant subsidiary that will engage in the construction before we proceed. The review and approval of assessment for large projects are referred to higher level holding companies.

Pre-qualification (post-qualification) procedures We are generally required to undergo pre-qualification assessment procedures prior to being allowed to bid on a project. Customers generally require that we meet certain minimum requirements with regard to financial position, level of construction qualifications and scale of operation before accepting our bid on a project. We are therefore typically required to submit for pre-qualification information concerning our financial position and operational history and the availability of our resources such as manpower.

Tendering Under PRC laws, a call for tender is required for projects that relate to social and public benefits and public security, projects financed wholly or partly with state funds and projects financed with funds from international organizations or foreign governments. Projects that relate to social and public benefits and public security include large-scale infrastructure construction projects and public utilities projects, such as projects involving the use of new energy, projects relating to communication and transportation, post and telecommunication, hydro-electricity, municipal facilities and environmental protection. As a result, most infrastructure construction projects in the PRC are offered on a competitive tender basis. If we decide to

115 BUSINESS pursue a particular project after our assessment and evaluation, and meet the pre-qualification criteria set out by the potential customers, we are generally required to prepare and deliver bidding documents to our potential customers. Estimating the costs involved in a project is important in covering all our costs and ensuring profitability. We carefully estimate the costs of each project before the submission of our bid. We rely on our own experience in estimating project costs and take into account factors such as the difference in site and environmental conditions as compared to those assumed in the previous bids, the geographical location of the project, the availability and pricing of raw materials, machinery and local labor and the tax expenses involved. Large-scale infrastructure construction projects in the PRC are often put out to tender in sections. In general, although our subsidiaries submit tenders to act as designer or as constructor separately, we may be awarded with both survey and design as well as construction contracts. We believe our ability to provide integrated services from survey and design to construction gives us an edge in competing for complex and large-scale projects. We have been more successful in bidding for railway construction projects as there are only a few market participants, as compared to our bids for road construction projects where the relevant market is more fragmented and competition is more intense.

Engagement negotiation

After we are selected as a contractor on a project, we will often be served with a written notice from our customers to engage in further but limited negotiation to finalize and formalize the key contractual terms.

Most of our construction contracts are awarded and carried out on a fixed-price or fixed-unit-price basis with a fixed timetable for project completion. These types of construction contracts generally require us to quote a fixed total price or a fixed unit price for a project which cannot be exceeded. Some contracts contain price adjustment clauses to cover any increases in the costs of raw materials exceeding a pre-agreed level, any change of design or work scope, or other specific factors causing the interruption of construction such as the lack of water and electricity supplies. For construction contracts that do not include price adjustment clauses, we usually build a contingency amount into our bid price to cover any potential increases in costs.

Contract Terms

We offer the same set of contract terms to all our customers. Our infrastructure construction contracts generally contain provisions relating to the following features:

( Project bonds;

( Progress payments;

( Retention monies; and

( Maintenance.

Project bonds

We are usually required to provide a performance bond in an amount equal to 10% of the total contract value to our customers within two to four weeks of notice after we have won the tendering process. Our customer may present the performance bond for payment to the issuing financial institution in accordance with the relevant contract if we default on our performance obligations. The performance bond is returned to us one year after the issue of a completion certificate.

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Progress payments

For large-scale construction projects, we typically receive payment in stages based on the amount of work that we have completed. Our construction contracts usually require our customers to pay between 10% and 30% of the total contract value to us in advance. Such amounts are usually payable within a specified period after the execution of the contract. Subsequent progress payments are made in stages upon our reaching certain milestones set out in the relevant contract. Upon reaching such milestones, we will notify our customers, who then send a third party compliance engineer to certify our construction progress. We usually receive our progress payments within a specified period after certification.

Retention monies

Upon completion of the entire work scope of a project, we notify our customer, who then sends a third party compliance engineer to carry out a final examination and acceptance of our work. If our completed work satisfies the relevant completion and examination standards, the third party compliance engineer will issue a formal completion and examination report to our customer. Based on this report, our customer would make the final payment to us pursuant to the contract. However, as discussed below, as is common practice in the construction industry in the PRC, our customers usually withhold approximately 5% or 10% of the total contract value as retention monies for any defects in the quality of our work for the length of the maintenance period. Nevertheless, some of our customers are willing to accept contractual bank guarantees from us in lieu of the whole or part of the retention monies. Such retention monies and/or bank guarantees are held for the duration of the contractual maintenance period and returned to us after the issue of a completion certificate.

Maintenance

Generally, our construction contracts provide for a contractual maintenance period of 12 or 24 months. During this maintenance period, we are liable in accordance with the terms of the contract for any defects in our work.

Operation Management

In carrying out different infrastructure construction projects, we act in varying capacities, such as the main contractor, a member of a consortium or joint venture, or a sub-contractor, depending on the requirements of the project, the scale of the projects and the preferences of our customers. As we operate on a large scale and are able to provide a full range of services within our Group, we usually submit tenders independently to act as the main contractor on a project and not jointly with other companies as part of a joint venture or consortium. However, for certain projects of very large scale, we may enter into joint venture or consortium arrangements with other companies. For the Track Record Period, we were mandated to act as the main contractor for over 95% of the total projects we undertook in terms of contract value, and we participated in the rest of the projects as a joint venture partner or member of a consortium.

Project management and work scope modification

We have implemented and maintained a comprehensive management and internal control system to assist our management to exercise appropriate oversight and control over every stage of a project’s life- cycle, including project implementation, labor management, raw materials monitoring, quality control and compliance /certification. We carry out our work in accordance with the agreed timeline and scope of work that are set out in the tender documents and contracts. However, our customers sometimes modify the agreed work scope of a project during the construction phase due to change in design or correction of

117 BUSINESS design errors. We negotiate adjustments in payment or construction timetables with our customers to account for any work scope modification.

We usually utilize our internal labour resources for our infrastructure projects. However, given the labor-intensive nature of the infrastructure construction industry, particularly during certain stages of a project, we regularly need a large amount of manpower and may engage external labor service companies to meet the labor demands of our projects. We also engage external labor service companies to provide the manpower required on a project-by-project basis, which allows us to manage our human resources and cost structure better. We only engage high quality labor service companies which meet our specific standards and those with which we have established long-term and sound working relationships, and in compliance with all relevant labor law and regulations. Such labor service companies must have obtained the relevant professional contractor qualifications to undertake construction work for railways, roads, bridges, tunnels or other infrastructure projects, as the case may be, and the relevant labor service sub-contractor qualifications to provide labor services. Many of these labor service companies provide construction labor services such as wood, cement, metal, cable and electrical works, painting, welding and plumbing. As at 31 December 2006, we have entered into labor service contracts with approximately 8,900 labor service companies, which comprise a total labor force of more than four times of our internal labor resource we have at our disposal. The costs of engaging labor service companies are cheaper than utilizing our own resources, and as these companies are usually employed on a project-by-project basis, project costs can be managed more effectively. Therefore, the engagement of external labor service companies for our projects will not increase marginal project cost and it is expected that we will increase the use of external labor service companies.

Industry Trend and Competitive Position

Prior to December 2004, competition in the railway construction industry in the PRC was limited to only a few players including China Railway Construction Corporation, who had the relevant railway construction qualification granted by the MOR to enter the industry. In December 2004, the MOR and the Ministry of Construction jointly issued a notice to deregulate the railway construction industry in the PRC by permitting businesses with certain professional qualifications in other infrastructure industries to enter the PRC railway construction market. However, as a result of the high barriers to obtain a special grade railway construction qualification, only a limited number of enterprises have been granted special grade railway construction qualifications. In addition, the trend in the PRC railway construction industry is moving towards more technically complex and large-scale projects and the customers are more inclined to select reputable companies that are able to provide integrated and one-stop solutions. Hence, we have had and continue to have only a limited number of competitors in the railway construction industry. We believe our experience, scale of operation, early involvement at the survey and design stage, plentiful resources and advanced technologies and engineering methods allow us to compete most effectively against competitors for complex and large-scale railway construction projects that require high-level technical specifications and advanced construction techniques.

Other areas of the PRC construction industry are highly fragmented. There were more than 58,750 enterprises participating in the building construction and civil construction industry at the end of 2005. Only a few of these enterprises, including national and local state-owned enterprises and domestic private companies, have been granted special grade main contractor qualifications by the Ministry of Construction. These enterprises include two of our subsidiaries and most of the remaining competitors are significantly smaller in scale and we do not have any business connections with them. Our focus within the road, municipal work and other building construction industries lies in large-scale projects and we mainly compete against other large state-owned enterprises. Competition for infrastructure construction projects is primarily on the basis of market reputation and track record, price, technical capability, standard of equipment, quality of technical personnel, client relationship and financial strength. We believe the railway

118 BUSINESS and other PRC infrastructure construction industries have large growth potentials given the significant increase in investment according to the Eleventh Five-Year Plan, and that we are well positioned to benefit from such growth. See ‘‘Industry Overview’’.

We may also face competition from foreign competitors that may enter the railway construction and road and other civil work construction industries in the future upon further industry deregulation. However, as the construction industry market deregulation has only been implemented on a limited basis, the actual impact of foreign competition in our Infrastructure Construction Business has been limited to date. Furthermore, the WTO framework provides us with more opportunities to enter into new markets overseas, from which we believe we will benefit given our well-established overseas operation.

Our Survey, Design and Consulting Services Business Overview

We are one of the leading players in the infrastructure survey, design and consulting service industry in the PRC. We offer a full range of survey, design, consulting, research and development and compliance certification services to customers in the PRC and overseas in relation to the construction of railways, metropolitan railways, expressways, highways, bridges and tunnels. The highlights of our experience (including that of our associates) include the following:

( in 2005 and 2006, we were ranked first on the Top 60 Foreign Construction Contract, Survey and Design, and Construction Companies list prepared by the U.S. Engineering News-Record and China Construction Newspaper;

( China Railway Eryuan Engineering Group Co., Ltd., one of our subsidiaries, was ranked first amongst the top 50 survey and design enterprises in the PRC in 2005 in terms of revenue generated from survey and design business;

( we have a market share of more than 50% in the PRC electrified railway survey and design market in terms of the total operating length of electrified railway lines as at 31 December 2006;

( we have a market share of more than 31% in the PRC metropolitan railway survey and design market in terms of the total operating length of metropolitan railway lines;

( we have participated in the provision of survey, design and consulting services for over 58% of the total number of ultra-long bridges across the Yangtze River;

( we have assisted the MOR in formulating railway industry standards on construction specifications and quality requirements;

( we are also one of the leading companies in the bridge, tunnel, expressway and electrified railway survey and design market in the PRC; and

( we hold a leading position in the airborne and remote sensing survey and design market in the PRC.

Our Survey, Design and Consulting Services Business has competent and qualified personnel with strong technical knowledge in all areas of infrastructure survey, design and consulting services. Our Group, including our associates, boasts 27 companies with Grade A survey and design qualifications through which we provide one-stop integrated survey, design and consulting services to our customers, particularly in the area of large-scale and complex projects. The following table sets forth certain key financial information for

119 BUSINESS our Survey, Design and Consulting Services Business for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007: For the year ended For the six months 31 December ended 30 June 2004 2005 2006 2006 2007 (unaudited) (RMB in millions, except for percentages) Revenue*************************************** 2,780 3,480 4,124 1,565 1,507 Revenue as a percentage of total Group revenue before elimination of inter-segment transactions ** 3.2% 3.1% 2.6% 2.6% 2.0% Segment result ********************************* 169 132 351 115 67 Segment result as a percentage of total adjusted Group operating profit(1) *********************** 21.1% 8.5% 9.7% 8.7% 5.4%

(1) Total operating profit for the Group represents the total of operating profit for individual business segments after adjustment to include net unallocated income (expenses) and to eliminate inter-segment transactions and net allocated finance income (expenses). Adjusted operating profit for the Group is equivalent to the sum of operating profit for individual business segments.

Operations

The main operating activities of our Survey, Design and Consulting Services Business include the provision of consulting and planning services, feasibility studies, survey and design services, research and development services, construction supervision and project management related to the construction of major railways, electrified railways, metropolitan railways, bridges, tunnels and railway stations in the PRC and overseas.

Completed Projects

The following table sets forth certain notable construction projects for which our Group, including our associates, have provided survey, design and consulting services: Year of Project Completion Contract Value Brief Description (RMB in millions) Hangzhou Bay Cross-Sea 2007 3,588 This project will be the longest cross-sea Bridge bridge in the world upon completion. Construction commenced in 2003. The total length of this bridge is designed to be approximately 36 kilometers, and we provided survey services for approximately 60% of the length of the bridge and design services for approximately 78% of the length of the bridge. As Hangzhou Bay is one of three sea bays with the strongest tides in the world, advanced and innovative design technologies were used to overcome severe marine conditions.

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Year of Project Completion Contract Value Brief Description (RMB in millions) Beijing — Tianjin Inter-city 2007 3,250 This project connected the Beijing Railway and Passenger Railway Line Tianjin Railway. Construction commenced in 2005. The total length of this project is designed to be 115 kilometers, and we provided survey and design services for the entire project. The railway line can accommodate speeds of up to 350 kilometers per hour and was one of the earliest high- speed railway lines with the highest speed accommodation limit that was constructed in the PRC. Nanning — Kunming 1997 256 This project was located in a dangerous Railway Line mountainous area in the southwest, and presented certain rare difficulties such as dangerous terrain and complex geology that had to be overcome to complete the project. Construction commenced in 1991. The total length of this project was approximately 899 kilometers, and we provided survey and design services for the entire project. This project was awarded the National Advanced Science and Technology Prize — Grade I. Chengdu — Kunming 1970 103 This project was located in an area with Railway Line extensive fault lines and presented a number of unprecedented difficulties in providing survey and design services. Construction commenced in 1964. The total length of the project was approximately 1,100 kilometers, and we provided survey and design services for the entire project. This project was awarded the National Advanced Science and Technology Supreme Prize in 1985 and the United Nations Special Prize in 1984. Baoji — Chengdu Railway 1958 75 This project was the first electrified trunk Line railway line constructed in the PRC. Construction commenced in 1952. The total length of this project was approximately 668 kilometers, and we provided survey and design services for approximately 68% of this project.

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Year of Project Completion Contract Value Brief Description (RMB in millions) Wuhu Yangtze River Bridge 1997 37 This project was the longest bridge across the Yangtze River and had the largest span of any railway and road dual-purpose bridge in the PRC at the time of its completion. Construction commenced in 1995. The total length of the railway bridge is approximately 10,624 meters and the total length of the road bridge is approximately 6,078 meters, and we provided survey and design services for the entire project. This project was awarded the National Supreme Design Gold Prize, the National Advanced Science and Technology Prize Grade I and the MOR Supreme Engineering Design Prize Grade I in 2002.

Ongoing Projects The following table sets forth certain ongoing notable survey, design or consulting projects in which we were engaged as at 30 June 2007: Expected Year of Expected Contract Project Completion Value Brief Description (RMB in millions) Zhengzhou — Xi’an 2009 221 This project is an important part of the Passenger Railway Mid- to Long-Term Railway Network Line Development Plan in the PRC. Construction commenced in 2005. The total length of this project is designed to be 454 kilometers, and we will provide design services for one-third of the project. Upon completion, the railway can accommodate speeds of up to 350 kilometers per hour. The entire length of the railway passes through mountainous regions with complex and dangerous terrains that present great difficulties in the survey and design of the railway. Lines One and Two, 2010 125 This project is part of the Chengdu Chengdu Subway subway network. Construction commenced in 2005. The total length of this project is designed to be 72 kilometers, and we will provide all the survey and design services for this project.

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Expected Year of Expected Contract Project Completion Value Brief Description (RMB in millions) Line Two (Stage I), 2011 119 This project is a part of the Hangzhou Hangzhou Subway subway network. Construction commenced in 2006. The total length of stage I of this subway line is designed to be 30 kilometers, and we will provide all the survey and design services for this project. We also provide construction services for stage I of this subway line. Zhengzhou Yellow 2009 62 This project is a technology-intensive River Railway and project which includes the construction Highway of a pioneering bridge structure. Dual-Purpose Construction commenced in 2006. The Bridge total length of this project is designed to be 15 kilometers, of which the length of the highway will be approximately nine kilometers, and we will provide all the survey and design services for this project. The highway bridge on the upper level will have a span of 32.5 meters and six passageways and is designed to accommodate speeds of up to 100 kilometers per hour. The double- track passenger railway line on the lower level is designed to accommodate speeds of up to 350 kilometers per hour. Qingdao Jiaozhou Bay 2009 11 This project is located between Qingdao Undersea Tunnel and Huangdao and passes through the coastal area of Jiaozhou Bay. Construction commenced in 2006. The total estimated length of this project is 6,170 meters, and we will provide all the survey and design services for the entire project. The length of the tunnel will be 5,550 meters (of which 3,950 meters will be below sea level). This project is designed to be a tunnel with six passageways accommodating traffic going in both directions speeds of up to 80 kilometers an hour. The lowest point of the tunnel is designed to be 70.5 meters below sea level, which is 44.5 meters below the seabed.

Technical Personnel and Institutes Our Survey, Design and Consulting Services Business operates in a service-based, human resource intensive industry and our ability to recruit and retain high quality technical personnel with the relevant professional qualifications is critical to our success.

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We have a substantial group of technical personnel specializing in infrastructure survey, design and consulting in the PRC. As at 30 June 2007, we employed three members of the Chinese Academy of Engineering, seven National Survey and Design Masters (one of which is also a member of the Chinese Academy of Engineering), more than 2,800 senior professional technical personnel and 831 state-registered engineers among the 13,000 employees in our Survey, Design and Consulting Services Business. We have 27 grade A design and consulting enterprises specializing in survey and design for different industries and sub-industries. Of these, our ten primary survey, design and consulting enterprises and their respective main business scopes are as follows:

Institutes Scope of Operation China Railway Eryuan Engineering Group Co., providing integrated/specialized survey, design, Ltd. and China Railway Engineering Consulting consulting, compliance certification, main Group Co., Ltd. contractor and/or project management services with respect to railways, metropolitan railways, expressways and other highways, bridges, tunnels, municipal works, wiring systems, communication, signalling systems, etc. China Railway Northwest Research Institute Co., conducting specialized research and development Ltd. and China Railway Southwest Research with respect to railway and/or other infrastructure- Institute Co., Ltd. related engineering techniques and technologies, construction structure issues, environmental protection issues, engineering machinery and software, special geological issues, prevention of geological disasters and natural science phenomena, such as permafrost, the results of which became an important contribution to the construction of the Qinghai — Tibet Railway China Railway Major Bridge Reconnaissance & providing survey, design and consulting services Design Institute Co., Ltd. with respect to bridge construction projects with specialization in ultra-long bridges. This institute provided design services for many major landmark bridges in the PRC (such as the Wuhan Yangtze River Bridge, the Nanjing Yangtze River Bridge, the Jiujiang Yangtze River Bridge and the Wuhu Yangtze River Bridge) China Railway Tunnel Reconnaissance & Design providing survey, design and consulting services Institute Co., Ltd. with respect to tunnel engineering and metropolitan railway projects China Railway Electrification Reconnaissance & providing survey, design and consulting services Design Institute with respect to electrified railway projects and metropolitan railway-related electrical supply and transmission system; this is the only institute in the PRC specializing in such services Huatie Engineering Consulting Co., Ltd. providing project supervision services for railway, metropolitan railway, expressway, highway, bridge and municipal works projects

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Institutes Scope of Operation China Railway Beijing Construction Engineering providing integrated or specialized survey, design Design Institute and consulting services for building construction projects and project supervision services Beijing Railway Communications and Signalling providing survey, design and consulting services, as Survey and Design Institute well as research and development with respect to railway-related, broadcasting-related and municipal utility-related communications, signalling and/or electrical systems

Contracting Process The contracting process for our Infrastructure Survey, Design and Consulting Services Business generally involves the following steps: ( collection and analysis of market information and identification of potential survey and design projects; ( formulation of a preliminary plan based on project specifications in preparation for tender; ( submission of tender documents; ( if successful in a tender, conducting further onsite inspection, geological survey and landscape analysis to formulate a more detailed design plan; ( drafting of design plans or consultation reports in accordance with the agreed scope of engagement, which documents are usually reviewed by our customers before finalizing; and ( provision of onsite consulting services during the construction phase of projects we have designed in order to deal with any unforeseen design issues that may arise.

Contract Terms We generally use the standard contract forms with respect to survey, design and consulting, which are published by the Ministry of Construction, as a starting point. We revise these contracts as necessary on a case-by-case basis based on negotiation with our customers. The key features of our contracts usually include the following: ( pricing terms, which are usually on a maximum fixed-price basis (in certain cases, price escalation clauses are included to cover our cost increase in case of subsequent change in work scope); ( payment terms, which usually provide for the total contract price to be paid to us in stages based on the amount of work done; and ( performance bond clauses, which usually provide that we will deliver a performance bond in an amount equal to 5% of the total contract value to our customers before the commencement of the project or that the customers shall retain an amount equal to 5% of each progress payment, which amounts shall be recoverable by us after the project is completed.

Industry Trend and Competitive Position We are one of the leaders in the PRC infrastructure construction survey, design and consulting industry. We have a market share of more than 50% of the PRC electrified railway survey, design and consulting market. We also have undertaken survey, design and consulting projects for over 31% of the total operating length of metropolitan railways in the PRC.

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Competition in the survey, design and consulting service market relating to PRC railway construction is limited to two dominant, large state-owned enterprises, one of them being ourselves. While the MOR and the Ministry of Construction announced measures aimed at opening up the market in December 2004, to date there has only been limited increase in competition.

The market for survey, design and consulting services relating to other PRC infrastructure construction projects is more fragmented and competition is more intense. We mainly compete against large state- owned enterprises, and provincial or municipal transportation design institutes at the local level. While competition continues to come primarily from domestic players, we expect more foreign players will enter the PRC infrastructure survey, design and consulting service market due to the PRC’s WTO commitments to foreign players. We intend to build on our strong track record in the infrastructure construction industry and our ability to provide integrated solutions and specialized services to our customers to compete against foreign competitors.

Our Engineering Equipment and Component Manufacturing Business

Overview

We are the largest manufacturer of several railway-related engineering equipment and components, including turnouts and other railway equipment, and steel structures in the PRC. During the Track Record Period, we were one of the largest developers and manufacturers of turnouts in the world in terms of the total number of units produced. We dominate the PRC turnout market. We are not only the sole manufacturer of high manganese steel welded frogs, but are currently also the only manufacturer producing acceleration turnouts in the PRC. In addition, we are one of the leading manufacturers of bridge steel structures and the sole manufacturer of railway-related large bridge steel structures in the PRC. We accounted for 80% of the domestic large bridge steel structures market in 2006. Over the three years ended 31 December 2006, we produced more than 500,000 tons of bridge steel structures, used mainly in major railway steel bridges and road steel bridges in the PRC. We have a leading position in the railway construction machinery market, and in the market for bridge erecting machinery and railway track laying machinery in the PRC. Our other tracked machines and engineering machinery include rail trolleys, maintenance machinery, electrified railway work vehicles and ship-mounted cranes, among others. We are one of the few manufacturers that have been licensed by the MOR to manufacture tracked machines. We also designed and manufactured the first rail trolley, rail detecting car, rail grinding wagon and electrified railway work vehicle in the PRC.

We operate our Engineering Equipment and Component Manufacturing Business mainly through five major direct subsidiaries. Their respective specializations are as follows:

Subsidiaries Scope of Operation

China Railway Shanhaiguan manufacture of fabricated bridge steel structures, railway turnouts, Bridge Group Co., Ltd. and subway and urban light railway turnouts, gantry cranes, bridge China Railway Turnout and erecting machinery and carry girders Bridge Co., Ltd. China Railway Baoji Machinery manufacture of railway cars, electrified railway work vehicles and Co., Ltd. large-scale track maintenance machines China Railway Heavy Machinery manufacture of bridge erecting and railway track laying machinery, Co., Ltd. and lifting machinery including railway yard container gantry cranes China Railway Engineering provision of research and development services, design and Machinery Research and production of carry girders, bridging equipment, railway and Design Co., Ltd metropolitan railway construction equipment and large-scale bridge carrying equipment

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The following table sets forth certain key financial information for our Engineering Equipment and Component Manufacturing Business for the three years ended 31 December 2004, 2005 and 2006 and for the six months ended 30 June 2006 and 2007: For the year ended For the six months 31 December ended 30 June 2004 2005 2006 2006 2007 (unaudited) (RMB in millions, except for percentages) Revenue***************************************** 3,024 3,814 4,095 1,955 2,222 Revenue as a percentage of total Group revenue before elimination of inter-segment transactions **** 3.4% 3.4% 2.6% 3.2% 2.9% Segment result *********************************** 379 432 445 168 67 Segment result as a percentage of total adjusted Group operating profit(1) ******************************* 47.4% 27.7% 12.3% 12.6% 5.4%

(1) Total operating profit for the Group represents the total of operating profit for individual business segments after adjustment to include net unallocated income (expenses) and to eliminate inter-segment transactions and net allocated finance income (expenses). Adjusted operating profit for the Group is equivalent to the sum of operating profit for individual business segments.

Key Products and Services We design, manufacture, sell and provide installation and after sales services for the following four major product series:

Steel Structures Our steel structures are widely used in various fields and can be classified into four categories based on their use: ( Bridge steel structure products used in girder bridges, steel arch bridges, cable-stayed bridges, suspension bridges, steel truss bridges and steel-concrete combined girders; ( Steel structures used in buildings such as theatres, conference centers and railway station waiting halls and steel structures used in boiler chassis steel structures, light steel structures and workshop steel structures, structural components and steel workshop structural components for power plants; ( Steel structures used in various machinery including carry girders, cranes and bridge erecting machines; and ( Other steel structural components, including portable steel plate houses, portable bridges, folding containers and containers of universal specification. We have extensive experience in manufacturing bridge steel structures, with one of our subsidiaries having operated in this field for over 100 years. We were the first company in the PRC to design and manufacture railway bridge steel structures and have had a significant influence in market development in the PRC. We were commissioned by the national authorities to lead and participate in the formulation of manufacturing specifications and technical standards for railway bridges that have become general standards and specifications for such bridges in the PRC.

Turnouts Turnouts are the junctions in trackwork where railway lines diverge or converge. The uses of turnouts are wide and varied. Our turnout products include railway and urban light railway turnouts, frogs and certain railway accessories. Our railway turnouts are among the most advanced in the world in terms of

127 BUSINESS switch crossing speed and stability. We dominate the domestic railway turnout market and are the sole developer and manufacturer of high manganese steel welded frogs and the only manufacturer producing acceleration turnouts in the PRC, being the only entity granted the permit by the MOR to manufacture high manganese steel welded frogs and one of two entities granted permits by the MOR to manufacture acceleration turnouts. Our permit to manufacture acceleration turnouts does not have a fixed term or any conditions. The other entity which has been granted a permit to manufacture acceleration turnout has not commenced production; therefore it currently does not compete with us and we remain the sole manufacturer of acceleration turnouts in the PRC. Our turnout products have been exported to countries in a number of regions including Asia, Africa and North America.

Tracked machines

Our tracked machine products include railway track laying machinery, rail cars and track maintenance machines. We were the first PRC manufacturer to develop bridge erecting machinery and railway track laying machinery that can be used in high altitude areas. We have a leading position in the domestic bridge erecting machinery and railway track laying machinery markets. We provided all three sets of bridge erecting machinery and railway track laying machinery used in the Qinghai — Tibet Railway construction project. We also manufacture specialized equipment for laying high-speed ballastless tracks and other ballastless tracks. We are one of the few manufacturers that have been licensed by the MOR to manufacture tracked machines. In addition, we designed and manufactured the first rail trolley, rail detecting car, rail grinding wagon and electrified railway work vehicle in the PRC.

Engineering machinery

Our engineering machinery products include bridge erecting machinery and lifting machinery such as railway yard container gantry cranes, ship-mounted cranes, equipment for laying bridges over water and other engineering machinery. We have been licensed by the MOR to manufacture railway yard container gantry cranes which are primarily used for the loading and unloading, moving and piling of containers in a railway container transfer yard. In 2006, we manufactured the first specialized gantry cranes suitable for railway container transfer yards. The current lifting capacity of our railway yard container gantry crane is up to 40 tons. We believe the potential for the railway yard container gantry cranes market is significant. The equipment we manufacture for laying bridges over water is used for the construction of long-span bridges. In 2005, we designed and manufactured Tian Yi, a ship-mounted crane with a lifting capacity of up to 3,000 tons, the highest lifting capacity for any ship-mounted crane in Asia. We were awarded the National Advanced Science and Technology Prize Grade II by the State Council in 2005 for the design and manufacture of the Tian Yi.

Production Facilities and Equipment

The table below sets forth information on the key production facilities and factories used by our subsidiaries through which we carry out our Engineering Equipment and Component Manufacturing Business: Approximate area as at Subsidiaries 30 June 2007 Primary function (square meters) China Railway 1,230,000 manufacturing bridge Shanhaiguan steel structures, railway Bridge Group turnouts, urban light Co., Ltd. railway turnouts and lifting machinery

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Approximate area as at Subsidiaries 30 June 2007 Primary function (square meters) China Railway more than 700,000 manufacturing bridge Turnout and steel structures, railway Bridge Co., Ltd. turnouts, urban light railway turnouts and lifting machinery China Railway Baoji 400,000 manufacturing rail Machinery Co., trolleys, electrified Ltd. railway work vehicles and track maintenance machines China Railway 270,000 manufacturing bridge Heavy Machinery erecting machinery, Co., Ltd railway track laying machinery and lifting machinery such as railway yard container gantry cranes China Railway 25,000 manufacturing carry Engineering girders, bridging Machinery equipment, railway Research and track laying machinery Design Co., Ltd and large-scale bridge carrying equipment We use a wide range of advanced manufacturing equipment to produce our products. Much of our high-technology equipment and machinery, such as our machining center with numerically-controlled drillers for steel beams, large arc welding centers, pre-treatment line for steel plates, numerically-controlled milling machines for turnouts and frogs, welding machines for high manganese steel frogs, vacuum casting production line, low-pressure casting equipment and other large-scale advanced equipment, is imported from a number of foreign countries including Japan, Germany, Sweden and Switzerland. We place significant emphasis on the improvement of our production efficiency and upgrade of the equipment, machinery and facilities in our production process on a regular basis. For the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, we spent approximately RMB60 million, RMB149 million, RMB83 million and RMB100 million to purchase property, plant and equipment in relation to our Engineering, Equipment and Component Manufacturing Business.

Technology, Research and Development We are committed to developing our research and development capabilities. As at 30 June 2007, our research and development team consisted of more than 1,000 employees dedicated to product design and technology development. In addition, we have established, a professional engineering equipment and component manufacturing research institute and individual research and development departments in each of the subsidiaries involved in our Engineering Equipment and Component Manufacturing Business. We are also currently in the process of establishing the first PRC professional research and development center for turnouts. Our research and development team has, both independently and in cooperation with scientific research institutes and universities nationwide, developed a number of advanced products and technologies. We have independently researched and developed a variety of large-scale equipment and products such as carrying and installing equipment for pre-stressed concrete beams, 600t/900t bridge

129 BUSINESS erecting machinery and beam carriers for passenger railway lines, CPG500 seamless long-distance railway track laying machinery, and KTY4000 top head drive drill and hydraulic hammer. In particular, we have researched and developed a large number of technologies used in our design and manufacture of high- speed and acceleration turnouts, including machine works turning technology and wing rail die-forging technology. We have commenced our own research and development for the production of turnouts to be used for high-speed railways. Our subsidiary, China Railway Shanhaiguan Bridge Group Co., Ltd. was designated by NDRC as a nationally-certified corporate technology center in 2006. In addition, we were sponsored under the National Project 863, a high-tech research and development program, to set up a research and development and production base for tunnel boring machinery in Xinxiang City, Henan Province.

We have entered into a joint venture with the VAE Group (VAE GmbH (‘‘VAE’’) and its German subsidiary, BWG GmbH & Co. KG (‘‘BWG’’)), leading international turnout manufacturers, for the development, design and production of high speed turnouts. The joint venture company, Chinese New Turnout Technologies Co. Ltd., has a registered share capital of EUR21.5 million. Through our direct subsidiary, China Railway Shanhaiguan Bridge Group Co., Ltd., we own a 50% interest in the joint venture company and the VAE Group owns the other 50% interest, of which a 29% interest is held by VAE and a 21% interest is held by BWG. The company is in its start-up phase and has just begun the construction of its turnout production facility. The joint venture company will be accounted for as a jointly controlled entity. The VAE Group will contribute their leading high-speed turnout technology and expertise, including turnout design, turnout and switches deflecting device modification (FAKOP) production data, planning, logistics and consultation during turnout installation, quality control and compliance testing. We intend to cooperate with the VAE Group in the research and development of high-speed turnout technology and expertise for the PRC railway market.

We have also licensed certain specific production technologies, including high-speed turnout production technology, high manganese steel frog welding technology and vacuum casting production technology, from international industry leaders, such as Vossloh Cogifer and VAE GmbH, who are independent third parties. We intend to further carry out our own research to develop these licensed technologies in the near future.

Sales and Marketing

Our products are primarily sold in the PRC domestic market, and our major clients include the MOR, PRC central and local construction/communication authorities, and many major PRC construction companies. We export our bridge steel structure products to Pakistan, Bangladesh, Thailand, Myanmar and Cambodia, and export our turnout products to the United States, Southeast Asia, New Zealand, Russia, Japan, Canada, Korea and Africa.

A majority of our orders are obtained through participation in private or public tenders. Private tenders are open only to a selected number of suppliers by invitation, while public tenders are open to any qualified supplier. Each of our five major subsidiaries in the Engineering Equipment and Component Manufacturing Business has established distinct sales departments for each of the product lines that it manufactures and sells. These sales departments are primarily responsible for the sales and marketing of the relevant product lines. In addition, these sales departments are responsible for the preparation of tenders. Key steps in the tender process include a detailed review of invitation documents or notices, a study of the technical standards and specifications for products, a technical analysis and evaluation of the products to be supplied, and the preparation of the tender documents. In addition, we also obtain purchase orders through direct negotiations with our customers. We have built and maintained a long-term relationship of over 25 years with our largest customer, the MOR.

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Industry Trend and Competitive Position Given the rapid development of the PRC infrastructure construction industry, we believe that the PRC railway equipment and component manufacturing industry will continue to have favorable prospects. Increased investment in railway construction in the PRC should generate increased demand for turnouts, railway steel bridge girders, tracked machines, railway yard container gantry cranes and other large-scale railway-specific equipment and facilities. Entry into the PRC engineering equipment and component manufacturing industry requires having highly specialized equipment. The market also has significant economic and regulatory barriers to entry such as the capital intensive nature of the business and the regulatory requirement of an industrial product manufacture license. We are one of the largest turnout manufacturers in the world and the domestic leader in the manufacture of tracked machines and railway yard container gantry cranes. We dominate the PRC market for large bridge steel structures with a market share of approximately 80% in 2006. However, as the PRC engineering equipment and component manufacturing industry becomes more deregulated and attracts more potential participants, we may face increasing competition. Key success factors in the engineering equipment and component manufacturing industry include reputation, technology, equipment, experience, quality, price and after-sales service.

Our Property Development Business Overview To better leverage our leading position and reputation of our Infrastructure Construction Business, we began to selectively engage in property development projects through some of our subsidiaries. Our Property Development Business consists primarily of the development, sale and management of both residential and commercial properties including the following types of projects: Residential properties We offer a wide range of residential properties/housing units, including apartments and villas that primarily target middle and upper-middle income purchasers; and Commercial properties We engage in the development, sale, leasing and management of a variety of commercial properties, including primarily retail shops, commercial developments, office buildings and hotels. We operate our Property Development Business mainly through China Railway Real Estate Group Co., Ltd., which is our wholly-owned subsidiary established in February 2007, and a number of our major direct subsidiaries and their respective subsidiaries or associates, many of which also engage in our Infrastructure Construction Business and/or the Survey, Design and Consulting Services Business. As part of our strategy to grow our Property Development Business, China Railway Real Estate Group Co., Ltd., will be in charge of planning and development of our Property Development Business at the Group Level, and coordination of the business that is currently run by many of our subsidiaries. Our goal is to build our ‘‘China Railway Real Estate’’ brand name into one of the leading property development brands in the PRC. We believe that the current business landscape in the PRC provides many opportunities for our property development business. Our strategy is to leverage on the privileges that we enjoy as a leader in the infrastructure construction industry, such as our extensive experience in construction project operations and our established long-term relationships with government authorities including the Ministry of Construction and local-level government authorities, which give us a competitive advantage in winning new property development projects. Opportunities arising from such privileges have taken the form of our property development projects to upgrade old towns or develop new towns and districts or previously undeveloped land. In addition, we have also cooperated with some of these governmental authorities to provide property development services in the location where we have been contracted to do municipal construction works.

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By getting involved in the planning stage, we are also better positioned to eventually participate in development of the land, including providing infrastructure construction services for the area, and then go on to develop large-scale, multi-phase property projects. Our good working relationship with these governmental authorities have also helped us in completing our property development projects successfully and in turn, put us in a better position to win future property development projects tendered out by them. We also intend to cooperate with other property developers through joint ventures to win key property development projects. Our short term goal is to concentrate most of our efforts and resources for our property development business on residential property development and gradually increase our focus on commercial property development in the next five years. As at 30 September 2007, we had 47 projects in various stages of development. These projects are located primarily in large and mid-sized cities in the PRC, such as Beijing, Chengdu, Shenzhen, Guiyang, Guangzhou, Wuhan, Shijiazhuang and Anqing, where the market demand for residential and commercial properties is strong. We intend to continue to focus our property development activities over cities in the Pearl River Delta, the Yangtze River Delta and the Bohai Bay regions and on other provincial capitals and cities in the PRC and commit our resources to property development projects to upgrade old towns or develop new towns and districts or previously undeveloped land. The following table sets forth certain key financial information of our Property Development Business for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007: For the year ended For the six months 31 December ended 30 June 2004 2005 2006 2006 2007 (unaudited) (RMB in millions, except for percentages) Revenue****************************************** 863 1,622 1,879 932 1,408 Revenue as a percentage of total Group revenue before elimination of inter-segment transactions************ 1.0% 1.4% 1.2% 1.5% 1.8% Segment result ************************************ 90 344 426 257 285 Segment result as a percentage of total adjusted Group operating profit(1) ******************************** 11.3% 22.0% 11.7% 19.3% 22.8%

(1) Total operating profit for the Group represents the total of operating profit for individual business segments after adjustment to include net unallocated income (expenses) and to eliminate inter-segment transactions and net allocated finance income (expenses). Adjusted operating profit for the Group is equivalent to the sum of operating profit for individual business segments.

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Our Property Development Projects Our property development projects are located primarily in large and mid-sized cities such as Beijing, Chengdu, Shenzhen, Guiyang, Guangzhou, Wuhan, Shijiazhuang and Anqing. As at 30 September 2007, we had 47 projects in various stages of development. These projects had an aggregate site area of approximately 3,743,643 square meters and an aggregate GFA of approximately 6,308,816 square meters, including an aggregate GFA of approximately 3,330,769 square meters relating to properties held for future development. As at 30 September 2007, our property development and investment portfolio was valued by Sallmanns (Far East) Ltd. to amount to approximately RMB8 billion. We have obtained valid land use right certificates for all the land on which our property development projects are located and where applicable, we have obtained valid title certificates to the buildings held for property development except in relation to one parcel of land with a site area of approximately 7,000 square meters for which we are currently in the process of applying for land use right certificates. See ‘‘— Properties’’ and ‘‘Appendix IV — Property Valuation’’. We classify our property projects into three categories according to the stage of development, completed property developments, properties under development and properties held for future development.

133 BUSINESS engzhou. % of total % of total % of total Total GFA or GFA Total or GFA or GFA Total or GFA or GFA Total or GFA Completed properties Properties under development Properties held for future development —— — — — — — — — 73.8 2.8 — 38.4 — 2.4 — 684.5 — 20.5 — 624.2 — 22.0 — — ———— — —— —— —— — — —— — — — — — 265.2 — —— — — —— 10.0 — — — — — 143.2 — — 159.1 —— — — 5.4 295.6 — — — 10.0 — — 78.9 11.1 37.1 — 85.2 121.1 2.9 221.1 — — 3.2 2.3 4.6 — 13.9 78.9 — 55.4 121.1 — — 72.4 5.0 — — 3.5 — 7.6 2.2 — 379.9 14.8 181.5 83.4 11.4 — 50.7 — 0.4 — 5.5 2.5 379.9 1.8 14.8 — 181.5 13.4 54.2 — 352.8 0.5 6.4 1.9 10.6 352.8 12.4 or or GFA total GFA total GFA or or GFA total GFA total GFA or or GFA total GFA total GFA 10.145.5 3.2 14.3 8.5 34.1 2.9 11.5 1,145.9 43.122.0 — 462.1 6.9 — 29.0 22.0 440.2 — 13.2 7.4 — 191.5 — 243.8 6.8 7.3 — 182.8 — 6.5 — — — — — 34.9 10.9 25.6 8.6 292.6 11.0 262.6 16.4 175.4 5.3 99.7 3.5 206.5 64.7 206.5 69.6 157.5 5.9 157.5 9.9 702.2 21.1 702.2 24.8 319.0 100.0 296.8 100.0 2,659.0 100.0 1,593.3 100.0 3,330.8 100.0 2,834.2 100.0 estimated estimated attributable attributable estimated estimated attributable attributable estimated estimated attributable attributable Total GFATotal % of total estimated estimated GFA Total % of total estimated estimated GFA Total % of total estimated estimated sq.m. (’000) (%) sq.m. (’000) (%) sq.m. (’000) (%) sq.m. (’000) (%) sq.m. (’000) (%) sq.m. (’000) (%) ********** ********** *********** 1 ************ ************* ************* ************* ************* ************* ************** ************** ************** *************** *************** **************** **************** **************** The following table sets forth the GFA information of our completed property developments, properties under development and developments, properties information of our completed property The following table sets forth the GFA : (1) Other cities include Baoji, Chongqing, Feicheng, Jinan, Jinzhou, Kaili, Suzhou, Dajiangyan, Huhehaote, Zibo, Dalian and Zh properties held for future development as at 30 September 2007: held for future properties Anqing Beijing Chengdu Note Shenzhen Guangzhou Guiyang Daxian Hefei Huainan Suining Wuhan Shijiazhuang Zhuzhou Lanzhou Xi’an Other cities Total City total GFA total GFA to us to us total GFA total GFA to us to us total GFA total GFA to us to us

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The following is a detailed description of some of our key property development projects which are larger in terms of scale or GFA in various locations in the PRC (other than Qingcheng Holiday Town and China Railway ) Dragon City, we do not wholly own the following projects):

Residential property projects

East Mountain International New Town ( ) is located in Longquanyi District, Chengdu, about a 40-minute drive from the central business district of Chengdu. The project occupies a total site area of approximately 300,000 square meters with an expected GFA of approximately 830,000 square meters. Construction of this project commenced in March 2006 and is expected to be completed by 2011. Upon completion, this project is expected to include apartment buildings, villas, parks, cultural centers, hotels, international schools and hospitals. East Mountain International New Town was awarded Top International Garden Community in China by the Science and Technology Development Promotion Center under the Ministry of Construction and the Organizing Committee of Chinese Real Estate Festival, and the Gold Medal for Best Residential Planning in Asia by the Organizing Committee of Asia Real Estate Summit in 2006.

Xinglong ) Fengdan Bailu ( ) is located in the suburbs of Guiyang, about a seven- minute drive from the central business district of Guiyang. The project occupies a total site area of approximately 220,000 square meters with a GFA of approximately 380,000 square meters. Construction on this project commenced in August 2004 and is expected to be completed by 2008. Upon completion, this project is expected to comprise more than 2,000 residential units and community facilities such as schools and hospitals. This project received two property development awards in 2006.

Easy City Garden ( ) is located in Panyu District, Guangzhou. The project occupies a total site area of approximately 200,000 square meters with an expected GFA of approximately 353,650 square meters. Construction of this project commenced in July 2003 and is expected to be completed by December 2010. Upon completion, the project is expected to comprise 22 apartment buildings. Easy City Garden was awarded Nationwide Representative Residential Project by China Index Academy and China Real Estate Index System in 2005 and Chinese Estate Model in Fashion and Concision by China Real Estate Association and Editorial Committee of the Conference of China Real Estate Industrial Development in 2004.

Qingcheng Holiday Town ( ) is located in Qingchengshan Town, Chengdu. The project is a holiday villa complex located on a scenic mountain that was named a world cultural heritage site. It occupies a total site area of approximately 130,000 square meters with a GFA of approximately 65,000 square meters. Construction of this project commenced in March 2003 and was completed in December 2005. The project primarily comprises 203 residential units. As of December 2004, all properties in this project had been sold. Qingcheng Holiday Town was awarded a number of awards, including The First Gold Lotus Cup Award for Classical Residential Quarter and Housing Estate with Best Investment Value by Chengdu Real Estate Brand Promotion Center and Chengdu Municipal Statistics Bureau in 2003, Populace- trusted Real Estate Brand by Chengdu Real Estate Association and Chengdu Quality Residential Building Development Center in 2003 and Customers-favoured Ecological Residential Quarter by Chengdu Real Estate Association and Chengdu Quality Residential Building Development Center in 2002.

Zhongjing ) Four Seasons Garden City ( ) is located in Changan District, Shijiazhuang. The project occupies a total site area of approximately 120,000 square meters with a GFA of approximately 390,000 square meters. Construction on this project commenced in October 2006 and is expected to be completed by 2010. Upon completion, this project is expected to comprise 19 solar-paneled buildings, a park occupying an area of approximately 100,000 square meters, a shopping street and international schools.

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Commercial property projects

Yanhai ) Sailuo City ( ) is located in Chaoyang District, Beijing. The project occupies a total site area of approximately 250,000 square meters with a GFA of approximately 860,000 square meters. Construction on this project commenced in June 2005 and is expected to be completed by 2009. Upon completion, this project is expected to include high-rise buildings consisting of service apartments, offices and retail shops, sports centers, hospitals and schools. This project was the first Chinese project to receive the LEED (Leadership in Energy and Environmental Design) for Neighborhood Development credit rating from the U.S. Green Building Council in May 2006.

China Railway ) Dragon City ( ) is located in Suining, Sichuan. The project occupies a total site area of approximately 84,000 square meters with a GFA of approximately 150,000 square meters. Construction on this project commenced in August 2006 and is expected to be completed by December 2007. Upon completion, this condominium project is expected to comprise 25 multi-storey residential buildings, two high-rise buildings and two office buildings.

Asia Resources Plaza ( ) is located in Fengtai District, Beijing. The project occupies a total site area of approximately 8,200 square meters with a GFA of approximately 42,000 square meters. Construction on this project commenced in May 2004 and was completed in July 2005. The project comprises one office building. Asia Resources Plaza was awarded the Great Wall Cup Gold Medal for the Outstanding Structure of 2004 by the Excellent Engineering Works Review Committee of Beijing.

Shenzhen Noble Center ( ) is located in Futian District, Shenzhen. The project occupies a total site area of approximately 4,900 square meters with a GFA of 70,000 square meters. Construction on this project commenced in June 2004 and was completed in June 2007. The project comprises one office building.

Property Development

We engage in property development activities through individual project companies to manage individual property development projects. These companies engage in all aspects of property development for projects from site identification and land acquisition to after-sales service.

Qualifications of Property Developers

According to the relevant PRC laws and regulations, property developers in the PRC are required to obtain a formal qualification certificate to carry out property development operations in the PRC. All qualification certificates are subject to renewal on an annual basis. Please see ’’Regulatory Overview’’ for details. As at the Latest Practicable Date, all of our project companies and other subsidiaries engaging in property development activities possessed valid formal qualification certificates.

Development Process

The different stages in developing a property are summarized below:

( city and site identification and land acquisition, including site search, project evaluation, feasibility study, project confirmation, project financing and land acquisition;

( project planning and preliminary work, including market analysis and product positioning;

( design, including architectural and construction design and landscape design;

( construction, including tendering and procurement of supplies, construction supervision and completion inspection;

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( pre-sales, including introduction of the plan, structure and design concept of the property and provision of real estate consultancy services to existing and potential customers, application for permit to sell properties and preparation work such as constructing sales office and showrooms; ( sales, including selling of property units and settlement of sales transactions conducted by our sales professionals; and ( after-sales services, including registering property sale agreements, obtaining title certificates for properties purchased with relevant local authorities, handover of properties and delivering interim legal documents to show proof of title to purchasers before formal title certificates are obtained and assisting purchasers in obtaining financing or mortgage facilities in accordance with the relevant regulations and industry standards. We may also provide financing services to purchasers through our direct subsidiary, Equity Trust Co., Ltd. and property management services. Each stage of the development process also includes sales planning, quality control, cost control and approval or compliance activities.

Sales and Marketing Currently, our sales and marketing functions are delegated to our individual project companies, that have a dedicated sales and marketing team for each individual property development project. Occasionally, the sales and marketing department in a project company determines and executes advertising and sales plans for a particular property development project together with an external sales and marketing consulting company. As at 30 June 2007, the total sales and marketing force of our Property Development Business comprised more than 600 employees. For residential properties, we primarily target middle and upper-middle income individual purchasers. For commercial properties, we primarily target medium- to high-end corporations.

Industry Trend and Competitive Position Although the property development industry is capital intensive and has high cost of entry, the PRC property development industry remains highly competitive. As at the end of 2006, there were over 30,000 property developers in the PRC, including major domestic state-owned and private property developers, as well as property developers from Hong Kong, elsewhere in Asia and internationally. The growth of the PRC economy and average household disposable income and urbanization will continue to fuel growth in the real estate sector. In addition, changes in legislation and policy continue to encourage private property ownership and increase the proportion of urban residents who own their residences. We believe these factors represent significant potential for property developers, who are able to understand the characteristics and specific needs of particular regions and operate on a sufficiently large scale. Key success factors in the property development market include experience, brand, availability and cost of capital. We plan to commit more resources to the Property Development Business to strengthen market presence and take advantage of revenue and profit generation opportunities.

Our Other Businesses Overview Leveraging on the established platforms of our existing businesses, we also engage in railway and road investment and operation projects, mining, raw material trading and a variety of other businesses. We operate these businesses mainly through ten of our direct subsidiaries and joint venture companies. The services we provide are generally complementary to our core business segments.

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The following table sets forth certain key financial information for our Other Businesses for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007: For the year ended For the six months 31 December ended 30 June 2004 2005 2006 2006 2007 (unaudited) (RMB in millions, except for percentages) Revenue***************************************** 4,018 4,747 6,278 2,544 4,043 Revenue as a percentage of total Group revenue before elimination of inter-segment transactions **** 4.6% 4.2% 4.0% 4.1% 5.3% Segment result *********************************** 5 87 181 182 116 Segment result as a percentage of total adjusted Group operating profit(1) ******************************* 0.6% 5.5% 5.0% 13.7% 9.2%

(1) Total operating profit for the Group represents the total of operating profit for individual business segments after adjustment to include net unallocated income (expenses) and to eliminate inter-segment transactions and net allocated finance income (expenses). Adjusted operating profit for the Group is equivalent to the sum of operating profit for individual business segments.

Railway Investment and Operation Projects We have been granted permission by the MOR to build, operate and own the Sunite Railway, the Lince Railway and the Taiyuan — Zhongwei — Yinchuan Railway. These railways will be major freight traffic channels to and from the western region of China. We are one of only a few companies which have the right to operate and own railway lines in the PRC. We have targeted this type of railway investment and operation project as a potential area for future expansion. We believe that such projects will allow us to control and manage costs more effectively than projects for which we provide only construction services. We also obtain higher rates of return on such projects and favorable and stable long-term cash flows. The following table sets forth our railway investment and operation projects in which we were engaged as at 30 June 2007: Expected Year of Completion of Expected Total Project Construction Investment Brief Description (RMB in millions) Taiyuan — 2009 27,500 This project, which connects Tai Yuan through Zhongwei — Zhong Wei to Yin Chuan, will be a major freight Yinchuan Railway traffic channel for the transportation of coal and Project mining products in the western region of the PRC. Construction commenced in 2006. This project is designed to have a total length of approximately 944 kilometers, and we have been mandated to construct the entire railway. This project is a joint investment in which we have an interest of approximately 18%.

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Expected Year of Completion of Expected Total Project Construction Investment Brief Description (RMB in millions) Lince Railway Project 2008 3,880 The project, which links Linhe Railway Station of Baolan Railway and Jiace Railway located in the Inner Mongolia Autonomous Region, will be a freight transportation channel between the PRC and Mongolia. Construction commenced in 2006. This project is designed to have a total length of approximately 755 kilometers, and we have been mandated to construct the entire railway. This project is a joint investment in which we own 29%. Sunite Railway Project 2008 846 The project, which is located in the Xilin Gol Prefecture of the Inner Mongolia Autonomous Region, will be a part of the major freight traffic channel for the transportation of coal and mining products in the western region of the PRC. Construction commenced in 2007. This project is designed to have a total length of approximately 97 kilometers, and we have been mandated to construct the entire railway. This project is a joint investment in which we own 51%.

Road Investment and Operation Projects We have been granted concession rights by local governments in various locations in the PRC to build, operate and transfer toll roads. These contracts typically involve the construction of the toll roads as required by the local governments, with partial or total financing arrangements provided by us. We will also operate and maintain the toll roads over a pre-defined period (known as the ‘‘Concession Period’’) at our own expense. In return for financing the cost of constructing the toll roads, we are granted rights to collect tolls from the end-users of the toll roads during the Concession Period. All of our toll road projects are still in the construction stage and none of them are in operation, and therefore we have not received any toll revenue from these projects and the concession rights for those projects are recorded as intangible assets in our financial statements. We believe that our extensive experience and expertise in road construction allowed us to win these concession contracts to build and operate toll roads and would provide us with similar opportunities in the future. Such projects are offered on a competitive tender basis and the Concession Period is usually between 25 to 30 years. We only target concession projects when they offer certain level of financial returns, and periodically review our involvement in these projects generally to determine whether it is commercially sound for us to pursue such projects as part of our core business such that the operation of these projects will become one of our major business segments.

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The following table sets forth some of our road investment and operation projects in which we were engaged as at 30 June 2007: Expected Year of Completion of Expected Total Project Construction Investment Brief Description (RMB in millions) Yunnan Fuyan 2008 6,826 This project connects Funing and Yanshan in Expressway Project Yunnan. This project is a part of Hengyang — Kunming Expressway, a major traffic channel for transportation from Yunnan to Guangxi and major sea ports. Construction commenced in 2005. This project is designed to have a total length of 140 kilometres. We own 70% interest in this project. Xingye — Cenxin 2008 5,164 This project connects Xingye and Cenxi in Expressway Project Guangxi. This project is a part of Guangzhou — Kunming Expressway, a major traffic channel connecting Zhujiang delta and the south- western part of China. Construction commenced in 2006. This project is designed to have a total length of 152 kilometres, and we have been mandated to construct the entire project. We own 85% interest in this project. Dezhou — Shangqiu 2009 1,811 This project connects Dezhou in Shandong and Expressway Project Shangqiu in Henan. This project is an important part of the Jinan — Guangzhou Expressway and part of the national major highway network. Construction commenced in 2006. This project is designed to have a total length of 87 kilometres, and we have been mandated to construct the entire project.

Mining In line with our strategy of new market expansion and active overseas growth exploration, we acquired controlling interests in three mines, a gold mine located in the Inner Mongolia Autonomous Region of the PRC and two copper and cobalt mines located in the Democratic Republic of the Congo (‘‘DR Congo’’). Our gold mine is currently in the exploration stage and we expect to commence trial mining operations in 2008. We are also engaged in exploration activities in our two copper and cobalt mines, though some sites in these mines have been mined in the past. We expect to commence commercial mining operations at these two copper and cobalt mines in the second half of 2008 and the first half of 2009, respectively. We have been investing, and plan to continue to invest, in the infrastructure facilities supporting our mines. Our strategy is to own controlling interests in the joint venture companies through which we own and operate the mines. With controlling interests, we can appoint majority of the board members and key management personnel of the joint venture companies, thereby allowing us to closely monitor their daily operations and financial arrangements.

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Mining Operations

Our Changfulong Gold Mine

Our gold mine project (the ‘‘Changfulong Gold Mine’’) is located in the Inner Mongolia Autonomous Region of the PRC and consists of a mining area covering approximately seven square kilometers on which we plan to build and operate an underground gold mine. The Changfulong Gold Mine is owned by our joint venture company, Wuchuan National Gold Mining Co., Ltd. (‘‘Wuchuan Mining’’), a joint venture between our subsidiary China Railway Qinghai Mining Development Co., Ltd. (‘‘Qinghai Mining’’) (which holds a 52% interest) and our direct subsidiary China Railway NO.3 Engineering Group Co. Ltd. (‘‘China Railway NO.3’’) (which holds a 48% interest). Wuchuan Mining was set up in March 2006 between Qinghai Mining, holding a 20% interest, and Tianjin Institute of Geology and Mineral Resources (‘‘Tianjin Institute’’), holding an 80% interest. We acquired a further 32% interest through Qinghai Mining in August 2006 and the remaining 48% interest through China Railway NO.3 in April 2007 for a total of RMB114.6 million. We invested RMB40 million in the construction of a smelting plant in October 2007 to smelt gold ores extracted from this mine. We expect the mine to commence trial mining operations in 2008 and expect to obtain all requisite permits including the safe production permit prior to commencing mining operations.

Our Copper and Cobalt Mines in the Democratic Republic of the Congo

Our copper and cobalt mining projects in the La Compagnie Miniere De Luishia Sprl Mine (the ‘‘Luishia Mine’’) and the La Miniere De Kalumbwe — Myunga Sprl Mine (the ‘‘MKM Mine’’), both consist of open- cut mines located in the Katanga belt in the southeast region of DR Congo. Both mines have been mined in the past using medium-scale mechanized methods. Production in these mines stopped in 2001 due to political instability in DR Congo. Further limited mechanized production took place following cessation of political instability, but such activities have now ceased.

The Luishia Mine is owned by our joint venture company, Luisha Mining Co., Ltd. (‘‘Luisha Company’’), a limited liability company which was established under the laws of DR Congo in April 2006 for the purposes of operating the Luishia Mine, pursuant to a joint venture agreement under which our subsidiary, China Overseas Engineering Group Co., Ltd. (‘‘COVEC’’) contributed an amount of US$72,000 as share capital and US$4 million as access fees to acquire a 72% interest in the joint venture company and LA GENERALE DES CARRIERES ET DES MINES (‘‘GECAMINES’’), a company owned by the government of DR Congo, contributed an amount of US$28,000 as share capital and transferred the mining permit for Luishia Mine to Luisha Company in return for a 28% interest in the joint venture company. In November 2006, COVEC transferred a 36.72% interest in Luisha Company to CRECG. Pursuant to the Reorganization Agreement between us and CRECG, CRECG transferred the 36.72% interest in Luisha Company to us. Consequently, we now own 36.72% interest directly and another 35.28% interest indirectly through COVEC in Luisha Company. We plan to undertake further construction on the Luishia Mine. Upon completion, the Luishia Mine will consist of an open-cut mine, a mineral processing plant, a smelting plant, public and auxiliary facilities and an accommodation area.

The MKM Mine is owned by our joint venture company, Kalumbwe Myunga (MKM) Mining Co., Ltd. We acquired a 71% interest in the company in January 2006. The remaining 29% interest in the company is split between and held by GECAMINES (which holds a 17.5% interest) and Exploitations Artisanales Au Congo (which holds an 11.5% interest), which in turn is owned by an individual, Evangelos Spanogiannis, who is domiciled in DR Congo. Apart from being substantial shareholders, GECAMINES and Exploitations Artisanales Au Congo are independent third parties. We commenced our preparation work for construction on the MKM Mine in May 2006. Upon completion, the MKM Mine will consist of an open-cut mine, a mineral processing plant, public and auxiliary facilities and an accommodation area.

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We intend to use some of the proceeds from the Global Offering for the Luishia Mine and MKM Mine. See ‘‘Future Plans and Use of Proceeds’’ for details. We expect Luishia Mine and MKM Mine to begin production in the second half of 2008 and the first half of 2009, respectively.

Mineral Resources As at 30 June 2007, our gold, copper and cobalt resources were as follows: Exploration at the Changfulong Gold Mine had identified total Mineral Resources of 0.8 million tons with an average gold grade of 5.05 grams per ton. The Luishia Mine deposit had defined total Mineral Resources of 26.1 million tons, with average copper and cobalt grades of 2.95% and 0.68%, respectively. Total metal content is estimated at 0.8 million tons of copper and 0.1 million tons of cobalt. The MKM Mine deposit had defined total Mineral Resources of 1.45 million tons, with average copper and cobalt grades of 3.74% and 0.54%, respectively. Total metal content is estimated at 0.05 million tons of copper and 0.01 million tons of cobalt. Our Mineral Resources have been calculated according to the national standard for the Classification of Resources/Reserves for Solid Fuels and Mineral Commodities introduced in 1999 by the Chinese National Land and Resource Department. This classification system differs in certain respects from the ‘‘Australasian Code for Reporting Mineral Resources and Ore Reserves’’ (2004 edition published by the Joint Ore Reserves Committee (‘‘JORC’’) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the ‘‘JORC Code’’)) for determining resources and reserves. Minarco-MineConsult has carried out a detailed review of our Mineral Resources as reported under the Chinese Mineral Reporting Standards and has compared these in broad terms with the reporting requirements the JORC Code. For further discussion, see independent technical report prepared by Minarco-MineConsult included in the section headed ‘‘Appendix V — Independent Technical Report’’ in this Prospectus.

Mining Rights We have successfully obtained mining rights for all of our mines. We hold the mining rights for our Changfulong Gold Mine. The mining permit (number 1500 0007 10309), which covers an area of approximately seven square kilometers, is valid for a period of three years, commencing from 25 May 2007. In accordance with the Management Measures on Mineral Resources Exploitation Registration ( ) promulgated by the State Council on 12 February 1998, a renewal application for a mining permit must be submitted 30 days prior to its expiry date, if not, the mining permit will be terminated. The mining permit of the Changfulong Gold Mine expires on 24 May 2010. We intend to apply for renewal before 24 April 2010. As we intend to continue mining operations at the Changfulong Gold Mine and pay all applicable taxes and fees in accordance with the relevant regulations of the PRC, we do not anticipate material difficulties in renewing the mining permit. We are in the process of obtaining the safe production permit for our Changfulong Gold Mine and expect to receive the permit in March 2008. Luisha Mining Co., Ltd., holds the mining permit (number 526) for the Luishia Mine. The permit, which covers an area of approximately 1.7 square kilometers, is valid for a period of ten years commencing from 4 April 1999, to the extent that we comply with the terms set out in the mining permit transfer agreement, dated 14 June 2006, entered into between La Generale Des Carrieres Et Des Mine and Luisha Mining Co., Ltd. In accordance with the Mining Code of DR Congo which was adopted in July 2002, a mining permit is valid for a period of 30 years and may be renewed continuously. In accordance with the Mining Regulations of DR Congo, which was adopted in March 2003, a renewal application for a mining permit must be submitted at least one year, but not more than five years, prior to its expiry date, to the Mining Registry of

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DR Congo. The mining permit of Luishia Mine expires on 3 April 2009. We intend to apply for renewal before 3 April 2008. As our mining operations are conducted in accordance with the Mining regulations of DR Congo, we do not anticipate material difficulties in renewing the mining permit. Kalumbwe Myunga (MKM) Mining Co., Ltd, our joint venture company, incorporated in DR Congo, holds the mining permit (number 657) for the MKM Mine. The permit, which covers an area of approximately 2.0 square kilometers, is valid for a period of 20 years commencing from 27 May 2002. The following table sets forth a summary of our mining rights as at 30 June 2007: Mining Right Permit Mining Mining Right Mining Right Renewal Mining Right Area Certificate No. Method Permit Grant Date Validity Date (years) Changfulong Gold Mine **************** 1500 0007 10309 underground 25 May 2007 3 May 2010 Luishia Mine ************************** CAMI/CE/344/2003 open cut 4 April 1999 10 April 2009 MKM Mine *************************** CAMI/C5/351/2003 open cut 27 May 2002 20 May 2022 We understand that the government of DR Congo is currently reviewing mining contracts entered into in that country, including the mining contracts for the two copper and cobalt mining projects that we have in DR Congo, with a view towards renegotiating or terminating those contracts determined to be against the interests of the country. We believe that our two mining contracts are not likely to be renegotiated or terminated. However, there can be no assurance that this will not happen either pursuant to this review or subsequently. See ‘‘Risk Factors — Risks relating to our business and the industries in which we operate — Our offshore operations are subject to foreign economic and political uncertainties’’.

Other We also engage in a number of other businesses that are ancillary to or have developed historically from our core business segments. The services provided by these businesses largely complement our core business segments. Our aim is to provide additional value and convenience to our clients and customers and to generate additional revenue. In addition to our railway and road investment and operation projects and our mining business, we also engage in trading of construction-related raw materials, which primarily include steel, cement, timber and sand. Our Other Businesses also include, but are not limited to, property management, logistics, international trade, employment services, transportation services, textile and pharmaceutical manufacturing. In addition, we provide custodian and financial services though our direct subsidiary, Equity Trust Co., Ltd (‘‘Equity Trust’’). In 2005, we acquired approximately 60.0% equity interest in Equity Trust to build a finance business arm within our Group. Given the conducive business landscape for financial intermediaries at that time, we were of the view that this would allow us to benefit from the business potential of this company and also assist in further optimizing the allocation of financial resources within our Group. Equity Trust is permitted to engage in various financial services including custodian, financial advisory, fund management and entrusted loan services, which are complementary to our other businesses. However, such business is subject to risks such as contractual defaults and downturns in the stock market or foreign currency exchange movement or changes in interest rates.

BACKLOG AND NEW CONTRACT VALUE Backlog Backlog represents our estimate of the total contract value of work that remains to be completed pursuant to the terms of outstanding contracts as at a certain date. Such estimates are based on the assumption that the relevant contracts will be performed entirely in accordance with their terms. However, many contracts are subject to work scope adjustments due to design issues or modification or termination by the customer. The termination or modification of any one or more sizeable contracts or the addition of

143 BUSINESS other contracts may have an immediate effect on backlog. Furthermore, not all of our revenue is recorded in backlog for a variety of reasons, including the fact that some projects begin and end within a short-term period. Projects that are reflected in our backlog may also remain in our backlog for an extended period of time. Therefore, our backlog figures are only an indication as to the general amount of future work for which we have already contracted and may not be directly indicative of future operating results. Investors should not rely unduly on our backlog information as a reliable indicator of our future earnings and results of operations. See ’’Risk Factors — Risks relating to our business and the industries in which we operate — Our backlog may not be indicative of our future results of operations’’.

The following table sets forth a breakdown of the aggregate value of projects in our backlog for our Infrastructure Construction Business, Survey, Design and Consulting Services Business and Engineering Equipment and Component Manufacturing Business as at 31 December 2004, 2005 and 2006 and 30 September 2007: As at As at 31 December 30 September 2004 2005 2006 2007 (RMB in millions) (RMB in millions) Infrastructure Construction *********************** 63,286 124,778 151,490 181,555 Survey, Design and Consulting Services ************ 4,672 4,331 5,117 5,354 Engineering Equipment and Component Manufacturing********************************** 1,222 1,561 2,373 4,773 Total ****************************************** 69,180 130,670 158,980 191,682

New Contract Value

New contract value represents the aggregate value of the contracts we entered into during a specified period. The value of a contract is the amount that we expect to receive under the terms of the contract if the contract is performed in accordance with its terms. A1A-34(1)c

The following table sets forth the aggregate value of new contracts into which we entered with regard to our Infrastructure Construction Business, Survey, Design and Consulting Services Business and Engineering Equipment and Component Manufacturing Business for the three years ended 31 December 2004, 2005, 2006 and the nine months ended 30 September 2007: For the nine months ended For the year ended 31 December 30 September 2004 2005 2006 2007 (RMB in millions) (RMB in millions) Infrastructure Construction************************* 123,597 181,573 185,596 150,260 Survey, Design and Consulting Services ************** 2,666 3,266 5,063 2,337 Engineering Equipment and Component Manufacturing ********************************* 4,972 6,148 6,796 4,903 Total******************************************** 131,235 190,987 197,455 157,500

CLIENTS AND CUSTOMERS

As we provide a wide range of services through our different business segments, our clients and customers generally come from diverse backgrounds. Our main clients and customers include companies invested in and administered by PRC government agencies at the national, provincial and local levels, PRC

144 BUSINESS state-owned and foreign-owned enterprises, overseas governments and their agencies and authorities, domestic and foreign infrastructure construction companies and contractors.

The MOR (which in this context includes the companies owned by the MOR and its local railway bureaus and passenger railway line companies) is our largest customer, primarily in relation to our Infrastructure Construction Business and Survey, Design and Consulting Services Business. For the three A1A-28(1)b(iii) years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, sales to the MOR accounted for 22.9%, 25.5%, 33.6% and 28.0%, respectively, of our total revenue. For the same periods, A1A-28(1)b(iv) sales to our five largest customers (including the MOR) together accounted for approximately 25.0%, 27.8%, 35.0% and 32.0%, respectively, of our total revenue. None of our Directors, their associates or any A1A-28(1)b(v) shareholders who, to the best knowledge of the Directors, own more than 5% of our issued share capital, A1A-28(1)b(vii) has any interest in our five largest customers.

RAW MATERIALS AND SUPPLIERS

We require substantial amounts of raw materials in our Infrastructure Construction Business and Engineering Equipment and Component Manufacturing Business. The raw materials we use mainly consist of steel, cement, sand, concrete and timber. Raw materials and consumables cost constituted approximately 53.1%, 55.5%, 57.9% and 64.1% of our total cost of sales for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, respectively.

Major raw materials we use include iron and steel products, cement and sand. We typically enter into raw material supply contracts on a project by project basis. Our raw material supply contracts are typically fixed price, with varying durations depending on the life cycle and nature of the projects that we undertake. Some of our contracts, including most of our railway construction projects, contain price adjustment clauses. Such clauses allow us to reclaim a portion of any additional costs incurred due to an increase in raw material costs. However, to the extent that such clauses do not cover additional raw material costs or our contracts, including most of our contracts for highway and municipal works construction projects, do not include price adjustment clauses, we bear the risk of raw material price fluctuations. We have experienced significant fluctuations in the price of certain key raw materials in recent years, in particular iron and steel products, which has had an impact on our margins. Hence, suppliers for these products who are generally in a better bargaining position than purchasers are unwilling to enter into any fixed price supply contracts. However, our supply chain has not been interrupted. We procure iron and steel products by entering into long-term supply contracts under which prices will be reviewed and varied periodically according to the prevailing market price. We do not enter into long-term contracts for locally sourced raw materials such as cement and sand which would have to be purchased at the location of the project site to avoid high transportation costs. See ‘‘Risk Factors — Risks relating to our business and the industries in which we operate — Our ability to obtain favourable prices for our services and products relating to infrastructure construction projects is limited due to significant government pricing control and concentration of our largest customers’’. We select our suppliers based on the quality of the supplies and competitiveness of the prices. We have maintained long-term relationships with most of our major suppliers.

We source most of our raw materials through our individual operating subsidiaries. However, we are in the process of centralizing some of the procurement functions from individual subsidiaries to head company level and we believe that such initiatives would increase our bargaining power in negotiations with suppliers and help reduce costs. Most of our raw materials are sourced domestically in the PRC.

For the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June A1A-28(1)b(i) 2007, our largest supplier accounted for approximately 0.3%, 0.4%, 0.4% and 0.4%, respectively, of our total revenue. For the same periods, our five largest suppliers in aggregate accounted for approximately A1A-28(1)b(ii) 0.9%, 0.9%, 1.0% and 1.1%, respectively, of our total revenue. A1A-28(1)b(vi)

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All of our five largest suppliers are independent third parties and none of our Directors or Supervisors A1A-28(1)b(v) or their respective associates or any shareholders of our Company who, to the knowledge of the Directors, own more than 5% of our total issued share capital, has any interest in any of such five largest suppliers.

MANAGEMENT STRUCTURE The following chart sets forth our management structure.

China Railway Group Limited

Supervisory Committee Strategy Committee Board of Directors Audit Committee

Office of Board Remuneration Committee of Directors Nomination Committee Division of General Administration Safety, Health and Division of Investor Environmental Relations Management Protection Committee Division of Asset Management

Department President's Department of Strategy Finance Department Legal Supervision Assistant of Human of Capital Department Office and Department Department Planning Resources Operation

Department of Department of Department Safety, Department of Department Department Engineering of Science Department Department of Internal Quality and International of Sales Equipment and of Corporate Control and and and of Production Environmental Business Management Component Culture Auditing Protection Design Marketing Manufacturing

RESEARCH AND DEVELOPMENT

We place significant importance on our research and development activities. We believe such activities A1A-28(5) help us improve our project quality, construction speed, competitiveness in the market and, ultimately, our profitability, and allow us to carry out projects that our competitors would find difficult to complete. In the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, our research and development expenditure was RMB191 million, RMB160 million, RMB330 million and RMB211 million, respectively. We expect to invest in research and development at similar levels over the next few years. We employed approximately 389 professor-level senior engineers, 1,826 senior engineers and 2,314 other engineers dedicated to research and development activities as at 30 June 2007. Our research and development initiatives and activities are not limited to our full time research and development personnel and may also be carried out by our strong on-site operation team of engineers and technicians who are encouraged to conduct on-the-ground research and development. We have also established long term relationships with the Southwest Jiaotong University, Beijing Jiaotong University and Central South University for research and development in the areas of high-speed railway (both passenger and freight) construction technology, ultra-long bridge and ultra-long tunnel construction technology, manufacture of acceleration turnouts and railway electrification technology. Some of our notable research and development results include: ( new technology developed in the construction of the Chengdu — Kunming Railway in geologically challenging and mountainous terrain (awarded the National Advanced Science and Technology Supreme Prize);

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( new technology developed in the construction of the Dayaoshan Tunnel (awarded the National Advanced Science and Technology Supreme Prize); ( technology relating to the construction of large-span pre-stressed concrete cable-stayed bridges developed during the construction of the second bridge across the Yangtze River in Wuhan City (awarded the National Advanced Science and Technology Prize — Grade I); ( complete technology package to construct the Nanning — Kunming Railway in geologically challenging and mountainous terrain (awarded the National Advanced Science and Technology Prize — Grade I); ( technology to build and construct long-span cable-stayed bridges with low towers and plate truss composite structure (awarded the National Advanced Science and Technology Prize — Grade I); and ( research and development of compound tunnel shield and driving technique for uneven stratum and complex environments (awarded the National Advanced Science and Technology Prize — Grade II). To take advantage of the announced significant increase in the PRC government’s investment in the infrastructure sector over the next five to ten years, we will focus our near-term research and development activities in the following areas: ( high-speed railway and passenger railway lines; ( new ultra-large bridge structures, ultra-long tunnels and large-scale underground construction; ( large-scale specialized equipment and products; ( metropolitan railway; and ( municipal works. We will also focus on the research and development of key technology relating to the following: ( high-speed railway construction technology and equipment; ( tunnel boring construction techniques and equipment under different geological conditions; ( integrated technology in railway speed upgrade and other railway upgrade works; ( turnouts for high-speed railway lines; ( integrated environmental, energy-efficient and safety technology; ( integrated technology for design and construction of large-span steel structures; and ( use of information technology in construction of magnetic levitation systems. Furthermore, we have strong knowledge and technical know-how in key technologies relating to construction of high-speed railways (accommodating traffic of up to 200 kilometers per hour) construction, survey and design of high-speed passenger and freight lines (accommodating traffic of up to 200 kilometers per hour) and construction, survey and design of high-speed electrified railway (accommodating traffic of up to 350 kilometers per hour) as well as anti-interference design and construction technology.

INTELLECTUAL PROPERTY We place great importance on the protection of our intellectual property rights. Through research and development and our ordinary course of business we have obtained various intellectual rights which are

147 BUSINESS valuable to our business. We protect and will continue to seek to protect these intellectual property rights through copyrights, patents, trademarks and contractual rights. As at 30 June 2007, we had 42 trademarks and 202 patents along with 56 trademark applications and 85 patent applications pending approval by the relevant authorities in the PRC. Details of our intellectual property portfolio are provided in the section headed ‘‘Intellectual Property Rights’’ in ‘‘Appendix X — Statutory and General Information’’.

QUALITY CONTROL We operate an independent quality control division in each of the operating subsidiaries in our Infrastructure Construction Business, Survey, Design and Consulting Services Business, Engineering Equipment and Component Manufacturing Business and Property Development Business. These quality control divisions are responsible for monitoring the quality of our finished products and project management in both the PRC and overseas. As at 30 June 2007, we had over 8,400 personnel responsible for quality control across different parts of our business of which 4,881 were responsible for our Infrastructure Construction Business, 1,210 were responsible for our Survey, Design and Consulting Services Business, 1,501 were responsible for our Engineering Equipment and Component Manufacturing Business and 816 were responsible for our Property Development Business. With regard to our Infrastructure Construction Business and Survey, Design and Consulting Services Business, throughout different project phases and in particular prior to the delivery of completed projects or products to customers, we conduct a series of stringent quality control tests against the relevant national or industry standards. With respect to our Infrastructure Construction Business, our customers typically also hire independent third party compliance certification institutes to certify the quality of our work at different stages of a project in connection with progress payments on such project. We conduct sampling tests and quality inspection on all raw materials used for our construction projects. Within our Engineering Equipment and Component Manufacturing Business, all raw materials, semi-finished products and final products are subject to sampling and quality inspection at each stage of processing. We have also implemented certain quality control standards established by the International Organization for Standardization. We have received various ISO 9001 and ISO 9002 series accreditations for our quality control systems across different segments of our business.

HEALTH AND SAFETY We regard occupational health and safety as one of our important social responsibilities. Our business operations involve significant risk or hazards which could result in damage or destruction of properties, death and personal injury, business interruption and possible legal liabilities. See ‘‘Risk Factors — Risks relating to our business and the industries in which we operate — We may cause substantial damage to persons, property or the environment in the course of our business operation, which could harm our reputation and cause us to incur substantial costs’’. Our business operations have been and may in the future be subject to accidents resulting in employee fatalities and injuries caused by falls from height, toxic gas, tunnel collapses, typhoons and mudslides. Our Infrastructure Construction Business and mining operations, in particular, have experienced and/or may in the future be subject to fatalities and injuries as a result of accidents such as collapses, explosions and machinery incidents. During the Track Record Period, we have experienced 14 accidents in which there were 98 casualties and 38 injuries. The most serious of these was a gas explosion accident on 22 December 2005, in which 44 of our employees died at a road tunnel construction site in Sichuan province. Certain

148 BUSINESS management personnel were criminally charged, convicted and sentenced and several others were given relevant administrative and disciplinary sanctions. These individuals have been removed from their management positions and became low rank work force of the Group. We have made compensations in the form of funeral subsidies, monthly dependency payments and other lump sum payments to the relatives of the deceased and also lump sum payments and monthly subsidies to the injured in accordance with the requirements of the relevant regulations. In addition, we have made additional lump sum payments to relatives of the deceased who had difficulties with sustaining livelihood. We have also carefully investigated the accident and implemented, as a Group, certain protective measures for tunnel construction. In addition, we have improved our safety measures and strengthened security or our construction sites to prevent such accidents from occurring again. We have taken all remedial actions for the gas explosion accident and do not have any outstanding liabilities arising therefrom. No other accident involved more than eight fatalities. We experienced no material interruption to our operation during the Track Record Period as a result of these accidents. These accidents have not, individually or in the aggregate, had a material effect on our financial conditions and results of operations. We have safety supervisory and management departments both centrally at the holding company level as well as in each of our individual operating subsidiaries. These departments are responsible for formulating and implementing rules, regulations and standards on occupational safety including our Rules on Supervision and Management of Occupational Health and Safety. Each safety supervisory and management department is headed by a Director of Safety. These departments also coordinate with our human resources department to provide training to our employees with respect to occupational safety. We also set up a safety supervisory and management department for each of our construction projects which is responsible for on-site implementation and compliance with safety-related rules, regulations and internal policies and other safety-related matters. We believe that our businesses are in compliance with currently applicable national, local and foreign health and safety laws and regulations in all material aspects. As at 30 June 2007 and save as disclosed in this Prospectus, we are not aware of any penalties associated with the breach of any existing health and safety laws or regulations. Our primary operations comply with international health and safety standards. We attained OHSAS18000 (Occupational Health and Safety Assessment Series 18000) which is the only internationally recognised standard for health and safety management. We recognize that our primary operations involve the carrying out of inherently hazardous activities which may cause accidents resulting in harm to persons, property and the environment, and we are committed to continuously meeting health and safety standards required by the applicable laws and managing such health and safety related risks.

ENVIRONMENTAL PROTECTION AND SOCIAL RESPONSIBILITY We are subject to PRC national and local environmental laws and regulations governing air pollution, noise emissions, hazardous substances, water and waste discharge and other environmental matters issued by PRC national, provincial and municipal government and authorities. In particular, for the investment projects in which we are involved, such as our property development projects, we are required to carry out environmental assessments and submit environmental impact assessment documents to the relevant government authorities for approval before we commence construction of the projects. We believe that we have obtained all the relevant government approvals and submitted the necessary environmental impact assessment documents with the local authorities for all of our investment projects. We place great emphasis on environmental protection. We are dedicated to environmental protection projects and the research and development of new environmental protection technologies, equipment and products.

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Some of our environmental protection measures include the following:

( establishing and implementing environmental protection procedures and building of environmental facilities for our construction projects, which must be approved by our department of safety, quality and environmental protection as part of the initial project planning process;

( disposing of pollutants discharged from our operations in accordance with the local standards to reduce water, atmospheric and solid waste pollution and recycling such wastes where possible;

( investing in noise-reduction equipment, anti-vibration devices, sound-proofing and noise- absorption methods to reduce noise pollution;

( using only equipment and products that comply with national environmental protection standards and encouraging the use of natural and clean resources which in turn enhances product quality; and

( utilizing green building practices so as to minimize any impact on the natural environment which our construction operations may cause. We use non-invasive construction designs and methods where possible to avoid harming the flora and fauna. For example, we construct bridges instead of roadbeds and do not build construction campsites when building railways or roads in conservation areas, and carry out reforestation after completion of works.

We have implemented environmental protection control standards meeting the requirements of the ISO14001 standards. We have received ISO14001 certification with respect to each of our major operating subsidiaries.

With regard to our overseas operations, we place great importance on our ability to comply with applicable foreign laws and regulations. Such compliance directly affects our success in any particular foreign project and, therefore, is one of the many factors which we consider prior to our decision to enter into a project. If necessary, we engage local counsel to provide us with advice on such issues.

We believe that our businesses are in compliance with currently applicable national, local and foreign environmental laws and regulations in all material aspects. As at 30 June 2007, we are not aware of any penalties associated with the breach of or non-compliance with any environment laws and regulations.

We have undertake social responsibility projects. We have made concrete contributions to improving infrastructure facilities such as water supply, sanitation system and public roads to benefit the underprivileged local communities of Hunan Province. In line with the government’s foreign aid policies, we also engage in lower-margin overseas projects such as road upgrades and construction of water irrigation systems to improve the lives of those living in third-world countries. As at 30 June 2007, we have not incurred any material losses or suffered any material claims in undertaking social responsibility projects. As such projects involve different requirements from time to time and depend on many factors such as location, natural conditions, political environment and availability of resources, we are unable to foresee any potential business risks arising from existing projects or in undertaking such projects in the future.

EMPLOYEES A1A-28(7) As at 31 December 2004, 2005 and 2006 and 30 June 2007, the number of domestic employees hired by us under medium- and long-term employment contracts was 276,783, 277,189, 276,504 and 272,050, respectively.

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The following table sets forth a breakdown of our domestic employees by business segments as at the dates indicated: As at 30 June 2007 Number of Operating Function employees % of Total Infrastructure Construction ********************************************** 245,810 90.4 Survey, Design and Consulting Services************************************ 8,245 3.0 Engineering Equipment and Component Manufacturing ********************* 11,270 4.1 Property Development ************************************************** 5,413 2.0 Others **************************************************************** 1,312 0.5 Total *************************************************************** 272,050 100.0

The following table sets forth a breakdown of our employees by age as at 30 June 2007. As at 30 June 2007 Number of employees % of Total Under 31 ************************************************************* 92,963 34.2 31 to 40 ************************************************************** 66,321 24.4 41 to 50 ************************************************************** 79,929 29.4 Over 50*************************************************************** 32,837 12.0 Total *************************************************************** 272,050 100.0

The following table sets forth a breakdown of our employees by education as at 30 June 2007. As at 30 June 2007 Number of employees % of Total Graduate degree ******************************************************* 1,176 0.4 Undergraduate degree ************************************************** 39,046 14.3 Associate degree ******************************************************* 45,606 16.8 Others **************************************************************** 186,222 68.5 Total *************************************************************** 272,050 100.0

In accordance with regulations applicable to enterprises in various local governments in areas in which A1A-33(4)a we operate, we make contributions to the pension contribution plan, employees’ medical insurance, unemployment insurance, maternity insurance and workers’ compensation injury insurance. The amount of our contributions is based on the specified percentages of our employee’s aggregate salaries as required by relevant PRC authorities. We also make contributions to an employee housing fund according to applicable PRC regulations.

In addition to statutory contributions, we also provide voluntary benefits to our employees and retired employees. These benefits include supplemental medical insurance plans and supplemental pension plans, for both current and retired employees, and annual bonuses for our current employees.

For the three years ended 31 December 2004, 2005 and 2006 and the six months ended 31 December 2007, our total employee compensation and benefits (which include wages, salaries and benefits)

151 BUSINESS amounted to approximately RMB8,685 million, RMB10,392 million, RMB11,676 million and RMB6,337 million, respectively. Most of our employees are members of the China Railway Labor Union. We have not experienced any major labor disputes in the past and we consider our relationship with our employees to be satisfactory. We invest in continuing education and training programs for our management staff and technical staff with a view to continuously upgrading their skills and knowledge. In addition to sending some of our top managers overseas for training, we also offer management courses to our senior managers and annual project management training for our project managers. We enter into an employment contract with each of our employees. Such contracts usually include provisions on wages, employee benefits, training programs, health and safety, confidentiality obligations for commercial secrets, and grounds for termination.

INTERNAL CONTROL Our Board is responsible for monitoring our internal control system and for reviewing its effectiveness. In accordance with applicable laws and regulations, we have stipulated internal procedures with a view to establishing and maintaining our internal control systems, which cover corporate governance, operations, management, legal matters, finance and audit as appropriate for the needs of our organization. Our Directors believe our internal control systems and current procedures are complete, reasonable and effective. Though we believe our internal control system has worked effectively in the past, as we have recently undergone the Reorganization and are changing to become a public listed company through the Global Offering, we will continue to strengthen our internal control system to ensure that requirements of domestic and overseas regulators are met.

INSURANCE We purchase construction all-risk and third party liability insurance for most of the projects we undertake. Such policies generally extend for the entire contract period, including the maintenance period following completion of the project. In addition, with regard to our Infrastructure Construction Business, we generally purchase insurance for our fixed assets, such as our key equipment, vessels, stock and office buildings, and employer’s liability insurance/worker’s compensation insurance. With regard to our Engineering Equipment and Component Manufacturing Business, we generally purchase all risk insurance for our fixed assets and current assets and transit insurance for goods transported by rail, road and sea. We purchase pension insurance, unemployment insurance, medical insurance, workers’ compensation insurance and maternity insurance for our employees according to the relevant PRC laws and regulations. We maintain insurance coverage in amounts that we believe are consistent with our risk of loss and industry practice. Consistent with what we believe to be customary practice in the PRC, we do not carry any business interruption insurance, key-man insurance or insurance covering potential environmental damage claims. Such insurance is not mandatory under the laws and regulations of the PRC, and such insurance is either unavailable in the PRC or requires substantial cost.

PROPERTIES A1A-29(2) We currently own 1,076 parcels of land in the PRC, with an aggregate site area of approximately 17,324,209 square meters, and 11 parcels of land in overseas countries and regions with an aggregate site area of approximately 397,849 square meters. We also lease seven parcels of land with an aggregate site area of approximately 100,650 square meters in the PRC. We currently own 5,081 buildings or units in the PRC, with an aggregate GFA of approximately 4,829,019 square meters, and ten buildings or units with an

152 BUSINESS aggregate GFA of approximately 86,413 square meters in overseas countries and regions. We currently lease 238 buildings or units in the PRC, with an aggregate GFA of approximately 292,436 square meters, and 28 buildings or units in overseas countries, with an aggregate GFA of approximately 13,620 square meters. Of the properties set out above, 75 parcels of land in the PRC with an aggregate site area of approximately 3,743,643 square meters are being held in relation to our Property Development Business.

Out of the 1,076 parcels of land in the PRC that we owned, 206 parcels of land with an aggregate site area of approximately 4,747,266 square meters were injected to the Group by the State as capital contributions in 1995. The land use rights certificates for these properties do not prescribe a specific period of usage. See ‘‘Appendix IV — Property Valuation’’ for details on location and use of our state-capital- injection land.

There are certain properties we occupied in the PRC for which we or our relevant landlords have not yet obtained sufficient title certificates. For our owned properties, as at 30 September 2007, we had defects in the title certificates for 47 parcels of land with an aggregate site area of approximately 718,145 square meters and we had not obtained proper building ownership certificates or real estate title certificates for 1,833 buildings with an aggregate GFA of approximately 1,426,752 square meters. We have entered into sale and purchase agreements with the local governments with respect to 44 of these parcels of land with an aggregate site area of approximately 695,510 square meters and have paid the deposits as well as the applicable land premiums required under these agreements. The remaining three parcels of land are currently being rezoned by the local authorities and we will apply for proper title certificates once rezoning has been completed. We are not aware of any circumstances that would prevent us from obtaining the title certificates for any of these parcels of land. Of the 1,833 buildings, aggregate GFAs of approximately 1,177,851 square meters, 119,092 square meters, 80,907 square meters and 47,217 square meters are used by our Infrastructure Construction Business, Survey, Design and Consulting Business, Engineering Equipment and Component Manufacturing Business and Other Businesses, respectively. We are of the view that these buildings are not crucial to the Group as a whole because our Infrastructure Construction Business is largely carried out in the open and the buildings used in our Survey, Design and Consulting Business, Engineering Equipment and Component Manufacturing Business and Other Business, each a relatively small business segment in terms of revenue, account for an insignificant proportion of the overall properties owned by each relevant business segment. Furthermore, some of these buildings are used as offices and for ancillary purposes and we can easily relocate to other premises to conduct the same activities. We have yet to obtain, and are in the process of applying for, land use right certificates in relation to one parcel of land on which an ongoing property development project is located. The parcel of land have a site area of approximately 7,000 square meters. Given the relatively insignificant size of the relevant project, we are of the view that the current lack of land use right certificates in relation to the parcel of land will not have a material adverse impact on our Group as a whole. For our leased properties, as at 30 September 2007, our landlords had defects in the title certificates for three parcels of land with an aggregate site area of approximately 32,887 square meters, and had not obtained or produced to us proper building ownership certificates or real estate title certificates for 224 buildings with an aggregate GFA of approximately 246,528 square meters. Most of these leased properties used in our Infrastructure Construction Business are mainly for office, production facilities and ancillary purposes, which are not crucial to our Infrastructure Construction Business. Accordingly, we are of the view that the lack of titles to these leased properties will not have a material adverse impact on our Group as a whole. Nevertheless, we intend to gradually reduce the number of leased properties without proper title certificates by requesting our landlords to apply for the requisite certificates and gradually relocating our operations or activities carried out in these leased properties to other owned or leased properties with proper title.

The properties we own and lease with defects in or without title certificates are used for various purposes including offices, employee dormitories, production and manufacturing and ancillary uses and others. Our owned properties which are used directly for business purposes including office, production and

153 BUSINESS ancillary uses but with defects in or without title certificates only amount to an aggregate GFA of 276,639 square meters, approximately 5.7%, out of the aggregate area of properties we own in the PRC and our leased properties which are used directly for business purposes including office, production and ancillary uses but with defects in or without title certificates amount to an aggregate GFA of 66,746 square meters, approximately 22.8%, out of the aggregate GFA of properties we lease in the PRC properties. Our Directors believe that these properties, taken as a whole, are not material to our businesses and that if we were required to relocate our businesses due to the defects in our entitlement to occupy these properties, we can easily replace them by comparable alternative premises for the relevant use without any material adverse impact on our business operation. Save as disclosed above, we have obtained the requisite title certificates, building ownership certificates or real estate title certificates for all the land, buildings or units which we own in the PRC in relation to our Property Development Business. Pursuant to the Reorganization, CRECG has undertaken to compensate our Group for any losses we suffer, including relocation costs and penalties, as a result of defects in ownership of our owned properties. See ’’Appendix IV — Property Valuation’’ for details of our properties.

Our Directors confirm that there is no dispute which may have a material adverse impact over our rights, either as owner or as tenant, in respect of the properties which we currently occupy and use. Our Directors are not aware of any legal proceedings against us in connection with alleged illegal use of property by our Company without proper title certificates. We confirm that we are not occupying any property illegally.

Waiver From Certain Valuation Report Requirements

Regarding the format and content of the valuation report, the property valuation report included in Appendix IV to this Prospectus includes a valuation report in full compliance with all applicable Hong Kong Listing Rules and Paragraph 34 of Part II of the Third Schedule to the Hong Kong Companies Ordinance of property interests held by us for our Property Development Business. However, owing to the substantial number of properties we own and lease, we have applied for and obtained a waiver from the Hong Kong Stock Exchange from strict compliance with Rule 5.01, Rule 5.06, Rule 19A.27(4) and Paragraph 3(a) of Practice Note 16 of the Hong Kong Listing Rules and an exemption from the SFC from strict compliance with Paragraph 34 of Part II of the Third Schedule of the Hong Kong Companies Ordinance on the grounds that:

(a) it would be unduly burdensome to list all of the properties and show their particulars and values individually in this Prospectus; and

(b) it would be unduly burdensome to prepare an English translation of the full valuation report, as substantially all of the properties of our Company are located in the PRC and consequently the underlying valuation and title information is in Chinese.

The exemptions were granted with conditions which are set out in ‘‘Appendix X — Statutory and General Information — 15. Exemption and Waiver from Certain Requirements Regarding Property Valuation Report’’.

See the paragraph headed ‘‘Documents available for inspection’’ in Appendix XI for the time and place that the full valuation report will be available for public inspection.

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LEGAL PROCEEDINGS AND COMPLIANCE A1A-40 We are occasionally involved in legal proceedings arising out of the ordinary course of our business. ‘‘Appendix X — Statutory and General Information — Other Information — Litigation’’ sets out certain legal proceedings in which we are currently involved and the dispute amount of each of which exceeds RMB50 million. We are of the view that legal proceedings in amounts of less than RMB50 million will not individually and/or in the aggregate have a material adverse effect on our results of operations and financial condition. We believe we have made adequate provisions based on our best estimates with respect to potential losses from such legal proceedings. Except as described herein, to the best of our knowledge, there are no current litigation or arbitration proceedings against us or any of our Directors that could have a material adverse effect on our financial conditions or results of operations. Our PRC counsel, Jia Yuan Law Firm, has confirmed that we have complied with all relevant laws and regulations in all material respects and have obtained all necessary licenses, approvals and permits from relevant and appropriate regulatory authorities for our business operations in the PRC. As a result of our international activities, we are also subject to the laws and regulations of the various countries and regions in which we do business. Certain of the countries in which we do business, including Sudan, Iran, North Korea, and Liberia, are subject to sanctions administered by the United States Treasury Department’s Office of Foreign Assets Control (’’OFAC’’) or regulated by the United States Iran and Libya Sanctions Act of 1996, as amended in August 2001 and September 2006 (’’ILSA’’). No U.S. individuals we employ or U.S. companies in our Group are involved in the supply of our products and services in the countries subject to OFAC sanctions, and we are not involved in re-exporting goods of U.S. origin to countries subject to U.S. trade sanctions. Our activities in Iran are not related to the development of the petroleum industry there. In the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, revenue generated from our operations in these countries amounted to approximately RMB7.8 million, RMB22.6 million, RMB127.6 million and RMB109.9 million, accounting for approximately 0.01%, 0.02%, 0.08% and 0.15%, respectively, of our total revenue. We expect to continue to generate revenue from business activities in or with countries subject to U.S. sanctions. Although the relevant regulations are generally applicable only to U.S. persons and certain other persons subject to U.S. jurisdiction and therefore have a limited effect on us, they may potentially affect our ability to obtain investments or other financing from U.S. persons. We will not use any of the proceeds of the Global Offering to fund activities that a U.S. corporation would be prohibited from undertaking under sanctions administered by OFAC or under ILSA.

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