IMPORTANT

If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional S38(1A) adviser. A copy of this prospectus, having attached thereto the documents specified in the section headed “Documents delivered to the Registrar of Companies in ” in appendix X, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies Ordinance of Hong S342C Kong. The Registrar of Companies in Hong Kong takes no responsibility for the contents of this prospectus or any of the documents referred to above. The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and Hong Kong Securities Clearing Company Limited (“Hongkong Clearing”) take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus.

ANHUI EXPRESSWAY COMPANY LIMITED App.1A.1 (a joint stock limited company incorporated in the People’s Republic of with limited liability) App.1A 5

Placing and New Issue of 493,010,000 H Shares of nominal value RMB1.00 each, App.1A at an issue price of RMB1.89 per H Share 15(2)(a)(c)(d) payableinfullonapplication 3rd Sch at HK$1.77 per H Share App.1Apara 9 15(2)(h) Sponsors and Lead Underwriters

CEF Capital Limited

The CEF Group Crosby Capital Markets (Asia) Limited

Co-Underwriters

DBS Asia Capital Limited Peregrine Capital Limited J&A Securities (Hong Kong) Limited International Capital (H.K.) Limited Wheelock NatWest Securities Limited Seapower Securities Limited Amsteel Securities (H.K.) Limited China Southern Corporate Finance Ltd. Grand National Finance Ltd.

PRC financial advisers International Trust and Investment Corporation

The Company is incorporated, and its businesses are conducted, in the PRC. Potential investors in the Company should be aware of the App.1A.63 difference in the legal, economic and financial systems between the PRC and Hong Kong and the different risk factors involved in investing in companies established and incorporated and which operate in the PRC. The attention of potential investors is drawn to the section headed “Risk factors”in this prospectus. Potential investors should also be aware that the companies and securities regulatory framework in the PRC to which the Company is subject is different from the regulatory framework in Hong Kong. Potential investors should also take into consideration the different market nature of the shares of the Company.Certain of such differences and risk factors are set out in appendix VIII and in the section headed “Risk factors” respectively. Application has been made to the Stock Exchange for the listing of, and permission to deal in, the H Shares being offered pursuant to the H Share Offer. The procedure for application for H Shares under the New Issue is set out at the end of this prospectus. The attention of potential investors and of nominees who wish to submit separate applications on behalf of different beneficial owners is drawn to the section headed “Procedure for application”set out at the end of this prospectus relating to multiple applications. It should be noted that under the Listing Rules, multiple or suspected multiple applications and any application by one applicant for more than 100 per cent. of the New Issue Shares will be rejected. The application lists for the H Shares now being offered pursuant to the New Issue will open at 11.45 a.m. on Tuesday, 5th November, 1996 and will close 3rd Sch at 12.00 noon on the same day (subject to the conditions set out in the section headed “Procedure for application” in this prospectus). Para 8 In connection with the H Share Offer, Crosby may over-allocate or effect transactions which stabilise or maintain the market price of the H Shares at a App.1A level which might not otherwise prevail. Such stabilising may be effected in all jurisdictions where it is permissible to do so, in each case in compliance 15(2)(f) with all applicable laws and regulatory requirements and, if commenced, may be discontinued at any time. In Hong Kong, such stabilisation activities on the Stock Exchange are restricted to cases where Underwriters genuinely purchase shares in the secondary market effected solely for the purposes of covering over-allotment in the offering. The relevant provisions of the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) prohibit market manipulation in the form of pegging or stabilising the price of securities in certain circumstances. The number of H Shares being offered under the H Share Offer may be increased to up to an aggregate of 542,310,000 H Shares through the exercise of the Over-allotment Option. Further details are set out in the section headed “The H Share Offer” in this prospectus. Subject to the granting of the listing of, and permission to deal in, the H Shares on the Stock Exchange, the H Shares will be accepted as eligible securities App.1A by Hongkong Clearing for deposit, clearance and settlement in the CCASS with effect from the commencement date of dealings in the H Shares on the 14(2) Stock Exchange or such other date as determined by Hongkong Clearing. All activities under CCASS are subject to the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time.

31st October, 1996 S342(1) CONTENTS

Page

Summary ...... 1

Expected timetable ...... 4

Risk factors ...... 5

Definitions ...... 13

Preliminary ...... 18

The H Share Offer ...... 21

Conditions of the H Share Offer ...... 25

Share capital ...... 26

Indebtedness ...... 27

Liquidity, financial resources and capital structure ...... 27

Directors and Supervisors ...... 28

Corporate information and parties involved in the H Share Offer ...... 30

Background information ...... 33

Particulars of the Company Introduction ...... 48 Description of Hening Expressway and section of Highway 205 ...... 48 Toll rates, concession period and traffic flow forecast ...... 55 Operations and maintenace and existing toll collection system ...... 61 Proposed toll collection systems ...... 65 Competition ...... 67 Trading record ...... 69 Directors, Supervisors, senior management and employees ...... 71 Property ...... 74 Relationship with AEHC and AEAB ...... 74 The Reorganisation ...... 77 Profit forecast and dividends ...... 79 Future plans and prospects ...... 81 Workingcapital...... 82 Distributable reserves ...... 82 Use of proceeds ...... 83 Adjusted net tangible assets ...... 84

— i — CONTENTS

Page

Appendix I — Accountants’ report ...... 85

Appendix II — Property valuation ...... 97

Appendix III — Letter from the traffic forecast consultant ...... 105

Appendix IV — Letter from the operation review consultant ...... 112

Appendix V — Letter from the toll system review consultant ...... 116

Appendix VI — Profit forecast ...... 119

Appendix VII — Overview of the PRC and of Anhui province ...... 122

Appendix VIII — Summary of relevant PRC and Hong Kong laws and regulations ...... 127

Appendix IX — Summary of the Articles of Association ...... 169

Appendix X — Statutory and general information ...... 200

Prospectuses and application forms ...... 208

Procedure for application ...... 210

— ii — SUMMARY

The following information is derived from, and should be read in conjunction with, the full text of this prospectus.

BUSINESS

The Company is principally engaged in the holding, operation and development of toll App.1A 28(1)(a) roads of Class 1 vehicular highway standard or above in Anhui province of the PRC. The 3rd Sch Company may also engage in the holding, operation and development of toll roads outside para 1 Anhui province. At present, the Company holds and operates Hening Expressway and, pursuant to the Acquisition Agreement, has conditionally agreed to acquire Tianchang section of Rule 19A38 Highway 205 on completion of its construction, for a fixed consideration of RMB210 million (approximately HK$196 million). The development of Tianchang section of Highway 205 is to be completed in two phases which are expected to be handed over to the Company on or before 1st January, 1997 and 1st July, 1997 respectively.

Pursuant to the Reorganisation, the Company was established on 15th August, 1996 as a joint stock limited company. AEHC, a state-owned enterprise supervised by Anhui Department of Communications, is the sole promoter of the Company and currently holds 100 per cent. of the issued share capital of the Company. Immediately following the listing of the Company on App.1A the Stock Exchange, AEHC will hold approximately 65 per cent. or, if the Over-allotment Option 8(1) is exercised, approximately 63 per cent. of the enlarged issued share capital of the Company.

TRADING RECORD

Set out below is a summary of the audited results of the Company for each of the three years ended 31st December, 1995 and for the four months ended 30th April, 1996, extracted from the accountants’ report set out in appendix I of this prospectus, together with the results expressed in HK dollars (Note 2) for the year ended 31st December, 1995 and the four months ended 30th April, 1996. The summary has been prepared on the assumption that the Reorganisation was completed on and the Company had been in existence since 1st January, 1993.

Four months Year ended 31st December, ended 30th April, 1993 1994 1995 1995 1996 1996 RMB’000 RMB’000 RMB’000 HK$’000 RMB’000 HK$’000 (Note 2) (Note 2)

Revenue (Note 1) 51,124 70,038 85,470 79,878 52,505 49,070

Profit before taxation 36,753 49,637 59,669 55,765 35,411 33,094 Taxation (Note 3) — — — — (9,366) (8,753)

Profit after taxation 36,753 49,637 59,669 55,765 26,045 24,341

Notes:

1. Revenue represents mainly income from the operation of Hening Expressway, net of revenue tax and other taxes on revenue and includes other miscellaneous income such as damage compensation, emergency assistance income and advertising income.

1 SUMMARY

2. The audited results of the Company for the year ended 31st December, 1995 and for the four months ended 30th April, 1996 have been translated, for information only, from into HK dollars at the PBOC Exchange Rate of RMB1.07 : HK$1.00 prevailing at close of business on 23rd October, 1996, being the Latest Practicable Date.

3. An enterprise is ordinarily subject to EIT which is levied at a rate of 33 per cent. of taxable income based App.1A.60 on audited accounts prepared in accordance with the laws and regulations in the PRC. Pursuant to a notice ( Yu Zi [1993] No. 426) dated 18th May, 1993 issued by Anhui Finance Bureau, the operations owned by the Company were granted a full rebate of EIT in respect of the three years ended 31st December, 1995. EIT at the rate of 33 per cent. of the taxable income was levied on such operations from 1st January, 1996. Pursuant to a notice ( Zheng Mi [1996] No.106) dated 30th May, 1996 issued by Anhui Provincial People’s Government, the Company is entitled to a rebate of an amount equal to 18 per cent. of the Company’s taxable income in respect of EIT paid to Anhui Taxation Bureau. No expiry date is stated in the notice. Accordingly, the effective rate of EIT applicable to the Company from 15th August, 1996, the date of incorporation of the Company, is 15 per cent. However, there is no assurance that the Company will always be able to enjoy such preferential tax treatment.

FORECASTS FOR THE YEAR ENDING 31ST DECEMBER, 1996

Profit after taxation but before extraordinary items (Note 1) ...... notlessthanRMB90 million

Earnings per Share Pro forma fully diluted (Note 2) ...... RMB0.085 Weighted average (Note 3) ...... RMB0.091

Final dividend per Share (Note 4) ...... RMB0.0075

Notes:

1. The bases and assumptions on which the above profit forecast has been prepared are set out in appendix VI. The Directors are not aware of any extraordinary item which has arisen or is likely to arise during the year ending 31st December, 1996.

2. The calculation of the forecast earnings per Share on a pro forma fully diluted basis is based on the forecast profit after taxation but before extraordinary items for the year ending 31st December, 1996 assuming the Company had been listed since 1st January, 1996 and a total of 1,408,610,000 Shares were in issue during the year. The forecast profit after taxation but before extraordinary items for the year ending 31st December, 1996 has been adjusted to take into account the interest income net of tax that would have been earned if the estimated net proceeds from the H Share Offer based on the Issue Price of RMB1.89 had been received on 1st January, 1996 assuming an interest rate of 4.5 per cent. per annum, an exchange rate of HK$1.00 to RMB1.07, being the PBOC Exchange Rate prevailing at close of business on the Latest Practicable Date, and an applicable income tax rate of 15 per cent. It does not take into account any H Shares which may fall to be issued upon the exercise of the Over-allotment Option. If the Over-allotment Option is exercised in full, the pro forma fully diluted number of Shares assumed to have been in issue would be 1,457,910,000 and the forecast earnings per Share on the pro forma fully diluted basis mentioned above would be RMB0.084.

3. The calculation of the forecast earnings per Share on a weighted average basis is based on the forecast profit after taxation but before extraordinary items and a weighted average number of 985,837,041 Shares expected to be in issue during the year ending 31st December, 1996. It does not take into account any H Shares which may fall to be issued upon the exercise of the Over-allotment Option. If the Over-allotment Option is exercised in full, the weighted average number of Shares assumed to have been in issue would be 992,860,603 and the forecast earnings per Share on the weighted average basis mentioned above would be RMB0.091.

4. The forecast final dividend per Share for the year ending 31st December, 1996 is based on the above profit forecast, details of which are set out in the section headed “Profit forecast and dividends” below. The calculation assumes that the H Shares to be issued pursuant to the H Share Offer will be issued at an Issue Price of RMB1.89.

2 SUMMARY

STRUCTURE OF THE H SHARE OFFER

The H Share Offer comprises the New Issue (initially representing approximately 15 per cent. of the total number of Offer Shares) at the Issue Price and the Placing (initially representing approximately 85 per cent. of the total number of Offer Shares) also at the Issue Price. In the event that the number of H Shares validly applied for on white and yellow application forms under the New Issue represents three times or more of the number of H Shares initially available for subscription under the New Issue, then a total of 73,950,000 H Shares will be reallocated from the Placing to the New Issue, thus increasing the total number of New Issue Shares to 147,900,000 (representing approximately 30 per cent. of the total number of Offer Shares before the exercise of the Over-allotment Option). In such circumstances, the allocations to placees under the Placing will be reduced accordingly.

Further details of the structure of the H Share Offer are set out in the section headed “The H Share Offer”.

H SHARE OFFER STATISTICS

Issue price per H Share (payable in Hong Kong dollars (Note 1)) ...... RMB1.89 (HK$1.77)

Market capitalisation of the H Shares (Note 2) ...... RMB932 million (HK$871 million)

Prospective price/earnings multiples Pro forma fully diluted (Note 3) ...... 22.2times Weighted average (Note 4) ...... 20.8times

Prospective dividend yield (Note 5) ...... 2.4percent.

Adjusted net tangible asset value per Share (Note 6) ...... RMB1.86 (HK$1.74)

Notes:

1. Except where otherwise indicated, the H Share Offer statistics shown in Hong Kong dollars and the forecast earnings of the Company taken into account in calculating the prospective price/earnings multiple have been translated from Renminbi into Hong Kong dollars at the PBOC Exchange Rate of RMB1.07 : HK$1.00 prevailing at the close of business on 23rd October, 1996, being the Latest Practicable Date.

2. The market capitalisation of the H Shares is based on 493,010,000 H Shares in issue immediately after the completion of the H Share Offer but takes no account of any H Shares which may fall to be issued upon the exercise of the Over-allotment Option. If the Over-allotment Option is exercised in full, the market capitalisation of the H Shares at the Issue Price would be approximately RMB1,025 million (approximately HK$958 million).

3. The prospective price/earnings multiple on a pro forma fully diluted basis is based on the assumptions set out in note 2 to the section headed “Forecasts for the year ending 31st December, 1996” above and the assumptions that the Over-allotment Option is not exercised and that 493,010,000 H Shares had been issued on 1st January, 1996 at the Issue Price of RMB1.89 per H Share. It does not take into account any H Shares which may fall to be issued upon the exercise of the Over-allotment Option.

3 SUMMARY

4. The prospective price/earnings multiple on a weighted average basis is based on the assumptions set out in note 3 to the section headed “Forecasts for the year ending 31st December, 1996” above and that the Over-allotment Option is not exercised. If the Over-allotment Option is exercised in full, the weighted average number of Shares assumed to be in issue would be 992,860,603 and the forecast earnings per Share on the pro-forma weighted average basis mentioned above would be approximately RMB0.091.

5. The prospective dividend yield in respect of the H Shares is based on the total dividends of RMB0.045 (HK$0.042) per Share which the Directors expect would have been paid if the Company had been a listed company throughout the year ending 31st December, 1996 as referred to in the section headed “Profit forecast and dividends”.

6. The adjusted net tangible asset value per Share has been arrived at after the adjustments referred to in the section headed “Adjusted net tangible assets” below and on the basis of a total of 1,408,610,000 Shares expected to be in issue after completion of the H Share Offer at the Issue Price of RMB1.89 per H Share.

If the Over-allotment Option is exercised in full, the adjusted net tangible asset value per Share will be increased, while the earnings per Share will be diluted correspondingly. However, the Directors believe that this will not have any material effect on the shareholders.

EXPECTED TIMETABLE

1996

Latest time for lodging applications ...... 12.00noon on Tuesday, 5th November App.1A 15(2)(f)

Results of applications and basis of allotment of the New Issue to be published in the South China Morning Post and the Hong Kong Economic Journal on or before ...... Friday,8thNovember App.1A 15(2)(k)

Refund cheques in respect of wholly or partially unsuccessful applications to be posted on or before (Note) .....Monday, 11th November

H Share certificates to be posted on or before ...... Monday, 11th November

Dealings in the H Shares on the Stock Exchange App.1A 22 to commence on ...... Wednesday, 13th November

Note: Refund cheques will be issued in respect of wholly and partially unsuccessful applications.

4 RISK FACTORS

In addition to the information set out in this prospectus, prospective investors should carefully evaluate and consider the following risk factors when subscribing the H Shares under the H Share Offer.

OPERATIONAL CONSIDERATIONS App.1A.64(e)

Operations

The use of the roads operated by the Company may be interrupted or otherwise affected by a variety of events, such as serious traffic accidents, natural disasters and other unforseen circumstances and incidents. The Directors have been advised that no such events occurred during the three years ended 31st December, 1995 and the four months ended 30th April, 1996. At present, there is no requirement under current PRC laws for the Company, whose business is the operation of toll roads in the PRC, to effect property or income insurance on these roads. The Company has not effected any property or income insurance in respect of Hening Expressway and does not at present intend to effect any such insurance for Tianchang section of Highway 205. If the use of the roads operated by the Company is interrupted in whole or in part for any extended period as a result of any such events, the income of the Company will be adversely affected.

Traffic volumes

The forecasts of traffic volumes on Hening Expressway and Tianchang section of Highway 205 from 1997 to 2025 set out in this prospectus were prepared by SWK, an independent traffic consultant. These forecasts were made subject to certain bases and assumptions, and were prepared using such analytical methods and models as were considered appropriate by SWK. A copy of the letter from SWK summarising its report on the traffic forecasts is set out in appendix III. It should, however, be noted that traffic volumes, and thus toll revenues, are affected by a number of factors including the quality and proximity of alternative roads, weather, fuel prices, environmental regulations and general economic conditions. The level of traffic on a given road is also influenced heavily by its integration into other parts of the local highway system and other road networks. There is no assurance that the actual traffic volume will be as forecast in this prospectus.

Toll rates

The toll rates payable for Hening Expressway and Tianchang section of Highway 205 are determined by the relevant authorities of Anhui province (including Anhui Department of Communications and Anhui Provincial Price Bureau). The Company is required to apply to Anhui Department of Communications and Anhui Provincial Price Bureau for any toll adjustment during the Company’s concession period of 30 years from 15th August, 1996 for Hening Expressway and from the hand over of phase I of the development of Tianchang section of Highway 205.

Pursuant to a notice (Wan Jia Fei Zi [1996] No. 181) dated 18th June, 1996, Anhui Department of Communications and Anhui Provincial Price Bureau have jointly stated that subject to PRC law, regulations and policies, on the basis of constant price, toll rates for Hening Expressway and Tianchang section of Highway 205 may be adjusted to maintain at their existing levels. The Directors’ understanding of the meaning of “toll rates may be adjusted to maintain at their existing level on the basis of constant price” is that toll rates shall at least be raised in line with inflation. No expiry date is stated in the notice. The notice does not preclude the authorities from approving further toll increases to take account of inflation and other factors

5 RISK FACTORS such as toll rates of other roads in the surrounding area. It should, however, be noted that there can be no assurance that future applications by the Company for increases of toll rates will be approved by these authorities. If a proposed increase in tolls is not approved either at all or in a timely manner, yields from the roads operated by the Company may be affected.

Toll receipts

Toll receipts are dependent on two factors: the integrity of the toll collection system and the number of vehicles exempted from the payment of tolls. SWK, an independent toll system review consultant, has conducted a review of the proposed toll collection systems of Hening Expressway and Tianchang section of Highway 205. Based on such review, it is the opinion of SWK that the system design of the proposed toll collection system of Hening Expressway is reasonably secure while the proposed toll collection system of Tianchang section of Highway 205 should provide a satisfactory toll collection operation. A copy of the letter from SWK summarising its report on the technical audit of the proposed toll collection systems for Hening Expressway and Tianchang section of Highway 205 is set out in appendix V.

Under the Anhui Province Provisional Regulations on Vehicle Toll Fees for Expressways ( ) issued by Anhui Finance Bureau and Anhui Department of Communications on 21st April, 1991, all vehicles using toll roads in Anhui province are required to pay tolls at the prescribed rates, except vehicles exempted by the State. At present, only vehicles of the People’s Liberation Army, vehicles of public security authorities, fire engines and ambulances are exempted by the State from the payment of toll charges. Accordingly, these vehicles have been and will be exempted from paying tolls on Hening Expressway and Tianchang section of Highway 205.

Construction risks

Considerable capital expenditure is required for most road projects during the construction period and it generally takes several years for a project to be completed and start to contribute income. The construction period and the capital required to complete any given project may be affected by different factors such as shortages of construction materials, availability and efficiency of equipment and labour, bad weather, natural disasters, disputes with workers or contractors, accidents, changes in government policies and unforeseen difficulties or circumstances. Delays in completion of a project, resulting in loss of revenue and cost over-runs, are likely to result from such events.

Roads in the PRC are required to be built in accordance with construction standards laid down by the PRC government which, through its delegated departments and agencies, inspects and accepts projects on completion. Any postponement in the issue or grant of licences, permits and approvals by the relevant authorities or other governmental organisations will lead to an increase in cost and delay in the commencement of operation and receipt of revenue.

Hening Expressway is now fully operational while Tianchang section of Highway 205 is at present under construction. The construction of Tianchang section of Highway 205 is divided into two phases. Phase I of the development is for the construction of the foundation and superstructure of the whole section and is expected to be completed by 1st January, 1997 while phase II of the development is for the construction of ancillary facilities such as the installation of directional signs and environmental protection measures and is expected to be completed by 1st July, 1997. Delay in the completion of phase II is not expected to affect the commissioning of Tianchang section of Highway 205.

The Acquisition Agreement provides that in the event that phase I of the development of Tianchang section of Highway 205 is not completed or cannot be transferred on or before 1st

6 RISK FACTORS

January, 1997, the vendor, Anhui Highway Administration Bureau, will be required to pay to the Company liquidated damages of RMB180,000 (approximately HK$168,200) per day for every day of delay. Details of the arrangements relating to the liquidated damages was determined are set out in the section headed “Tianchang section of Highway 205” below. It should however be noted that, under the Acquisition Agreement, the maximum liquidated damages is limited to RMB21 million (approximately HK$19.6 million) so that if there is any prolonged delay in the construction and transfer of Tianchang section of Highway 205 and the amount of maximum liquidated damages is not sufficient to cover the loss of revenue to the Company resulting from such delay, the profit after taxation and the cashflow of the Company will be adversely affected. However, in such circumstances, the Company has the right to rescind the Acquisition Agreement in the event that Anhui Highway Administration Bureau is not able to transfer the phase I of the development of Tianchang section of Highway 205 to the Company pursuant to the Acquisition Agreement on or before 30th April, 1997.

In view of the provisions in the Acquisition Agreement for the payment of liquidated damages in the event of delay in the construction and handover of Tianchang section of Highway 205, no insurance cover has been arranged to cover the risk of delay in the transfer of Tianchang section of Highway 205.

In the event that the Company participates in construction and development projects in the future, insurance arrangements will be made and turnkey or fixed price contracts will be entered into with contractors where practicable in order to reduce the construction risks of the Company.

Competition

The profitability of the Company may be affected by the existence of other competing means of transport and alternative routes of similar quality to the Company’s roads. At present, no road of comparable class or with an alternative competing route, apart from the original Anhui sections of National Highway 312 and National Highway 205, is located near Hening Expressway or Tianchang section of Highway 205 or, so far as the Directors are aware, planned. Anhui Department of Communications has also confirmed and undertaken, pursuant to the Undertaking, that, among other matters;

● there is at present no vehicular highway of Class 2 standard or above having a route which is in competition with and is within 50 kilometres of either Hening Expressway or Tianchang section of Highway 205;

● according to the 30 year development plan of road transport in Anhui province, there is no proposal for the development, conversion or widening of any vehicular highway to a Class 2 standard or above which will be in competition with Hening Expressway or Tianchang section of Highway 205;

● there will be no development, conversion or widening of any vehicular highway to Class 2 standard or above for a period of five years which will be in competition with the roads held by the Company;

● in the event of any development, conversion or widening of any road to Class 2 vehicular highway standard or above, Anhui Department of Communications will, subject to the provisions of applicable laws and the same terms being offered by the Company, approve the Company’s proposal for the operation of such highway on a preferred basis; and

7 RISK FACTORS

● the original Tianchang section of National Highway 205 will remain as a toll road and the applicable toll rates will be maintained at the same levels as those for Tianchang section of Highway 205.

It should be noted that the 30 year development plan for road transport in Anhui province commenced from 1st January, 1996. In addition, the terms offered under a proposal for the development and operation of a highway will include, among other matters, the proposed purchase price, term of operation, and the construction standards and specifications of the highway.

Depreciation

Under the International Accounting Standards, the Company adopts the “sinking-fund” method to calculate depreciation charges for its road projects to reflect depreciation, which is a function of usage of the embodied economic benefits of highways and structures. Given a specific estimated useful life which is dictated by the concession period and the forecast traffic volumes for each road project, the sinking-fund method relates the rate of usage to the traffic volumes for each road project. The compound rate adopted for the sinking-fund method is mainly derived from SWK’s independent studies of estimated traffic flows. However, in each case, the actual traffic volumes achieved could be different from the forecasts. Accordingly, the results of the Company are sensitive to the compound rate adopted for calculation of the depreciation charges.

POLITICAL AND ECONOMIC CONSIDERATIONS

Political and economic development App.1A.64(b)

The overall economic conditions in the PRC may have a significant impact on the Company’s financial prospects. Economic developments in the PRC are very different from Hong Kong and other more developed territories in such aspects as economic structure, development level, recapitalisation, growth rate, government policy, allocation of resources and prevailing inflation. Following the founding of the PRC in 1949, the PRC’s economy has primarily been a planned economy with major productive assets being controlled and managed through a series of economic and social developments by the government.

The PRC is at present in a transitional stage as it attempts to change from a centrally- planned economy to a market-oriented socialist economy and, as a result, the PRC government is continually implementing policy changes which may directly affect PRC enterprises including the Company. Adjustments to or changes in the economic structure made by the PRC government may have a negative impact on the Company’s business. However, the Directors believe that it is unlikely that there will be any radical change in the general direction of economic reform and that the Company is likely to benefit from the continuing economic development of the PRC.

During the late 1980’s and the early part of the 1990’s, rapid expansion of the PRC economy led to high inflation which, in 1993, resulted in the introduction of an austerity programme aimed at controlling growth and inflation. Among the measures adopted to combat inflation, interest rates on bank loans and deposits were increased. As the Company’s operations are conducted exclusively in the PRC, high levels of inflation may adversely affect the Company’s performance, as the adjustments in the levels of toll charges usually lag behind cost increases. Furthermore, an increase in interest expenses arising from any increase in interest rates on bank loans may also adversely affect the results of the Company if it is not able to pass on such increase to the users of the roads operated by the Company. Recent developments, however, such as the downward adjustment in savings deposit rate on 23rd August, 1996, appear to indicate a relaxation in the application of these measures.

8 RISK FACTORS

Currency conversion risks App.1A.64(c)

The official currency of the PRC, the Renminbi, is not freely convertible into foreign currencies. Prior to 1st January, 1994, Renminbi could be converted into foreign currencies through the Bank of China or other authorised organisations at an official exchange rate determined by the SAEC on a daily basis. In respect of foreign exchange transactions under the approval of the SAEC, Renminbi could be converted into foreign currency at swap centres, at exchange rates influenced by the actual demand and supply of foreign currency. Exchange rates quoted by the SAEC were generally different from those of the swap centres.

On 28th December, 1993, with the approval of the State Council, the PBOC issued the Notice Relating to the Further Reforms of the Foreign Exchange Control System ( ), and announced that the conversion of Renminbi into foreign currencies was to be regulated by a unified floating exchange rate system largely based on supply and demand. On 24th March, 1994, the PBOC was authorised by the State Council to issue the Provisional Regulations on the Management System for Settlement, Sale and Payment of Foreign Exchange ( ). Under the new system, the PBOC announces daily the average Renminbi - U.S. dollar exchange mid-rate based on the inter-bank exchange rate of the Renminbi for the preceding day. The PBOC also announces daily the exchange rates of Renminbi against other major currencies according to international market conditions.

On 29th January, 1996, the State Council promulgated the Principal Forex Regulations. The Principal Forex Regulations came into force on 1st April, 1996 and relaxed the control of foreign exchange transactions. In particular, PRC entities became able to purchase foreign exchange to settle current account transactions upon certain conditions being satisfied. On 20th June, 1996, the PBOC issued the Subsidiary Forex Regulations. The Subsidiary Forex Regulations, which came into force on 1st July, 1996, set out (among other matters) the procedures for the purchase, sale and settlement of foreign exchange for current account transactions. Under the Subsidiary Forex Regulations, foreign exchange required for the payment of dividends that are payable in foreign currencies under applicable regulations, such as dividends on the H Shares, may be purchased from designated foreign exchange banks subject to the due payment of taxes on such dividends and upon presentation of board resolutions authorising the distribution of profits or dividends of the company concerned. Despite the relaxation of foreign exchange control over current account transactions, Renminbi remains a currency which is not freely convertible into other currencies. Accordingly, the Company assumes the risk of obtaining sufficient foreign currency at acceptable rates to meet its foreign exchange needs. Further details are set out at the section of “Foreign exchange control” in appendix VIII.

Currently, FIEs are required to apply to the relevant local bureau of the SAEC for “foreign exchange registration certificates for foreign investment enterprises”. At present, with such foreign exchange registration certificates (which are reviewed annually by the local bureau of the SAEC) or with foreign exchange sales notices obtained from local bureaus of the SAEC, FIEs may buy and sell foreign exchange at swap centres, or, in the future, through the unified market when all the swap centres are connected to CFETC. Subject to the Company being granted sino foreign joint venture joint stock limited company status, the Company will become entitled to purchase its foreign exchange requirements at swap centres and through CFETC in the same manner.

The Principal Forex Regulations and the Subsidiary Forex Regulations are also applicable to FIEs. Accordingly, apart from being entitled to purchase foreign exchange at swap centres and CFETC, FIEs may also purchase foreign exchange from designated foreign exchange banks in respect of their current account transactions and for the payment of dividends in foreign currencies.

9 RISK FACTORS

After the completion of the H Share Offer, the Company intends to apply for sino foreign joint venture joint stock limited company status. Pursuant to existing regulations and subject to the Company being granted such status, the Company may, after being authorised to do so by the relevant authorities, obtain from swap centres foreign currency in exchange for any Renminbi received from its road projects.

Following completion of the H Share Offer, the Company may need additional foreign currency for the payment of dividends to holders of H Shares. The Company does not anticipate App.1A.61 encountering difficulties in obtaining sufficient foreign currency to meet the future demand, in particular, payment of dividends to holders of H Shares as referred to below. However, there can be no assurance that shortages of foreign currency at the swap centres or designated banks will not restrict the Company’s ability to obtain sufficient foreign currency to pay dividends to holders of H Shares or to meet other foreign currency requirements.

Exchange rate risks

During the period between 1990 and 1993, the value of the Renminbi against the dollar declined and there is no assurance that the Renminbi will not be subject to further devaluation or that shortages in the availability of foreign currency will not develop.

For information purposes, the average exchange rates of the Renminbi against one United States dollar quoted by the Shanghai Swap Centre for the month of December in 1993 was US$1 to RMB8.70.

Listed below are the closing exchange rates of the Renminbi against one United States dollar for the last business day of the following months:

December 1994 8.446 December 1995 8.317 April 1996 8.330 September 1996 8.302

In view of the fact that all income and expenditure of the Company’s daily operation is settled in Renminbi, a devaluation of the Renminbi may adversely affect the value, when translated into Hong Kong or United States dollars, of the profit of the Company.

LEGAL AND OTHER REGULATORY CONSIDERATIONS

Legal system

As the Company was established in the PRC and its business is principally conducted in the PRC, its operations are governed by the legal system of the PRC, which is based on written laws, regulations, administrative directives ( ) and internal guidelines ( ) under which prior court decisions may be cited as authority but do not have effect as binding precedents. The PRC government is in the process of establishing a comprehensive system of laws and regulations. Considerable progress has been made and the existing body of laws and regulations in areas such as foreign investment, corporate organisation and governance, securities, taxation and administrative law has significantly enhanced the protection accorded to foreign investors. However, some of the laws and regulations are still of an experimental

10 RISK FACTORS nature and are subject to change. Moreover, precedents in the implementation, interpretation and enforcement of such laws and regulations and contracts, undertakings and commitments entered into are still limited and the outcome of dispute resolution is not as predictable as in Hong Kong or other more developed jurisdictions.

PRC company law

The Company’s activities are principally regulated by PRC laws. The PRC Company Law App.1A64(a) was enacted by the Standing Committee of the Eighth National People’s Congress on 29th December, 1993 and became effective on 1st July, 1994. On 4th August, 1994, the State Council issued the Special Regulations on the Overseas Offering and Listing of Shares by PRC Joint Stock Limited Companies ( ) which sets out detailed requirements for PRC joint stock limited companies issuing and listing shares overseas. The PRC Company Law, which relates to the validity of companies’ activities, responsibilities of directors and management, rights and obligations of controlling shareholders and the rights of minority shareholders, differs from the laws which apply to the companies incorporated in Hong Kong or other more developed jurisdictions. Further details are set out in the section headed “Company Law” in appendix VIII.

The PRC Company Law is materially different from the company laws of Hong Kong and other more developed jurisdictions, especially in the area of investor protection and information disclosure. In order to lessen the effects arising from such differences, the Securities Commission and SCRES have jointly formulated, and the Stock Exchange has adopted through its Listing Rules, the Mandatory Provisions, which must be incorporated in the articles of association of all PRC companies listed in Hong Kong. A summary of the Articles of Association (which have incorporated the Mandatory Provisions) is set out in appendix IX.

PRC securities law App.1A.64(d)

At present, well established securities laws and regulations have not yet been formulated, and the securities laws and regulations in the PRC are at an early stage of development. Although the State Council promulgated in April 1993 regulations on the offering, trading, deposit, assignment and acquisition of domestic shares of companies listed on PRC stock exchanges and disclosure requirements, and promulgated in December 1995 regulations to regulate the offering, subscription and trading of foreign investment shares listed in the PRC and disclosure requirements for companies with domestic listed foreign shares, and the Securities Commission promulgated in September 1993 regulations to prohibit insider dealing, market manipulation, defrauding customers and the making of false statements, experience with regard to the manner in which the relevant authorities interpret, enforce and implement such laws and regulations is limited. A summary of the relevant laws and regulations of the PRC and of Hong Kong are set out in appendix VIII.

Enforcement of judgments and arbitration awards

The PRC is not a party to any treaty or arrangement for the recognition and enforcement App.1A.64(f) of judgments issued by courts in Hong Kong or in most other jurisdictions. Accordingly, difficulties may be encountered in applying for recognition and enforcement in the PRC of the judgments of courts in such jurisdictions. It should be noted that the Articles of Association provide that most disputes between holders of H Shares and the Company, its directors, supervisors, manager, senior officers or holders of A Shares, or any claims arising out of any rights or obligations conferred or provided by the Articles of Association or the PRC Company Law and other laws and regulations are to be resolved through submission to the Hong Kong International Arbitration Centre or the China International Economic and Trade Arbitration Commission for arbitration, unless such disputes or claims can be resolved under the

11 RISK FACTORS provisions of the Articles of Association. The arbitral award will be final and binding on the parties. As the PRC is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) and Hong Kong participates in the New York Convention by virtue of the United Kingdom’s accession to the New York Convention, an award of the Hong Kong International Arbitration Centre can generally be enforced in the PRC. Whether the position will change after 1st July, 1997 when the sovereignty of Hong Kong reverts to the PRC is, however, unknown. Further information on arbitration, including the “Arbitration Law of the People’s Republic of China” which became effective on 1st September, 1995, is set out in the paragraph headed “Arbitration and enforcement of arbitral awards” in appendix VIII.

Tax laws and regulations

Under existing PRC regulations, PRC withholding tax is exempted in respect of dividends paid on H Shares. If withholding tax is imposed on holders of H Shares in the future, the tax rate, based on PRC tax laws and regulations currently applicable, would be 20 per cent., except for shareholders from certain jurisdictions having a tax treaty with the PRC, in which case the tax rate is generally reduced to 10 per cent. The PRC has no such tax treaty with Hong Kong.

Investors should note that since shares of PRC companies listed overseas are a relatively new form of investment in the PRC, there is no certainty as to whether or not the current preferential tax treatment of share dividends will be continued. Details of PRC taxes applicable to joint stock limited companies in the PRC and their shareholders are set out in appendix VIII.

Under current PRC law, the Company is subject to EIT at a rate of 33 per cent of its taxable income. In addition, Anhui Taxation Bureau will require the Company to pay provisional income tax in each quarter. Such provisional income tax is calculated by reference to the taxable profit of the previous year. Anhui Taxation Bureau will, in or before April in the year immediately following the financial year concerned, assess the actual income tax payable by the Company, based on the taxable profit made by the Company for the previous financial year. An assessment notice will be issued to the Company and the amount of provisional income tax paid by the Company will be offset against the actual income tax payable.

Pursuant to a notice dated 30th May, 1996, issued by the Anhui Provincial People’s Government, the Company is entitled to a tax rebate in an amount equal to 18 per cent. of its taxable income. No expiry date is stated in the notice. Accordingly, whilst the effective income tax rate applicable to the Company from 15th August, 1996, the date of incorporation of the Company, is 15 per cent. of its taxable income, there is no assurance that the Company will always be able to enjoy such preferential tax treatment. If the Company were required to pay the normal rate of income tax, being 33 per cent., or there occurs any significant delay in the refund of income tax paid, the profit after taxation and the cashflow of the Company will be adversely affected. The Directors expect that payment of such rebate should generally be made within one week of the Company’s payment of the actual income tax payable.

12 DEFINITIONS

In this prospectus unless the context otherwise requires, the following expressions have the following meanings.

“A Shares” Renminbi-denominated ordinary shares of nominal value of RMB1.00 each in the ordinary share capital of the Company, which are subscribed for and traded (if applicable) in Renminbi

“Acquisition Agreement” the conditional sale and purchase agreement between Anhui Highway Administration Bureau and the Company dated 12th October, 1996 in relation to the acquisition of the land use rights of and the fixtures comprising Tianchang section of Highway 205

“AEAB” Anhui Expressway Administration Bureau ( ), a bureau of Anhui Department of Communications

“AEHC” Anhui Expressway Holding Corporation ( ), a State-owned enterprise under Anhui Department of Communications

“Anhui Department of the Department of Communications of Anhui province Communications” ( ), a department of Anhui Provincial People’s Government

“Anhui Finance Bureau” the Bureau of Finance of Anhui province ( ), a Bureau of Anhui Provincial People’s Government

“Anhui Highway Administration the Highway Admististration Bureau of Anhui province Bureau” ( ), a bureau of Anhui Department of Communications

“Anhui Provincial People’s the People’s Government of Anhui province Government” ( ) which is under the supervision of the State

“Anhui Provincial Price Bureau” the Price Administration Bureau of Anhui province ( ), a bureau of Anhui Provincial People’s Government

“Anhui Provincial State Assets Anhui Provincial State-owned Assets Administration Bureau” Bureau ( ), a bureau of Anhui Provincial People’s Government

“Articles of Association” the articles of association of the Company

“CCASS” the Central Clearing and Settlement System established and operated by Hongkong Clearing

“CCTV” closed circuit television

“CEF” CEF Capital Limited

13 DEFINITIONS

“CFETC” the China Foreign Exchange Trading Centre

“Chesterton” Chesterton Petty Ltd.

“Company” Anhui Expressway Company Limited ( ), a joint stock limited company established in the PRC on 15th August, 1996 or, where the context so requires, in respect of the period prior to the Reorganisation, the business of the holding, development and operation of Hening Expressway formerly carried on by AEHC and transferred to the Company pursuant to the Reorganisation

“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

“Crosby” Crosby Capital Markets (Asia) Limited

“CSRC” China Securities Regulatory Commission ( )

“Director(s)” the director(s) of the Company

“EIT” enterprise income tax of the PRC

“FIE(s)” foreign-invested enterprises (including sino-foreign equity joint ventures and sino-foreign co-operative joint ventures)

“GDP” gross domestic product

“GNP” gross national product

“H Shares” overseas listed foreign shares of nominal value RMB1.00 each in the share capital of the Company, which are to be subscribed for and traded in Hong Kong dollars

“H Share Offer” the New Issue and the Placing

“Hening Expressway” the section of the - Expressway in Anhui province from Dashushan to Zhouzhuang with a distance of approximately 134 kilometres

“Hongkong Clearing” Hong Kong Securities Clearing Company Limited

“Issue Price” RMB1.89 per H Share payable in Hong Kong dollars at App.1A HK$1.77 per H Share under the H Share Offer 15(2)(c)

“Latest Practicable Date” 23rd October, 1996, being the latest practicable date for ascertaining certain information in this prospectus prior to the printing of this prospectus

14 DEFINITIONS

“Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

“Mandatory Provisions” the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas ( ) for inclusion in the articles of association of companies incorporated in the PRC to be listed overseas, which were promulgated on 27th August, 1994 jointly by the Securities Commission and SCRES

“National Trunk Highways” the twelve national trunk highways of the National Trunk Highway System planned by the State in August 1992, generally referred to as the National Trunk Highways ( )

“New Issue” the issue of initially 73,950,000 H Shares by way of an offer to the public for subscription in Hong Kong at the Issue Price, subject to and in accordance with the terms and conditions set out in this prospectus and the application forms relating thereto

“New Issue Shares” the H Shares being offered pursuant to the New Issue

“Offer Shares” 493,010,000 H Shares comprising the New Issue Shares and the Placing Shares

“Over-allotment Option” the option granted by the Company to Crosby and CEF under the Underwriting Agreement pursuant to which the Company may be required to issue up to an aggregate of 542,310,000 H Shares at the Issue Price to cover over- allotments in the Placing and/or over-subscriptions in the New Issue

“PBOC” the People’s Bank of China

“PBOC Exchange Rate” the exchange rate for foreign exchange transactions involving Renminbi as published daily by the PBOC based on the previous business day’s inter-bank foreign exchange market rate

“Placing” the conditional placing of 419,060,000 H Shares at the Issue Price with professional investors as further described in the section headed “The H Share Offer” in this prospectus

“Placing Shares” the H Shares being placed pursuant to the Placing

“PRC” or “China” the People’s Republic of China

15 DEFINITIONS

“PRC Company Law” the Company Law of the PRC ( ) enacted by the Standing Committee of the Eighth National People’s Congress on 29th December, 1993, which became effective on 1st July, 1994, as amended, supplemented or otherwise modified from time to time

“Principal Forex Regulations” the PRC Foreign Exchange Control Regulations ( ) promulgated by the State Council on 29th January, 1996 and which became effective from 1st April, 1996

“Priority National Trunk the four National Trunk Highways which are required Highways” under the Ninth Five-Year Plan to be completed by the year 2000, generally referred to as Priority National Trunk Highways ( )

“Reorganisation” the incorporation of the Company and the transfer to the Company of the business together with the assets and liabilities currently held and operated by it as described or referred to in the section headed “Reorganisation and Taxation” in appendix X

“Reorganisation Agreement” the agreement dated 12th October, 1996 between the Company and AEHC relating to the Reorganisation

“SAEC” State Administration for Exchange Control of the PRC ( ), the governmental authority responsible for matters relating to foreign exchange administration

“SCRES” State Commission for Restructuring the Economic System of the PRC ( )

“Securities Commission” Securities Commission of the State Council ( )

“Shares” A Shares and H Shares

“SPC” State Planning Commission of the State Council ( )

“Special Regulations” the Special Regulations of the State Council on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies ( ) promulgated by the State Council on 4th August, 1994

“State” the PRC government

“State Assets Bureau” National State-owned Assets Administration Bureau of the PRC ( )

16 DEFINITIONS

“State Council” State Council of the PRC ( )

“State Plan(s)” the plan(s) devised or approved by various levels of the State in relation to the economic and social development of the PRC

“State Taxation Bureau” the State Taxation Bureau of the PRC ( )

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subsidiary Forex Regulations” the Administrative Regulations on the Settlement, Sale and Payment of Foreign Exchange ( ) promulgated by PBOC on 20th June, 1996 and which became effective from 1st July, 1996

“Superior Class highways” vehicular highways which are classified Class 1 standard or above in accordance with PRC highway standards

“Supervisor(s)” member(s) of the supervisory committee of the Company

“SWK” Scott Wilson Kirkpatrick (Hong Kong) Limited

“Tianchang section of Highway the section of the National Highway 205 in Tianchang in 205” Anhui province with a distance of approximately 30 kilometres

“Undertaking” the letter of confirmation and undertaking issued by Anhui Department of Communications dated 20th August, 1996 to the Company, described in the section headed “Competition”

“Underwriters” Crosby, CEF, DBS Asia Capital Limited, Peregrine Capital Limited, J&A Securities (Hong Kong) Limited, Shanghai International Capital (H.K.) Limited, Wheelock NatWest Securities Limited, Seapower Securities Limited, Amsteel Securities (H.K.) Limited, China Southern Corporate Finance Ltd. and Grand National Finance Ltd.

“Underwriting Agreement” the placing and underwriting agreement dated 30th October, 1996 entered into between the Company, AEHC, the Underwriters and Bank of China (Nominees) Limited relating to the H Share Offer

“HK$” or “HK dollars” Hong Kong dollars, the lawful currency of Hong Kong

“RMB” or “Renminbi” Renminbi , the lawful currency of the PRC

17 PRELIMINARY

This prospectus includes particulars given in compliance with the Companies Ordinance, the Securities (Stock Exchange Listing) Rules 1989 of Hong Kong and the Listing Rules for the purposes of giving information to the public with regard to the Company. The Directors App.1A.2 collectively and individually accept full responsibility for the accuracy of the information contained in this prospectus and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement in this prospectus misleading.

This prospectus is published in connection with the H Share Offer. The H Share Offer is jointly sponsored by Crosby and CEF. The New Issue and the Placing are underwritten by the Underwriters. Details of the underwriting arrangements are set out in the section headed “Underwriting arrangements and expenses” in appendix X.

Pursuant to the laws and regulations of the PRC, the Offer Shares may only be offered or sold to investors in Hong Kong, , and any country other than the PRC, whether by means of this prospectus or otherwise. No action has been taken to permit a public offering of the Offer Shares or the general distribution of this prospectus in any jurisdiction other than Hong Kong. Accordingly, this prospectus may not be used for the purposes of, and does not constitute, an offer or invitation in any jurisdiction or in any circumstances in which such an offer or invitation is not authorised or to any person to whom it is unlawful to make such an offer or invitation.

The Offer Shares are offered for subscription solely on the basis of the information contained and representations made in this prospectus and in the case of the New Issue, the application forms relating thereto. No person is authorised in connection with the H Share Offer to give any information, or to make any representation, not contained in this prospectus, and any information or representation not contained herein must not be relied upon as having been authorised by the Company, the Underwriters, any of their respective directors or any other persons involved in the H Share Offer.

This prospectus has not been approved by an authorised person in the United Kingdom and has not registered with the Registrar of Companies in the United Kingdom. The Offer Shares may not be offered or sold in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995. In addition, no person may issue or pass on to any person in the United Kingdom any document received by it in connection with the offer of the Offer Shares unless that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 of the United Kingdom or is a person to whom such document may otherwise lawfully be issued or passed on.

This prospectus has not been registered with the Registrar of Companies in Singapore as a prospectus under the Singapore Companies Act (Chapter 50) (the “Companies Act”). Accordingly, this prospectus may not be issued, circulated or distributed in Singapore nor may any of the Offer Shares be offered for subscription or purchase, directly or indirectly, in Singapore except under circumstances in which such offer or sale does not constitute an offer or sale of the Offer Share to the public in Singapore or, if to the public, under circumstances that are exempted under the Companies Act.

18 PRELIMINARY

The Offer Shares have not been and will not be registered under the Securities and Exchange Law of and are not being offered or sold and may not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law of Japan, and (ii) in compliance with any other applicable requirements of Japanese law.

This prospectus and the H Shares have not been, and it is not intended that they will be registered under the United States Securities Act of 1933, as amended (the “1933 Act”), and have not been approved or disapproved by the securities regulatory authority of any state of the United States or by the United States Securities and Exchange Commission. The Offer Shares may not be offered, sold, transferred or delivered within the US (as defined in the 1933 Act) or to, or for the account or benefit of, any US person (as defined in the 1933 Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act and similar requirements of state laws.

The prospectus does not constitute an offer of the Offer Shares, whether by way of sale or subscription, in the PRC. The Offer Shares are not being offered and may not be offered or sold directly or indirectly in the PRC or to, or for the account or benefit of, any resident of the PRC.

The H Share Offer has been approved by the Securities Commission. Application has been App.1A made to the Listing Committee of the Stock Exchange for the listing of and permission to deal 14(1) in the H Shares. In granting the consent from the Securities Commission, the Securities Commission accepts no responsibility for the financial soundness of the Company nor the accuracy of any of the statements made or opinions expressed in this prospectus.

Save as disclosed herein, no part of the share capital of the Company is listed on or dealt App.1A.11 Rule 19A.39 in on any other stock exchange and no such listing or permission to deal is being or is App.1A.55 proposed to be sought within one year from the date of commencement of dealing in the Offer Shares.

Dealings in the Offer Shares will be subject to Hong Kong stamp duty.

The Company prepares its financial statements in Renminbi. This prospectus sets out certain translations of Renminbi amounts into Hong Kong dollars, at the rates and on the dates indicated, for reference only. No representation is made that the Renminbi or Hong Kong dollar amounts set out in this prospectus could have been or could be converted into Hong Kong dollars or Renminbi, as the case may be, at particular rate on such dates or any other date.

Investors should note that the Company has instructed HKSCC Registrars Limited, its Hong Kong share registrar, and HKSCC Registrars Limited has agreed, not to register the subscription, purchase or transfer of any H Shares in the name of any particular holder unless and until such holder delivers to such share registrar a signed form in respect of such shares bearing statements to the effect that the acquirer of the H Shares:

(i) agrees with the Company and each shareholder of the Company, and the Company agrees with each shareholder of the Company, to observe and comply with the PRC Company Law, the Special Regulations and the Articles of Association;

(ii) agrees with the Company, each shareholder, Director, Supervisor, manager and officer of the Company, and the Company acting for itself and for each Director, Supervisor, manager and officer of the Company agrees with each shareholder of the Company, to refer to arbitration in accordance with the

19 PRELIMINARY

Articles of Association all differences and claims arising from the Articles of Association or any rights or obligations conferred or imposed by the PRC Company Law or other relevant laws and administrative regulations concerning the affairs of the Company, and any reference to arbitration shall be deemed to authorise the arbitration tribunal to conduct hearings in open session and to publish its award, such arbitration being final and conclusive;

(iii) agrees with the Company and each shareholder of the Company that the H Shares are freely transferable by the holder thereof; and

(iv) authorises the Company to enter into a contract on the acquirer’s behalf with each of the Directors, Supervisors, managers and other officers of the Company whereby such Directors, Supervisors, managers and other officers undertake to observe and comply with their obligations to shareholders stipulated in the Articles of Association.

Potential shareholders are recommended to consult their professional advisers if they are in any doubt as to the taxation implications of holding and dealing in the H Shares. It is emphasised that none of the Company, the Underwriters, any of their respective directors, supervisors, agents or advisers or any other person involved in the H Share Offer accepts responsibility for any tax effects or liabilities of holders of H Shares resulting from the subscription, purchase, holding, or disposal of H Shares.

20 THE H SHARE OFFER

THE H SHARE OFFER

The H Share Offer consists of the New Issue and the Placing. The 493,010,000 H Shares App.1A 15(2)(a)(b) initially offered under the H Share Offer will represent approximately 35 per cent. of the Company’s enlarged share capital immediately after completion of the H Share Offer (without taking into account exercise of the Over-allotment Option).

Out of the total 493,010,000 H Shares offered pursuant to the H Share Offer, 419,060,000 H Shares, representing approximately 85 per cent. of the H Share Offer will be placed with professional and institutional investors in Hong Kong, the United States, Europe and elsewhere which shall be subject to the offering restrictions set out under the section headed “Preliminary” under the Placing and the remaining 73,950,000 H Shares, representing approximately 15 per cent. of the H Share Offer will be offered to the public in Hong Kong under the New Issue (subject, in each case, to reallocation on the basis described below).

The New Issue is open to all members of the public in Hong Kong as well as to institutional and professional investors. The Placing will involve selective marketing of the Placing Shares by the Underwriters to institutional and professional investors anticipated to have a sizeable demand for the Placing Shares. Professional investors generally include brokers, dealers, companies (including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities. In Hong Kong, individual retail investors are expected to apply for the H Shares through the New Issue, and individual retail investors seeking H Shares in the Placing are unlikely to be allotted any Placing Shares. In addition, individual investors seeking H Shares in the Placing through banks and other institutions are unlikely to be allotted any Placing Shares.

The Underwriters have agreed to underwrite the New Issue Shares and the Placing Shares at the Issue Price. Further details of the underwriting arrangements are contained in the section “Underwriting arrangements and expenses” in appendix X of this prospectus.

Allocation of the Placing Shares pursuant to the Placing will (as referred to below) be based on a number of factors including the level and timing of demand, total size of the relevant investor’s invested assets or equity assets in the relevant sector and whether or not it is expected that the relevant investor is likely to buy further, and/or hold or sell its H Shares, after the listing of the H Shares on the Stock Exchange. Such allocation is intended to result in a distribution of the Placing Shares on a basis which would lead to the establishment of a solid institutional and professional shareholder base to the benefit of the Company and its shareholders as a whole.

Allocation of New Issue Shares to investors under the New Issue will be based solely on the level of valid applications received under the New Issue. The basis of allocation may vary, depending on the number of New Issue Shares validly applied for by applicants, but, subject to that, will be made strictly on a pro-rata basis, although this could, where appropriate, consist of balloting, which would mean that some applicants may receive a higher allocation than others who have applied for the same number of New Issue Shares, and that applicants who are not successful in the ballot may not receive any New Issue Shares.

In connection with the H Share Offer, the Company has granted to Crosby and CEF the Over-allotment Option which is exercisable at any time within 30 days from the date of this prospectus. Pursuant to the Over-allotment Option, the Company may be required to issue up

21 THE H SHARE OFFER to an aggregate of 49,300,000 additional H Shares to cover over-allotments in the Placing and/or over-subscriptions in the New Issue, if any. Crosby may also cover such over-allotments and over-subscriptions by, among other means, purchasing H Shares in the secondary market or by a combination of purchases in the secondary market and exercise of the Over-allotment Option. Any such secondary market purchases will be made in compliance with all applicable laws, rules and regulations. If the Over-allotment Option is exercised in full, the H Shares will represent approximately 37 per cent. of the Company’s enlarged issued share capital immediately after completion of the H Share Offer and exercise of the Over-allotment Option.

If Crosby and CEF decide to over-allocate Shares, the apportionment of additional H Shares between the New Issue and the Placing will be at the discretion of Crosby and CEF.The Placing Shares (including any over-allotment) will be allocated prior to the commencement of trading of the Shares on the Stock Exchange.

The basis of allotment and the results of application under the New Issue and the level of indication of interests in the Placing are expected to be published in the South China Morning Post in English and in the Hong Kong Economic Journal in Chinese on or before Friday, 8th November, 1996.

The net proceeds from the H Share Offer, assuming that the Over-allotment Option is not exercised, are estimated to be approximately RMB889 million (approximately HK$831 million). In the event that the Over-allotment Option is exercised in full, the Company will receive additional net proceeds (after deducting commission and expenses attributable to the exercise of the Over-allotment Option) of approximately RMB91 million (approximately HK$85 million).

THE NEW ISSUE

Pursuant to the New Issue, the Company is initially offering 73,950,000 H Shares, App.1A 15(2)(a) representing approximately 15 per cent. of the total number of H Shares initially being offered App.1A in the H Share Offer, for subscription by way of a public offer in Hong Kong at the Issue Price. 15(2)(h)

The allocation of the H Shares between the New Issue and the Placing is subject to adjustment. If the number of H Shares validly applied for under the New Issue exceeds 221,850,000, being three times the number of H Shares initially available for subscription under the New Issue, an additional 73,950,000 H Shares will be made available for such purpose and, in such event, the size of the New Issue will represent approximately 30 per cent. of the total H Share Offer before the exercise of the Over-allotment Option. The number of H Shares allocated to the Placing will be correspondingly reduced.

In addition, if the New Issue is not fully subscribed, Crosby and CEF also have the authority to reallocate all or any unsubscribed H Shares originally included in the New Issue to the Placing.

The New Issue is jointly sponsored by Crosby and CEF and is underwritten at the Issue Price by the Underwriters, on and subject to the terms and conditions of the Underwriting Agreement, details of which are set out under the section headed “Underwriting arrangements and expenses” in appendix X. References in this prospectus to applications, application forms, application monies or the procedure for application relate solely to the New Issue.

22 THE H SHARE OFFER

THE PLACING

The Company is initially offering 419,060,000 H Shares, representing approximately 85 per App.1A 15(2)(a) cent. of the total number of H Shares initially being offered in the H Share Offer, for subscription App.1A by way of the Placing. The Placing is fully underwritten at the Issue Price by the Underwriters 15(2)(h) subject to the terms and conditions of the Underwriting Agreement.

In addition, as referred to in the above, if the New Issue is not fully subscribed, Crosby and CEF have the authority to reallocate all or any unsubscribed H Shares originally included in the New Issue to the Placing.

Pursuant to the Placing, the Underwriters or selling agents nominated by the Underwriters shall, on behalf of the Company, conditionally place the Placing Shares at the Issue Price App.1A 15(2)(c) payable by investors subscribing for the Placing Shares. The Placing Shares will be placed to professional and institutional investors in Hong Kong, inside and outside the United States pursuant to Rule 144A and Regulation S under the US Securities Act and in certain other jurisdictions and shall be subject to the offering restrictions set out under the section headed “Preliminary”.

Allocation of Shares to investors pursuant to the Placing will be determined by Crosby and CEF,on behalf of the Underwriters, based on a number of factors including the level and timing of demand, total size of the relevant investor’s invested assets or equity assets in the relevant sector and whether or not it is expected that the relevant investor is likely to buy further, and/or hold or sell its H Shares, after the listing of the H Shares on the Stock Exchange.

The Placing is conditional on the same conditions as set out in the section headed “Conditions of the H Share Offer” below. The total number of Placing Shares to be allotted and issued pursuant to the Placing may change as a result of the clawback arrangement referred to in the section headed “The New Issue” above, exercise of the Over-allotment Option and any reallocation of unsubscribed H Shares originally included in the New Issue. Subject to any reallocation in the case of over-subscription or under-subscription of the New Issue, the Placing Shares will represent approximately 85 per cent. of the issued H Shares of the Company immediately after completion of the H Share Offer (but before exercise of the Over-allotment Option).

STABILISATION AND OVER-ALLOTMENT

In connection with the H Share Offer, Crosby may over-allocate up to an aggregate of 49,300,000 additional H Shares and cover such over-allocations by exercising, jointly with CEF, the Over-allotment Option at any time up to 30 days from the date of this prospectus, or by making purchases in the secondary market. Any such purchases will be made in compliance with all applicable laws and regulatory requirements.

Stabilisation is a practice used by underwriters in some markets to facilitate the distribution of securities. To stabilise, the underwriter may bid for or purchase the newly issued securities in the secondary market during a specified period of time to retard and, if possible, prevent a decline in the initial public offer prices of the securities.

23 THE H SHARE OFFER

In connection with the H Share Offer, Crosby may also effect transactions which stabilise or maintain the market price of the H Shares at levels above those which might otherwise prevail in the open market. Such transactions may be effected in all jurisdictions where it is permissible to do so, in each case in compliance with all applicable laws and regulatory requirements. Such stabilising, if commenced, may be discontinued at any time.

Stabilisation is not a practice commonly associated with the distribution of securities in Hong Kong. Should stabilising transactions be effected in connection with the distribution of the H Shares, they will be done at the direction, and in the absolute discretion, of Crosby. In Hong Kong, such stabilisation activities on the Stock Exchange are restricted to cases where underwriters genuinely purchase H Shares in the secondary market effected solely for the purpose of covering over-allotment in the H Share Offer. The prices of the H Shares being purchased in the secondary market shall not exceed the Issue Price. The relevant provisions of the Securities Ordinance prohibit market manipulation in the form of pegging or stabilising the price of securities in certain circumstances.

Stabilisation activities may also be carried out in the United Kingdom and, if so, will only be carried out in accordance with the stabilisation rules of the Securities and Investments Board in the United Kingdom (the “SIB”). The Financial Service Act 1986 of the United Kingdom provides an exemption for anything done for the purposes of stablisation in conformity with these rules (the “SIB Rules”) from the statutory offence in the United Kingdom relating to, among other matters, acting or engaging in any course of conduct which creates a false or misleading impression as to market in or price of or value of investments. The SIB Rules contain restrictions as to the person who may stabilise and as to the time, price and market and also as to the type of securities and permitted transactions with respect to them. The SIB Rules also provide a number of conditions which may be observed if stabilisation activities are to fall within them. In accordance with the SIB Rules, if stabilisation transactions are to be effected in connection with the H Share Offer, Crosby may bid for or purchase H Shares in over-the-counter transactions in the United Kingdom, or elsewhere where such transactions are permitted in compliance with all applicable laws and regulatory requirements, at prices which are at or below the Issue Price and otherwise in compliance with the SIB Rules.

LISTING ON OTHER STOCK EXCHANGE

The Directors are currently considering listing the Company on the Stock Exchange only and are not at present considering any listing of the Company on any other overseas stock exchange. The Directors intend to apply for a listing of the Company on a stock exchange in the PRC at some time in the future, although there is at yet no definitive plan in this regard. Accordingly, the Company has not submitted any application nor obtained any approval for the listing of A Shares. As a result, Shares at present cannot be traded in any stock exchange in the PRC.

24 CONDITIONS OF THE H SHARE OFFER

Acceptance of all applications for the H Share Offer will be conditional upon:

(i) the Listing Committee of the Stock Exchange granting a listing of and permission to deal in the Offer Shares (including the additional H Shares to be issued pursuant to the exercise of the Over-allotment Option); and

(ii) the obligations of the Underwriters and under the Underwriting Agreement becoming unconditional (including, if relevant, the waiver of any condition(s) by Crosby and App.1A 15(2)(i) CEF on behalf of the Underwriters) and not being terminated in accordance with the terms of that agreement or otherwise; in each case on or before 30th November, 1996 or such later date as Crosby and CEF may agree with the Company. If these conditions are not fulfilled, all application monies will be returned, without interest, on the terms set out in the section headed “Procedure for application” below. In the meantime, such monies will be held in a separate bank account with the receiving banker or other licensed bank(s) in Hong Kong.

25 SHARE CAPITAL

Approximate App.1A 23(1), 55(1), percentage 55(4) In issue and to be issued, fully paid or credited as fully of issued Rule19A.39 paid upon completion of the H Share Offer: RMB share capital

915,600,000 A Shares in issue (promoter shares 915,600,000 65 3rd Sch Para 2 held by AEHC) App.1A 55(3) 493,010,000 H Shares to be issued under the 493,010,000 35 App.1A H Share Offer 15(2)(a)

App.1A 15(1) 1,408,610,000 1,408,610,000 100

Notes:

1. 915,600,000 A Shares have been issued to AEHC, a legal person State-owned entity of the PRC, credited as fully paid.

2. The above table assumes that the issue of the H Shares is made pursuant to the H Share Offer but takes no account of any Shares that may fall to be issued upon the exercise of the Over-allotment Option. If the Over-allotment Option is exercised in full, the share capital of the Company immediately after the H Share Offer will comprise 915,600,000 A Shares and 542,310,000 H Shares, representing approximately 63 per cent. and 37 per cent. of the issued share capital respectively.

3. The Shares referred to in the above table have been or will be fully paid or credited as fully paid when issued.

4. A Shares and H Shares are both ordinary shares in the share capital of the Company. However, H Shares may only be subscribed for by, and traded between, legal or natural persons of any country other than the PRC, including those from Taiwan, Hong Kong and Macau. Further, H Shares must be subscribed for, and traded in, Hong Kong dollars. A Shares, on the other hand, may only be subscribed for, and traded between, legal or natural persons of the PRC, excluding those from Taiwan, Hong Kong and Macau, and must be subscribed for and traded in Renminbi. The Articles of Association further provide that all dividends in respect of H Shares are to be paid by the Company in Hong Kong dollars whereas all dividends in respect of A Shares are to be paid by the Company in Renminbi.

5. Except as described in note 4 above and in relation to approval requirements for certain types of proposals affecting the Company, notices and financial reports to be sent to shareholders of the Company, dispute resolution, registration of Shares on different parts of the register of shareholders, the method of transfer of Shares and the appointment of dividend paying agents, which are all provided for in the Articles of Association and summarised in appendix IX, A Shares and H Shares rank pari passu with each other and, in particular, will rank in full for all dividends or distributions declared, paid or made after the date of this prospectus. However, the transfer of A Shares, including A Shares that constitute State-owned assets of the PRC and A Shares held by Directors, Supervisors and employees, are subject to such restrictions as may impose from time to time under PRC laws.

26 INDEBTEDNESS

At the close of business on 31st August, 1996, being the latest practicable date for the purposes of this indebtedness statement, the Company was indebted to Anhui 3rd Sch. Para 23 Communications Construction and Investment Development Holding Corporation App.1A 32(1)(2)(3) ( ) in respect of an outstanding unsecured loan of approximately (4) RMB150 million (approximately HK$140 million) and to Anhui Highway Administration Bureau in respect of an interest-free loan (with no fixed term of repayment) of approximately RMB5.2 million (approximately HK$4.9 million).

Save as aforesaid, the Company did not have outstanding at the close of business on 31st 3rd Sch. para 23 August, 1996 any loan capital, bank overdrafts and liabilities under acceptances or other similar para 24 indebtedness, debentures, mortgages, charges or loans, or acceptance credits or hire purchase para 25 commitments, guarantees or other material contingent liabilities.

For the purposes of this indebtedness statement, Renminbi amounts were translated into Hong Kong dollar figures at the PBOC Exchange Rate of HK$1: RMB1.07 prevailing on the Latest Practicable Date and are given for information purposes only.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

The Company generally finances its operations with internally generated cashflow. According to the unaudited management accounts of the Company as of 31st August, 1996, the Company had total assets of approximately RMB1,931 million (approximately HK$1,805 million) which were financed by shareholders’ equity of approximately RMB1,758 million (approximately HK$1,643 million) and liabilities of approximately RMB173 million (approximately HK$162 million). As at the same date, the Company had current assets of approximately RMB98 million (approximately HK$92 million) and current liabilities amounting to approximately RMB73 million (approximately HK$68 million).

As at 31st August, 1996, the Company had short-term debts of approximately RMB55 million (approximately HK$51 million) and long-term debts of approximately RMB100 million (approximately HK$93 million). Both the short-term and the long-term debts are in the form of loans. Of these debts, approximately RMB55 million (approximately HK$51 million) is repayable within one year, approximately RMB70 million (approximately HK$65 million) is repayable within one to two years and approximately RMB30 million ( approximately HK$28 million) is repayable within two to five years.

The Company services its debts primarily through cash generated from its operations. Taking into consideration the Company’s projected internally generated funds, the Directors believe that the Company has sufficient resources to service its debts.

The Directors also believe that the purchase and installation of a new toll collection system for Hening Expressway, the purchase and installation of the traffic monitoring system for phase III of Hening Expressway, and the reconstruction of the soft ground sections of Hening Expressway could also be financed by the cash generated from the Company’s operations. Details relating to the new toll collection system, the traffic monitoring system and the reconstruction of the soft ground sections of Hening Expressway are set out under the section headed “Particulars of the Company” below.

27 DIRECTORS AND SUPERVISORS

DIRECTORS

Name Address Nationality

Executive Directors App.1A.41 3rd Sch para 6 Shui Room 407, Block 78 Chinese Hupo Villa Hefei, Anhui The PRC

TU Bei Room 501, Block 3 Chinese 2nd Communications Department Quarters Area Dayaowan Hefei, Anhui The PRC

HAN Hua 71 Jixilu Chinese Hefei, Anhui The PRC

ZHU Sheng Room 303, Block 44 Chinese Hupo Villa Hefei, Anhui The PRC

ZHANG Hui Room 604, Block 127 Chinese Hupo Villa Hefei, Anhui The PRC

CHEN Hui Nian Room 203, Block 73 Chinese Hupo Villa Hefei, Anhui The PRC

CAO Xiao Ping Room 402, Block 75 Chinese Hupo Villa Hefei, Anhui The PRC

Independent non-executive Directors

Zhou Wen Hua Room 308, Block 11 Chinese 1st District Communications Department Quarters Area Dayaowan Hefei, Anhui The PRC

28 DIRECTORS AND SUPERVISORS

Name Address Nationality

ZHANG Ping Apartment 1205, Tower C Chinese Queen’s Garden 9 Old Peak Road Hong Kong

SUPERVISORS

LI Yun Gui Room 405, Block 44 Chinese Rule19A.38 Hupo Villa Hefei, Anhui The PRC

YANG Yi Cong Room 501, Block 75 Chinese Hupo Villa Hefei, Anhui The PRC

XU Yong Room 401, Block 75 Chinese Hupo Villa Hefei, Anhui The PRC

29 CORPORATE INFORMATION AND PARTIES INVOLVED IN THE H SHARE OFFER

Legal address 219 Road App.1A.43 Hefei, Anhui App.1A.6 The PRC

Place of business in Hong Kong 4th Floor, Jardine House App.1A.43 App.1A.6 1 Connaught Place S342(1)(a)(v) Hong Kong App.1A.42 Company secretary XIE Xin Yu, engineer App.1A.3 Authorised representatives ZHU

XIE Xin Yu App.1A.3 Sponsors Crosby Capital Markets (Asia) Limited 27th Floor, Two Pacific Place 88 Queensway Hong Kong

CEF Capital Limited 2nd Floor, China Building 29 Queen’s Road Central Hong Kong

Underwriters Crosby Capital Markets (Asia) Limited App.1A 27th Floor, Two Pacific Place 15(2)(h) 88 Queensway Hong Kong

CEF Capital Limited 2nd Floor, China Building 29 Queen’s Road Central Hong Kong DBS Asia Capital Limited Suite 3318, 33rd Floor Two Pacific Place 88 Queensway Hong Kong Peregrine Capital Limited 23rd Floor, New World Tower 16-18 Queen’s Road Central Hong Kong J&A Securities (Hong Kong) Limited Suites 2509-2510 Asia Pacific Finance Tower 3 Garden Road Central Hong Kong Shanghai International Capital (H.K.) Limited 28th Floor, Citibank Tower Citibank Plaza 3 Garden Road Hong Kong

30 CORPORATE INFORMATION AND PARTIES INVOLVED IN THE H SHARE OFFER

Underwriters Wheelock NatWest Securities Lirnited 43rd Floor NatWest Tower Times Square Causeway Bay Hong Kong Seapower Securities Limited 32nd-34th Floor Alexandra House 16 Chater Road Central Hong Kong Amsteel Securities (H.K.) Limited 12th Floor Bank of East Asia Building 10 Des Voeux Road Central Hong Kong China Southern Corporate Finance Ltd. Suite 3803, Central Plaza 18 Harbour Road Wanchai Hong Kong Grand National Finance Ltd. 8th Floor OTB Building 263 Des Voeux Road Hong Kong

Legal advisers to the Company As to Hong Kong law App.1A.3 Gallant Y.T. Ho & Co. 4th Floor, Jardine House 1 Connaught Place Hong Kong As to PRC law Jingtian Associates Room 323 Towercrest Plaza No. 3 Maizidian West Road Chaoyang District The PRC Legal advisers to the Underwriters Richards Butler 20th Floor, Alexandra House 16-20 Chater Road, Central Hong Kong

31 CORPORATE INFORMATION AND PARTIES INVOLVED IN THE H SHARE OFFER

Auditors and reporting accountants Arthur Andersen & Co. App.1A.4 3rd Sch Certified Public Accountants para 18 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong PRC financial advisers Anhui International Trust and Investment Corporation 15th Floor, International Building 111 Shouchun Road Hefei, Anhui The PRC Property valuer Chesterton Petty Ltd. 28th Floor, Jardine House 1 Connaught Place Hong Kong Traffic forecast consultant Scott Wilson Kirkpatrick (Hong Kong) Ltd. 38th Floor, Metroplaza Tower 1 223 Hing Fong Road Kwai Fong Hong Kong Operation review consultant Scott Wilson Kirkpatrick (Hong Kong) Ltd. 38th Floor, Metroplaza Tower 1 223 Hing Fong Road Kwai Fong Hong Kong Toll system review consultant Scott Wilson Kirkpatrick (Hong Kong) Ltd. 38th Floor, Metroplaza Tower 1 223 Hing Fong Road Kwai Fong Hong Kong

Receiving bankers Bank of China, Hong Kong Branch App.1A.2(f) 1 Garden Road, Central Hong Kong

H Share registrar and HKSCC Registrars Limited App.1A.3 transfer office 2nd Floor, Vicwood Plaza 199 Des Voeux Road Central Hong Kong

Principal bankers The Construction Bank, Anhui Branch, App.1A.3 Sales Department Energy and Communications Office 24 Shenglilu Hefei, Anhui The PRC

32 BACKGROUND INFORMATION

INTRODUCTION

Since the introduction of the “Open Door Policy” in 1979, the PRC has experienced significant GDP growth. The introduction of an open market policy, the opening of the PRC to the outside world and the gradual decentralisation of government has fuelled economic growth and raised living standards in the PRC. The PRC’s GDP grew by a compound rate of approximately 38.3 per cent. per annum from 1980 to 1995. Industrial production grew by a compound rate of approximately 21.2 per cent. per annum during the same period. These developments have put a strain on the transport infrastructure of the PRC. Further information on the PRC and information on Anhui province is set out in appendix VII of this prospectus.

RECENT DEVELOPMENT OF THE PRC TRANSPORT SYSTEM

The growth of the PRC economy has resulted in substantial increases in the transport of raw materials from resource bases to industrial centres, in labour mobility and in business-related travel. Between 1980 and 1995, freight traffic volume (tonne-kilometre) and passenger traffic volume (person-kilometre) grew at a compound rate of approximately eight per cent. and approximately 10 per cent. per annum respectively.

The table below sets out the freight traffic volume for different modes of transport in the PRC for the years 1978, 1980, 1985, and 1990 to 1995:

Freight Freight Freight Freight traffic Freight Total traffic traffic traffic volume by traffic freight volume by volume by volume by civil volume by traffic Year waterways railways highways aviation pipelines volume (million (million (million (million (million (million tonne- tonne- tonne- tonne- tonne- tonne- kilometres) kilometres) kilometres) kilometres) kilometres) kilometres)

1978 377,916 534,519 27,414 97 43,000 982,900 1980 505,276 571,687 76,400 141 49,100 1,202,600 1985 772,930 812,566 190,320 415 60,300 1,836,500 1990 1,159,190 1,062,238 335,810 820 62,700 2,620,700 1991 1,295,540 1,097,200 342,800 1,010 62,100 2,798,600 1992 1,325,620 1,157,555 375,539 1,342 61,700 2,921,800 1993 1,386,080 1,195,464 407,050 1,661 60,800 3,051,000 1994 1,568,660 1,245,750 448,630 1,859 61,200 3,326,100 1995 1,755,220 1,287,025 469,490 2,230 59,000 3,573,000

Source: China Statistical Yearbook 1996 compiled by the State Statistical Bureau of the PRC. Note: Freight traffic volume (tonne-kilometres) = Freight volume (tonne) x Distance travelled (kilometres).

33 BACKGROUND INFORMATION

Compared with the compound annual growth of freight traffic for the period from 1978 to 1995, the compound annual growth of passenger traffic increased more rapidly.The table below sets out the passenger traffic volume for different modes of transport in the PRC in the years 1978, 1980, 1985 and 1990 to 1995:

Passenger Passenger Passenger Passenger traffic Total traffic traffic traffic volume passenger volume by volume by volume by by civil traffic Year waterways railways highways aviation volume (million (million (million (million (million person- person- person- person- person- kilometres) kilometres) kilometres) kilometres) kilometres)

1978 10,063 109,322 52,130 2,791 174,300 1980 12,912 138,316 72,950 3,956 228,100 1985 17,865 241,614 172,488 11,672 443,700 1990 16,491 261,263 262,032 23,048 562,800 1991 17,720 282,810 287,174 30,132 617,800 1992 19,835 315,224 319,264 40,612 694,900 1993 19,645 348,330 370,070 47,760 785,800 1994 18,350 363,605 422,030 55,158 859,100 1995 17,180 354,570 460,310 68,130 900,200

Source: China Statistical Yearbook 1996 compiled by the State Statistical Bureau of the PRC.

Note: Passenger traffic volume (person-kilometres) = Number of passengers (persons) x Distance travelled (kilometres).

As shown in the tables above, traffic volume for highways and civil aviation recorded faster growth than other modes of transport during the period from 1980 to 1995. Between 1980 and 1995, freight traffic volume carried by waterways, railways, highways and civil aviation grew at a compound rate of approximately nine per cent., six per cent., 13 per cent. and 20 per cent. per annum respectively, while the passenger traffic volume for waterways, railways, highways and civil aviation grew at a compound rate of approximately two per cent., six per cent., 13 per cent. and 21 per cent. per annum respectively.

Highways provide the shortest average transport distance and the faster growth in traffic volume carried by highways compared to other modes of transport (except civil aviation), is consistent with increasing demand for more convenient “door-to-door” transport. The table below sets out the average freight transport distance covered by different modes of transport in the PRC in the years 1978, 1980, 1985, 1990 and 1995:

Civil Year Waterways Railways Highways aviation Pipelines Average (kilometres) (kilometres) (kilometres) (kilometres) (kilometres) (kilometres)

1978 873 485 32 1,521 416 395 1980 1,184 514 20 1,573 467 220 1985 1,216 636 31 2,128 442 243 1990 1,447 705 46 2,218 398 270 1995 1,551 807 50 2,206 386 289

Source: China Statistical Yearbook 1996 compiled by the State Statistical Bureau of the PRC.

34 BACKGROUND INFORMATION

The table below sets out the average passenger transport distance carried by different modes of transport in the PRC for the years 1978, 1980, 1985, 1990 and 1995:

Civil Year Waterways Railways Highways aviation Average (kilometres) (kilometres) (kilometres) (kilometres) (kilometres)

1978 44 134 35 1,208 69 1980 49 150 33 1,153 67 1985 58 216 36 1,563 72 1990 61 273 40 1,388 73 1995 72 345 44 1,331 77

Source: China Statistical Yearbook 1996 complied by the State Statistical Bureau of the PRC.

EXISTING TRANSPORT SYSTEMS IN THE PRC

The transport systems of the PRC consist primarily of railways, highways, civil aviation, waterways and pipelines, which have been gradually improving over the last decade (except for waterways), as illustrated by the increases in the overall length of transport routes available. The table below sets out the length of the transport routes available for different modes of transport in the PRC in the years 1978, 1980, 1985, 1990 and 1995:

Navigable inland Civil Year waterways Railways Highways aviation Pipelines in 1,000 in 1,000 in 1,000 in 1,000 in 1,000 kilometres kilometres kilometres kilometres kilometres

1978 136.0 48.6 890.2 148.9 8.3 1980 108.5 49.9 883.3 195.3 8.7 1985 109.1 52.1 942.4 277.2 11.7 1990 109.2 53.4 1,028.3 506.8 15.9 1995 110.6 54.6 1,157.0 1,129.0 17.2

Source: China Statistical Yearbook 1996 compiled by the State Statistical Bureau of the PRC.

Waterways are considered an important mode of transport in the PRC, particularly for freight traffic, because of their capacity for handling large volumes of cargo at relatively low transport costs. In 1995, waterways accounted for approximately 49 per cent. of the total freight volume.

Although civil aviation is the fastest growing mode of transport, its importance is still relatively small in terms of the volume of freight and passenger traffic carried by air compared with other modes of transport. In 1995, civil aviation accounted for approximately 0.06 per cent. and 7.6 per cent. of the total freight traffic volume and the total passenger traffic volume respectively.

Pipelines are used for freight transport only and are generally used for transporting natural gas and petroleum.

35 BACKGROUND INFORMATION

Railways were once considered the most important mode of transport in the PRC, but their importance has diminished over the last decade. The share of freight traffic volume carried by rail fell from approximately 48 per cent. in 1980 to approximately 36 per cent. in 1995, whilst its share of national passenger traffic volume decreased from approximately 61 per cent. in 1980 to approximately 39 per cent. in 1995.

On the other hand, the importance of highways in the PRC has grown significantly in the past ten years. In 1980, the share of freight and passenger traffic volumes for highways was approximately six per cent. and 32 per cent., respectively and in 1995 such share grew to approximately 13 per cent. and 51 per cent., respectively, surpassing railways’ hitherto dominant share of passenger traffic volume. The rise in demand for road transport is attributable to the fact that roads provide more convenient “door-to-door” transport and are not dependent on any particular fixed schedule of service.

CLASSIFICATIONS AND STANDARDS OF ROADWAYS IN PRC

There are five main classes of roads in the PRC in terms of usage, namely: national highways ( ); provincial highways ( ); county roads ( ); village roads ( ) and special access roads ( ). National highways are those which have important national, political or economic values while provincial highways are designed to serve intra- and inter- provincial traffic within provinces but which are not designated as national highways. County roads are generally designed for traffic within a county and village roads are designed for traffic within a village. Special access roads are designed to provide access to special areas such as mines, forests, oil fields, farms, tourist spots and military sites. National highways are consecutively numbered, usinga3digitnumbering system. National highways linking Beijing are consecutively numbered with a prefix “1”, while highways linking north to south are consecutively numbered with a prefix “2” and highways linking east to west with a prefix “3”.

In terms of road grades and quality, graded roads in the PRC can mainly be divided into two categories, namely, vehicular highways and general roads. The usage of vehicular highways is restricted to motor vehicles only and vehicles such as tractors and bicycles are prohibited from using them, whereas general roads may be used by a mixture of motor vehicles, tractors, bicycles, animal-driven vehicles and pedestrians. Cars using vehicular highways can travel at a higher speed than they can on general roads so that the theoretical transport cost is lower on vehicular highways than on general roads if time is ascribed a value. The following table sets out certain technical standards and designs of different classes of roads:

Vehicular highways General roads

Expressways Class 1 Class 2 Class 2 Class 3 Class 4

Maximum design speed level (kilometres/ hour) 120 100 80 80 60 40 Width of the road lane (metres) 2 x 7.5 2 x 7.5 8.0 9.0 7.0 3.5 Width of the foundation (metres) 26.0 24.5 11.0 12.0 8.5 6.5 Surfaces grade Top Top Top/ Top/ Secondary Medium/ (Note) secondary secondary low

Source: Highway Engineering Standard JTJ 01-88 Ministerial Standard of the Ministry of Communications of the PRC, 1995 edition

36 BACKGROUND INFORMATION

Note: The specifications of the different grades of road surface are as follows:

Surface grading Specifications

Top — Asphalt concrete; cement concrete; asphalt pre-blended with aggregate; or blocked stone or stone slab.

Secondary — Asphalt added with gravel; asphalt and gravel blended on-site; processed asphalt surface; or half-blocked stone.

Medium — Aggregate or gravel (mixed with clay); crushed rock; or other kinds of pebble.

Low — Strengthened pebble; or other strengthened or modified materials.

RECENT DEVELOPMENT OF THE ROAD NETWORK IN THE PRC

Compared with railways and waterways, road transport generally has a higher cost structure and can handle only a relatively light volume of freight and/or passenger traffic. Nevertheless, these disadvantages are offset by the more comprehensive and convenient “door-to-door” nature of a road network.

Between 1978 and 1993, GNP and the value of industrial and agricultural output grew at a compound rate of approximately 16 per cent. and 18 per cent. per annum respectively, and investment in road transport grew at a compound rate of approximately 20 per cent. per annum. The table below sets out the GNP, industrial and agricultural output and investment in road transport in the PRC in the years 1978, 1980, 1985, 1990 and 1993:

Industrial Investment and agricultural in road GNP output transport RMB’millions RMB’millions RMB’millions

1978 362,400 563,400 986 1980 451,800 707,700 1,086 1985 898,900 1,333,600 2,314 1990 1,859,840 3,158,600 5,504 1993 3,456,050 6,368,752 15,812

Source: Based on the China Statistical Yearbook 1996 compiled by the State Statistical Bureau of the PRC and the Year Book of China Transportation Communications Committee 1995 compiled by the Communications Statistical Bureau of the PRC.

Further, at the end of 1994, road density in the PRC was approximately 11 kilometres per hundred square kilometres which is equivalent to approximately one-tenth of the road density of the United States and approximately one-fifth of that of India.

37 BACKGROUND INFORMATION

The road grades and quality of the PRC’s road network are considered to be comparatively poor. This is evidenced by the aggregate length of approximately 1,603 kilometres of expressways in the PRC at the end of 1994, which represented approximately 0.14 per cent. of the total length of the PRC’s road network, and vehicular highways with a grading of Class 2 or above which constituted approximately one per cent. of the total length of the PRC’s road network. The road network in the PRC at present comprises predominantly non-paved gravel and low-grade paved roads. The table below sets out the composition of the PRC’s road network from 1991 to 1994:

Non- Graded graded Total Vehicular highways General roads Expressways Class 1 Class 2 Class 2 Class 3 Class 4 (kilometres) (kilometres) (kilometres) (kilometres) (kilometres) (kilometres) (kilometres) (kilometres)

1991 574 2,897 1,459 46,270 178,024 535,444 276,468 1,041,136 1992 652 3,575 2,086 52,690 184,990 542,942 269,772 1,056,707 1993 1,145 4,633 2,750 60,566 193,567 559,472 261,343 1,083,476 1994 1,603 6,334 2,840 69,549 200,738 580,336 256,421 1,117,821

Source: Year Book of China Transportation & Communications 1992, 1993, 1994 and 1995, compiled by the Communications Statistical Bureau of the PRC.

It can thus be seen that the PRC’s road network is under-developed and that in order to keep pace with economic growth in the PRC, there is considerable demand for the construction of additional roads and, in particular, graded highways in the PRC.

FUTURE PLANS FOR THE ROAD NETWORK IN THE PRC

Although the existing PRC road network provides good coverage in terms of geography, road grades and the quality of the network are considered to be comparatively poor. Many roads in the PRC are operating without traffic control signals and have a mixed traffic flow of bicycles, tractors, animal-drawn vehicles and pedestrians, which reduces overall traffic speed. The high incidence of slow moving traffic also contributes to road accidents. Furthermore, the problem of traffic bottlenecks is particularly serious on road sections that provide entrances to and exits from cities and towns.

38 BACKGROUND INFORMATION

The following map shows the existing major national highways in the PRC:

Tongjiang

Manzhouli

Korgas

Urumqi Suifenhe

Changchun Huichun

Erenhot

Shenyang

Hohhot Dandong Beijing

Tianjin Tangshen Golmud

Lanzhou

Lianyungang

Zhengzhou Xi'an

Nanjing

Shanghai Hefei Lhasa

Chongqing

Changsha

Guijang Hengyang Kumming Taipei Guilin Ruili Shaoguan

Guangzhou Gaoxiong Hekou Hong Kong Beihai

Sanya

Source: Year Book of China Transportation & Communications 1995 compiled by the Communications Statistical Bureau of the PRC.

39 BACKGROUND INFORMATION

In order to relieve traffic congestion, support continuous economic growth and balance the disparity between the rich coastal provinces and poorer inland provinces, the Ministry of Communications of the PRC plans to complete a high quality network of inter-provincial roads within the coming decades. This inter-provincial network will form part of the national highway system and will consist mainly of roads of vehicular highway standards. The network is known as the National Trunk Highway System, comprising the National Trunk Highways. The following map shows the routes of the National Trunk Highways.

Manzhouli

Tongjiang Korgas Harbin Urumqi Suifenhe Huichun Erenhot Beijing Dandong

Tangshen Yinchuan Dalian Shijiazhuang Golmud Xining Taiyuan Yantai Jinan Qingdao Tai’an Xi’an Huaiyang Nanjing Hefei Lhasa Chengdu Wuhan Shanghai Hangzhou Ningbo Nanchang Hengyang Fuzhou Guilin Ruili Kumming Shaoguan Xiamen Taiwan Nanning Shenzhen Hekou Zhuhai Hong Kong Priority National Trunk Highways Youyiguan Beihai Macau Zhanjiang Remaining Eight National Haikou Trunk Highways

40 BACKGROUND INFORMATION

Particulars of the National Trunk Highways are set out below:

from north to south

● from Tongjiang in province to Sanya in the province of Island, with a distance of approximately 5,200 kilometres;

● from Beijing to Fuzhou in province, with a distance of approximately 2,500 kilometres;

● from Beijing to Zhuhai in province, with a distance of approximately 2,400 kilometres;

● from Erenhot in Inner Mongolian Autonomous Region to Hekou in province, with a distance of approximately 3,600 kilometres;

● from Chongqing in province to Zhanjiang in Guangdong province, with a distance of approximately 1,400 kilometres;

from east to west

● from Sufenhe in Heilongjiang province to Manzhouli in Inner Mongolian Autonomous Region, with a distance of approximately 1,300 kilometres;

● from Dandong in province to Lhasa in , with a distance of approximately 4,600 kilometres;

● from Qingdao in province to Yinchuan in Autonomous Region, with a distance of approximately 1,600 kilometres;

● from Lianyungang in province to Korgas in Autonomous Region, with a distance of approximately 4,400 kilometres;

● from Shanghai to Chengdu in Sichuan province, with a distance of approximately 2,500 kilometres;

● from Shanghai to Ruili in Yunnan province, with a distance of approximately 4,000 kilometres; and

● from Hengyang in province to in Yunnan province, with a distance of approximately 2,000 kilometres.

It is planned that the National Trunk Highway System will link Beijing with all provincial capitals, cities with a current population of more than 1,000,000 people and almost all cities with a current population of more than 500,000 people. Accordingly, the National Trunk Highway System will link more than 200 cities and will cover a population of approximately 600,000,000 (based on current demographics) which represents approximately 50 per cent. of the PRC population.

41 BACKGROUND INFORMATION

Of the National Trunk Highways, priority will be given to the construction of the Priority National Trunk Highways set out below:

from north to south

● from Tongjiang in Heilongjiang province to Sanya in the province of Hainan Island;

● from Beijing to Zhuhai in Guangdong province;

from east to west

● from Lianyungang in Jiangsu province to Korgas in Xinjiang Autonomous Region; and

● from Shanghai to Chengdu in Sichuan province (of which the Hening Expressway forms part).

These four roads will, upon completion, extend to a total length of approximately 14,500 kilometres, of which approximately 4,200 kilometres (representing approximately 29 per cent. of the total) will be constructed to expressway standard. Moreover, these roads will be designed to allow vehicles to travel at an average speed of over 60 kilometres per hour. These roads are designated key projects during the current-decade two five-year plan periods (1991 to 2000). At the end of 1994, approximately 3,200 kilometres of roads have been completed and approximately 4,400 kilometres of roads are under construction, representing, respectively, approximately 22 per cent. and approximately 30 per cent. of the total. The Ninth Five-Year Plan calls for the completion of all sections of the Priority National Trunk Highways by 2000.

In addition to the Priority National Trunk Highways, many provinces plan to construct additional roads to satisfy growing demand for road transport. The Ninth Five-Year Plan calls for the construction of roads to a total of 1,250,000 kilometres, of which 18,500 kilometres are to be of vehicular highway standard, by 2000.

42 BACKGROUND INFORMATION

EXISTING TRANSPORT SYSTEM IN ANHUI PROVINCE

Anhui province is located in the hinterland of eastern China and lies along the River. Its neighbouring provinces include Jiangsu, , , , and Shandong. Anhui province plays an important role in linking the PRC’s southeast coastal provinces with the hinterland and the mid and western parts of the PRC. The existing transport system in Anhui province includes a network of railways, highways, civil aviation and waterways. The following map sets out the different transport facilities in Anhui province:

Anhui Nanjing Hefei

SHANDONG PR OVINCE

Shangqiu Lianyungang HEN AN PR OVINCE Xuzhou

Huaibei JIANGSU PR OVINCE

Bengbu

Huainan Anhui Province Chuzhou

Hefei Nanjing Maanshan

Wuhu PR OVINCE Xuanzhou Gaohe

Anqing Legend Jiezidun railway Hening Expressway YANGTZE RIVER ZHEJIANG Original Tianchang PR OVINCE section of National Highway 205 Hefei-- Expressway Hefei-Tongling Class 2 vehicular highway JIANGXI national highway PR OVINCE airport provincial border major ports

43 BACKGROUND INFORMATION

The railway network of Anhui province comprised a total length of approximately 2,620 kilometres at the end of 1995. Waterway transport in Anhui province is well developed as it lies within the river systems of the Yangtze and the Huaihe. Anhui province has more than 300 rivers, with a navigable inland waterway system of approximately 6,737 kilometres at the end of 1995. There are approximately 236 ports in Anhui province. Anqing, Tongling, Wuhu and Maanshan in Anhui province are the major ports along the Yangtze River. There are four civil airports in Anhui province, located at Hefei, Huangshan, Fuyang and Anqing respectively. The airport situated in Hefei is also an international airport.

Anhui’s freight traffic volume in 1995 was approximately 90,675 million tonne-kilometres and passenger traffic volume was approximately 37,961 million person-kilometres. The following table sets out the freight and passenger traffic volume carried by the different modes of transport of Anhui province in 1995:

By By By By civil Year waterway railway highway aviation Total

Freight traffic (in million tonne-kilometres) 15,516 56,053 19,097 10 90,675

Passenger traffic (in million person-kilometres) 177 14,989 22,053 742 37,961

Source: Based on Anhui Statistical Yearbook 1996 compiled by the State Statistical Bureau of the PRC.

Anhui Department of Communications is a department of Anhui Provincial People’s Government and is also under the Ministry of Communications of the PRC. The Ministry of Communications of the PRC is responsible for formulating and regulating policies relating to the planning and development of road and waterway transport in the PRC, while Anhui Department of Communications is responsible for implementing policies formulated by the Ministry of Communications of the PRC and in the administration of road and waterway transport within Anhui province. There are five bureaus under Anhui Department of Communications, namely AEAB, Anhui Highway Administration Bureau, Anhui Transportation Administration Bureau, Anhui Shipping Administration Bureau and Anhui Channel Administration Bureau. The respective responsibilities of these bureaus are as follows:

● AEAB is responsible for the planning and development (but not the operation) of vehicular highways of Class 2 standard or above as designated by Anhui Department of Communications in Anhui province. There are three vehicular highways of Class 2 standard or above in Anhui province which were developed by AEAB, namely, Hening Expressway, which is operated by the Company, and Hefei-Chaohu-Wuhu Expressway and Hefei-Tongling Class 2 vehicular highway, which are currently operated by AEHC;

● Anhui Highway Administration Bureau is responsible for the planning, development and operation of roads of Class 2 general road standard or below;

● Anhui Transportation Administration Bureau is responsible for the planning and implementation of regulations relating to passenger and goods road transport within Anhui province;

44 BACKGROUND INFORMATION

● Anhui Shipping Administration Bureau is responsible for the planning and implementation of regulations relating to passenger and goods waterway transport within Anhui province; and

● Anhui Channel Administration Bureau is responsible for the planning and development of waterways within Anhui province.

The day-to-day operation of these governmental bureaus are separated from each other and each bureau has its own management team.

RECENT DEVELOPMENTS AND FUTURE PLANS FOR THE ROAD NETWORK IN ANHUI PROVINCE

The road network in Anhui province mainly comprises roads of Class 2 general road standard. This network extends in all directions from Hefei, the capital of Anhui province, to 15 counties within the province.

Hening Expressway is the first expressway in Anhui province, whilst the Hefei - Tongling Class 2 vehicular highway, Hefei - Chaohu - Wuhu Expressway and Tongling Yangtze Bridge have also been completed recently. The province had a road network of approximately 35,178 kilometres in 1995, of which there were approximately 9,897 kilometres of provincial highways, 12,847 kilometres of county roads, 12,176 kilometres of village roads and 258 kilometres of special access roads. At the end of 1995, road density in Anhui province was approximately 25.2 kilometres per hundred square kilometres. In respect of road grades and quality, approximately 4,480 kilometres of roads were of Class 2 general road standard or above in 1995.

45 BACKGROUND INFORMATION

According to the development plan for road infrastructure construction in Anhui province, during the current-decade (1991-2000), priority is to be given to the construction of a network of what is referred to as “one loop, two sections, three verticals, four horizontals, seven corridors and two bridges”, all of which have been or will be constructed to Class 2 vehicular highway standard or above. The following map shows the routing of this network:

Anhui Nanjing Hefei

SHANDONG PR OVINCE

Shangqiu Lianyungang HEN AN PR OVINCE Xuzhou

Huaibei JIANGSU Bozhou PR OVINCE

Suzhou

Bengbu Fuyang Mingguang

Huainan Anhui province Chuzhou

Nanjing Luan Hefei Maanshan

Wuhu HEBEI PR OVINCE Xuanzhou Tongling Gaohe

Anqing

Huangshi Jiezidun

Legend YANGTZE RIVER ZHEJIANG PR OVINCE national highway provincial border Jiujiang Huangshan One loop Two sections Jingdezhen Three verticals JIANGXI PR OVINCE Four horizontals Seven corridors Two bridges.

46 BACKGROUND INFORMATION

“One loop” refers to the looping of Hefei to Wuhu to Nanjing expressways, while “two sections” refers to Xiaoxian section in Anhui province of the National Trunk Highway from Lianyungang to Korgas and the Hefei - Jiezidun section in Anhui province of the National Trunk Highway from Shanghai to Chengdu. “Three verticals” refers to the three highways linking the north-south direction, namely, the highways from Sixian via Chuxian and Wuhu to Huangshan, from Xuzhou via Hefei and Tongling to Huangshan and from Songji via Haozhou and Qianshan and Susong to Jiezidun. “Four horizontals” refers to the four highways linking the east-west direction, namely the highways from Haozhou via Guoyang and Bengbu to Jiashan, from Yeji via Liuan to Hefei, from Niuji via Dadukou, Guichi, Nanling and Xuanzhou to , and from Zhangwangmiao via Qimen, Tunxi and to Guangde. “Seven corridors” refers to the connecting roads for the provincial highways described above. Finally, “Two bridges” refers to the two bridges crossing theYangtze River in Wuhu and Tongling respectively in Anhui province.

By the end of year 2000, the total length of roads in Anhui province is expected to increase to approximately 40,000 kilometres, of which expressways and Class 1 and 2 vehicular highways will have a total length of approximately 1,000 kilometres and class 2 roads will have a total length of approximately 5,000 kilometres. The road density in the province is expected to reach 28.7 kilometres per hundred square metres, and is intended to cover 90 per cent. of all villages in the province. It is intended by Anhui Department of Communications that Anhui province should become the major province in establishing the corridor linking the PRC’s southeast coastal provinces with the hinterland and the mid and western parts of the PRC. The provincial highway network is also expected to cover all villages and towns.

A summary of the completed and proposed vehicular highways in Anhui province is set out below: Intended Current date/ owner/ date of Name operator Length Class Status completion kilometres

Hening Expressway Company 134 Expressway Completed November 1995 Hefei - Chaohu - Wuhu AEHC 88 Expressway Completed December Expressway 1995 Hefei - Tongling Class 2 AEHC 123 Class 2 Completed December Highway vehicular 1995 highway Tianchang section of Anhui Highway 30 Class 1 Under January Highway 205 Administration vehicular construction 1997 Bureau highway Hefei - Xuzhou Expressway Anhui 270 Expressway Construction 2000 Department of begun Communications Hefei - Susong Expressway Anhui 258 Expressway Construction 2000 Department of between Gaohe Communications and Jiezidun begun Feasibility study 2000 between Hefei and Gaohe completed Xiaoxian section of the National Anhui 48 Expressway Feasibility study 2000 Trunk Highway from Department of begun Lianyungang to Korgas Communications

47 PARTICULARS OF THE COMPANY

INTRODUCTION

The Company is principally engaged in the holding, operation and development of toll App.1A 28(1)(a) roads of Class 1 vehicular highway standard or above in Anhui province, the PRC. At present, 3rd Sch the Company holds and operates Hening Expressway and, pursuant to the Acquisition para 1 Agreement, has conditionally agreed to acquire Tianchang section of Highway 205 on completion of its construction at a fixed consideration of RMB210 million (approximately HK$196 million). The development of Tianchang section of Highway 205 is to be completed in two phases which are expected to be handed over to the Company on or before 1st January, 1997 and 1st July, 1997 respectively.

Pursuant to the Reorganisation, the Company was established on 15th August, 1996 as a joint stock limited company. AEHC, a state-owned enterprise supervised by Anhui Department of Communications, is the sole promoter of the Company and currently holds 100 per cent. of the issued share capital of the Company. Immediately following listing of the Company on the App.1A Stock Exchange, AEHC will hold approximately 65 per cent. or, if the Over-allotment Option is 8(1) exercised, approximately 63 per cent. of the enlarged issued share capital of the Company.

DESCRIPTION OF HENING EXPRESSWAY AND TIANCHANG SECTION OF HIGHWAY 205

Set out below is a map showing the locations of Hening Expressway and Tianchang section of Highway 205 and the existing road network in the surrounding areas.

Lianyangang

Nanjing JIANGSU PROVINCE

Hefei Shanghai Anhui

Tianchang Chajian

Liuhe ANHUI PROVINCE Xige Wuzhuang Quanjiao Feidong Hefei Dashu Zhouzhuang Nanjing Ershibu Bridge Dashushan # # Longtang Nanjing Shibagang Jichang Guhe

Legend: Hening Expressway Tianchang section of Highway 205 Original Auhui section of National Highway 312 Hefei-Chaohu-Wuhu Expressway Jiangsu section of National Trunk Highway from Shanghai to Chengdu National/provincial highway Interchange toll station Mainline toll plaza Yangtze River # Provincial capital Provincial border line

48 PARTICULARS OF THE COMPANY

Hening Expressway

Hening Expressway is a 134 kilometre long dual two-lane toll expressway in Anhui province linking Dashushan and Zhouzhuang. This expressway is an integral part of Hefei - Nanjing Expressway which, in turn, forms part of the Priority National Trunk Highway from Shanghai to Chengdu in Sichuan province. Hefei - Nanjing Expressway is also part of the National Highway 312 which starts in Shanghai and ends in Yining in Xinjiang Autonomous Region.

The original Anhui section of National Highway 312, which starts from the eastern suburbs of Hefei, Ershibu and extends to Xige, was unable to cope with the rapid social and economic development of Anhui province and the neighbouring provinces it served in the 1980’s. The original Anhui section of National Highway 312 was built in the 1950’s and has a total length of approximately 162 kilometres. This original Anhui section is a toll-free road which runs in the same general direction as Hening Expressway but which is not parallel to Hening Expressway. The surface of the 29 kilometre section between Hefei and Feidong is of low quality, with 17 kilometres having a gravel surface and 12 kilometres being of Class 2 general road standard. The section between Feidong and Guhe, which totals 62 kilometres in length, is of Class 4 general road standard, and there are many bends on the 71 kilometre section from Guhe to Xige. Because of the low quality of the original Anhui section, overall traffic speed is relatively slow and, as a result, overall transport cost is correspondingly higher. A new highway was required in order to redress these problems. In view of these factors, the construction of Hening Expressway, a new Anhui section of National Highway 312, was approved and designated a key project by the Ministry of Communications of the PRC in 1985.

Hening Expressway was built in three phases. Construction of phase I, which is approximately 92 kilometres long, linking Longtang and Wuzhuang, commenced in October, 1986 and was completed in April 1991. Phase I of Hening Expressway was officially opened as a toll expressway on 4th October, 1991. This section has been characterised as the backbone of Anhui’s economic development. During the summer of 1991, Anhui province was heavily flooded with rain and, apart from this section, all other roads in the province were rendered practically impassable. During this period Hening Expressway played an important role in delivering relief supplies and ensuring continued economic activity in the province. A Class 2 vehicular highway of approximately 18 kilometres running from Wuzhuang to Xige was also included in the design and construction of phase I but does not form part of the assets of the Company.

Construction of phase II, from Wuzhuang to Zhouzhuang with a length of approximately 11 kilometres, commenced in April 1991 and was completed in September 1992. Phase III of Hening Expressway runs from Dashushan to Longtang, with a length of approximately 31 kilometres. Construction of phase III commenced in June 1993 and was completed in November 1995. Development of phase III of Hening Expressway was partially financed by way of loans from Anhui Communications Construction and Investment Development Holding Corporation, which is under the supervision of Anhui Department of Communications.

Compared with the original Anhui section of National Highway 312, the travelling distance from Hefei to the border of Anhui and Jiangsu provinces has been reduced by approximately 30 kilometres and travelling time has been shortened from five to six hours in the past to approximately two hours. Given that Hening Expressway is of better quality (expressway standard) and permits a much higher speed of travel, the Directors do not believe that the original Anhui section of National Highway 312 (which is of below Class 2 general road standard and is not a toll road) and Hening Expressway compete for the same traffic.

Hening Expressway was designed and built in accordance with the PRC highway standards as an enclosed expressway with flyover crossings and entry and exit controls. Set out below is a typical cross section of the Hening Expressway together with certain key data.

49 PARTICULARS OF THE COMPANY

Typical cross section of Hening Expressway between Dashushan and Longtang

Safety Safety Safety fencing fencing fencing

Carriageway Carriageway Central

Paved Paved median Paved

3.75 metres 3.75 metres 3.75 metres 3.75 metres 0.45 metres 0.45 metres 0.45 metres 0.45 metres shoulders shoulders 0.45 metres 0.45 metres 2.75 2.8 2.75 metres 8.4 metres metres 8.4 metres metres

26.0 metres

Typical cross section of Hening Expressway between Longtang and Wuzhuang

Safety Safety Safety fencing fencing fencing

Carriageway Carriageway Central median 3.75 metres 3.75 metres 3.75 metres 3.75 metres Paved Paved Paved 0.75 metres 0.75 metres 0.75 metres 0.75 metres 0.75 metres 0.75 metres shoulders shoulders 1.75 1.75 metres 9 metres 3 metres 9 metres metres

26.0 metres

Typical cross section of Hening Expressway between Wuzhuang and Zhouzhuang

Safety Safety Safety fencing fencing fencing

Carriageway Central Carriageway median 0.15 metres Paved Paved Paved 0.15 metres 3.75 metres 3.75 metres 0.15 metres 3.75 metres 3.75 metres 0.15 metres shoulders shoulders

2.95 metres 7.8 metres 1.5 metres 7.8 metres 2.95 metres

23.0 metres

50 PARTICULARS OF THE COMPANY

Key data

From Dashushan To Zhouzhuang Total length 134 kilometres Classification Expressway Number of lanes Dual two-lane Number of toll stations Eight (located at Dashushan, Shibagang, Jichang, Longtang, Feidong, Dashu, Quanjiao and Wuzhuang) Design speed 120 km/hour (between Dashushan and Wuzhuang) 100 km/hour (between Wuzhuang and Zhouzhuang) Flood resistance level 1/100 (road surface level above the highest flood level in the past 100 years) Road surface Top grade, apart from the bituminous surfaces of approximately 5.5 kilometres for the soft ground sections, the expressway is of concrete surfaces Number of interchanges Six (located at Shibagang, Jichang (Hefei airport entrance), Longtang, Feidong, Dashu and Quanjiao)

Hening Expressway has received several awards and has been granted recognitions issued by the Ministry of Communications of the PRC, Ministry of Electronic Industry of the PRC and Anhui Provincial People’s Government in acknowledgement of its quality. The following table sets out the awards and recognitions received:

Granting/Issuing Year Item being appraised Awards/Recognition received organisation of the PRC received

Design of phase I Design and survey awards Ministry of Communications 1992 Construction of phase I Top ten construction projects Ministry of Communications 1993 Construction of phases I Quality awards Ministry of Communications 1994 and II Traffic and monitoring system Advanced technology award Ministry of Electronic Industry 1994 Construction of phases I, Top ten construction projects in Anhui Provincial People’s 1996 II and III Anhui province during the Government Eighth Five-Year Plan

Hening Expressway passes through two cities, namely Hefei and Chaohu, and three counties, namely Feixi, Feidong and Quanjiao, in Anhui province, which cover a population of approximately 9,000,000 (based on current demographics), representing approximately 15 per cent. of the total population of Anhui province at the end of 1995.

Two provincial capitals, Hefei and Nanjing, are linked by Hefei-Nanjing Expressway. Hefei, the capital of Anhui province, has an area of approximately 7,248 square kilometres and a population of approximately four million. In 1995, the value of the industrial and agricultural output of Hefei reached RMB30,097 million (approximately HK$28,128 million). Nanjing, the capital of Jiangsu province, has an area of approximately 6,500 square kilometres and a population of approximately 5,200,000. In 1995, the value of the industrial and agricultural output of Nanjing reached RMB120,250 million (approximately HK$112,383 million).

51 PARTICULARS OF THE COMPANY

Tianchang section of Highway 205

Tianchang section of Highway 205 is a 30 kilometre dual two-lane vehicular highway of Class 1 standard currently being constructed in Tianchang in Anhui province. Tianchang section of Highway 205 is part of National Highway 205 which starts in Shanhaiguan in Hebei province and ends in Guangzhou in Guangdong province. This national highway also forms part of the highway linking Lianyungang and Nanjing in Jiangsu province.

Pursuant to the Acquisition Agreement, the Company has conditionally agreed to acquire Tianchang section of Highway 205 from Anhui Highway Administration Bureau on and subject to the completion of phase I of the construction, being the foundation and superstructure of the road. The Company will acquire the land use rights of the land on which Tianchang section of Highway 205 is being built and the fixtures comprising the foundation and superstructure of the road for a fixed consideration of RMB210 million (approximately HK$196 million). The consideration for the acquisition was negotiated on an arm’s length basis between Anhui Highway Administration Bureau and the Company. Pursuant to a notice (Wan Guo Zi Zi 1996 No. 108) dated 3rd June, 1996, Anhui Provincial State Assets Bureau has approved the undertaking given by Anhui Highway Administration Bureau to the Company to sell the entire Tianchang section of Highway 205 at a consideration of between RMB190 million and RMB210 million subject to the establishment of the Company and the signing of the Acquisition Agreement and completion of certain procedures prescribed by PRC regulations. These procedures include, among others, a valuation by an accredited firm of PRC valuers of phase I of Tianchang section of Highway 205 upon its completion, and the confirmation of such valuation by Anhui Provincial State Assets Bureau. Compliance with these procedures is a pre-requisite for a delivery of Tianchang section of Highway 205.

Under the Acquisition Agreement, no part of the consideration is payable by the Company until the transfer of phase I of the development of Tianchang section of Highway 205, when 80 per cent. of the contract price will be payable by the Company to Anhui Highway Administration Bureau. The Company is required under the Acquisition Agreement to make payment of 15 per cent. of the contract price to Anhui Highway Administration Bureau upon the delivery of phase II of the development of Tianchang section of Highway 205. The remaining five per cent. of the contract price will be kept by the Company as retention money and is not expected to be paid prior to January 1998 but will be released upon the expiry of the later of certain events, including the expiry of one year from the delivery of phase I of the development and the expiry of the agreed warranty/maintenance period for phase II of the development under the Acquisition Agreement.

Completion of the delivery of phase I of the development of Tianchang section of Highway 205 under the Acquisition Agreement is conditional on, among other conditions, (i) the completion of the construction of phase I and the opening as a toll road to traffic of Tianchang section of Highway 205; (ii) the valuation of Tianchang section of Highway 205 by the Company being confirmed by Anhui Provincial State Assets Bureau; and (iii) the production of the relevant land use rights certificate(s) together with the relevant evidence of authorisation (if required) granted by the Land Administration Bureau of Anhui province issuing such land use rights certificate(s). It is at present expected that phase I of the development of Tianchang section of Highway 205 will be completed and transferred to the Company on or before 1st January, 1997, and will thereafter be operated by the Company as a toll road. The formal delivery of phase I of the development of Tianchang section of Highway 205 is expected to be completed by 30th April, 1997.

The Acquisition Agreement provides that in the event that phase I of the development of Tianchang section of Highway 205 is not completed or cannot be transferred to the Company on or before 1st January, 1997, Anhui Highway Administration Bureau will be required to pay liquidated damages to the Company at the rate of RMB180,000 (approximately HK$168,000) per day for every day of delay. The independent traffic consultant, SWK, has estimated that under

52 PARTICULARS OF THE COMPANY the optimistic case, the Company will receive annual toll revenue of RMB54 million (approximately HK$50.5 million) from Tianchang section of Highway 205, which represents approximately RMB148,000 per day. On this basis, the amount of the liquidated damages of RMB180,000 per day is sufficient to cover daily revenue. The maximum amount of liquidated damages is limited to RMB21 million (approximately HK$19.6 million) under the Acquisition Agreement and, accordingly, Anhui Highway Administration Bureau can be penalised for a maximum period of approximately 117 days.

The Directors consider that the agreed effective limit on the period for which compensation will be payable of 117 days is appropriate in order to cover the potential loss of revenue to the Company which would result from delay in construction and in transferring Tianchang section of Highway 205 as they have no reason to believe that the transfer of phase I of Tianchang section of Highway 205 will not be effected within this period. If, however, the road is not transferred within this period then the Company has the right to rescind the Acquisition Agreement in the event that Anhui Highway Administration Bureau is not able to transfer phase I of the development of Tianchang section of Highway 205 to the Company pursuant to the Acquisition Agreement on or before 30th April, 1997.

Where, however, phase I of the development of Tianchang section of Highway 205 has been completed but is not transferred to the Company on account of the valuation of Tianchang section of Highway 205 not having been confirmed by Anhui Provincial State Assets Bureau and the non-confirmation is not a result of Anhui Highway Administration Bureau’s default, and Anhui Highway Administration Bureau is entitled to levy toll on vehicles using Tianchang section of Highway 205 during the period of delay in the transfer of phase I of the development then, in lieu of the liquidated damages of RMB180,000 per day,Anhui Highway Administation Bureau will be required to account to the Company for the net income received in respect of the operation of Tianchang section of Highway 205 during the period of delay in the transfer of phase I of the development. The rationale for this arrangement is that, had the valuation been confirmed and phase I of the development transferred to the Company, the Company could upon the payment of 80 per cent. of the contract sum of RMB210 million become entitled to such net income. Accordingly, in such circumstances, the Acquisition Agreement provides for interest to be deducted from the amount of the net income payable to the Company. Such interest is calculated at a rate of seven per cent. per annum, being the prevailing annual deposit rate in the PRC on the purchase consideration of RMB210 million. This amounts to approximately RMB40,000 (approximately HK$37,000) per day. The rights of the Company in this regard are without prejudice to its right to terminate the Acquisition Agreement on account of such delay.

Under the Acquisition Agreement, phase II of the development of Tianchang section of Highway 205 is required to be delivered to the Company on or before 1st July, 1997. Liquidated damages are payable by Anhui Highway Administration Bureau to the Company in the amount of RMB10,000 (approximately HK$9,300) per day for every day of delay up to maximum of RMB1 million (approximately HK$935,000). Moreover, if phase II of the development of Tianchang section of Highway 205 is not delivered to the Company by 31st July, 1997 and remains uncompleted or undelivered for two months after the Company has given notice for the rectification of breach of contract, the Company may require Anhui Highway Administration Bureau to terminate the construction contract of the relevant contractor and appoint its own contractor to complete the necessary construction work at the cost of Anhui Highway Administration Bureau.

The Ministry of Communications of the PRC, Anhui Department of Communications and Anhui Provincial Price Bureau have granted to the Company the right to operate and collect tolls for Tianchang section of Highway 205 for a concession period of 30 years from the date of transfer of phase I of the development of Tianchang section of Highway 205.

53 PARTICULARS OF THE COMPANY

The original Tianchang section of National Highway 205, which runs parallel to Tianchang section of Highway 205, was built in the 1950s and was unable to handle the increase in traffic volume resulting from the rapid social and economic development of Jiangsu and Anhui provinces, particularly the development of Lianyungang, one of the deep sea ports in the PRC. Since it was first built, the original Anhui section has been upgraded several times to its present Class 3 general road standard.

In the past few years the adjoining Jiangsu sections of National Highway 205 have been upgraded to Class 1 vehicular highway standard in order to cope with increases in traffic volume. Because of the difference in standard, traffic bottlenecks were expected to occur in the original Tianchang section of National Highway 205 which was only of Class 3 general road standard. The construction of Tianchang section of Highway 205 was undertaken in order to alleviate pressure on the original Tianchang section of National Highway 205 and to support the development of Lianyungang and Nanjing.

Pursuant to the Undertaking, Anhui Department of Communications has confirmed and undertaken to the Company, among other matters, that the original Tianchang section of National Highway 205 will remain a toll road and its applicable toll rates will be maintained at the same levels as those for Tianchang section of Highway 205. Given that Tianchang section of Highway 205 will be of better quality (Class 1 vehicular highway standard) and that the same toll rate will be levied on both roads, the Directors anticipate that Tianchang section of Highway 205 will be used for most cross border traffic and that the original Tianchang section of National Highway 205 will be used for local traffic and, accordingly, do not believe that the original Tianchang section of National Highway 205 and Tianchang section of Highway 205 will compete for the same traffic.

Tianchang section of Highway 205 has been designed and is being built in accordance with Class 1 vehicular highway standard in the PRC. Set out below is a typical cross section of Tianchang section of Highway 205 together with certain key data.

Typical cross section of Tianchang section of Highway 205

Safety Safety Safety fencing fencing fencing

Carriageway Carriageway Central

Paved Paved median Paved 0.5 metres 0.5 metres 0.5 metres 3.75 metres 3.75 metres 0.5 metres 3.75 metres 3.75 metres shoulders shoulders 0.5 metres 0.5 metres 2.5 metres 8.50 metres 1.5 metres 8.50 metres 2.5 metres

24.5 metres

54 PARTICULARS OF THE COMPANY

Key data

Total length 30 kilometres Classification Class 1 vehicular highway Number of lanes Dual two-lane Number of toll stations One Design speed 100 km/hour Road surface Concrete surfaces

The development of Tianchang section of Highway 205 is divided into two phases: phase I being the construction of the foundation and superstructure of the entire section which is expected to be completed by 1st January, 1997, while phase II is for the construction of ancillary facilities such as the installation of directional signs and environmental protection measures and is expected to be completed by 1st July, 1997.

Upon completion of the construction of phase I of Tianchang section of Highway 205, it can then be opened to traffic as a toll road. Delay in the completion of phase II is not expected to affect the commissioning of Tianchang section of Highway 205. Construction commenced on 10th July, 1995 and surfacing of the highway is currently in progress. The Directors believe that, at present, approximately 85 per cent. of the development of phase I of Tianchang section of Highway 205 has been completed and it is expected that the development of phase I of the highway will be completed by 1st January, 1997.

Tianchang section of Highway 205 connects sections of National Highway 205 in Jiangsu province linking Nanjing in the south and Lianyungang in the north. It is one of the largest deep sea ports in the PRC for both domestic and international freight and is located on the north-eastern coast of Jiangsu province. Tianchang section of Highway 205 is situated in Tianchang in Anhui province. Tianchang had a population of approximately 600,000 in 1995, representing approximately one per cent. of the total population of Anhui province. It covers an area of approximately 1,770 square kilometres, representing approximately 1.3 per cent. of the total area of Anhui province. The value of its industrial and agricultural output reached RMB4,372 million (HK$4,088 million) in 1995, representing approximately 1.4 per cent. of the total industrial and agricultural output of Anhui province.

TOLL RATES, CONCESSION PERIOD AND TRAFFIC FLOW FORECAST

The Company derives most of its income from toll charges, and such income is determined generally by two factors, namely toll rates and traffic volume.

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Toll rates

Tolls on Hening Expressway are charged on the basis of distance travelled and vehicle classification. The toll rates for the different vehicle classifications which have been in effect since the commencement of operation of Hening Expressway are as follows:

26th February, 1993 Before to Since 26th February, 19th January, 20th January, Vehicle classification 1993 1996 1996 RMB/ RMB/ RMB/ kilometres kilometres kilometres

Passenger vehicles (Note 2) Small (up to 19 seats) 0.10 0.15 0.30 Medium (between 20 and 40 seats) 0.20 0.30 0.60 Large (over 40 seats) 0.30 0.45 0.80 Goods vehicles (Note 3) Small (up to 2.5 tonnes) 0.10 0.20 0.30 Medium (between 2.5 tonnes and 7 tonnes) 0.20 0.40 0.60 Large (between 7 tonnes and 15 tonnes) 0.30 0.60 0.80 Special (between 15 tonnes and 40 tonnes) 0.40 0.80 1.50 Special large (over 40 tonnes) (Note 4) 0.40 0.80 1.50

Notes:

1. The minimum toll charge is RMB4.00 and toll is calculated to the nearest RMB1.

2. The classification of passenger vehicles is based on the seating capacity of each passenger vehicle.

3. The classification of goods vehicles is based on their registered maximum load weight.

4. Prior to 1996, special large goods vehicles with registered maximum load weights of over 40 tonnes were charged an additional RMB5 for every 10 tonnes in excess of 40 tonnes. Since 20th January, 1996, an additional RMB10 has been charged for every 10 tonnes in excess.

As shown in the above table, toll rates for Hening Expressway increased by 50 per cent. to 100 per cent. in 1993 and increased by approximately 33 per cent. to 100 per cent. earlier this year depending on vehicle classification. Anhui Department of Communications and Auhui Provincial Price Bureau approved the toll increase in 1993 while Anhui People’s Provincial Government approved the 1996 toll increase for Hening Expressway.

These authorities have neither rejected nor adjusted the Company’s application for adjustment in toll rate for Hening Expressway.In addition, these adjustments took approximately one month from the date of application for the relevant authorities to approve toll increases and were made effective immediately once the approval was obtained. There is, however, no assurance that future applications for toll increase will be approved within the same time frame or for similar rates of increment.

56 PARTICULARS OF THE COMPANY

The original Tianchang section of National Highway 205 currently charges a fixed toll of RMB3 (approximately HK$2.8) per tonne and, prior to 1st June, 1996, a fixed toll of RMB2 (approximately HK$1.9) per tonne was charged. Accordingly, the toll rate for the original Tianchang section of National Highway 205 was increased by 50 per cent. on 1st June, 1996. There is, however, no assurance that future applications for toll increase will be approved for similar rates of increment.

The toll rates for different vehicle classifications assumed by SWK to estimate the revenue forecast for Tianchang section of Highway 205 were based on the toll rate of RMB3 per tonne but applying a minimum charge of RMB5 for small passenger vehicles and a minimum charge of RMB10 for small goods vehicles (up to 2.5 tonnes) which minimum charges are charged by the Company although not specifically fixed by the approving authorities.

The Directors intend to keep the toll rates under review and will, if necessary, apply for adjustment to the toll rates during the Company’s concession period for each of Hening Expressway and Tianchang section of Highway 205.

There is no restriction as to how often the Company can apply for toll rate increases. Any proposed adjustments to toll rates will be determined with reference to the then inflation rate and/or price index and the then prevailing rates for toll roads in the surrounding areas. Applications will be made to Anhui Department of Communications and Anhui Provincial Price Bureau, as and when appropriate.

Anhui Department of Communications and Anhui Provincial Price Bureau have jointly stated in a notice (Wan Jia Fei Zi [1996] No. 181) dated 18th June, 1996 that subject to PRC laws, regulations and policies, on the basis of constant price, toll rates for Hening Expressway and Tianchang section of Highway 205 may be adjusted to maintain at their existing levels. The Directors’ understanding of the meaning of “toll rates may be adjusted to maintain at their existing levels on the basis of constant price” is that toll rates may at least be raised in line with inflation. No expiry date is stated in the notice. The notice does not preclude the authorities from approving further toll increases to take account of inflation and other factors such as toll rates of other roads in the surrounding area.

Concession period

In obtaining the right to operate a toll road and collect toll charges, it is necessary to obtain the approval of the Ministry of Communications of the PRC (in the case of national highways), and of the Department of Communications and the Price Administration Bureau of the relevant province. Relevant approvals from the Ministry of Communications of the PRC, Anhui Department of Communications and Anhui Provincial Price Bureau have been granted for the operation of Hening Expressway and Tianchang section of Highway 205 as toll roads. The concession rights to operate and collect toll revenues for Hening Expressway is for a period of 30 years commencing from the incorporation of the Company on 15th August, 1996 and the concession rights to operate and collect toll revenues for Tianchang section of Highway 205 will be for a period of 30 years commencing from the date of the transfer of phase I of the development of Tianchang section of Highway 205, which is expected to be on 1st January,1997. Pursuant to a notice (Wan Jia Fei Zi [1996] No. 293) issued by Anhui Provincial Price Bureau on 24th September, 1996, the initial toll rates for Tianchang section of Highway 205 will be at the same as those for the original Tianchang section of National Highway 205.

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Traffic flow forecast

SWK, an independent traffic forecast consultant, has been appointed to conduct a study on the traffic and toll revenue forecast for Hening Expressway and Tianchang section of Highway 205 for the period from 1997 to 2025. A copy of the report on the traffic and revenue forecasts by SWK is available for inspection as set out in the paragraph headed “Documents available for inspection” in appendix X and a copy of its letter summarising its report is set out in appendix III of this prospectus.

SWK has prepared the traffic and revenue forecasts for Hening Expressway and Tianchang section of Highway 205 on the basis of a base year traffic and revenue model it developed. The base year for such model is 1996. The modelled traffic flow has been calibrated and the results of such calibration show that the model provides a suitable basis for forecasting the future traffic flows. The 1996 annual average daily traffic flow was derived from the modelled traffic flow while the annual revenue forecast for 1996 was obtained from multiplying the annualised traffic forecast by the applicable existing toll rates at 1996 price levels. The following table shows the approximate 1996 average daily traffic flow forecast and the approximate 1996 revenue forecast for each of the roads:

Approximate 1996 average daily traffic Approximate 1996 flow forecast revenue forecast Vehicles RMB’million HK$’million (Note 2) (Note 3)

Hening Expressway 7,300 206 193 Tianchang section of Highway 205 (Note 1) 8,200 31 29

Notes:

1. The modelled traffic flow for Tianchang section of Highway 205, which assumes that it had been completed and was opened to traffic on 1st January, 1996, has been calibrated with reference to the traffic conditions of the original Tianchang section of National Highway 205, which include agricultural tractors as one type of vehicle using the road. Under the modelled traffic flow forecasts, the 1996 annual average daily traffic flow is approximately 8,900 vehicles and the related annual revenue forecast is approximately RMB32 million (approximately HK$30 million). However, agricultural tractors are prohibited from using Tianchang section of Highway 205, being a Class 1 vehicular highway. Accordingly, daily traffic flow and annual revenue forecast attributable to agricultural tractors amounting to approximately 700 vehicles and RMB1 million (approximately HK$935,000) respectively are not included in the above forecast of the 1996 average daily traffic flow and the1996 revenue forecast for Tianchang section of Highway 205.

2. It is assumed that all vehicles, including State exempted vehicles, have to pay toll charges, and such charges will become toll revenue of the Company.

3. The approximate 1996 revenue forecasts for Hening Expressway and Tianchang section of Highway 205 have been translated, for information only, from Renminbi into HK dollars to the PBOC Exchange Rate of RMB1.07 = HK$1.00 prevailing at close of business on 23rd October, 1996, being the Latest Practicable Date.

58 PARTICULARS OF THE COMPANY

Based on historical records available from January to May 1996 of vehicles exempted by the State under the Anhui Province Provisional Regulations on Vehicle Toll Fees for Expressways to pay tolls, the tolls which would have been received were estimated by the Directors to amount to about 2.5 per cent. of the toll revenue.

Having developed and calibrated the base year traffic and revenue models, SWK used such models as the basis to forecast future traffic flows for Hening Expressway and Tianchang section of Highway 205. The principal assumptions made by SWK in the preparation of the forecasts include the following:

● The estimated levels of induced traffic for Hening Expressway and Tianchang section of Highway 205 are based on the social economic forecast of Anhui province. The GNP of the province is generally taken as the economic indicator of the economic conditions of the province. The forecast of the socio-economic index for the future years is based on the regression model established on past economic data, the Ninth Five-Year Plan, the 2010 Development Plan of Anhui province and SWK’s experience in similar projects in the PRC. Set out below is the forecast for the annual GNP growth rates on a conservative basis and on an optimistic basis: Annual growth in GNP Conservative Optimistic Period case case %% 1996 to 2000 12.5 15.5 2000 to 2010 9.0 11.0 2010 to 2020 6.0 7.0 2020 to 2025 3.0 4.0 The optimistic case forecast assumes that the economic development targets can be achieved within the planned periods. The conservative case takes account of the possibility of certain risk factors including political instability and the risk of high inflation.

● The maximum capacities of Hening Expressway and Tianchang section of Highway 205 have been estimated in accordance with the PRC highway standards of the Ministry of Communications of the PRC, that is 60,000 MTE per day for the Hening Expressway (equivalent to 54,000 vehicles per day for the composition of vehicles using the Hening Expressway) and 54,000 MTE per day for the Tianchang section of Highway 205 (equivalent to 49,000 vehicles per day for the composition of vehicles using the Tianchang section of Highway 205). These maximum capacities have been applied as capacity restraint to the forecast traffic volumes.

● The toll rates are fixed at 1996 prices and are maintained at the same price level for the purposes of forecasting future revenue.

● The same toll rate is charged on all vehicles using either Tianchang section of Highway 205 or the original Tianchang section of National Highway 205. All vehicles will use Tianchang section of Highway 205 as it is of a better quality (Class 1 vehicular highway standard) and it will provide a much shorter time of travel, thus reducing theoretical transport cost.

● The existing toll rates are applied and are collected in full, without any evasion of toll payment by any vehicles. That is, all vehicles (including State exempted vehicles) are charged the applicable amount of tolls at 1996 prices payable according to vehicle classifications which will become revenue of the Company.

59 PARTICULARS OF THE COMPANY

The daily traffic volume forecast for Hening Expressway and Tianchang section of Highway 205 for the years 1997, 2000, 2010, 2020 and 2025, based on the assumptions referred to above, are set out as follows:

Daily traffic volume forecasts 1997 2000 2010 2020 2025

Hening Expressway Optimistic case 8,400 12,300 36,500 53,800 53,800 Conservative case 8,200 11,000 27,000 47,000 51,000

Tianchang section of Highway 205 Optimisitc case 9,200 14,000 37,200 48,900 49,000 Conservative case 8,700 12,600 29,000 41,600 43,300

Note: The forecast traffic volumes for Hening Expressway are the distance-weighted average number of vehicles per day per kilometre of various sections of Hening Expressway.

The annual revenue forecasts based on the traffic forecasting model with capacity restrained, based on the assumptions referred to above, are summarised as follows:

Annual toll revenue forecasts 1997 2000 2010 2020 2025 RMB’millions RMB’millions RMB’millions RMB’millions RMB’millions Hening Expressway Optimistic case 240 350 1,000 1,500 1,500 Conservative case 230 310 760 1,300 1,400

Tianchang section of Highway 205 Optimistic case 54 81 216 279 277 Conservative case 51 74 168 238 243

Note: The toll revenue forecasts are estimated from the traffic volume forecasts.

However, it should be noted that neither the optimistic case forecast nor the conservative case forecast take any account of certain unquantifiable positive factors. For example, firstly and as referred to above, the forecasts have been made on the assumption that the toll rates are fixed at 1996 prices and maintained at 1996 price levels for the purposes of forecasting future revenue. However, as referred to in the section above headed “Toll rates”, the toll rates were increased in 1993 and in 1996 and the Directors intend to keep the toll rates under review and will, if necessary, apply for adjustment to the toll rate during the Company’s concession right on each of Hening Expressway and Tianchang section of Highway 205. In addition, Anhui Department of Communications and Anhui Provincial Price Bureau have jointly stated that subject to PRC laws, regulations and policies, on the basis of constant price, toll rates for Hening Expressway and Tianchang section of Highway 205 may be adjusted to maintain at their existing levels. Secondly, the estimated levels of traffic growth for Hening Expressway and Tianchang section of Highway 205 are based on the social economic forecast of Anhui province and do not take into account any possible increase in induced traffic flow which may result, in the case of Hening Expressway, from the completion of the Priority National Trunk Highway from Shanghai to Chengdu.

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Thus, whilst these factors could be expected to have a positive effect on the forecast, as their effect is not quantifiable and as there can be no assurance either that toll rates will increase or that the rest of the interlinking highway network will be completed in accordance with currently envisaged timetables, it is not possible for the forecasts to take any account of these factors.

In addition, for the purposes of assignment modelling used in forecasting traffic flows it was assumed that a base toll rate of RMB4 per tonne would be charged on the Tianchang section of Highway 205 and the original Tianchang section of National Highway 205 whereas the current and applicable toll rate for both these roads is RMB3 per tonne. Revenues were calculated on the basis of an equal toll of RMB3 per tonne being applied on both the original Tianchang section of National Highway 205 and Tianchang section of Highway 205. As a result, SWK is of the view that the traffic forecasts for Tianchang section of Highway 205 are likely to be conservative.

OPERATIONS AND MAINTENANCE AND EXISTING TOLL COLLECTION SYSTEM

Operations of the Company

The day-to-day operation and maintenance of Hening Expressway is managed by two administrative offices located at Feidong and Quanjiao while the general administration of the Company is carried out at the head office at Hefei. The administrative offices at Feidong and at Quanjiao manage the 69 kilometre section from Dashushan towards Zhouzhuang and the 65 kilometre section from the end of such 69 kilometre section to Zhouzhuang, respectively. Approximately 205 employees work at the administrative office at Feidong and approximately 161 at the administrative office at Quanjiao.

The control rooms at the administrative offices at Feidong and Quanjiao are equipped with consoles for emergency telephones, CCTV cameras and traffic control and surveillance computer terminals and operate at all times, that is, 24 hours a day and 365 days a year. The control rooms are connected to an on-line vehicle detection system which has been installed along Hening Expressway. The detection system can detect the location of traffic accidents and breakdowns of vehicles and can monitor traffic flow so that appropriate procedures can be implemented when necessary to minimise congestion. The two administrative offices are also responsible for emergency services while traffic security is undertaken by the Hening Expressway Police Team, a subordinate entity of the Anhui Traffic Police Department. In addition, patrol cars travel along Hening Expressway on a 24 hour basis to monitior overall road conditions and to assist disabled vehicles.

The administrative offices at Feidong and Quanjiao are also responsible for carrying out routine maintenance of Hening Expressway, including cleaning, detecting premature deterioration, and making minor repavements and repairs. In identifying defects for routine maintenance, particularly those that could cause immediate hazards to users of Hening Expressway, visual inspection is carried out twice a day. In addition, a major inspection, consisting of a detailed examination of any visible defects on the road surface will be carried out in April every year.

It is the policy of the Directors to invite contractors to tender for all major repairs, including reconstruction of bridge deck slabs, re-surfacing of the carriageways and hard shoulders, and to require the relevant contract to be on fixed-price or turnkey basis. No major repairs were required for Hening Expressway during the three years ended 31st December, 1995 and the four months ended 30th April, 1996. Operating and maintenance expenditure for Hening Expressway amounted to approximately RMB14 million (approximately HK$13 million) for the eight months ended 31st August, 1996.

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It is intended that a new administrative office for Tianchang section of Highway 205 will be set up near Xixinjie for the management of the daily operation of that road.

Overall operational expenses of the Company include replacement and maintenance of toll equipment, transportation costs, maintenance of administrative offices and ancillary buildings and toll stations, electricity, replacement and maintenance of telecommunication equipment and computers and miscellaneous expenses, salaries and other employment related costs for management, road maintenance, administration and finance cost and other personnel and office consumables expenditure.

A section of Hening Expressway near Feidong of approximately 1.77 kilometres and another section near Wuzhuang of approximately 3.74 kilometres are built on soft and compressible foundation which will slowly settle downward causing the pavement to crack. For the purposes of improving the sections of the road built on soft ground areas, it is the intention of the Directors to arrange for the reconstruction of these sections when the soft and compressible foundation settles. The Company expects that the reconstruction of the soft ground sections will take approximately three months to complete and that this work will be completed by the end of 1997. Reconstruction of these sections will require closure of part of the carriageway but, according to SWK, the traffic flow of Hening Expressway will only be affected when the average annual daily traffic reaches 20,000 vehicles. Accordingly, taking into account the current traffic flow, the Directors do not anticipate that traffic flow on Hening Expressway will be affected by the reconstruction works.

The cost of reconstructing the two sections of road affected by soft ground has been estimated by the Communications Engineering Council of Road Institute of Anhui province, an independent PRC traffic consultant, to be approximately RMB10 million (approximately HK$9.3 million). The Company intends to use part of the proceeds from the H Share Offer for the reconstruction of such soft ground sections.

In addition, the Company will also use part of the proceeds from the H Share Offer to upgrade the traffic monitoring system between Dashushan and Longtang for the purposes of improving the operational efficiency and control of Hening Expressway.The Company considers phase III of Hening Expressway would be a section of heavy traffic since it passes through the metropolitan area of Hefei. Accordingly, a more advanced traffic monitoring system is required. The 54th Division of the Ministry of Electronic Industry, an independent electrical engineer, estimated the cost of upgrading the traffic monitoring system between Dashushan and Longtang to be approximately RMB15 million (approximately HK$14 million).

Projection of annual operating and maintenance costs

SWK, an independent operation review consultant, has been appointed to prepare a projection of the annual operating and maintenance costs of Hening Expressway and Tianchang section of Highway 205 for the period from 1996 to 2025. A copy of the report on the operating and maintenance costs projection for Hening Expressway and Tianchang section of Highway 205 prepared by SWK is available for inspection as set out in the paragraph headed “Documents available for inspection” in appendix X and a copy of their letter summarising their report is set out in appendix IV of this prospectus.

In order to project the operating and maintenance expenditure of Hening Expressway and Tianchang section of Highway 205, SWK has conducted a limited evaluation (details of which are set out in appendix IV) of the existing operation and maintenance procedures of the Company and a visual inspection of Hening Expressway.

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In preparing the projection of the maintenance expenditure of Hening Expressway, SWK has classified maintenance expenditure into three different categories, namely minor, medium and major. Particulars of each category of the forecast amount of maintenance expenditure for 1996 and the approximate percentage of such expenditure to the conservative forecast revenue in 1996 are as follows:

Approximate percentage to Approximate conservative forecast forecast expenditure revenue Category Particulars in 1996 in 1996 Remarks RMB’000 %

Minor Cleansing, minor repavement of 1,558 0.8 Minor repavement of road surface and hard-shoulder, road surface and maintenance of central dividers, hard-shoulder and stone paving slope, drainage maintenance of system, boundary fencing, barrier underpass, culvert and and parapet, underpass culvert bridges are and bridges and cable and considered as items equipment station that vary according to traffic volume Medium Maintenance of bridge deck 5,490 2.7 Maintenance of bridge surface, expansion joint, crash deck surface, road barrier, road surface, hard- surface, and other shoulder, communication defects are equipment, joint sealant and toll considered as items booths and associated that vary according to equipment, greenery expenses, traffic volume road marking expenses, retexture of road surface, renewal of traffic signs, repair and replacement of maintenance equipment and other defects Major Major repavement of 1,348 0.7 All major maintenance carriageways and hard-shoulders are considered as and structural repairs items that vary according to traffic volume

In preparing the projection of the operating expenditure, SWK has classified the operating expenditures into two items, namely, those that vary according to traffic volumes and staff levels and those that are fixed in nature. Particulars of these items and the forecast amount for 1996 are as follows:

Approximate forecast annual Item Particulars expenditure RMB

Variable expenses Salaries and wages, and patrolling expenses 5,643,000

Fixed expenses Administration expenses, office consumables 5,644,000 expenses and utilities

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SWK has made the following principal assumptions in the preparation of their projection of the annual operating and maintenance expenditures of Hening Expressway from 1997 to 2005:

● major maintenance expenditure is assumed to be approximately RMB1,350,000 (approximately HK$1,260,000) per annum. Minor maintenance expenditure is assumed to be approximately RMB9,300 (approximately HK$8,700) per kilometre per annum;

● fixed operating expenditure is assumed to be approximately RMB5,644,000 (approximately HK$5,300,000) per annum while in respect of variable operating expenditure for Hening Expressway, it is assumed to increase at a rate of two per cent. per annum for the period from 1996 to 2005; and

● the projection assumes that expenditure will be maintained at 1996 prices, which corresponds with one of the assumptions adopted for the revenue forecast summarised in appendix III.

Tianchang section of Highway 205 is expected to have a similar pattern of operating and maintenance expenditure as Hening Expressway and the new administrative office for Tianchang section of Highway 205 will have a staff establishment level of 50. Accordingly, the operating and maintenance expenditures for Tianchang section of Highway 205 are forecast as a proportion to those for Hening Expressway, such proportion being based on a comparison of revenue generated from Tianchang section of Highway 205 with that from Hening Expressway.

In preparing the forecast of annual maintenance expenditures for Hening Expressway and Tianchang section of Highway 205 from 2006 to 2025, SWK has divided the maintenance expenditure into items that vary according to traffic volume and items that are cyclical in nature. The former mainly refers to the repavement of road surfaces, hard shoulders, maintenance of culverts and bridges while the latter refers to expenditures which are expected to be incurred periodically, such as cleaning, plumbing of drainage system, replacement of communications equipment, traffic signs and maintenance equipment. In addition, in the preparation of the forecast of the operating and maintenance expenditures for Hening Expressway from 2006 to 2025, SWK has further assumed that:

● operating expenditure which will vary according to traffic volume and staff levels will increase at a rate of 0.5 per cent. per annum; and

● maintenance expenditure for Hening Expressway which will vary according to the level of traffic flow will amount to approximately one per cent. per annum of the conservative forecast toll revenue, while the “cyclical” maintenance expenditures will follow the same pattern as the previous ten years from 1996 to 2005.

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The projected annual operating and maintenance expenditures for Hening Expressway and Tianchang section of Highway 205 for the years 1996, 2000, 2010, 2020 and 2025 are set out below:

1996 2000 2010 2020 2025 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Hening Expressway Operating expenditures 11,287 11,753 12,559 12,912 13,096 Maintenance expenditures 7,921 9,529 11,713 17,318 19,715

1997 2000 2010 2020 2025 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Tianchang section of Highway 205 (Note) Operating expenditures 3,118 3,248 3,469 3,500 3,606 Maintenance expenditures 2,320 2,937 3,072 3,124 3,200

Note: The apportionment of the forecast operating and maintenance expenditures for Tianchang section of Highway 205 is a rough approximation based on the engineering judgment of SWK.

Existing toll collection system

Hening Expressway operates on a “closed” toll collection system, with toll plazas set up at all entry and exit points of the expressway (including the interchanges stated in the section headed “Description of Hening Expressway and Tianchang section of Highway 205” above). Toll plazas are located along Hening Expressway at eight different sites, namely, Wuzhuang, Quanjiao, Dashu, Feidong, Longtang, Jichang, Shibagang, and Dashushan. These toll plazas are monitored by the administrative offices of the Company at Feidong and Quanjiao via CCTV cameras.

At present, the toll plazas are operating on a manual pay-on-exit toll collection system. A ticket, indicating the entry gate number and the vehicle classification, is issued at the point of entry to Hening Expressway. This ticket is subsequently collected at the exit toll plaza, where the toll charge for the vehicle will be determined by reference to the distance travelled and the vehicle classification. The vehicle will then pay at the exit toll plaza and leave Hening Expressway. The toll plazas operate at all times, that is 24 hours a day and 365 days a year.

As part of the toll collection control procedures, the Company reconciles cash receipts against the tickets collected by the exit toll collector at the end of each shift. Any shortfall in cash receipts is required to be made up by the collector responsible. In addition, the Company maintains a record of the tickets issued at the entry toll gates and such record is then reconciled with the number of tickets collected at the exit toll gates so that any discrepancy can be detected.

PROPOSED TOLL COLLECTION SYSTEMS

For the purposes of improving the existing toll collection system and to cope with the anticipated increase in traffic volume, the Company intends to commence the installation of a new computerised ticketing and monitoring system for Hening Expressway at the end of 1996. It is expected that the installation of such system will take approximately 10 months to complete.

65 PARTICULARS OF THE COMPANY

This new toll collection system for Hening Expressway will replace the existing toll collection system. According to the design drawings of the proposed toll collection system of Hening Expressway, Hening Expressway will continue to operate on a “closed” toll collection system. The key functions and operating procedures of this proposed toll collection system are as follows:

● Instead of the manual pay-on-exit toll collection system, the new system will utilise computer based equipment which will generate and process data from magnetic cards.

● The toll collector at the entry lane will identify the incoming vehicle type and input such vehicle type into the entry lane toll equipment. This equipment will then issue to the driver of the incoming vehicle a magnetic card on which information relating to the vehicle type, toll station and lane of origin, toll collector code and the date and timeoftravelisstored..

● At the exit toll station, the toll collector will collect the magnetic cards, input the vehicle classification into the exit lane toll equipment and collect the appropriate toll charges. The exit lane toll equipment will read, process and invalidate the magnetic cards. Invalidation would prevent the magnetic card from being used again.

● If the input of the vehicle classification by the exit toll collector does not match the vehicle classification read by the exit lane toll equipment, signals will be transmitted to the CCTV control station indicating an abnormal transaction which requires special attention by the supervisor at the control station. All abnormal transactions will be video recorded and the video image will include alphanumeric toll transaction data for verification.

● Each toll station will be equipped with CCTV which enables the control station to closely monitor the toll collection operations and all incoming and outgoing traffic.

SWK, an independent toll system review consultant, has been appointed to conduct a technical audit on the proposed toll collection systems for Hening Expressway and Tianchang section of Highway 205 respectively. A copy of their report is available for inspection as set out in the paragraph headed “Documents available for inspection” in appendix X and a copy of the letter summarising its report is set out in appendix V of this prospectus.

SWK considers that the proposed toll collection system will enable the Company to improve the reliability and efficiency of the toll collection procedures and the Company’s management information system, especially in relation to traffic flows and toll revenue. This system will also enhance the overall management of the Company’s operations. The system design is considered to be reasonably secure. In addition, this new toll collection system will help to replace the intensive manual work required for regular toll operations, enabling reallocation of manpower to be used for the implementation of additional control procedures.

SWK has also reviewed the conceptual design of the proposed toll collection system for Tianchang section of Highway 205. According to the conceptual design, Tianchang section of Highway 205 will adopt an “open” toll collection system where a toll station is only located at one point of the highway and serves both entry and exit functions. Under this proposed toll collection system, the toll collector will be responsible for the entry of the vehicle type and the collection of toll charges while an automatic vehicle classification system is included in the design which can verify the manual classification carried out by the toll collector. SWK considers that the proposed system for Tianchang section of Highway 205 can provide a satisfactory toll collection operation.

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COMPETITION

At present, apart from the original Anhui section of each of National Highway 312 and National Highway 205, so far as the Directors are aware, there is no existing or planned vehicular highway of a similar routing to Hening Expressway or Tianchang section of Highway 205. Furthermore, as referred in the sections above headed “Hening Expressway” and “Tianchang section of Highway 205”, the Directors do not believe that the original Anhui section of National Highway 312 or of National Highway 205 competes for the same traffic with Hening Expressway or Tianchang section of Highway 205, the reasons for such belief being set out on pages 49 and 54. The Undertaking given by Anhui Department of Communications which is for an indefinite period with no expiry date, confirms and undertakes, among other matters, that:

● there is at present no vehicular highway of Class 2 standard or above having a route which is in competition with and is within 50 kilometres of either Hening Expressway or Tianchang section of Highway 205;

● according to the 30 year development plan of road transport in Anhui province, there is no proposal for the development, conversion or widening of any vehicular highway to Class 2 standard or above which will be in competition with Hening Expressway or Tianchang section of Highway 205;

● there will be no development, conversion or widening of any vehicular highway to Class 2 standard or above for a period of five years which will be in competition with the roads held by the Company;

● in the event of any development, conversion or widening of any road to Class 2 vehicular highway standard or above, Anhui Department of Communications will, subject to the provisions of applicable laws and the same terms being offered by the Company, approve the Company’s proposal for the operation of such highway on a preferred basis; and

● the original Tianchang section of National Highway 205 will remain a toll road and its applicable toll rates will be maintained at the same levels as those for Tianchang section of Highway 205.

It should be noted that the 30 year development plan of road transport in Anhui province commenced from 1st January, 1996. The Directors have been advised that the issue of the Undertaking is within the authority of Anhui Department of Communications under PRC laws.

By its letter dated 3rd October, 1996, Anhui Department of Communications has confirmed that, in the context of its Undertaking relating to the approval of the Company’s proposal for the operation of vehicular highways of Class 2 standard or above on a prefered basis, “same terms” means:

● in relation to a proposed purchase by the Company of any highway the construction of which has already been completed, such “terms” shall include the proposed purchase price and term of operation;

● in relation to a proposal of the Company for the development and operation of any highway the construction of which has not yet commenced or a proposed conversion or widening of any highway, such “terms” shall include the construction standards and specifications, term of operation and highway grade set out in the proposal for the operation of such highway;

67 PARTICULARS OF THE COMPANY

● every proposal for the purchase and/or operation of a highway submitted by the Company will be assessed on a fair and equitable basis.

In addition, pursuant to the Reorganisation Agreement entered into between AEHC and the Company on 12th October, 1996, AEHC has undertaken to the Company that at any time during which the Company is listed on a securities exchange in Hong Kong and AEHC holds 30 per cent. or more of the issued shares of the Company or AEHC is otherwise regarded as a controlling shareholder of the Company under the rules of the relevant securities exchange or any other relevant laws, AEHC shall not, whether inside or outside Anhui province or otherwise in any way (including but not limited to operating on its own, or by way of joint venture or owning shares or other interests in another company or enterprise):

● participate in any business or activities which are, or are likely to be, in competition, either directly or indirectly, with the business of the Company from time to time or in respect of any toll roads, tunnels or bridges which may from time to time be owned (in whole or in part), managed or operated by the Company; or

● participate in the construction, management or operation of any toll roads or non-toll roads, tunnels or bridges which are situated within a distance of 50 kilometres of any such roads, tunnels or bridges which are, or are likely to be, in competition, either directly or indirectly, with the management and operation thereof by the Company, to the extent that there could be a conflict between the interests of AEHC and those of the general body of shareholders of the Company, provided that AEHC shall not be prohibited from participating or continuing to participate in (a) the operation or management of toll roads or non-toll roads in Anhui province other than toll roads or non-toll roads within a distance of 50 kilometres of Hening Expressway, Tianchang section of Highway 205, or any other toll roads, tunnels and bridges which may from time to time be owned (in whole or in part), operated or managed by the Company; (b) the ownership, management or operation of the original Anhui section of National Highway 312 so long as it is not operated as a toll road; or (c) the ownership, management or operation of the original Tianchang section of National Highway 205 so long as it remains a toll road and the toll rates for which are the same as those for Tianchang section of Highway 205.

68 PARTICULARS OF THE COMPANY

TRADING RECORD

Set out below is a summary of the audited results of the Company for each of the three years ended 31st December, 1995 and for the four months ended 30th April, 1996, which is derived from the accountants’ report set out in appendix I of this prospectus. The summary has been prepared on the assumption that the Reorganisation was completed on and the Company had been in existence since 1st January, 1993.

Four months Year ended 31st December, ended 30th April, 1993 1994 1995 1995 1996 1996 RMB’000 RMB’000 RMB’000 HK$’000 RMB’000 HK$’000 (Note2) (Note2) 3rd Sch para 27 App.1A.33(1) Revenue (Note 1) 51,124 70,038 85,470 79,878 52,505 49,070

Profit before taxation 36,753 49,637 59,669 55,765 35,411 33,094 Taxation (Note 3) ———— (9,366) (8,753)

Profit after taxation 36,753 49,637 59,669 55,765 26,045 24,341

Notes:

1. Revenue represents mainly income from the operation of Hening Expressway, net of revenue tax and other taxes on revenue and includes other miscellaneous income such as damage compensation, emergency assistance income and advertising income.

2. The audited results of the Company for the year ended 31st December, 1995 and for the four months ended 30th April, 1996 have been translated, for information only, from Renminbi into HK dollars at the PBOC Exchange Rate of RMB1.07 = HK$1.00 prevailing at close of business on 23rd October, 1996, being the Latest Practicable Date.

3. An enterprise is ordinarily subject to EIT which is levied at a rate of 33 per cent of taxable income based on audited accounts prepared in accordance with the laws and regulations in the PRC. Pursuant to a notice (Cai Yu Zi [1993] No. 426) dated 18th May, 1993 issued by the Anhui Finance Bureau, the operations owned by the Company were granted a full rebate of EIT in respect of the three years ended 31st December, 1995. EIT at a rate of 33 per cent. of the taxable income was levied on such operations from 1st January, 1996. Pursuant to a notice (Wan Zheng Mi [1996] No. 106) dated 30th May, 1996 issued by Anhui Provincial People’s Government, the Company is entitled to a rebate of an amount equal to 18 per cent. of the Company’s taxable income in respect of EIT paid to Anhui Taxation Bureau. No expiry date is stated in such notice. Accordingly, the effective rate of EIT applicable to the Company from 15th August, 1996, the date of incorporation of the Company, is 15 per cent. However, there is no assurance that the Company will always be able to enjoy such preferential tax treatment.

The Company has enjoyed steady growth in both turnover and profit over the three years ended 31st December, 1995. During the period from 26th February, 1993 to 31st December, 1995, there was no adjustment in toll charges on Hening Expressway while toll rates increased by 33 per cent. to 100 per cent., depending on vehicle classification, in January 1996. Accordingly, growth in turnover and profits for each of the year ended 31st December, 1994 and 31st December, 1995 is primarily due to the increase in traffic volume. For the four months ended 30th April, 1996, the Company recorded a turnover of approximately RMB52.5 million (approximately HK$49.1 million) compared with the turnover of approximately RMB85.5 million (approximately HK$79.9 million) recorded for the whole year ended 31st December, 1995.

With the completion of phase II of Hening Expressway in September 1992, the total length App.1A. of Hening Expressway increased from approximately 92 kilometres to approximately 103 28(1)(a)

69 PARTICULARS OF THE COMPANY kilometres. The Company recorded a turnover of approximately RMB51.1 million (approximately HK$47.8 million) and a profit of approximately RMB36.8 million (approximately HK$34.4 million) for the year ended 31st December, 1993. The gross profit margin and net profit margin for the year ended 31st December, 1993 were 82 per cent. and 72 per cent. respectively. Construction of phases III of Hening Expressway commenced in June, 1993. The amount of interest being capitalised in relation to the construction of phase III of Hening Expressway for the year ended 31st December, 1993 was approximately RMB129,000 (approximately HK$121,000).

For the year ended 31st December, 1994, turnover of the Company increased by approximately 37 per cent. to approximately RMB70.0 million (approximately HK$65 million). Profit of the Company increased by approximately 35 per cent. from approximately RMB36.8 million (approximately HK$34 million) to approximately RMB49.6 million (approximately HK$46.3 million) for the same year. The gross and net profit margins of the Company remained about the same as those for the previous year, that is, approximately 82 per cent. and 71 per cent. respectively. During the year, construction of the phase III of Hening Expressway continued and the amount of interest capitalised in relation to the construction of phase III of Hening Expressway for the year ended 31st December, 1994 was approximately RMB2,639,000 (approximately HK$2,466,000).

Turnover of the Company increased by approximately 22 per cent. to approximately RMB85.5 million (approximately HK$79.9 million) while profit of the Company increased by approximately 20 per cent. to approximately RMB59.7 million (approximately HK$55.8 million) for the year ended 31st December, 1995. The gross and net profit margins of approximately 81 per cent. and 70 per cent. respectively for the year ended 31st December, 1995 were similar to those for previous years. Development of phase III of Hening Expressway was completed in November, 1995. The amount of interest capitalised in relation to the construction of phase III of Hening Expressway for the year ended 31st December, 1995 was approximately RMB8,391,000 (approximately HK$7,842,000). The increase in the amount of interest capitalisted was due largely to the additional loans of approximately RMB80 million (approximately HK$74.8 million) incurred during the year for the construction of phase III of Hening Expressway.

For the four months ended 30th April, 1996, the Company recorded a turnover of approximately RMB52.5 million (approximately HK$49.1 million). The Directors believe that the achievement of this level of turnover was principally attributable to the opening of phase III of Hening Expressway in late 1995, as a result of which the total length of Hening Expressway increased from approximately 103 kilometres to approximately 134 kilometres, and the increase in toll rates in January 1996 of 33 per cent. to 100 per cent. depending on vehicle classification. For the same period, profit after taxation of the Company amounted to approximately RMB26.0 million (approximately HK$24.3 million). The gross profit margin is similar to previous years but the net profit margin decreased to approximately 50 per cent. during the period. The decrease was principally attributable to the provision of EIT of approximately RMB9.4 million (approximately HK$8.8 million) made during the period. As referred to in note 3 above, a full rebate of EIT was granted to the operation owned by the Company in respect of the three years ended 31st December, 1995. Accordingly, the effective tax rate for the operation of Hening Expressway for the three years ended 31st December, 1995 was nil. However, no such rebate was granted in respect of the four month period ended 30th April, 1996.

The Company also incurred a net interest expenses of approximately RMB4.3 million (approximately HK$4.0 million) for the four months ended 30th April, 1996 compared with approximately RMB1.4 million (approximately HK$1.3 million) for the entire year of 1995. With

70 PARTICULARS OF THE COMPANY the completion of phase III of Hening Expressway in late 1995, interest expenses incurred in relation to the loans provided for the construction of phase III of Hening Expressway, which have been capitalised for the three years ended 31st December, 1995, were treated as expenses for the four months ended 30th April, 1996.

DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

Executive Directors

Mr. WANG Shui, aged 47, senior engineer, is the Chairman of the Company. Mr. Wang 3rd Sch para 6 graduated from Hehai University in 1978. He has over 26 years of experience in the transport App.1A.41 field. Prior to August 1995, Mr. Wang was the deputy commander of Anhui Expressway Engineering and Constructions Office. He subsequently held the post of senior consultant of AEHC. He has been involved in the development of phases I, II and III of Hening Expressway and Hefei - Chaohu - Wuhu Expressway. Mr. Wang was appointed the Chairman of the Company on 15th August, 1996, the date of establishment of the Company. He is responsible for the Company’s overall strategic planning and development.

Mr. TU Xiao Bei, aged 42, is the general manager of the Company. Mr. Tu graduated from Hefei Industrial University in 1984. Mr. Tu has over 20 years of experience in the transport field in Anhui province. He was the director of AEAB and has been the general manager of AEHC since January, 1996. Prior to that, he was the head of the infrastructure division of Anhui Department of Communications. He has been involved in the development of phases I, II, and III of Hening Expressway. Mr. Tu was appointed the general manager and a Director on 15th August, 1996, the date of establishment of the Company. Mr. Tu is responsible for the implementation of the strategic plans of the Company. He is also responsible for the overall administration and management of the Company.

Ms. HAN Feng Hua, aged 57, senior engineer, graduated from the Anhui Transportation Institute in 1962. Ms. Han was appointed a senior consultant of AEHC in August 1995. has also been the director of Anhui Highway Administration Bureau since December, 1991 and, prior to that, she was the deputy director of Anhui Highway Administration Bureau. She has been involved in the contruction/operation Hefei-Huainan Highway. Ms. Han was appointed a Director on 15th August, 1996, the date of establishment of the Company. She is responsible for personnel training of the Company.

Mr. ZHU Xu Sheng, aged 42, is the deputy general manager and a Director of the Company. Mr. Zhu graduated from in 1983. He was appointed deputy director of AEAB in May,1994 and, in the same year, was appointed deputy general manager of AEHC. Prior to these appointments, he was the general manager of Anhui Communications Construction Investment Company. Mr. Zhu has extensive experience in financial management. He was appointed a Director and deputy general manager of the Company on 15th August, 1996, the date of establishment of the Company, Mr. Zhu is responsible for formulating the finance and accounting policy of the Company.

Mr. ZHANG Hui, aged 31, senior engineer, holds a master degree in electrical engineering from the in 1989. Mr. Zhang has considerable experience in highway communications technology. He was appointed the deputy director of AEAB and deputy general manager of AEHC in January, 1996. Prior to these appointments, he was the supervisor of the central control office of AEAB. He was responsible for the development of the highway communications system of Hening Expressway. He was appointed a Director on 15th August, 1996, the date of establishment of the Company. Mr. Zhang is responsible for the planning, development and operating the traffic monitoring and highway communications system of the Company’s roads.

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Mr. CHEN Hui Nian, aged 33, engineer, graduated from Nanjing Industrial University in 1983. Mr. Chen has over 13 years of experience in the transport field. He is currently the deputy director of AEAB and deputy general manager of AEHC. Prior to 1996 he was head of the engineering division of AEAB. Mr. Chen has been involved in the development of phases I, II and III of Hening Expressway and Hefei-Wuhu Expressway. Mr. Chen was appointed a Director on 15th August, 1996, the date of establishment of the Company. Mr. Chen is responsible for the maintenance of the Company’s roads and in providing technical supports in analysing prospective projects for the Company.

Ms. CAO Xiao Ping, aged 44, political officer, graduated from the Party University of Hefei in 1989. Ms. Cao was appointed a supervisor of AEAB in 1991 and subsequently, in November, 1993, she was appointed the head of the political division of AEAB. Ms. Cao has extensive experience in personnel management. She was appointed a Director on 15th August, 1996, the date of establishment of the Company. Ms. Cao is responsible for the personnel management of the Company and is the head of personnel of AEHC.

Non-executive Directors

Mr. ZHOU Wen Hua, aged 64, senior engineer, graduated from Shanghai Jingye School in 1950, where he specialised in civil engineering. Mr. Zhou has over 40 years experience in the road construction field. Prior to his retirement in November 1992, he was the director of Anhui Highway Administration Bureau. He is currently the head of the advisory board and the deputy director of the Road Transport Commission of Anhui province. Mr. Zhou was appointed an independent non-executive Director of the Company in October 1996.

Mr. ZHANG Li Ping, aged 38, holds a master degree in international affairs and international law from St. John’s University in New York. Mr. Zhang is the chairman and managing director of Seapower Financial Services Group. He is also an executive director of Seapower International Holdings Limited and Seapower Resources International Limited, both of which are listed on the Stock Exchange. He has over 15 years of experience in international finance and investment. Mr. Zhang was appointed an independent non-executive Director in October 1996.

Each of the executive Directors has entered into a service contract with the Company for a term of three years. Under these service contracts, the executive Directors will be paid a monthly salary ranging from RMB2,500 to RMB4,000 and, on completion of every 12 months of service, a bonus of not more than the relevant executive Director’s monthly salary. The aggregate remuneration payable to the executive Directors for the year ending 31st December, 1996 is expected to be approximatley RMB100,000 and relates only to the period since the Company’s incorporation on 15th August, 1996.

Supervisors

Mr. LI Yun Gui, aged 44, senior economist, graduated with a bachelor degree in philosophy Rule 19A.38 from Anhui Workers University in 1979. Mr. Li has over 26 years of experience in the transport field of Anhui province. He was appointed the secretary of the Communist Party Committee of AEAB and AEHC in January, 1996. Prior to that, he was a deputy chief of the administrative office of Anhui Department of Communications.

Mr. YANG Yi Cong, aged 40, senior political officer, graduated from Anhui Industrial Institute in 1982. Mr.Yang has extensive experience in personnel management. In August 1993, he was appointed the secretary of the Communist Party Committee of Anhui Transportation Administration Bureau.

72 PARTICULARS OF THE COMPANY

Mr. XU Yong, aged 59, economist, graduated from Anhui Wuhu Agricultural Institute in 1957. Mr. Xu has extensive experience in personnel management. He was appointed the chairman of the workers’ union of AEAB and AEHC in January 1993 and April 1993 respectively.

Senior management

Mr. ZHOU Mao Jun, aged 58, senior engineer, is the chief engineer of the Company. Mr. Zhou graduated from Anhui Transportation Institute in 1962. Mr. Zhou has extensive experience in the development and operation of expressways. He has been involved in the development and operation of Hening Expressway and Hefei-Tongling Class 2 vehicular highway. He has been the deputy director of AEAB since 1991 and became the chief engineer of AEAB and AEHC in January 1996. Mr. Zhou was appointed the chief engineer of the Company on 15th August, 1996, the date of establishment of the Company.

Mr. SHENG Yi Hua, aged 53, senior accountant, is the financial controller of the Company. Mr. Sheng graduated from Anhui Light Industrial School in 1968. Mr. Sheng has extensive experience in financial and accounting management. He was the chief of the finance division of AEAB and AEHC since November 1994. He was appointed the financial controller of the Company on 15th August, 1996, the date of establishment of the Company.

Mr. XIE Xin Yu, aged 29, engineer, is the company secretary of the Company. Mr. Xie held a bachelor degree in civil engineering from Changsha Communications Institute in 1989, specialised in road and bridge construction. Mr. Xie has considerable experience in road construction. He was the deputy chief of the transport planning division of AEAB since November 1994. He has been involved in the transport planning for Hening Expressway and Hefei-Wuhu Expressway. Mr. Xie was appointed company secretary of the Company on 15th August, 1996, the date of establishment of the Company.

Mr. WANG Wei Min, aged 47, engineer, has been the chief of the Feidong administrative office of Hening Expressway since April 1995 and was appointed to the same position by the Company in August 1996. He has extensive experience in highway operation. Mr. Wang graduated from Anhui Transportation Institute in 1969.

Mr. HUANG Yang, aged 41, engineer, has been the deputy chief of the Quanjiao administrative office of Hening Expressway since August 1991 and was appointed to the same position by the Company in August 1996. He has extensive experience in highway operation. Mr. Huang graduated from Anhui Industrial Institute in 1982.

Employees

As at 31st August, 1996, the Company employed approximately 400 full-time employees, App.1A. of whom approximately 170 are university or technical college graduates. The breakdown of 28(7) employment by function is as follows:

Management 92 Engineering 88 Toll collection 169 Maintenance 51

400

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Total remuneration of the Company’s employees includes wages and bonuses. Wages and bonuses paid to the Company’s employees amounted to approximately RMB1,310,000, RMB 3,178,000, RMB2,810,000 and RMB1,190,000 for each of the three years ended 31st December, 1995 and the four months ended 30th April, 1996. At present, all the employees of the Company are employed under employment contracts.

The Company and its employees participate in a pension scheme managed by Hefei City Social Insurance Management Office. Under the rules currently applicable to the pension scheme, the Company is required to make on a monthly basis a contribution equivalent to 18 per cent. of the total salaries payable to all employees for that month. Each employee is also required to make a monthly contribution to the pension scheme equivalent to two per cent. of his salary for that month. The Company does not at present have any retired employees and is not required to make any pension payments to its employees upon their retirement.

PROPERTY

The Company owns the land use rights for an area of about 6.6 million square metres of App.1A. land on which Hening Expressway was built. These land use rights are for a period of 30 years 28(8) from 15th August, 1996. The Company also owns all fixtures comprising Hening Expressway. The Company’s property interests in Hening Expressway have been valued by Chesterton at approximately RMB1,847 million (approximately HK$1,726 million) as at 15th August, 1996. The surplus of approximately RMB901 million (approximately HK$842 million) arising from such valuation will be incorporated in the Company’s accounts for the year ending 31st December, 1996.

The Company has also entered into the Acquisistion Agreement to acquire the land use rights of the land on which Tianchang section of Highway 205 is being built and the fixtures comprising such highway. The exact area of such land is subject to survey. The land use rights contracted to be acquired are for a term of 30 years from 1st January, 1997 or the date of transfer to the Company of phase I of the development of Tianchang section of Highway 205, whichever is later. The Company’s property interests in Tianchang section of Highway 205 have been valued by Chesterton at approximately RMB378 million (approximately HK$353 million) as at 15th August, 1996. Under the Acquisition Agreement, the Company has conditionally agreed to acquire Tianchang section of Highway 205 at a fixed consideration of RMB210 million on a completion basis.

The Company currently leases from AEHC its head office at 4th and 5th floors, 219 Anqing Road, Hefei, Anhui, the PRC with a gross floor area of approximately 828 square metres. The property is rented to the Company for a term of three years, from 23rd August, 1996 to 22nd August, 1999 at an annual rent of RMB99,360 (approximately HK$92,860) for the first two years subject to an increase in the third year of five per cent. over the rental for the second year. Chesterton, an independent professional property valuer, considers that the rental agreed is not higher than market rent. The property is currently used as the Company’s head office.

The text of the letter, summary of values and the valuation certificate of Chesterton in connection with the valuation of the Company’s property interests are set out in appendix II of this prospectus.

RELATIONSHIP WITH AEHC AND AEAB

AEHC was established in 23nd April, 1993 as a State-owned enterprise supervised by App.1A.57 Anhui Department of Communications. The principal activities of AEHC are the holding and operation of vehicular highways of Class 2 standard or above in Anhui province. At present, AEHC holds and operates Hefei - Chaohu - Wuhu Expressway and Hefei - Tongling Class 2

74 PARTICULARS OF THE COMPANY vehicular highway. Prior to the establishment of AEHC, Hening Expressway was vested in the State and operated by Anhui Department of Communications. Following the establishment of AEHC and prior to the Reorganisation, Hening Expressway was held and operated by AEHC. There is a separate management team for the day-to-day operation of each road project of AEHC while the board of directors of AEHC is responsible for the overall management of AEHC.

Apart from the roads owned by the Company and AEHC, all other roads in Anhui are vested in the State and are either operated by Anhui Department of Communications or the relevant local government in the event that such local government provided finance for the development of the relevant roads, which are usually county or village roads.

AEAB is one of the five bureaus under Anhui Department of Communications and is responsible for the planning and development (but not the operation) of vehicular highways of Class 2 standard or above as designated by Anhui Department of Communications in Anhui province. There are three vehicular highways of Class 2 standard or above in Anhui province, which were developed by AEAB, namely Hening Expressway, Hefei-Chaohu-Wuhu Expressway and Hefei-Tongling Class 2 vehicular highway. Hening Expressway is currently operated by the Company, and Hefei-Chaohu-Wuhu Expressway and Hefei-Tongling Class 2 vehicular highway are operated by AEHC. AEHC is a State-owned enterprise under Anhui Department of Communications and the five bureaus (including AEAB) are governmental bureaus under Anhui Department of Communications. Accordingly, there does not exist any supervisory or subordinate relationship between any of the five bureaus of Anhui Department of Communications and AEHC.

AEHC currently holds 100 per cent. of the issued share capital of the Company. Immediately after the completion of the H Share Offer, AEHC will hold approximately 65 per cent. of the enlarged issued share capital of the Company assuming that the Over-allotment Option is not exercised.

Following the establishment of the Company, the business of the Company has been managed separately from AEHC. The board of the Company comprises seven executive directors, namely Wang Shui, Tu Xiao Bei, Han Feng Hua, Zhu Xu Sheng, Zhang Hui, Chen Hui Nian and Cao Xiao Ping, and two independent non-executive directors. Of the seven executive directors, Tu Xiao Bei, Han Feng Hua, Chen Hui Nian and Cao Xiao Ping still maintain their positions in AEHC, that is, as general manager, senior consultant, deputy general manager and head of personnel, respectively. Three of these seven executive directors, namely, Wang Shui, Zhu Xu Sheng and Zhang Hui manage the Company on a full time basis and have ceased participating in the management of AEHC. In addition, all the staff of the Company have become full time employees of the Company and ceased to be employees of AEHC.

As referred to above in the section headed “Property”, the Company currently leases from AEHC its headquarters at 4th and 5th floor, 219 Anqing Road, Hefei, Anhui, the PRC, details of such lease also being set out above. The Company intends to continue to occupy the premises as its office following the listing of the Shares on the Stock Exchange. The lease will constitute a connected transaction for the Company under the Listing Rules. Chesterton, an independent professional property valuer, considers that such contract is on normal commercial terms and the amount of rental agreed is not higher than market rent.

During the course of development of phase III of Hening Expressway, various loans were provided by Anhui Communications Construction and Investment Development Holding Corporation, an entity under Anhui Department of Communications. Anhui Communications Construction and Investment Development Holding Corporation is responsible for the arrangement of financing for the development of roads within Anhui province by Anhui Department of Communications. As at 31st August, 1996, the Company was indebted to Anhui

75 PARTICULARS OF THE COMPANY

Communications Construction and Investment Development Holding Corporation in the amount of approximately RMB150 million (approximately HK$140 million), of which approximately RMB50 million (approximately HK$47 million) is repayable within one year, approximately RMB70 million (approximately HK$65 million) is repayable within one to two years and approximately RMB30 million (approximately HK$28 million) is repayable within two to five years. The Company intends to use part of the proceeds from the H Share Offer to repay RMB30 million of the current portion of this long term indebtedness. The transactions contemplated in relation to the indebtedness will constitute connected transactions under the Listing Rules following the listing of the H Shares. The debt due to Anhui Communications Construction and Investment Development Holding Corporation is in respect of unsecured loans of approximately RMB120 million (approximately HK$112 million) and RMB30 million (approximately HK$28 million) bearing interest at 7.8 per cent. per annum and 12.24 per cent. per annum respectively. Arthur Andersen & Co., auditors and reporting accountants of the Company, has checked with the Bank of Communications in Shanghai that the annual interest rate for long-term bank loans for road infrastructure construction was approximately 13 per cent. in August 1996. The Directors and Arthur Andersen & Co. consider that, apart from the debt bearing interest at 7.8 per cent. per annum, the transactions were carried out at interest rate comparable to that quoted by the Bank of Communications in Shanghai in August 1996. The interest rate of 7.8 per cent. is a concessionary rate granted to the Company for road infrastructure construction.

The Company is indebted to Anhui Highway Administration Bureau in respect of an interest free loan. As at 31st August, 1996, approximately RMB5.2 million (approximately HK$4.9 million) remained owing by the Company to Anhui Highway Administration Bureau. There is no fixed term for the repayment of this loan which is repayable upon demand. This transaction will constitute a connected transaction under the Listing Rules following the listing of the H Shares.

Given the nature of the above transactions, the Company had requested the Stock Exchange to grant a waiver from the requirement for full disclosure and independent shareholders’ approval under the Listing Rules in respect of the leasing of premises and the repayment of the debts due to Anhui Communications Construction and Investment Development Holding Corporation and the repayment of debts due to Anhui Highway Administration Bureau.

The Stock Exchange has indicated that a waiver from compliance with the normal disclosure requirement will be granted on the basis that:

(i) details of the transactions shall be disclosed in the Company’s annual report as set out in Rules 14.26(1)(A) to (D) of the Listing Rules;

(ii) the independent non-executive Directors shall review annually the transactions and confirm in the Company’s annual report that the transactions have been carried out in accordance with the terms of the agreement such transactions; and

(iii) the auditors of the Company shall review annually the transactions and write to the board of Directors stating that the transactions have been carried out in accordance with the terms of the agreement relating to these transactions.

Having reviewed the information and documents provided by the Company relating to these transactions and in reliance upon confirmation from the Directors and from Arthur Andersen & Co., the auditors of the Company, Crosby and CEF are of the view that the transactions described above are fair and reasonable as far as the shareholders of the Company are concerned.

76 PARTICULARS OF THE COMPANY

The Stock Exchange has indicated that if any terms of the agreements referred to above are altered (unless as provided for under the terms of the relevant agreement) or if the Company enters into any new agreement with any connected persons (within the meaning of the Listing Rules) in the future, or if the limits referred to above are exceeded, the Company must comply with the provisions of Chapter 14 of the Listing Rules dealing with connected transactions unless it applies for and obtains a separate waiver from the Stock Exchange.

Pursuant to a letter dated 3rd October, 1996, AEHC has granted to the Company an option to purchase the assets and operating rights relating to the two roads currently held and operated by AEHC, namely, Hefei-Chaohu-Wuhu Expressway and Hefei-Tongling Class 2 vehicular highway.The price and other terms (such as the term of operation, method of payment of the price, toll levels, standard of service and other operational factors) of such purchase and transfer are subject to further negotiation between AEHC and the Company. Under the option granted to the Company, the price for such purchase will be determined having regard to the valuation of the relevant road and its assets to be conducted on a fair and reasonable basis by a qualified, experienced and independent firm of valuers and the results of the confirmation of such valuation by the relevant State Assets Bureau. The option may be exercised at any time within ten years from the date of the Company first becoming listed on the Stock Exchange but will lapse once the Company loses such listing status. The option may be exercised in respect of the two roads separately or at the same time. An exercise of the option is however subject to national and local laws, regulations, policies and administrative directions and guidelines.

AEHC has also undertaken under the option letter that:

(a) in the event of any exercise of the option by the Company, AEHC will, subject to its being in a position to do so, procure that, to the extent required by the Listing Rules, such exercise is subject to the approval of the Company’s shareholders in general meeting; and

(b) to the extent required by the Listing Rules, AEHC will abstain from voting at all shareholders’ meetings convened for the purposes of approving an exercise of the above option.

The Directors do not at present intend to exercise such option in respect of either of AEHC’s roads.

The management of the Company is well-acquainted with the planning, development and operation of road transport systems in the PRC and, in particular, Anhui province. The Directors believe that the Company’s relationship with AEAB and AEHC, together with the experience and expertise of its management team, places the Company in a strong position to identify attractive highway investment opportunities in Anhui province.

THE REORGANISATION

In preparation for the H Share Offer, the Company was incorporated on 15th August, 1996 and certain assets and liabilities relating to Hening Expressway and certain ancillary facilities required for its operation were transferred to the Company as of and with effect from the date of its incorporation.

In formulating the composition of the Company’s assets, the Directors have considered, among other factors, the economic benefits, cost, future growth and return of various highways in Anhui province.

77 PARTICULARS OF THE COMPANY

The terms of the Reorganisation are prescribed by various approval documents and confirmed by the Reorganisation Agreement between the Company and AEHC. The Reorganisation Agreement confirms that with effect from date of incorporation of the Company, as a result of the transfer of certain business, assets and liabilities to the Company pursuant to the various reorganisation documents referred to in the Reorganisation Agreement, the Company became the beneficial owner of all the assets, properties, rights and interests necessary to operate the Hening Expressway that are described in detail in the asset valuation report referred to in the Reorganisation Agreement, free and clear of all liens, charges and encumbrances, and had assumed those liabilities of AEHC which related to the business and/or the assets transferred to the Company, details of which are also described in the asset valuation report. The asset valuation report described and set out the values of all assets and liabilities as at 30th April, 1996 and which have been transferred to the Company, and the Reorganisation Agreement provides that the business, assets and liabilities transferred to and assumed by the Company on 15th August, 1996 shall, subject as mentioned below, include all assets, including all income from Hening Expressway, acquired, generated or arising in the ordinary course of business during the period from 1st May, 1996 to 14th August, 1996 and all liabilities incurred during such period and excludes all assets disposed of and liabilities discharged during such period but includes all assets representing the proceeds of any assets realised or disposed of during such period.

The total consideration for the transfer of assets to the Company was stated to be the obligation of the Company in relation to the assumed liabilities and RMB1,408,607,900 (approximately HK$1,316,456,000), being the net tangible asset value of the assets and liabilities as at 30th April, 1996, to be satisfied by the issue to AEHC of a total of 915,600,000 A Shares, save that the Reorganisation Agreement also provides that if the net tangible asset value of the Company as at the date immediately preceding the date of transfer of the assets, after taking into account changes in the assets and liabilities during the period from 1st May, 1996 to 14th August, 1996 and the depreciation of the assets and the tax accrued during such period, shall exceed the valuation of RMB1,408,607,900 (approximately HK$1,316,456,000) as at 30th April, 1996, as confirmed by the State Assets Bureau then the surplus shall be deemed to constitute a debt due and payable by the Company to AEHC. In order to calculate the amount of the surplus payable, the Reorganisation Agreement provides that, by no later than the date of preparation of the audited accounts for the year ending 31st December, 1996, AEHC and the Company shall procure the preparation of a profit and loss account and balance sheet showing all income derived from the assets acquired and all assumed liabilities discharged during the period from 1st May to 14th August, 1996 and for such accounts and balance sheet to be audited based on PRC accounting principles and financial regulations. No interest is payable in respect of any part of the amount due by the Company relating to such surplus which is repaid on or before 30th June, 1997 but interest will accrue on any amount not repaid by such date at the rate of seven per cent. per annum.

In relation to the liabilities of the Company, the Reorganisation Agreement specifically states that all assets and liabilities of AEHC which are not expressed in the Reorganisation Agreement or other reorganisation documents to be transferred to or assumed by the Company, shall remain vested in AEHC and the Reorganisation Agreement contains cross indemnities between the Company and AEHC in relation to liabilities under which AEHC has agreed to indemnify the Company in relation to, among other matters, all liabilities of AEHC as at 15th August, 1996, being the date of transfer of the assets and liabilities to the Company, other than those liabilities specifically assumed by the Company.

78 PARTICULARS OF THE COMPANY

In relation to taxation, it is agreed that the Company shall be liable for all taxation arising in relation to the business and assets transferred to it as of and from the date of incorporation of the Company but AEHC has undertaken to indemnify the Company in relation to all taxation relating to such business and assets in respect of all periods up to such date of incorporation save to the extent that any taxation forms part of the liabilities specifically assumed by the Company.

In relation to employees, AEHC has agreed that all persons who were employed by AEHC in relation to the business transferred to the Company shall be transferred to the Company and shall enter into new employment agreements with the Company provided that the Company shall not be liable for, and AEHC shall reimburse the Company in full in respect of, any liability which the Company may incur at any time in respect of any services rendered by any such employees in respect of their period of service with AEHC.

In relation to non-competition, AEHC has undertaken to the Company that at any time during which the Company is listed on a securities exchange in Hong Kong and AEHC holds 30 per cent. or more of the issued shares of the Company or AEHC is otherwise regarded as a controlling shareholder of the Company under the rules of the relevant securities exchange or any other relevant laws, AEHC shall not, whether inside or outside Anhui province or otherwise in any way (including but not limited to operating on its own, or by way of joint venture or owning shares or other interests in another company or enterprise):

● participate in any business or activities which are, or are likely to be, in competition, either directly or indirectly, with the business of the Company from time to time or in respect of any toll roads, tunnels or bridges which may from time to time be owned (in whole or in part), managed or operated by the Company; or

● participate in the construction, management or operation of any toll roads or non-toll roads, tunnels or bridges which are, or are likely to be, in competition, either directly or indirectly, with those owned, managed or operated by the Company, to the extent that there could be a conflict between the interests of AEHC and those of the general body of shareholders of the Company, provided that AEHC shall not be prohibited from participating or continuing to participate in the operation or management of toll roads or non-toll roads in Anhui province other than toll roads or non-toll roads within a distance of 50 kilometres of Hening Expressway, Tianchang section of Highway 205, or any other toll roads, tunnels and bridges which may from time to time be owned (in whole or in part), operated or managed by the Company. Such non-competition provisions do not apply to the ownership, management or operations of the original Tianchang section of National Highway 205 or the original Anhui section of National Highway 312 by AEHC, its controlling shareholder or any subsidiary of AEHC, so long as the latter is not operated as a toll road and the former remains a toll road the applicable toll rates for which are the same as those for Tianchang section of Highway 205 and no new approach road is constructed therefor in circumstances that potential traffic on Tianchang section of Highway 205 is, in the opinion of the Company, likely to be diverted.

PROFIT FORECAST AND DIVIDENDS

Profit forecast

The Directors forecast that, on the bases and assumptions set out in appendix VI, the profit after taxation but before extraordinary items of the Company for the year ending 31st December, 1996 will not be less than RMB90 million (approximately HK$84 million). The Directors are not aware of any extraordinary items which have arisen or is likely to arise in the

79 PARTICULARS OF THE COMPANY year ending 31st December, 1996. It should be noted that the profit forecast for the year ending 31st December, 1996 has been prepared on the assumption that the Reorganisation had been completed as of the beginning of the year ending 31st December, 1996 whereas, in fact, the Reorganisation was not completed until the date of the incorporation of the Company on 15th August, 1996. Thus, the profit after taxation which relates to the period prior to 15th August, 1996 will not be included in the profit after taxation but before extraordinary items of the Company in the Company’s financial statements for the period ending 31st December, 1996. The amount of profit after taxation of the operations now owned by the Company in respect of the period from 1st January, 1996 to 15th August, 1996 is estimated to be approximately RMB53 million (approximately HK$50 million) based on the unaudited management accounts of such operations.

On the basis of the above forecast profit and the weighted average number of 985,837,041 Shares expected to be in issue during the current financial year, the forecast earnings per Share is equivalent to approximately RMB0.091 representing a price/earnings multiple of 20.8 times based on the Issue Price of RMB1.89 per Share. On the basis of the above profit forecast and assuming 493,010,000 H Shares had been in issue throughout the year ending 31st December, 1996 and that the Over-allotment Option is not exercised, the pro forma forecast earnings per H Share on a fully diluted basis is approximately RMB0.085 (approximately HK$0.079), based on the Issue Price of RMB1.89. The foregoing assumes that the Company had been listed and a total of 1,408,610,000 Shares had been issued on 1st January, 1996 and that interest income had been earned on the proceeds of the H Share Offer at an interest rate during 1996 of approximately 4.5 per cent. per annum and that an exchange rate of HK$1.00 to RMB1.07, being the PBOC Exchange Rate prevailing at close of business on the Latest Practicable Date and on an applicable income tax of 15 per cent. on its taxable income. On the above pro forma fully diluted basis but assuming that the Over-allotment Option is exercised in full, the estimated earnings per H Share will be RMB0.084 (approximately HK$0.079), based on the Issue Price of RMB1.89.

The texts of the letters from the auditors and reporting accountants, Arthur Andersen & Co., and from Crosby and CEF in respect of the profit forecast are set out in appendix VI.

Dividends

On the basis of the above profit forecast and in the absence of unforeseen circumstances, the Directors currently intend to recommend and pay a final dividend for the year ending 31st December, 1996 of not less than RMB0.0075 (HK$0.0070) per Share, payable in or about June 1997.

The Directors further state that, had the Company been a publicly listed company for the whole of the year ending 31st December, 1996, the Directors would have expected to declare an interim dividend and a final dividend totalling approximately RMB0.045 (approximately HK$0.042) per Share. Such dividends would have represented a dividend yield of approximately 2.4 per cent. on the Issue Price of RMB1.89.

The Directors anticipate that, in future, interim and final dividends will be paid in or about October and June of each year and that the interim dividend will normally represent approximately one third of the expected total dividend for the full year.

It should be noted that under the Articles of Association, the amount available to the Company for the purpose of paying dividends will be deemed to be the lesser of (i) the net after-tax income of the Company determined in accordance with PRC accounting principles and financial regulations and (ii) the net after-tax income of the Company determined in accordance with either the International Accounting Standards or the applicable accounting standards of the countries in which the Shares are listed.

In addition, the Articles of Association prohibit the Company from distributing dividends without first making up for cumulative losses in prior periods (determined in accordance with

80 PARTICULARS OF THE COMPANY the PRC accounting principles and financial regulations) and making all tax and other payments required by law. Further, prior to the payment of dividends, the profits of the Company are subject to appropriations such as allocations to the PRC statutory common reserve fund and the PRC statutory public welfare fund. The common reserve fund may be used to make up losses or converted into share capital or reinvested by the Company. The public welfare fund is for application for the benefit of employees.

Information with regard to the tax consequences of receipt of dividends is set out in appendix VIII.

FUTURE PLANS AND PROSPECTS

The road transport system in the PRC has undergone substantial development during the App.1A. past decade though it has not kept up with the rapid economic growth in the PRC during the 34(1) same period. At present, the road transport system in the PRC is still in a developmental stage. In this connection, the Ministry of Communications plans to develop a high quality network of inter-provincial roads known as the National Trunk Highway System. The National Trunk Highway System is designed to link the national capital with all provincial capitals, cities with a current population of more than one million and most cities with a current population of 500,000, and, when completed, will link more than 200 cities in the PRC and cover a population of some 600,000,000 (based on 1994 demographics). As a first step, priority will be given to the development of the Priority National Trunk Highways which have been designated key projects during the current decade two five-year plan periods and are to be completed by 2000.

Hening Expressway forms an integral part of Hefei - Nanjing Expressway which, in turn, is part of the Priority National Trunk Highway connecting Shanghai and Chengdu in Sichuan province (a strategic east-west road transportation route linking, among other cities, Shanghai, Hefei, Wuhan, , Chongqing and Chengdu). This Priority National Trunk Highway is planned to be completed to Class 2 vehicular highway standard or above by the year 2000. At present, in addition to the section connecting Nanjing and Hefei, the section connecting Shanghai and Nanjing, the section connecting Huangshi, Wuhan and Yichang and the section connecting Chongqing and Chengdu have also been completed. Construction of the remaining sections of the highway from Shanghai to Chengdu highway is required under the Ninth Five-year Plan to be completed by the year 2000.

Besides the holding and operation of Hening Expressway, the Company has also entered into an agreement to acquire Tianchang section of Highway 205 upon its completion, the hand over of phase I of which is expected to be in January 1997. The Directors intend to continue to expand the Company’s portfolio of highway projects in Anhui province, should opportunities arise. In this respect, it is the Company’s present long term strategy to acquire interests in the National Trunk Highways in Anhui province. In order to minimise the construction risk involved, it is also the Company’s present long-term strategy to acquire roads that are in operation or to acquire roads that are under construction and complete such acquisition only towards the end of their development.

The proposed expressway from Gaohe to Jiezidun is an integral part of Hefei-Susong Expressway which, like Hening Expressway, forms part of the section in Anhui province of the Priority National Trunk Highway from Shanghai to Chengdu in Sichuan province. The land on which the expressway from Gaohe and Jiezidun is to be constructed has been cleared and has been available for construction since November 1995. Surfacing of part of the expressway and tender for construction of the expressway is at present in progress. It is intended that the expressway will be built to expressway standard and it is expected that construction of the expressway will be completed in 1999. The Directors are at present considering the feasibility of acquiring an interest in this expressway although no formal proposal has been formulated.

In this connection, as referred to in the section above headed “Competition” Anhui Department of Communications has confirmed that in the event of any development, conversion or widening of any road to Class 2 vehicular highway standard or above, it will, subject to

81 PARTICULARS OF THE COMPANY applicable law and the same terms (including purchase price, term of operation and construction standards and specifications) being offered by the Company, approve the Company’s proposal for the operation of such highway on a preferred basis. As referred to in the section headed “Relationship with AEHC and AEAB” above, the Company has also been granted an option to purchase and obtain the assets and operating rights of Hefei - Chaohu - Wuhu Expressway and Hefei - Tongling Class 2 vehicular highway. The Directors do not at present intend to exercise its option in respect of either of these roads.

As a means to improve operational efficiency and control of Hening Expressway, the Company plans to upgrade its toll collection system. In this respect, the Company intends to use part of the proceeds from the H Share Offer to install a new toll collection system for Hening Expressway as referred to under the heading “Proposed toll collection systems” above. It is expected that the new system will cost about RMB30 million (HK$28 million) and that the system will become operational by the end of 1997. In addition, the Company intends to apply part of the proceeds from the H Share Offer to upgrade the traffic monitoring system between Dashushan and Longtang for the purposes of improving the operational efficiency and control of Hening Expressway.

In addition, the Company also plans to apply part of the proceeds from the H Share Offer to improve the sections of Hening Expressway that are built on soft ground areas, as referred to under the heading “Operations of the Company” above.

The Company will continue to explore opportunities to improve the efficiency of its operations as well as to expand its portfolio of highway projects in Anhui province, primarily through the acquisition of Class 1 vehicular highway projects. Due to the geographical location of Anhui province, being in close proximity to the Yangtze River and a corridor linking the eastern and south-western parts of the PRC, Anhui province has enjoyed rapid economic growth in the past few years and this momentum is expected to continue in the coming years, particularly in view of the policy of the State to accelerate the development of the mid and western parts of the PRC. The Directors believe that, with the support of AEHC and AEAB, the Company is well positioned to identify attractive expressway project investment opportunities in Anhui province.

WORKING CAPITAL

Taking into account the net proceeds of the H Share Offer, the Directors are of the opinion App.1A that the Company has sufficient working capital for its present requirements and the acquisition 32(5), 36 and expenditures referred to in the section headed “Use of proceeds” below.

DISTRIBUTABLE RESERVES

Since the Company had not been incorporated as at 30th April, 1996, it had no App.1A. distributable reserves as at that date. 33(5)

82 PARTICULARS OF THE COMPANY

USE OF PROCEEDS

The net proceeds from the H Share Offer, after deducting related expenses, are estimated App.1A.17 to amount to approximately RMB889 million (approximately HK$831 million) on the basis that App.1A.48 the Over-allotment Option is not exercised. If, however, the Over-allotment Option is exercised in full, such net proceeds will increase by approximately RMB91 million (approximately HK$85 million). It is intended that the net proceeds to be received by the Company will be applied as follows:

● as to approximately RMB210 million (approximately HK$196 million) for the App.1A acquisition of Tianchang section of Highway 205 pursuant to the Acquisition 28(8) Agreement;

● as to approximately RMB30 million (approximately HK$28 million) towards the purchase and installation of a new toll collection system for Hening Expressway;

● as to approximately RMB30 million (approximately HK$28 million) for the repayment of part of the current portion of the long-term loans incurred in financing the construction of phase III of Hening Expressway;

● as to approximately RMB15 million (approximately HK$14 million) towards the upgrading of the traffic monitoring system of Hening Expressway between Dashushan and Longtang;

● as to approximately RMB10 million (approximately HK$9 million) for the reconstruction of the soft ground sections of Hening Expressway; and

● as to the balance for the acquisition of or participation in other highway projects, such as Gaohe Jiezidun Expressway.

To the extent that the net proceeds from the H Share Offer are not immediately used for the above purposes, it is the intention of the Directors that the net proceeds of the H Share Offer will be placed on short term interest bearing deposit with financial institutions.

83 PARTICULARS OF THE COMPANY

ADJUSTED NET TANGIBLE ASSETS

The following statement of adjusted net tangible assets of the Company is based on the net App.1A.21 tangible assets of the Company as at 30th April, 1996 as set out in the accountants’ report, the text of which is set out in appendix I, adjusted as shown below:

RMB’000 HK$’000

Net tangible assets of the Company as at 30th April, 1996 826,460 772,393

Surplus arising on revaluation as at 15th August, 1996 of the Company’s property interests in Hening Expressway set out in appendix II (Note 1) 901,434 842,462 Estimated net proceeds of the H Share Offer (Note 2) 888,989 830,831

Adjusted net tangible assets 2,616,883 2,445,686

Adjusted net tangible asset value per Share (Note 3) RMB1.86 HK$1.74

Notes:

1. The revaluation of the Company’s property interests in Hening Expressway has been prepared by the application of the income approach technique known as the discounted cash flow method as described in appendix II. The surplus arising from such valuation will be incorporated in the Company’s accounts for the year ending 31st December, 1996.

2. The estimated net proceeds of the H Share Offer have been translated into Renminbi at the rate of approximately HK$1.00: RMB1.07, based on the PBOC Exchange Rate at close of business on the Latest Practicable Date. The estimated net proceeds from the H Share Offer do not take into account H Shares which may be issued pursuant to the Over-allotment Option.

3. Based on the Issue Price of RMB1.89 and 1,408,610,000 Shares expected to be in issue upon completion of the H Share Offer. No account has been taken of any H Shares which may fall to be issued upon the exercise of the Over-allotment Option.

The Company’s property interests in Tianchang section of Highway 205, details of which are set out in appendix II, have been valued at approximately RMB378 million (approximately HK$353 million) as at 15th August, 1996 by Chesterton, an independent professional property valuer. Under the Acquisition Agreement, the Company has agreed to acquire Tianchang section of Highway 205 at a fixed consideration of RMB210 million on a completion basis. It should however be noted that completion of the Acquisition Agreement is subject to certain conditions as set out in the section headed “Tianchang section of Highway 205” above.

84 APPENDIX I ACCOUNTANTS’ REPORT App.1A.37

The following is the text of the report, prepared for the purposes of incorporation in this 3rd Sch prospectus, received from the independent reporting accountants, Arthur Andersen & Co., para 3 Certified Public Accountants, Hong Kong. para 31

Arthur Andersen & Co. Certified Public Accountants 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong

31st October, 1996 App.1A 9(3)

The Directors Anhui Expressway Company Limited Crosby Capital Markets (Asia) Limited CEF Capital Limited

Dear Sirs,

We set out below our report on the financial information relating to Anhui Expressway Company Limited (the “Company”) prepared on the basis set out in section 2 below for inclusion in the prospectus of the Company dated 31st October, 1996 (the “Prospectus”).

The Company was incorporated in the People’s Republic of China (the “PRC”)on15th August, 1996 as a joint stock limited company with its principal activities being the operation and management of the section of Hefei-Nanjing Expressway between Dashushan and Zhouzhuang in Anhui province and other related businesses (the “Hening Expressway”)fora concession period of thirty years from the date of incorporation of the Company. Prior to the formation of the Company, the Hening Expressway was operated by its predecessor, Anhui Expressway Holding Corporation (“AEHC”). All of the Hening Expressway’s businesses were transferred to the Company pursuant to the Reorganisation (as defined in section 1 below).

No audited accounts have been prepared for the Company since its establishment. However, we have reviewed all the relevant material transactions of the Company since its establishment to the date of this report.

AEHC was not subject to independent audit. The management accounts of AEHC were prepared in accordance with the relevant accounting principles and the financial regulations applicable to PRC enterprises. For the purposes of this report, we have undertaken our own independent audit of the financial statements of AEHC in relation to the Hening Expressway in accordance with Auditing Standards and Guidelines issued by the Hong Kong Society of Accountants (“HKSA”) for each of the three years ended 31st December, 1993, 1994, 1995 and for the four months ended 30th April, 1996 (the “Relevant Periods”), and we have carried out such additional procedures as we considered necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the HKSA.

85 APPENDIX I ACCOUNTANTS’ REPORT

The summaries of the results of operations of the Company for the Relevant Periods and the net assets of the Company as of 30th April, 1996 (the “Summaries”) have been prepared based on the management accounts of AEHC and on the basis set out in section 2 below, as if the Reorganisation had been completed as of the beginning of the Relevant Periods presented and the business activities had been performed by the Company throughout the Relevant Periods. Adjustments have been made for the purposes of the Prospectus to restate those financial statements to conform to the accounting policies as referred to in section 3 below, which are in compliance with International Accounting Standards (“IAS”) issued by the International Accounting Standards Committee.

In our opinion, the Summaries together with the notes thereon give, for the purposes of the App.1A.35 Prospectus, a true and fair view of the results of operations of the Company for each of the three years ended 31st December, 1993, 1994, 1995 and for the four months ended 30th April, 1996, and of the net assets of the Company as of 30th April, 1996.

1. COMPANY REORGANISATION

AEHC underwent a restructuring in preparation for an offering of the Company’s shares on The Stock Exchange of Hong Kong Limited (the “Reorganisation”) as set out under the section headed “Reorganisation” in appendix X of the Prospectus. Pursuant to the Reorganisation, the Company issued 100% of its equity in the form of domestic shares to AEHC in exchange for certain AEHC’s assets and liabilities relating to the Hening Expressway.The Hening Expressway comprises the following two sections of Hefei-Nanjing Expressway:

Date of Cost of commencement Concession acquisition/ Section Length of toll operations period construction RMB’million

Hening Expressway from 103 km April 1991 30 years from 428 Longtang to establishment Zhouzhuang, Anhui of the Company

Hening Expressway from 31 km November 1995 30 years from 451 Dashushan to establishment Longtang, Anhui of the Company

The construction of both sections of the Hening Expressway were undertaken by Anhui Expressway Engineering and Construction Office, a department under Anhui Department of Communications.

The Company assumed from AEHC the businesses now conducted by the Company, including the operation and management of the Hening Expressway. AEHC retained certain assets, liabilities and businesses not assumed by the Company, including units providing staff quarters and government functions such as health care and other ancillary services.

86 APPENDIX I ACCOUNTANTS’ REPORT

2. BASIS OF PRESENTATION

The Summaries have been prepared as if the Reorganisation had been completed as of 1st January, 1993 and the businesses transferred to the Company pursuant to the Reoganisation were carried on by the Company throughout the Relevant Periods.

The Summaries have been prepared in accordance with IAS as referred to in section 3 below. This basis of accounting differs from that used in the management accounts of AEHC, which were prepared in accordance with the relevant accounting principles and financial regulations applicable to PRC enterprises. The adjustment made to conform to IAS is disclosed in section 8 below.

3. PRINCIPAL ACCOUNTING POLICIES

The following accounting policies, which conform to IAS, were adopted by the Company in arriving at the financial information set out in this report:

(a) Inventory and supplies

These are mainly for repair and maintenance of expressways, and are stated at the lower of cost and net realisable value. The cost is computed using the weighted average method.

(b) Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation. Major renewals and betterment which will result in future economic benefits are capitalised, while maintenance and repair costs are normally charged to the profit and loss accounts in the period in which they are incurred.

Depreciation of expressways and structures is provided for on the basis of a sinking fund calculation whereby annual depreciation amounts compounded at an average rate of 11% per annum will equal the total cost of the expressways and structures at the expiry of the thirty-year concession period.

Depreciation of fixed assets other than expressways and structures is provided for on a straight-line basis to write off the cost of each asset over its estimated useful life. The estimated useful lives are as follows:

Buildings 30 years Safety equipment 10 years Communication and signalling equipment 10 years Toll station and ancillary equipment 7 years Motor vehicles 9 years Other machinery and equipment 6-9 years

(c) Construction-in-progress

Construction-in-progress represents expressways, structures and facilities, including toll stations and maintenance facilities under construction, and machinery pending installation. Construction-in-progress is stated at cost which includes construction

87 APPENDIX I ACCOUNTANTS’ REPORT

and acquisition costs, and capitalised interest charges arising from borrowings used to finance these assets during the period of construction, installation and testing. As assets are brought into use, the related costs are transferred to fixed assets and depreciated in accordance with the policy stated above.

(d) Taxation

Taxation is provided on the assessable income of the year as required by the relevant regulations of the PRC after considering all available tax benefits.

Deferred taxation is provided for using the liability method in respect of the tax effects of material timing differences between profit as computed for taxation purposes and profit as stated in the financial statements to the extent that a liability is likely to crystallise in the foreseeable future. Deferred tax assets are not recognised unless the related benefits are expected to crystallise in the foreseeable future.

(e) Revenue

Revenue represents mainly income from the operation of toll expressways, net of revenue tax. Revenue also includes other miscellaneous income such as damage compensation, emergency assistance income and advertising income.

Toll revenue, net of revenue taxes, is recognised on a receipt basis.

(f) Translation of accounts into Hong Kong dollars

All the amounts were translated into Hong Kong dollars (“HK$”)attherateof HK$1.00=RMB1.07 based on the closing exchange rate quoted by the People’s Bank of China on 23rd October, 1996, being the latest practicable date prior to the printing of the Prospectus, and are presented for information purposes only. There is no assurance that the assets and liabilites or profit and loss items can be converted to HK$ at that rate.

88 APPENDIX I ACCOUNTANTS’ REPORT

4. RESULTS OF OPERATIONS

The following is a summary of the results of operations of the Company for the Relevant Periods, prepared on the bases set out in sections 2 and 3 above, and after making such adjustments as we consider appropriate:

Four months Year ended 31st December, ended 30th April, 1993 1994 1995 1995 1996 1996 Note RMB RMB RMB HK$ RMB HK$

Revenue, net (a) 51,123,614 70,037,967 85,469,730 79,878,252 52,504,667 49,069,782 3rd Sch para 27 Operating expenses (9,186,502) (12,610,483) (16,406,271) (15,332,964) (9,786,179) (9,145,962) App. 1A. 33(1) Gross profit 41,937,112 57,427,484 69,063,459 64,545,288 42,718,488 39,923,820

Profit before taxation (b) 36,752,573 49,637,103 59,668,975 55,765,397 35,411,224 33,094,601 Taxation (c) ————(9,366,000) (8,753,271)

Profit after taxation 36,752,573 49,637,103 59,668,975 55,765,397 26,045,224 24,341,330

Notes:

(a) Revenue, net

Four months ended Year ended 31st December, 30th April, 1993 1994 1995 1996 RMB RMB RMB RMB

Revenue 51,123,614 73,701,359 90,235,782 55,540,807 Less: Revenue tax — (3,663,392) (4,766,052) (3,036,140)

Revenue, net 51,123,614 70,037,967 85,469,730 52,504,667

Revenue tax comprises Business Tax (“BT”) and other ancillary taxes. Before 1st January, 1994, the Company was exempted from BT. With effect from 1st January, 1994, the Company is subject to BT at the rate of 5% of toll income.

In addition to BT, the Company is subject to the following types of revenue taxes:

— City Development Tax, levied at 5% of BT.

— Education Supplementary Tax, levied at 3% of BT.

— Irrigation Construction Fund Contribution, levied at 1% of BT.

In addition to the above, commencing 1st January, 1996, the Company is required to pay Non-staple Food Price Adjustment Fund Contribution levied at 0.1% of toll income.

89 APPENDIX I ACCOUNTANTS’ REPORT

(b) Profit before taxation

Profit before taxation was arrived at after charging (crediting) the following:

Four months ended Year ended 31st December, 30th April, 1993 1994 1995 1996 RMB RMB RMB RMB

Interest on loans repayable within five years 964,900 4,393,933 9,758,215 4,291,367 Less: Amounts capitalised in construction- in-progress and fixed assets (964,900) (4,393,933) (8,391,333) —

Net interest expense ——1,366,882 4,291,367

Interest income (148,936) (337,923) (672,678) (167,243)

Depreciation 7,641,398 9.293,354 10,829,614 6,256,311

Provision for staff welfare and bonus 338,569 971,060 566,919 182,051

Auditors’ remuneration ————

(c) Taxation

Four months ended Year ended 31st December, 30th April, 1993 1994 1995 1996 RMB RMB RMB RMB

Taxation — current 8,221,000 12,917,000 16,137,000 9,366,000 — rebate (8,221,000) (12,917,000) (16,137,000) —

———9,366,000

An enterprise is ordinarily subject to EIT which is levied at a rate of 33% of taxable income based on audited accounts prepared in accordance with the laws and regulations in the PRC.

Pursuant to a notice (Cai Yu Zi [1993] No. 426) dated 18th May, 1993 issued by Anhui Finance Bureau, the operations owned by the Company were granted a full rebate of EIT in respect of the three years ended 31st December, 1995. EIT at the rate of 33% of the taxable income was levied on such operations from 1st January, 1996.

Pursuant to a notice (Wan Zheng Mi [1996] No. 106) dated 30th May, 1996 issued by Anhui Provincial People’s Government, the Company is entitled to a rebate from Anhui Finance Bureau an amount equal to 18% of the Company’s taxable income in respect of EIT paid to Anhui Taxation Bureau. No expiry date is stated in the notice. Accordingly, the effective rate of EIT applicable to the Company from 15th August, 1996, the date of incorporation of the Company, is 15%. However, there is no assurance that the Company will always be able to enjoy such preferential tax treatment.

90 APPENDIX I ACCOUNTANTS’ REPORT

(d) Directors’, senior executives’ and supervisors’ emoluments

Four months App.1A. ended 33(2) Rule Year ended 31st December, 30th April, 19A.38 1993 1994 1995 1996 RMB RMB RMB RMB

Fees for executive directors ———— Fees for non-executive directors ———— Fees for supervisors ———— Other emoluments for executive directors - basic salaries and allowances 32,934 52,455 55,392 32,511 App.1A. 33(2)(b) - bonus 6,742 3,712 3,907 3,550 33(2)(d) Other emoluments for non-executive directors ———— Other emoluments for supervisors 17,560 26,158 27,086 15,923

Under the present arrangement, the aggregate directors’ fees and other emoluments for the year ending App.1A. 31st December, 1996 are estimated to be approximately RMB168,000. 46(3) Rule 19A.38 App.1A. 33(3) Details of emoluments paid to the five highest paid employees (mainly senior executives) were:

Four months ended Year ended 31st December, 30th April, 1993 1994 1995 1996 RMB RMB RMB RMB

Basic salaries and allowances 27,423 43,572 45,420 25,405 App.1A 33(3)(a) Bonus 5,409 3,218 3,354 2,857 App.1A 33(3)(c)

32,832 46,790 48,774 28,262

Number of directors 2332 Number of supervisors 2112 Number of senior executives 1111

5555

The annual emoluments paid during the Relevant Periods to each of the five highest paid individuals (including directors and employees) were less than RMB1,000,000.

During the Relevant Periods, no emolument was paid to the five highest paid individuals (including App.1A. directors and employees) as an inducement to join or upon joining the Company or as compensation for 33(2)(e)(f) 33(3)(e)(d) loss of office.

(e) Pension scheme

The Company did not contribute to any provident fund scheme for its employees during the Relevant App.1A. Periods. The employees of the Company were covered under the general pension scheme applicable to 33(2)(c) all staff of Anhui Department of Communications.

91 APPENDIX I ACCOUNTANTS’ REPORT

Upon the incorporation of the Company, it will contribute annually to a government-sponsored pension scheme an amount equivalent to 20% of the total basic salary of its staff. Accordingly this general pension trust fund will be responsible for the pension liabilities relating to the retirees of the Company.

(f) Transfer to reserve and dividends

Before the Reorganisation, the Company did not make any provision for the statutory common reserve and statutory common welfare fund.

After the Reorganisation, the Company will have to follow the accounting principles and relevant financial regulations of the PRC applicable to joint stock limited companies in the preparation of its accounting records and statutory accounts. Accordingly, the Company is required under the PRC Company Law to appropriate 10% and 5% to 10% of its annual statutory profit after taxation to a statutory common reserve and a statutory common welfare fund respectively. When the balance of the Company’s statutory common reserve reaches 50% of its registered capital, further appropriation will become optional.

The statutory common reserve can only be used, upon the approval by the relevant authorities, to offset accumulated losses or to increase capital.

The statutory common welfare fund is used for the collective welfare of the staff and workers of the Company.

In accordance with the Articles of Association of the Company, the net profit of the Company for the purposes of profit distribution will be deemed to be the lesser of (a) the amount determined in accordance with PRC accounting principles and financial regulations and (b) the amount determined in accordance with IAS.

5. NET ASSETS

The following is a summary of the net assets of the Company as of 30th April, 1996 stated at historical cost prior to revaluation as set out in note (a) below, prepared on the bases set out in sections 2 and 3 above and after making such adjustments as we consider appropriate:

92 APPENDIX I ACCOUNTANTS’ REPORT

Note RMB RMB HK$

Fixed assets, net (a) 945,816,043 883,940,227

Current assets: Cash and bank deposits 38,651,446 36,122,847 Prepayments and other receivables 2,985,849 2,790,513 Inventory and supplies 662,516 619,174

42,299,811 39,532,534

Current liabilities: Short-term loans (b) (5,200,000) (4,859,813) Current portion of long-term loans (c) (30,000,000) (28,037,383) Other payables and accruals (4,953,325) (4,629,276) Tax payable (1,502,376) (1,404,090)

(41,655,701) (38,930,562)

Net current assets 644,110 601,972

Long-term loans, non-current portion (c) (120,000,000)(112,149,533)

Net assets 826,460,153 772,392,666

93 APPENDIX I ACCOUNTANTS’ REPORT

Notes:

(a) Fixed assets, net

Fixed assets comprised:

Accumulated Net Cost depreciation book value RMB RMB RMB

Expressways and structures 879,777,715 13,539,756 866,237,959 Buildings 7,917,885 903,736 7,014,149 Safety equipment 68,275,433 19,040,553 49,234,880 Communication and signalling equipment 10,978,894 5,154,131 5,824,763 Toll station and ancillary equipment 10,971,358 2,050,702 8,920,656 Motor vehicles 4,726,298 1,188,612 3,537,686 Other machinery and equipment 2,322,257 1,186,284 1,135,973

984,969,840 43,063,774 941,906,066 Construction-in-progress 3,909,977 — 3,909,977

988,879,817 43,063,774 945,816,043

The Company has obtained the land use right certificates to the land occupied by the expressways and structures, and the two administrative offices. The concession period for the land use right is thirty years commencing from the issue dates of the land use right certificates.

In accordance with the Interim Regulations of the People’s Republic of China Concerning the Assignment and Transfer of the Right to the Use of the State-Owned Land in Urban Areas, upon the expiration of the term of use, the right to the use of the land and the ownership of the buildings and other attached objects on the land thereon shall be acquired by the State without compensation.

The Company’s property interests in the Hening Expressway has been revalued by the application of the income approach technique known as the discounted cash flow method as described in appendix II of the Prospectus. The aggregate value on valuation of these fixed assets and land use rights as of 15th August, 1996 amounting to approximately RMB1,847 million will be incorporated in the Company’s financial statements for the year ending 31st December, 1996.

As part of the Reorganisation of the operations now comprising the Company in the preparation for the listing of the shares of the Company on the Stock Exchange of Hong Kong Limited, the property interests of the Company were required to be revalued by a PRC asset valuer. The property interests of the Company as of 30th April, 1996 were valued at RMB 1,528 million in the valuation report of the PRC asset valuer. The results of the valuation have been approved by the State Assets Administration Bureau and will be incorporated in the Company’s accounts prepared in accordance with the PRC’s laws and regulations. Therefore, the valuation carried out by the international asset valuer as set out in appendix II of approximately RMB 1,847 million is RMB 319 million higher than that which will be recorded in the accounts of the Company prepared in accordance with the laws and regulations in the PRC.

This difference of RMB 319 million will impact the results of operations of the Company over the useful lives of the corresponding property interests in the form of higher annual and cumulative depreciation charges.

(b) Short-term loans

Short-term loans represented advances from Anhui Highway Administration Bureau which were interest free and had no associated guarantees or mortgages.

94 APPENDIX I ACCOUNTANTS’ REPORT

(c) Long-term loans

Details of long-term loans were as follow:

RMB

Amounts repayable — not exceeding one year 30,000,000 — more than one year but not exceeding two years 60,000,000 — more than two years but not exceeding five years 60,000,000

150,000,000 Less: Current portion included in current liabilities (30,000,000)

120,000,000

These loans were borrowed from Anhui Communications Construction and Investment Development Holding Corporation, a company under Anhui Department of Communications. These loans bore interest at 7.8% to 12.24% per annum, and were unsecured.

6. RELATED PARTY TRANSACTIONS

As of 30th April, 1996, the Company had significant related party transactions as follows:

(a) Construction of the Hening Expressway

Construction contracts with Anhui Expressway Engineering and Construction Office as stated in section 1.

(b) Loans

Loans borrowed from Anhui Communications Construction and Investment Development Holding Corporation as stated in section 5(c), and advances from Auhui Highway Administration Bureau as stated in section 5(b).

Subsequent to 30th April, 1996, the Company entered into an agreement with AEHC to lease certain premises as its head office. The property was rented to the Company for a term of three years, commencing from 23rd August, 1996 to 22nd August, 1999 at an annual rental of RMB 99,360 for the first two years and is subject to an increase in the third year of 5% of the rental for the second year.

Except for loans totalling RMB120 million borrowed from Anhui Communications Construction and Investment Development Holding Corporation with a concessionary annual interest rate of 7.8%, the above related party transactions were carried out in the usual course of business and on usual commercial terms.

7. COMMITMENTS

As of 30th April, 1996, the Company had significant commitments as follows:

95 APPENDIX I ACCOUNTANTS’ REPORT

Future capital expenditure

The Company is planning to purchase communication and signalling facilities for the section of the Hening Expressway from Dashushan to Longtang for approximately RMB15,000,000. However, as of the date of this report, no contract has been signed.

Reconstruction of soft ground sections of the Hening Expressway

Two sections of the Hening Expressway, 3.7km near Wuzhuang and 1.7km near Feidong, were constructed on soft ground in 1992. Accordingly, the Company is planning to reconstruct these sections with an estimated cost of RMB10,000,000. However, as of the date of this report, no contract has been signed.

8. IMPACT OF IAS ADJUSTMENTS ON PROFIT AFTER TAXATION AND NET ASSETS

Profit after taxation Four Net months Assets ended as of Year ended 31st December, 30th April, 30th April, 1993 1994 1995 1996 1996 RMB RMB RMB RMB RMB

As reported in statutory financial statements 24,912,712 39,141,835 48,898,825 19,016,631 770,380,003

Adjustment: Depreciation of expressways and structures (Note) 11,839,861 10,495,268 10,770,150 7,028,593 56,080,150

As restated 36,752,573 49,637,103 59,668,975 26,045,224 826,460,153

Note: The depreciation adjustment results from different bases adopted for computation of depreciation. The depreciation of expressways and structures for statutory financial statements is computed based on the straight line method, while that of this report is based on a sinking fund method as stated in section 3(b) above.

9. ULTIMATE HOLDING COMPANY

The directors of the Company consider Anhui Expressway Holding Corporation, incorporated in the PRC, as the ultimate holding company.

10. SUBSEQUENT EVENTS

The following significant transactions took place subsequent to 30th April, 1996:

(a) Reorganisation

The operations now comprising the Company underwent a Reorganisation in preparation for the listing of the shares of the Company on the Stock Exchange of Hong Kong Limited, the details of which are set out in the paragraph headed “Reorganisation” in appendix X of the Prospectus.

96 APPENDIX I ACCOUNTANTS’ REPORT

(b) Purchase of toll road

The Company has entered into an agreement with Anhui Highway Administration Bureau on 12th October, 1996 to acquire Tianchang section of Highway 205 for RMB210 million. Phase I of the development of Tianchang section of Highway 205 is expected to be completed by 1st January, 1997.

(c) Deferment of repayment of loans

The Company has agreed with Anhui Communications Construction and Investment Development Holding Corporation to defer for six months repayments of loans totalling RMB30 million which were originally repayable in 1996. Based on this agreement, RMB10 million of the loans will be repayable on 4th March, 1997, RMB15 million on 4th May, 1997 and RMB5 million on 4th June, 1997.

(d) Option to acquire Hefei-Chaohu-Wuhu expressway and Hefei-Tongling class 2 highway

In a letter from AEHC to the Company dated 3rd October, 1996, AEHC has granted the Company an option, for a period of 10 years, to acquire Hefei-Chaohu-Wuhu expressway and Hefei-Tongling class 2 highway upon the listing of the Company on the Stock Exchange of Hong Kong Limited. The purchase price shall be determined by reference to the valuation results of a qualified valuer. Other detailed terms for such purchase and transfers shall be subject to further negotiation between both parties.

11. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company in respect of any period subsequent to 30th April, 1996.

Yours faithfully, ARTHUR ANDERSEN & CO. Certified Public Accountants Hong Kong

97 APPENDIX II PROPERTY VALUATION

The following is the text of the letter and valuation certificate received from Chesterton App.1A.39 Petty Ltd., property valuer prepared for inclusion in this prospectus, in connection with their valuation of the property interests of the Company as at 15th August, 1996. hesterton PETTY

International Property Consultants

Chesterton Petty Limited 28th Floor, Jardine House App.1A. 1 Connaught Place 9(3) Hong Kong

31st October, 1996

The Directors Anhui Expressway Company Limited 219 Anqing Road, Hefei, Anhui The People’s Republic of China

Dear Sirs,

PROPERTY VALUATION ANHUI EXPRESSWAY COMPANY LIMITED HEFEI CITY, ANHUI PROVINCE, PRC

In accordance with your instructions to value the property interests of Anhui Expressway Company Limited (hereinafter known as “Company”) in Anhui Province, PRC, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market values of the properties as at 15th August, 1996.

Our valuation is our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property might reasonably be expected to have been completed unconditionally for a cash consideration on the date of valuation assuming:

a) a willing seller;

b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

98 APPENDIX II PROPERTY VALUATION

c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation; and

d) that no account is taken of any additional bid by a purchaser with a special interest.”

Our valuation has been made on the assumption that the owner sells the property interests on the open market without the benefit of a deferred terms contract, leaseback, management agreement or any similar arrangement which would serve to increase the values of these property interests. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of property interests and no forced sale situation in any manner is assumed in our valuation.

We have been provided with copies of extracts of title documents relating to the property interests. However, we have not inspected the original documents to verify ownership or to verify any amendments which may not appear on the copies handed to us. However, for the purpose of our valuation, we have assumed that the properties have proper titles.

Due to the specific purpose for which the roads, building and structures of the Company have been constructed, there are no readily identifiable market comparable. Thus the roads, buildings and structures cannot be valued on the basis of direct comparison. The value of each property has therefore been derived by the application of the income approach technique known as the “discounted cash flow method”. Under this method, value depends on the present worth of future financial benefits to be derived from the operation of the property. We have adopted the “Optimistic case” in relation to the projected traffic volume provided by the independent traffic consultant employed by the Company. In respect of the toll rates and maintenance costs of the property, we have also relied to a very considerable extent on the estimates prepared by the independent traffic consultant.

In valuing the properties in Group I, we have assumed that all consents, approvals and licences from the relevant Government authorities for the operation of Hening Expressway have been granted.

We have relied to a very cosiderable extent on information given by the Company and the legal opinion of the Company’s PRC legal advisers, and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, lettings, site and floor areas, construction costs and other relevant information. Dimensions, measurements and areas included in the valuation report based on information contained in the documents provided to us and are therefore only approximations. No on-site measurement have been made.

We understand that for the purposes of issuing the above-mentioned legal opinion, the Company’s PRC legal advisers have collected and perused those documents which they think necessary for the purposes of issuing the legal opinion and have made relevant enquiries of the officers in charge of the Company.

We have inspected the exterior of all the properties and where possible, we have also inspected the interior of the properties. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

In the course of valuing the properties in Group I and II, they have been valued by reference to the present worth of future financial benefits to be derived from the operation of

99 APPENDIX II PROPERTY VALUATION such property within the period of 30 years. A transferable land use right in respect of the property for a term of 30 years was granted by State Land Administration Bureau of Anhui province and any premium payable has already been fully paid. In preparing the valuation, we have not carried out comprehensive on-site measurement to ensure the accuracy of the site areas. We have, however, assumed that the site areas as quoted in those documents delivered to us are accurate.

The property in Group III which is leased by the Company has no commercial value due to mainly to the prohibition against assignment or sub-letting and to the lack of substantial profit rents.

No allowance has been made in our report for any charges, mortgages or amounts owing on any property nor any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that all properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Both Chesterton Petty Ltd and Mr. Augustine Wong have more than two years of experience in dealing with valuation of properties in the PRC as required under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Unless otherwise specified, all amounts are denominated in Renminbi.

The exchange rate adopted for conversion is HK$1 = RMB1.07, being the PBOC Exchange Rate prevailing on the Latest Practicable Date.

Our summary of values and valuation certificate are attached.

Yours faithfully, For and on behalf of CHESTERTON PETTY LTD Augustine Wong ARICS FHKIS ACIArb RPS (GP Division) Director

100 APPENDIX II PROPERTY VALUATION

SUMMARY OF VALUES

Group I — Property owned by the Company in Anhui province, PRC

Property Open market value in existing state as at 15th August, 1996

RMB HK$

1. Hening Expressway 1,847,250,000 1,726,400,000

Group II — Property to be acquired by the Company in Anhui province, PRC

Property Open market value as if completed as at 15th August, 1996

RMB HK$

2. Tianchang section 377,750,000 353,040,000 of Highway 205

Group III — Property rented by the Company in Anhui province, PRC

Property Open market value in existing state as at 15th August, 1996

RMB HK$

3. 4th and 5th Levels, No. 219 Anqing Road, No commercial No commercial Hefei, Anhui Province value value The PRC

Total 2,225,000,000 2,079,440,000

101 APPENDIX II PROPERTY VALUATION

VALUATION CERTIFICATE

Group I — Property owned by the Company in Anhui province, PRC

Open market value in existing Particulars of state as at Property Description and tenure occupancy 15th August, 1996

1. Hening The property comprises a highway, buildings The property is RMB1,847,250,000 Expressway, Anhui and ancillary highway facilities. The highway operated by (HK$1,726,400,000) Province, is an enclosed expressway and is an integral the Company PRC part of Hefei-Nanjing Expressway. The as a toll property is located in Anhui province linking expressway. Dashushan and Zhouzhuang with a total length of approximately 133.54 kilometres.

Details are as follows:

The highway can be divided into 3 sections:

a) The section of expressway from Dashushan to Longtang with a total length of approximately 30.54 kilometres comprising 47 bridges, 175 culverts, 64 underpasses and 3 interchange zones completed in 1995.

b) The section of expressway from Longtang to Wuzhuang with a total length of approximately 91.947 kilometres comprising 53 bridges, 443 culverts, 166 underpasses, 3 interchange zones and 2 overpasses completed in 1991.

c) The section of expressway from Wuzhuang to Zhouzhuang with a total length of approximately 11.048 kilometres comprising 14 bridges, 48 culverts, 11 underpasses and 6 overpasses completed in 1992.

102 APPENDIX II PROPERTY VALUATION

Notes:

(1) The total area of land occupied by the Property, i.e. highway, buildings and ancillary highway facilities amounts to approximately 6,633,256.12 sq.m.. It comprises 11 parcels of land along the Hening Expressway. The details of the land use rights certificates are as follows:

Land Name of land area Location Usage Term (sq.m.) (year)

1 Quanjiao administration office 156,000.00 Office 30 2 Wuzhuang service area 55,434.00 Quanjiao county Service area 30 3 Dashu administration station 26,267.50 Quanjiao county Office 30 4 Portion of the road in Quanjiao 2,793,622.00 Quanjiao county Road 30 5 Portion of the road in Chaohu 249,501.00 Chaohu City Road 30 6 Portion of the road in Feidong 1,955,002.93 Road 30 7 Interchange area in Feidong 29,024.01 Feidong county Interchange 30 administration office 8 Feidong administration office 96,196.05 Feidong county Office/ 30 Accommodation 9 Interchange area in Longtang 130,453.33 Feidong county Interchange 30 10 Portion of the road in Feixi 129,636.00 Road 30 11 Portion of the road in suburb 1,012,119.30 Hefei City Road 30 of Hefei city

(2) The relevant portions of legal opinion issued by the Company’s PRC legal advisers in connection with the land use right and the buildings are summarised as follows:

i) Land

The duration of land use right is 30 years from 15th August, 1996. In accordance with document Guo Tu Pi (1996) No.69 from the State Land Administration Bureau and the land use rights certificates issued by the relevant cities and counties, the land use right of the above-mentioned 11 parcels of land is vested in the Company. The land use right is clear and free from any third party rights. Thus the Company has comprehensive legal title to the above 11 parcels of land, including the right to lease, mortgage or transfer under PRC laws.

ii) Buildings and structures

The Company was established by AEHC on 15th August, 1996 and ownership of the buildings and structures on the abovementioned 11 parcels of land was transferred to it at the same time. From that date, the Company has comprehensive legal right of ownership of the buildings and structures for the same term of 30 years as mentioned in note 2(i) above. The change of registered owner has been completed. The title is clear and free from any third party rights. The Company has comprehensive legal titles to the buildings and structures including the right to lease, mortgage or transfer under PRC laws.

(3) Under a document (Wan Jiao Gao [96] No. 27) dated 12th August, 1996, Anhui Department of Communications stated that the Company has the right to operate the expressway for a period of 30 years commencing from the establishment of the Company.

103 APPENDIX II PROPERTY VALUATION

Group II — Property to be acquired by the Company in Anhui province, PRC

Open market value as if completed as Particulars of at 15th August, Property Description and tenure occupancy 1996

2. Tianchang section The property comprises a highway, buildings The property is RMB377,750,000 of Highway 205, and road ancillary facilities. The highway is a under (HK$353,040,000) Anhui Province, Class 1 standard highway with a total length construction PRC of approximately 29.94 kilometres

Details are as follows:

The highway Links the junction between Tianchang city of Anhui province and Yu Wa Xiang of Jiangsu province to the junction between upstream of Da Tong Reservoir of Anhui province and Yu Tai Town of Jiangsu province. It comprises a bridge which is 151 metre in length, 7 small bridges, 156 culverts, 1 overpass as an interchange area and will be completed in early 1997.

Notes:

(1) By virtue of clause 1.1(a) of the Acquisition Agreement dated 12th October, 1996, the areas of the land occupied by the property ie. highway, building, structure and ancillary highway facilities may be referred to in the location maps attached to the documents set out in Schedule 2 to the said agreement. However, all the details are subject to the final approval of the State Land Administration Bureau of Anhui province. The duration of land use right is 30 years from 1st January, 1997 or the day of transfer of phase I of the development of Tianchang section of Highway 205 as mentioned in chapter 4 of the said agreement (whichever is the later).

(2) The relevant portions of the legal opinion issued by the Company’s PRC legal advisors in connection with the land use right and the buildings are summarised as follows:

By an Acquisition Agreement dated 12th October, 1996 made between Anhui Provincial Highway Administration Bureau and the Company, the Company agreed to acquire the land use right of the property and the construction works thereof for RMB210,000,000. The Acquisition Agreement is valid upon the signing thereof by the parties thereto. The agreement for the transfer and the price thereof have been approved by the relevant authority in principal. The transaction is to be completed upon completion of the highway and fulfilment of certain conditions of the Acquisition Agreement. There is no legal impediment for Anhui Highway Administration Bureau to obtain the transferable land use right of the land and the buildings and structures for further transfer to the Company.

(3) By virtue of clauses 1.1(b) and 8.2 of the Acquisition Agreement dated 12th October, 1996, the highway is required to be completed and finished to the relevant standards prescribed by laws, regulations and the provisions of the construction contracts set out in Schedule 1 to the said agreement and the drawings and specifications prepared by the Highway Survey and Design Institute of Anhui province ( ) in July and October of 1994.

(4) According to a document (Wan Jiao Gao Lu [96] No. 27) dated 12th August, 1996, Anhui Department of Communications stated that the Company has the right to operate the highway for a period of 30 years from the day of transfer of its main construction to the Company.

104 APPENDIX II PROPERTY VALUATION

Group III — Property rented by the Company in Anhui province, PRC

Open market value in existing state as at 15th August, Particulars of 1996 Property Description and tenure occupancy

3. 4th and 5th levels, The property comprises the 4th and 5th The property is No commercial value No. 219 levels of a 7-storey commercial building. The occupied by Anqing Road, property has a total gross floor area of the Company Hefei, approximately 828 sq.m. (8,913 sq.ft.) and is as an Anhui Province, used as the Company’s headquarter for administrative PRC administration purpose. office

The property is rented to the Company for a term commencing from 23rd August, 1996 and expiring on 22nd August, 1999 at an annual rent of RMB99,360 for first two years subject to an increase of 5% of the previous rental for the third year.

Note: In accordance with the opinion of the Company’s PRC legal advisors, the property is held by the AEHC which has the right to lease the same under the PRC law and that the lease agreement is legal, valid and enforceable in accordance with its terms.

105 APPENDIX III LETTER FROM THE TRAFFIC FORECAST CONSULTANT

The following is the text of the letter received from SWK, the traffic forecast consultant, prepared for inclusion in this prospectus, summarising its report on the traffic and revenue forecasts of Hening Expressway and Tianchang section of Highway 205: Scott Wilson Kirkpatrick CONSULTING ENGINEERS

Scott Wilson Kirpatrick • 38th Floor Metroplaza Tower 1 • 223 Hing Fong Road • Kwai Fong • Hong Kong

31st October, 1996 App.1A 9(3)

The Directors Anhui Expressway Company Limited 219 Anqing Road Hefei, Anhui The People’s Republic of China

Dear Sirs,

Re: Hening Expressway and Tianchang section of Highway 205 Traffic Forecast Study

Scott Wilson Kirkpatrick (Hong Kong) Limited was appointed by Anhui Expressway Company Limited (the “Company”) to carry out an independent traffic and revenue forecasts for Hening Expressway and Tianchang section of Highway 205 for the purpose of listing of the Company on the Stock Exchange of Hong Kong Ltd. The terms defined in the prospectus of the Company dated 31st October, 1996 shall have the same meanings when used in this letter unless the context otherwise requires. A fair summary of the findings of the Anhui Province Highway Project Traffic Forecast Study Final Report, September 1996 prepared by SWK, is set out below:—

1. Introduction

Hening Expressway, which has been fully operational since late 1995, is part of the key strategic east-west National Trunk Highway between Shanghai and Chengdu in Sichuan province. Tianchang section of Highway 205 is currently under construction and is scheduled to open by 1997, is part of the key strategic north-south route between Nanjing and Lianyungang in Jiangsu province. Tianchang section of Highway 205 runs parallel to the original Tianchang section of National Highway 205. The locations of both Hening Expressway and Tianchang section of Highway 205 are shown in Figure A.

2. Objectives and Scope of Services

The scope of services provided by SWK comprised of:

1) Gather existing traffic data for different vehicle types on the highway network within the study area.

2) Collect current and historical socio-economic data to assist in planning for future highways in the study area.

106 APPENDIX III LETTER FROM THE TRAFFIC FORECAST CONSULTANT

3) Supervise and witness a series of origin-destination surveys and classified vehicle counts along Hening Expressway and the original Tianchang section of National Highway 205 to determine the existing traffic situation.

4) Develop a traffic forecasting model in accordance with generally accepted industry standard for the study area. This model will incorporate the ability to relate generated traffic flows to socio-economic development and will be validated using current traffic count data.

5) Develop a base year traffic model in accordance with generally accepted industry standard. This base year traffic model will be used as the bases for the projection of traffic for a “conservative” and a “optimistic” scenerio. The base year traffic model has been calibrated by an independent traffic count conducted in February 1996 and witnessed by SWK.

6) Prepare traffic forecasts for “Optimistic” and “Conservative” Cases for 1997, 2000, 2010, 2020 and 2025 for each section of Hening Expressway and Tianchang section of Highway 205. The two cases will take account of two different levels of future economic growth as stated under the section headed “Major model assumptions” of this letter below.

7) Prepare independent traffic and toll revenue forecasts for vehicle toll categories from 1997 to 2025. Forecast traffic volumes for intermediate years will be derived by interpolation.

8) Submit a report on the independent traffic and revenue forecasts, including the forecast methodology and assumptions, in a form suitable for presentation to potential investors.

9) Prepare a letter summarising SWK’s traffic forecast report for incorporation into the prospectus of the Company dated 31st October, 1996 for the listing on the Stock Exchange.

3. Traffic Forecasting Methodology

The traffic forecasting methodology for this study consists of the following stages:

1) Determine the existing origin-destination traffic volumes between Hefei and Nanjing and on the original Tianchang section of National Highway 205.

2) Estimate the traffic growth rates based on Optimistic and Conservative forecasts of GNP growth rates and the regression relationship between GNP and traffic levels in Anhui province, using the computer software SPSS and SWK’s experience in similar projects in the PRC.

3) Estimate the future origin-destination traffic volumes between Hefei and Nanjing and in the Tianchang area by applying the estimated traffic growth rates to the existing traffic volume.

4) Assign the estimated origin-destination traffic volumes to each section of Hening Expressway and Tianchang section of Highway 205 taking into consideration the estimated cost of time, toll level differentials among the current and future competing highways and other relevant factors.

107 APPENDIX III LETTER FROM THE TRAFFIC FORECAST CONSULTANT

5) Forecast annual traffic volumes from 1997 to 2025 for each section of the Hening Expressway and Tianchang section of Highway 205, based on the results of the origin-destination traffic volume assignment and the estimated volume of local traffic along Tianchang section of Highway 205.

4. Major Model Assumptions

The major assumptions adopted in the traffic forecasting model comprised of:

1) Annual GNP growth rates in the study area assumed in the Optimistic and Conservative cases are as given in the table below:

1996-2000 2000-2010 2010-2020 2020-2025 %%%%

Optimistic case 15.5 11 7 4 Conservative case 12.5 9 6 3

Note: This assumption is based on past economic data, the Ninth Five-Year Plan, the 2010 Development Plan of Anhui province and SWK’s experience in similar projects in the PRC.

2) The toll charges for Hening Expressway are determined based on the distance travelled and vehicle classification. The toll charges for Tianchang section of Highway 205 are fixed and determined only by vehicle classification. For the purposes of assignment modelling used in forecasting traffic flows from 1997 to 2025 it was assumed that a base toll rate of RMB4 per tonne would be charged on the Tianchang section of Highway 205 and the original Tianchang section of National Highway 205, whereas the current applicable toll rate for both of these roads is RMB3 per tonne. Revenues were calculated on the basis of an equal toll of RMB3 per tonne being applied on both alignments of the original Tianchang section of National Highway 205 and Tianchang section of Highway 205. Therefore the traffic forecasts for Tianchang section of Highway 205 are likely to be conservative. The toll levels are fixed at 1996 prices by vehicle classification and are maintained at 1996 constant price level for the purpose of estimating future revenue. The toll charges in 1996 used for the traffic and revenue forecasts for Hening Expressway for different classification of vehicles are given in the section headed “Particulars of the Company” of the prospectus of the Company dated 31st October, 1996.

3) The road network of Anhui province is enhanced and upgraded as specified in the road development plan of the province. In addition, it is assumed that roads which are currently Class 3 or 4 general road standard but are of importance to the study area’s road network, figure A (and so are included in our road network model), are likely to be upgraded to at least Class 2 vehicular highway standard with 9 metres total carriageway width by 2010. No network changes are considered beyond the year 2010.

4) The toll revenue forecasts are based on 1996 toll rates and it is assumed that all tolls payable are collected in full, i.e. no evasion of tolls by any vehicles.

5) All vehicles using either Tianchang section of Highway 205 or the original Tianchang section of National Highway 205 is assumed to be charged the same toll rate and that Tianchang section of Highway 205 is of a better quality (Class 1 vehicular highway standard), vehicles will use Tianchang section of Highway 205.

108 APPENDIX III LETTER FROM THE TRAFFIC FORECAST CONSULTANT

5. Conclusion

The traffic forecasting model developed for the study was calibrated and validated using 1996 independent observed traffic counts carried out in February 1996 and witnessed by SWK. SWK concluded that the model provided a sutiable basis for estimating future traffic flows on Hening Expressway and Tianchang section of Highway 205. The traffic and revenue forecasts generated are summarised in the tables below. In addition, comparisons between the Optimistic and Conservative cases for Hening Expressway and Tianchang section of Highway 205 regarding daily vehicle flow and annual toll revenue forecasts respectively are stated in Figures B,C,DandEtothisletterbelow. Daily traffic volume forecasts 1997 2000 2010 2020 2025

Hening Expressway Optimistic case 8,400 12,300 36,500 53,800 53,800 Conservative case 8,200 11,000 27,000 47,000 51,000

Tianchang section of Highway 205 (vehicles per day) Optimistic case 9,200 14,000 37,200 48,900 49,000 Conservative case 8,700 12,600 29,000 41,600 43,300

Note: the forecast traffic volumes for Hening Expressway are the distance-weighted average number of vehicles per day per kilometre of various sections of Hening Expressway.

Annual toll revenue forecasts (Note) 1997 2000 2010 2020 2025 RMB’ RMB’ RMB’ RMB’ RMB’ millions millions millions millions millions

Hening Expressway Optimistic case 240 350 1,000 1,500 1,500 Conservative case 230 310 760 1,300 1,400

Tianchang section of Highway 205 Optimistic case 54 81 216 279 277 Conservative case 51 74 168 238 243

Note: Toll revenue forecast assumes that all vehicles using Hening Expressway and Tianchang section of Highway 205 are charged with the right amounts of toll which will become revenue of the Company. The validity of the assumption relies heavily on the installation of a reliable electronic toll collection system and that vehicles exempt from the payment of toll charges are limited to vehicles of the People’s Liberation Army and Anhui Fire Department and ambulances conducting their official duties.

Based on the output of the traffic forecasting model, in the Optimistic case both the Hening Expressway and Tianchang section of Highway 205 are expected to reach capacity in the year 2020. The capacities of these roads are estimated in accordance with the PRC highway standard of the Ministry of Communications of the PRC. As such the Optimistic case forecast results indicate no growth in traffic from the year 2020 onwards.

Yours faithfully, For and on behalf of Scott Wilson Kirkpatrick (Hong Kong) Limited Cheung Chung-hoi Director

109 APPENDIX III LETTER FROM THE TRAFFIC FORECAST CONSULTANT

Figure A 1996 Base Year Road Network

Legend: Expressway To Xuzhou National Highway Suzhou Provincial Highway 205 National Highway 205 Toll Station

Bangbu To Huaiyin

Fongyang Yangjiagang Shangjiao Jiashan Chajian 205 Tianchang Huainan Banta Pancao

Dingyuan Chuoyuan Chuzhou Luhe Wuzhuang Xige Quanjiao Yangtze river Dashu Nanjing Feidong Zhouzhang Bridge Hefei Dashushan 312 Nanjing Longtang Shibagang Jichang Wugang To Luan Feixi

Maanshan

Wuhu

To Susong

Anhui

110 APPENDIX III LETTER FROM THE TRAFFIC FORECAST CONSULTANT

Figure B : Optimistic and Conservative Daily Flow Forecast for Hening Expressway

60,000

50,000

40,000

30,000

Optimistic

Vehicles per Day Vehicles 20,000 Conservative

10,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Year

Figure C : Optimistic and Conservative Annual Revenue Forecasts for Hening Expressway

1,600

1,400

1,200

1,000

800

Optimistic 600 Conservative Million RMB p.a.

400

200 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Year

111 APPENDIX III LETTER FROM THE TRAFFIC FORECAST CONSULTANT

Figure D : Optimistic and Conservative Daily Flow Forecast for Tianchang section of Highway 205

60,000

50,000

40,000

30,000 Optimistic Conservative

Vehicles per Day Vehicles 20,000

10,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Year

Figure E : Optimistic and Conservative Annual Revenue Forecasts for Tianchang section of Highway 205

300

250

200

150 Optimistic Conservative

100 Million RMB p.a.

50 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Year

112 APPENDIX IV LETTER FROM THE OPERATION REVIEW CONSULTANT

The following is the text of the letter received from SWK, the operation review consultant, prepared for inclusion in this prospectus, summarising its report on the projections of the operating and maintenance expenditures of Hening Expressway and Tianchang section of Highway 205:

Scott Wilson Kirkpatrick CONSULTING ENGINEERS

Scott Wilson Kirpatrick • 38th Floor Metroplaza Tower 1 • 223 Hing Fong Road • Kwai Fong • Hong Kong

31st October, 1996 App.1A 9(3)

The Directors Anhui Expressway Company Limited 219 Anging Road Hefei, Anhui The People’s Republic of China

Dear Sirs,

Re: Operation and maintenance costs forecast for Anhui Expressway Company Limited

Scott Wilson Kirkpatrick (Hong Kong) Ltd was appointed by Anhui Expressway Company Limited (the “Company”) to carry out an independent forecast on the operation and maintenance costs for Hening Expressway and Tianchang section of Highway 205 for the purpose of listing of the Company on the Stock Exchange of Hong Kong Ltd. The terms defined in the prospectus of the Company dated 31st October, 1996 shall have the same meanings herein unless the context otherwise requires. A fair summary of the report titled “Operating and Maintenance Costs Forecasts” prepared by SWK for the Company is set out below:—

1. Introduction

SWK was engaged to review the operating and maintenance costs of Hening Expressway and Tianchang section of Highway 205. The objectives of the study are:

● to conduct a limited evaluation, based on interviews and observations by experienced staff from SWK from 1st July, 1996 to 8th July, 1996, of the existing operation procedure and maintenance practice;

● to review the proposed expenditure for 1996;

● to comment on factors which may have an influence on future maintenance expenditure; and

● to estimate 30 years of operating and maintenance expenditure.

113 APPENDIX IV LETTER FROM THE OPERATION REVIEW CONSULTANT

2. Basis of report

SWK’s report was based on the following:

● interview with the Directors and senior management of the Company;

● review the proposed maintenance programme proposed by the Company;

● site visits conducted from 1st July, 1996 to 8th July, I996;

● typical as-built drawings of Hening Expressway;

● a proposed management structure for Tianchang section of Highway 205.

SWK has not been involved in the technical audit of the design standards, the construction specifications on the construction supervision for Hening Expressway and Tianchang section of Highway 205. Furthermore, Tianchang section of Highway 205 is currently under construction and it is not possible to comment on the quality of the workmanship. The study therefore assumes that Hening Expressway has been designed and constructed to PRC highway standards and has been approved by the relevant authorities. The study assumes that Tianchang section of Highway 205 has been designed and will be constructed to PRC highway standards and approved by the relevant authorities.

3. Proposed Management Structure

Anhui Expressway Company Limited- Central Management

FeidongHefei Management Administration Centre Office Quanjiao Administration Office

4 Toll Stations 2 Toll Stations Dashushan Wuzhuang Shibagang, Jichang Dashu Toll Plaza Toll Plaza Longtang, Feidong Quanjiao

The Feidong Administration Office and the Quanjiao Administration Office each manages approxirnately a section of 60 km of the Hening Expressway while a new administrative office will be established so as to manage Tianchang section of Highway 205. SWK considers the organisational structure of the Company satisfactory since it will ensure a quick response to incidents that require a prompt response and a segregation of maintenance responsibility to a reasonable scale.

114 APPENDIX IV LETTER FROM THE OPERATION REVIEW CONSULTANT

4. Existing Conditions of Hening Expressway

During the site visits of Hening Expressway,a visual inspection of the infrastructures for the Hening Expressway was conducted. SWK considers Hening Expressway has generally attained the average standard in the PRC for an expressway. However, the following items require major maintenance works or reconstruction:

● Two sections of Hening Expressway (1.7 km at Feidong and 3.3 km at Wuzhuang) have been constructed on soft ground.

● Substantial maintenance works are being undertaken at the Dashushan - Longtong section which is maintained by the contractor until end of 1996. The Company should ensure that all defects are repaired properly before taking over maintenance responsibility.

● Bridge deck slab between chainage 31 km to 122 km is 60 mm thick and serious cracking has been observed and repair is being carried out by the Company. The remainder of the deck slab is 150 mm thick and was performing satisfactorily at the time of inspection.

● Replacement of movement joints has taken place at many locations and the Consultant considers that most of the movement joints have to be replaced in a systematic programme within the next 10 years.

● Deteriation of joint seals between rigid pavement has begun and is expected to be completed in the next 5 years.

● SWK was informed that the joints connecting the concrete pavement slabs were constructed differently from the PRC standard design. An evaluation of their performance and future maintenance liability is recommended if differential settlement between concrete slabs become significant when the traffic volume increases.

● The low skid resistance of the pavement should be improved to enhance road safety.

● The traffic monitoring system in the Feidong Administration Office should be upgraded to include the Dashushan Longtong section as an integral part of the system. It is the intention of the Directors to apply part of the proceeds from the H Share Offer to upgrade the traffic monitoring system between Dashushan and Longtang.

5. Estimation of Operating and Maintenance Costs

A review of the 30 years operating and maintenance expenses was conducted on Hening Expressway. Information is not available for Tianchang section of Highway 205. The design standard and the operating requirements for Tianchang section of Highway 205 is slightly inferior to Hening Expressway and, hence, SWK recommends to use the same percentage of revenue as an indication of the operating and maintenance costs for Tianchang section of Highway 205.

The expenses projection allows for general management and administration, toll collection, traffic safety and surveillance, routine maintenance, repair and replacement of plants and equipment, minor to major repair of defective works as a result of wear and tear, and resurfacing of deteriorated road pavement. However capital investments such as installation of a new toll system after 15 to 20 years of operation to improve performance, construction of new administration building and quarters for staff, purchase or renting of office space for the headquarter and such like. have not been included in the expenses projection.

115 APPENDIX IV LETTER FROM THE OPERATION REVIEW CONSULTANT

The expenses projection are summarised below:

1996 2000 2010 2020 2025 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Hening Expressway Operation expense 11,287 11,753 12,559 12,912 13,096 Maintenance expense 7,921 9,529 11,713 17,318 19,715

1997 2000 2010 2020 2025 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Tianchang section of Highway 205 (Note) Operation expense 3,118 3,248 3,469 3,500 3,606 Maintenance expense 2,320 2,937 3,072 3,124 3,200

Note: The split of operation and maintenance costs projection for Tianchang section of Highway 205 is a rough approximation based on engineering judgement of SWK.

6. Conclusion

SWK considers that the administration and maintenance procedures for the Hening Expressway are not inferior to other similar expressways in PRC. However, the Company is recommended to implement positive management procedures to:

● Reconstruct the defective works on the soft ground sections to the required standard.

● Upgrade the traffic monitoring system in the Feidong Administration Office to include the Dashushan, Longtong section of Hening Expressway as an integral part of the system.

● Implement a programme to evaluate the conditions of the pavement to develop an appropriate maintenance and strengthening programme for the pavement.

● Replace defective movement joints as soon as possible.

● Provide adequate traffic management facilitates during any maintenance works to provide adequate warning to drivers.

● Enforce safety measures on Hening Expressway.

● Improve the information system (for example, traffic signs, lane use signals, message signs, warning signs, etc.) on Hening Expressway and Tianchang section of Highway 205 to cope with future increases in traffic.

● Develop a system to identify toll free vehicles to reduce the number of abnormal transaction.

Yours faithfully, For and on behalf of Scott Wilson Kirkpatrick (Hong Kong) Limited Cheung Chung-hoi Director

116 APPENDIX V LETTER FROM THE TOLL SYSTEM REVIEW CONSULTANT

The following is the text of the letter received from SWK, the toll system review consultant, prepared for inclusion in this prospectus, summarising its report on the technical audit of the proposed toll collection systems for Hening Expressway and Tianchang section of Highway 205: Scott Wilson Kirkpatrick CONSULTING ENGINEERS

Scott Wilson Kirpatrick • 38th Floor Metroplaza Tower 1 • 223 Hing Fong Road • Kwai Fong • Hong Kong

31st October, 1996 App.1A 9(3)

The Directors Anhui Expressway Company Limited 219 Anqing Road Hefei, Anhui The People’s Republic of China

Dear Sirs,

Re: Technical audit of the proposed toll systems for Hening Expressway and Tianchang section of Highway 205

Scott Wilson Kirkpatrick (Hong Kong) Ltd was appointed by Anhui Expressway Company Limited (the “Company”) to carry out an independent technical audit of the proposed toll system for Hening Expressway and Tianchang section of Highway 205 for the purpose of listing of the Company in the Stock Exchange of Hong Kong Ltd. The terms defined in the prospectus of the Company dated 31st October, 1996 shall have the same meanings herein unless the context otherwise requires. A fair summary of the findings of the report titled “Technical Audit of Proposed Toll Systems” prepared by SWK in association with Europistas, a Spanish toll road operator for the Company is set out below:— l. Introduction

The objectives of the study are:

● To develop an understanding of the proposed automatic toll systems through discussions with the Company and a study of the available documentation;

● To study the configuration of the toll systems and to assess the effectiveness to detect and minimise fraud and pilfering of toll charges;

● To propose measures to further reduce fraud and enhance improvements on the system.

The design of the toll system for Hening Expressway was completed and the study has been carried out based on the design drawings as presented to SWK during their visit to Hefei from 12 June 1996 to 17 June 1996. A conceptual design of the toll system without any drawings for Tianchang section of Highway 205 has been developed and hence comments were based on the description of the conceptual design provided to SWK.

117 APPENDIX V LETTER FROM THE TOLL SYSTEM REVIEW CONSULTANT

2. General Observations

2. l Hening Expressway

a) The system is designed as a closed system where the entry and exit of a vehicle is monitored by a PC based computer system.

b) Tolls are charged in accordance with the different vehicle classifications and the distance of the journey.

c) Vehicles are classified independently by the toll operators at the entry lane and exit lane based on their personal judgment.

d) The computer system records every toll transaction which will be used to check the cash collected by the toll operators.

e) The system design is reasonably secured and the operating and management structure is able to eliminate the acts of individual who tries to fraud the system.

f) A free flow interchange with Hefei-Chaohu Expressway is being constructed and such interchange is not expected to be completed in two years time. The Company should resolve the toll system interface for traffic using the two expressways.

2.2 Tianchang section of Highway 205

a) The system equipment specifications are similar to the one used for Hening Expressway and hence should be of a standard which will ensure tolls are collected properly.

b) There are two major differences with the system used for Hening Expressway:

● An open toll system is adopted for Tianchang section of Highway 205.

● An automatic vehicle classification system has been included in the system for the Tianchang section of Highway 205 as a check on the manual classification carried out by toll collectors.

3. Recommendations

3.1 Hening Expressway

a) The number of entry and exit lanes should be put into operation in accordance with the traffic growth.

b) The layout of the toll plaza at Wuzhuang should be reviewed to minimise the interferance between traffic along Hening Expressway and a local road and to eliminate the possible bypass of a vehicle from Hening Expressway via the service area.

c) The number of toll booths at Wuzhuang is not adequate to cope with the ultimate traffic volume. Provisions for expansion or relocation to an area close to the Quanjiao Administration Office should be considered. The use of reversible toll lanes may be considered as a temporary measure if necessary.

118 APPENDIX V LETTER FROM THE TOLL SYSTEM REVIEW CONSULTANT

d) An automatic vehicle classification system should be considered when this is available.

e) The Company should ensure that illegal entry and exit accesses along the Hening Expressway are blocked.

f) The magnetic card which is less susceptible to fraud should be adopted for the toll system.

g) A management structure should be established to avoid the collusion between employees to defraud the system.

3.2 Tianchang section of Highway 205

a) If possible, the automatic vehicle classification system should be located before the toll booth so that any discrepancy in the manual and automatic vehicle classifications be resolved prior to departure of the vehicle from the toll plaza.

b) The toll charge on the existing parallel road should be resolved to ensure that it will not compete with the Tianchang section of Highway 205.

4. Conclusion

SWK considers that the detailed design of the toll system for Hening Expressway and the conceptual design of the toll system for Tianchang section of Highway 205 have achieved the objectives of minimising fraud by human factors. The recommendations in section 3 serve as a constructive opinion to improve the operating efficiency and security of the systems. It is further recommended to conduct a trial run, witnessed by an independent third party, upon completion of construction of the toll systems and before actual operation, to give the Company an opportunity to resolve any potential problems before they occur and to prove that the system meets the design requirements.

Yours faithfully, For and on behalf of Scott Wilson Kirkpatrick (Hong Kong) Limited Cheung Chung-hoi Director

119 APPENDIX VI PROFIT FORECAST

The forecast of the profit after taxation but before extraordinary items of the Company for the year ending 31st December, 1996 is set out in the section headed “Profit forecast and dividends” above.

1. BASES AND ASSUMPTIONS

The Directors have prepared the forecast profit after taxation but before extraordinary App. 1A 34(2) items of the Company for the year ending 31st December, 1996 on the basis of the audited results for the four months ended 30th April, 1996, the unaudited management accounts of the Company for the four months ended 31st August, 1996 and a forecast of the results of the App. 1A 38 Company for the remaining four months of the year ending 31st December, 1996. The Directors are not aware of any extraordinary items which have arisen or are likely to arise for the year ending 31st December, 1996. The forecast has been prepared on a basis consistent in all material respects with the basis of presentation and accounting policies presently adopted by the Company as summarised in sections 2 and 3 of the accountants’ report as set out in appendix I.

The Directors have made the following principal assumptions in the preparation of the profit forecast:

(a) there will be no material changes in the existing political, fiscal, legal, regulatory or economic conditions in PRC in which the Company carries on business;

(b) there will be no material changes in the bases or rates of taxation applicable to the activities of the Company;

(c) there will be no material changes in interest rates and foreign currency exchange rates from those currently prevailing;

(d) traffic volumes will be as forecast by SWK in the report on traffic and toll revenue forecast, a copy of its letter summarising its report is set out in appendix III of this prospectus; and

(e) there will be no natural catastrophes which could materially affect the normal operations of the Hening Expressway.

120 APPENDIX VI PROFIT FORECAST

2. LETTERS

Set out below are texts of the letters received by the Directors from Arthur Andersen & Co. and from Crosby and CEF in connection with the profit forecast of the Company for the year ending 31st December, 1996.

Arthur Andersen & Co. Certified Public Accountants 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong

31st October, 1996 App 1A 9(3)

The Directors Anhui Expressway Company Limited Crosby Capital Markets (Asia) Limited CEF Capital Limited

Dear Sirs,

We have reviewed the accounting policies applied and the calculations made in arriving at the forecast profit after taxation but before extraordinary items of Anhui Expressway Company Limited (the “Company”) for the year ending 31st December, 1996 (the “forecast”), for which the directors of the Company are solely responsible, as set out in the prospectus of the Company dated 31st October, 1996. The forecast has been prepared by the directors of the Company based on the audited results for the four months ended 30th April, 1996 , the unaudited management accounts of the Company for the four months ended 31st August, 1996 and a forecast of the results of the Company for the remaining four months of the year ending 31st December, 1996.

In our opinion, the forecast, so far as the accounting policies and calculations are A34(2) concerned, has been properly compiled on the basis of the assumptions made by the directors of the Company as set out in appendix VI of the above-mentioned prospectus, and is presented on a basis consistent in all material respects with the accounting policies presently adopted by the Company as set out in our accountants’ report dated 31st October, 1996, the text of which is set out in appendix I of the above-mentioned prospectus.

Yours faithfully, ARTHUR ANDERSEN & CO. Certified Public Accountants Hong Kong

121 APPENDIX VI PROFIT FORECAST

Crosby Capital Markets (Asia) Limited CEF Capital Limited 27th Floor 2nd Floor Two Pacific Place China Building 88 Queensway 29 Queen’s Road Central Hong Kong Hong Kong

31st October, 1996 App.1A 9(3)

The Directors Anhui Expressway Company Limited 219 Anqing Road Hefei, Anhui The People’s Republic of China

Dear Sirs,

We refer to the forecast profit after taxation but before extraordinary items of Anhui Expressway Company Limited (“Company”) for the year ending 31st December, 1996 (the “Forecast”) as set out in the prospectus of the Company dated 31st October, 1996.

We have discussed with you the bases and assumption upon which the Forecast has been made. We have also considered the letter dated 31st October, 1996 addressed to yourselves and ourselves from Arthur Andersen & Co. regarding the accounting policies and calculations upon which the forecast has been made.

On the basis of the assumption made by you and on the bases of the accounting policies A34(2) and calculations reviewed by Arthur Andersen & Co., we have formed the opinion that the Forecast, for which you as directors are solely responsible has been made after due and careful enquiry.

Yours faithfully, Yours faithfully, For and on behalf of For and on behalf of Crosby Capital Markets (Asia) Limited CEF Capital Limited Leung Man Kit, Michael Catherine Wong Director Executive Director

122 APPENDIX VII OVERVIEW OF THE PRC AND OF ANHUI PROVINCE

OVERVIEW OF THE PRC

Area and population

The PRC is the third largest country in the world with a land area of approximately 9.6 million square kilometres.

The PRC had a population of approximately 1.2 billion at the end of 1995. The population is unevenly distributed, being very dense in the east, particularly in the nine eastern coastal provinces and municipalities which make up approximately 36 per cent. of the total population. The eastern population resides in nine per cent. of the total land area with a density of 400 people per square kilometre. The western part of the PRC is sparsely populated. Xinjiang, Tibet, and Ningxia autonomous regions and and Gangsu provinces make up to about one half of the total land area of the PRC but contain only approximately six per cent. of the population with an average of less than 16 people per square kilometre.

The PRC is becoming increasingly urbanised. In 1949, the PRC urban population accounted for only approximately 11 per cent. of the total population. At the end of 1992, about 28 per cent. of the population (that is, more than 300 million people), lived in the cities.

Economic development in the PRC

The PRC adopted a centrally planned economy during 1949 to the late 1970’s. In 1978, however, China embarked on an economic reform programme, the main emphasis of which has been to promote economic development. Over the last 18 years, the economy in China has been increasingly decentralised and open to foreign investment. Enterprises are also allowed to have greater autonomy in their daily operation. China’s foreign trade has grown steadily and the people’s standard of living has improved resulting in changes in their consumption patterns and lifestyle. During the last decade, China has maintained compound GNP growth of approximately 20 per cent. per annum.

123 APPENDIX VII OVERVIEW OF THE PRC AND OF ANHUI PROVINCE

The following table sets out major economic indicators of the PRC from 1990 to 1994:

1990 1991 1992 1993 1994

Gross national product (% change) (i) 3.9 9.5 14.0 13.3 11.6 Agricultural output (% change) (i) 7.6 3.7 6.4 7.8 8.6 Industrial output (% change) (i) 7.8 14.8 27.5 28.0 26.1 Per capita GNP (% change) (i) 2.4 7.8 12.8 12.2 10.2 Gross domestic investment (% of GDP) (iii) 35.2 35.4 37.2 43.5 40.0 Gross domestic savings (% of GDP) (iii) 37.9 38.1 38.4 41.5 41.4 Inflation rate (% change in retail price index) (i) 2.1 2.9 5.4 13.2 21.7 Gross industrial output value (% change) (i) 7.8 14.8 27.5 28.0 26.1 Merchandise exports (US$ billion) (i) 62.1 71.8 84.9 91.7 121.0 (% change) 18.2 15.8 18.2 8.0 32.0 Merchandise imports (US$ billion) (i) 53.4 63.8 80.6 104.0 115.7 (% change) (9.8) 19.6 26.3 29.0 11.3 Trade balance (US$ billion) (i) 8.7 8.1 4.4 (12.2) 5.4 Current account balance (US$ billion) (iii) 12.0 13.1 6.2 (11.7) 6.5 (% of GDP) (iii) 3.1 3.2 1.3 (2.0) 1.3 External debt outstanding (US$ billion) (iii) 52.8 60.0 69.8 84.5 101.0 Debt service ratio (%) (iii) 11.5 11.8 10.2 11.2 8.9 Exchange Rate (RMB per US$) (iii) 4.8 5.3 5.5 5.8 8.6 (annual average)

Source: Based on (i) China Statistical Yearbook 1995 compiled by the State Statistical Bureau of the PRC (ii) Asian Development Outlook 1996/1997 Difficulties were however encountered in implementing China’s economic reforms. Inflationary pressure, overheating of the national economy and serious bottlenecks in infrastructure were amongst various factors that prompted the government to resort to a retrenchment policy in 1981 to 1982, 1985 and from late 1988 to 1991. Starting in early 1992, boosted by calls for faster economic development, the pace of the PRC’s economic reform accelerated and another period of very fast economic development followed. However, economic problems are again being encountered mainly due to over-investment in fixed assets, rapid growth in the monetary supply, serious bottlenecks in transport infrastructure and excessive increases in the prices of some consumer goods and the cost of production. As a result, in the second half of 1993, the PRC implemented macro-economic and fiscal policies (commonly known as “austerity measures”) in an effort to control its overheated economy. These measures included raising interest rates, calling in speculative loans, cutting government expenditure and suspending some price reform measures. The challenge facing the PRC’s economic planners is to ensure that the economy continues to grow, but that this growth takes place in a stable and non-inflationary environment. The planned objective of the macro-economic and fiscal policies has been achieved, in that the economy is now growing in a more stable manner. Except for certain grain and cotton procurement and toll road price increases, other planned adjustments of prices is likely to be delayed. In addition, the central government is likely to strengthen the responsibility system of the localities on inflation control.

124 APPENDIX VII OVERVIEW OF THE PRC AND OF ANHUI PROVINCE

OVERVIEW OF ANHUI PROVINCE

Location, area and population

Anhui is located in central eastern China. It adjoins Jiangsu in the east, Jiangxi in the south, Hubei and Henan in the west and Shandong in the north. Located in the vicinity of the lower streams of theYangtze River and the Huaihe River, it is an inland province of Eastern China along rivers and close to the sea, and hence, a key link between coastal regions in the eastern and the central southern parts of China.

The map below shows the location of Anhui:

Beijing

Lianyungang

Nanjing

Y Hefei Shanghai an gt ze River

Hong Kong

Note: Northern China includes Beijing, Tianjin, Hebei, and Inner Mongolia Autonomous Region. Northeastern China includes Liaoning, and Heilongjiang. Eastern China includes Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi, Shangdong and Shanghai. Central Southern China includes Henan, Hunan, Guangdong , Hainan and Autonomous Region. Southwestern China includes Sichuan, , Yunnan and Tibet Autonomous Region. Northwestern China includes , , Qinghai, Ningxia Autonomous Region and Xinjiang Autonomous Region.

125 APPENDIX VII OVERVIEW OF THE PRC AND OF ANHUI PROVINCE

Anhui covers an area of 139,400 square kilometres, representing 1.3 per cent. of PRC’s total area.

In 1995, Anhui had a population of slightly less than 60 million, accounting for 5 per cent. of the total population of the PRC.

Anhui is divided into ten cities under the control of the province and six districts. The ten cities are Hefei, Wuhu, Bangbu, Huainan, Maanshan, Huaibei, Tongling , Huangshan, Anqing and Xuzhou. The six districts are Fuyang, Suxian, Liuan, , Chaohu and . Under the province-controlled cities and the districts are 68 counties.

Economic development

The economic reform and open-door policy adopted by the PRC Government has achieved marked success in the coastal provinces and municipalities. However, in stimulating nation-wide economic development, particularly for the inner regions, the policy has been far from successful. In this connection, one of the main objectives of the Plan is to redress this situation by placing greater emphasis on the development of inner provinces and strengthening their connection with the coastal provinces and municipalities.

Due to its close proximity to the Yangtze River Delta economic zone around Shanghai, Anhui is set to become a key economic link between the coastal regions in Eastern China and the regions in . This not only continues to provide the momentum for the economic growth in Anhui, but has also been the major driving force for Anhui’s fast economic development in recent years. In 1993, 1994 and 1995, the annual GDP growth rates of Anhui province were well above the average growth rates of the PRC as a whole. At most of the times during such period, they were also comparable to those in the neighbouring Jiangsu province and Shanghai. The following table shows the annual GDP growth rates in 1991 prices of the aforesaid areas:

1992 1993 1994 1995

Anhui 20.8% 33.5% 39.1% 34.6% The PRC 23.0% 29.4% 34.6% 23.1% Jiangsu 20.0% 40.4% 35.3% 27.1% Shanghai 24.7% 35.0% 30.4% 24.9%

Source: China Statistical Yearbook 1996 compiled by the State Statistical Bureau of the PRC.

In 1995, the GNP of Anhui reached approximately RMB200,400,000,000, accounting for 3.5 per cent. of the GNP of the PRC. However, the per capita GNP of Anhui in 1995 was RMB3,339.4 compared with RMB4,728.9 for the PRC as a whole.

126 APPENDIX VII OVERVIEW OF THE PRC AND OF ANHUI PROVINCE

The following table sets out various major economic statistics for Anhui province for the years 1985, 1990, 1993 and 1994:

%of %of %of %of %of the the the the the 1985 PRC 1990 PRC 1993 PRC 1994 PRC 1995 PRC

Gross national product 33,124 3.7 65,803 3.5 106,992 3.1 148,856 3.2 200,366 3.5 (RMB in million)

Industrial and 47,551 3.6 104,126 3.3 207,728 3.5 325,265 3.8 413,621 3.7 Agriculturial output (RMB in million)

Industrial output 27,727 2.9 67,032 2.8 155,816 3.2 247,822 3.5 315,595 3.4 (RMB in million)

Per capita GNP per 645 N/A 1,182 1,831 2,521 3,356 person (RMB per person)

Inflation rate (% change 6.4 1.9 12.9 23.2 12.7 in retail price index)

Foreign trade total 430 0.6 737 0.6 1,288 0.7 1,849 0.8 2,308 0.8 imports and exports (US$ in million)

Foreign trade imports 307 0.7 654 1.2 964 0.9 1,276 1.1 1,577 1.2 (US$ in million)

Foreign trade exports 123 0.5 83 0.1 324 0.4 572 0.5 730 0.5 (US$ in million)

Source: Anhui Statistical Yearbook 1995 and 1996 and China Statistical Yearbook 1996.

The table above shows that the industrial output of Anhui in 1995 accounted for 76 per cent. of the province’s industrial and agricultural output. This can be attributed to the rich mineral resources in Anhui, which boost its development in various industries. Moreover, the steady increases in percentage of Anhui’s industrial output also demonstrates its increasing importance in the PRC’s total industrial output. Moreover, Anhui is also one of the provinces which have the richest tourism resources in the PRC. At present, there are five state level scenic spots in Anhui, namely, Huangshan, Jiuhuashan, Wuzhushan, Langshan and Qiyunshan.

This appendix sets out summaries of certain aspects of the PRC legal and judicial system, its arbitration system and its company and securities regulations. It also contains a summary of certain Hong Kong legal and regulatory provisions, including summaries of certain of the material differences between PRC and Hong Kong company law, certain requirements of the Listing Rules and the additional provisions required by the Stock Exchange for inclusion in the articles of association of PRC issuers.

1. PRC LAWS AND REGULATIONS Rule19A.29 29(3)

(a) The PRC legal system

The PRC legal system is based on the PRC Constitution and is made up of written laws, regulations and directives. Decided court cases do not constitute binding precedents.

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The National People’s Congress of the PRC (“NPC”) and the Standing Committee of the NPC are vested with powers under the PRC Constitution to exercise the legislative power of the state. The NPC has the power to amend the PRC Constitution and to enact and amend primary laws governing the state organs, civil and criminal matters. The Standing Committee of the NPC is empowered to interpret, enact and amend laws other than those required to be enacted by the NPC.

The State Council of the PRC is the highest organ of state administration and has the power to enact administrative rules and regulations. Ministries and commissions under the State Council of the PRC are also vested with the power to issue orders, directives and regulations within the jurisdiction of their respective departments. Administrative rules, regulations, directives and orders promulgated by the State Council and its ministries and commissions may not be in conflict with the PRC Constitution or any national laws. In the event that any conflict arises, the Standing Committee of the NPC has the power to annul such administrative rules, regulations, directives and orders.

At the regional level, the people’s congresses of provinces and municipalities and their standing committees may enact local rules and regulations and the people’s government may promulgate administrative rules and directives applicable to their own administrative area. These local laws and regulations may not be in conflict with the PRC Constitution, any national laws or any administrative rules and regulations promulgated by the State Council.

Rules, regulations or directives may be enacted or issued at the provincial or municipal level or by the State Council of the PRC or its ministries and commissions in the first instance for experimental purposes. After sufficient experience has been gained, the State Council may submit legislative proposals to be considered by the NPC or the Standing Committee of the NPC for enactment at the national level.

The power to interpret laws is vested by the PRC Constitution in the Standing Committee of the NPC. According to the Decision of the Standing Committee of the NPC Regarding the Strengthening of Interpretation of Laws ( ) passed on 10th June, 1981, the Supreme People’s Court has the power to give general interpretation on application of laws in judicial proceedings apart from its power to issue specific interpretation in specific cases. The State Council and its ministries and commissions are also vested with the power to give interpretation of the rules and regulations which they promulgated. At the regional level, the power to give interpretation of regional laws is vested in the regional legislative and administration organs which promulgate these laws. All such interpretations carry legal effect.

(b) Judicial system

The People’s Courts are the judicial organs of the PRC. Under the PRC Constitution and the Law of Organisation of the People’s Courts of the PRC ( ), the People’s Courts comprise the Supreme People’s Courts, the local people’s courts, military courts and other special people’s courts. The local people’s courts are divided into three levels, namely, the basic people’s courts, intermediate people’s courts and higher people’s courts. The basic people’s courts are divided into civil, criminal and economic divisions. The intermediate people’s courts have divisions similar to those of the basic people’s courts and, where the circumstances so warrant, may have other special divisions (such as intellectual property divisions). The

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judicial functions of people’s courts at lower levels are subject to supervision of people’s courts at higher levels. The people’s procuratorates also have the right to exercise legal supervision over the civil proceedings of people’s courts of the same and lower levels. The Supreme People’s Court is the highest judicial organ of the PRC. It supervises the administration of justice by the people’s courts of all levels.

The people’s courts adopt a two-tier final appeal system. A party may before the taking effect of a judgment or order appeal against the judgment or order of the first instance of a local people’s court to the people’s court at the next higher level. Judgments or orders of the second instance of the same level and at the next higher level are final and binding. Judgments or orders of the first instance of the Supreme People’s Court are also final and binding. If, however, the Supreme People’s Court or a people’s court at a higher level finds an error in a final and binding judgment which has taken effect in any people’s court at a lower level, or the presiding judge of a people’s court finds an error in a final and binding judgment which has taken effect in the court over which he presides, a retrial of the case may be conducted according to the judicial supervision procedures.

The PRC civil procedures are governed by the Civil Procedure Law of the PRC ( )(the “Civil Procedure Law”) adopted on 9th April, 1991. The Civil Procedure Law contains regulations on the institution of a civil action, the jurisdiction of the people’s courts, the procedures in conducting a civil action, trial procedures and procedures for the enforcement of a civil judgment or order. All parties to a civil action conducted within the territory of the PRC must comply with the Civil Procedure Law. A civil case is generally heard by a court located in the defendant’s place of domicile. The jurisdiction may also be selected by express agreement by the parties to a contract provided that the jurisdiction of the people’s court selected has some actual connection with the dispute, that is to say, the plaintiff or the defendant is located or domiciled, or the contract was executed or implemented in the jurisdiction selected, or the subject-matter of the proceedings is located in the jurisdiction selected. A foreign national or foreign enterprise is accorded the same litigation rights and obligations as a citizen or legal person of the PRC. If any party to a civil action refuses to comply with a judgment or order made by a people’s court or an award made by an arbitration body in the PRC, the aggrieved party may apply to the people’s court to enforce the judgment, order or award. There are time limits on the right to apply for such enforcement. Where at least one of the parties to the dispute is an individual, the time limit is one year. If both parties to the dispute are legal persons or other entities, the time limit is six months.

A party seeking to enforce a judgment or order of a people’s court against a party who or whose property is not within the PRC may apply to a foreign court with jurisdiction over the case for recognition and enforcement of such judgment or order. A foreign judgment or ruling may also be recognised and enforced according to PRC enforcement procedures by the people’s courts in accordance with the principle of reciprocity or if there exists an international or bilateral treaty with or acceded to by the foreign country that provides for such recognition and enforcement, unless the people’s court considers that the recognition or enforcement of the judgment or ruling will violate fundermental legal principles of the PRC or its sovereignty, security or social or public interest.

(c) Arbitration and enforcement of arbitral awards

The Arbitration Law of the PRC ( ) (the “Arbitration Law”)was promulgated by the Standing Committee of the NPC on 31st August, 1994 and came into effect on 1st September, 1995. It is applicable to, among other matters, trade disputes

129 APPENDIX VIII SUMMARY OF RELEVANT PRC AND HONG KONG LAWS AND REGULATIONS

involving foreign parties where the parties have entered into a written agreement to refer the matter to arbitration before an arbitration committee constituted in accordance with the Arbitration Law. Under the Arbitration Law, an arbitration committee may, before the promulgation by the PRC Arbitration Association of arbitration regulations, formulate interim arbitration rules in accordance with the Arbitration Law and the PRC Civil Procedure Law. Where the parties have by an agreement provided arbitration as a method for dispute resolution, the parties are not permitted to institute legal proceedings in a people’s court.

The Listing Rules and the Mandatory Provisions require an arbitration clause to be included in the articles of association of a company listed in Hong Kong and in the case of the Listing Rules, also in a contract between the company and each director and supervisor, to the effect that whenever any dispute or claim arises from any rights or obligations provided in the articles of association, the Company law and other relevant laws and administrative regulations concerning the affairs of the company between (i) a holder of overseas listed foreign shares and the company; (ii) a holder of overseas listed foreign shares and the directors, supervisors, manager or other officers of the company; or (iii) a holder of overseas listed foreign shares and a holder of domestic shares, then, unless otherwise specified in the articles of association of the company concerned, such parties shall submit that dispute or claim to arbitration before either the China International Economic and Trade Arbitration Commission (“CIETAC”) or the Hong Kong International Arbitration Centre (“HKIAC”). If the party seeking arbitration elects to arbitrate the dispute or claim at HKIAC, then any other party to the dispute may apply to have such arbitration conducted in Shenzhen according to the securities arbitration rules of HKIAC. CIETAC is a foreign affairs arbitration body in the PRC. CIETAC is located in Beijing with branch offices in Shenzhen and Shanghai.

Under the Arbitration Law, an arbitral award is final and binding on the parties and if a party fails to comply with an award, the other party to the award may apply to the people’s court for enforcement. A people’s court may refuse to enforce an arbitral award made by an arbitration committee if there were mistakes in law, an absence of material evidence, or irregularities over the arbitration proceedings or the jurisdiction or constitution of the arbitration committee.

A party seeking to enforce an arbitral award of a foreign affairs arbitration body of the PRC against a party who or whose property is not within the PRC may apply to a foreign

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court with jurisdiction over the case for enforcement. Similarly, an arbitral award made by a foreign arbitration body may be recognised and enforced by the PRC courts in accordance with the principles of reciprocity or any international treaty concluded or acceded to by the PRC.

In respect of contractual and non-contractual commercial-law-related disputes which are recognised as such for the purposes of PRC law, the PRC has acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Award (the “New York Convention”) adopted on 10th June, 1958 pursuant to a resolution of the Standing Committee of the NPC passed on 2nd December, 1986. The New York Convention provides that all arbitral awards made by a state which is a party to the New York Convention shall be recognised and enforced by other parties to the New York Convention subject to their right to refuse enforcement under certain circumstances including where the enforcement of the arbitral award is against the public policy of the state to which the application for enforcement is made . It was declared by the Standing Committee of the NPC at the time of the accession of the PRC that (1) the PRC would only recognise and enforce foreign arbitral awards on the principle of reciprocity and (2) the PRC would only apply the New York Convention in disputes considered under PRC laws to be arising from contractual and non-contractual mercantile legal relations.

(d) Foreign exchange control

Major reforms have been introduced on the foreign exchange control system of the PRC since 1993.

The People’s Bank of China, with the approval of the State Council, issued on 28th December, 1993 the Notice on the Further Reform of the Foreign Exchange Control System ( ) and on 26th March, 1994 the Provisional Regulations on the Management System for Settlement, Sale and Payment of Foreign Exchange ( ), which came into effect on 1st January 1994 and 1st April 1994 respectively. On 29th January, 1996, the State Council promulgated the PRC Foreign Exchange Control Regulations ( ) which took effect on 1st April, 1996. On 20th June 1996, the PBOC issued the Administration Regulations on the Settlement, Sale and Payment of Foreign Exchange ( ), which took effect on 1st July 1996. These regulations contain detailed provisions regulating the holding, sale and purchase of foreign exchange by individuals, enterprises, economic bodies and social organisations in the PRC.

Under the new regulations, the previous dual exchange rate system for Renminbi was abolished and a unified floating exchange rate system based largely on supply and demand was introduced. The People’s Bank of China, having regard to the trading prices between Renminbi and major foreign currencies on the inter-bank foreign exchange market, publishes on each bank business day the Renminbi exchange rates against major foreign currencies.

In general, all organisations and individuals within the PRC, including foreign investment enterprises, are required to remit their foreign exchange earnings to the PRC. In relation to PRC enterprises, their recurrent foreign exchange earnings are generally required to be sold to designated banks unless specifically approved otherwise. FIEs, on the other hand, are permitted to retain certain percentage of their recurrent foreign

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exchange earnings and the sums retained may be deposited into foreign exchange bank accounts maintained with designated banks. Capital foreign exchange earnings must be deposited into foreign exchange bank accounts maintained with designated banks and can generally be retained in such accounts.

At present, control on the purchase of foreign exchange is being relaxed. Enterprises which require foreign exchange for their current account transactions such as trading activities and payment of staff remuneration may purchase foreign exchange from designated banks, subject to the production of relevant supporting documents.

In addition, where an enterprise requires any foreign exchange for the payment of dividends that are payable in foreign currencies under applicable regulations, such as dividends on the H Shares and the distribution of profits by an FIE to its foreign investment party, then, subject to the due payment of tax on such dividends the amount required may be withdrawn from funds in foreign exchange accounts maintained with designated banks, and where the amount of the funds in foreign exchange is insufficient, the enterprise may purchase additional foreign exchange from designated banks upon the presentation of the resolutions of the directors on the profit distribution plan of that enterprise.

The foreign exchange proceeds of an issue of shares by a PRC enterprise (such as the Company) constitute a capital account item under the Principal Forex Regulations. Under the Regulations, such proceeds are required to be remitted to the PRC and maintained in an account with a designated bank or, with the approval of the foreign exchange regulatory authorities, sold to designated banks.

Despite the relaxation of foreign exchange control over current account transactions, the approval of the SAEC is still required before a PRC enterprise may borrow a loan in foreign currency or provide any foreign exchange guarantee or make any investment outside of the PRC or enter into any other capital account transaction which involves the purchase of foreign exchange.

When conducting actual foreign exchange transactions, designated banks may, based on the exchange rate published by the PBOC and subject to certain limits, freely determine the applicable exchange rate.

Foreign exchange quota entitlements brought forward under the old system will be gradually phased out, and the holders of these entitlements will be permitted to use their remaining quotas to purchase foreign exchange through Swap Centres within a prescribed period.

The China Foreign Exchange Trading Centre (“CFETC”) was formally established and came into operation on 1st January, 1994. CFETC has set up a computerised network with sub-centres in several major cities, thereby forming an interbank market in which designated PRC banks can trade in foreign exchange and settle their foreign currency obligations. The establishment of CFETC was originally intended to coincide with the elimination of the Swap Centres. The Swap Centres, however, have been retained as an interim measure. At present, enterprises with foreign investment may at their own choice enter into exchange transactions through Swap Centres or through designated PRC banks. There are at present 13 designated banks.

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On 10th January, 1994, CSRC and SAEC jointly issued the Notice Relating to Certain Exchange Control Matters for the Overseas Listed Enterprises. The Notice provides that:

— upon the approval of SAEC, an overseas listed enterprise may open a foreign exchange account with a bank within the PRC for the deposit of foreign currency proceeds received from overseas share offers;

— within 10 days after receiving the share offer proceeds, the enterprise should transfer such proceeds into a PRC bank account;

— upon the approval of SAEC, the enterprise may remit the foreign exchange from its foreign currency bank account to foreign investors outside the PRC for the purposes of payment of dividends or other profit distribution; and

— where over 25 per cent. of the share capital of the enterprise is held by foreign investors, such enterprise may apply to the Ministry of Foreign Trade and Economic Co-operation (“MOFTEC”) for joint venture status and, upon the approval of MOFTEC, the foreign exchange matters of such enterprise shall be dealt with in accordance with foreign exchange regulations applicable to foreign investment enterprises.

The provisions of the Notice summarised above appear not to be entirely consistent with the more recently promulgated Principal Forex Regulations. It is unclear whether the provisions of the Notice or the provisions of the Regulations prevail.

(e) Taxation

(i) Income tax on enterprises

Under the Provisional Regulations of the PRC Concerning Income Tax on Enterprises ( ) promulgated by the State Council and which came into effect on 1st January, 1994, income tax is payable by state owned enterprises, collectively owned enterprises, private enterprises, joint stock enterprises and other entities at a rate of 33 per cent. of their taxable income. Preferential tax treatment may, however, be granted pursuant to any law or regulations from time to time promulgated by the State Council.

(ii) Value added tax

The Provisional Regulations of the PRC Concerning Value Added Tax ( ) promulgated by the State Council came into effect on 1st January, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax ( ), value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.

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Value added tax payable in the PRC is charged on an aggregated basis at a rate of 13 or 17 per cent. (depending on the type of goods involved) on the price collected for the goods sold or, in the case of taxable services provided, at a rate of 17 per cent. on the charges for the taxable services provided but excluding, in respect of both goods and services, any amount paid in respect of value added tax included in the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and services in the same financial year.

(iii) Business tax

With effect from 1st January, 1994, business that provide services (save entertainment business), assign intangible assets or sell immovable property became liable to business tax at the rate of 3 to 5 per cent. of the charges of the services provided, intangible assets assigned or immovable property sold, as the case may be. The Company is liable for business tax at the rate of 3 per cent. in respect of its toll collections. Business tax and value added tax are mutually exclusive. The Company is not liable for any value added tax on its toll collection receipts.

(iv) Tax on dividends

Under the Provisional Regulations of the PRC Concerning Questions of Taxation on Pilot Joint Stock Enterprises ( ) promulgated on 12th June, 1992, a 20 per cent. tax is required to be withheld on dividends received by an individual from a pilot joint stock enterprise; and the withholding is required under these regulations to be made in accordance with the provisions of the Individual Income Tax Law of the PRC ( ) adopted on 10th September, 1980. A reduced tax rate will apply if dividends are received by a foreign individual who is not resident in the PRC and is resident in a country that has a double taxation treaty with the PRC.

Under the Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises ( ) (the “Foreign Enterprises Tax Law”) promulgated on 9th April, 1991, income such as dividends and profits distribution from the PRC derived from a foreign enterprise which has no establishment in the PRC is subject to a 20 per cent. withholding tax, subject to reduction as provided by any applicable double taxation treaty, unless the relevant income is specifically exempted from tax under the Foreign Enterprises Tax Law.

On 21st July, 1993, the PRC State Tax Bureau issued the Notice Concerning Taxation of Income from Share (Equities) Transactions and Dividends Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Nationals (Guo Shui Fa [1993] No. 045) ( [1993] 45 )(the “Tax Notice”). The Tax Notice provides that dividends received by a foreign enterprise or a foreign individual from a PRC enterprise with shares listed on an overseas stock exchange (“overseas shares”) or with special Renminbi- denominated shares listed on a PRC stock exchange will not for the time being be subject to any withholding tax.

On 31st October, 1993, the Amendments to the Individual Income Tax Law of the PRC ( ) (the “Amendments”)were promulgated and came into effect on 1st January, 1994. Under the Amendments,

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dividends received from a PRC enterprise by a foreign individual who is not a resident of the PRC are subject to a 20 per cent. withholding tax. Notwithstanding the Amendments, the Tax Notice issued by the State Tax Bureau continues to be effective.

On 13th May, 1994, the PRC Ministry of Finance and the PRC State Tax Bureau jointly issued the Notice on the Relevant Policies Concerning Individual Income Tax (Cai Shui Zi [1994] No. 020) under which dividends received by a foreign individual from a PRC enterprise with foreign investment are, for the time being, exempted from individual income tax.

Accordingly, under current PRC laws and regulations, no withholding tax is payable in respect of dividends or other distributions on overseas shares held by any foreign enterprise or foreign individuals. If, however, the Tax Notice or the later notice issued on 13th May, 1994 is withdrawn, a 20 per cent. withholding tax may be applied on such dividends or distributions, unless such tax is reduced pursuant to an applicable double taxation treaty.

(v) Taxation on transfer of shares

The Tax Notice provides that gains realised by a foreign enterprise or a foreign individual through the transfer of overseas shares are exempted from capital gains tax. Under the Provisions for Implementation of Individual Income Tax Law of the PRC ( ) (the “Implementation Provisions”) promulgated on 28th January, 1994, gains realised on the sale of securities by an individual are subject to income tax at a rate of 20 per cent. and the Ministry of Finance is empowered to enact detailed rules for the collection of such tax. No such rules have yet been promulgated and it is not certain how such tax is to be paid to the PRC tax authorities. On 20th June, 1994, the Ministry of Finance and the State Tax Bureau issued the Notice on the Non-Levy on a Temporary Basis of Individual Income Tax on Gains from Share Transfers ( ), which provides that gains realised by an individual arising from a sale of shares would not be subject to individual income tax for 1994 and 1995. A notice to the effect that the Non-Levy Notice continues to apply in 1996 was issued by the relevant authority on 9th February, 1996.

The exemption enjoyed by foreign companies under the Tax Notice is not affected by the Implementation Provisions and continues to apply.

PRC stamp duty is not payable on a transfer of overseas shares provided that such transfer is not executed or received in the PRC.

(vi) Tax treaties

Foreign enterprises with no establishment in the PRC and individuals who are not resident in the PRC and are resident in countries which have entered into double taxation treaties with the PRC may be entitled to a reduction of withholding tax on dividends. At present, the PRC has entered into double taxation treaties with a number of countries, including , , France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States.

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(f) Company Law

On 29th November, 1993, the National People’s Congress promulgated the PRC Company Law which came into effect on 1st July, 1994. Before the implementation of the PRC Company Law, the formation and regulation of joint stock limited companies were governed by the Standard Opinion for Joint Stock Companies (the “Standard Opinion”) promulgated by SCRES on 15th May, 1992. The Standard Opinion was superseded by the PRC Company Law. The legal status of joint stock limited companies established pursuant to the Standard Opinion is preserved and these companies are required to comply with the requirements of the Company Law within a specified period of time. The Special Regulations applicable to joint stock limited companies to be listed overseas were passed by the State Council on 4th July, 1994 pursuant to Articles 85 and 155 of the PRC Company Law. On 27th August, 1994, the Mandatory Provisions, being provisions which must be incorporated in the articles of association of all PRC joint stock limited companies to be listed overseas, were jointly Securities Commission and SCRES. The Mandatory Provisions were supplemented by the Letter on the Opinion Regarding the Supplemental Amendments to the Articles of Association of Companies to be listed in Hong Kong) ( ) (the “Supplemental Amendments”) jointly promulgated by the Securities Commission and the Mandatory Provisions as supplemented by the Supplemental Amendments have been incorporated in the Articles of Association.

Set out below is a summary of the provisions of the PRC Company Law, the Special Regulations and the Mandatory Provisions as supplemented by the Supplemental Amendments.

(i) General

The PRC Company Law regulates two types of companies, namely companies incorporated in the PRC with limited liability and companies incorporated in the PRC as a joint stock limited company. Both types of companies have the status of an enterprise legal person.

The liability of shareholders of a limited liability company is limited to the extent of the amount of capital contributed by them and the company is liable to its creditors to the full amount of its assets. A joint stock limited company is a company having a registered share capital divided into shares of equal par value. The liability of its shareholders is limited to the extent of the amount payable, paid or credited as paid on the shares subscribed by them and the company is liable to its creditors to the full amount of its assets.

A company may invest in other limited liability companies and joint stock limited companies. Apart from investment companies and holding companies authorised by the State Council, the amount of a company’s aggregate investment in other joint stock limited companies and limited liability companies may not exceed 50 per cent. of its net assets. The Mandatory Provisions provide that a company may, subject to the approval of the companies supervisory department, operate as a holding company.

References below to “company” are to a joint stock limited company incorporated under the PRC Company Law with overseas listed foreign shares to be directly offered and listed in Hong Kong.

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(ii) Incorporation

Under the PRC Company Law, a company may be incorporated by either the promotion method or the public subscription method.

The entire issued share capital of a company incorporated by the promotion method must be subscribed by the promoters. If a company is established by the public subscription method, not less than 35 per cent. of the issued shares of the company must be subscribed by its promoters, the remaining issued shares must be offered for subscription by the public.

Under the PRC Company Law, the establishment of a company, regardless of the method of incorporation, requires more than five promoters and over half of the promoters are required to have a residential address in the PRC. A state owned enterprise which is restructured into a joint stock limited company by the public subscription method may have fewer than five promoters.

Under the Special Regulations, a state owned enterprise or an enterprise with a majority of its assets owned by the State can be restructured in accordance with the relevant regulations to become a joint stock limited company and may offer shares for subscription by overseas investors. If such a company is established by the promotion method, it may have fewer than 5 promoters and the company may issue new shares once it has been incorporated.

(iii) Procedures for establishment of companies

The establishment of a company must be approved by the relevant governmental department authorised by the State Council or by the relevant provincial government.

In respect of a company established by the promotion method, the promoters will be required to elect a board of directors and a supervisory committee after they have paid up in full (in cash or in kind) the amount of shares subscribed by them. The board of directors of the company shall submit supporting documents such as the company’s articles of association and a capital verification certificate to the Administration for Industry and Commerce Bureau for the registration of the company.

In respect of a company established by the public subscription method, the promoters must deliver to the relevant securities administration authority an application for public offering together with other supporting documents including (1) the draft articles of association; (2) prospectus; (3) particulars of receiving banker; (4) names of underwriters; and (5) the underwriting agreement. The promoters may proceed with the public offering of shares only after the approval of the relevant securities administration authority has been obtained. An inaugural meeting of the company is required to be convened by the promoters within 30 days after the shares have been paid up in full. Matters that are required to be transacted at the inaugural meeting include the adoption of the company’s articles of association, the election of directors, the election of members of a supervisory committee and the review of the value attributed to the assets injected by the promoters into the company in return for its shares. The board of directors of the company is required to apply for the registration of the company within 30 days after the inaugural meeting by submitting all relevant documents to the Administration for Industry and Commerce Bureau.

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The date of establishment of a company is the day when its business licence is issued by the Administration for Industry and Commerce Bureau.

(iv) Responsibilities of promoters

Under the PRC Company Law, the promoters of a company are jointly liable for:

(1) the payment of expenses and liabilities incurred in connection with the establishment of the company if the company cannot be incorporated;

(2) the repayment of subscription monies to the subscribers together with interest at bank rates for a deposit of the same term if the company cannot be incorporated; and

(3) damages suffered by the company as a result of the default of the promoters in the course of the incorporation of the company.

Under the Provisional Regulations Concerning the Issue and Trading of Shares ( ) promulgated by the State Council on 22nd April, 1993, the promoters of a company are required to assume joint responsibility for the accuracy of the contents of the prospectus and to ensure that the prospectus does not contain any misleading statement or omit any material information.

(v) Shares

(aa) Registered capital

The registered capital of a company is the total paid up capital of the company registered with the Administration for Industry and Commerce Bureau. The minimum registered capital of a company is RMB10,000,000. A company the shares of which are authorised by the relevant securities administration authority to be listed on a stock exchange must have a registered capital of not less than RMB50,000,000. The registered capital of a company shall be divided into shares of equal par value.

A company’s promoters may subscribe for shares in cash or by way of injection of assets, intellectual property rights, non-patented technology and land use rights provided that shares subscribed for by way of injection of industrial property rights and non-patented technology shall not exceed 20 per cent. of the registered capital of a company. Where shares are allotted in return for an injection of assets, the assets must be valued and the title to the assets verified before injection.

(bb) Allotment and issue of shares

The issue of shares must be based on the principles of transparency, equality and fairness. The same class of shares must carry equal rights. Where shares are issued at the same time, the terms (including the subscription price) of allotment of each share must be identical to the other.

Shares may be issued at par or at a premium but may not be issued below their par value.

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(cc) Registered or bearer shares

Shares may be issued in registered or bearer form. Shares issued to promoters, state-designated investment institutions and corporate holders must be in registered form and may not be held in the names of nominees. Shares issued to the public may be in registered or bearer form. The Special Regulations and the Mandatory Provisions provide that shares issued to foreign investors and listed overseas shall be issued in registered form, denominated in Renminbi and subscribed for in foreign currency.

Under the Special Regulations and the Mandatory Provisions, shares issued to foreign investors and investors from the territories of Hong Kong, Macau and Taiwan and listed overseas are called overseas listed foreign shares, and shares issued to investors within the PRC other than the territories mentioned above are called domestic shares.

A company may offer its shares to the public overseas with the approval of the securities administration department of the State Council. The State Council is empowered to prescribe detailed measures in connection with any such offer. Under the Special Resolutions, a company may, with the prior approval of the Securities Commission, agree in its underwriting agreement to set aside shares of up to 15 per cent. of the total number of overseas listed foreign shares as part of the total number of shares to be offered in addition to the number of shares underwritten.

A register of shareholders shall be maintained by the company in respect of shares issued in registered form. Information such as the particulars of shareholders, the number of shares held by each shareholder and the dates on which the shareholders became holders of the relevant shares are required to be entered in the register.

A company is required to record the amount of bearer shares issued, the number designated for each bearer share and the date of issue of each bearer share.

(vi) Increase of share capital

Under the PRC Company Law, a company may issue new shares subject to the following conditions being fulfilled:

(1) the immediately preceding issue of shares having been subscribed in full and at least a year has elapsed since the date of the immediately preceding share issue but under the Special Regulations, if a company increases its capital through an issue of overseas listed foreign shares, the time period elapsed since the last share issue may be less than 12 months;

(2) the company having made a profit in each of the three financial years preceding the new issue of shares and is able to make dividend payments to its shareholders;

(3) the financial and accounting statements of the company in the three financial years immediately preceding the new issue of shares not containing any false information; and

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(4) the expected dividend yield of the company being comparable to the interest rate on bank deposits for the same term.

An issue of shares must be approved by shareholders in general meeting. After the requisite shareholders’ approval has been obtained, the board of directors of the company must also obtain the approval of the authorised department of the State Council or that of the provincial people’s government. If a company issues shares by way of an offer to the public, the approval of the relevant securities administration authority must also be obtained. Following completion of the subscription of new shares, the company is required to register the increase in registered capital with the Administration for Industry and Commerce Bureau.

(vii) Reduction of share capital

Subject to the minimum registered capital requirements, a company may reduce its registered capital in accordance with the following procedures prescribed under the PRC Company Law:

(1) the company shall prepare a balance sheet and financial statement;

(2) the reduction of registered capital must be approved by shareholders in general meeting;

(3) the company shall inform its creditors of the reduction in capital within 10 days and publish an announcement of the reduction in the newspaper for at least three times within 30 days after the resolution approving the reduction has been passed;

(4) the creditors of the company may within the statutory prescribed time limit require the company to pay its debts or provide guarantees to the extent of the amount of its debts; and

(5) the company must apply to the Administration for Industry and Commerce Bureau for registration of the reduction in registered capital.

(viii) Repurchase of shares

A company may not acquire its own shares except in cases where a company effects a cancellation of shares due to a reduction in registered capital or a merger with another company which holds shares in the company or such other purposes as are permitted by law and administrative regulations. The Mandatory Provisions provide that upon obtaining the necessary approvals in accordance with the articles of association of a company and that of the relevant supervisory authorities, a company may repurchase its issued shares for the foregoing purposes by way of a general offer to the shareholders of the company or through purchases on a stock exchange or by way of an off market contract.

Under the PRC Company Law, within 10 days following a repurchase of a company’s own shares, a company must in accordance with applicable law and regulations cancel the amount of shares repurchased, change its registration particulars and issue a public notice.

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(ix) Transfer of shares

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

A shareholder may only effect a transfer of its shares on a stock exchange established in accordance with law. Registered shares may be transferred by the holder of the shares endorsing his signature on the back of the certificate(s) for the shares or in any other manner as specified by applicable law and regulations.

Upon the transfer of registered shares, the particulars of the transferee shall be entered into the register of shareholders by the Company. Shares issued to promoters may not be transferred within 3 years after the establishment of the company. Shares held by directors, supervisors and the manager of a company may not be transferred during their term of office with the company.

There is no restriction under the PRC Company Law as to the percentage shareholding of a single shareholder of a company.

(x) Shareholders

The rights of a shareholder include: App.1A.65(d)

(1) the right to attend and vote in person and to appoint a proxy to attend and vote on his behalf at general meetings of the company;

(2) the right to inspect the articles of association of the company, the minutes of shareholders’ meeting and the financial reports of the company and to put forward proposals and make enquiries relating to the operations of the company;

(3) the right to transfer the shares held by him in accordance with law on a stock exchange established in accordance with relevant laws;

(4) the right to receive surplus assets of the company upon its winding up; and

(5) the right to apply to the people’s court for an injunction if a resolution passed at a shareholders’ meeting or directors’ meeting infringes any law or administrative regulations or the legitimate interests of the shareholders.

A shareholder is liable to the company to the extent of the amount payable, paid or credited as paid on the shares subscribed by them.

A shareholder may enjoy such other rights and is required to assume such other obligations as specified in the company’s articles of association.

(xi) Shareholders in general meetings

(aa) Powers of shareholders in general meeting

The general meeting is the organ of authority of the company and may exercise the following powers:

(1) to determine the company’s business policies and investment plans;

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(2) to elect and remove directors and supervisors who are representatives of the shareholders and to fix the remuneration of directors and supervisors;

(3) to consider and approve the reports of directors and supervisors;

(4) to consider and approve the annual financial budget and final accounts;

(5) to consider and approve the profit distribution plan and plans for making up accrued losses;

(6) to pass resolutions concerning increases and reductions in the share capital of the company;

(7) to pass resolutions concerning the issue of bonds by the company;

(8) to pass resolutions concerning the merger, demerger, corporate restructuring, dissolution, liquidation of and other issues relating to the company; and

(9) to amend the company’s articles of association.

(bb) Annual general meetings and extraordinary general meetings

General meetings are divided into annual general meetings and extraordinary general meetings. Annual general meetings must be held once every year. Extraordinary general meetings are general meetings other than annual general meetings and shall be convened within two months after the occurrence of any of the following circumstances:

(1) the number of directors is less than two thirds of the number required under the PRC Company Law or the company’s articles of association;

(2) the company’s accumulated losses amount to one-third of its paid up capital;

(3) upon the requisition by holders of not less than 10 per cent. of the shares of the company; or

(4) the board of directors or the supervisory committee considers such a meeting necessary.

(cc) Proceedings of general meetings App.1A.65(a)

A general meeting is required to be convened by the board of directors and presided by the chairman of the board of directors. Under the PRC Company Law, notice of general meeting shall be given not less than 30 days before the date of the meeting. A company which has bearer shares in issue shall make public announcement of the general meeting at least 45 days prior to the meeting being held. Under the Special Regulations and the Mandatory Provisions, 45 days’ notice of general meeting is required to be given to shareholders specifying the matters to be considered at and the date and place

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of the meeting. Under the Special Regulations and the Mandatory Provisions, shareholders who intend to attend a general meeting are required to provide the company with a written confirmation of their attendance 20 days prior to the meeting. Shareholders holding 5 per cent. or more of the voting rights of a company are entitled, under the Special Regulations, to propose to the company in writing new resolutions to be considered at an annual general meeting and the company shall include any proposed resolutions which are within the powers of a general meeting in the agenda for that meeting.

The PRC Company Law does not specify any quorum requirement for a App.1A.56 general meeting. The Special Regulations and the Mandatory Provisions provide that a general meeting may be held if shareholders holding 50 per cent. or more of the voting rights of a company have replied in writing 20 days prior to the proposed date of the meeting that they intend to attend the meeting. In the event that the 50 per cent. level is not attained, a general meeting may be held if the company shall within 5 days after the last day for receipt of the replies notify shareholders by public announcement of the matters to be considered at and the place and date of the meeting.

Every shareholder present at a general meeting is entitled to one vote for every share held by him. A shareholder may appoint a proxy to attend and vote on his behalf at a general meeting. Resolutions proposed at a general meeting must be passed by more than half of the votes cast by shareholders present in person or by proxy at the meeting except that (1) amendments to the company’s articles of association; (2) the merger, demerger or dissolution of the company; (3) the increase and reduction of capital of and the issue of any class of shares, bonds and securities by the company; (4) other matters which the general meeting has resolved by way of ordinary resolution as having a potentially material effect on the company and should be approved by special resolution are required under the Mandatory Provisions to be approved by more than two thirds of the votes cast.

An extraordinary general meeting may not decide on any matters not set out in the notice convening that meeting.

The Mandatory Provisions require class meetings to be held in the event of a variation or abrogation of the class rights of a class of shareholders. Holders of domestic shares and holders of overseas listed foreign shares are deemed to be different classes of shareholders.

(xii) Directors

(aa) Board of directors

The board of directors of a company is required to consist of between 5 and 19 directors. The term of office of a director is required to be prescribed by the company’s articles of association, but a term of office shall not exceed 3 years. A director may serve consecutive terms if re-elected. The board of directors of a company may exercise the following powers:

(1) to convene general meetings and to report on their work to shareholders;

(2) to implement resolutions passed by shareholders;

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(3) to decide on the company’s business plans and investment plans;

(4) to prepare annual budgets and final accounts;

(5) to prepare profit distribution plans and plans for making up accrued losses;

(6) to prepare plans for the increase and reduction in registered capital and plans for the issue of bonds;

(7) to formulate plans for the merger, demerger or dissolution of the company;

(8) to decide on the internal management structure of the company;

(9) to employ and dismiss the manager, and at the recommendation of the manager, employ and dismiss deputy managers and financial controllers and to fix their remuneration; and

(10) to establish the company’s basic management system.

In addition, the Mandatory Provisions provide that the board of directors is also responsible for preparing proposals for the amendment of the articles of association of a company.

(bb) Board meetings

Regular meetings of the board of directors of a company are required to be held at least twice every year. Notice of regular board meetings are required to be given at least 10 days before the date of the meeting. Notices of any extraordinary board meetings shall be given in such manner and subject to such notice period as may be determined by the board of directors.

A quorum of board meeting is required to be constituted by more than half of the directors. A director may attend a board meeting personally or may appoint another director as his alternate to attend on his behalf. All board resolutions must be passed by the affirmative votes of more than half of the directors. All resolutions passed at a board meeting are required to be recorded in the minutes of the relevant meeting and the minutes are required to be signed by the directors who attended the meeting and the person who recorded the minutes. If any board resolution contravenes any applicable laws and regulations or the company’s articles of association and results in substantial damages to the company, any director who participated in passing the resolution (except those who voted against the resolution and whose dissenting vote is recorded in the relevant minutes) will be personally liable to the company.

(cc) Chairman and vice-chairman of the board of directors

The board of directors is required to appoint a chairman and may appoint one or two vice-chairmen. The appointment of the chairman and vice-chairman is required to be approved by more than half of the directors. The chairman is the legal representative of the company and may exercise the following powers:

(1) preside over general meetings and meetings of the board of directors;

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(2) examine the implementation of resolutions of the board of directors; and

(3) sign share certificates and bonds issued by the company.

The role of the vice-chairman is to assist the chairman in carrying out his duties. In the event of the chairman being unable to carry out his duties, the vice-chairman designated by him shall exercise the powers of the chairman.

(dd) Qualification of directors

The PRC Company Law provides that the following persons are not eligible to act as directors:

(1) any person who suffers from any incapacity or restricted capacity from undertaking civil obligations;

(2) any person who has been convicted of offences relating to bribery, corruption, trespass to assets, misappropriation of assets, or of causing social economic disorder, where less than five years have elapsed since the completion of the sentence; and any person who has been deprived of his political rights as a result of him having committed an offence, and less than five years have elapsed since the completion of the term of such deprivation;

(3) persons who are former directors, factory managers or managers of a company or enterprise which has become bankrupt or has been liquidated due to mismanagement and who are personally liable for the bankruptcy or liquidation of such company or enterprise, and less than three years have elapsed since the date of completion of the bankruptcy or liquidation of the company or enterprise;

(4) any person who has been a legal representative of a company or an enterprise the business licence of which has been revoked due to that company or enterprise having contravened any law and the person is personally responsible for such revocation, and less than three years have elapsed since the date of such revocation;

(5) any person who is liable for a relatively large amount of indebtedness which has not been repaid when due; or

(6) any person who is a civil servant of the PRC.

Other circumstances under which a person is disqualified from acting as a director of a company are set out in the Mandatory Provisions which have been incorporated in the Articles of Association.

(xiii) Supervisory committee

A company is required to establish a supervisory committee comprising not less than 3 members. The supervisory committee is responsible for:

(1) examining the financial matters of the company;

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(2) supervising the directors and the manager of the company with a view to their carrying out their duties in compliance with relevant laws and regulations and the company’s articles of association;

(3) requiring the directors and the manager to rectify any action which adversely affects the interests of the company;

(4) proposing the convening of extraordinary general meetings; and

(5) carrying out other duties specified in the company’s articles of association.

A supervisor is also required to attend board meetings.

Under the Supplemental Amendments, resolutions of a supervisory committee are required to be passed by the affirmative votes of more than two thirds of the supervisors.

A supervisory committee is required to comprise representatives elected by the workers of the company and representatives elected by shareholders in general meeting in an appropriate proportion specified in the company’s articles of association. A director, manager or financial controller of the company may not become a supervisor. The term of office of a supervisor is three years and a supervisor may serve consecutive terms if re-elected. The circumstances under which a person is disqualified from acting as a director of a company under the PRC Company Law and the Mandatory Provisions apply equally to a supervisor of the company.

(xiv) Manager and officers

A company is required to appoint a manager, manager is appointed and may be removed by the board of directors. The manager is accountable to the board of directors and may exercise the following powers:

(1) to take charge of the production, operations and management of the company and to organise the implementation of resolutions of the board of directors;

(2) to organise the implementation of the company’s business and investment plans;

(3) to prepare plans for the establishment of the company’s internal management structure;

(4) to prepare the basic management system of the company;

(5) to establish the company’s internal rules;

(6) to recommend the appointment and dismissal of deputy managers and financial controller and to appoint and dismiss other officers (other than those required to be appointed or dismissed by the board of directors);

(7) to attend board meetings; and

(8) to exercise other powers conferred by the board of directors or the company’s articles of association.

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The Special Regulations provide that the officers of a company shall include its financial controller, company secretary and other executives specified in the company’s articles of association.

The circumstances under which a person is disqualified from acting as a director of a company under the PRC Company Law and the Mandatory Provisions apply equally to managers and officers of the company.

(xv) Duties of directors, supervisors, manager and officers

A director, supervisor, manager and an officer of a company are required under the PRC Company Law to comply with the relevant law, regulations and the company’s articles of association, carry out their duties honestly, and protect the interests of the company. A director, supervisor, manager and an officer of a company is also under a duty of confidentiality to the company and is prohibited from divulging any secret information of the company save as permitted by relevant law and regulations or by the shareholders.

A director, supervisor, manager and an officer who contravenes any law, regulation or the company’s articles of association in the performance of his duties which results in any loss to the company shall be personally liable to the company.

The Special Regulations and the Mandatory Provisions provide that directors, supervisors, managers and officers of a company owe fiduciary duties to the company and are required to perform their duties faithfully, protect the interests of the company and not to make use of their positions in the company for their own benefit.

(xvi) Finance and accounting

A company is required to establish a financial and accounting system in accordance with relevant law and regulations.

A company is required to prepare its financial statements at the end of each financial year comprising its balance sheet, profit and loss account, a statement on its financial status and changes of financial status and a profit distribution statement. The financial statements is required to be made available for inspection by the shareholders of the company 20 days prior to the annual general meeting of the company. A company established by the public subscription method must publish its financial statements.

A company is required to make the following transfers from its after tax profit before distributing its profits to the shareholders of the company:

(1) a transfer of 10 per cent. of its after tax profit to the statutory common reserve of the company, provided that no further transfer is required to be made if the accumulated statutory common reserve exceeds 50 per cent. of the registered capital of the company;

(2) a transfer of between 5 per cent. and 10 per cent. of its after tax profit to the statutory public welfare fund;

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(3) subject to the approval of the general meeting and after transfer of the requisite amount to the statutory common reserve, any amount from the after tax profit of the company to the discretionary common reserve; and

(4) any balance of the after tax profit subsequent to making up accrued losses and transfers to the common reserve and statutory public welfare fund shall be distributed to the shareholders in proportion to their respective shareholdings in the company.

When a company’s statutory common reserve is insufficient to make up the company’s accrued losses from the previous year, the profits of the company for the current year are required to be applied to make up such losses before making allocations to the statutory common reserve and the statutory public welfare fund pursuant to the requirements described above.

The common reserve of a company comprises the statutory common reserve, discretionary common reserve and the capital common reserve.

A company which has made a transfer to its statutory common reserve from its after tax profits may, with the approval of its shareholders in general meeting, make appropriations from its discretionary common reserve.

The capital common reserve of a company is made up of the premium over the nominal value of the shares of the company and other amounts required by the relevant governmental authority to be treated as the capital common reserve.

The common reserve of a company is required to be applied for the following purposes:

(1) to make up the company’s accrued losses;

(2) to expand the business operations of the company; and

(3) to pay up the registered capital of the company by the issue of new shares to shareholders in proportion to their existing shareholdings in the company, or by increasing the par value of the shares currently held by the shareholders; provided that if the statutory common reserve is converted into registered capital, the balance of the statutory common reserve after such conversion shall not be less than 25 per cent. of the registered capital of the company.

The statutory public welfare fund is required to be applied for the collective welfare of the company’s employees.

(xvii) Appointment and retirement of auditors

The Special Regulations require a company to employ an independent PRC qualified firm of accountants to audit the company’s annual financial statements and to review its other financial reports.

Auditors are required to be appointed for a term commencing from the close of an annual general meeting to the close of the next annual general meeting.

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If a company removes or ceases to continue to appoint its auditors, it is required by the Special Regulations to give prior notice to the auditors and the auditors are entitled to make representations before the shareholders in general meeting. Auditors who resign from their office should make a statement to the shareholders stating whether or not the company has undertaken any inappropriate transactions. The appointment, removal and non re-appointment of auditors are required to be decided by the shareholders and shall be registered with the Securities Commission.

(xviii) Distribution of profits

The Special Resolutions provide that the dividends and other distributions payable to holders of overseas listed foreign shares shall be declared and calculated in Renminbi and paid in foreign currency. Under the Mandatory Provisions, the payment of foreign currency to shareholders is required to be made through a receiving agent.

(xix)Amendments to articles of association

Amendments to a company’s articles of association must be approved by more than two thirds of the votes cast by shareholders present at a general meeting. Any amendment of the provisions incorporated in a company’s articles of association in accordance with the Mandatory Provisions will only be effective after the approval of the companies approval department authorised by the State Council and the Securities Commission have been obtained. A company must change its registration particulars in accordance with applicable law if any amendments to its articles of association involving registration matters are adopted.

(xx) Merger and demerger

The merger or demerger of a company is required to be approved by the shareholders in general meeting and the relevant governmental authority.The merger of a company may be effected either by way of absorption followed by the dissolution of the company being absorbed or the establishment of a new entity followed by the dissolution of the entities being merged.

All parties to a merger are required to sign a merger agreement and to prepare their respective balance sheets and inventory of assets. Each party to a merger is required to notify its creditors of the merger within 10 days and publicly announce the merger in the newspapers for at least three times within 30 days after the resolution approving the merger has been passed. The creditors may within the statutory prescribed time limit to request the company to repay any outstanding indebtedness or provide guarantees covering such indebtedness. Any company which is unable to repay its debts or provide such guarantees is prohibited from proceeding with the merger.

A company is required to prepare its balance sheet and an inventory of assets prior to its demerger. As in the case of a merger, a company seeking a demerger is required to issue notices of the demerger to creditors, to publish notices of the demerger and to make repayment of or provide guarantees to creditors.

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(xxi) Dissolution and liquidation

A company which is unable to pay its debts as they fall due may be declared insolvent in accordance with relevant law and regulations. Once a company is declared insolvent, the people’s court shall, in accordance with relevant laws, establish a liquidation committee comprising the shareholders of the company and relevant governmental authorities and professionals to conduct the liquidation of the company.

Under the PRC Company Law, a company is required to be dissolved upon occurrence of any of the following events:

(1) upon the expiry of the term of operations stipulated in the company’s articles of association or on the occurrence of a dissolution event specified in the company’s articles of association;

(2) the shareholders in general meeting have resolved to dissolve the company; or

(3) a merger or demerger of the company which requires the company to be dissolved.

Where a company is dissolved in any of the circumstances referred to in (1) or (2) above, the shareholders in general meeting shall within 15 days of the occurrence of the event appoint the members of the liquidation committee. If the liquidation committee is not established within the specified time, the creditors of the company may apply to the people’s court to appoint the members of the liquidation committee. A company shall be dissolved if it has been ordered to close down as a result of a violation of any law or administrative regulations. The relevant supervisory department is required to establish a liquidation committee comprising shareholders, relevant departments and the relevant professionals to conduct the liquidation. A liquidation committee is responsible for dealing with the assets of the company, preparing a balance sheet and an inventory of the company’s assets, notifying the creditors of the company’s dissolution, handling the outstanding business of the company, discharging the outstanding indebtedness (including unpaid taxes) of the company, distributing the company’s surplus assets after the discharge of all its indebtedness and representing the company in all civil litigation.

A liquidation committee is required to notify the creditors of the dissolution of the company within 10 days after its establishment and to issue a public announcement of the dissolution of the company for at least 3 times within 60 days after its establishment. A creditor is required to lodge his claim with the liquidation committee within the statutory prescribed time limit.

A company’s assets are required to be applied to pay off all expenses incurred in connection with the liquidation, employees’ wages and the indebtedness of the company. Any surplus assets after the discharge of the company’s liabilities are required to be distributed to the shareholders in proportion to their respective shareholdings in the company. If the assets of the company are inadequate to pay off its indebtedness, the liquidation committee shall apply to the people’s court for an insolvency order and shall transfer the liquidation proceedings to the people’s court.

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A company may not engage in any new business operations during its liquidation.

On completion of the liquidation process, the liquidation committee is required to submit a liquidation report to the shareholders in general meeting and the relevant administrative department for confirmation. The liquidation committee is also required to apply to the Administration for Industry and Commerce Bureau for the cancellation of the company’s registration and to make a public announcement of the company’s dissolution following such cancellation. Members of the liquidation committee are required to discharge their duties honestly and in compliance with laws. A member of the liquidation committee is liable to indemnify the company and its creditors in respect of any loss arising from his wilful or material default.

(xxii) Overseas listing

The shares of a company shall only be listed overseas after obtaining approval from the Securities Commission and the listing must be arranged in accordance with procedures prescribed by the Special Regulations.

Under the Special Regulations and the Mandatory Provisions, where a company proposes to issue overseas listed foreign shares and domestic shares which has been approved by the Securities Commission then, subject to the further approval of the Securities Commission being obtained, the overseas listed foreign shares and the domestic shares may be issued separately within 15 months of such further approval, and the share issues may be implemented by the board of directors or the company concerned.

(xxiii) Suspension and termination of listing

A company which is listed on a stock exchange may have its listing suspended by the securities administration department of the State Council if any of the following events shall occur:

(1) the registered capital of the company or the distribution of the company’s shares no longer comply with the relevant listing requirements;

(2) the company has failed to disclose its financial position in accordance with relevant law and regulations or the financial report of the company contains any false information;

(3) the company has committed a material breach of the law; or

(4) the company has incurred losses for each of the immediately preceding three years.

If the circumstances referred to in (2) or (3) above shall have occurred and it is established by investigation that the consequences are serious, or if the circumstances referred to in (1) or (4) above shall have occurred and the situation is not rectified within the time limit prescribed for such purpose, the securities administration department of the State Council may resolve to terminate the listing of a company’s shares.

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The securities administration department of the State Council may also terminate the listing of a company’s shares in the event that the company has resolved to be wound up or is ordered by the relevant governmental authority to be dissolved, or the company is declared insolvent.

(g) Securities law and regulations

The PRC has promulgated a number of regulations in relation to the issue and trading of shares and the disclosure of information.

In early 1993, the State Council established the Securities Commission and the CSRC. The Securities Commission is responsible for co-ordinating the drafting of securities regulations, formulating securities related polices, planning the development of securities markets, directing, co-ordinating and supervising all securities related institutions in the PRC and administering the CSRC. The CSRC is the regulatory arm of the Securities Commission and is responsible for the drafting of regulatory provisions of securities markets, supervising securities companies, regulating public offers of securities by PRC companies in the PRC and overseas, regulating the trading of securities, compiling securities related statistics and undertaking research and analysis.

On 22nd April 1993, the State Council promulgated the Provisional Regulations Governing the Issue and Trading of Shares ( ) (the “Securities Provisional Regulations”). These regulations deal with the application and approval procedures for public offerings of equity securities, trading in equity securities, the acquisition of listed companies, deposit, settlement, and transfer of listed equity securities, the disclosure of information with respect to a listed company, enforcement and penalties and dispute settlement. These regulations specifically provide that the offer of shares by a PRC company directly and indirectly outside the PRC require the approval of the Securities Commission and also provide that separate measures will be promulgated in relation to the issue of and trading in special Renminbi-denominated shares. However, (i) if a PRC joint stock limited company proposes to issue Renminbi-denominated ordinary shares as well as special Renminbi-denominated shares, it must comply with the Securities Provisional Regulations; and (ii) provisions of the Securities Provisional Regulations in relation to the acquisitions of listed companies and disclosure of information are expressed to apply to companies listed on a stock exchange in general without being confined to companies listed on any particular stock exchange. Such provisions may, therefore, be applicable to joint stock limited companies the shares of which are listed on a stock exchange outside the PRC including, for instance, joint stock limited companies whose shares are listed on the Stock Exchange.

On 10th June 1993, the CSRC promulgated the Implementation Measures (Provisional) on Disclosure of Information ( ) pursuant to the Securities Provisional Regulations. Under these measures, the CSRC is responsible for supervising the disclosure of information by companies which have offered shares to the public in the PRC. These measures contain provisions regarding prospectuses and listing reports to be issued in connection with a public offering of shares in the PRC, publication of interim and final reports and announcement of material transactions or matters by companies which have offered shares to the public. Material transactions or matters are those the occurrence of which may have a material effect on the share price of a company. They include alterations to a company’s articles of association or registered capital, removal of auditors, mortgage or disposal of major operating assets or the writing down of the value of such assets where the amount being written down exceeds 30 per cent. of the total value

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of such assets, revocation by a court of any resolution passed by the shareholders or the supervisors of a company and the merger or demerger of a company.These measures also contain disclosure provisions in relation to the acquisition of listed companies which supplement the requirements contained in the Securities Provisional Regulations.

On 2nd September 1993, the Securities Commission promulgated the Provisional Measures on Prohibiting Fraudulent Conduct Relating to Securities . The prohibitions imposed by these measures include the use of insider information in connection with the issue of or trading in securities (insider information being defined to include undisclosed material information known to any insider, which may affect the market price of securities); the use of funds or information or through an abuse of power in creating a false or disorderly market or influencing the market price of securities or inducing investors to make investment decisions without knowledge of actual circumstances; and the making of any statement in connection with the issue of and trading in securities which is false or materially misleading or in respect of which there is any material omission. Penalties imposed for contravening any of the provisions of the measures include fines, confiscation of profits and suspension of trading. In serious cases, criminal liability may be imposed.

The Special Regulations promulgated on 4th August, 1994 also contain regulations which deal with the issue and subscription of and the declaration of dividends and other distributions on overseas listed foreign shares.

On 25th December, 1995, the State Council promulgated the Regulations of the State Council Concerning the Domestic Listed Foreign Shares of Joint Stock Limited Companies ( ). These regulations deal mainly with the issue, subscription, trading and declaration of dividends and other distributions of domestic listed foreign shares and the disclosure of information by joint stock limited companies having domestic listed foreign shares.

(h) Highway law and regulations

(i) Introduction

The primary legislation relating to highways is the Highway Management Regulations of the PRC ( ) (the “Principal Regulations”) promulgated by the State Council on 13th October, 1987.

The Principal Regulations apply to national highways, provincial highways, county roads, village roads and special access roads. A description of the classification of these roads is set out under the heading “Classifications and standards of roadways in PRC” in the “Background information” section of this prospectus.

In addition to the Principal Regulations, other regulations, including notices, are also in force which regulate the use, management and ownership of roads in PRC. As in the case of legislation on other areas generally, provincial people’s governments may, in accordance with the limits of their legislative authority, enact laws and regulations on matters relating to highways in areas governed by them. Some of these additional regulations are detailed implementation rules, such as the Implementation Rules of the Highway Management Regulations ( ) issued by the Ministry of Communications and the regulations issued by Anhui authorities mentioned in sub- paragraph (viii) below, while others deal with specific issues, such as the Urgent Notice for Strengthening the Regulation of Dealings in Ownership Rights of Highway Assets ( ) issued by the Ministry of Communications.

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(ii) Supervisory hierarchy

The Ministry of Communications is the overall supervisory body for all highway matters of the PRC.

Highway supervisory departments of provinces (such as Anhui Department of Communications), autonomous regions and centrally supervised municipalities ( ) are the bodies responsible for the construction, maintenance, repairs and management of national and provincial highways.

Special bodies authorised by the Ministry of Communications are responsible for the construction, maintenance, repairs and management of expressway class national highways which connect one province, autonomous region or centrally supervised municipality with another.

The construction, maintenance, repair and management of county, village and special access roads are undertaken by the highway supervisory department of the relevant county or city or, in relation to village roads and special access roads, by the people’s government of the village or town or the entity that uses the special access road.

(iii) Planning

Development plans for national highways are settled by the Ministry of Communications and require the approval of the State Council.

Development plans for provincial highways are settled by the highway supervisory authorities of provinces, autonomous regions and centrally supervised municipalities for the approval of the people’s government of the province, autonomous region and centrally supervised municipality concerned and are required to be submitted to the Ministry of Communications for records.

(iv) Funding of construction

Funding for the construction or conversion of a highway or road may be raised by the following means: investment by central or local authorities, special entities, sino foreign joint ventures, public fund raising, loan, vehicle acquisition levy and partly by road maintenance charges. In addition, highways or roads may also by constructed through citizen labour, citizen labour with public assistance and labour-for-assistance arrangements.

(v) Construction

In general, design contracts for major road projects and construction contracts for major and intermediate road contracts are required to be awarded on a tender basis, and projects that involve investment by central or local authorities are required to be subject to open tender on a national basis. International tenders may also be invited for projects that involve foreign funding. The general requirement for tender, however, does not apply to special projects.

All vehicular roads are required to be inspected in accordance with the Measures for Completion Inspection and Acceptance of Road Projects ( ) issued by the Ministry of Communications. A road which does not conform to design specifications or the information of the assets comprised in which is insufficient may not be commissioned.

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(vi) Toll collection

In relation to expressways, classes 1 and 2 roads and major bridges and tunnels and vehicular ferry pier projects the construction of which were financed through fund raising or loans, the highway supervisory authorities may levy toll on passing vehicles for the purposes of repayment of the amount of funds raised or borrowed. The procedures for toll collection are required to be set jointly by the Ministry of Communications, the Finance Ministry and the State Price Administration Bureau. The current procedures in this regard are set out in the Notice relating to the Establishment of Toll Plazas (Stations) on Highways (the “Toll Notice”). The Toll Notice, which was issued on 18th July, 1994 by the Ministry of Communications, the State Planning Commission and the Finance Ministry of the PRC, applies to all toll roads, including those the construction of which are financed by FIEs, and toll roads managed by FIEs.

Under the terms of the Toll Notice:

(1) the establishment of toll plazas or stations along a road is subject to prior approval being obtained in accordance with procedures prescribed by the Ministry of Communications, the Finance Ministry and the State Price Administration Bureau;

(2) toll rates are required to be set jointly by provincial level Price Administration Bureaus and Finance Departments; and

(3) the establishment of toll plazas or stations on national highways must be reported to the Ministry of Communications for records and announced to the public.

Except for vehicles exempted by the State, vehicles which use an expressway, class 1 or 2 vehicular highway or a major highway bridge or tunnel constructed through loans or funds which are required to be repaid are required to pay the applicable toll.

(vii) Transfer of operating rights

The transfer of operating rights of toll roads is governed by the Notice of Issues relating to the Transfer of Road Operating Rights ( ) issued by the Ministry of Communications on 20th July, 1994. Under this Notice:

(1) foreign investors and domestic entities which are not transport supervisory authorities may construct and operate toll roads on a wholly-owned or joint venture basis. Additionally, operating rights in respect of completed toll roads may also be granted to them for valuable consideration;

(2) assets which may be constructed and operated or the operating rights for which may be granted to foreign investors and domestic non-transport supervisory entities include vehicular highways and their ancillary facilities (excluding class 2 general roads) authorised to be operated as toll roads and which has been completed and commissioned by transport supervisory departments duly authorised by the State and provincial level people’s governments;

(3) a valuation of the assets of a road must be carried out in accordance with relevant regulations prescribed by the State prior to a transfer of the operating

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rights of that road. Where a road is a national highway or in which the central authorities have made an investment, an application for valuation is required to be made to the Ministry of Communications prior to valuation. Similarly, an application for valuation is also required to be made to the provincial people’s government or a department authorised by it where the road concerned is a provincial road or in which there is local investment. A transfer of toll road operating rights at an undervalue or on credit terms is strictly prohibited;

(4) the term of the operating rights transferred must not in general exceed 20 years, and may not in any event exceed 30 years;

(5) a transfer, whether in whole or in part, of operating rights to a foreign investor is required to be approved in accordance with the scope of authority of the approval authority and the applicable approval procedures of the State for the approval of FIEs; a transfer of operating rights to domestic entities which are not transport supervisory authorities is subject to the approval of the Ministry of Communications and the provincial people’s government (or a department authorised by it), depending on the source of funding of the investment in the relevant road.

(viii)Anhui province regulations

Regulations relevant to the operations of toll roads in Anhui province include the Tentative Measures for the Management of Expressways of Anhui Province ( ) promulgated by the Anhui Provincial People’s Government on 15th May, 1991 and the Notice relating to the Strengthening of the Management of Hening Expressway of National Highway 312 issued by the Anhui Department of Communications and the Public Security Department of Anhui province on 5th March, 1991. These Measures and Notice contain detailed rules regulating the use of expressways and their ancillary facilities in Anhui province. In addition, the Anhui Province Provisional Regulations on Vehicle Toll Fees for Expressways ( ) issued by Anhui Finance Bureau and Anhui Department of Communications on 21st April, 1991 contain provisions that deal with the method of toll collection for the expressways in Anhui province and the exemption of army, public security and fire engines from the payment of toll.

(i) Legal opinion

Jingtian Associates, the Company’s legal advisers on PRC law, has sent to the Company a letter confirming that they have reviewed the summary of relevant PRC laws and regulations contained in this appendix and that, in their opinion, the summary is a correct summary of the relevant PRC law and regulations. A copy of this letter is available for inspection as referred to in the paragraph headed “Documents available for inspection” in appendix X. Any person wishing to have detailed advice on PRC laws is recommended to seek independent legal advice.

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2. HONG KONG LAWS AND REGULATIONS

(a) Company law

The Hong Kong law applicable to a company having a share capital incorporated in Hong Kong is based on the Companies Ordinance and supplemented by the common law and the rules of equity which apply to Hong Kong by virtue of section 3 of the Application of English Law Ordinance (Chapter 88 of the Laws of Hong Kong).

The Company, which is a joint stock limited company established in the PRC seeking App.1A.59 a listing of its H Shares on the Stock Exchange is governed by the PRC Company Law which came into effect on 1st July, 1994 and all other rules and regulations promulgated pursuant to the PRC Company Law applicable to a joint stock limited company established in the PRC issuing overseas listed foreign shares to be listed on the Stock Exchange.

Set out below is a summary of the material differences between the Hong Kong company law applicable to a company incorporated in Hong Kong and the PRC Company Law applicable to a joint stock limited company incorporated and existing under the PRC Company Law. This summary is not intended to be an exhaustive comparison:

(i) Corporate existence

Under Hong Kong company law, a company having a share capital is incorporated by the Registrar of Companies in Hong Kong issuing a certificate of incorporation and upon its incorporation, a company will acquire an independent corporate existence. A company may be incorporated as a public company or a private company. The articles of association of a private company incorporated in Hong Kong is required by the Hong Kong Companies Ordinance to contain certain provisions restricting the right of transfer of its shares. Any company which does not contain such provisions in its articles of association is a public company.

Under the PRC Company Law, a company may be incorporated by either the promotion method or the public subscription method. A company established by the public subscription method will only acquire its corporate existence after it has completed its initial share offering to the public and a company may only issue further shares after a year has elapsed since its last share issue. The PRC Company Law requires a state owned enterprise to be converted into a joint stock limited company by the public subscription method. The Special Regulations, however, permit a state owned enterprise to be converted into a joint stock limited company by the promotion method and to offer new shares to the public on its establishment.

Under the PRC Company Law, a company which is authorised by the relevant securities administration authority to list its shares on a stock exchange must have registered a capital of not less than RMB50,000,000. Hong Kong law does not prescribe any minimum capital requirements for a Hong Kong company.

Under the PRC Company Law, the shares allotted by a joint stock limited company in return for injection of industrial property rights and non-patented technology shall not exceed 20 per cent. of the registered capital of a company.There is no such restriction on a Hong Kong company under Hong Kong law.

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(ii) Share capital

Under Hong Kong law, the authorised share capital of a Hong Kong company is Rule19A.39 the amount of share capital which the company is authorised to issue and a company App.1A is not bound to issue the entire amount of its authorised share capital. The PRC 55(1) Company Law does not have the concept of authorised share capital. The registered capital of a joint stock limited company is the amount of its issued share capital. Any increase or reduction in registered capital must be approved by the shareholders in general meeting and the relevant PRC governmental and regulatory authorities.

(iii) Restrictions on shareholding and transfer of shares

Under the PRC law, the domestic shares (“domestic shares”) in the share capital of a joint stock limited company which are denominated and subscribed for in Renminbi may only be subscribed or traded by the State, PRC legal and natural persons. The overseas listed foreign shares (“foreign shares”) issued by a joint stock limited company which are denominated in Renminbi and subscribed for in a currency other than Renminbi may only be subscribed and traded by investors from Hong Kong, Macau and Taiwan or any country or territory outside the PRC.

Under the PRC Company Law, shares in a joint stock limited company held by its promoters may not be transferred within three years after the date of establishment of the company. Shares in a joint stock limited company held by its directors, supervisors and manager may not be transferred during their term of office.

There are no such restrictions on shareholdings and transfer of shares under Hong Kong law.

(iv) Financial assistance for acquisition of shares

The PRC Company Law does not contain any provision prohibiting or restricting a joint stock limited company or its subsidiaries from providing financial assistance for the purposes of an acquisition of its own or its holding company’s shares. The Mandatory Provisions contain certain restrictions on a company and its subsidiaries providing such financial assistance similar to those under Hong Kong company law.

(v) Variation of class rights

Under Hong Kong company law, if the share capital of a company is divided into different classes of shares, special rights attaching to any class of shares may only be varied if approved by a specified proportion of the holders of the relevant class.

The PRC Company Law does not contain any specific provision relating to variation of class rights. Under the Mandatory Provisions, class rights may not be varied or abrogated unless approved by a special resolution of shareholders in general meeting and by two thirds of the votes cast by shareholders of the affected class present in person or by proxy at a separate class meeting. For the purposes of a variation of class right, domestic shares and foreign shares are treated as separate classes of shares except in the case of (i) an issue of shares by the joint stock limited company in any 12 month period either separately or concurrently following the approval by a special resolution of shareholders in general meeting not exceeding 20 per cent. of each of the issued domestic shares and foreign shares existing as at the

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date of such special resolution; and (ii) an issue of domestic shares and foreign shares in accordance with the plan of the company approved by the Securities Commission and which are completed within 15 months following the establishment of the company. The Mandatory Provisions contain detailed provisions relating to circumstances which are deemed to constitute a variation of class rights.

(vi) Directors

The PRC Company Law, unlike Hong Kong company law, does not contain any requirements relating to the declaration of interests in material contracts, restrictions on interested directors being counted towards the quorum of and voting at a meeting of the board of directors at which a transaction in which a director is interested is being considered, restrictions on directors’ authority in making major dispositions, restrictions on companies providing certain benefits such as loans to directors and guarantees in respect of directors’ liability and prohibition against compensation for loss of office without shareholders’ approval. The Mandatory Provisions contain requirements and restrictions in relation to the foregoing matters similar to those applicable under Hong Kong law to Hong Kong incorporated companies.

(vii) Supervisory committee

Under the PRC Company Law, the board of directors of a joint stock limited company is subject to the supervision of a supervisory committee but there is no mandatory requirement for the establishment of a supervisory committee for a company incorporated in Hong Kong.

The Mandatory Provisions provide that each supervisor owes a duty, in the exercise of his powers, to act in good faith and honestly in what he considers to be in the best interests of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(viii) Derivative action by minority shareholders

Hong Kong law permits minority shareholders to commence a derivative action on behalf of all shareholders against directors who have been guilty of a breach of their fiduciary duties to the company, if they control a majority of votes at a general meeting thereby effectively preventing a company from suing the directors in breach of their duties in its own name. Although the PRC Company Law gives a shareholder of a joint stock limited company the right to initiate proceedings in the people’s court to restrain the implementation of any resolution passed by shareholders in general meeting or by the board of directors which violates any law or infringes the lawful rights and interests of shareholders, PRC law does not have a form of proceedings which is the same as a derivative action. The Mandatory Provisions, however, provide for remedies of the company against directors, supervisors and officers in breach of their duties to the company. In addition, every director and supervisor of a joint stock limited company applying for a listing of its foreign shares on the Stock Exchange is required to give an undertaking in favour of the company to comply with the company’s articles of association. This allows minority shareholders to bring action against directors and supervisors in default.

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(ix) Protection of minorities

Under Hong Kong law, a shareholder who complains that the affairs of a company incorporated in Hong Kong are conducted in a manner unfairly prejudicial to his interests may petition to court to either wind up the company or make an appropriate order regulating the affairs of the company. In addition, the Financial Secretary may on the application of a specified number of members, and the Securities and Futures Commission may in prescribed circumstances, appoint inspectors who are given extensive statutory powers to investigate the affairs of a company incorporated in Hong Kong. PRC law does not contain similar safeguards. The Mandatory Provisions, however, contain provisions to the effect that a controlling shareholder may not exercise its voting rights in a manner prejudicial to the interests of the shareholders generally or of some part of the shareholders of a company or to relieve a director or supervisor of his duty to act honestly in the best interests of the company or to approve the expropriation by a director or supervisor of the company’s assets or the individual rights of other shareholders.

(x) Notice of shareholders’ meetings

Under the PRC Company Law, notice of a general meeting must be given not less than 30 days before the meeting or, in the case of a company having bearer shares, public announcement of a general meeting must be made at least 45 days prior to it being held. Under the Special Regulations and the Mandatory Provisions, 45 days’ written notice must be given to all shareholders and shareholders who wish to attend the meeting must reply in writing 20 days before the date of the meeting. For a company incorporated in Hong Kong, the minimum notice period of a general meeting convened for passing an ordinary resolution and a special resolution is 14 days and 21 days respectively; and the notice period for an annual general meeting is 21 days.

(xi) Quorum for shareholders’ meetings

Under Hong Kong law, the quorum for general meeting is provided by the articles of association of the company which may not in any event be fewer than two members. The PRC Company Law does not specify any quorum requirement for general meeting but the Special Regulations and the Mandatory Provisions provide that a company’s general meeting may be held when replies to the notice of that meeting have been received from shareholders whose shares represent 50 per cent. of the voting rights in the company at least 20 days before the proposed date of the meeting, or if that 50 per cent. level is not achieved, the company shall within five days notify shareholders by public announcement and the general meeting may be held thereafter.

(xii) Voting

Under Hong Kong law, an ordinary resolution is passed by a simple majority of votes cast by members present in person or by proxy at a general meeting and a special resolution is passed by a majority of not less than three fourths of votes cast by members present in person or by proxy at a general meeting.

Under the PRC Company Law, the passing of any resolution requires more than half of votes cast by shareholders present in person or by proxy at a general meeting except in cases of proposed amendment to the articles of association, merger, demerger or dissolution of a joint stock limited company which require two thirds of votes cast by shareholders present in person or by proxy at a general meeting.

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(xiii)Financial disclosure

A joint stock limited company is required under the PRC Company Law to make available at its office for inspection by shareholders its annual balance sheet, profit and loss account, changes in financial position and other relevant annexures 20 days before the annual general meeting of shareholders. In addition, a company established by the public subscription method under the PRC Company Law must publish its financial statements. The annual balance sheet of a PRC joint stock company is required to be verified by registered accountants. The Companies Ordinance requires a company to send to every shareholder a copy of its balance sheet, auditors’ report and directors’ report which are to be laid before the company in its annual general meeting not less than 21 days before such meeting.

A joint stock limited company is required under the PRC law to prepare its financial statements in accordance with the PRC accounting standards. The Mandatory Provisions require that the company must, in addition to preparing accounts according to the PRC standards, have its accounts prepared and audited in accordance with International Accounting Standards or Hong Kong accounting standards and its financial statements must also contain a statement of the financial effect of the material differences (if any) from the financial statements prepared in accordance with the PRC accounting standards.

(xiv) Information on directors and shareholders

Under the PRC Company Law, neither the public nor the shareholders of a joint stock limited company have access to information on its directors and shareholders. Under the Mandatory Provisions, shareholders have the right to inspect and copy (at reasonable charges) certain information about the shareholders and directors of PRC joint stock company similar to that available under Hong Kong law to shareholders of a company incorporated in Hong Kong.

(xv) Receiving agent

Under both the PRC and Hong Kong law, dividends once declared become debts payable to shareholders (except in relation to interim dividends of Hong Kong companies, which do not constitute debts until the time they are paid generally). The limitation period for debt recovery action under Hong Kong law is six years while that under the PRC law is two years. The Mandatory Provisions require the appointment of a trust company registered under the Hong Kong Trustee Ordinance as receiving agent to receive on behalf of holders of foreign shares dividends declared and all other monies owing by a joint stock limited company in respect of such foreign shares.

(xvi) Merger and demerger

A merger or demerger involving a company incorporated in Hong Kong may be effected in a number of ways, such as a transfer of the whole or part of the business or property of the company in the course of being wound up voluntarily to another company pursuant to section 237 of the Companies Ordinance or a compromise or arrangement between the company and its creditors or between the company and its

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members pursuant to section 166 of the Companies Ordinance which requires the sanction of the court. Under the PRC law, the merger or demerger of a joint stock limited company has to be approved by shareholders in general meeting and the relevant governmental authorities.

(xvii) Arbitration of disputes

In Hong Kong, disputes between shareholders and a company incorporated in Hong Kong or its directors may be resolved through the courts. The Mandatory Provisions provide that such disputes be referred to arbitration, at the claimant election at either the Hong Kong International Arbitration Centre or the China International Economic and Trade Arbitration Commission.

(xviii) Mandatory transfers

Under the PRC Company Law, a joint stock limited company is required to make transfers equivalent to certain prescribed percentages of its after tax profit to the statutory common reserve and statutory public welfare fund. There are no such requirements under Hong Kong law.

(b) Listing Rules

The Listing Rules provide additional requirements which apply to an issuer which is incorporated in the PRC as a joint stock limited company and seeking a primary listing or whose primary listing is on the Stock Exchange. Set out below is a summary of such principal additional requirements which apply to the Company:

(i) Sponsor

The Company is required to retain for at least three years following its listing the services of the sponsor for its listing, or other financial adviser or professional firm which is acceptable to the Stock Exchange, to provide the Company with professional advice on continuous compliance with the Listing Rules and its listing agreement with the Stock Exchange (see sub-paragraph (vii) below), and to act at all times, in addition to the two authorised representatives of the Company, as the Company’s principal channel of communication with the Stock Exchange. The appointment of the sponsor may not be terminated until a replacement acceptable to the Stock Exchange has been appointed.

If the Stock Exchange is not satisfied that the sponsor is fulfilling its responsibilities adequately, it may require the issuer to terminate the sponsor’s appointment and appoint a replacement as soon as possible.

(ii) Accountants’ report

An accountants’ report for a PRC issuer will not normally be regarded as acceptable unless the relevant accounts have been audited to a standard comparable to that required in Hong Kong. Such report will normally be required to conform to either Hong Kong accounting standards or the International Accounting Standards.

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(iii) Process agent

The Company is required to appoint and maintain a person authorised to accept service of process and notices on its behalf in Hong Kong throughout the period during which its securities are listed on the Stock Exchange and must notify the Stock Exchange of his appointment, the termination of his appointment and his contact particulars.

(iv) Public shareholdings

If at any time there are existing issued securities of a PRC issuer other than foreign shares (“H shares”) which are listed on the Stock Exchange, the Listing Rules require that all H shares must he held by the public, the H shares must represent not less than 10 per cent. of the PRC issuer’s issued share capital and the aggregate amount of H shares and other securities held by the public must constitute not less than 25 per cent. of the PRC issuer’s issued share capital.

If the PRC issuer does not have existing issued securities other than H shares, the H shares must constitute not less than 25 per cent. of the issuer’s issued share capital unless the expected market value of the H shares at the time of listing is over HK$4,000 million, in which case the Stock Exchange will normally accept a prescribed percentage of between 10 and 25 per cent.

(v) Independent non-executive directors and supervisors

The independent non-executive Directors are required to demonstrate an acceptable standard of competence and adequate commercial or professional expertise to ensure that the interests of the general body of shareholders will be adequately represented. The Supervisors must have the character, expertise and integrity and be able to demonstrate a standard of competence commensurate with their position as supervisors.

(vi) Restrictions on purchase and subscription of its own securities

Subject to governmental approvals and the provisions of the Articles of Association, the Company may repurchase its own H shares on the Stock Exchange in accordance with the provisions of the Listing Rules. Approval by way of special resolution of the holders of domestic shares and the holders of H shares at separate class meetings conducted in accordance with the Articles of Association is required for share repurchases. In seeking such approvals, the Company is required to provide information on any proposed or actual purchases of all or any of its equity securities, whether or not listed or traded on the Stock Exchange. The Directors must also state the consequences which they are aware, if any, of any purchases which will arise under either or both of the Hong Kong Code on Takeovers and Mergers and any PRC law of a similar nature. A general mandate given to the Directors to repurchase H shares may not relate to more than 10 per cent. of the total amount of existing issued H shares of the Company.

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(vii) Listing Agreement

The Company is required to enter into a listing agreement with the Stock Exchange (the “Listing Agreement”) in substantially the same form as the listing agreement for an overseas company seeking a listing on the Stock Exchange, subject to certain modifications and additions as follows:

(aa) Redeemable shares

The Company must not issue any redeemable shares unless the Stock Exchange is satisfied that the relative rights of the holders of the H shares are adequately protected.

(bb) Pre-emptive rights

Except in the circumstances mentioned below, the Directors are required to obtain the approval by a special resolution of shareholders in general meeting, and the approvals by special resolutions of the holders of domestic shares and H shares (each being otherwise entitled to vote at general meetings) at separate class meetings conducted in accordance with the Articles of Association, prior to (1) authorising, allotting, issuing or granting shares, securities convertible into shares, or options, warrants or similar rights to subscribe for any shares or such convertible securities; or (2) any major subsidiary of the Company making any such authorisation, allotment, issue or grant which will materially to dilute the percentage equity interest of the Company and its shareholders in such subsidiary.

No such approval will be required, but only to the extent that the existing shareholders of the Company have by special resolution in general meeting given a mandate to the Directors, either unconditionally or subject to such terms and conditions as may be specified in the resolution, to authorise, allot or issue, either separately or concurrently, domestic shares and H shares subject to a restriction that in any 12 month period (commencing on the date on which shareholders pass such special resolution) the aggregate number of domestic shares allotted or agreed to be allotted must not exceed the aggregate of 20 per cent. of the issued domestic share capital of the Company and the aggregate number of H shares allotted or agreed to be allotted must not exceed the aggregate of 20 per cent. of the issued H share capital of the Company, in each case as at the date of the passing of the relevant special resolution.

(cc) Supervisors

The Company is required to adopt rules governing dealings by its Supervisors in securities of the Company in terms no less exacting than those of the model code (set out in Appendix 10 to the Listing Rules) issued by the Stock Exchange.

The restriction on the Company or any of its subsidiaries entering into a service contract of ten years or longer duration with a Director or proposed Director of the Company or its subsidiary without the prior approval of the shareholders in a general meeting at which the relevant Director did not vote on the matter also applies to a service contract of such duration between the Company or its subsidiary with a Supervisor or proposed Supervisor.

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(dd) Amendment to Articles of Association

The Company is required not to permit or cause any amendment to be made to its Articles of Association which would cause the same to cease to comply with the mandatory provisions of the Listing Rules relating to such Articles of Association.

(ee) Documents for inspection

The Company is required to make available at a place in Hong Kong for inspection by the public and shareholders free of charge, and for copying by shareholders at reasonable charges the following:

— a complete duplicate register of shareholders;

— a report showing the state of the issued share capital of the Company;

— the Company’s latest audited financial statements and the reports of the Directors, auditors and Supervisors (if any) thereon;

— special resolutions of the Company;

— reports showing the number and nominal value of securities repurchased by the Company since the end of the last financial year, the aggregate amount paid for such securities and the maximum and minimum prices paid in respect of each class of securities repurchased (with a breakdown between A Shares and H Shares);

— a copy of the latest annual return filed with the Administration for Industry and Commerce Bureau of the PRC; and

— for shareholders only, copies of minutes of meetings of shareholders.

(ff) Receiving agents

The Company is required to appoint one or more receiving agents in Hong Kong and pay to such agents dividends declared and other monies owing in respect of the H Shares to be held, pending payment, in trust for the holders of such H Shares.

(gg) Statements in share certificates

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

— agrees with the Company and each shareholder of the Company, and the Company agrees with each shareholder, to observe and comply with the PRC Company Law, the Special Regulations and the Articles of Association;

165 APPENDIX VIII SUMMARY OF RELEVANT PRC AND HONG KONG LAWS AND REGULATIONS

— agrees with the Company, each shareholder, Director, Supervisor, manager and other officer of the Company and the Company acting for itself and for each Director, Supervisor, manager and other officer agrees with each shareholder to refer all differences and claims arising from the Articles of Association or any rights or obligations conferred or imposed by the PRC Company Law or other relevant laws and administrative regulations concerning the affairs of the Company to arbitration in accordance with the Articles of Association. Any reference to arbitration will be deemed to authorise the arbitration tribunal to conduct its hearing in open session and to publish its award. Such arbitration will be final and conclusive;

— agrees with the Company and each shareholder of the Company that shares in the Company are freely transferable by the holder thereof; and

— authorises the Company to enter into a contract on his behalf with each Director and officer whereby such Directors and officers undertake to observe and comply with their obligations to shareholders stipulated in the Articles of Association.

(hh) Compliance with the PRC Company Law, the Special Regulations and the Articles of Association

The Company is required to observe and comply with the PRC Company Law, the Special Regulations and the Articles of Association.

(ii) Contract between the Company and its Directors, officers and Supervisors

The Company is required to enter into a contract in writing with every Director and officer containing at least the following provisions:

— an undertaking by the Director or officer to the Company to observe and comply with the PRC Company Law, the Special Regulations, the Articles of Association, the Hong Kong Codes on Takeovers and Mergers and Share Repurchases and an agreement that the Company shall have the remedies provided in the Articles of Association and that neither the contract nor his office is capable of assignment;

— an undertaking by the Director or officer to the Company acting as agent for each shareholder to observe and comply with his obligations to shareholders stipulated in the Articles of Association; and

— an arbitration clause which provides that whenever any differences or claims arise from that contract, the Articles of Association or any rights or obligations conferred or imposed by the PRC Company Law or other relevant law and administrative regulations concerning the affairs of the Company between the Company and its Directors or officers and between a holder of H Shares and a Director or officer of the Company, such differences or claims will be referred to arbitration at either the China International Economic and Trade Arbitration

166 APPENDIX VIII SUMMARY OF RELEVANT PRC AND HONG KONG LAWS AND REGULATIONS

Commission in accordance with its rules or the Hong Kong International Arbitration Centre in accordance with its securities arbitration rules, at the election of the claimant and that once a claimant refers a dispute or claim to arbitration, the other party must submit to the arbitral body elected by the claimant. Such arbitration will be final and conclusive.

The Company is also required to enter into a contract in writing with every Supervisor containing statements in substantially the same terms.

(jj) Subsequent listing

The Company must not apply for the listing of any of its foreign shares on a PRC stock exchange unless the Stock Exchange is satisfied that the relative rights of the holders of foreign shares are adequately protected.

(kk) English translation

All notices or other documents required under the Listing Agreement to be sent by the Company to the Stock Exchange or to holders of H Shares are required to be in the English language, or accompanied by a certified English translation.

(viii)General

If changes in the PRC law or market practices materially alter the validity or accuracy of any of the basis upon which the additional requirements have been prepared, then the Stock Exchange may impose additional requirements or make listing of the equity securities of a PRC issuer, including the Company, subject to such special conditions as the Stock Exchange considers appropriate. Whether or not any such changes in the PRC law or market practices occur, the Stock Exchange retains its general power under the Listing Rules to impose additional requirements and special conditions in respect of the listing of the Company.

(c) Other legislation and regulatory provisions

Upon the listing of the Company on the Stock Exchange, the provisions of the Securities Ordinance (Chapter 333 of the Laws of Hong Kong), the Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong), the Securities (Insider Dealing) Ordinance (Chapter 395 of the Laws of Hong Kong), the Hong Kong Codes on Takeovers and Mergers and Share Repurchases and such other relevant ordinances and regulations as may be applicable to companies listed on the Stock Exchange will apply to the Company.

167 APPENDIX VIII SUMMARY OF RELEVANT PRC AND HONG KONG LAWS AND REGULATIONS

(d) Securities Arbitration Rules

The Articles of Association provide that certain claims arising from the Articles of App.1A. Association or the PRC Company Law shall be arbitrated at either the China International 65(e) Economic and Trade Arbitration Commission or the Hong Kong International Arbitration Centre in accordance with their respective rules.

The Securities Arbitration Rules of the Hong Kong International Arbitration Centre contain provisions allowing an arbitral tribunal to conduct a hearing in Shenzhen for cases involving the affairs of companies incorporated in the PRC and listed on the Stock Exchange so that PRC parties and witnesses may attend. Where any party applies for a hearing to take place in Shenzhen, the tribunal shall, where satisfied that such application is based on bona fide grounds, order the hearing to take place in Shenzhen conditional upon all parties including witnesses and the arbitrators being permitted to enter Shenzhen for the purposes of the hearing. Where a party (other than a PRC party) or any of its witnesses or any arbitrator is not permitted to enter Shenzhen, then the tribunal shall order that the hearing be conducted in any practicable manner, including the use of electronic communications media. For the purposes of the Securities Arbitration Rules, a PRC party means a party domiciled in the PRC other than the territories of Hong Kong, Macau and Taiwan.

(e) Taxation

(i) Dividends

Where a company is not chargeable to Hong Kong profits tax, any dividends paid by it to persons who carry on a business in Hong Kong are liable to profits tax, to the extent that such dividends form part of the profits of such persons arising from their Hong Kong business.

(ii) Profits tax

Hong Kong does not have any capital gains tax. Persons who carry on a trade, profession or business in Hong Kong and derive income in Hong Kong from such trade, professional or business are liable to profits tax. Securities dealers carrying on a business in Hong Kong and who make trading gains from the sale and purchase of shares will be subject to profits tax. Currently, profits tax for corporations is payable at the rate of 16.5 per cent. of their assessable profits. Profits tax for individuals is levied on a progressive scale and the maximum rate is 15 per cent.

(iii) Stamp duty

The sale and purchase of shares are subject to stamp duty payable by both the seller and the buyer. Duty is payable with reference to the amount of the consideration or, if higher, the fair value of the shares being sold. In respect of every HK$1,000 (or part thereof) of the consideration or, if higher, the fair value of the shares, the current rate of duty is HK$3. Stamp duty is usually shared between the buyer and the seller equally in respect of transactions on the Stock Exchange. A fixed rate of duty of HK$5 is also payable in respect of every instrument of transfer which is required to be registered on a register or branch register maintained in Hong Kong.

168 APPENDIX VIII SUMMARY OF RELEVANT PRC AND HONG KONG LAWS AND REGULATIONS

(iv) Estate duty

Properties situated in Hong Kong which pass or are deemed to pass upon the death of a person, wherever domiciled or resident, are liable to estate duty based on the value of the property in question. H Shares will constitute property situated in Hong Kong for estate duty purposes by virtue of them being on the Hong Kong branch register of the Company. Hong Kong estate duty is imposed on a progressive scale from 6 per cent. to 18 per cent. The rate of and the threshold for estate duty have, in the past, been adjusted on a fairly regular basis. No estate duty is payable where the aggregate value of the dutiable estate does not exceed HK$6.5 million, and the maximum rate of duty of 18 per cent. applies where the aggregate value of the dutiable estate exceeds HK$9.5 million.

169 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

THE ARTICLES OF ASSOCIATION

Set out below is a summary of the principal provisions of the Articles of Association which have incorporated the Mandatory Provisions as supplemented by the Opinion Regarding the Supplemental Amendments to the Articles of Association of Companies to be listed in Hong Kong jointly promulguated by the Securities Commission and SCRES and which were adopted at an extraordinary general meeting of the Company held on 16th August, 1996 and approved by SCRES on 29th August, 1996. Copies of the full Chinese and English texts of the Articles of Association are available for inspection as mentioned in the paragraph headed “Documents available for inspection” in appendix X.

(1) Directors Rule19A.29 App.13d (1)(a) (a) Allotment and issue of shares

Subject to the relevant PRC laws and regulations, the Company may by special App.1A 7(6) resolution at a general meeting authorise the Directors to allot or issue, either separately or concurrently once every twelve months, not more than 20 per cent. of each of the existing issued domestic shares and overseas listed foreign shares of the Company.

(b) Power to dispose of the assets of the Company or any subsidiary App.13d (1)(b)

The Directors shall not, without the prior approval of shareholders in general meeting, dispose or agree to dispose of any fixed assets of the Company if the aggregate of:

(i) the expected value of the fixed assets proposed to be disposed of; and

(ii) the consideration received by the Company on the disposal of fixed assets within the period of four months immediately preceding the proposed disposal,

exceeds 33 per cent. of the value of the Company’s fixed assets as shown in the last balance sheet placed before the general meeting. The validity of a disposal of fixed assets by the Company shall not be affected by the breach of this provision. For the purposes of this provision, disposal includes an act involving the transfer of an interest in certain assets other than by way of security.

(c) Compensation or payments for loss of office App.13d (1)(c)

Payment to a Director or a Supervisor by way of compensation for loss of office or retirement shall be stipulated in his contract with the Company. A Director or Supervisor shall not institute proceedings against the Company for any benefit due to him in respect of any such arrangement except under a contract entered into in accordance with the foregoing.

170 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

In connection with a takeover of the Company, a Director or a Supervisor is entitled to compensation or other payment for loss of office or retirement subject to obtaining the informed consent of shareholders in general meeting. A “takeover of the Company” refers to any one of the following circumstances:

(i) an offer made by any person to all shareholders of the Company; or

(ii) an offer made by any person, the purpose of which is for the offeror to become a controlling shareholder (as defined in the Articles of Association) of the Company.

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

(d) Loans to Directors App.13d (1)(d) The Company is prohibited from directly or indirectly making a loan, or providing any guarantee in connection with a loan made to: (a) its Directors, Supervisors, managers and other officers; (b) the directors, supervisors, managers and other officers of its holding company; and (c) a person connected with any person referred to in (a) and (b) above.

The following transactions are not subject to the above prohibition:

(a) the provision of a loan or a guarantee for a loan by the Company to a subsidiary of the Company;

(b) the provision by the Company to a Director, Supervisor, manager or other officer under an employment contract approved by the general meeting of a loan or a guarantee for a loan or other funds to meet expenditure incurred by him for the purposes of the Company or for the purpose of enabling him to perform his duties; and

(c) where the ordinary course of business of the Company includes the lending of money or the giving of guarantees, the Company may make a loan to or provide a guarantee for a loan to any of its Directors, Supervisors, managers or other officers or persons connected with them provided that the terms of the loan or guarantee for a loan are on normal commercial terms.

A loan made by the Company in breach of the prohibition described above shall be forthwith repayable by the recipient of the loan regardless of the terms of the loan.

A guarantee provided by the Company in breach of the prohibition described above shall be unenforceable against the Company unless:

(i) the lender was not aware of the relevant circumstances at the time the loan was advanced to the director, supervisor, manager or other officer of the Company or its holding company;

(ii) the security provided by the Company has been lawfully sold by the lender to a bona fide purchaser.

171 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

For the purpose of the foregoing provisions:

(i) a guarantee includes an undertaking of obligations or provision of security to secure the performance of obligations by the obligor; and

(ii) the definition of a connected person set out in paragraph (f) below shall, mutatis mutandis, apply to the provisions of the Articles of Association summarised in this paragraph (d).

(e) Financial assistance for acquisition of shares in the Company or any of its App.13d subsidiaries (1)(e)

Subject to the exceptions provided in the Articles of Association, where a person is purchasing or proposing to purchase shares in the Company, the Company and its subsidiaries shall not at any time and in any way give any financial assistance to that person. The aforesaid purchaser of shares includes a person who directly or indirectly assumes obligations by virtue of such purchase of shares. The Company and its subsidiaries shall not at any time and in any way give financial assistance for the purposes of reducing or discharging that obligation.

The following transactions are not prohibited:

(i) the provision of financial assistance by the Company in good faith in the interests of the Company and the principal purpose of that assistance is not to acquire shares in the Company or that financial assistance is but an incidental part of some larger overall plan of the Company;

(ii) a lawful distribution of the Company’s assets by way of dividend;

(iii) the distribution of dividend by way of an allotment of bonus shares;

(iv) a reduction of registered capital, repurchase of shares or reorganisation of the share capital in accordance with the Articles of Association;

(v) the lending of money by the Company within its scope of operations in the ordinary course of its business, provided that the Company’s net assets are not thereby reduced or, to the extent that those assets are thereby reduced, the financial assistance is provided out of distributable profits of the Company; and

(vi) the provision of moneys by the Company for contributions to employees’ share scheme, provided that the Company’s net assets are not thereby reduced or, to the extent that those assets are thereby reduced, the financial assistance is provided out of distributable profits of the Company.

For the purposes of the Articles,

(i) “financial assistance” includes but is not limited to:

(1) financial assistance provided by way of gift;

(2) financial assistance provided by way of guarantee (including the provision of an undertaking or property to secure the performance of obligations by the obligor), indemnity (other than an indemnity in respect of the Company’s own negligence or default), release or waiver;

172 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(3) financial assistance given by way of a loan or entering into a contract under which the obligations of the Company are to be fulfilled before the obligations of the other party to the contract, or by way of the change of any party to that loan or contract, or the assignment of rights arising under the loan or contract, or

(4) financial assistance given by any other method when the Company is unable to pay its debts or has no net assets or when its net assets may be reduced to a material extent; and

(ii) the meaning of “assumed obligations” includes obligations assumed by the obligor as a result of entering into a contract or making an arrangement (whether or not such contract or such arrangement is enforceable, and whether or not assumed by him personally or together with any other person) or by any other means whereby his financial position is changed.

(f) Disclosure of interests in contracts with the Company or any its subsidiaries App.13d (1)(f)

Where a director, supervisor, manager or other officer of the Company has, directly App.1A. or indirectly, a material interest in a contract, transaction or arrangement entered into or 7(1) proposed to be entered into with the Company, other than his contract of service, he shall declare the nature and extent of his interest to the Directors as soon as possible, whether or not the above matters are normally subject to the approval of the Directors. Unless the interested Director, Supervisor, manager or other officer has disclosed his interests in accordance with the Articles of Association and that matter has been approved by the Directors at a meeting in which the interested Director has not been counted in the quorum and has refrained from voting, the Company may cancel that contract, transaction or arrangement except as against a bona fide party thereto acting without notice of the breach of duty by that Director, Supervisor, manager or other officer. For the purposes of this provision, a Director, Supervisor, manager or other officer is also deemed to be interested in a contract, transaction or arrangement in which a person connected to him is interested.

Where a Director, Supervisor, manager or other officer, before the question of entering into the relevant contract, transaction or arrangement is first considered, gives to the Directors a notice in writing, stating that by reason of the content specified in the notice, he is interested in a contract, transaction or arrangement proposed to be entered into with the Company, then the relevant Director, Supervisor, manager or officer shall be deemed to have made a disclosure for the purpose of the above provision within the scope of that specified notice.

A person is connected with a Director, Supervisor, manager or other officer if he is:

(i) the spouse or minor child of that Director, Supervisor, manager or other officer;

(ii) a person acting in the capacity of trustee of that Director, Supervisor, manager or other officer or any person referred to in (i) above;

(iii) a person who is a partner of that Director, Supervisor, manager or other officer or any person referred to in (i) and (ii) above;

(iv) a company over which that Director, Supervisor, manager or other officer, alone has de facto control or a company over which the persons referred to in (i), (ii) and (iii) above or other Directors, Supervisors, managers or officers, together with that Director, Supervisor, manager or other officer have de facto control; or

173 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(v) a director, supervisor, manager or other officer of a company referred to in (iv) above.

(g) Remuneration App.1A 7(2) 3rd Sch Para 5 The Company shall enter into a contract in writing with each Director or Supervisor App.13d in respect of his remuneration, with the prior approval of general meeting. Such (1)(g) remuneration includes:

(i) remuneration in respect of his service as Director or Supervisor or officer of the Company;

(ii) remuneration in respect of his service as Director or Supervisor or officer of any subsidiary of the Company;

(iii) remuneration in respect of other services provided in connection with the management of the affairs of the Company or its subsidiaries; and

(iv) moneys payable as compensation for loss of office or retirement from office of that Director or Supervisor.

A Director or Supervisor shall not institute proceedings against the Company for any benefit due to him in respect of the above matters except under a contract entered into in accordance with the foregoing.

(h) Retirement, appointment and removal App.1A 7(4)

A person shall be disqualified from being a Director, Supervisor, manager or other App.13d officer of the Company in any of the following circumstances: (1)(h)

(i) a person who suffers from any incapacity or restricted capacity from undertaking civil liabilities;

(ii) a person who has been convicted of offences relating to corruption, bribery, trespass to assets, misappropriation of assets or causing social economic disorder or who has been deprived of his political rights as a result of him having committed an offence and a period of 5 years has not elapsed since the completion of the term of sentence or deprivation;

(iii) a person who was a director or factory manager or manager of a company or enterprise which had become insolvent or had been liquidated because of unsound management and who incurred personal liability for the insolvency of that company or enterprise, and a period of 3 years has not yet elapsed since the completion of insolvency or liquidation of that company or enterprise;

(iv) a person who was a legal representative of a company or enterprise, the business licence of which was revoked on the ground of contravention of law, and who incurred personal responsibility therefor, and a period of 3 years has not yet elapsed since the revocation of the business licence of that company or enterprise;

(v) a person who has failed to repay his relatively large debts when due;

174 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(vi) a person who, because of suspected contravention of criminal law, is under investigation by judicial authorities and the case has not yet been settled;

(vii) a person who is not eligible for enterprise leadership according to the PRC law and administrative regulations;

(viii) a person who is not a natural person; or

(ix) a person who has been convicted by the relevant supervisory authority of having contravened the provisions of the relevant securities laws and which involves fraudulent or dishonest acts on his part and a period of 5 years from the date of conviction has not yet elapsed.

Candidates for the first board of Directors shall be nominated by the promoter and elected at the inaugural meeting of the Company.

All Directors shall be elected by general meeting. A retiring Director is entitled to be re-elected to serve consecutive terms. A notice of the intention to propose a person for election as a Director and a notice in writing by that person of his willingness to be elected shall be given to the Company at least 7 days but not more than 42 days before the date of the general meeting.

A Director is not required to hold any shares of the Company. App.1A 7(5)

The Board of Directors shall consist of nine Directors, comprising seven executive Directors and two non-executive Directors. The Board of Directors shall have a chairman who shall be elected and may be dismissed by more than one half of the number of Directors.

The term of office of the chairman and other Directors may not exceed three years commencing from the date of appointment but they may be re-elected to serve consecutive terms. A Director may concurrently hold the position of general manager or other senior position other than the position of Supervisor. There is no age limit requirement for a Director to hold his position.

A Director may be removed prior to the expiration of his term of office by an ordinary resolution of a general meeting, subject to compliance with relevant laws and administrative regulations.

(i) Borrowing powers 3rd Sch para 22

Subject to applicable laws and regulations, the Company has power to raise capital App.13d and borrow money by way of, among other means, the issue of bonds and creation of (1)(i) security over its assets, provided that the exercise of such powers shall not prejudice or abrogate the rights of different classes of shareholders.

Other than the power to issue bonds which is exercisable only by the general meeting and subject to the scope of authority granted by the Company in general meeting, the Directors may exercise the Company’s power to raise capital, borrow money and make decisions on the charging, letting, sub-contracting and transfer of the Company’s major assets.

175 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(2) Alterations to constitutive documents App.13d (2) Any amendment in the Articles of Association requires the sanction of a special resolution at a general meeting, subject to the following:

(i) the provisions in the Articles of Association relating to the variation of class rights; and App.1A 7(6) (ii) any amendment to provisions included in the Articles of Association pursuant to the Mandatory Provisions shall become effective only after the approval of the companies supervisory departments authorised by the State Council and of the Securities Commission. Any amendment involving companies registration matters shall be registered according to law.

(3) Variation of rights of existing shares or classes of shares App.1A 25(3), 55(1) App.13d (3) Any proposal to vary or abrogate the rights conferred on any class of shareholders in the Rule19A.39 capacity of shareholders (“Class Rights”) must be approved by a special resolution of general meeting and approved by holders of shares of that class at a separate meeting conducted in accordance with the provisions of the Articles of Association.

The following circumstances shall be deemed to be a variation or abrogation of the Class Rights of a class:

(i) the change in the number of shares of such class, or a change in the number of shares of a class having voting or distribution rights or other privileges which are equal or superior to the shares of such class;

(ii) the exchange of all or part of the shares of such class for shares of another class or the exchange of all or part of the shares of another class for the shares of such class or to grant a right to such conversion;

(iii) the removal or reduction of rights to accrued dividends or rights to cumulative dividends of such class of shares;

(iv) the reduction or removal of a preferential right to dividends or to asset distribution upon liquidation of the Company of such class of shares;

(v) the addition, removal or reduction of conversion privileges, options, voting rights, transfer rights or pre-emptive rights or rights to acquire securities of the Company of such class of shares;

(vi) the removal or reduction of rights of such class of shares to receive money payable by the Company in particular currencies;

(vii) the creation of a new class of shares having voting or distribution rights or other privileges equal or superior to the shares of such class;

(viii) the imposing of restrictions or increase in restrictions on the transfer or ownership of the shares of such class;

(ix) the issue of rights to subscribe for, or convert into, shares of such class or another class;

176 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(x) the increase of the rights or privileges of another class of shares;

(xi) the restructuring of the Company which results in different classes of shareholders bearing disproportionate responsibilities in such restructuring; and

(xii) the variation or abrogation of provisions concerning the protection of shareholder rights of various classes of shares in the Articles of Association.

Shareholders of the affected class, whether or not having the right to vote at general meetings, shall nevertheless be entitled to vote at class meetings in respect of matters concerning paragraphs (ii) to (viii), (xi) and (xii) above, but Interested Shareholder(s) (as defined below) shall have no voting rights at class meetings.

Resolutions of a class meeting shall be passed by two thirds of the votes of the shareholders of that class (including proxies) present at and who are entitled to vote at the class meeting.

Notice of class meetings need only be served on shareholders entitled to vote thereat.

Class meetings shall be conducted in a manner as nearly as possible as general meetings. The provisions of the Articles of Association relating to the proceedings of general meetings shall apply to class meetings.

Holders of domestic shares and overseas listed foreign shares shall be deemed to be different classes of shareholders.

For the purposes of the Class Rights provisions of the Articles of Association, an Interested Shareholder is:

(a) in the case of a repurchase of shares by the Company by way of a general offer to all shareholders in equal proportion or on a stock exchange by public transaction method, the controlling shareholder as defined in the Articles of Association;

(b) in the case of a repurchase of shares by the Company by an off-market agreement in accordance with the Articles of Association, the shareholder to which the proposed agreement relates; and

(c) in the case of a restructuring proposal of the Company, a shareholder who bears less than a proportionate responsibility than other shareholders of the same class or a shareholder who has an interest different from the interests of the other shareholders of that class.

(4) Special resolutions - majority required App.13d (4)

Resolutions of general meetings may be passed by way of ordinary resolutions or special resolutions.

An ordinary resolution shall be passed by more than one half of the votes held by the shareholders present in person or by proxy at a general meeting and voting in favour of the resolution.

177 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

A special resolution shall be passed by more than two thirds of the votes held by the shareholders present in person or by proxy at a general meeting and voting in favour of the resolution.

(5) Voting rights App.1A 25(1) App.13d (5) A shareholder has the right to attend and vote in person and to appoint a proxy to attend and vote on his behalf at general meetings. A proxy need not be a shareholder.

Subject to any special rights or restrictions as to voting rights for the time being attached to any class of shares, shareholders (including proxies) who vote at the general meeting shall exercise their voting rights in relation to the number of shares carrying the right to vote they hold. Each share shall carry one vote.

At any meeting of shareholders, a resolution shall be decided on a show of hands unless a poll is (before or after any vote by show of hands) demanded by the following persons:

(a) the chairman of the meeting;

(b) at least two shareholders having the right to vote present in person or by proxy; or

(c) one or more shareholders present in person or by proxy who alone or together hold 10 per cent. or more of the shares carrying the right to vote at the meeting.

Unless a poll is demanded, a declaration by the chairman that a resolution has been passed based on the result of the show of hands and an entry to that effect in the minutes of the meeting, shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. The demand for a poll may be withdrawn by the person or persons who demanded it.

A poll demanded on the election of the chairman of the meeting, or on a question of adjournment, shall be taken forthwith. A poll demanded on any other matters shall be taken at such time as the chairman of the meeting decides, and the meeting may continue to proceed to discuss other matters. The result of the poll shall be declared as soon as possible and shall be deemed to be the resolution of the meeting at which the poll was demanded.

On a poll taken at a meeting, a shareholder (including his proxy) entitled to two or more votes need not cast all his votes in the same way.

In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting shall be entitled to one extra vote.

(6) Requirements for annual general meetings App.13d (6)

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

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(7) Accounts and audit App.13d (7) (a) Financial accounting system

The Company shall formulate its financial accounting system in accordance with the relevant requirements of PRC laws, administrative regulations and the PRC accounting principles formulated by the financial supervisory authority of the State Council.

The financial year of the Company shall adopt the Gregorian calendar year, which is from 1 January to 31 December of each year.

The Company shall use Renminbi as the currency unit in its accounts and all accounts shall be written in Chinese.

The Company shall prepare a financial report at the end of every financial year and shall have it audited in accordance with law.

The Directors shall place before the shareholders at every annual general meeting a financial report required by the relevant laws, administrative regulations or normative documents promulgated by regional government and supervisory authorities to be prepared by the Company.

The financial reports of the Company shall be placed at the legal address of the Company 20 days prior to the holding of the annual general meeting of the Company for inspection by shareholders. A printed copy of the financial reports together with a profit and loss account and a balance sheet shall, at least 21 days before the date of the annual general meeting, be delivered or sent by prepaid post by the Company to every holder of H Shares.

The financial statements of the Company shall, in addition to complying with PRC accounting standards and regulations, be prepared in accordance with either international accounting standards or the accounting standards of the place where the Company is listed. If there are material differences between the financial statements prepared in accordance with the aforesaid two accounting standards, then those financial statements shall specify such differences. For the purposes of distributing the profits after tax in respect of the relevant financial year, the profits after tax shall be deemed to be the lesser of the amount stated in the two sets of financial statements.

Any interim results or financial information published or disclosed by the Company shall be prepared in accordance with PRC accounting standards and regulations as well as in accordance with either international accounting standards or the accounting standards of the place where the Company is listed.

The Company shall publish its financial report twice in each financial year. The interim report shall be published within 60 days after the end of the first six months of the financial year and the annual report shall be published within 120 days after the end of the financial year.

(b) Appointment of auditors

The Company shall at each annual general meeting appoint one or more independent firms of accountants which satisfy the relevant PRC requirements to audit the annual

179 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

financial report and other financial reports of the Company. The accounting firm so appointed by the Company from time to time shall be the auditor of the Company for the purpose of the Articles of Association. The term of appointment of auditors shall commence from the conclusion of the current annual general meeting until the conclusion of the next annual general meeting.

The first auditor of the Company may be appointed at the inaugural meeting of the Company or, failing which, by the Directors, and the auditor so appointed shall hold office until the conclusion of the first annual general meeting.

If a casual vacancy arises in the office of an auditor, the board of Directors may prior to the holding of a general meeting appoint an independent firm of accountants to fill the casual vacancy, but if any such vacancy continues, any surviving or continuing auditor(s), if any, may continue to act.

The general meeting may by ordinary resolution remove an auditor before the expiration of its term of office notwithstanding any terms of the contract between the Company and the auditor, but without prejudice to the auditor’s claim, if any, against the Company arising from the termination of its office.

The remuneration of an auditor appointed by the Directors shall be determined by the Directors. In all other cases, the remuneration and the method of remuneration of an auditor shall be determined by the general meeting.

(c) Change and removal of auditors

Where a resolution is passed at a general meeting to appoint a firm of accountants not currently in office to fill a casual vacancy in the office of auditor, to reappoint as auditor a retiring auditor who was appointed by the Directors to fill a casual vacancy, or to remove an auditor before the expiration of its term of office, the following provisions shall apply:

(i) the proposed resolution shall be sent, before notice of a general meeting is given, to the firm of accountants proposed to be appointed or the auditor who propose to leave office or the auditor who has left its office in the relevant financial year (leaving office includes leaving by removal, resignation and retirement);

(ii) if the auditor leaving its office makes representations in writing and requests the Company to notify the shareholders of its representations, the Company shall implement the following measures (unless the representations are received too late):

(1) state in the notice in connection with the resolution the fact that representations have been made by the auditor leaving office; and

(2) send a copy of the representations to every shareholder entitled to receive notice of general meetings;

(iii) if the auditor’s representations have not been despatched in accordance with (ii) above, the auditor may (in addition to its right to be heard) request such representations be read at the meeting and may make further representations at the meeting;

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(iv) an auditor leaving office shall be entitled to attend:

(1) the general meeting at which its term of office would otherwise expire;

(2) any general meeting at which it is proposed to fill the vacancy caused by its removal; and

(3) any general meeting convened as a result of his resignation;

and to receive all notices of, and other communications relating to, the meetings referred to above, and to speak at any such meeting on any matter which concerns it as former auditor of the Company.

(d) Resignation of auditors

An auditor may resign from office by a notice in writing deposited at the Company’s legal address and such notice shall contain either of the following statements:

(i) a statement to the effect that there are no circumstances connected with its resignation which it considers should be brought to the notice of the shareholders or creditors of the Company; or

(ii) a statement of any such circumstances which should be accounted for.

Any such notice shall be effective on the date on which it is deposited at the legal address of the Company or on such later date as may be specified therein.

After receipt of the written notice referred to in the preceding paragraphs, the Company shall within 14 days send a copy of the notice to the competent authority. If the notice contains a statement referred to in sub-paragraph (ii) above, a copy of that notice shall be deposited at the Company for inspection by shareholders. The Company shall also send a copy of the notice to every overseas listed foreign shareholder by prepaid post to his address as recorded in the register of shareholders.

Where the auditor’s notice of resignation contains a statement referred to in sub-paragraph (ii) above, it may require the Directors to convene an extraordinary general meeting for the purposes of receiving an explanation of the circumstances connected with its resignation.

(e) Rights of auditors

Every auditor of the Company shall have a right:

(i) to inspect at all times the books records and vouchers of the Company, and to require the Directors, managers and other officers of the Company to provide relevant information and explanations;

(ii) to require the Company to take all reasonable steps to obtain from its subsidiaries such information and explanations as are necessary for the purposes of performing its duties as auditor of the Company; and

181 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(iii) to attend any general meeting and to receive all notices of, and other communications relating to, any general meeting which a shareholder is entitled to receive, and to speak at any general meeting on any matter which concerns it as auditor.

(8) Notice of meetings and business to be conducted thereat App.13D (8)

The general meeting is the organ of power of the Company and its powers shall be exercised in accordance with the law.

The Company shall not without the prior approval of shareholders in general meeting, enter into any contract with any person other than a Director, Supervisor, manager or other officer of the Company whereby the responsibility for the management of the whole or any substantial part of the business of the Company is given to such person.

The Directors shall convene an extraordinary general meeting within two months of the occurrence of any of the following events:

(i) when the number of Directors is fewer than the number prescribed by the PRC Company Law or fewer than two thirds of the number prescribed by the Articles of Association;

(ii) when the accumulated losses of the Company amount to one third of the total amount of its share capital;

(iii) upon the written requisition of shareholders holding 10 per cent. or more of the Company’s issued shares carrying the right to vote; and

(iv) when the Directors consider it necessary or when the supervisory committee proposes to convene a general meeting.

Written notice of general meetings shall be given not less than 45 days (but not more than 60 days) before the date of the meeting, exclusive of the day on which the notice is despatched and the day of the meeting.

A notice of meeting of shareholders shall:

(i) be given in writing;

(ii) specify the place, the date and the time of the meeting;

(iii) state the matters to be discussed at the meeting;

(iv) provide such information and explanation as are necessary for the shareholders to make an informed decision on the matters proposed to be discussed. Without limiting the generality of the foregoing principle, where the Company proposes to merge with another, to repurchase its shares, to reorganise its share capital, or to restructure in any other way, details of the terms of and the contract (if any) for the proposed transaction shall be provided and the effect of such proposal must be properly explained;

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(v) disclose the nature and extent of the material interests, if any, of any Director, Supervisor, manager or other officer in the matter to be discussed at the meeting and the effect of such matter on him in his capacity as shareholder in so far as it is different from the effect on the shareholders of the same class;

(vi) contain the text of any special resolution to be proposed at the meeting;

(vii) contain conspicuously a statement that a shareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him and that a proxy need not be a shareholder; and

(viii)specify the time and place for lodging written replies and proxy forms.

Any matter not set out in the notice convening an extraordinary general meeting shall not be decided at that meeting.

When the Company convenes an annual general meeting, shareholders holding 5 per cent. or more of the Shares carrying voting rights are entitled to propose to the Company in writing new matters to be considered. The Company shall include in the notice and agenda of that meeting those matters contained in the proposal which are within the scope of the duties of the general meeting provided that the proposal is delivered to the Company within 30 days from the date of issue of the notice of that meeting.

In respect of holders of H Shares, notice of general meetings shall be served on all shareholders (whether or not entitled to vote thereat) by personal delivery or prepaid mail to the addresses as appearing on the register of holders of H Shares. In respect of holders of domestic shares, notice of general meetings may be served in the aforesaid manner or published on any one day within the period specified in the Articles of Association in one or more newspapers specified by the PRC state securities regulatory authority. Once published, all holders of domestic shares shall be deemed to have received the relevant notice.

The accidental omission to give notice of a meeting to, and the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the meeting or any resolution passed at that meeting.

Shareholders may convene an extraordinary general meeting or class meeting in accordance with the following procedures: two or more shareholders holding on the date of the deposit of a requisition 10 per cent. or more of the shares carrying voting rights at the proposed meeting may, by signing one or more counterpart requisitions, require the Directors to, and the Directors shall as soon as possible proceed to, convene an extraordinary general meeting or the relevant class meeting. If the Directors fail to issue a notice convening such a meeting within 30 days of their receipt of the requisition, the requisitioning shareholders may on their own convene such a meeting within 4 months of the receipt of such requisition by the Directors in a manner as nearly as possible to that of a general meeting convened by the Directors.

The following matters shall be approved by special resolution of a general meeting:

(i) the increases and reductions of capital and the issue of any class of shares, warrants, and other similar securities;

(ii) the issue of bonds of the Company;

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(iii) the demerger, merger, termination and liquidation of the Company;

(iv) amendments to the Articles of Association; and

(v) other matters which the general meeting has resolved by way of ordinary resolution as having a potentially material effect on the Company and should be approved by special resolution.

Subject to such matters as may be specified in the Articles of Association as requiring approvals at class meetings, the following matters shall be approved by ordinary resolution of a general meeting:

(i) work reports of the Directors and the supervisory committee;

(ii) proposals formulated by the Directors for the distribution of profits and for making up accrued losses;

(iii) appointment and removal of the members of the Directors and the supervisory committee, their remuneration (including but not limited to remuneration payable upon the loss of office of a Director or on completion of his term of appointment) and the method of payment of such remuneration;

(iv) annual budget and final accounts, balance sheet, profit and loss account and other financial reports of the Company; and

(v) all matters required to be approved by a general meeting other than those required to be approved by way of special resolution under PRC law, administrative regulations or the Articles of Association.

(9) Transfer of shares App.1A 7(8)(9)

Unless otherwise prescribed by PRC law and administrative regulations, shares of the App.13D(9) Company are freely transferable and shall be free from all liens.

All transfers of H Shares shall be effected by a transfer in writing in the usual or common form or in such other form as the Directors may accept, and may be under hand only.

All fully paid up H Shares are freely transferable in accordance with the provisions of the App.1A.62 Articles of Association, but except where the conditions set out below are satisfied, the Directors may refuse to recognise any transfer document without providing any reason:

(i) the relevant transfer fee and stamp duty payable thereon have been paid;

(ii) the transfer document relates only to H Shares;

(iii) the instrument of transfer is accompanied by the relevant share certificate(s) and such other evidence reasonably required by the Directors to show the right of the transferor to make the transfer;

(iv) if the shares of the Company are transferred to joint holders, the number of joint holders does not exceed four; and

184 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(v) the relevant shares of the Company are free from all liens.

No shares of the Company shall be transferred to any person who is not of legal age or has mental or other legal incapacity.

(10) Power of the Company to purchase its own shares App.13d (10) Subject to the approval of the relevant PRC supervisory authorities and to the provisions of the Articles of Association, the Company may repurchase its issued shares in the following circumstances:

(i) to cancel its shares for the purposes of reducing its share capital;

(ii) to merge with another company which holds shares of the Company; or

(iii) under other circumstances permitted by law and administrative regulations.

A share repurchase may only be made by one of the following methods:

(i) under a general offer,

(ii) through open trading method on the Stock Exchange or a PRC stock exchange, or

(iii) by an off-market agreement.

The Company may, with the prior approval of a general meeting obtained in accordance with the Articles of Association, repurchase its shares pursuant to an off-market agreement; and the Company may release, vary or waive its rights under a contract so entered into by the Company if the prior approval of a general meeting is given in the same manner. An agreement to repurchase shares includes but is not limited to an agreement to assume an obligation to repurchase or to acquire rights to repurchase shares of the Company.

The Company shall not assign an agreement for the repurchase of its shares or any of its rights under such agreement.

Unless the Company is in the course of liquidation:

(i) where the Company repurchases its shares at nominal value, payment shall be made out of distributable profits of the Company or the proceeds of an issue of new shares made for that purpose;

(ii) where the Company redeems or repurchases shares of the Company at a premium, payment up to the nominal value of those shares may be made out of the distributable profits of the Company or out of the proceeds of an issue of new shares made for that purpose. Payment of the portion in excess of the nominal value shall be made as follows:

(1) if the shares being repurchased were issued at nominal value, payment shall be made out of distributable profits of the Company;

(2) if the shares being repurchased were issued at a premium, payment shall be made out of the book balance of the distributable profits of the Company or out of proceeds of an issue of new shares made for that purpose, provided that the

185 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

amount paid out of the proceeds of the issue of new shares shall not exceed the aggregate of premium received by the Company on the issue of the shares repurchased nor shall it exceed the current amount of the Company’s share premium account or capital reserve fund account, including the premium on the new shares issued;

(iii) payment by the Company for the following purposes shall be made out of the Company’s distributable profits:

(1) the acquisition of rights to repurchase its own shares;

(2) the variation of any agreement to repurchase its own shares; or

(3) the release of any of the Company’s obligations under any agreement to repurchase its shares.

Shares repurchased by the Company shall be cancelled and the amount of the Company’s registered capital shall be reduced by the aggregate nominal value of the shares repurchased.

To the extent that shares are repurchased out of an amount deducted from distributable profits of the Company, such amount shall be charged to the Company’s share premium account or capital reserve fund account.

(11) Power of any subsidiary of the Company to own shares in its parent company App.13d (11) There are no restrictions in the Articles of Association preventing any subsidiary of the Company from holding shares in its parent company.

(12) Dividends and other methods of distribution App.13d (12) After making payment of relevant taxes and levies, the profits of the Company shall be applied in the following order:

(i) making up of accrued losses;

(ii) allocation to statutory common reserve;

(iii) allocation to statutory public welfare fund;

(iv) payment of dividends on preferred shares, if any;

(v) allocation to discretionary common reserve; and

(vi) payment of dividends in respect of ordinary shares.

The detailed proportion of distributions in respect of items (v) to (vi) above for any year shall be formulated by the Directors in accordance with the operating conditions and development requirements of the Company and shall be submitted to the general meeting for approval.

No dividends shall be paid before the Company has made up its accrued losses and has made allocation to its statutory common reserve and its statutory public welfare fund. No dividend, unless the same is not paid by the Company when due and payable, shall bear interest as against the Company.

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The Company shall allocate 10 per cent. of its profits after tax to the statutory common reserve provided that no allocation is required if the accumulated statutory common reserve exceeds 50 per cent. of the registered capital.

The Company shall allocate its profits to the discretionary common reserve in accordance with the resolutions passed at general meetings.

The following sums shall be appropriated to the capital common reserve:

(i) the amount of share premium arising from the issue of shares at a premium;

(ii) other income required by the financial supervisory authority of the State Council to be appropriated to the capital common reserve.

The Company’s common reserve (which comprises the statutory common reserve, discretionary common reserve and the capital common reserve) shall only be used for the following purposes:

(i) to make up accrued losses;

(ii) to expand the business operations of the Company; and

(iii) to be converted into capital. The Company may, upon the approval of a special resolution passed at a general meeting, convert its common reserve into capital and issue bonus shares to existing shareholders in proportion to their existing shareholdings or to increase the nominal value of each share. When converting the statutory common reserve into capital, the balance of such fund after such conversion must not be less than 25 per cent. of the registered capital of the Company.

The Company shall allocate 5 to 10 per cent. of its profits after tax to the statutory public welfare fund. The Company shall apply its statutory public welfare fund for the collective welfare of the employees of the Company from time to time.

Subject to the provisions of the Articles of Association, annual dividends shall be paid within six months after the end of each financial year in proportion to the shareholding of each shareholder. Annual dividends shall be sanctioned by the general meeting but the amount of dividends payable shall not exceed the amount recommended by the Directors.

The Directors may, subject to the approval of the shareholders in general meeting, resolve to distribute interim dividends or bonuses.

The Company may distribute dividends by way of cash and/or bonus shares.

Dividends or other distributions on ordinary Shares shall be declared and denominated in Renminbi. Dividends or other distributions payable on domestic shares shall be paid in Renminbi. Dividends or other distributions payable on H Shares shall be paid in Hong Kong dollars in accordance with relevant PRC regulations on foreign exchange and at an exchange rate which is equal to the average of the PBOC closing Renminbi-Hong Kong dollar conversion rates on each of the five business days immediately preceding the date of declaration of the dividend or distribution, or at such other exchange rate as may be prescribed by or allowed under any relevant law or regulation.

When distributing dividends, the Company shall make such withholdings for tax on the dividends payable to shareholders in accordance with PRC tax law.

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The Company shall appoint a receiving agent to receive on behalf of the holders of H Shares dividends declared and all other monies payable by the Company in respect of the H Shares. Such receiving agent shall be a trust corporation registered under the Trustee Ordinance of Hong Kong.

The Company shall not exercise its powers to forfeit any unclaimed dividend in respect of H Shares until after the expiry of the applicable limitation period.

(13) Proxies App.13d (13) A shareholder may attend and vote at or appoint a proxy to attend and vote on his behalf at general meetings. If a shareholder is a company, its legal representative and such person authorised by resolution of its directors or other governing body to act as its representative may attend the general meeting.

Any shareholder entitled to attend and vote at a general meeting shall be entitled to appoint one or more other persons (whether or not a shareholder) as his proxies to attend and vote instead of him, and a proxy so appointed shall:

(i) have the same rights as the shareholder to speak at the meeting;

(ii) have the right to demand or join with others to demand a poll; and

(iii) have the right to vote on a show of hands or on a poll, but a proxy of a shareholder who has appointed more than one proxy may only vote on a poll.

The instrument appointing a proxy shall be in writing under the hand of the appointer or its attorney duly authorised in writing. If the appointer is a legal person, the instrument shall be signed under a legal person’s seal or under the hand of its director or an attorney duly authorised in writing.

The instrument appointing a proxy shall be deposited at the legal address of the Company, or such other place specified in the notice convening the meeting, 24 hours before holding of the relevant meeting or 24 hours before the time at which the poll is to be conducted. If such instrument is signed by a person under a power of attorney or other document of authority on behalf of the appointer, a notarially certified copy of that power of attorney or other document of authority shall also be deposited together with the said instrument at the Company’s legal address or such other place prescribed in the notice convening the meeting.

Any form issued to shareholders by the Directors to be used for appointing a proxy shall enable the shareholder, according to his intention, to instruct the proxy to vote in favour of or against each resolution at the meeting. Such a form shall contain a statement that in default of instructions, the proxy may vote as he thinks fit.

A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or loss of capacity of the appointer or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given, provided that no notice in writing of those matters shall have been received by the Company before the commencement of the relevant meeting.

(14) Calls on shares and forfeiture of shares App.13d (14) The Articles of Association do not contain any provisions regarding calls on shares and forfeiture of shares.

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(15) Inspection of register of members App.13d (15) The Company shall keep a register of shareholders and enter therein the following matters:

(i) the names and addresses, the occupations or nature, the number of each class of shares held, the amount paid or payable on the shares and the serial number of the shares in respect of each shareholder;

(ii) the date on which each person is entered in the register as a shareholder; and

(iii) the date on which any person ceases to be a shareholder.

The register of shareholders shall be sufficient evidence of the holding of Shares by the shareholders unless there is evidence to the contrary.

The Company shall have a complete register of shareholders which shall comprise the following parts:

(i) a part maintained at the Company’s legal address which shall be the register of all shareholders other than those registered in accordance with (ii) and (iii) below;

(ii) a register of holders of overseas listed foreign shares maintained at the place of listing; and

(iii) such parts in such other places as the Directors may deem necessary for listing purposes.

A duplicate of the register of holders of overseas listed foreign shares shall be made and maintained at the Company’s legal address. The Company may appoint an overseas agent to keep the register of holders of such shares. The appointed overseas agent shall ensure at all times that the original and duplicate registers of holders of overseas listed foreign shares are the same. In the event of inconsistencies between any information recorded in the original register and that in the duplicate, the original shall prevail. Different parts of the register of shareholders shall not overlap. No transfer of any shares registered in one part of the register shall, during the continuance of the registration of those shares, be registered in any other parts of the register of shareholders.

The alteration and rectification of each part of the register of shareholders shall be made in accordance with the law of its situs.

The holders of shares of the Company enjoy the following rights:

(i) to receive dividends and other distributions in proportion to the number of shares held by them;

(ii) to attend and vote in person and appoint a proxy to attend and vote on his behalf at general meetings;

(iii) to supervise and to put forward proposals and make enquiries relating to the business operational activities of the Company;

(iv) to transfer their shares in accordance with the relevant law and administrative regulations and the Articles of Association;

189 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(v) to receive relevant information in accordance with the Articles of Association, including:

(1) the right to a copy of the Articles of Association upon the payment of the cost thereof;

(2) the right to inspect and receive copies of upon the payment of reasonable charges:

(a) all parts of the register of shareholders;

(b) the following personal particulars of each of the Directors, Supervisors, managers and other officers of the Company:

(A) his present and former name and aliases;

(B) his principal (residential) address;

(C) his nationality;

(D) his primary occupation, all other occupations and posts; and

(E) his identification document and its number;

(3) the state of the Company’s share capital;

(4) a report showing the aggregate nominal value, the quantity and the maximum and minimum prices paid by the Company in respect of each class of shares repurchased by the Company since the last financial year, and the aggregate amount paid by the Company for this purpose;

(5) minutes of general meetings.

(vi) in the event of the termination or liquidation of the Company, to participate in the distribution of the surplus assets of the Company according to the number of shares held by them; and

(vii) other rights conferred by the relevant PRC law and administrative regulations and the Articles of Association.

(16) Quorum for shareholders’ meetings and class meetings App.13d (16) A shareholder proposing to attend a general meeting shall deposit at the Company’s legal address a written reply confirming his attendance 20 days prior to the holding of the meeting. The Company shall, according to the written replies received 20 days prior to the holding of a general meeting, calculate the number of shares carrying the right to vote represented by the shareholders proposing to attend the meeting. If the number of shares carrying the rights to vote represented by the shareholders proposing to attend the meeting reaches half of the total number of shares of the Company carrying the right to vote, then the Company may hold the general meeting; if that number is not reached, the Company shall within five days notify the shareholders again of the matters proposed to be considered at the meeting, the date and venue of the meeting by way of public announcement. After such public announcement, the Company may hold the general meeting.

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(17) Rights of minority shareholders in relation to fraud or oppression App.13d (17) Apart from obligations imposed by laws, administrative regulations or the listing rules of the stock exchange(s) on which shares of the Company are listed, a Controlling Shareholder shall not, by virtue of the exercise of his voting rights, cause a decision to be made in a manner prejudicial to the interests of the shareholders generally or part of the shareholders in connection with the following matters:

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

(ii) to approve the expropriation by a Director or Supervisor (for his own benefit or for the benefit or another person), in any manner, of the Company’s assets, including, without limitation, opportunities beneficial to the Company; or

(iii) to approve the expropriation by a Director or Supervisor (for his own benefit or for the benefit of another person) of the personal rights of other shareholders including without limitation, rights to distributions and voting rights, but not including a proposal for the restructuring of the Company submitted to and approved by the shareholders in general meeting in accordance with the Articles of Association.

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

(i) he alone or acting in concert with others has the power to elect more than half of the Directors;

(ii) he alone or acting in concert with others has the power to exercise or to control the exercise of 30 per cent. or more of the voting rights in the Company;

(iii) he alone or acting in concert with others holds 30 per cent. or more of the issued shares of the Company; or

(iv) he alone or acting in concert with others in any other manner controls the Company in fact.

(18) Procedures on liquidation App.13d (18) The Company shall be liquidated in any of the following circumstances:

(a) a general meeting has resolved by special resolution to dissolve the Company;

(b) dissolution is necessary by reason of its merger or demerger;

(c) the Company is declared insolvent in accordance with law because it is unable to pay its debts as they fall due;

(d) the Company was ordered to be closed down by reason of its contravention of laws or administrative regulations.

Where the Directors decide to liquidate the Company otherwise than as a result of a declaration of insolvency, the Directors shall, in the notice convening a general meeting for this

191 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION purpose, include a statement to the effect that, after having made a full enquiry into the affairs of the Company, it is of the opinion that the Company will be able to pay its debts in full within 12 months from the commencement of the liquidation. Upon the passing of a resolution by the general meeting to commence liquidation, the powers of the Directors shall cease.

If the Company is to be liquidated pursuant to grounds (a), (c) or (d) above, a liquidation committee shall be established. The composition of a liquidation committee varies depending on the ground of liquidation.

The liquidation committee shall:

(i) comply with instructions of the general meeting;

(ii) report to the shareholders at least once a year on the receipts and payments of the liquidation committee, the business of the Company and the progress of liquidation; and

(iii) submit a final report to shareholders on completion of the liquidation.

The liquidation committee of the Company shall notify all creditors within 10 days following its establishment and shall make at least three public announcements regarding the same within a period of 60 days.

The liquidation committee shall have the following powers:

(i) to examine the assets of the Company and prepare a balance sheet and an inventory of the Company’s assets;

(ii) to inform creditors by notice or public announcement;

(iii) to deal with and liquidate the relevant outstanding businesses of the Company;

(iv) to settle matters of tax payment;

(v) to settle claims and debts of the Company;

(vi) to dispose of the assets of the Company remaining after repayment of debts; and

(vii) to represent the Company in civil legal proceedings.

If the Company is being liquidated pursuant to ground (a) above and the liquidation committee discovers that the Company’s assets are insufficient to repay its debts in full, it shall immediately suspend liquidation and apply to the People’s Court for a declaration of insolvency. Following a ruling by the relevant People’s Court that the Company is insolvent, the liquidation committee shall hand over to the People’s Court all matters relating to the liquidation.

Liquidation costs, including remuneration payable to the members and advisers of the liquidation committee, shall be paid out of the assets of the Company before the claims of other creditors are paid.

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(19) Other provisions material to the Company or its shareholders App.13d (19)

(a) General provisions and limited liability

The Company is a joint stock limited company of perpetual duration and was established by way of promotion. It is an independent enterprise legal person.

The entire capital of the Company is divided into shares of equal value. The liability of the shareholders to the Company is limited to the amount payable on subscription of the shares held by them. The Company shall be liable for its debts to the extent of all its assets.

The Company may invest in other limited liability companies and joint stock limited companies and shall be liable to the investee companies to the extent of its investment in such companies. The Company shall not become a shareholder with unlimited liability of any other economic organisations. Subject to the approval of the relevant authority, the Company may in accordance with its business and operational requirements operate as a holding company as provided under Article 12 of the PRC Company Law.

(b) The Articles of Association

The Articles of Association constitute a legal document regulating the constitution and activities of the Company, the rights and obligations between the Company and its shareholders and the shareholders inter . The Articles of Association are binding upon the Company and its shareholders, directors, supervisors, managers and other officers. Such persons may bring claims on matters related to the Company in accordance with the provisions of the Articles of Association.

The shareholders may bring actions against the Company, and vice versa and the shareholders may bring actions against other shareholders, directors, supervisors, managers and other officers of the Company in accordance with the provisions of the Articles of Association. For these purposes, actions include proceedings commenced in court and arbitration proceedings commenced in arbitration tribunals.

(c) Share capital

The entire capital of the Company is divided into shares of equal par value.

The Company shall at all times have ordinary shares but may create other classes of shares in accordance with its requirements and upon approval by the companies supervisory department authorised by the State Council. The Shares in issue and to be issued as mentioned in this prospectus are in the form of registered ordinary shares and each Share has a nominal value of RMB1.

The total number of issued shares of the Company under the Articles of Association as currently constituted and approved by SCRES shall be no less than 1,408,610,000 and not more than 1,457,911,000 shares, comprising 915,600,000 A Shares already in issue at the time of the establishment of the Company and no less than 493,010,000 but no more than 542,310,000 overseas listed foreign shares. Such total number will however be subject to the exact number registered with the relevant Administration for Industry and Commerce.

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Upon the passing of a special resolution at a general meeting and, if necessary, separate class meetings and upon compliance with the procedures prescribed by relevant PRC law and administrative regulations, the Company may increase its share capital based on its business and development requirements and issue new shares. The following methods may be used for an increase in capital:

(i) by an offering of new shares to unspecified investors;

(ii) by a placing of new shares to existing shareholders;

(iii) by a bonus issue of shares to existing shareholders; or

(iv) by any other method permitted under PRC law and administrative regulations.

The Company may reduce its registered capital in accordance with the provisions of the Articles of Association. The registered capital of the Company after a capital reduction shall not be lower than the lowest limit prescribed by law.Where the Company reduces its registered capital, it shall prepare a balance sheet and inventory of assets. The Company shall notify its creditors within 10 days from the date of a resolution to reduce its registered capital, and shall make a public announcement in newspapers at least 3 times within 30 days thereof. The creditors shall have the right, within 30 days of receipt of the notice or within 90 days of the date of the first public announcement if the notice has not been received, to require the Company to pay its debts or provide guarantee to the amount of its debts.

(d) Shareholders

A shareholder of the Company is a person who lawfully holds shares of the Company and whose name is entered in the register of shareholders.

A holder of ordinary shares of the Company shall have the following obligations:

(i) to abide by the provisions of the Articles of Association;

(ii) to pay subscription monies according to the number of Shares subscribed and the method of subscription;

(iii) other obligations imposed by laws, administrative regulations and the provisions of the Articles of Association.

Except pursuant to terms of an agreement made at the time of a subscription of shares, a shareholder shall not be liable to subscribe for further share capital.

The register of shareholders shall be sufficient evidence of the holding of the shares of the Company by the shareholders, unless there is evidence to the contrary. Alteration or rectification of each part of the register of shareholders shall be made in accordance with the law of the place where that part of the register of shareholders is kept. Any person who has any objection in relation to the register of shareholders and seeks to register his name on the register of shareholders or to delete his name from the register of shareholders may in each case apply to a court of competent jurisdiction to rectify the register of shareholders.

194 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

Where two or more persons are registered as the holders of any shares, they shall be deemed to hold the same as joint tenants, subject to the following provisions:

(i) the Company shall not be bound to register more than four persons as the joint holders of any Shares;

(ii) the joint holders of any Shares shall be liable severally and jointly for all payments which ought to be made in respect of such Shares;

(iii) on the death of any one of such joint holders, the survivor(s) shall be the only person or persons recognised by the Company as having any title to any such shares but the Directors may require such evidence of death as they may deem fit; and

(iv) only the person whose name stands first in the register of shareholders as one of the joint holders of any share shall be entitled to delivery of the certificate relating to such share, or to receive notices from the Company, or to attend or vote at general meetings of the Company, and any notice given to such person shall constitute notice to all joint holders.

Any shareholder who has lost his share certificate (the “original certificate”)may apply to the Company for a new certificate in respect of the shares (the “relevant shares”) represented by the original certificate. The Articles of Association contain provisions prescribing the procedures for the application for replacement certificate in respect of holders of domestic shares and overseas listed foreign shares. In respect of holders of H Shares, an applicant is required to submit an application in the prescribed form accompanied by a notarial certificate or a statutory declaration. Where the Company is satisfied that it has not received any objection to the issue of the replacement share certificate having regard to the requirements set out in the Articles of Association, the Company will issue a new share certificate and cancel the original certificate. All expenses of the Company relating to the cancellation of an original certificate and the issue of a new share certificate shall be borne by the applicant. The Company is entitled to refuse to take any action before reasonable security is provided by the applicant in respect of those expenses.

After the Company has issued a new replacement share certificate in accordance with the above provisions, the name of a bona fide purchaser who obtains the new share certificate or a person whose name is subsequently entered into the register of shareholders in respect of the relevant shares (if a bona fide purchaser) shall not be removed from the register of shareholders. The Company shall not be liable for any damages suffered by any person by reason of the cancellation of the original certificate or the issue of the new share certificate unless the claimant proves that the Company has acted fraudulently.

(e) Directors

The Directors are accountable to the shareholders in general meeting and shall exercise the following powers:

(i) to convene general meetings and to report on their work at the general meetings;

(ii) to implement resolutions of general meetings;

195 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(iii) to decide on the Company’s business plans and investment proposals;

(iv) to prepare the annual budget and final accounts;

(v) to prepare profit distribution proposals and proposals for making up accrued losses of the Company;

(vi) to prepare proposals for the increase or reduction of share capital and the issue of bonds of the Company;

(vii) to formulate proposals for the demerger, merger and dissolution of the Company;

(viii)to formulate the internal management structure of the Company;

(ix) to appoint and dismiss the general manager of the Company and at the recommendation of the general manager, to appoint and dismiss the deputy- general managers, financial controller and other senior officers, and to determine their remuneration and method of payment;

(x) to formulate the basic management system of the Company;

(xi) to prepare proposals for amendments to the Articles of Association;

(xii) to formulate proposals for major acquisitions or disposals by the Company;

(xiii)subject to compliance with the requirements of the relevant laws, regulations, rules and to the scope of authority delegated by the Company in general meeting, to exercise the Company’s powers to raise capital, borrow money and make decisions on the charging, letting, sub-contracting and transfer of the Company’s major assets; and

(xiv) other powers conferred by general meetings and the Articles of Association.

A majority of at least two-thirds or more of the Directors shall be required for the passing of any resolution in respect of items (vi), (vii), (xi) and (xii) above. A majority of one half of the Directors shall be required for the passing of any resolutions in respect of the other matters specified above.

Meetings of the Directors shall be held at least twice every year and shall be convened by the chairman, provided that when an urgent matter arises, extraordinary meetings of the Directors may be convened upon the requisition of more than one third of the Directors jointly or upon the proposal of the general manager.

A meeting of the Directors shall only be held if more than one half of the Directors are present. Each Director shall have one vote. In the case of an equality of votes, the chairman shall have an extra vote.

(f) Company secretary

The Company shall have a company secretary who shall be appointed and may be dismissed by the Directors. The company secretary shall be a natural person who, in the opinion of the Directors, has the requisite professional knowledge and experience to be the company secretary. One or two natural persons may act as the company secretary.

196 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

The primary responsibility of a company secretary is to ensure that the documentation and records of the Company are complete, that the Company prepares and submits to the administration for industry and commerce authority and other competent authorities the required reports and documents, that the Company’s register of shareholders is properly established, and that persons entitled to the relevant records and documents of the Company are promptly furnished with the same, and to discharge the obligations of a company secretary according to law and the Articles of Association (including the reasonable requests of the Directors).

Directors or other officers of the Company may concurrently act as company secretary. An accountant of a firm of accountants retained as auditor by the Company shall not concurrently act as company secretary.

(g) General manager

The general manager shall be appointed and dismissed by and be accountable to the Directors. Unless otherwise prescribed in the Articles of Association, the general manager shall exercise the following powers:

(i) to take charge of the production, operations and management of the Company and to organise the implementation of the resolutions of the Directors;

(ii) to convene and chair meetings of the general manager’s office personally or appoint a deputy general manager to do so; meetings of the general manager’s office shall be attended by the general manager, deputy general managers and other officers;

(iii) to organise the implementation of the annual operational plan and investment proposals of the Company;

(iv) to formulate the basic management structure and establish the internal administration rules and regulations of the Company;

(v) to recommend the appointment, dismissal or transfer of deputy general managers, financial controllers and other officers (other than those required to be appointed or dismissed by the Directors);

(vi) to determine the grant or imposition of any awards or penalties, promotion or demotion, increase or reduction in salaries/wages, appointment, employment, dismissal or resignation of staff and workers of the Company; and

(vii) to exercise other powers conferred by the Articles of Association and the Directors.

(h) Supervisory committee

The Company shall have a supervisory committee and shall consist of three Supervisors, one of whom shall be a representatives of employees who is elected and may be removed by the employees of the Company and the others shall be elected and may be removed by the general meeting. The Supervisors shall be appointed for a term of three years and may be re-elected to serve consecutive terms. The supervisory committee shall have one chairman, whose appointment and removal shall be decided by two thirds or more of the Supervisors. The supervisory committee shall meet at least twice a year.

197 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

The Supervisors shall not undertake concurrently the duties of the Directors, managers or other officers of the Company.

The supervisory committee shall be accountable to the general meeting and shall exercise the following powers in accordance with law:

(i) to examine the Company’s financial affairs;

(ii) to monitor whether the Directors, managers and other officers have in the performance of their duties to the company acted in contravention of law, administrative regulations, the Articles of Association or the resolutions passed at general meetings;

(iii) if the conduct of a Director, manager or other officer is prejudicial to the interests of the Company, to require him to rectify such conduct;

(iv) to examine financial information such as the financial reports, business reports and profit distribution proposals which the Directors propose to submit to the general meeting, and in case of doubt, to appoint on behalf of the Company a registered accountant or auditor to assist in the review;

(v) to propose the convening of extraordinary general meetings;

(vi) to represent the Company in negotiating with the Directors or to institute proceedings against the Directors;

(vii) other powers stipulated in the Articles of Association.

(i) Obligations of Directors, Supervisors, managers and officers of the Company

Each Director, Supervisor, manager and other officer is under a duty, in the exercise of his powers and the discharge of his obligations, to exercise such care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

In addition to the obligations imposed by PRC law, administrative regulations or by the rules of the stock exchange(s) on which shares of the Company are listed and the duty of confidence and fiduciary obligations (the major principles of which have been set out in the Articles of Association), each Director, Supervisor, manager and other officer when exercising the powers conferred upon him by the Company owes to each of the shareholders the following obligations:

(i) not to cause the Company to exceed the scope of operations stipulated in its business licence;

(ii) to act honestly in what he considers to be in the best interests of the Company;

(iii) not to take in any manner the Company’s property, including (without limitation) opportunities beneficial to the Company; and

(iv) not to expropriate the personal rights of shareholders, including (without limitation), right to distributions and voting rights, but not including a proposed restructuring of the Company submitted to and approved by the general meeting in accordance with the Articles of Association.

198 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

Apart from any rights and remedies provided by law, where a Director, Supervisor, manager or other officer is in breach of his obligations to the Company, the Company has a right to:

(i) damages in compensation for losses sustained by the Company as a result of such breach;

(ii) cancel any contract or transaction entered into by the Company with that Director, Supervisor, manager or other officer or with a third party where such third party knew or should have known there was such a breach;

(iii) an account of the benefits obtained by the Director, Supervisor, manager or other officer as a result of his breach of obligations;

(iv) recover any monies received by the Director, Supervisor, manager or other officer which should have been received by the Company, including without limitation commissions;

(v) recover the interest earned or which may have been earned by the Director, Supervisor, manager or other officer on monies which should have been given to the Company; and

(vi) institute legal proceedings for a declaration that any property acquired by the Director, Supervisor, manager or other officer in breach of his obligations belongs to the Company.

(j) Labour management and staff and trade union

The Company shall formulate its labour management, personnel management, wages and welfare and social insurance systems in accordance with PRC law, regulations and relevant administrative provisions.

In respect of all levels of management personnel, the Company shall adopt the appointment system and in respect of other employees, the Company shall adopt the contract system. The Company shall have autonomy in respect of the deployment of its employees and has the right to recruit and dismiss management personnel and employees in accordance with laws and regulations and contractual terms.

The Company shall arrange for medical insurance, retirement insurance and unemployment insurance for its management personnel and staff and workers in accordance with relevant administrative regulations of the PRC central and local governments and shall implement the law, regulations and relevant requirements in respect of labour insurance and labour protection for retired and unemployed staff and workers.

The employees of the Company may in accordance with law organise trade unions, carry out trade union activities and protect the lawful rights of employees. The Company shall provide the necessary conditions for the activities of the trade union of the Company. The Company shall allocate a trade union fund and develop trade union activities in accordance with relevant PRC law.

199 APPENDIX IX SUMMARY OF THE ARTICLES OF ASSOCIATION

(k) Resolution of disputes

Whenever any dispute or claim arises from any rights or obligations provided in the Articles of Association, the PRC Company Law and other relevant law and administrative regulations concerning the affairs of the Company between the following parties:

(i) a holder of overseas listed foreign shares and the Company;

(ii) a holder of overseas listed foreign shares and the Directors, Supervisors, managers or other officers of the Company; and

(iii) a holder of overseas listed foreign shares and a holder of domestic shares,

then, unless otherwise specified in the Articles of Association, such parties shall submit that dispute or claim to arbitration before either (1) the China International Economic and Trade Arbitration Commission in accordance with its rules, or (2) Hong Kong International Arbitration Centre in accordance with its securities arbitration rules.

Once the claimant refers a dispute or claim to arbitration, the other party must submit to the arbitral body elected by the claimant. If the party applying for arbitration elects to arbitrate at the Hong Kong International Arbitration Centre, then any party to the dispute shall be entitled to request, in accordance with the requirements of the securities arbitration rules of Hong Kong International Arbitration Centre, that arbitration be conducted in Shenzhen.

If arbitration is sought to resolve disputes or claims referred to above, the applicable law shall be PRC law, save as otherwise prescribed by law and administration regulations. Such arbitration shall be final and conclusive and shall be binding on all parties to the dispute.

In respect of a dispute or claim referred to above, the entire claim or dispute must be referred to arbitration and all persons (being the Company or the shareholders, Directors, Supervisors, managers or other officers of the Company) who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the resolution of such dispute or claim shall submit to arbitration in accordance with the above provisions.

Disputes in connection with the determination of whether a person is or is not a shareholder and the register of shareholders need not be resolved by arbitration.

200 APPENDIX X STATUTORY AND GENERAL INFORMATION

1. THE COMPANY

The Company was established in the PRC as a joint stock limited company on 15th August, S342(1)(a)(iv), (1)(a)(v) 1996 with AEHC as the sole promoter. The Company has established a place of business at 4th App.1A. 5,6, Floor, Jardine House, 1 Connaught Place, Hong Kong, and has submitted an application to the 8(1)6 Registrar of Companies in Hong Kong to be registered as an oversea company in Hong Kong under Part XI of the Companies Ordinance. Such application contains a notice of the appointment of Gallant Y.T. Ho & Co as the agent of the Company for the acceptance of service of process. A summary of certain relevant PRC laws and regulations and a summary of the Articles of Association are set out in appendices VIII and IX, respectively.

At the time of its establishment, the Company’s registered capital was RMB915,600,000 3rd Sch Para 2 divided into 915,600,000 Shares of nominal value RMB1 each. These were A Shares held by App.1A AEHC representing 100 per cent. of the initial registered capital. 15(1)0

The establishment of the Company involved, among other matters, the following App.1A procedures and approvals: 55(4)

(a) a Reorganisation proposal dated 7th July, 1996 prepared by AEHC and submitted to, among other authorities, SCRES;

(b) on 23rd July, 1996, the State Land Administration Bureau issued an approval (Guo Tu Pi [1996] No.69) confirming the valuation of the land use rights to be transferred to the Company approving the transfer of such land use rights in return for A Shares credited as fully paid to be held by AEHC on behalf of the State and approving the grant to the Company of transferable land use rights for a term of 30 years;

(c) on 26th July, 1996, the State Assets Bureau issued an approval (Guo Zi Ping [1996] No.618) confirming the valuation of the assets to be transferred to the Company following implementation of the Reorganisation;

(d) on 9th August, 1996, the State Assets Bureau issued an approval (Guo Zi Fa [1996] No. 90) approving the injection of assets into the Company in consideration for the issue, credited as fully paid, of 915,600,000 A Shares to AEHC;

(e) on 14th August, 1996, SCRES issued an approval (Ti Gai Sheng [1996] No.112) approving the establishment of the Company;

(f) on 15th August, 1996 a business licence was issued by the Anhui Provincial Administration for Industry and Commerce to the Company, whereupon the Company was established as a joint stock limited company with a registered capital of RMB915,600,000 and acquired the status of an enterprise legal person;

(g) on 30th May, 1996, the Anhui Provincial People’s Government issued an approval (Wan Zheng Mi [1996] No. 106) confirming that the Company is entitled to a rebate in an amount equal to 18 per cent. of the Company’s taxable income in respect of EIT (which is at the rate of 33 per cent. of the Company’s taxable income);

(h) on 16th August, 1996, the first extraordinary general meeting of the Company was App.1A held at which the following resolutions, among others, were passed: 65(1)

(i) the Articles of Association were adopted;

(ii) the conversion of the Company to a public subscription company was approved;

201 APPENDIX X STATUTORY AND GENERAL INFORMATION

(iii) conditional on (1) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the H Shares and (2) the obligations of the Underwriters under the underwriting agreement referred to in the paragraph headed “Underwriting arrangements and expenses” of this appendix becoming unconditional and not being terminated in accordance with the terms of that agreement or otherwise, in each case on or before 23rd November, 1996 (or such later date as may be agreed between the Directors (or a committee of the Directors) and the Underwriters):

(aa) the H Share Offer was approved and the Directors were authorised to allot and issue the H Shares pursuant thereto;

(bb) the registered capital of the Company was increased from RMB915,600,000 to RMB1,408,610,000 by the creation of 493,010,000 H Shares, or to such amount as may be augmented by the exercise of the Over-allotment Option granted to the Underwriters under the Underwriting Agreement;

(i) on 29th August, 1996, SCRES issued an approval (Ti Gai Sheng [1996] No.118) approving the conversion of the Company into an overseas listed public company, the Articles of Association and the share capital structure of the Company;

(j) on 9th October, 1996, the Securities Commission issued an approval (Zheng Wei Fa [1996] No.31) approving the H Share Offer; and

(k) on 12th October, 1996, the second extraordinary general meeting of the Compnay was held at which the following resolutions, among others, were passed:

(i) a general mandate was granted to the Directors to exercise the Company’s powers to raise capital, borrow money and deal with the Company’s assets, without any further sanction of the shareholders in general meeting, unless such sanction is required under the PRC Company Law or the Articles of Association; and

(ii) a general mandate was granted to the Directors to distribute interim dividends and bonuses without any further sanction of the shareholders in general meeting, but the exercise by the Directors of such mandate shall be in accordance with the requirements of the Articles of Association, applicable laws, regulations and rules, resolutions passed by the shareholders in general meeting from time to time and the contents of this prospectus.

Immediately after completion of the Placing and New Issue, the issued share capital of the App.1A 15(1), Company will be RMB1,408,610,000 made up of 915,600,000 A Shares held by AEHC and 15(2)(a) 3rd Sch 493,010,000 H Shares, representing approximately 65 per cent. and 35 per cent. of the para 2 Company’s issued share capital respectively (assuming the Over-allotment Option is not exercised), all of which are, or will be, fully paid or credited as fully paid.

Save as aforesaid, there has been no alteration in the share capital of the Company since its establishment.

202 APPENDIX X STATUTORY AND GENERAL INFORMATION

2. REORGANISATION AND TAXATION

In preparation for the H Share Offer, the Company underwent the Reorganisation pursuant to which the Company allotted and issued 915,600,000 A Shares to AEHC, credited as fully paid, in return for certain business, assets and liabilities which related to the construction, maintenance and repair and management of highways previously carried on by AEHC.

As part of the Reorganisation, the Company and AEHC entered into the Reorganisation Agreement, whereby the parties confirmed the division of assets, liabilities, property, contracts, rights, claims and interests of AEHC as at the effective date of the Reorganisation on 15th August, 1996 between AEHC and the Company pursuant to the Reorganisation. Under this agreement, AEHC and the Company agreed, among other matters, to indemnify the Company or, as the case may be, AEHC in respect of all claims against the Company or, as the case may be, AEHC arising from or in respect of the assets, property, interests, contracts, rights, claims and liabilities which AEHC has retained or as the case may be, the Company has acquired pursuant to the Reorganisation. The Reorganisation Agreement also provided that if the net tangible asset value of the Company as at the close of business on 14th August, 1996, the day immediately preceding the date of incorporation of the Company, determined in accordance with the PRC accounting principles and financial regulations and after taking into account changes in the assets and liabilities during the period from 1st May, 1996 to 14th August, 1996 and the depreciation of these assets and the tax accrued during such period shall exceed the valuation approved by the State Assets Bureau as referred to in paragraph 1(d) of this appendix, the excess amount shall be deemed to constitute a debt due and payable by the Company to AEHC. Further details of the Reorganisation are set out in the paragraph headed “The Reorganisation” under the section headed “Particulars of the Company” in this prospectus.

Under the terms of the Reorganisation Agreement, AEHC has undertaken to indemnify the Company in relation to all taxation liabilities relating to the business and assets transferred to the Company under the Reorganisation in respect of all periods up to the date of incorporation of the Company, except to the extent of any taxation that forms part of the liabilities specifically assumed by the Company under the Reorganisation and all taxation liabilities in respect of the assets and business of AEHC.

3. SUBSIDIARIES

The Company does not have any subsidiary.

4. DISCLOSURE OF INTERESTS

(a) Each of the executive Directors and the Supervisors has entered into a service contract with the Company on 12th October, 1996. Particulars of these contracts, which are in all material respects identical (save in respect of the amount of salary and bonus payable to each executive Director and each Supervisor), are set out below:

(i) each service contract is for a term of three years commencing from 15th August, App.1A 46(1) 1996; rule19A.38

(ii) the aggregate amount of salaries payable to the executive Directors in respect App.1A 46(3) of each of the three years ending 14th August, 1999 is approximately rule19A.38 RMB240,000, RMB264,000 and RMB290,700 respectively and the aggregate amount of salaries payable to the Supervisors in respect of each of three years ending 14h August, 1999 is approximately RMB102,000, RMB112,200 and RMB123,600 respectively;

203 APPENDIX X STATUTORY AND GENERAL INFORMATION

(iii) in addition, each of the executive Directors and the Supervisors will be entitled rule19A.38 to receive a bonus in respect of each complete year of service. The aggregate amount of bonuses payable to the executive Directors in respect of each of the three years ending 14th August, 1999 is approximately RMB20,000, RMB22,000 and RMB24,225 respectively and the aggregate amount of bonuses payable to the Supervisors in respect of each of the three years ending 31st August, 1999 is approximately RMB8,500, RMB9,350 and RMB10,300 respectively.

(b) It is estimated that remuneration amounting in aggregate to approximately App.1A 46(2) RMB240,000 will be paid and granted by the Company to the Directors and rule19A.38 Supervisors in respect of the financial year ending 31st December, 1996 under arrangements in force on the date of this prospectus.

(c) The aggregate amount of renumeration paid to the Directors and Supervisors for the year ended 31st December, 1995 was approximately RMB86,385.

(d) Immediately after completion of the Placing and New Issue, AEHC will be interested App.1A.56 in 915,600,000 A Shares, which will represent approximately 65 per cent. of the issued share capital of the Company (assuming the Over-allotment Option is not exercised) carrying rights to vote in all circumstances at any general meeting of the Company (subject to the provisions of the Articles of Association).

(e) Save as disclosed in this prospectus:

(i) none of the Directors or Supervisors has any interest in any shares in or App.1A 45(1) debentures of the Company or any associated corporation (within the meaning App.1A 13 of the Securities (Disclosure of Interests) Ordinance (“SDI Ordinance”)) which rule19A will have to be notified to the Company and the Stock Exchange pursuant to 38 section 28 of the SDI Ordinance (including interests which they are taken or deemed to have under section 31 of, or Part 1 of the Schedule to, the SDI Ordinance) once the H Shares are listed, or which will be required pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein once the H Shares are listed, or which will be required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies and in the case of Supervisors, which will be required to be notified as described above if they had been Directors;

(ii) taking no account of Shares which may be taken up under the H Share Offer, none of the Directors or Supervisors knows of any person who will immediately after the H Share Offer, be interested, directly or indirectly, in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company or any of its subsidiaries;

(iii) there are no existing or proposed service contracts (excluding contracts expiring or terminable by the employer within one year without payment of compensation (other than statutory compensation)) between the Company and any of the Directors or Supervisors;

(iv) none of the Directors, the Supervisors or any of the experts referred to in the App.1A 47(1) section headed “Consents” in this appendix is interested in the promotion of the rule19A.38 Company, or in any assets which have been within the two years immediately preceding the date of this prospectus acquired or disposed of by or leased to the Company, or are proposed to be so acquired, disposed of or leased;

204 APPENDIX X STATUTORY AND GENERAL INFORMATION

(v) no Director or Supervisor or expert referred to in the section headed rule19A.38 App.1A “Consents” in this appendix is materially interested in any contract or 47(2) arrangement subsisting at the date of this prospectus which is significant in relation to the business of the Company taken as a whole;

(vi) Mr. Zhang Li Ping, a non-executive Director, is the chairman and managing director of Seapower Financial Services Group, of which Seapower Securities Limited is a member and which will receive an underwriting commission pursuant to the Underwriting Agreement referred to in paragraph 5 of this appendix; and

(vii) none of the experts referred to in the section headed “Consents” in this App.1A appendix has any shareholding in the Company or the right (whether legally 9(1) enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Company.

5. UNDERWRITING ARRANGEMENTS AND EXPENSES

Pursuant to the Underwriting Agreement, the Company is offering the New Issue Shares for App.1A 15(2)(i) subscription subject to the terms and conditions of this prospectus and the application forms 3rd Sch relating thereto and offering the Placing Shares pursuant to the Placing. Subject to the Listing 7(a)(ii) Committee of the Stock Exchange granting listing of and permission to deal in the H Shares to be issued as mentioned herein on or before 30th November, 1996 and to certain other conditions set out in the Underwriting Agreement, the Underwriters have severally agreed to subscribe or procure subscribers, on the terms and conditions of this prospectus and the relating application forms and on the terms and conditions of the Placing, for the New Issue Shares and the Placing Shares respectively which are not taken up under the New Issue and the Placing. The obligations of the Underwriters to subscribe or procure subscribers for such H Shares are subject to termination in certain events, including force majeure, occurring at any time prior to 5.00 p.m. on the day which is the second business day following the close of the application lists for the New Issue.

The Company has agreed with the Underwriters that, save as mentioned in this prospectus, the Company will not issue any shares or other securities of the Company or agree to allot or issue or grant or agree to grant options to subscribe for shares or other securities of the Company during the period of six months from the date on which trading in the H Shares commences on the Stock Exchange without the prior written consent of Crosby and CEF on behalf of the Underwriters.

AEHC has undertaken to the Underwriters that it will not, without the prior written consent of Crosby and CEF (which consent not to be unreasonably withheld or delayed) and unless in compliance with the requirements of the Listing Rules, at any time after the date of the Underwriting Agreement up to and including the date falling six months after the date on which trading in the H Shares commences on the Stock Exchange, sell, transfer or otherwise dispose of or grant or agree to grant any option or other right in all or any of the A Shares it then held.

The Underwriters will receive an underwriting commission of 2.5 per cent. on the Issue 3rd Sch 14,15 Price of all the H Shares (and any H Shares which may be issued pursuant to the exercise of the App.1A 20(1), Over-allotment Option), out of which they will pay sub-underwriting commissions and Crosby 20(2) and CEF will also receive a documentation fee. Such commissions and fee, together with listing fees, Stock Exchange transaction levy, legal and other professional fees and other expenses relating to the H Share Offer are estimated to amount to approximately HK$40 million (assuming the Over-allotment Option is not exercised) and are payable by the Company.

205 APPENDIX X STATUTORY AND GENERAL INFORMATION

6. ESTATE DUTY

The Directors have been advised that no material liability for estate duty is likely to fall on App.1A the Company under PRC or Hong Kong law. 10

7. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been 3rd Sch para 17 entered into by the Company within the two years preceding the date of this prospectus and are App.1A.52 or may be material:

(a) the Reorganisation Agreement;

(b) the Acquisition Agreement; and

(c) the Underwriting Agreement.

8. LITIGATION

The Company is not engaged in any litigation or arbitration of material importance and, so App.1A far as the Directors are aware, no litigation, arbitration or claim of material importance is 40 pending or threatened against the Company.

9. SPONSORS

Crosby and CEF have made an application on behalf of the Company to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the H Shares to be issued pursuant to the H Share Offer and the H Shares to be allotted and issued upon the exercise of the Over-allotment Option.

10. MISCELLANEOUS

(a) Save as disclosed in this prospectus:

(i) within the two years preceding the date of this prospectus, no share or loan App.1A capital of the Company has been issued or agreed to be issued fully or partly 26(1),26(2) paid either for cash or a consideration other than cash;

(ii) no share or loan capital of the Company is under option or is agreed App.1A 27 conditionally or unconditionally to be put under option; 3rd Sch para 10

(iii) within the two years preceding the date of this prospectus, no commissions, App.1A.13 3rd Sch discounts, brokerages or other special terms have been granted in connection para 14 with the issue or sale of any share or loan capital of the Company; rule19A.38

(iv) there are no founder, management or deferred shares in the capital of the 3rd Sch para 4 Company; and App.1A. 24

(v) the Directors believe that there has been no material adverse change in the App.1A.38 financial position of the Company since 30th April, 1996.

(b) The preliminary expenses of the Company are estimated to be approximately App.1A. 20(1) HK$500,000 and are payable by the Company. 3rd Sch para 15

206 APPENDIX X STATUTORY AND GENERAL INFORMATION

(c) The promoter of the Company is AEHC. Save as disclosed in this prospectus, within App.1A. 8(1), the two years immediately preceding the date of this prospectus, no cash, securities 8(2) 3rd Sch or other benefit has been paid, allotted or given or is proposed to be paid, allotted para 16 or given to the promoter in connection with the H Share Offer or the related transactions described in this prospectus.

(d) The Company is not subject to the PRC Sino-foreign Equity Joint Venture Law and is not expected to be subject to such law unless and until it has been granted sino foreign joint venture joint stock limited company status.

11. BINDING EFFECT

This prospectus shall have the effect, if an application is made in pursuance hereof, of rendering all persons concerned bound by all the provisions (other than the penal provisions) of sections 44A and 44B of the Companies Ordinance of Hong Kong so far as applicable.

12. CONSENTS

Crosby, CEF, Arthur Andersen & Co, Jingtian Associates, Chesterton and SWK have given App.1A and have not withdrawn their respective written consents to the issue of this prospectus with 9(2) inclusion of their reports and/or letters and/or opinions and/or valuation certificates and/or references to their names in the form and context in which they are respectively included.

13. DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES S342C 3rd Sch IN HONG KONG para 17

The documents attached to the copy of this prospectus registered by the Registrar of Companies in Hong Kong were copies of the application forms, the written consents referred to in the section headed “Consents” of this appendix and copies of the material contracts referred to in the section headed “Material contracts” in this appendix, together with the certified English translations of such material contracts (where applicable).

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Gallant S342 Y.T. Ho & Co, 4th Floor, Jardine House, 1 Connaught Place, Hong Kong during normal business (1)(a)(iii) hours up to and including 14th November, 1996:

(a) the Articles of Association (Chinese and English texts); App.1A 53(1)

(b) the accountants’ report the text of which is set out in appendix I; App.1A 53(3) 53(4) (c) the letter, summary of values and valuation certificate relating to the property App.1A interests of the Company, the texts of which are set out in appendix II; 53(3)

(d) SWK’s report on the traffic and toll revenue forecasts referred to in the paragraph headed “Toll rates, concession period and traffic flow forecast” under the section headed “Particulars of the Company”;

(e) the letter from traffic forecast consultant, SWK, the text of which is set out in appendix App.1A III; 53(3)

207 APPENDIX X STATUTORY AND GENERAL INFORMATION

(f) SWK’s report on the operating and maintenance costs projection of Hening Expressway and Tianchang section of Highway 205 referred to in the paragraph headed “Operations and maintenance and existing toll collection system” under the section headed “Particulars of the Company”;

(g) the letter from the operation review consultant, SWK, the text of which is set out in App.1A 53(3) appendix IV;

(h) SWK’s report on the technical audit of the proposed toll collection systems for Hening Expressway and Tianchang section of Highway 205 referred to in paragraph headed “Proposed toll collection systems” under the section headed “Particulars of the Company”;

(i) the letter from the toll system review consultant, SWK, the text of which is set out in App.1A 53(3) appendix V;

(j) the letters relating to the profit forecast, the texts of which are set out in appendix VI; App.1A 53(3)

(k) the PRC legal opinion referred to in appendix VIII; App.1A 53(3)

(l) Chinese and English texts of the Reorganisation Agreement, and the Acquisition Agreement and its certified English translation, being the material contracts referred to in the section headed “Material contracts” in this appendix;

(m) the service contracts of the Directors and Supervisors referred to in the section App.1A 53(2) headed “Disclosure of interests”;

(n) the written consents referred to in the section headed “Consents” in this appendix;

(o) the Highway Management Regulations and the Implementation Rules of the Highway Management Regulations of the PRC; and

(p) the PRC Company Law, the Special Regulations, the Mandatory Provisions, the PRC rule19A 29(3) Arbitration Law, the Interim Provisions on the Administration of the Issue and Trading of Shares promulgated by the State Council on 22nd April, 1993 and the Civil Law Code of the PRC together with their unofficial English translations.

208 PROSPECTUSES AND APPLICATION FORMS

Copies of this prospectus, together with the WHITE application forms, may be obtained from:

Any member of The Stock Exchange of Hong Kong Limited

Crosby Capital Markets (Asia) Limited CEF Capital Limited 27th Floor 2nd Floor Two Pacific Place China Building 88 Queensway 29 Queen’s Road Hong Kong Central Hong Kong

DBS Asia Capital Limited Peregrine Capital Limited Suite 3318, 33rd Floor 23rd Floor, New World Tower Two Pacific Place 16-18 Queen’s Road Central 88 Queensway Hong Kong Hong Kong

J & A Securities (Hong Kong) Limited Shanghai International Capital Suites 2509-2510 (H.K.) Limited Asia Pacific Finance Tower 28th Floor, Citibank Tower 3 Garden Road Citibank Plaza Central 3 Garden Road Hong Kong Hong Kong

Wheelock NatWest Securities Limited Seapower Securities Limited 43rd Floor 32nd-34th Floor NatWest Tower Alexandra House Times Square 16 Chater Road Causeway Bay Central Hong Kong Hong Kong

Amsteel Securities (H.K.) Limited China Southern Corporate Finance Ltd. 12th Floor Bank of East Asia Building Suite 3803, Central Plaza 10 Des Voeux Road Central 18 Harbour Road Hong Kong Wanchai Hong Kong

Grand National Finance Ltd. 8th Floor OTB Building 263 Des Voeux Road Hong Kong

209 PROSPECTUSES AND APPLICATION FORMS

or any of the following branch and sub-branches of Bank of China:

Hong Kong Island: Hong Kong Branch 3rd Floor, 1 Garden Road, Central Central Sub-branch 2A Des Voeux Road Central Wanchai Sub-branch 395 Hennessy Road, Wanchai North Point Sub-branch Ground Floor, Roca Centre, 464 King’s Road, North Point

Kowloon: Tsim Sha Tsui Sub-branch Ground Floor, Houston Centre, 63 Mody Road, Tsim Sha Tsui Yaumati Sub-branch 471 Nathan Road, Yaumati Kwun Tong Sub-branch 55 Hoi Yuen Road, Kwun Tong Lai Chi Kok Sub-branch Unit 1, Ground Floor, Plaza, 485 Castle Peak Road

New Territories: Tsuen Wan Sub-branch 167 Castle Peak Road, Tsuen Wan Shatin Sub-branch Ground Floor, Lucky Plaza, Wang Pok Street, Shatin

The YELLOW application forms are available for collection at the service counter of Hongkong Clearing, at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong and the Trading Hall of The Stock Exchange of Hong Kong Limited, at 1st Floor, One and Two Exchange Square, Central, Hong Kong.

Application forms (to which cheques or banker’s cashier orders should be securely stapled) should be deposited in the special collection boxes provided at the branch and sub-branches of Bank of China referred to above at the following times:

Thursday, 31st October, 1996 — 9.00 a.m. to 4:00 p.m. App.1A 15(2)(8) Friday, 1st November, 1996 — 9.00 a.m. to 4:00 p.m. Saturday, 2nd November, 1996 — 9.00 a.m. to 12:00 noon Monday, 4th November, 1996 — 9.00 a.m. to 4:00 p.m. Tuesday, 5th November, 1996 — 9.00 a.m. to 12:00 noon

210 PROCEDURE FOR APPLICATION

1. THE PUBLIC

Applications must be for a minimum of 2,000 H Shares and thereafter in one of the following multiples:

2,000 to 18,000 H Shares — in multiples of 2,000 H Shares 20,000 to 90,000 H Shares — in multiples of 10,000 H Shares 100,000 to 450,000 H Shares — in multiples of 50,000 H Shares 500,000 H Shares and above — in multiples of 100,000 H Shares In addition to the Issue Price of HK$1.77 per H Share, subject to refund, applicants will be required to pay, at the time of application, brokerage at the rate of one per cent. of the Issue Price and a Stock Exchange transaction levy at the rate of 0.013 per cent. of the Issue Price, making a total of HK$3,575.86 for every 2,000 H Shares. The brokerage will be paid to members of the Stock Exchange and the transaction levy will be paid to the Stock Exchange in respect of successful applications.

The application lists will open at 11.45 a.m. on Tuesday, 5th November, 1996 and will close App.1A 15(2)(f) at 12.00 noon on the same day, or in the event of a tropical cyclone warning signal no. 8 or above 3rd Sch or a “black” rainstorm warning signal being in force in Hong Kong at any time between 9.00 para 8 a.m. and 12.00 noon on that day, then the application lists will open at 11.45 a.m. and close at 12.00 noon on the next banking day on which no such signal remains in force at any time between 9.00 a.m and 12.00 noon, and all references in this prospectus and in the application forms to the time of opening and closing of the application lists shall be construed accordingly.

Applicants who would like to be allotted H Shares issued in their names should complete the WHITE application forms provided.

Applicants who would like to have the allotted H Shares issued in the name of HKSCC Nominees Limited and deposited directly into CCASS for credit to their designated CCASS participants’ stock accounts maintained in CCASS should complete the YELLOW application forms. In order for the YELLOW application form to be valid and to signify the consent of the designated CCASS participant, the YELLOW application form must be countersigned by the designated CCASS participant or its authorised signatories; the chop of such CCASS participant (bearing its name) must be endorsed and the participant I.D. of such CCASS participant must be inserted in the appropriate box on the YELLOW application form. Incorrect or incomplete details of the designated CCASS participant or the omission or inadequacy of its authorised signatures, participant I.D. or other similar matters may render the application invalid.

Applicants by the public must be made on the WHITE or YELLOW application forms and must be lodged not later than 12.00 noon on Tuesday, 5th November, 1996 (or such later date as may apply in the case of a tropical cyclone or a “black” rainstorm warning signal being in force as aforesaid) at any one of the branch or sub-branches of Bank of China listed under the section headed “Prospectuses and application forms”, together with a remittance for the full amount payable on application. A table setting out the precise amounts payable is included in the application forms.

Nominees who wish to submit separate applications in their own names on behalf of different owners are requested to designate on each application form in the box marked “Application submitted by nominees” the account numbers or other identification codes for each beneficial owner or, in the case of joint beneficial owners, for each such joint beneficial owner.

211 PROCEDURE FOR APPLICATION

Each WHITE or YELLOW application form must be accompanied by either a separate App.1A cheque drawn on the applicant’s Hong Kong dollar bank account in Hong Kong and bearing the 15(2)(d) account name (either pre-printed by the applicant’s bank before issue to the customer or certified by such bank on the reverse of the cheque) which must correspond with the name of the applicant (or, in the case of joint applicants, the name of the first-named applicant), or a separate banker’s cashier order on the reverse of which the bank has certified by an authorised signatory the name of the purchaser which must correspond with the name of the applicant (or, in the case of joint applicants, the name of the first-named applicant). All such cheques or banker’s cashier orders must be payable to “Bank of China (Nominees) Limited — Anhui Expressway H Share Issue” and crossed “Account Payee Only”. The right is reserved to retain any share certificates and any surplus application monies pending clearance of an applicant’s cheque(s). All interest on application monies will be retained for the benefit of the Company.

Applications which do not comply with the foregoing, multiple or suspected multiple applications, any application made by one applicant for more than 100 per cent. of the New Issue Shares and applications in respect of which cheques are dishonoured on first presentation, are liable to be rejected and returned by ordinary post, together with the accompanying cheque or banker’s cashier order, to the applicant at the address stated on the application form at his own risk. Applications made through a duly authorised attorney may be accepted at the discretion of the Company and Crosby and CEF and subject to such conditions and the production of such evidence of authority as they may think fit, Crosby and CEF (in their capacity as agent for the Company) have full discretion, without assigning any reason therefor, to reject or accept any application in full or in part.

Applications will not be accepted if the Underwriting Agreement fails to become unconditional or is terminated in accordance with its terms or otherwise, in which event application monies will be refunded, without interest, in accordance with paragraph 5 below.

No proceedings will be taken on applications for the New Issue Shares and no allotment of any of the New Issue Shares will be made until the closing of the application lists. No allotment of any of the New Issue Shares will be made later than Saturday, 30th November, 1996.

Completion of an application form will constitute an agreement by the applicant(s), as a collateral contract with the Company which will become binding on delivery of the application form to any one of the branch or sub-branches of Bank of China set out above in the section “Prospectuses and application forms” and in consideration of the Company agreeing that prior to 1st December, 1996, it will not offer any H Shares to any person other than by means of one of the procedures referred to in this prospectus, that the application cannot be revoked before acceptance prior to 1st December, 1996 unless a person responsible for the prospectus pursuant to section 40 of the Companies Ordinance (chapter 32 of the Laws of Hong Kong) gives a public notice has the effect under that section of excluding or limiting the responsibility of the person giving it. Applications which have been accepted will not be capable of revocation. For this purpose, acceptance of applications which are not rejected will be constituted by notification to the press of the basis of allocation and, where such basis of allocation provides for allocation by ballot, such acceptance will be subject to the results of such ballot.

By completing and delivering an application form, each applicant warrants that: App.1A 62 (a) he agrees with the Company and each shareholder of the Company, and the Company agrees with each shareholder of the Company, to observe and comply with the PRC Company Law, Special Regulations and the Articles of Association;

212 PROCEDURE FOR APPLICATION

(b) he agrees with the Company, each shareholder, Director, Supervisor, manager and officer of the Company and the Company acting for itself and for each Director, Supervisor, manager and officer of the Company agrees with each shareholder of the Company to refer to arbitration in accordance with the Articles of Association all differences and claims arising from the Articles of Association or any rights or obligations conferred or imposed by the PRC Company Law or other relevant laws and administrative regulations concerning the affairs of the Company, and any reference to arbitration shall be deemed to authorise the arbitration tribunal to conduct hearings in open session and to publish its award, such arbitration being final and conclusive;

(c) he agrees with the Company and each shareholder of the Company that H Shares in the Company are freely transferable by the holder thereof;

(d) he authorises the Company to enter into a contract on his behalf with each of the Directors, Supervisors, manager and officers of the Company whereby such Directors, Supervisors, manager and officers undertake to observe and comply with their obligations to shareholders stipulated in the Articles of Association;

(e) (if the application is made for his own benefit) no other application is being made for his benefit by him or by anyone applying as his agent or by any other person;

(f) (if the application is made by him as agent for the benefit of another person) no other application is being made by him as agent for or for the benefit of that person or by that person or by any other person as agent for that person; and

(g) if he signs the application form as agent for someone else, he has due authority to do so on behalf of that other person.

Any allotment made in respect of any application will be void if permission for listing the H Shares on the Stock Exchange has been refused before the expiration of three weeks from the closing of the application lists, or such longer period not exceeding six weeks as may, within the said three weeks, be notified to the Company by or on behalf of the Stock Exchange.

2. EXISTING SHAREHOLDERS AND DIRECTORS

In compliance with the Listing Rules, no H Shares will be offered to any Director or any existing shareholder of the Company or any of their respective associates (as defined under the Listing Rules) on a preferential basis and no preferential treatment will be given to them in the allocation of the H Shares.

3. MULTIPLE APPLICATIONS

Multiple applications are not permitted. All applicants should note that only one application may be made for the benefit of any person. In addition, any one application for more than 100 per cent. of the H Shares being offered pursuant to the New Issue will be treated as if it is a multiple application and will be rejected.

213 PROCEDURE FOR APPLICATION

As mentioned above, it will be a term and condition of all applications that, by completing and delivering an application form, each applicant gives a warranty to the following effect:

(i) (if the application is made for the benefit of the applicant) that no other application is being made for his benefit by the applicant or by anyone applying as his agent or by any other person; and

(ii) (if the application is made by the applicant as agent for the benefit of another person) that:

(a) no other application is being made by the applicant as agent for or for the benefit of that person or by that person or by any other person as agent for that person: and

(b) the applicant has due authority to sign the application form as agent for the person who is to benefit from the application.

It should be noted that an application made by an unlisted company which does not carry on any business other than dealing in securities and in respect of which a person exercises statutory control (being control of a level equal to or greater than the control exercised or exercisable by a company over a subsidiary) shall be deemed to be an application made for the benefit of that person.

4. POSTING OF H SHARE CERTIFICATES, DEPOSIT OF H SHARE CERTIFICATES App.1A INTO CCASS AND RETURN OF APPLICATION MONIES 15(2)(g)

No receipt will be issued in respect of any application monies received, but separate certificates in respect of the H Shares will be sent through ordinary post to successful applicants using the WHITE application forms (or, in the case of joint applicants, to the first-named applicant) in due course, at their own risk to the address specified in the relevant application form. No temporary documents will be issued. For those successful applicants using the YELLOW application forms who are allotted H Shares in the name of HKSCC Nominees Limited, the Hong Kong share registrar will advise their designated CCASS participants of acceptance of application and the number of H Shares allotted. The allotted H Shares, subject to any adjustments, will be deposited directly into CCASS for credit to the designated CCASS participants’ stock accounts maintained in CCASS on Monday, 11th November, 1996 or such other date as determined by Hongkong Clearing or HKSCC Nominees Limited. The statements of stock accounts retrieved from CCASS will also list the CCASS participants’ holdings of the allotted H Shares. Applicants can arrange with their designated CCASS participants to advise them of the number of H Shares allotted under their applications. If an application is rejected or is accepted in part only or if the conditions of the H Share Offer are not fulfilled in accordance with the section headed “Conditions of the H Share Offer” or if any application is revoked or any allotment shall become void as provided above, the application monies, or the appropriate portion thereof, together with the related brokerage payment and Stock Exchange transaction levy will be refunded, without interest, either by returning the relevant cheque or banker’s cashier order or by sending a cheque made out to the applicant named on the application form (or, in the case of joint applicants, to the first-named applicant) and crossed “Account Payee Only”, in each case, through ordinary post at the risk of the applicant(s) to the address specified in the application form. It is intended that in processing applications special effort will be made to avoid any undue delay in refunding application monies to any unsuccessful applicant.

214 PROCEDURE FOR APPLICATION

Refund cheques for surplus application monies (if any) in respect of wholly or partially App.1A 15(2)(g) unsuccessful applications are expected to be posted on or before Monday, 11th November, 1996. H Share Certificates for successful applications are expected to be posted on or before Monday, 11th November, 1996.

Dealings in the H Shares are expected to commence on Wednesday, 13th November, 1996. App.1A 22 The proposed board lot for trading in H Shares is 2,000 H Shares.

Subject to the granting of listing of, and permission to deal in, the H Shares on the Stock App.1A 14(2) Exchange, the H Shares will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the H Shares or such other date as determined by Hongkong Clearing. Settlement of transactions between members of the Stock Exchange on any trading day is required to take place in CCASS on the second business day thereafter.

The basis of allotment and the results of application are expected to be published in the South China Morning Post in English and in the Hong Kong Economic Journal in Chinese on or before Friday, 8th November, 1996.

215