Shanghai Electric Group Company Limited 上海電氣集團

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Shanghai Electric Group Company Limited, you should at once hand this circular and the accompanying form of proxy and the reply slip to the purchaser or transferee or to the bank or licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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

SHANGHAI ELECTRIC GROUP COMPANY LIMITED 上海電氣集團股份有限公司 (A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 02727)

PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION PROPOSED ISSUANCE AND PLACING OF A SHARES AND NOTICE OF EXTRAORDINARY GENERAL MEETING AND NOTICE OF H SHARE CLASS MEETING

All capitalised terms used in this circular have the meanings set out in the section headed “Definitions” of this circular.

A letter from the Board is set out on page 6 to 55 of this circular.

A notice convening the EGM to be held at 9:00 a.m. on Monday, 18 January 2016 at Xingyuan Hall, 3/F, B Block, Ramada Plaza Shanghai Caohejing, No. 509 Caobao Road, Shanghai, the PRC has been despatched to the Shareholders on 4 December 2015, which is set out on pages 94 to 97 of this circular. Notice convening the H Share Class Meeting is set out on pages 98 to 101 of this circular.

Reply slips and forms of proxy for use at the EGM and the H Share Class Meeting have been despatched to the Shareholders on 4 December 2015, which are also published on the website of the Hong Kong Stock Exchange (www.hkex.com.hk). Shareholders who intend to attend the EGM and/or the H Share Class Meeting in person or by proxy shall complete and return the reply slips in accordance with the instructions printed thereon on or before Tuesday, 29 December 2015. Whether or not Shareholders are able to attend the EGM and/or the H Share Class Meeting, you are requested to complete and return the forms of proxy in accordance with the instructions printed thereon, as soon as possible and in any event by not less than 24 hours before the time fixed for holding the EGM and/or the H Share Class Meeting or any adjournment thereof (as the case may be). Completion and return of the forms of proxy will not preclude Shareholders from attending the EGM and/or the H Share Class Meeting and voting in person if you so wish.

* For identification purpose only 31 December 2015 CONTENTS

Page

Definitions ...... 1

Letter from the Board ...... 6

Letter from the Independent Board Committee ...... 56

Letter from the Independent Financial Adviser ...... 58

Notice of Extraordinary General Meeting ...... 94

Notice of H Share Class Meeting ...... 98

Appendix I — Property valuation report for Target Properties ...... I-1

Appendix II — Valuation Report for Target Properties ...... II-1

Appendix III — Valuation Report for Shanghai Electric Industrial Company Limited ...... III-1

Appendix IV — Valuation Report for Shanghai DENSO Fuel Injection Co., Ltd...... IV-1

Appendix V — Valuation Report for Shanghai Blower Works Co., Ltd...... V-1

Appendix VI — Valuation Report for Shanghai Rail Traffic Equipment Development Co., Ltd...... VI-1

Appendix VII — Valuation Report for Shanghai Heavy Machinery Plant Co., Ltd...... VII-1

Appendix VIII — General information ...... VIII-1 DEFINITIONS

Unless the context otherwise requires, the following expressions in this circular shall have the following meanings:

“A Share(s)” the domestic ordinary share(s) of nominal value RMB1.00 each in the share capital of the Company, which are listed on the Shanghai Stock Exchange and traded in RMB;

“Articles of Association” the articles of association of the Company as amended from time to time;

“associate(s)” has the meaning ascribed thereto under the Listing Rules;

“Board” the board of directors of the Company;

“Class Meetings” the A Shares Class Meeting and the H Shares Class Meeting;

“Company” Shanghai Electric Group Company Limited, a joint stock limited company duly incorporated in the PRC with limited liability, the H shares of which are listed on The Stock Exchange of Hong Kong Limited under stock code 02727 and the A Shares of which are listed on the Shanghai Stock Exchange under stock code 601727;

“connected person(s)” has the meaning ascribed thereto under the Listing Rules;

“Consideration Share(s)” a total of 606,843,370 A Shares to be issued by the Company to SEC pursuant to the Restructuring Agreement for settlement of the difference between the consideration for the equity interests of the Incoming Assets and that for the Outgoing Assets and as the consideration for the Target Properties;

“CSRC” the China Securities Regulatory Commission (中國證券監督管理委員會);

“Directors” the directors of the Company;

“EGM” the extraordinary general meeting of the Company to be convened at 9:00 a.m. on Monday, 18 January 2016 at Xingyuan Hall, 3/F, B Block, Ramada Plaza Shanghai Caohejing, No. 509 Caobao Road, Shanghai, the PRC;

–1– DEFINITIONS

“Group” the Company and its subsidiaries;

“H Share Class Meeting” The H Share Class Meeting of the Company to be convened on Monday, 18 January 2016 immediately after the conclusion or adjournment of the class meeting for holders of A Shares of the Company to be convened on Monday, 18 January 2016 at Xingyuan Hall, 3/F, B Block, Ramada Plaza Shanghai Caohejing, No. 509 Caobao Road, Shanghai, the PRC;

“H Share(s)” the overseas listed foreign capital share(s) of nominal value RMB1.00 each in the share capital of the Company, which are listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars;

“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China;

“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited;

“Incoming Assets” 100% equity interests in Shanghai Electric Industrial Company Limited, 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd., 100% equity interests in Shanghai Blower Works Co., Ltd., 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. held by SEC and Target Properties owned by SEC as at the Latest Practicable Date as more particularly described in the section headed “Information on the Incoming Assets” of the letter from the Board contained in this circular;

“Independent Board the independent board committee comprising all the Committee” independent non-executive Directors, namely, Dr. Lui Sun Wing, Mr. Kan Shun Ming and Dr. Chu Junhao, formed to consider, among others, (i) Restructuring Agreement and the transactions contemplated under the Restructuring Agreement; and (ii) the Proposed Issuance and Placing of A Shares to SEC;

“Independent Financial Guotai Junan Capital Limited, a corporation licensed Adviser” to carry out type 6 (advising on corporate finance) regulated activities under SFO, being the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in relation to (i) Restructuring Agreement and the transactions contemplated under the Restructuring Agreement; and (ii) the Proposed Issuance and Placing of A Shares to SEC;

–2– DEFINITIONS

“Independent Shareholders” the Shareholders other than SEC and its associates who are legally and/or beneficially interested in the shares of the Company;

“Last Trading Day” 7 October 2015;

“Latest Practicable Date” 23 December 2015, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein;

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

“Outgoing Assets” 100% equity interests in Shanghai Heavy Machinery Plant Co., Ltd. held by the Company as at the Latest Practicable Date as more particularly described in the section headed “Information on the Outgoing Assets” of the letter from the Board contained in this circular;

“PRC” or “China” the People’s Republic of China, but for the purposes of this circular only, excludes Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan;

“Previous Transactions” in relation to the disposal of the Outgoing Assets, the previous transactions include (i) the connected transaction entered into between SEC and Shanghai Electric Wind Power Equipment Co., Ltd. (上海電氣風電設備有限公司) in respect of the capital injection into Shanghai Electric Wind Power Equipment Co., Ltd. by SEC approved by the Board on 25 June 2015; and (ii) the connected transaction entered into between SEC, Shanghai Mechanical & Electrical Industry Co., Ltd. (上海機電股份有限公司) and Goss International Corporation (美國高斯國際有限公司) in respect of the conversion of debt interest into equity interest in Goss International Corporation by SEC and Shanghai Mechanical & Electrical Industry Co., Ltd. approved by the Board on 27 July 2015 (details of which are set out in the announcements of the Company published on 25 June 2015 and 27 July 2015, respectively); in relation to the acquisition of the Incoming Assets, there is no previous transactions during the past 12 months preceding the Latest Practicable Date to be aggregated with;

–3– DEFINITIONS

“Pricing Benchmark Date” 5 December 2015, the publication date of the Board resolution announcement in relation to the Restructuring Agreement and transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares on the Shanghai Stock Exchange;

“Proposed Issuance and Placing the proposed issuance of 336,215,171 A Shares by the of A Shares” Company at the issue price of RMB10.41 per A Share to nine specific investors (including SEC);

“Restructuring” the transactions contemplated under the Restructuring Agreement, including the assets swap and the assets acquisition by issuance of the Consideration Shares;

“Restructuring Agreement” the agreement dated 2 December 2015 entered into between the Company and SEC in relation to the assets swap and the assets acquisition by issuance of the Consideration Shares;

“RMB” Renminbi, the lawful currency of the People’s Republic of China;

“SASAC” State-owned Assets Supervision and Administration Commission of the State Council;

“SEC” Shanghai Electric (Group) Corporation (上海電氣（集團）總公司), the controlling shareholder of the Company (as defined in the Listing Rules) holding approximately 55.05% interests in the total issued share capital of the Company as at the Latest Practicable Date;

“SEC Group” SEC, its subsidiaries and its associates, but excluding the Group;

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended and supplemented from time to time;

“Shanghai SASAC” State-owned Assets Supervision and Administration Commission of the State Council of Shanghai Municipal Government;

–4– DEFINITIONS

“Share Subscription the share subscription agreement(s) dated 2 Agreement(s)” December 2015 separately entered into between the Company and each of the target subscribers in relation to subscription of A Shares under the Proposed Issuance and Placing of A Shares;

“Share(s)” the ordinary share(s) of nominal value RMB1.00 each in the share capital of the Company, including both A Share(s) and H Share(s);

“Shareholder(s)” the shareholder(s) of the Company, including holder(s) of both A Share(s) and H Share(s);

“subsidiary(ies)” has the meaning ascribed thereto under the Listing Rules;

“Transfer Completion Date for the date of completion of the industrial and the Outgoing Assets” commercial registration procedures in relation to the transfer of the Outgoing Assets to SEC in accordance with the Restructuring Agreement;

“Transfer Completion Date for the date of completion of the industrial and the Incoming Equity Assets” commercial registration procedures in relation to the transfer of the equity interests of the Incoming Assets to the Company in accordance with the Restructuring Agreement;

“Target Properties” The properties owned by SEC and to be acquired by the Company pursuant to the Restructuring Agreement. Details of the Target Properties are set out in the paragraph headed “II. Proposed Discloseable and Connected Transaction — 4. Information of the Incoming Assets — 4.5 Target Properties” of the letter from the Board contained in this circular;

“Valuation Benchmark Date” 30 September 2015; and

“%” per cent.

* All the financial data in this circular were presented in RMB unless otherwise indicated.

–5– LETTER FROM THE BOARD

SHANGHAI ELECTRIC GROUP COMPANY LIMITED 上海電氣集團股份有限公司 (a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 02727)

Executive Directors: Registered office: Mr. Huang Dinan 30th Floor, Maxdo Center Mr. Zheng Jianhua No. 8 Xingyi Road Mr. Huang Ou Shanghai PRC Non-executive Directors: Mr. Wang Qiang Principal place of business Mr. Zhu Kelin in Hong Kong: Ms. Yao Minfang Room 2602, Tower One Lippo Centre Independent non-executive Directors: 89 Queensway Dr. Lui Sun Wing Hong Kong Mr. Kan Shun Ming Dr. Chu Junhao

31 December 2015

To the Shareholders

Dear Sir or Madam,

PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION PROPOSED ISSUANCE AND PLACING OF A SHARES AND NOTICE OF EXTRAORDINARY GENERAL MEETING AND NOTICE OF H SHARE CLASS MEETING

I. INTRODUCTION

References are made to the trading suspension announcement dated 8 October 2015, the announcements on update on material matters and suspension of trading of the Company dated 8 October 2015, 14 October 2015, 21 October 2015, 28 October 2015, 4 November 2015, 11 November 2015, 18 November 2015, 20 November 2015 and 27 November 2015, trading resumption announcement and other relevant announcements

* For identification purpose only

–6– LETTER FROM THE BOARD dated 4 December 2015 and 6 December 2015 and the notice of EGM and notice of H Share Class Meeting dated 4 December 2015. The purpose of this circular is to provide you with all the information reasonably necessary to enable you to make an informed decision on whether to vote for or against the proposed resolutions at the EGM and the H Share Class Meeting, including but not limited to (1) details of the proposed discloseable and connected transaction, including the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement; (2) details of the proposed issuance and placing of A Shares; (3) a letter of recommendation from the Independent Board Committee to the Independent Shareholders on (i) the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement and (ii) the Proposed Issuance and Placing of A Shares to SEC; (4) a letter of recommendation from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders on (i) the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement and (ii) the Proposed Issuance and Placing of A Shares to SEC.

At the EGM, the following special resolutions will be proposed for Shareholders to approve: (i) the proposal of assets swap and issuance of shares for acquisition of assets as well as supporting funds raising (connected transaction) (the “Transaction”) by the Company; (ii) The Report for Assets Swap and Issuance of Shares for Acquisition of Assets as well as Supporting Funds Raising (connected transaction) by Shanghai Electric Group Company Limited (Draft) and its summary; (iii) the execution of the Assets Swap and Issuance of Shares for Acquisition of Assets Agreement with conditions precedent between Shanghai Electric (Group) Corporation and Shanghai Electric Group Company Limited; (iv) the execution of the Share Subscription Agreement with conditions precedent between the target subscribers and Shanghai Electric Group Company Limited; (v) the grant of the authorization to the Board at the EGM to deal with relevant matters of the Transaction; and (vi) the report on the use of proceeds from the previous fund raising activity by the Company; and the following ordinary resolutions will also be proposed for approval: (i) the connected transactions involving assets swap and issuance of shares for acquisition of assets as well as the supporting funds raising by the Company; (ii) the resolution in relation to the independence of the appraisal firms, the reasonableness of the appraisal assumptions, the relevance between the appraisal methodology and purpose and the fairness of the valuation in connection with the Transaction; (iii) the resolution in relation to the approval of audited figures and relevant reports issued by audit firms and asset appraisal firms in respect of the Transaction; (iv) the resolution on the compliance with the relevant laws and regulations of the assets swap and issuance of shares for acquisition of assets and supporting funds raising (connected transaction) by the Company; and (v) the resolution in relation to the compliance by the company with Clause 4 under Requirements on Certain Issues Concerning Regulating the Material Asset Reorganization of Listed Companies in respect of the Transaction.

At the H Share Class Meeting, the following special resolutions will be proposed for shareholders to approve: (i) the proposal of assets swap and issuance of shares for acquisition of assets as well as supporting funds raising (connected transaction) (the “Transaction”) by the Company; (ii) The Report for Assets Swap and Issuance of Shares for Acquisition of Assets as well as Supporting Funds Raising (connected transaction) by Shanghai Electric Group Company Limited (Draft) and its summary; (iii) the execution of

–7– LETTER FROM THE BOARD the Assets Swap and Issuance of Shares for Acquisition of Assets Agreement with conditions precedent between Shanghai Electric (Group) Corporation and Shanghai Electric Group Company Limited; (iv) the execution of the Share Subscription Agreement with conditions precedent between the target subscribers and Shanghai Electric Group Company Limited; (v) the grant of the authorization to the Board at the EGM to deal with relevant matters of the Transaction; and (vi) the report on the use of proceeds from the previous fund raising activity by the Company.

II. PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION

On 2 December 2015, the Company and SEC entered into the Restructuring Agreement, pursuant to which the Company proposed to conduct an assets swap for its 100% equity interests in Shanghai Heavy Machinery Plant Co., Ltd., at a value of RMB1.00, with the equivalent parts of 100% equity interests in Shanghai Electric Industrial Company Limited, 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd., 100% equity interests in Shanghai Blower Works Co., Ltd. and 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. held by SEC. The difference between the consideration for the equity interests of the Incoming Assets and that for the Outgoing Assets of RMB3,400,913,224 and the consideration for Target Properties of the Incoming Assets of RMB2,916,326,263 will be settled by the way of issuance 606,843,370 Consideration Shares by the Company to SEC at the issue price of RMB10.41 per Consideration Share.

1. Principal terms of the Restructuring Agreement

Date 2 December 2015

Parties (i) the Company; and

(ii) SEC

SEC is the controlling shareholder of the Company and therefore a connected person as defined under Chapter 14A of the Listing Rules.

Target assets (i) Outgoing Assets:

100% equity interests in Shanghai Heavy Machinery Plant Co., Ltd. held by the Company;

–8– LETTER FROM THE BOARD

(ii) Incoming Assets:

100% equity interests in Shanghai Electric Industrial Company Limited, 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd., 100% equity interests in Shanghai Blower Works Co., Ltd., 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. and Target Properties held by SEC.

Consideration The consideration for the Outgoing Assets and that for the Incoming Assets were determined after arm’s length negotiations based on the valuation of such assets as at Valuation Benchmark Date as confirmed in the assets valuation reports issued by the qualified PRC valuers. As at the date of this circular, the Company has completed the filing of the valuation reports with Shanghai SASAC, and has obtained the confirmation for the valuation results from Shanghai SASAC.

Valuation result based on the asset-based approach was adopted by the relevant PRC qualified valuers for the Outgoing Assets and equity assets of the Incoming Assets as the respective qualified PRC valuers considered that in light of the nature of the Outgoing Assets and equity assets of the Incoming Assets, the asset-based approach, compared to income approach and market comparison approach, can reflect the market value of the relevant assets. The asset-based approach is conducted based on the audited financial statements of the target companies as at Valuation Benchmark Date and the valuation of the net assets are calculated by deducting assessed liabilities from the sum of the assessed assets, which reflects the value of the enterprise from the perspective of replacement cost (by way of replacing historical cost with market value of individual assets and liabilities). The income approach aims to reflect the enterprise value with a perspective of future profitability for enterprise, and the financial performance of certain entities within Incoming Assets in recent years fluctuated and the Outgoing Assets suffered losses in the past few years with operating performance not optimistic in the future, thus income approach is not appropriate. The market comparison approach is not appropriate to be applied because of the lack of comparable listed companies and the lack of enough information available for unlisted companies to measure the enterprise value.

–9– LETTER FROM THE BOARD

Valuation result based on the additive method of single item asset was adopted for the Target Properties: (i) Valuation results based on the replacement cost approach were adopted for buildings and structures for production as well as equipment. Replacement cost method refers to a valuation method to determine the value of the target asset by all such costs required for a brand-new status asset identical or similar to the target asset reconstructed under the current conditions and reaching the state of being capable of use, then deducting amounts for various depreciation or impairment occurred. Considering the aforementioned buildings and structures specifically constructed for individual users and such equipment being used for years, the qualified PRC valuers determined the valuation based on total replacement cost and depreciation rate, which can basically reflect market value of the aforementioned buildings, structures and equipment. (ii) Valuation results based on the market comparison approach were adopted for the office buildings and land use rights. There have been plenty of property transactions completed within or near the office buildings and the rental market of similar buildings in such area has also been prosperous. In addition, the office buildings could be operated independently with fixed income and the profits could be calculated separately. Thus market comparison approach could better reflect market value of the office buildings. Since abovementioned lands belong to industry and scientific research lands and there are many transaction cases of similar lands in the surrounding areas, market comparison approach can also be adopted to better reflect the market value of such land use rights.

The consideration for the Outgoing Assets is RMB1.00, which has been arrived at after negotiation between the parties by reference to the valuation of 100% equity interests in Shanghai Heavy Machinery Plant Co., Ltd. of RMB-184,868,000 as at the Valuation Benchmark Date.

The consideration for the Incoming Assets is RMB6,317,239,488, which has been arrived at after arm’s length negotiations between the parties by reference to the valuations of 100% equity interests in Shanghai Electric Industrial Company Limited, 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd., 100% equity interests in Shanghai Blower Works Co., Ltd., 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. and Target Properties of RMB1,913,470,400, RMB533,687,369, RMB784,920,959, RMB168,834,497, and RMB2,916,326,263, respectively, as at the Valuation Benchmark Date.

–10– LETTER FROM THE BOARD

In case of distribution of dividend in cash for equity assets under the Incoming Assets during the period commencing from Valuation Benchmark Date to the date of completion of the assets swap, the consideration of the Incoming Assets shall be finalized after deducting the amount of dividend in cash.

For further details of the valuation of the Incoming Assets and Outgoing Assets, please refer to the valuation reports set out in Appendix II to VII to this circular and in the relevant announcements published by the Company on the websites of Hong Kong Stock Exchange on 4 December 2015 and 6 December 2015. The documents No. are HDZZPBZ No.(2015) 0898053, HDZZPBZ No.(2015)0900053, HDZZPBZ No.(2015) 0899053, HDZZPBZ No.(2015)0901053, HDZZPBZ No.(2015) 0902053 and LXA (2015) No.464. Copies of the documents will be available for inspection at Hong Kong and please refer to the paragraph headed “8. DOCUMENTS AVAILABLE FOR INSPECTION” of APPENDIX III to this circular for more relevant details.

Payment method The difference between the consideration for the equity interests of the Incoming Assets and that for the Outgoing Assets of RMB3,400,913,224 and the consideration for the Target Properties of RMB2,916,326,263 will be settled by way of the issuance of 606,843,370 Consideration Shares by the Company to SEC at the issue price of RMB10.41 per Consideration Share.

The Consideration Shares shall be issued as fully paid and shall rank pari passu in all material respects with the A Shares in issue.

–11– LETTER FROM THE BOARD

Arrangement for (i) Arrangement for profit or loss in relation to the profit or loss for Outgoing Assets for the period: the period

(ii) Arrangement for profit or loss in relation to the Incoming Assets for the period:

All the profit or loss of the Incoming Assets arising from or incurred during the period commencing from Valuation Benchmark Date to Transfer Completion Date for the Incoming Equity Assets shall belong to or be borne by SEC.

Issue price and (i) pursuant to the requirements of the Measures for number of the Administration of Material Assets Reorganization of Consideration Listed Companies《上市公司重大資產重組管理辦法》 ( ) Shares issued by the CSRC, the Company and SEC negotiated and determined that the issue price of the Consideration Shares shall be 90% of the average trading price of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date, which is RMB10.41 per A Share. The Pricing Benchmark Date of the Consideration Shares shall be the publication date of the Board resolution announcement in relation to the transactions contemplated under the Restructuring Agreement (5 December 2015) on the Shanghai Stock Exchange. Further details are set out in the paragraph headed “II. Proposed Discloseable and Connected Transaction – 9. Consideration for pricing of the Consideration Shares” of the letter from the Board contained in this circular.

The average trading price of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date was calculated by dividing the total trading amount of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date by the total trading volume of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date.

–12– LETTER FROM THE BOARD

(ii) the number of the Consideration Shares to be issued by the Company to SEC is 606,843,370, calculated by dividing the difference between the consideration for the Incoming Assets and that for the Outgoing Assets (which is RMB6,317,239,487) by the issue price of the Consideration Share of RMB10.41 per share. The number of Consideration Shares shall be subject to the approval of CSRC.

(iii) in the event that the Company distributes dividends, grants bonus shares, converts capital reserve into share capital or carries out any other ex-rights or ex-dividends activities during the period commencing from the Pricing Benchmark Date to the date of issue of the Consideration Shares, the corresponding adjustments shall be made to the issue price and number of the Consideration Shares.

Place of listing The A Shares to be issued pursuant to the Restructuring Agreement will be listed and traded on the Shanghai Stock Exchange.

Conditions Completion of the transactions contemplated under the precedent Restructuring Agreement is subject to, among other things, the following conditions set out in the Restructuring Agreement being satisfied:

(i) the approval by the board of directors of SEC of the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement;

(ii) the approval by way of special resolutions of the Shareholders (excluding SEC and its associates) at the EGM and the Class Meetings of the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement;

(iii) the filing with and approval by the competent state-owned assets authorities of the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement;

(iv) the approval by the CSRC of the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement;

–13– LETTER FROM THE BOARD

(v) the approval by the board of directors of Shanghai DENSO Fuel Injection Co., Ltd. of the shareholding transfer in Shanghai DENSO Fuel Injection Co., Ltd. in relation to the transactions contemplated under the Restructuring Agreement;

(vi) the approval by the relevant foreign affairs department of the shareholding transfer in Shanghai DENSO Fuel Injection Co., Ltd. in relation to the transactions contemplated under the Restructuring Agreement; and

(vii) all other consents, approvals and authorisations as and may be required by the relevant governmental authorities in respect of the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement.

Completion (i) As from the Transfer Completion Date for the Outgoing Assets, the disposal of the Outgoing Assets is deemed to be completed. Both parties agreed that SEC shall then be entitled to the rights relating to the Outgoing Assets and assume the corresponding obligations under the articles of association of the company to which the equity interests of the Outgoing Assets belong as from the Transfer Completion Date for the Outgoing Assets;

(ii) As from the Transfer Completion Date for the Incoming Equity Assets, the acquisition of the equity interests of the Incoming Assets is deemed to be completed. Both parties agreed that the Company shall then be entitled to the rights relating to the equity interests of the Incoming Assets and assume the corresponding obligations under the articles of association of the companies to which the respective equity assets of the Incoming Assets belong as from the Transfer Completion Date for the Incoming Equity Assets; and

–14– LETTER FROM THE BOARD

(iii) As from the date of completion of the registration procedures in relation to the transfer of the Target Properties of the Incoming Assets to the Company in accordance with the Restructuring Agreement, the acquisition of the Target Properties is deemed to be completed. For the Target Properties with title certificates not yet obtained, SEC shall deliver the possession of such properties to the Company and a written confirmation for title transfer completion shall be executed by both parties. As from the date of execution of the written confirmation for title transfer completion by both parties, the acquisition of such properties within the Target Properties is deemed to be completed.

Lock-up period The Consideration Shares issued by the Company to SEC shall not be transferred within 36 months commencing from the date of issuance of the Consideration Shares and are subject to the relevant requirements of the CSRC and the Shanghai Stock Exchange thereafter. If the closing prices of A Shares are below the issue price of the Consideration Shares for 20 consecutive trading days within the six-month period commencing from the date of completion of the Restructuring, or the closing price of the A Shares as at the end of the above-mentioned six-month period after the date of completion of the Restructuring is below the issue price of the Consideration Shares, the lock-up period will be automatically extended for at least 6 months.

Upon the completion of the issuance of the Consideration Shares, in the event that the Company grants bonus shares, converts capital reserve into share capital etc., SEC shall also comply with the arrangement of the lock-up period in respect of such additional shares.

Governing law PRC law

–15– LETTER FROM THE BOARD

2. Information of the Group

The Group is one of the largest industrial equipment manufacturing conglomerates in China engaged in the following principal activities: (i) design, manufacture and sale of nuclear power nuclear island equipment products, wind power equipment products and heavy machinery including large forging components; (ii) design, manufacture and sale of thermal power equipment products and auxiliary equipment, nuclear power conventional island equipment products and power transmission and distribution equipment products; (iii) design, manufacture and sale of elevators, electric motors, machine tools, marine crankshafts and other electromechanical equipment products; and (iv) provision of integrated engineering services for power station projects and other industries, financial services and functional services including international trading services.

3. Information of the SEC Group

SEC is our controlling shareholder holding approximately 55.05% equity interest in the total issued share capital of the Company as at the Latest Practicable Date. The principal business of SEC is the management of state-owned assets and investment activities. SEC is an enterprise wholly-owned by Shanghai SASAC and is one of the largest comprehensive equipment manufacturing conglomerates in China.

4. Information of the Incoming Assets

4.1 Shanghai Electric Industrial Company Limited

Shanghai Electric Industrial Company Limited is a company established under the PRC law with limited liability on 28 September 1993. As at the Latest Practicable Date, Shanghai Electric Industrial Company Limited has been a wholly-owned subsidiary of SEC for more than three years. Upon the completion of the transactions contemplated under the Restructuring Agreement, Shanghai Electric Industrial Company Limited will be a wholly-owned subsidiary of the Company.

Shanghai Electric Industrial Company Limited is a platform for medium and small equity investment management for SEC. The traditional industries currently invested by Shanghai Electric Industrial Company Limited include household air conditioners, offshore oil drilling consumable equipment, high pressure washing equipment and mechanical seals etc. In recent years, Shanghai Electric Industrial Company Limited has gradually changed its investment direction to certain emerging industries such as modern agricultural machinery, ship ballast water treatment, biomass energy and water treatment etc. Shanghai Electric Industrial Company Limited also leased out certain of its vacant properties to increase its earnings.

–16– LETTER FROM THE BOARD

Set out below is the audited pro forma consolidated financial information of Shanghai Electric Industrial Company Limited for the two years ended 31 December 2014 and the nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 1,633,178.66 1,726,424.24 1,431,902.56 Total liabilities 315,563.60 132,719.76 153,110.58 Equity attributable to owners of the company 1,254,309.78 1,527,938.62 1,278,791.98

For the nine months For the For the ended year ended year ended 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Revenue 67,704.55 84,588.80 92,972.16 Profit before taxation 18,205.42 115,249.57 96,460.42 Net profit after taxation 23,082.89 109,979.72 77,112.02 Net profit attributable to owners of the company 25,543.46 112,546.88 77,112.02 Net profit attributable to owners of the company after deduction of non-recurring profit and loss 24,379.01 107,609.86 51,528.92

As at 30 September 2015, the audited net asset value of Shanghai Electric Industrial Company Limited was approximately RMB1,317,615,061.

The audit reports for Shanghai Electric Industrial Company Limited are set out in the relevant announcements published by the Company on the websites of Hong Kong Stock Exchange on 6 December 2015. The documents No. are Baker Tilly China [2015] No. 14362 and Baker Tilly China [2015] No. 14362-1. Copies of the documents will be available for inspection in Hong Kong and please refer to the paragraph headed “8. DOCUMENTS AVAILABLE FOR INSPECTION” of APPENDIX III to this circular for more relevant details.

For the years ended 31 December 2013 and 2014 and the nine months ended 30 September 2015, the net profit attributable to owners of the company of Shanghai Electric Industrial Company Limited based on its pro forma consolidated financial statements were RMB77,112,020, RMB112,546,880 and RMB25,543,460 respectively, showing a notable fluctuation over the reporting periods. The reasons that led to the fluctuation in net profit

–17– LETTER FROM THE BOARD of Shanghai Electric Industrial Company Limited based on its pro forma consolidated financial statements were as follows:

Shanghai Electric Industrial Company Limited is a platform for medium and small equity investments, and its profits mainly consist of investment income. Shanghai Mitsubishi Electric & Shangling Air-Conditioner and Electric Appliance Co., Ltd. (上海三菱電機‧上菱空調機電器有限公司) (with 47.61% equity interest held by Shanghai Electric Industrial Company Limited), as one of its investees, had experienced a notable fluctuation in its performance in the recent two years due to factors such as economic cycle and climate change, and its net profit were RMB190,426,600 and RMB123,133,800 for the year ended 31 December 2014 and the nine months ended 30 September 2015 respectively, which resulted in the most significant and adverse financial impact on the investment income of Shanghai Electric Industrial Company Limited over such periods. Besides, Shanghai Electric Industrial Company Limited had carried out an impairment test for the value of goodwill as of 30 September 2015 of its subsidiary, Shanghai Cyeco Environmental Technology Co., Ltd. (上海船研環保技術有限公司), and made a provision for impairment of its goodwill of RMB28,232,800. During the nine months ended 30 September 2015, Shanghai Electric Industrial Company Limited had incurred a loss of RMB18,023,600 due to the provision made for write-down of inventories as a result of operation transformation of its subsidiary, Shanghai Fastener Machinery Factory Co., Ltd.( 上海標準件機械廠有限公司), together with a decline in its revenue during the operation transformation.

According to valuation report issued by Orient Appraisal Co., Ltd., the valuation result based on asset-based approach was eventually adopted for the equity assets of the Incoming Assets with its Valuation Benchmark Date set on 30 September 2015. The Directors are of the view that the performance fluctuations of Shanghai Electric Industrial Company Limited, which were mainly due to some special provisions and short term or business cycle factors, should not affect the valuation of the equity assets of the Incoming Assets, which are to be acquired by the Company as ongoing businesses. The Company is of the view that the performance fluctuations of Shanghai Electric Industrial Company Limited were mainly caused by economic cycle, climate change, operation transformation and goodwill impairment, which are expected to be short-term and temporary. From a long-term perspective, taking into account that the businesses of Shanghai Electric Industrial Company Limited are in line with the Company’s strategic development positioning, the Company believes that the proposed acquisition of the company will form collaborative development advantages and thus will further enhance the operating performance of the Company.

–18– LETTER FROM THE BOARD

The total floor area of the buildings of which the title certificates have not been obtained by Shanghai Electric Industrial Company Limited and its subsidiaries is 53,313.77 sq.m. and the valuation of such buildings is RMB71,065,638.36, accounting for 3.71% of the total valuation of Shanghai Electric Industrial Company Limited and for 1.12% of the total valuation of the Incoming Assets. Details of the properties without title certificates are set out on pages III-33 to III-35 under paragraph 8 in the section headed “XII. Additional Disclosure Items” of the Appendix III contained in this circular. Pursuant to the Restructuring Agreement entered into by the Company and SEC, SEC has undertaken to compensate the Company for relevant economic losses incurred if the Company is deprived of the normal rights of use of any of such properties due to SEC’s failure of obtaining related title certificates. If the Company is imposed fines by any competent authorities or in face of any claims filed by any third party as a result of the aforesaid, SEC shall compensate the Company the actual losses incurred. The PRC legal advisor of the Company is of the opinion that the aforementioned properties without title certificates do not create any legal obstacles for the transfer of the 100% equity interests of Shanghai Electric Industrial Company Limited, thus obtaining the title certificates of such aforementioned properties will not constitute a condition precedent for the completion of the Restructuring. Taking into account the above undertaking provided by SEC and the opinion of the PRC legal advisor, the Directors are of the opinion that the aforementioned properties without title certificates do not have material impact on the valuation and consideration of the Incoming Assets and the Restructuring.

4.2 Shanghai DENSO Fuel Injection Co., Ltd.

Shanghai DENSO Fuel Injection Co., Ltd. is a company established under the PRC law with limited liability on 9 January 2001. As at the Latest Practicable Date, SEC has been holding 61% equity interest in Shanghai DENSO Fuel Injection Co., Ltd. for more than three years. Upon the completion of the transactions contemplated under the Restructuring Agreement, the Company will hold 61% equity interest in Shanghai DENSO Fuel Injection Co., Ltd.

Shanghai DENSO Fuel Injection Co., Ltd. is primarily engaged in production and sales of diesel engine fuel pump and its ancillary fuel injection system components as well as the provision of after-sale services. Through the introduction of DENSO Corporation technology from Japan, Shanghai DENSO Fuel Injection Co., Ltd. has produced and developed Fuel Injection Pump (NB Pump), a core product which is mainly sold to Southeast Asia, in order to meet the production needs of the local automobile manufacturers. The products have achieved an important status in the fuel injection system market in Southeast Asia. In recent years, through the introduction of the technology of electronic control high voltage common rail system developed by DENSO Corporation from Japan, which is energy saving and capable of purifying exhaust gas, Shanghai DENSO Fuel Injection Co., Ltd. currently undertakes the mass production of the electronic control high voltage common rail system.

–19– LETTER FROM THE BOARD

Set out below is the audited consolidated financial information of Shanghai DENSO Fuel Injection Co., Ltd. for the two years ended 31 December 2014 and the nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 1,021,112.16 1,005,435.04 836,721.21 Total liabilities 223,567.18 216,928.00 158,602.80 Equity attributable to owners of the company 797,544.98 788,507.04 678,118.41

For the nine months For the year For the year ended 30 ended 31 ended 31 September December December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Revenue 447,258.95 748,351.30 632,641.40 Profit before taxation 130,171.45 187,206.48 133,599.22 Net profit after taxation 111,836.85 160,182.36 114,659.99 Net profit attributable to owners of the company 111,836.85 160,182.36 114,659.99 Net profit attributable to owners of the company after deduction of non-recurring profit and loss 111,728.23 160,647.73 112,345.89

As at 30 September 2015, the audited net asset value of Shanghai DENSO Fuel Injection Co., Ltd. was approximately RMB797,544,979.

The audit report for Shanghai DENSO Fuel Injection Co., Ltd. is set out in the relevant announcements published by the Company on the websites of Hong Kong Stock Exchange on 6 December 2015. This document No. is Baker Tilly China [2015] No. 14326. Copies of this document will be available for inspection at Hong Kong and please refer to the paragraph headed “8. DOCUMENTS AVAILABLE FOR INSPECTION” of APPENDIX III to this circular for more relevant details.

–20– LETTER FROM THE BOARD

4.3 Shanghai Blower Works Co., Ltd.

Shanghai Blower Works Co., Ltd. is a company established under the PRC law with limited liability on 26 March 1997. As at the Latest Practicable Date, Shanghai Blower Works Co., Ltd. has been a wholly-owned subsidiary of SEC for more than three years. Upon the completion of the transactions contemplated under the Restructuring Agreement, Shanghai Blower Works Co., Ltd. will be a wholly-owned subsidiary of the Company.

Shanghai Blower Works Co., Ltd. is primarily engaged in the production of various types of centrifugal and axial industrial blowers and centrifugal compressors. Such products are mainly applied in the industrial sectors of electric power, metallurgy and coal mines etc. With its complete technology of German TLT axial and centrifugal blowers, in recent years, Shanghai Blower Works Co., Ltd. has satisfied the needs of many industrial sectors. Its products have a relatively strong competitiveness in the market of power station blowers, primary air blowers and power station air inducing machines. Shanghai Blower Works Co., Ltd. has successfully developed a main helium blower for high temperature gas cooling reactor, aiming to become a major equipment supplier for the commercialized nuclear power projects in the coming few years.

Set out below is the audited consolidated financial information of Shanghai Blower Works Co., Ltd. for the two years ended 31 December 2014 and the nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 1,471,873.58 1,545,990.61 1,402,061.12 Total liabilities 1,144,286.38 1,140,881.79 1,001,425.80 Equity attributable to owners of the company 327,587.20 405,108.82 400,635.32

For the nine months For the For the ended year ended year ended 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Revenue 956,709.82 1,056,278.31 924,174.86 Profit before taxation (77,829.46) 13,589.39 9,313.19 Net profit after taxation (78,988.56) 7,525.10 6,103.19 Net profit attributable to owners of the company (78,988.56) 7,525.10 6,103.19 Net profit attributable to owners of the company after deduction of non-recurring profit and loss (79,246.11) 2,927.60 4.416.50

–21– LETTER FROM THE BOARD

As at 30 September 2015, the audited net asset value of Shanghai Blower Works Co., Ltd. was approximately RMB327,587,202.

The audit report for Shanghai Blower Works Co., Ltd. is set out in the relevant announcements published by the Company on the websites of Hong Kong Stock Exchange on 6 December 2015. This document No. is Baker Tilly China [2015] No. 14239. Copies of this document will be available for inspection at Hong Kong and please refer to the paragraph headed “8. DOCUMENTS AVAILABLE FOR INSPECTION” of APPENDIX III to this circular for more relevant details.

The net profit of Shanghai Blower Works Co., Ltd. for the nine months ended 30 September 2015 experienced a dramatic decline as compared with that of the preceding period. This was primarily due to a provision for bad debts of RMB69,215,800 for the nine months ended 30 September 2015. The customer base of Shanghai Blower Works Co., Ltd. has a high concentration over industries such as thermal power, coal mines and metallurgy. Due to macroeconomic headwinds in recent years, such aforementioned industries suffered from severe overcapacity and poor profitability. As a result, recovery of trade debts has become more difficult, bad debt risk became higher, trade debt balances went up year by year, aging of trade receivables brought forward from previous years lengthened, provision for bad debts amount calculated based on aging of trade debts also increased. In light of the foresaid increased risk of bad debts, Shanghai Blower Works Co., Ltd. accordingly made an adjustment to the ratio of bad debt provisions on trade debts aging portfolio in 2015. The combination of such factors resulted in the aforementioned provision for bad debts of RMB69,215,800.

According to valuation report issued by Orient Appraisal Co., Ltd., the valuation result based on asset-based approach was eventually adopted for the equity assets of the Incoming Assets with its Valuation Benchmark Date set on 30 September 2015. The Directors are of the view that the performance fluctuations of Shanghai Blower Works Co., Ltd., which were mainly due to some special provisions, should not affect the valuation of the equity assets of the Incoming Assets, which are to be acquired by the Company as ongoing businesses. The Company is of the view that the performance fluctuations of Shanghai Blower Works Co., Ltd. were mainly caused by trade receivable and inventory impairment arising from the downstream industry influence, which are expected to be short-term and temporary. From a long-term perspective, taking into account that the businesses of Shanghai Blower Works Co., Ltd. are in line with the Company’s strategic development positioning, the Company believes that the proposed acquisition of the company will form collaborative development advantages and thus will further enhance the operating performance of the Company.

4.4 Shanghai Rail Traffic Equipment Development Co., Ltd.

Shanghai Rail Traffic Equipment Development Co., Ltd. is a company established under the PRC law with limited liability on 17 February 2003. As at the Latest Practicable Date, SEC and the Company have been holding 14.79% and 34.21% of its equity interests for more than three years, respectively. Upon the completion of the transactions contemplated under the Restructuring Agreement, the Company will hold 49% equity interest in Shanghai Rail Traffic Equipment Development Co., Ltd., and the remaining

–22– LETTER FROM THE BOARD

51% equity interest will be held by an independent third party, thus Shanghai Rail Traffic Equipment Development Co., Ltd. will not be a subsidiary of the Company.

Shanghai Rail Traffic Equipment Development Co., Ltd. is primarily engaged in the production and sales of urban rail traffic equipment, components and ancillaries, and the provision of maintenance services; technology development and advisory; provision of professional contractor services in connection with urban rail traffic, fire safety facilities, anti-corrosion and insulation, construction intelligentization and environment protection projects. In recent years, Shanghai Rail Traffic Equipment Development Co., Ltd. has introduced the METROPOLIS series underground train technology and the CITADIS series tram technology from Alstom of France, which enable it to undergo independent research and development, manufacture and integration services for urban railcars. At the same time, Shanghai Rail Traffic Equipment Development Co., Ltd. has extended its business from merely equipment production to the urban rail traffic maintenance and electrical and mechanical engineering services, which enhanced its ability of providing an entire solution for rail traffic.

Set out below is the audited consolidated financial information of Shanghai Rail Traffic Equipment Development Co., Ltd. for the two years ended 31 December 2014 and the nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 2,162,723.31 2,070,721.05 2,057,126.71 Total liabilities 1,002,707.12 954,077.17 979,459.17 Equity attributable to owners of the company 998,100.18 956,380.58 916,082.64

For the nine months For the For the ended year ended year ended 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Revenue 540,488.47 948,066.62 936,501.32 Profit before taxation 48,977.62 46,673.83 40,441.72 Net profit after taxation 42,765.48 39,070.47 37,742.85 Net profit attributable to owners of the company 41,361.28 38,535.28 37,365.00 Net profit attributable to owners of the company after deduction of non-recurring profit and loss 27,007.54 21,991.12 31,656.34

–23– LETTER FROM THE BOARD

As at 30 September 2015, the audited net asset value of Shanghai Rail Traffic Equipment Development Co., Ltd. was approximately RMB1,160,016,189.

The audit reports for Shanghai Rail Traffic Equipment Development Co., Ltd. is set out in the relevant announcements published by the Company on the websites of Hong Kong Stock Exchange on 6 December 2015. The documents No. are Baker Tilly China [2015] No. 14491 and Baker Tilly China [2015] No. 14491-1. Copies of the documents will be available for inspection at Hong Kong and please refer to the paragraph headed “8. DOCUMENTS AVAILABLE FOR INSPECTION” of APPENDIX III to this circular for more relevant details.

The total floor area of the buildings without title certificates of the subsidiary of Shanghai Rail Traffic Equipment Development Co., Ltd. is 37,373.10 sq.m. and the valuation of such buildings is RMB112,197,590.01, accounting for 5.90% of the total valuation of Shanghai Rail Traffic Equipment Development Co., Ltd.. Details of the properties without title certificates are set out on pages VI-28 to VI-30 under paragraph 4 in the section headed “XII. Additional Disclosure Items” of the Appendix VI contained in this circular. The valuation of the 14.79% equity interests of Shanghai Rail Traffic Equipment Development Co., Ltd. to be acquired by the Company only accounts for 2.67% of the total valuation of the Incoming Assets. SEC is currently a minority shareholder holding only 14.79% equity interests of Shanghai Rail Traffic Equipment Development Co., Ltd.. After the Restructuring, the Company will hold 49% equity interests of Shanghai Rail Traffic Equipment Development Co., Ltd., which will not constitute a subsidiary of the Company. Therefore, the Company will mainly focus on its overall profitability rather than its individual assets. Considering the aforementioned buildings without title certificates of the subsidiary of Shanghai Rail Traffic Equipment Development Co., Ltd. are under the normal use by the relevant enterprise(s) and have commercial value, and the valuation of such buildings only accounted for a small potion (5.90%) of the total valuation of Shanghai Rail Traffic Equipment Development Co., Ltd., both the Board and the board of directors of SEC are of the opinion that such buildings without title certificates do not have material impact on the overall operation and profitability of Shanghai Rail Traffic Equipment Development Co., Ltd.. Therefore, SEC, as a minority shareholder of Shanghai Rail Traffic Equipment Development Co., Ltd., does not provide indemnity undertaking on such buildings without title certificates. The PRC legal advisor of the Company is of the opinion that the aforementioned properties without title certificates do not create any legal obstacles for the transfer of the 14.79% equity interests of Shanghai Rail Traffic Equipment Development Co., Ltd., thus obtaining the title certificates of such aforementioned properties will not constitute a condition precedent for the completion of the Restructuring. Taking into account above factors, the Board is of the opinion that the aforementioned buildings without title certificates do not have material impact on the valuation and consideration of the Incoming Assets and the Restructuring.

–24– 4.5 Target Properties

The Target Properties to be acquired under the Restructuring Agreement includes land use rights for the 14 parcels of land located at Shanghai, the PRC, the buildings and structures erected thereon, auxiliary facilities together with equipment and machines, held by SEC.

A summary of the Target Properties is set out as below:

Use of Gross Source of land use Current main use of Future plans and use by the

No. Location Property Site Area Floor Area rights the lands by SEC Company BOARD THE FROM LETTER (sq.m) (sq.m)

1. No. 1076 industrial 358,219.00 188,537.56 Granted (government Certain portions of the For the Company’s future use in the Jungong Road assigned land land are currently research and development, without purchase leased by third manufacturing and sales of price payment) parties and the high-voltage cables, special cables

–25– remaining portions and submarine cables; the research are vacant. and development, testing and manufacturing of 3D printing equipment system in the intelligent manufacturing industry and etc.

2. No. 200 Jin Sha industrial 126,474.00 58,748.00 Granted (government vacant land For the Company’s future use in the Jiang Sub-road assigned land research and development, design, without purchase trial-manufacturing of price payment) high-efficiency photovoltaic, biomass power generation and plant energy saving systems, and system integration business and etc. Use of Gross Source of land use Current main use of Future plans and use by the No. Location Property Site Area Floor Area rights the lands by SEC Company (sq.m) (sq.m)

3. No. 621 Rongchang Road industrial 16,658.60 22,549.39 Granted (government vacant land For Shanghai Electric Power assigned land Generation Equipment Co., Ltd. without purchase (a subsidiary of the Company)’s price payment) future use as its operating management centre, mainly as the office buildings for research and development, marketing and sales, project management, testing,

product demonstrations and its BOARD THE FROM LETTER joint ventures and etc.

4. No. 4 (Yi) Zhuhang Road industrial 188.00 116.00 Granted Currently used by Will continue to be leased by Shanghai Electric Shanghai Electric Hydraulics Hydraulics Pneumatics Co., Ltd., a subsidiary Pneumatics Co., Ltd., of the Company, in the future.

–26– a subsidiary of the Company, without rental payment.

5. No. 400 Wenshui Road industrial 60,630.82 27,151.00 Granted (government Temporarily used by For the Company’s future use in the assigned land Shanghai research and development, without purchase Engineering trial-manufacturing, testing and price payment) Machinery Co., Ltd., system integration in automation a subsidiary of SEC, based products and mechanical and the company is and electrical integration of handling the intelligent products and etc. relocation now.

6. No. 450 Wenshui Road industrial 26,942.86 9,832.71 Granted (government vacant land For the Company’s future use in the assigned land research and development, without purchase trial-manufacturing, testing and price payment) system integration in automation based products and mechanical and electrical integration of intelligent products and etc. Use of Gross Source of land use Current main use of Future plans and use by the No. Location Property Site Area Floor Area rights the lands by SEC Company (sq.m) (sq.m)

7. No. 750 Lingshi industrial 5,362.36 3,602.00 Granted (government vacant land For the Company’s future use in Road assigned land industrial control software and without purchase new generation sensors’ research price payment) and development, designing and construction of the testing platform in industrial automation areas.

8. No. 750 Lingshi industrial 1,716.81 389.00 Government allocated vacant land For the Company’s future use in BOARD THE FROM LETTER Road industrial control software and new generation sensors’ research and development, designing and construction of the testing platform in industrial automation areas. –27– 9. No. 115 Caobao industrial 26,744.00 29,131.00 Granted (government vacant land For the Company’s future use as its Road assigned land operating management centre for without purchase wind power and environmental price payment) protection businesses, mainly used for research and development, marketing and sales, project management and system integration and etc.

10. No. 7, Lane commercial 7,299.00 6,173.35 Granted Currently leased by Will continue to be leased by 1736 Yang Shu and office Shanghai Electric Shanghai Electric Power Pu Road Power Generation Generation Equipment Co., Ltd, a Equipment Co., Ltd, subsidiary of the Company. a subsidiary of the Company. Use of Gross Source of land use Current main use of Future plans and use by the No. Location Property Site Area Floor Area rights the lands by SEC Company (sq.m) (sq.m)

11. No. 1590 science and 30,862.37 – Granted (government Currently leased by Will continue to be leased by Longwu Road research assigned land Shanghai Centrifuge Shanghai Centrifuge Institute Co., without purchase Institute Co., Ltd., a Ltd., a subsidiary of the Company, price payment) subsidiary of the the primary business of which is Company. the research and development, design, manufacturing, sales and after-sale services of centrifuges, and the provision of sludge

dewatering system and relevant BOARD THE FROM LETTER services. In the future, it will take active measures to promote horizontal screw filtering centrifuge products.

12. No. 1287 Beijing science and 2,564.00 – Granted (government Currently leased by Will continue to be leased by

–28– West Road and research assigned land Shanghai Institute of Shanghai Institute of Mechanical No. 154 without purchase Mechanical and and Electrical Engineering Co., Nanyang Road price payment) Electrical Ltd., a subsidiary of the Company, Engineering Co., the primary business of which is Ltd., a subsidiary of the design, general contracting the Company. and supervision of engineering. In the future, it will take active measures to do research and development on the integration technology of environmental protection system, and vigorously enlarge its business in environmental protection engineering general contracting. Use of Gross Source of land use Current main use of Future plans and use by the No. Location Property Site Area Floor Area rights the lands by SEC Company (sq.m) (sq.m)

13. No. 3015 industrial 21,546.35 – Granted (government Currently leased by Will continue to be leased by Gonghe Xin assigned land Shanghai Electric Shanghai Electric Shanghai Road without purchase Shanghai Renmin Renmin Electrical Apparatus price payment) Electrical Apparatus Works, a subsidiary of the Works, a subsidiary Company, the primary business of of the Company. which is the research and development, manufacturing and sales of circuit breaker products.

In the future, it will accelerate the BOARD THE FROM LETTER speed in adjusting product structures and upgrade its industrial level, as well as to take active measures to develop intelligent low voltage electrical apparatuses such as intelligent

–29– circuit breakers.

14. No. 100 industrial 2,896.43 – Granted (government Currently leased by Will continue to be leased by Wenshui Road assigned land Shanghai Electric Shanghai Electric Shanghai without purchase Shanghai Renmin Renmin Electrical Apparatus price payment) Electrical Apparatus Works, a subsidiary of the Works, a subsidiary Company, the primary business of of the Company. which is the research and development, manufacturing and sales of circuit breaker products. In the future, it will accelerate the speed in adjusting product structures and upgrade its industrial level, as well as to take active measures to develop intelligent low voltage electrical apparatuses such as intelligent circuit breakers. Note:TotalThe buildings and structures erected on688,104.60 the lands shown 346,230.01 under item No. 11-14 above are currently in use or occupied by certain subsidiaries of the Company with the relevant assets accounted for and reflected in the financial statements of the respective above-mentioned subsidiaries of the Company. Such buildings and structures have therefore not been included in the scope of Target Properties. LETTER FROM THE BOARD

12 pieces of land among the Target Properties are government allocated land or government assigned land without purchase price payment. As of the Latest Practicable Date, SEC has entered into a land use rights grant contract, the Shanghai State-owned Construction Land Use Rights Transfer Contract, in respect of the aforementioned 12 pieces of government allocated land or government assigned land without purchase price payment with the relevant planning and land administration authorities in Shanghai, and the title certificates for such lands are still in the process of being obtained. According to article 11(4) of the Measures for Administration of Material Asset Reorganisation of Listed Companies*《上市公司重大資產重組管理辦法》 ( ), the completion of the land granting procedures and obtaining relevant title certificates by SEC are the prerequisite for obtaining the approval from the CSRC, and the CSRC’s approval is a condition precedent for the completion of the Restructuring. Thus the completion of the land granting procedures and obtaining relevant title certificates by SEC also constitute a condition precedent for the completion of the Restructuring. Our PRC legal advisor is of the opinion that, there does not exist any legal obstacle for SEC to obtain the title certificates of such assets based on the current situation. SEC currently expects to complete the land granting procedures and obtain relevant title certificates for such assets before 31 March 2016. In the event that SEC could not obtain the relevant title certificates for such lands before 31 March 2016, the Company and SEC will assess the actual situation and negotiate to postpone the Restructuring.

The valuation of the Target Properties as conducted by qualified PRC valuer was RMB2,916,326,263 as at 30 September 2015, including the valuation of the aforementioned 12 pieces of land (including the land, buildings and structures on the land and equipments) of RMB2,812,223,522 and the valuation of the remaining two pieces of land (including the land and buildings on the land) of RMB104,102,741. The valuation by the qualified PRC valuer was conducted in accordance with relevant PRC laws and regulations on the valuation of assets, in order to provide a reference price in relation to the proposed assets acquisition. The qualified PRC valuer has taken into consideration the facts that SEC had signed the land use rights grant contract with the relevant planning and land administration authorities in Shanghai and went through the land compliance procedures after valuation date but before issue date for valuation report, and that SEC expects to obtain relevant title certificates before 31 March 2016. Therefore, the qualified PRC valuer is of the opinion that the Target Properties represent actual rights, and thus satisfy the prerequisite of being an object to be assessed to a valuation that can truly reflect their actual current value.

–30– LETTER FROM THE BOARD would be RMB2,815,326,000, on the assumptions that proper title certificates had been obtained by SEC and the properties could be freely transferred. The reason for the difference in the assumptions so taken between JLL and the qualified PRC valuer is that JLL prepared the property valuation report for the purpose of fulfilling the relevant requirements of the Listing Rules in which the definition of “Market Value” shall be strictly observed, and thus JLL did not include into the valuation report the commercial value of the 12 pieces of land, the title certificates of which had not been properly obtained and which could not be freely disposed of in the market. Such valuation approach adopted by JLL is in compliance with the Listing Rules and market conventions in Hong Kong.

The property valuation report for the Target Properties prepared by JLL is set out in Appendix I to this circular.

The valuation report for the Target Properties prepared by the qualified PRC valuer is set out in Appendix II to this circular.

5. Information of the Outgoing Assets

Shanghai Heavy Machinery Plant Co., Ltd.

Shanghai Heavy Machinery Plant Co., Ltd. is a company established under the PRC law with limited liability on 1 January 1992. As at the Latest Practicable Date, Shanghai Heavy Machinery Plant Co., Ltd. has been a wholly-owned subsidiary of the Company for more than three years. Upon the completion of the transactions contemplated under the Restructuring Agreement, Shanghai Heavy Machinery Plant Co., Ltd. will cease to be a subsidiary of the Company.

Shanghai Heavy Machinery Plant Co., Ltd. is the first company to self-design and produce free forging hydraulic machine that weighs 12,000 tons in China. Shanghai Heavy Machinery Plant Co., Ltd. specialized in production of high quality, large forging parts and milling equipment, metallurgical equipment, large-scale forging equipment, heavy mining equipment and cement equipment etc. required for various industries such as nuclear power, power station, metallurgy and shipbuilding. Its major products include turbine rotors for 1000 MW capacity thermal power generating units, major nuclear power plant equipment for 1000 MW capacity nuclear power generating units, large forging parts such as large supporting rolls and large marine crankshaft etc., milling equipment such as medium-speed coal mill and direct-fired double inlet and outlet steel ball coal mill etc., metallurgical equipment such as hot and cold rolling host etc., large forging equipment such as 100MN duo-motion aluminium extrusion machine and 165MN free forging oil hydraulic machine etc. and heavy mining equipment and cement equipment such as large cement rotating kiln and tunnel boring machine etc.

On 28 August 2015, the Board considered and approved the establishment of two wholly-owned subsidiaries by the Company, namely Shanghai Electric Shanghai Heavy Casting and Forging Co., Ltd. and Shanghai Electric Shanghai Heavy Milling Special Equipment Co., Ltd. On 10 November 2015, Shanghai Heavy Machinery Plant Co., Ltd. (as the seller) entered into contracts with above two subsidiaries (as the buyers) for the sale of relevant manufacturing equipment in connection with large-scale casting and forging and milling equipment respectively.

–31– LETTER FROM THE BOARD

Set out below is the audited consolidated financial information of Shanghai Heavy Machinery Plant Co., Ltd. for the two years ended 31 December 2014 and the nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 5,677,946.17 6,357,226.02 7,995,874.61 Total liabilities 5,839,529.58 5,981,132.01 7,302,062.98 Equity attributable to owners of the company (273,422.01) 255,757.61 569,589.43

For the nine months For the For the ended year ended year ended 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Revenue 1,040,966.83 2,064,296.55 2,469,766.98 Profit before taxation (544,961.72) (820,683.04) (1,120,949.68) Net profit after taxation (620,284.76) (820,666.88) (1,071,806.53) Net profit attributable to owners of the company (611,786.96) (816,781.08) (1,067,592.86) Net profit attributable to owners of the company after deduction of non-recurring profit and loss (628,027.88) (969,685.01) (1,244,349.53)

As at 30 September 2015, the audited net asset value of Shanghai Heavy Machinery Plant Co., Ltd. was approximately RMB-161,583,406.

The Company intended to conduct an assets swap for its 100% equity interests in Shanghai Heavy Machinery Plant Co., Ltd., with the equivalent parts of 100% equity interests in Shanghai Electric Industrial Company Limited, 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd., 100% equity interests in Shanghai Blower Works Co., Ltd. and 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. held by SEC. The difference between the consideration for the equity interests of the Incoming Assets and that for the Outgoing Assets will be settled by way of the issuance and placing of Consideration Shares by the Company to SEC. The difference between the book value of assets and liabilities of Shanghai Heavy Machinery Plant Co., Ltd. and that of the enterprises merged under the common control and the increased share capital will be recognized as capital reserve.

The audit reports for Shanghai Heavy Machinery Plant Co., Ltd. are set out in the relevant announcements published by the Company on the websites of Hong Kong Stock Exchange on 6 December 2015. The documents No. are Baker Tilly China [2015] No. 14289 and Baker Tilly China [2015] No. 14289-1. Copies of the documents will be available for inspection at Hong Kong and please refer to the paragraph headed “8. DOCUMENTS AVAILABLE FOR INSPECTION” of APPENDIX III to this circular for more relevant details.

–32– LETTER FROM THE BOARD

6. Reasons and benefits for the Restructuring

(1) Enhancing core competitiveness of the Company

(a) Establishment of a platform for integrated electric power industry and enhancement of the completeness of the existing industry chain

The Company proposed to strategically acquire assets in respect of high efficiency and clean energy, new energy and environmental as well as industrial equipment segments of SEC through the Restructuring, which will be beneficial to the Company to diversify its products and consolidate “power generation, supply, distribution, use and storage” on a platform for integrated electric power industry, so as to enhance the completeness of the existing industry chain; to provide more efficient, green, and economical energy and industrial equipment as well as complete solutions for China and the world; and to become a modern corporation led by customer values and emphasizing on innovation.

(b) Expanding the Company’s business coverage and realizing a win-win relationship between “investment gain” and “operating management experience”

Prior to the Restructuring, Shanghai Electric Industrial Company Limited participated in the investment in certain associates, most of which are top enterprises with competitive advantages. After the Restructuring, the Company will acquire 100% equity interest of Shanghai Electric Industrial Company Limited and will explore enterprises with development potential and business cooperation opportunities in China and overseas through this investment platform. In addition, the Company would invest in top-quality associates and take part in their daily operation and management through Shanghai Electric Industrial Company Limited, which will be beneficial to the Company to increase the integrated competitive advantages by reference to the relatively advanced production and management experience in the industry.

(2) Optimizing asset structure of the Company

Due to the impact of continuous weak demand in the upstream metallurgy manufacturing and mine machinery industry, the industry in which Shanghai Heavy Machinery Plant Co., Ltd. is engaged is facing adverse circumstances such as excessive production capacity and substantial decrease in product selling price. An operating plight of continuous loss by Shanghai Heavy Machinery Plant Co., Ltd. appeared. The Company proposed to transfer its entire equity interests in Shanghai Heavy Machinery Plant Co., Ltd. through the Restructuring, which will be beneficial to the Company through optimization of asset structure of the Company, enhance the sustainable profitability, realize the sustainable development and safeguard the interests of all the Shareholders.

–33– LETTER FROM THE BOARD

(3) Acquiring property assets and optimizing the business model of the Company

(a) Accelerating business transformation and realizing power equipment industrial intelligentization by stages

In May 2015, the State Council issued “Made in China 2025”《中國製造 ( 2025》)in order to formulate a ten-year action plan for China to implement the strategy of “becoming a world manufacturing power”, which encouraged enterprises to transform and upgrade from traditional manufacturing industry to intelligent manufacturing industry. The Company intends to seek transformation for its original business through the Restructuring. After the Restructuring, the Company will acquire the Target Properties from SEC to reserve the high-quality real estate resources for its business development in the future. Currently, the Company plans to apply approximately 70% of which mainly in the development of the businesses including intelligent power distribution and intelligent manufacturing, so as to realize power equipment industrial intelligentization for the Company by stages.

(b) Reducing connected transactions and enhancing the independence of the Company

Prior to the Restructuring, the Company leased certain necessary properties from its controlling shareholder, SEC, for daily production and operation. After the Restructuring, the Company will obtain the aforementioned properties in order to effectively reduce the amounts for connected transactions arising from such leasing, ensure the complete ownership of its assets and enhance the independence of the Company to avoid the potential risks which way affect continued operation of the Company.

(4) To create a strong capital platform and enhance the capability of resources integration of the Company

The Company will acquire the assets in relation to industrial equipment, high efficiency and clean energy, new energy and environmental assets held by SEC through the Restructuring, which is beneficial for the Company to promote the continuous integration and expansion of the intelligent and high-end manufacturing platform with power equipment as its core. At the same time, it is also beneficial for the Company to achieve the integration between industry and capital, and enhance the capability of external resources integration with a strong capital platform, so as to achieve leap-forward development and enhance the market position and competitiveness of the Company in the domestic and overseas markets.

(5) Accelerating globalization strategy and laying foundations to actively explore the “Blue Ocean” in the international market

The overseas businesses of the entities within the Incoming Assets continue to expand in recent years. Among these entities, Shanghai DENSO Fuel Injection Co., Ltd. has produced and developed fuel injection pump (NB Pump), a core product which is mainly sold to Indonesian market, and Shanghai Blower Works Co., Ltd. has gained reputation by its participation in several EPC projects which it generally contracted in various countries including India, Indonesia, Malaysia and Egypt. Under the implementation of the strategy of “One Belt and One Road”, the Company will accelerate

–34– LETTER FROM THE BOARD the construction of overseas platforms and facilitate the process of corporate globalization through the Restructuring, which lays a solid foundation for cross-border mergers and acquisitions and enhances the internationalized operating capability.

7. Arrangement for the Company’s undistributed retained earnings prior to the issuance of the Consideration Shares

Upon the completion of the issuance of the Consideration Shares, the undistributed retained earnings prior to the issuance are subject to the entitlement of both the new and old Shareholders to balance both parties’ interests.

8. The Validity of the resolution

The resolution in relation to the assets swap and the assets acquisition by way of issuance of the Consideration Shares shall be valid within 12 months commencing from the date of the adoption and passing of the resolution at the EGM and the Class Meetings.

9. Consideration for pricing of the Consideration Shares

According to the Measures for Administration of Material Asset Reorganisation of Listed Companies*《上市公司重大資產重組管理辦法》 ( ) issued by the CSRC, the issue price of the Consideration Shares to be issued by the Company shall not be less than 90% of the market reference price, being the average trading price of A Shares for the preceding 20 trading days, 60 trading days or 120 trading days before the publication date of the Board resolution announcement on the Shanghai Stock Exchange regarding the transactions contemplated under the Restructuring Agreement. From 1 April 2015 to the date of shares trading suspension of the Company, the trading price of Shares experienced a notable fluctuation affected by the entire secondary market. By setting the issue price as 90% of the average trading price of 20 trading days prior to the Pricing Benchmark Date, the influence of the notable fluctuation in the domestic secondary market since April 2015 to July 2015 arising from the trading system can be avoided, so that the actual value of Shares could be reflected. Accordingly, based on the negotiation between the Company and SEC and considering the interests of both the controlling shareholder and existing public shareholders, the Company determined that the issue price of the Consideration Shares shall be RMB10.41 per Consideration Share (equivalent to HK$12.50 with the exchange rate of RMB1:HK$1.20 at the Latest Practicable Date), with the average trading price of the A shares for 20 trading days prior to the Pricing Benchmark Date as the market reference price and 90% of such market reference price as the issue price. Such issue price represents:

(a) a premium of approximately 160% over the closing price of HK$4.81 per H Share as quoted on the Stock Exchange on the Last Trading Day before the Pricing Benchmark Date; and

(b) a premium of approximately 187% over the average closing price of approximately HK$4.35 per H Share as quoted on the Stock Exchange for the preceding 20 trading days before the Pricing Benchmark Date.

–35– LETTER FROM THE BOARD

10. Listing Rules Implications

The transaction contemplated under the Restructuring Agreement consists of the disposal of Outgoing Assets, the acquisition of Incoming Assets and the issuance of Consideration Shares. The counterparty of the transaction is SEC.

SEC is our controlling shareholder holding approximately 55.05% equity interest in the total issued share capital of the Company as of the Latest Practicable Date. Therefore, SEC is a connected person of the Company as defined under Chapter 14A of the Listing Rules. Given the highest applicable percentage ratio (as defined in the Listing Rules) for this transaction, aggregated with the applicable ratios for the Previous Transactions according to Rule 14.22 and Rule 14A.81 of the Listing Rules, is more than 5% but less than 25%, the transaction contemplated under the Restructuring Agreement between the Company and SEC constitutes a discloseable transaction subject to the notification and announcement requirements under Chapter 14 of the Listing Rules and a connected transaction subject to the reporting, announcement and the independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since the transaction contemplated under the Restructuring Agreement involves the issuance of A Shares by the Company, the approval of the Shareholders by way of special resolutions at the EGM and the Class Meetings is required for this transaction pursuant to Rule 19A.38 of the Listing Rules.

III. PROPOSED ISSUANCE AND PLACING OF A SHARES

On condition that the Company obtained all necessary approvals required for the transaction contemplated under the Restructuring Agreement, additional A Shares will be issued and placed by the Company.

The Company proposed to issue 336,215,171 A Shares to nine specific investors (including SEC) at the issue price of RMB10.41 per A Share. The amount of proceeds to be raised from the Proposed Issuance and Placing of A Shares will be RMB3,500,000,000, which amounts to no more than 100% of the consideration for the Incoming Assets.

The result of the Proposed Issuance and Placing of A Shares, whether successful or not, shall not affect the implementation of the transactions contemplated under the Restructuring Agreement.

–36– LETTER FROM THE BOARD

1. Principal terms of the Proposed Issuance and Placing of A Shares

Issuer The Company

Type and nominal A Shares, with a nominal value of RMB1.00 each. value of shares to be issued

Method of issue Non-public issuance with fixed-price method.

Target Subscribers SEC, Golden Eagle Asset Management Co., Ltd., Shanghai Guosheng Group Investment Co., Ltd., Shanghai Promax Fund Asset Management Co., Ltd., Shanghai Taiyao Investment Co., Ltd., Shanghai Life Insurance Company Ltd., Shanghai Lanhai Luoheng Investment Co, Ltd., Bangxin Assets Management Co. Ltd. and Shanghai Merger and Acquisition Equity Investment Fund LLP.

Each of the target subscribers, including SEC, has separately entered into Share Subscription Agreement with the Company on 2 December 2015. The subscription by each of the nine target subscribers would not be conditional upon decisions and/or actions of each other. Other than SEC, to the best knowledge and belief of the Directors, as at the Latest Practicable Date, the Company was not aware of any above target subscribers or any of their respective ultimate beneficial owners who were connected persons (as defined under Listing Rules) of the Company. The Company will comply with the relevant requirements of the Listing Rules should there be any changes or if otherwise necessary.

Subscription All target subscribers will subscribe for A Shares under the method Proposed Issuance and Placing of A Shares.

Issue price Issue price shall be RMB10.41 per A Share, 90% of the average trading price of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date. The Pricing Benchmark Date of the Proposed Issuance and Placing of A Shares shall be the publication date of the relevant Board resolution announcement (5 December 2015) on the Shanghai Stock Exchange.

In the event that the Company distributes dividends, grants bonus shares, converts capital reserve into share capital or carries out any other ex-rights or ex-dividends activities during the period commencing from the Pricing Benchmark Date to the date of issue of A Shares under the Proposed Issuance and Placing of A Shares, corresponding adjustments shall be made to the issue price.

–37– LETTER FROM THE BOARD

Amount of The amount of proceeds to be raised from the Proposed proceeds to be Issuance and Placing of A Shares will be RMB3,500,000,000, raised and which amounts to no more than 100% of the consideration number of A for the Incoming Assets. Shares to be issued The number of A Shares to be issued under the Proposed Issuance and Placing of A Shares will be 336,215,171 based on the issue price of RMB10.41 per A Share. The subscription number of A Shares by each of the target subscribers is calculated by dividing the respective subscription amount of each of the target subscribers by the issue price of RMB10.41 per A Share and rounded down to the nearest whole number. According to the above calculation method, the total number of A Shares to be issued under the Proposed Issuance and Placing of A Shares in aggregate shall be 336,215,171.

Pursuant to the Share Subscription Agreements separately entered into between the Company and each of the target subscribers, the subscription number and amount for each of the target subscribers are set out as below: Subscription Subscription Target Subscribers Number Amount (share) (RMB’000)

SEC 48,030,739 499,999.99

Golden Eagle Asset Management Co., Ltd. 57,636,887 599,999.99

Shanghai Guosheng Group Investment Co., Ltd. 38,424,591 399,999.99

Shanghai Promax Fund Asset Management Co., Ltd. 38,424,591 399,999.99

Shanghai Taiyao Investment Co., Ltd. 38,424,591 399,999.99

Shanghai Life Insurance Company Ltd. 38,424,591 399,999.99

Shanghai Lanhai Luoheng Investment Co, Ltd. 38,424,591 399,999.99

Bangxin Assets Management Co. Ltd. 19,212,295 199,999.99

Shanghai Merger and Acquisition Equity Investment Fund LLP. 19,212,295 199,999.99

Total 336,215,171 3,499,999.93

–38– LETTER FROM THE BOARD

In the event that the Company distributes dividends, grants bonus shares, converts capital reserve into share capital or carries out any other ex-rights or ex-dividends activities during the period commencing from the Pricing Benchmark Date to the date of issue of A Shares under the Proposed Issuance and Placing of A Shares, the corresponding adjustments shall be made to the number of A Shares to be issued.

Place of listing The A Shares to be issued pursuant to the Proposed Issuance and Placing of A Shares will be listed and traded on the Shanghai Stock Exchange.

Use of proceeds The total amount of proceeds from the Proposed Issuance and Placing of A Shares will be RMB3,500,000,000 and will be used for the following purposes:

Proposed Total amount of investment of proceeds to be Intended use of proceeds the project applied (RMB’000) (RMB’000)

1. Hualong No. 1 Nuclear Island 748,180 500,000 Major Equipment Design, Manufacturing and Industrialization project

2. Technology Innovation and 600,000 600,000 Management Optimization Pillar project

3. Industry Upgrading and Research 511,180 500,000 and Development Capabilities Enhancement project

4. Increase of capital in Shanghai 514,000 500,000 Electric Group Finance Co., Ltd.

5. Increase of capital in Shanghai 1,200,000 1,200,000 Electric Hong Kong Co., Ltd.

6. Replenishment of general working – 200,000 capital

Total 3,500,000

–39– LETTER FROM THE BOARD

Before the proceeds are raised from the Proposed Issuance and Placing of A Shares, the Company will invest in the above projects in advance by its self-financing funds and will then arrange a substitution once proceeds are raised from the Proposed Issuance and Placing of A Shares.

Conditions Completion of the Proposed Issuance and Placing of A precedent Shares is subject to, among other things, the following conditions set out in the Share Subscription Agreements being satisfied:

(i) the approval by the board of directors of SEC of the Proposed Issuance and Placing of A Shares;

(ii) the approval by way of a special resolution of the Shareholders (excluding SEC and its associates) at the EGM and the Class Meetings of the Proposed Issuance and Placing of A Shares;

(iii) the filing with and approval by the competent state-owned assets authorities of the Proposed Issuance and Placing of A Shares;

(iv) the approval by the CSRC of the Proposed Issuance and Placing of A Shares; and

(v) all other consents, approvals and authorisations as and may be required from the relevant governmental authorities in respect of the Proposed Issuance and Placing of A Shares.

Lock-up period The A Shares subscribed by SEC under the Proposed Issuance and Placing of A Shares shall not be traded or transferred within 36 months upon the completion of issuance of the A shares. If the closing prices of A Shares are below the issue price of the A shares for 20 consecutive trading days within the six-month period upon the completion of issuance of the A shares, or the closing price of A Shares as at the end of the above-mentioned six-month period is below the issue price, the lock-up period for SEC will be automatically extended for at least 6 months. The A Shares subscribed by all target subscribers excluding SEC under the Proposed Issuance and Placing of A Shares shall also not be transferred within 36 months upon the completion of the issuance of the A Shares but such A Shares may be transferrable thereafter subject to the relevant requirements of the CSRC and the Shanghai Stock Exchange.

–40– LETTER FROM THE BOARD

Upon the completion of the issuance, in the event that the Company grants bonus shares, converts capital reserve into share capital etc., all target subscribers shall also comply with the arrangement of the lock-up period in respect of such additional shares.

Governing law PRC law

2. Information of the target subscribers

2.1. SEC

2.2. Shanghai Guosheng Group Investment Co., Ltd.

Shanghai Guosheng Group Investment Co., Ltd. is a company established under the PRC law with limited liability on 26 January 2010. The company is primarily engaged in the investment of leading industries, emerging industries and real estate related industries as well as city infrastructures. The company also conducts businesses concerning assets acquisition, investment consulting, finance consulting and enterprises mergers consulting.

2.3. Shanghai Promax Fund Asset Management Co., Ltd.

Shanghai Promax Fund Asset Management Co., Ltd. is a company established under the PRC law with limited liability on 15 March 2013. The company is primarily engaged in the asset management.

2.4. Shanghai Taiyao Investment Co., Ltd.

Shanghai Taiyao Investment Co., Ltd. is a company established under the PRC law with limited liability on 19 November 2015. The company is primarily engaged in the industrial investments.

2.5. Shanghai Life Insurance Company Ltd.

Shanghai Life Insurance Company Ltd. is a company established under the PRC law with limited liability on 16 February 2015. The company is primarily engaged in the general insurance, including life insurance, annuity assurance, health insurance, accident injury insurance, dividend insurance, and universal insurance and reinsurance. The company also conducts insurance capital operation business permitted by international laws and regulations and other businesses permitted by China Insurance Regulatory Commission.

–41– LETTER FROM THE BOARD

2.6. Shanghai Lanhai Luoheng Investment Co, Ltd.

Shanghai Lanhai Luoheng Investment Co, Ltd. is a company established under the PRC law with limited liability on 26 November 2015. The company is primarily engaged in industrial investment, investment management, asset management and investment consulting. The company is also engaged in medical technology development, transfer and consulting and sales of the first class medical devices.

2.7. Golden Eagle Asset Management Co., Ltd.

Golden Eagle Asset Management Co., Ltd. is a company established under the PRC law with limited liability on 6 November 2012. The company is primarily engaged in the fund raising, fund sales, asset management, asset management for specific customers and other businesses permitted by the CSRC.

2.8. Bangxin Assets Management Co. Ltd.

Bangxin Assets Management Co. Ltd. is a company established under the PRC law with limited liability on 31 December 1994. The company is primarily engaged in the investment of metallurgy equipment, electronic and energy industry, medical and pharmaceutical industry, agricultural chemistry industry, new materials and new media industries.

2.9. Shanghai Merger and Acquisition Equity Investment Fund LLP.

Shanghai Merger and Acquisition Equity Investment Fund LLP. is a limited liability partnership under the PRC law on 5 August 2014. The firm is primarily engaged in the investment business in relation to the entrusted management of the equity investment enterprises and provision of related services as well as equity investment consulting business.

3. Reasons and benefits for the Proposed Issuance and Placing of A Shares

The projects intended to be invested by the proceeds raised from the Proposed Issuance and Placing of A shares will help to foster the overall business development of the Company and to further enhance the synergies between the Company and the entities within the Incoming Assets so as to improve the integration performance of the Restructuring.

Firstly, the Company will utilize certain proceeds raised for Hualong No. 1 nuclear island major equipment design, manufacturing and industrialization project. This will further expand its 3rd generation nuclear power product line on the basis of successfully mastering the relevant technical specifications of CAP1400 developed by State Nuclear Power Technology Corporation (國家核電技術公司) (“SNPTC”) and providing SNPTC with main nuclear power equipment. The Company will form collaborative development advantages with the 4th generation nuclear power products of Shanghai Blower Works Co., Ltd. through technologies and market linkage, which constitutes a virtuous cycle of

–42– LETTER FROM THE BOARD

“A Generation for Production, A Generation for Development and A Generation for Pre-development” for the Company’s nuclear power products in order to build a market reputation for the next generation of the Company’s nuclear power products and create a positive market atmosphere.

Secondly, the Company will utilize certain proceeds raised for technology innovation and management optimization pillar project. This will be beneficial to the in-depth exploration and analysis of the big data and information for the Company’s overall operation. It will also enable the Company to provide a more convenient way for sharing operating data and customers’ information among the Company and the entities within Incoming Assets so as to facilitate the industry linkage advantages formed for the main business and sectors of both parties.

Thirdly, considering the equipment manufacturing industry in China facing weak core technology and weak international competitiveness and another new “Industry 4.0” technological revolution and industrial reform emerging, as one of the large-scale comprehensive equipment manufacturing conglomerates in China, the Company is desperate to promote its industrial upgrading and enhance its research and development capabilities. In this connection, the Company intends to utilize certain proceeds raised for industry upgrading and research and development capabilities enhancement project, in order to facilitate the industrial upgrading with “top priority in technology rather than assets” by focusing on intelligent manufacturing and industrial innovation and continue to strengthen the core competitiveness of the Company.

Finally, the capital increase in Shanghai Electric Group Finance Co., Ltd. and Shanghai Electric Hong Kong Co., Ltd. with the funds raised will enable the Company to provide higher-quality financial services and foreign cooperation platform to its affiliated companies, including the entities within Incoming Assets, thus helping them a better adaption to the “new normal” economy, which will facilitate the implementation of the globalization strategies of the Company.

After due consideration, the Directors are of the view that the Proposed Issuance and Placing of A Shares and the funds raised therefrom are conducive to enhancing the integration performance of the Restructuring and will enable the Company to further expand its business operation, improve its liquidity position as well as enhance its financing capabilities, with a view to further strengthening its market position in the large scale equipment manufacturing industry in both the domestic and international markets, which will meet the long term strategic development needs and will enhance the interests of the Shareholders as a whole.

4. Arrangement for the Company’s undistributed retained earnings prior to the issuance of A Shares under the Proposed Issuance and Placing of A Shares

Upon the completion of the issuance of A Shares under the Proposed Issuance and Placing of A Shares, the undistributed retained earnings prior to the issuance are subject to the entitlement of both the new and old Shareholders to balance both parties’ interests.

–43– LETTER FROM THE BOARD

5. The Validity of the resolution

The resolution in relation to the issuance of A Shares for supporting fund raising under the Proposed Issuance and Placing of A Shares shall be valid within 12 months commencing from the date of the adoption and approval of the resolution at the EGM and the Class meetings.

6. Consideration for pricing of the A Shares under Proposed Issuance and Placing of A Shares

According to the Measures for Issuance of Securities by Listed Companies*《上市公 ( 司證券發行管理辦法》) issued by the CSRC, for PRC listed companies raising funds through non-public offer of shares, the issue price of the relevant shares to be issued by the Company shall not be less than 90% of the average trading price for the 20 trading days before the Pricing Benchmark Date. The Pricing Benchmark Date of the Proposed Issuance and Placing of A Shares shall be the publication date of announcement of the Board resolution for approval of the Proposed Issuance and Placing of A Shares on the Shanghai Stock Exchange (5 December 2015). Accordingly, the issue price per A Share shall not be less than 90% of the average trading price of A Shares for 20 trading days immediately prior to the Pricing Benchmark Date, in other words, not less than RMB10.41 per A Share. Based on the negotiation with target subscribers and considering the interests of both the controlling shareholder and existing public shareholders, the Company determined that the issue price for A Shares under the Proposed Issuance and Placing of A Shares shall be RMB10.41 per A Share.

7. Listing Rules implications

Pursuant to Rule 19A.38 of the Listing Rules, the Proposed Issuance and Placing of A Shares requires the approval of the Shareholders by way of special resolutions at the EGM and the Class Meetings.

The Board anticipates that the Company will continue to maintain sufficient public float to meet the requirements under the Listing Rules.

–44– LETTER FROM THE BOARD

IV. EFFECT OF THE RESTRUCTURING AND THE PROPOSED ISSUANCE AND PLACING OF A SHARES ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

The following table sets out the shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) immediately after completion of the Restructuring (but not taking into account the Proposed Issuance and Placing of A Shares); and (iii) immediately after completion of the Restructuring and the Proposed Issuance and Placing of A Shares:

Immediately after completion of the Immediately after Restructuring (not taking completion of the into account the Proposed Restructuring and the Latest Issuance and Placing of Proposed Issuance and Practicable Date A Shares) Placing of A Shares %tothe %tothe %tothe existing existing existing Number of total issued Number of total issued Number of total issued Share share Share share Share share (ten (ten (ten thousand thousand thousand shares) % shares) % shares) %

SEC (A shares) 703,045.87 54.82% 763,730.21 56.86% 768,533.28 55.82% SEC (H shares) 2,933.40 0.23% 2,933.40 0.22% 2,933.40 0.21% Public (A shares) 282,093.36 22.00% 282,093.36 21.00% 282,093.36 20.49% Public (H shares) 294,357.80 22.95% 294,357.80 21.92% 294,357.80 21.38% Target Subscribers excluding SEC (A shares) ––––28,818.44 2.10%

Total 1,282,430.43 100.00% 1,343,114.77 100% 1,376,736.28 100.00%

Note: For the purpose of illustration, assuming that save for the Consideration Shares and the placing of A Shares, no further Shares will be issued by the Company after the Latest Practicable Date until completion of the Restructuring and the Proposed Issuance and Placing of A Shares.

The following diagrams illustrate the corporate structure of the Company (i) as at the Latest Practicable Date; (ii) immediately after completion of the Restructuring (but not taking into account the Proposed Issuance and Placing of A Shares); and (iii) immediately after completion of the Restructuring and the Proposed Issuance and Placing of A Shares.

–45– LETTER FROM THE BOARD

(i) as at the Latest Practicable Date

Shanghai SASAC

100%

Public Public SEC (H shares) (A shares)

55.05% 14.79% 22.95% 22.00%

The Company

100% 34.21%

Shanghai Heavy Machinery Shanghai Rail TrafficE quipment Plant Co., Ltd. Development Co., Ltd.

(ii) immediately after completion of the Restructuring (but not taking into account the Proposed Issuance and Placing of A Shares)

Shanghai SASAC

100%

Public Public SEC (H shares) (A shares)

57.08% 100% 21.92% 21.00%

The Company Shanghai Heavy Machinery Plant Co., Ltd.

100% 61% 100% 49%

Shanghai Electric Shanghai DENSO Shanghai Rail Traffic Shanghai Blower Industrial Company Fuel Injection Equipment Development Works Co., Ltd. Limited Co., Ltd Co., Ltd.

–46– LETTER FROM THE BOARD

(iii) immediately after completion of the Restructuring and the Proposed Issuance and Placing of A Shares

Shanghai SASAC

100%

Public Public Target Subscribers SEC (H shares) (A shares) (excluding SEC)

56.03% 100% 21.38% 20.49% 2.10%

The Company Shanghai Heavy Machinery Plant Co., Ltd.

100% 61% 100% 49%

Shanghai Electric Shanghai DENSO Shanghai Rail Traffic Shanghai Blower Industrial Company Fuel Injection Equipment Development Works Co., Ltd. Limited Co., Ltd Co., Ltd.

V. FUND RAISING ACTIVITIES IN THE PAST 12 MONTHS

Save and except for the fund raising activity mentioned below, the Company did not conduct any fund raising activities during the past 12 months immediately preceding the date of this circular.

Fund raising • On 2 February 2015, the Company issued a total of activity 60,000,000 A share convertible corporate bonds with a nominal value of RMB100 each, amounting to RMB6 billion in aggregate. Such convertible corporate bonds have a term of six years from the date of the issuance, which commenced from 2 February 2015 and will end on 1 February 2021

Date of the relevant • The relevant announcements: 5 June 2014, 4 August announcements 2014, 24 December 2014, 20 January 2015, 28 January and circular 2015, 11 February 2015, 24 June 2015, 24 June 2015 and 27 July 2015

• The relevant circular：30 June 2014

Proceeds raised • RMB6,000,000,000

–47– LETTER FROM THE BOARD

Proposed use of the • EPC and BTG projects proceeds • Increase of Capital in Shanghai Electric Leasing Co., Ltd.

• Idle proceeds shall be used for temporary replenishment of the general working capital

Actual application As at 31 October 2015: of proceeds • RMB238,000,000 was used for the Iraq Wassit II Thermal Power Plant EPC project;

• RMB636,000,000 was used for the India SASAN Thermal Power Plant BTG project;

• RMB314,000,000 was used for the Vietnam Vinh Tan II Thermal Power Plant EPC project;

• RMB2,500,000,000was used to increase the capital in Shanghai Electric Leasing Co., Ltd;

• RMB2,250,000,000 was temporarily used to replenish the general working capital; and

• RMB37,000,000 was used to pay the expenses related to the issue.

As at the 31 October 2015, the Company actually used RMB3,725,000,000 for the above intended purposes (including RMB37,000,000 paid for the expenses related to the issue). The unutilized amount of RMB2,275,000,000 (including RMB2,250,000,000 used for temporary replenishment of the general working capital) will continue to be used for the above intended purposes.

–48– LETTER FROM THE BOARD

VI. FINANCIAL IMPACT OF THE RESTRUCTURING

After the completion of the Restructuring, Shanghai Electric Industrial Company Limited, Shanghai DENSO Fuel Injection Co., Ltd. and Shanghai Blower Works Co., Ltd. will become the subsidiaries of the Company and their financial results will be consolidated into the account of the enlarged Group; Shanghai Heavy Machinery Plant Co., Ltd. will no longer be a subsidiary of the Company and its financial results will not be consolidated into the account of the enlarged Group; the Company increased its equity interest in Shanghai Rail Traffic Equipment Development Co., Ltd., which is not a subsidiary of the Company. The Company will raise RMB3,500,000,000 from the Proposed Issuance and Placing of A Shares.

The major financial information of the Company for the year ended 31 December 2014 and nine months ended 30 September 2015 before and after the Restructuring is set out as below:

After the After the Prior to the Restructuring Prior to the Restructuring Restructuring (pro forma Restructuring (pro forma (consolidated) consolidated) (consolidated) consolidated) RMB’000 RMB’000 RMB’000 RMB’000 Financial indicators 31 December 2014 30 September 2015

Total assets 143,550,564 150,119,369 159,338,649 166,394,744 Total liabilities 98,125,496 95,575,126 110,808,143 108,531,178 Equity attributable to owners of the company 34,236,392 43,105,175 36,894,864 45,971,491 Net assets per share attributable to owners of the company (RMB/share) 2.67 3.13 2.88 3.34 Debt to assets ratio 68.36% 63.67% 69.54% 65.23%

For the year ended For the nine months ended Financial indicators 31 December 2014 30 September 2015

Revenue 76,784,516 77,083,891 53,909,588 54,271,526 Net profit attributable to owners of the company 2,554,487 3,601,554 1,892,220 2,461,880 Basic earnings per share (RMB/share) 0.20 0.26 0.15 0.18 Return on net assets 7.46% 8.36% 5.13% 5.36%

Notes:

(1) the impact of the Proposed Issuance and Placing of A Shares has been considered in preparing the above financial information.

(2) the above financial information was prepared in accordance with PRC generally accepted accounting principles.

–49– LETTER FROM THE BOARD

The pro forma consolidated financial statements and review report of the Company is set out in the relevant announcements published by the Company on the websites of Hong Kong Stock Exchange on 6 December 2015. This document No. is PwC ZT Yue Zi (2015) No.[068]. Copies of this document will be available for inspection at Hong Kong and please refer to the paragraph headed “8. DOCUMENTS AVAILABLE FOR INSPECTION” of APPENDIX III to this circular for more relevant details.

VII. PROSPECTS OF THE GROUP

The Group will dispose of the non-profitable assets through the Restructuring in order to further accelerate the integrated use of resources, eliminate outdated production facilities, consolidate asset quality and enhance core competitiveness. After the completion of the Restructuring, the scale of the corporate assets, revenue, profits and earnings of the Group will substantially increase, thus the overall financial performance of the Group will also improve.

After the completion of the Restructuring, the Group will acquire core assets in respect of industrial equipment, clean energy and environmental protection based on the original business. By leveraging on the horizontal and vertical product extension, the Group intends to integrate the industrial chain and establish a platform for integrated electric power industry in order to achieve the optimization of industrial structure and increase of the profitability.

After the completion of the Restructuring, the Group will focus on the development of three segments including energy, industrial equipment and services. The Group will further increase its investment in green, high efficiency and clean energy and new energy industry, consolidate and enhance the competitiveness in nuclear power and wind power markets; proactively accelerate the transformation from traditional manufacturing industry to intelligent manufacturing industry, and realize digitization, automation and intelligentization; speed up the construction of power station service industry and proactively foster environmental protection industry with focus on three business areas including solid waste treatment, water treatment and distributed energy system, so as to become an influential comprehensive energy saving and environmental protection industrial conglomerates in China.

Directors are of the view that the Restructuring is conducive to raising the asset quality of the Group, strengthening its diversity of products, enhancing its continued profitability and core competitiveness, which are in the interests of the Company and the Shareholders as a whole.

–50– LETTER FROM THE BOARD

VIII. AUTHORIZATION

To ensure a smooth proceeding of the relevant matters of the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares (the “Transaction”), the Board proposed for Shareholders’ approval a special resolution to grant an authorization to the Board at the EGM to deal with relevant matters of the Transaction at its absolute discretion, including but not limited to:

1. stipulate and implement specific plans of the Transaction, and be solely responsible for dealing with and deciding any specific matters of the Transaction;

2. to the extent permitted by laws and regulations, regulatory documents and the Articles of Association, sign, amend, supplement, submit, report, execute or announce all relevant agreements and documents of the Transaction (including but not limited to Assets Swap and Issuance of Shares for Acquisition of Assets Agreement and other related agreements or documents);

3. in case of any adjustments made by the competent state-owned assets authorities on the valuation of the Incoming Assets or the Outgoing Assets, make necessary adjustments accordingly to the consideration for the Incoming Assets or the Outgoing Assets and other relevant parts in the Transaction;

4. in case of any new stipulations or specific requirements in relation to the Transaction by competent authorities or any changes in market conditions, make adjustments to plans of the Transaction in accordance with new stipulations, specific requirements and the actual conditions of the market; prepare, amend and dispatch the reportable documents of the Transaction pursuant to the requirements of CSRC;

5. in case of any new stipulations or specific requirements in relation to the Transaction by competent authorities or any changes in market conditions, make adjustments to certain terms of the agreements of the Transaction (including but not limited to, transitional arrangements, income and losses during the period and tax-sharing policy) in accordance with new stipulations, specific requirements and the actual conditions of the market;

6. deal with the transfer, inheritance and succeeding procedures of the assets, liabilities, rights, obligations, responsibilities and business involved in the Transaction, including but not limited to signing of the relevant legal documents and handling of change of business registration;

7. upon completion of the Transaction, make amendments to the Articles of Association, increase in the registered capital, share registration and restricted shares, listing matters and relevant announcements and change of business registration; and

–51– LETTER FROM THE BOARD

8. deal with other matters relating to the Transaction.

This authorization shall be valid for a period of 12 months commencing from the date of consideration and approval at the EGM and Class Meetings. However, if the approval documents in respect of the plan of the Transaction have been obtained by the Company from CSRC in such validity period, the validity period of such authorization will be automatically extended to the completion date of the Transaction.

IX. THE IMPLICATION OF PRC LAWS AND REGULATIONS

The Company has prepared The Report involving the Assets Swap and Issuance of Shares for Acquisition of Assets as well as Supporting Funds Raising (connected transaction) by Shanghai Electric Group Company Limited (Draft) and its summary in accordance with relevant PRC Laws and Regulations.

The Directors, after considering the actual condition of the Company and related matters, consider that the assets swap and issuance of shares for acquisition of assets as well as supporting funds raising by the Company comply with relevant PRC laws and regulations, including Clause 4 under Requirements on Certain Issues Concerning Regulating the Material Asset Reorganization of Listed Companies.

X. OTHERS

Orient Appraisal Co., Ltd. appraised the Incoming Assets and issued the assets valuation reports while Shanghai Lixin Appraisal Co., Ltd. appraised the Outgoing Assets and issued the assets valuation report. Directors are of the view that: (i) the above-mentioned valuers engaged by the Company are qualified independent valuers on relevant matters concerning securities and futures; (ii) the assumptions of the above-mentioned assets valuation reports are in accordance with relevant PRC regulations and requirements, which follow common practices or criteria of the market and comply with the actual conditions of the appraisal objects, therefore the appraisal assumptions are reasonable; (iii) the appraisal approaches adopted comply with relevant rules issued by the CRSC, and the appraisal results reflected the market value of the appraisal objects as at the Valuation Benchmark Date in an objective and fair way, which provide reference basis for price in the transaction, and show that there is relativity between the appraisal approach and the appraisal purposes; and (iv) the assets scope of the actual appraisal performed by the valuer is consistent with those of the engaged appraisal, and necessary appraisal procedures have been conducted in accordance with the requirements of relevant PRC laws and regulations and industry codes, thus the appraisal valuation is fair and the consideration of the Outgoing Assets and that of the Incoming Assets with reference to their valuation is fair and reasonable without any compromise to the interests of the Company and its shareholders.

The Board has considered and approved the audit reports and assets valuation reports for the Outgoing Assets and the Incoming Assets in relation to the transaction conducted by the engaged auditor and valuers.

–52– LETTER FROM THE BOARD

XI. EGM AND H SHARE CLASS MEETING

A notice convening the EGM to be held at 9:00 a.m. on Monday, 18 January 2016 at Xingyuan Hall, 3/F, B Block, Ramada Plaza Shanghai Caohejing, No. 509 Caobao Road, Shanghai, PRC is set out on pages 94 to 97 of this circular. Notice convening the H Share Class Meeting is set out on pages 98 to 101 of this circular.

In order to determine the list of Shareholders who are entitled to attend the EGM and the H Share Class Meeting, the share registrar for H Shares will be closed from Saturday, 19 December 2015 to Monday, 18 January 2016, both days inclusive, during which period no transfer of H Shares will be effected. The holders of H Shares whose names appear on the share registrar for H Shares on Friday, 18 December 2015 are entitled to attend the EGM and the H Share Class Meeting. In order to qualify for attending the EGM and the H Share Class Meeting, holders of H Shares whose transfers have not been registered must deposit transfer documents together with the relevant share certificates at the share registrar for H Shares, Computershare Hong Kong Investor Services Limited, no later than 4:30 p.m. on Friday, 18 December 2015. The address of Computershare Hong Kong Investor Services Limited is Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

Reply slips and forms of proxy for use at the EGM and the H Share Class Meeting have been dispatched to the Shareholders on 4 December 2015 and are also published on the website of the Hong Kong Stock Exchange (www.hkex.com.hk). Shareholders who intend to attend the EGM and/or the H Share Class Meeting in person or by proxy shall complete and return the reply slips in accordance with the instructions printed thereon on or before Tuesday, 29 December 2015. Whether or not the Shareholders are able to attend the EGM and/or the H Share Class Meeting, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon, as soon as possible and in any event by not less than 24 hours before the time fixed for holding the EGM and/or the H Share Class Meeting or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude Shareholders from attending the EGM and/or the H Share Class Meeting and voting in person if you so wish.

SEC is the controlling shareholder of the Company holding approximately 55.05% interest in the total issued share capital of the Company as at the Latest Practicable Date. Pursuant to Rule 14A.70(12) of the Listing Rules, where shareholders’ approval is required with regard to a connected transaction, any shareholder with a material interest in such transaction will not vote on such transaction. Accordingly, SEC shall at the EGM and H Share Class Meeting abstain from voting on all the resolutions except the resolution in relation to the report on the use of proceeds from the previous fund raising activity by the Company. As at the Latest Practicable Date, SEC and its associates controlled or were entitled to exercise control over the voting rights in respect of 7,059,792,700 A Shares and H Shares in the Company, representing approximately 55.05% of the entire issued share capital of the Company. To the extent that the Company is aware having made all reasonable enquiries, as at the Latest Practicable Date:

(i) there was no voting trust or other agreement or arrangement or understanding entered into by or binding upon SEC;

–53– LETTER FROM THE BOARD

(ii) the members of SEC were not subject to any obligation or entitlement whereby they had or might have temporarily or permanently passed control over the exercise of the voting right in respect of their shares in the Company to a third party, whether generally or on a case-by-case basis; and

(iii) it was not expected that there would be any discrepancy between SEC’s beneficial shareholding interest in the Company and the number of shares in the Company in respect of which they would control or would be entitled to exercise control over the voting right at the EGM and H Share Class Meeting.

As far as the Directors are aware, other than SEC, no other Shareholder has a material interest in any of the resolutions and so has to abstain from voting at the EGM and H Share Class Meeting on the above-mentioned resolutions.

XII. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 56 to 57 of this circular and the letter from the Independent Financial Adviser set out on pages 58 to 93 of this circular.

The Independent Board Committee, having taken into account of the advice of the Independent Financial Adviser, considers that (i) Restructuring Agreement and the transactions contemplated under the Restructuring Agreement; and (ii) the Proposed Issuance and Placing of A Shares to SEC are on normal commercial terms and in the ordinary and usual course of business of the Company, fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM and the H Shares Class Meeting.

Mr. Huang Dinan, Mr. Zheng Jianhua and Mr. Wang Qiang, all being Directors, hold directorship(s) or act as senior management in SEC and its associates and thus have material interests in (i) the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement; and (ii) the Proposed Issuance and Placing of A Shares to SEC. They have therefore abstained from voting on all of the board resolutions except the resolution in relation to the report on the use of proceeds from the previous fund raising activity by the Company.

The Directors are of the view that all of the transactions described in this circular are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the members of the Independent Board Committee) recommend all Independent Shareholders to vote in favour of all resolutions to be proposed at the EGM and the H Shares Class Meeting.

–54– LETTER FROM THE BOARD

XIII. VOTING BY POLL

According to Rule 13.39(4) of the Listing Rules, all resolutions at the general meeting of the Company will be taken by way of poll.

XIV. ADDITIONAL INFORMATION

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

The English text of this circular (except for the valuation reports included in the circular as Appendix II to Appendix VII) shall prevail over the Chinese text in the event of inconsistency. The Chinese text of the valuation reports included in the circular as Appendix II to Appendix VII shall prevail over the English text in the event of inconsistency.

Yours faithfully By order of the Board Shanghai Electric Group Company Limited Huang Dinan Chairman of the Board

Shanghai, the PRC

–55– LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to (i) Restructuring Agreement and the transactions contemplated under the Restructuring Agreement and (ii) the Proposed Issuance and Placing of A Shares to SEC, which has been prepared for the purpose of incorporation into this circular.

31 December 2015

To the Independent Shareholders

Dear Sirs or Madams,

PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION AND PROPOSED ISSUANCE AND PLACING OF A SHARES

We refer to the circular dated 31 December 2015 issued by the Company (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings herein unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the (i) Restructuring Agreement and the transactions contemplated under the Restructuring Agreement and (ii) the Proposed Issuance and Placing of A Shares to SEC and to advise the Independent Shareholders as to the fairness and reasonableness of the same. Guotai Junan Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

After taking into account of the advice of Guotai Junan Capital Limited as set out on pages 58 to 93 of the Circular, we are of the view that (i) Restructuring Agreement and the transactions contemplated under the Restructuring Agreement and (ii) the Proposed Issuance and Placing of A Shares to SEC are on normal commercial terms and in the ordinary and usual course of the business of the Company, fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole.

* For identification purpose only

–56– LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM and the H Shares Class Meeting to approve the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC.

Yours faithfully, The Independent Board Committee Dr. Lui Sun Wing Mr. Kan Shun Ming Dr. Chu Junhao Independent non-executive Directors

–57– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Guotai Junan Capital Limited 27th Floor, Lower Block, Grand Millennium Plaza, 181 Queen’s Road Central Hong Kong

31 December 2015

To the Independent Board Committee and the Independent Shareholders of Shanghai Electric Group Co., Ltd

Dear Sirs,

PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO ASSETS SWAP PURSUANT TO RESTRUCTURING AGREEMENT AND ISSUANCE AND PLACING OF A SHARES

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares, details of which are set out in the letter from the Board of the circular of the Company to the Shareholders dated 31 December 2015 (the “Circular”) of which this letter forms part. Unless the context requires otherwise, terms used in this letter shall have the same meaning as those defined in the Circular.

Reference is made to the announcement of the Company dated 4 December 2015 and 6 December 2015 (the “Announcements”). On 2 December 2015, the Company (a) entered into the Restructuring Agreement, pursuant to which (i) the Company has agreed to transfer its 100% equity interests in Shanghai Heavy Machinery Plant Co., Ltd. to SEC for a consideration of RMB1; (ii) SEC has agreed to transfer its 100% equity interests in Shanghai Electric Industrial Company Limited, 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd., 100% equity interests in Shanghai Blower Works Co., Ltd. and 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. (collectively the “Equity Interests of the Incoming Assets”) at a consideration of RMB3,400,913,225 and Target Properties at a consideration of RMB2,916,326,263; and (iii) the difference between the considerations of the Equity Interests of the Incoming Assets and the Outgoing Assets of RMB3,400,913,224 and the consideration for Target Properties of RMB2,916,326,263 will be settled by the way of the issuance and placing of 606,843,370 Consideration Shares by the Company to SEC at the issue price of RMB10.41 per Consideration Share; and (b) proposed to issue 336,215,171 A Shares to nine specific investors (including SEC) at the issue price of RMB10.41 per A Share on the condition that the Company obtained all necessary approvals required for the transactions contemplated under the Restructuring Agreement. As part of the Proposed Issuance and Placing of A Shares, the Company entered into the Share Subscription Agreement with nine target subscribers (including SEC) on 2 December 2015, pursuant to which the number of shares to be issued will be 336,215,171 based on the issue price of RMB10.41 per A Share, and the

–58– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER amount of proceeds to be raised will be RMB3,500,000,000. Other than SEC, to the best knowledge and belief of the Directors, as at the Latest Practicable Date, the Company was not aware of any target subscribers or any of their respective ultimate beneficial owners being connected persons (as defined under Listing Rules) of the Company.

As at the Latest Practicable Date, SEC is the controlling shareholder of the Company holding approximately 55.05% equity interest in the total issued share capital of the Company, and hence a connected person of the Company. Accordingly, the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC constitute connected transactions of the Company under the Listing Rules. Since the settlement of the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC involve issues of new securities by the Company, the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC constitute non-exempt connected transaction of the Company and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. EGM and the H Shares Class Meeting will be convened to seek approval from the Independent Shareholders in respect of the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC. In view of SEC’s interests in the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC, SEC and its associates are required to abstain from voting on the relevant resolutions to be proposed at the EGM and H Shares Class Meeting.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee (comprising Dr. Lui Sun Wing, Mr. Kan Shun Ming and Dr. Chu Junhao, all being independent non-executive Directors) has been formed to advise and provide recommendations to the Independent Shareholders on whether the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC are entered on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole, and how the Independent Shareholders should vote on the resolutions to be proposed at the EGM and H Shares Class Meeting. We, Guotai Junan Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

OUR INDEPENDENCE

SEC, the controlling shareholder of the Company, placed its 20% equity interest in Hua An Fund Management Co., Ltd (“Hua An Fund”) for open auction on Shanghai United Assets and Equity Exchange (the “SUAEE”) for an open auction with an offer price of RMB600,094,000 on 26 February 2014. Guotai Junan Innovation Investment Co., Ltd. (“GJII”), being one of our associates (as defined in the Listing Rules) commonly controlled by Guotai Junan Securities Co., Ltd. (“GTJA”, whose shares are listed on Shanghai Stock Exchange with Stock Code: 601211), placed a bid and won the auction and

–59– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER subsequently entered into an equity transaction agreement with SEC in respect of such transaction at a consideration same as the offer price on 9 April 2014. The consideration constituted approximately 0.3% and 0.2% of the total assets of SEC and GTJA as at 31 December 2014, respectively. As of the date of this letter and to our best knowledge, the consideration has been fully paid and such transaction is pending for the approval of CSRC.

Having considered, among others, that (i) GJII’s bidding and ultimate winning of the auction for the 20% equity interest in Hua An Fund was conducted through an open auction; and (ii) the size of bidding is not considered material as the consideration constituted less than 1% of the total assets for both SEC and GTJA as at 31 December 2014, we consider that aforementioned transaction would not affect our independence to form our opinion in respect of the transactions contemplated under (i) the Restructuring Agreement, and (ii) the Proposed Issuance and Placing of A Shares.

Apart from normal professional fees for our services to the Company in connection with the engagement described above, no arrangement exists whereby we will receive any fees and benefits from the Group or where applicable, any of their respective associates. We consider ourselves being independent from and not connected with the Group or where applicable, any of their respective substantial shareholders, directors or chief executive, or any of their respective associates pursuant to Rule 13.84 of the Listing Rules, and are accordingly qualified to give independent advice to the Independent Board Committee and the Independent Shareholders regarding the transactions contemplated under the Restructuring Agreement and Proposed Issuance and Placing of A Share.

BASIS OF OUR OPINION

In formulating our opinions and recommendations, we have relied on the statements, information, opinions and representations for matters relating to the Company contained in the Circular and the information and representations provided to us by the Company, the Directors and/or its management staff. We have assumed that all such statements, information, opinions and representations for matters relating to the Company contained or referred to in the Circular or otherwise provided or made or given by the Company, the Directors and/or its management staff and for which it is/they are responsible are true, accurate and complete in all material aspects at the time they were made and continue to be true, accurate and complete up to the date of the EGM and H Shares Class Meeting. We have assumed that all the opinions and representations for the matters relating to the Company and its subsidiaries made or provided by the Company, the Directors and/or its management staff contained in the Circular have been reasonably made after due and careful enquiry. We have also sought and received confirmation from the Company, the Directors and/or its management staff that no material facts have been withheld or omitted from the information supplied and referred to in the Circular or the reasonableness of the opinions and representations provided to us.

We have also reviewed, among others, (i) the valuation reports with valuation date of 30 September 2015 in relation to the Incoming Assets provided by Orient Appraisal Co., Ltd.; (ii) the valuation reports with valuation date of 30 September 2015 in relation to the Outgoing Assets provided by Shanghai Lixin Appraisal Co., Ltd.; (iii) the property

–60– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER valuation report on the property rights of the Target Properties prepared by JLL; (iv) the audited reports of the financial statements of each of the Equity Interests of the Incoming Assets and Outgoing Assets, issued by Baker Tilly China Certified Public Accountants, for the two years ended 31 December 2014 and the nine months ended 30 September 2015; (v) the pro forma consolidated financial statements and review report of the Company, issued by PricewaterhouseCoopers Zhong Tian LLP, for the two years ended 31 December 2014 and the nine months ended 30 September 2015; (vi) the terms of their engagement letter (having particular regard to the scope of work, whether the scope of work is appropriate to the opinion required to be given and any limitations on the scope of work which might adversely impact on the degree of assurance given by the report, opinion or statements); and (vii) the annual report of the Company for the year ended 31 December 2014; and (viii) the interim report of the Company for the six months ended 30 June 2015.

We have relied on such information and consider that the information we have reviewed is sufficient for us to reach an informed view and to justify our reliance on such information so as to provide a reasonable basis for our opinion. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company, the Directors and the management of the Group and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We have not, however, carried out any independent verification of the information, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospect of the Company, Incoming Assets and Outgoing Assets or any of their respective subsidiaries and associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our advice and recommendation, we have considered the following principal factors and reasons:

1. Background

(1) Background and general information of the Company and SEC

The Group is one of the largest industrial equipment manufacturing conglomerates in China engaged in the following principal activities: (i) design, manufacture and sale of nuclear power nuclear island equipment products, wind power equipment products and heavy machinery including large forgoing components; (ii) design, manufacture and sale of thermal power equipment products and power transmission and distribution equipment products; (iii) design, manufacture and sale of elevators, electric motors, machine tools, marine crankshafts and other electromechanical equipment products; and (iv) provision of integrated engineering services for power station projects and other industries, financial services and functional services including international trading services.

SEC is the controlling shareholder of the Company holding approximately 55.05% equity interest in the total issued share capital of the Company as at the Latest Practicable Date. The principal business of SEC is the management of state-owned assets and

–61– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER investment activities. SEC is an enterprise wholly-owned by Shanghai SASAC and is one of the largest comprehensive equipment manufacturing conglomerates in China.

(2) Background and general information of the Incoming Assets and Outgoing Assets

(i) The Incoming Assets a. Shanghai Electric Industrial Company Limited

Shanghai Electric Industrial Company Limited is a company established under the PRC law with limited liability on 28 September 1993. As at the Latest Practicable Date, Shanghai Electric Industrial Company Limited was a wholly-owned subsidiary of SEC. Upon the completion of the transactions contemplated under the Restructuring Agreement, Shanghai Electric Industrial Company Limited will be a wholly-owned subsidiary of the Company.

As a platform of medium and small equity investment management for SEC, Shanghai Electric Industrial Company Limited is primarily engaged in industrial investment, foreign joint venture and self-owned properties rental business. The traditional industries currently invested by Shanghai Electric Industrial Company Limited include household air conditioners, offshore oil drilling consumable equipment, high pressure washing equipment and mechanical seals etc. In recent years, Shanghai Electric Industrial Company Limited has gradually changed its investment direction to the emerging industries such as modern agricultural machinery, ship ballast water treatment, biomass energy and water treatment, etc.

The total floor area of the buildings of which the title certificates have not been obtained by Shanghai Electric Industrial Company Limited and its subsidiaries is 53,313.77 sq.m. and the valuation of such buildings is RMB71,065,638.36, accounting for 3.71% of the total valuation of Shanghai Electric Industrial Company Limited and 1.12% of the total valuation of the Incoming Assets. Pursuant to the Restructuring Agreement entered into by the Company and SEC, SEC has undertaken to compensate the Company for relevant economic losses incurred if the Company is deprived of the normal rights of use of any of such properties due to SEC’s failure of obtaining related title certificates. If the Company is imposed fines by any competent authorities or in face of any claims filed by any third party as a result of the aforesaid, SEC shall compensate the Company the actual losses incurred. The PRC legal advisor of the Company is of the opinion that the aforementioned properties without title certificates do not create any legal obstacles for the transfer of the 100% equity interests of Shanghai Electric Industrial Company Limited, thus obtaining the title certificates of such aforementioned properties will not constitute a condition precedent for the completion of the Restructuring. Having considered (i) the valuation of such building accounted for only 3.71% of the total valuation of Shanghai Electric Industrial Company Limited and is considered not material; (ii) the undertaking provided by SEC; and (iii) the opinion of the PRC legal advisor, we concur with the view of the Directors that the properties without title certificates do not have material impact on the valuation and consideration of the Incoming Assets and the Restructuring.

–62– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the audited consolidated financial information of Shanghai Electric Industrial Company Limited for the two years ended 31 December 2014 and nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

As at As at As at 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 1,633,178.66 1,726,424.24 1,431,902.56 Total liabilities 315,563.60 132,719.76 153,110.58 Equity attributable to owners of the company 1,254,309.78 1,527,938.62 1,278,791.98

For the nine months For the year For the year ended ended ended 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

As at 30 September 2015, the audited net asset value of Shanghai Electric Industrial Company Limited was RMB1,317,615,061. b. Shanghai DENSO Fuel Injection Co., Ltd

Shanghai DENSO Fuel Injection Co., Ltd. is a company established under the PRC law with limited liability on 9 January 2001. As at the Latest Practicable Date, SEC holds 61% equity interest in Shanghai DENSO Fuel Injection Co., Ltd. Upon the completion of the transactions contemplated under the Restructuring Agreement, the Company will hold 61% equity interest in Shanghai DENSO Fuel Injection Co., Ltd.

–63– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Southeast Asia, in order to meet the production needs of the local automobile manufacturers. The products have achieved an important status in the fuel injection system market in Southeast Asia. In recent years, through the introduction of the technology of electronic control high voltage common rail system developed by DENSO Corporation from Japan, which is energy saving and capable of purifying exhaust gas, Shanghai DENSO Fuel Injection Co., Ltd. currently undertakes the mass production of the electronic control high voltage common rail system.

Set out below is the audited consolidated financial information of Shanghai DENSO Fuel Injection Co., Ltd. for the two years ended 31 December 2014 and nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

As at As at As at 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 1,021,112.16 1,005,435.04 836,721.21 Total liabilities 223,567.18 216,928.00 158,602.80 Equity attributable to owners of the company 797,544.98 788,507.04 678,118.41

For the nine months For the year For the year ended ended ended 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

As at 30 September 2015, the audited net asset value of Shanghai DENSO Fuel Injection Co., Ltd. was RMB797,544,979. c. Shanghai Blower Works Co., Ltd.

–64– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER transactions contemplated under the Restructuring Agreement, Shanghai Blower Works Co., Ltd. will be a wholly-owned subsidiary of the Company.

Shanghai Blower Works Co., Ltd. is primarily engaged in production of various types of centrifugal and axial industrial blowers and centrifugal compressors. Such products are mainly applied in the industrial sectors of electric power, metallurgy and coal mines etc. With its complete technology of German TLT axial and centrifugal blowers, in recent years, Shanghai Blower Works Co., Ltd. has satisfied the needs of many industrial sectors. Its products have a relatively strong competitiveness in the market of power station blowers, primary air blowers and power station air inducing machine. Shanghai Blower Works Co., Ltd. has successfully developed a main helium blower for high temperature gas cooling reactor, aiming to become a major equipment supplier for the commercialized nuclear power projects in the coming few years.

Set out below is the audited consolidated financial information of Shanghai Blower Works Co., Ltd. for the two years ended 31 December 2014 and nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

As at As at As at 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 1,471,873.58 1,545,990.61 1,402,061.12 Total liabilities 1,144,286.38 1,140,881.79 1,001,425.80 Equity attributable to owners of the company 327,587.20 405,108.82 400,635.32

For the nine months For the year For the year ended ended ended 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

As at 30 September 2015, the audited net asset value of Shanghai Blower Works Co., Ltd. was RMB327,587,201.

–65– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER d. Shanghai Rail Traffic Equipment Development Co., Ltd.

Shanghai Rail Traffic Equipment Development Co., Ltd. is a company established under the PRC law with limited liability on 17 February 2003. As at the Latest Practicable Date, SEC and the Company held 14.79% and 34.21% of its equity interest, respectively. Upon the completion of the transactions contemplated under the Restructuring Agreement, the Company will hold 49% equity interest in Shanghai Rail Traffic Equipment Development Co., Ltd., and the remaining 51% equity interest will be held by an independent third party, thus Shanghai Rail Traffic Equipment Development Co., Ltd. will not be a subsidiary of the Company.

Shanghai Rail Traffic Equipment Development Co., Ltd. is primarily engaged in the production and sales of urban rail traffic equipment, components and ancillaries, and the provision of maintenance services; technology development and advisory; provision of professional contractor services in connection with urban rail traffic, fire safety facilities, anti-corrosion and insulation, construction intelligentization and environment protection projects. In recent years, Shanghai Rail Traffic Equipment Development Co., Ltd. has introduced the METROPOLIS series underground train technology and the CITADIS series tram technology from Alstom of France, which enable it to undergo independent research and development, manufacture and integration for urban railcars. At the same time, Shanghai Rail Traffic Equipment Development Co., Ltd. has extended its business from merely equipment production to the urban rail traffic maintenance and electrical and mechanical engineering services, which enhanced its ability of providing an entire solution for rail traffic.

The total floor area of the buildings without title certificates of the subsidiary of Shanghai Rail Traffic Equipment Development Co., Ltd. is 37,373.10 sq.m. and the valuation of such buildings is RMB112,197,590.01, accounting for 5.90% of the total valuation of Shanghai Rail Traffic Equipment Development Co., Ltd. The valuation of the 14.79% equity interests of Shanghai Rail Traffic Equipment Development Co., Ltd. to be acquired by the Company accounted for 2.67% of the total valuation of the Incoming Assets. SEC is currently a minority shareholder holding only 14.79% equity interests of Shanghai Rail Traffic Equipment Development Co., Ltd. After the Restructuring, the Company will hold 49% equity interests of Shanghai Rail Traffic Equipment Development Co., Ltd., which will not constitute a subsidiary of the Company. We are given the understanding from the Company that, having considered (i) buildings without title certificates of the subsidiary of Shanghai Rail Traffic Equipment Development Co., Ltd. are under the normal use by the relevant enterprise(s) and have commercial value; and (ii) the valuation of such buildings accounted for only 5.90% of the total valuation of Shanghai Rail Traffic Equipment Development Co., Ltd. and is considered not material, SEC, as a minority shareholder of Shanghai Rail Traffic Equipment Development Co., Ltd., does not provide indemnity undertaking on such buildings without title certificates. The PRC legal advisor of the Company is of the opinion that the buildings without title certificates do not create any legal obstacles for the transfer of the 14.79% equity interests of Shanghai Rail Traffic Equipment Development Co., Ltd., thus obtaining the title certificates of such properties will not constitute a condition precedent for the completion of the Restructuring. Having considered (i) the valuation of such building accounted for

–66– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER only 5.90% of the total valuation of Shanghai Rail Traffic Equipment Development Co., Ltd. and is considered not material; (ii) Shanghai Rail Traffic Equipment Development Co., Ltd. was not and will not be the subsidiary, before and after the Restructuring, of any one between SEC and the Company; and (iii) the opinion of the PRC legal advisor, we concur with the view of Directors that the properties without title certificates do not have material impact on the valuation and consideration of the Incoming Assets and the Restructuring.

Set out below is the audited consolidated financial information of Shanghai Rail Traffic Equipment Development Co., Ltd. for the two years ended 31 December 2014 and nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

As at As at As at 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 2,162,723.31 2,070,721.05 2,057,126.71 Total liabilities 1,002,707.12 954,077.17 979,459.17 Equity attributable to owners of the company 998,100.18 956,380.58 916,082.64

For the nine months For the year For the year ended 30 ended 31 ended 31 September December December 2015 2014 2013 RMB’000 RMB’000 RMB’000

As at 30 September 2015, the audited net asset value of Shanghai Rail Traffic Equipment Development Co., Ltd. was RMB1,160,016,189. e. Target Properties

The Target Properties to be acquired under the Restructuring Agreement includes land use rights for the 14 parcels of land located in Shanghai, the buildings and structures erected thereon, auxiliary facilities together with equipment and machines held by SEC.

–67– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

A summary of the Target Properties is set out as below:

Gross Floor No. Location Use of Property Site Area Area (sq.m) (sq.m)

1. No. 1076 Jungong Road# Industrial 358,219.00 188,537.56 2. No. 200 Jin Sha Jiang Industrial 126,474.00 58,748.00 Sub-road# 3. No. 621 Rongchang Road# Industrial 16,658.60 22,549.39 4. No. 4 (Yi) Zhuhang Road Industrial 188.00 116.00 5. No. 400 Wenshui Road# Industrial 60,630.82 27,151.00 6. No. 450 Wenshui Road# Industrial 26,942.86 9,832.71 7. No. 750 Lingshi Road# Industrial 5,362.36 3,602.00 8. No. 750 Lingshi Road# Industrial 1,716.81 389.00 9. No. 115 Caobao Road# Industrial 26,744.00 29,131.00 10. No. 7, Lane 1736 Commercial and 7,299.00 6,173.35 Yang Shu Pu Road office 11. No. 1590 Longwu Road# Science and 30,862.37 – research 12. No. 1287 Beijing West Road Science and 2,564.00 – and No. 154 Nanyang Road# research 13. No. 3015 Gonghe Xin Road# Industrial 21,546.35 – 14. No. 100 Wenshui Road# Industrial 2,896.43 –

Total 688,104.60 346,230.01

# Government allocated land or government assigned land without purchase price payment.

Twelve pieces of land among the Target Properties are government allocated land or government assigned land without purchase price payment. As of the Latest Practicable Date, SEC has entered into a land use rights grant contract, the Shanghai State-owned Construction Land Use Rights Transfer Contract, in respect of the aforementioned twelve pieces of government allocated land or government assigned land without purchase price payment with the relevant planning and land administration authorities in Shanghai, and the title certificates for such lands are still in the process of being obtained. The PRC legal advisor of the Company is of the opinion that, there does not exist any legal obstacle for SEC to obtain the title certificates of such assets based on the current situation. According to the Restructuring Agreement entered into by SEC and the Company, SEC has made an undertaking, in relation to the government allocated land or government assigned land without purchase price payment, that it will complete the land granting procedures and obtain relevant title certificates before 31 March 2016.

The valuation of the Target Properties as conducted by Orient Appraisal Co., Ltd was RMB2,916,326,263 as at 30 September 2015, including the valuation of the aforementioned twelve pieces of land (including the land, buildings and structures on the

–68– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER land and equipments) of RMB2,812,223,522 and the valuation of the remaining two pieces of land (including the land and buildings on the land) of RMB104,102,741. The valuation by Orient Appraisal Co., Ltd was conducted in accordance with relevant PRC laws and regulations on the valuation of assets, in order to provide a reference price in relation to the proposed assets acquisition. Orient Appraisal Co., Ltd has taken into consideration the facts that SEC has signed the land use rights grant contract with the relevant planning and land administration authorities in Shanghai and went through the land compliance procedures after valuation date but before issue date for valuation report, and that SEC has made an undertaking that it would obtain relevant title certificates before 31 March 2016. Therefore, Orient Appraisal Co., Ltd is of the opinion that the Target Properties represent actual rights, and thus satisfy the prerequisite of being an object to be assessed to a valuation that can truly reflect their actual current value.

The above valuation was different from the valuation of RMB103,551,000 as at 30 September 2015 conducted by Jones Lang LaSalle Corporate Appraisal and Advisory Limited (“JLL”), the qualified international property valuer. JLL only took into consideration of the two pieces of granted land (including the land and buildings on the land) of which the title certificates have been obtained (the valuation of the two pieces of land is RMB104,102,741 according to the valuation made by Orient Appraisal Co., Ltd). As for the twelve pieces of land in respect of which the land use rights grant contracts have been signed but the title certificates of which have not been obtained, JLL is of the opinion that since the title certificates of the aforementioned twelve pieces of land were still in the process of being obtained as at 30 September 2015 (which is the date of valuation), according to the relevant requirements of the Listing Rules in which the definition of “Market Value” shall be strictly observed, they cannot assign any commercial value to these lands. For reference purpose, JLL is of the opinion that the market value of the aforementioned twelve pieces of land (including the land and buildings and structures on the land) as at 30 September 2015 would be RMB2,815,326,000, on the assumptions that proper title certificates had been obtained by SEC and the properties could be freely transferred. The reason for the difference in the assumptions so taken between JLL and Orient Appraisal Co., Ltd is that JLL prepared the property valuation report for the purpose of fulfilling the relevant requirements of the Listing Rules in which the definition of “Market Value” shall be strictly observed, and thus JLL did not include into the valuation report the commercial value of the twelve pieces of land, the title certificates of which had not been properly obtained and which could not be freely disposed of in the market. Such valuation approach adopted by JLL is in compliance with the Listing Rules and market conventions in Hong Kong. Aggregating the valuation of the two pieces of land of which the title certificates have been obtained of RMB103,551,000 with that of the twelve pieces of land of RMB2,815,326,000 (assuming that proper title certificates have been obtained), the valuation of Target Properties made by JLL would be RMB2,918,877,000, which is 3.8% higher than the valuation made by Orient Appraisal Co., Ltd. As such, we considered the difference in valuation result is not material.

For details, please refer to (i) the property valuation report for the Target Properties prepared by JLL set out in Appendix I to this circular; and (ii) the valuation report for the Target Properties prepared by Orient Appraisal Co., Ltd set out in Appendix II to this circular.

–69– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) The Outgoing Assets

Shanghai Heavy Machinery Plant Co., Ltd. is a company established under the PRC law with limited liability on 1 January 1992. As at the Latest Practicable Date, Shanghai Heavy Machinery Plant Co., Ltd. was a wholly-owned subsidiary of the Company. Upon the completion of the transactions contemplated under the Restructuring Agreement, Shanghai Heavy Machinery Plant Co., Ltd. will cease to be a subsidiary of the Company.

Shanghai Heavy Machinery Plant Co., Ltd. is the first company to self-design and produce free forging hydraulic machine that weighs 12,000 tons in China. Shanghai Heavy Machinery Plant Co., Ltd. is specialized in production of high quality, large forging parts and milling equipment, metallurgical equipment, large-scale forging equipment, heavy mining equipment and cement equipment etc. required for the industries such as nuclear power, power station, metallurgy and shipbuilding. Its major products include turbine rotors with one million level for thermal power generating units, major nuclear plant equipment with one million level for nuclear power generating units, large forging parts such as large supporting rolls and large marine crankshaft etc., milling equipment such as medium-speed coal mill and direct-fired double inlet and outlet steel ball coal mill etc., metallurgical equipment such as hot and cold rolling host etc., large forging equipment such as 100MN duo-motion aluminium extrusion machine and 165MN free forging oil hydraulic machine etc. and heavy mining equipment and cement equipment such as large cement rotating kiln and tunnel boring machine etc.

Set out below is the audited consolidated financial information of Shanghai Heavy Machinery Plant Co., Ltd. for the two years ended 31 December 2014 and nine months ended 30 September 2015 prepared in accordance with generally accepted accounting principles in the PRC:

As at As at As at 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Total assets 5,677,946.17 6,357,226.02 7,995,874.61 Total liabilities 5,839,529.58 5,981,132.01 7,302,062.98 (Net liabilities)/equity attributable to owners of the company (273,422.01) 255,757.61 569,589.43

–70– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the nine months For the year For the year ended ended ended 30 September 31 December 31 December 2015 2014 2013 RMB’000 RMB’000 RMB’000

Revenue 1,040,966.83 2,064,296.55 2,469,766.98 Loss before taxation (544,961.72) (820,683.04) (1,120,949.68) Net loss after taxation (620,284.76) (820,666.88) (1,071,806.53) Net loss attributable to owners of the company (611,786.96) (816,781.08) (1,067,592.86) Net loss attributable to owners of the company after deduction of non-recurring profit and loss (628,027.88) (969,685.01) (1,244,349.53)

As at 30 September 2015, the audited net liabilities of Shanghai Heavy Machinery Plant Co., Ltd. was RMB161,583,406.

Details of financial position of the Outgoing Assets is set out in the paragraphs under the section headed “Information of the Outgoing Assets” in the Letter from Board.

(3) The Group’s business development strategy

As stated in the Letter from the Board, the Group is one of the largest industrial equipment manufacturing conglomerates in China engaged in the following principal activities: (i) design, manufacture and sale of nuclear power nuclear island equipment products, wind power equipment products and heavy machinery including large forging components; (ii) design, manufacture and sale of thermal power equipment products and auxiliary equipment, nuclear power conventional island equipment products and power transmission and distribution equipment products; (iii) design, manufacture and sale of elevators, electric motors, machine tools, marine crankshafts and other electromechanical equipment products; and (iv) provision of integrated engineering services for power station projects and other industries, financial services and functional services including international trading services.

As disclosed in the Annual Report 2014 and Interim Report 2015, the Company expected to expand its major businesses in the new energy equipment segment, the high efficiency and clean energy equipment segment and the industrial equipment segment. The aggregate revenue generated from these segments was RMB26,987.21 million and RMB57,494.68 million, representing 74.5% and 74.9% of the Group’s revenue, for the six months ended 30 June 2015 and year ended 31 December 2014, respectively.

–71– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER completeness of the existing industry chain; to provide more efficient, green, and economical energy and industrial equipment as well as complete solutions for China and the world; to become a modern corporation led by customer values and emphasizing on innovation.

(4) Reasons and Benefits of entering into Restructuring Agreement

Upon completion of the Restructuring, the Directors believe that the Company’s assets structure will be optimized through acquiring the Incoming Assets and disposing the Outgoing Assets. Acquiring Shanghai Electric Industrial Company Limited provides the Company a platform to invest and manage medium and small equity in emerging industries, such as modern agricultural machinery, ship ballast water treatment, biomass energy and water treatment, as well as traditional industries, such as household air conditioners, offshore oil drilling consumable equipment, high pressure washing equipment and mechanical seals, and it enables the Company to diversify its product range and enhance the completeness of the existing industry chain.

The Directors also believe that acquiring Shanghai DENSO Fuel Injection Co., Ltd., enables the Company to enhance its high efficiency energy portfolio as Shanghai DENSO Fuel Injection Co., Ltd. currently undertakes the mass production of the electronic control high voltage common rail system, which is energy saving and capable of purifying exhaust gas. Shanghai Blower Works Co., Ltd. has successfully developed a main helium blower for high temperature gas cooling reactor, aiming to become a major equipment supplier for the commercialized nuclear power projects in the coming few years. Acquiring Shanghai Blower Works Co., Ltd. enables the Company to enhance its existing business line of sales of nuclear power equipment going forward. By investing into Shanghai Rail Traffic Equipment Development Co., Ltd, the Company could indirectly invest in certain environmental projects in connection with urban rail traffic solution, including its recently introduced electrical and mechanical engineering services. The acquisition of the Target Properties would allow the Company to conduct research and development activities, and carried out design and manufacturing processes of its products.

As stated in the Letter from the Board, due to the impact of continuous weak demand in the upstream metallurgy manufacturing and mine machinery industry, the industry in which Shanghai Heavy Machinery Plant Co., Ltd. is engaged in is facing adverse circumstances such as excessive production capacity and substantial decrease in product selling price. An operating plight of continuous loss by Shanghai Heavy Machinery Plant Co., Ltd. appeared. The net loss attributable to owners of the company after deduction of non-recurring profit and loss for each of two years ended 31 December 2014 and nine months ended 30 September 2015 were approximately RMB1,474.5 million, RMB1,126.5 million and RMB577.4 million respectively. In addition, as at 30 September 2015, the audited net liabilities of Shanghai Heavy Machinery Plant Co., Ltd. was approximately RMB161.6 million. As a result, the Company proposed to transfer the entire equity interests in Shanghai Heavy Machinery Plant Co., Ltd. through the Restructuring, which will be beneficial to the Company as it would increase the net asset value of the Company and cut its losses in relation to the operation of Shanghai Heavy Machinery, thereby achieving an optimization of the asset structure of the Company.

–72– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered (i) the asset structure optimization as mentioned in the above; (ii) the availability of platform to invest into new energy; (iii) disposal of loss making Shanghai Heavy Machinery Plant Co., Ltd; and (iv) increase in diversity of products as a result of enhancement of the existing industry chain, we concur with the view of the Directors that the Acquisition and Disposal contemplated under the Restructuring Agreement, taken as a whole, is in the interest of the Company and the Shareholders as a whole.

Pursuant to the Restructuring Agreement entered into by the Company and SEC, the difference between the consideration for the Equity Interests of the Incoming Assets and that for the Outgoing Assets of RMB3,400,913,224 and the consideration for Target Properties of the Incoming Assets of RMB2,916,326,263 will be settled by way of the issuance of 606,843,370 Consideration Shares by the Company to SEC at the issue price of RMB10.41 per Consideration Share. We noted that the issue price and number of the Consideration Shares is in compliance with the requirements of the Measures for Administration of Material Assets Reorganization of Listed Companies issued by the CSRC. According to Rule 8.08(1), the public float requirement for Hong Kong listed companies is at least 25% of the total number of issued shares at all times. Immediately after completion of the Restructuring, the percentage of shareholding of the Company being held by the public would be approximately 42.92%. As such, the Company could maintain a sufficient public float immediately after completion of the Restructuring. Having considered (i) the large amount of consideration to be settled by cash would immediately decrease the liquidity and current assets of the Company, and (ii) the Company’s debt to assets ratio as at 30 September was already approximately 69.54% and might not raise further debt with an inexpensive interest rate to settle the consideration, the management is of the opinion that the issuance of Consideration Shares would be the most preferred way of settlement and in the interest of the Company as a whole. Having considered the aforesaid, we are of the view that the difference between the consideration for the Incoming Assets and that for the Outgoing Assets and the consideration for Target Properties to be settled by way of the issuance of Consideration Shares by the Company to SEC is justifiable.

Upon completion of the Restructuring, Shanghai Electric Industrial Company Limited, Shanghai DENSO Fuel Injection Co., Ltd., Shanghai Blower Works Co., Ltd. will become the subsidiaries of the Company and its financial results will be consolidated into the account of the enlarged Group; Shanghai Heavy Machinery Plant Co., Ltd. will no longer be a subsidiary of the Company and its financial results will not be consolidated into the account of the enlarged Group; the Company increased its equity interest in Shanghai Rail Traffic Equipment Development Co., Ltd., but it is not a subsidiary of the Company. According to the Interim Report 2015, the total assets of the Company was approximately RMB156,706.32 million whereas the total liabilities of the Company was approximately RMB109,083.80 million, resulting in a net assets of approximately RMB47,622.52 million. According to the audited reports of the financial statements of each of the Incoming Assets and the Outgoing Assets issued by Baker Tilly China Certified Public Accountants, the net asset value of each of the Incoming Assets is positive, whereas the net asset value of the Outgoing Assets is negative. According to the valuation reports provided by Orient Appraisal Co., Ltd and Shanghai Lixin Appraisal Co., Ltd, valuation of each of the Incoming Assets is positive whereas the Outgoing Assets is negative.

–73– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Furthermore, the settlement by way of issuance of Consideration Shares could allow the Company to acquire the Incoming Assets and dispose the Outgoing assets without immediate cash outflow, which could enhance the financial flexibility and increase the capital base of the Company.

Having considered that (i) the issue of the Consideration Shares would allow the Company to own the Incoming Assets and the Target Properties without incurring cash outflow for the Acquisition; (ii) the issuance of Consideration Shares would not further increase the debt to assets ratio and would not increase the future interest expenses to the Company; and (iii) the resources, technology and expertise of SEC would further facilitate the development of the industrial equipment manufacturing business of the Company, we concur with the view of the Directors that the issue of the Consideration Shares is in the interest of the Company and the Shareholders as a whole.

Subject to the completion of the Restructuring, the Company plans to undertake a proposed placing of 336,215,171 A shares at the issue price of RMB10.41 per A Share to nine specific investors (including SEC). The proceeds to be raised from the Proposed A Share Placing will be RMB3,500,000,000 based on the issue price of RMB10.41 per A Share. The proceeds will be used for different purposes as stated under the section headed “1. Principal terms of the Proposed Issuance and Placing of A Shares” in Part III “Proposed Issuance and Placing of A Shares” in the Letter from the Board. For each of the three investment projects which the Company intended to invest in fixed assets and the construction of, namely, (i) Hualong No. 1 Nuclear Island Major Equipment Design, Manufacturing and Industrialization project; (ii) Technology Innovation and Management Optimization Pillar project; and (iii) Industry Upgrading and Research and Development Capabilities Enhancement project, we have obtained and reviewed the feasibility studies prepared by the Company for evaluating such projects. For the application of proceeds related to increase in capital of subsidiaries, we have enquired the Company and were given the understanding that the Company is in the process of considering number of investment options which are mostly related to the existing principal business of each of the respective subsidiaries, and the Board is of the view that the increase in capital will enhance the subsidiaries’ financial flexibility to allocate resources to cope with the changing environment. Taking into account that (i) the aggregate investment amount of the abovementioned three projects as contained in the management budget of the feasibility studies are estimated to amount to approximately RMB1,859.4 million, of which approximately RMB1,600 million of the proceeds is proposed to be applied in these three projects; (ii) the broad industry trend or information for each of these projects involved as contained in the feasibility studies as considered by the management is expected to have a positive outlook in the future; (iii) the expected implementation timetable for each of the projects as contained in the feasibility studies; and (iv) a considerable amount of fund will be applied for increase of capital in subsidiaries and thus would increase the financial flexibility of the subsidiaries, the Proposed A Share Placing therefore would help provide business growth opportunities and operating capital for subsidiaries. Having considered the aforesaid, we are of the view that the size of the Proposed A Share Placing, which the corresponding proceeds to be generated will be used for (i) investment into different projects; (ii) increase of capital of the subsidiaries; and (iii) general working capital of the Group, is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

–74– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Principal terms of the Restructuring Agreement

2.1 Consideration for the Incoming Assets and Outgoing Assets

(1) Basis of the consideration for the Incoming Assets

The consideration for the Incoming Assets is RMB6,317,239,488, which has been arrived at after arm’s length negotiations between the parties by reference to the valuations of 100% equity interests in Shanghai Electric Industrial Company Limited, 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd., 100% equity interests in Shanghai Blower Works Co., Ltd., 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. and Target Properties of RMB1,913,470,400, RMB533,687,369, RMB784,920,959, RMB168,834,479, and RMB2,916,326,263, respectively, as at the Valuation Benchmark Date.

Set out below is a summary of audited book value of the net assets of the Equity Interests of the Incoming Assets as at 30 September 2015:

Audited book value Valuation Interest to be of the net of the net acquired by Company asset value assets value the Company Consideration (RMB’000) (RMB’000) (%) (RMB)

Shanghai Electric Industrial Co., Ltd. 1,317,615 1,913,470 100.00 1,913,470,400 Shanghai DENSO Fuel Injection Co., Ltd. 797,545 874,897 61.00 533,687,369 Shanghai Blower Works Co., Ltd. 327,587 784,921 100.00 784,920,959 Shanghai Rail Traffic Equipment Development Co., Ltd. 1,160,016 1,141,545 14.79 168,834,479

We noted that the valuations of Shanghai Electric Industrial Co., Ltd, Shanghai DENSO Fuel Injection Co., Ltd, and Shanghai Blower Works Co., Ltd. were greater than its respective audited book value, mainly due to the appreciation of the value of investment property and their respective land use rights not being recognized in the book value due to the accounting policies being adopted. For the Shanghai Rail Traffic Equipment Development Co., Ltd., the valuation is very similar to the audited book value in which the valuation is 1.6% lower than then audited book value.

–75– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Company is of the view that the performance fluctuations of Shanghai Electric Industrial Company Limited are mainly caused by various factors including operation transformation and goodwill impairment, the performance fluctuations of Shanghai Blower Works Co., Ltd. were mainly caused by trade receivable and inventory impairment, which are both expected to be short-term and temporary.

We understand from the management that the following items were expected to be non-recurring in nature:

(i) Goodwill impairment

Shanghai Electric Industrial Company Limited had carried out an impairment test for the value of goodwill as of 30 September 2015 of its subsidiary, Shanghai Cyeco Environmental Technology Co., Ltd. (上海船研環保技術有限公司), and made a provision for impairment of its goodwill of RMB28,232,800. The management considered that the impairment is a non-recurring and one-off item.

(ii) Provision for inventories due to operation transformation

Shanghai Electric Industrial Company Limited had made a provision of RMB18,023,600 for write-down of inventories as a result of operation transformation of its subsidiary, Shanghai Fastener Machinery Factory Co., Ltd. (上海標準件機械廠有限公司). As the provision made were resulted from the one-off operation transformation, thus the provision is expected to be one-off and non-recurring in nature.

(iii) Provision for trade debts

In addition, Shanghai Blower Works Co., Ltd. changed its estimate of bad debt provision as follows:

After Prior to change of change of provision provision Aging ratio ratio

0–6 months 0% 0% 7–12 months 10% 5% 1–2 years 20% 10% 2–3 years 50% 20% 3–5 years 80% 50% Above 5 years 100% 80%

Shanghai Blower Works Co., Ltd. accordingly made an adjustment resulted in a provision for bad debts of RMB69,215,800. Having considered such change in bad debt provision ratio is expected to be one-off change in accounting estimates, such provision is expected to be non-recurring in nature.

–76– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Provision for inventories

Shanghai Blower Works Co., Ltd. has made a specific provision of inventories of approximately RMB15.5 million for the nine months ended 30 September due to the identification of slow moving inventories and the inventories of which the latest net realizable value was lower than its book value. Such provision is expected to be one-off and non-recurring in nature.

Having considered the above, we have analysed operating result of each of Shanghai Electric Industrial Company Limited and Shanghai Blower Works Co., Ltd. by adjusting the aforesaid one-off and non-recurring items as below:

Shanghai Electric Industrial Shanghai Company Blower Works Limited Co., Ltd. RMB’000 RMB’000

Net profit/(loss) after taxation 23,083 (78,989)

Add: Goodwill impairment 28,233 – Provision for inventories due to operation transformation 18,024 – Provision for trade debts – 69,216 Provision for inventories – 15,527

Adjusted profits after taxation 69,339 5,754 Annualized adjusted profits 92,452 7,672

Net profit after taxation for the year 2014 109,980 7,525 Net profit after taxation for the year 2013 77,112 6,103

The annualized adjusted profit of Shanghai Electric Industrial Company Limited was approximately RMB92.5 million, and the fluctuation is considered not material compared to the net profits of RMB110.0 million and RMB77.1 million for the year 2014 and 2013, respectively. The annualized adjusted profit for Shanghai Blower Works Co., Ltd. was approximately RMB7.7 million, and the fluctuation is considered not material compared to the net profits of RMB7.5 million and RMB6.1 million for the year 2014 and 2013, respectively. Moreover, having considered that the abovementioned non-recurring items have been considered in the valuations of Shanghai Electric Industrial Company Limited and Shanghai Rail Traffic Equipment Development Co., Ltd., we are of the view that these items have been reflected in the consideration of the Equity Interests of Incoming Assets. Having considered the above, we concurred with the view of Company that the performance fluctuations were expected to be short-term and, from a long-term perspective, taking into account that the businesses of Shanghai Electric Industrial Company Limited and Shanghai Blower Works Co., Ltd. are in line with the Company’s

–77– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER strategic development positioning, the proposed acquisition of the company will form collaborative development advantages and thus will further enhance the operating performance of the Company.

Set out below is a summary of unaudited book value of the Target Properties as at the Valuation Benchmark Date:

Book Value Assessed Items of Target Properties (Unaudited) Value Consideration (RMB) (RMB) (RMB)

Buildings 97,107,330 414,120,326 414,120,326 Equipment 2,859,405 6,310,543 6,310,543 Land use right 285,359,986 2,495,895,394 2,495,895,394

Total 385,326,721 2,916,326,263 2,916,326,263

(2) Basis of the consideration for the Outgoing Assets

Pursuant to the Restructuring Agreement, the Company has conditionally agreed to transfer its entire interest in the Outgoing Assets to SEC.

The consideration for the Disposal is RMB1.00, which was determined after negotiation with reference to the negative net asset value of the Outgoing Assets as at 30 September 2015 as appraised by Shanghai Lixin Appraisal Co., Ltd based on the asset-based approach.

Set out below is a summary of the valuation of the net asset value of the Outgoing Assets as at 30 September 2015:

Valuation of Interest to be Audited net the net disposed by Company liabilities liabilities the Company Consideration (RMB’000) (RMB’000) (%) (RMB)

Shanghai Heavy Machinery (161,583.41) (184,868.00) 100.00 1 Plant Co., Ltd.

As stated in the Letter from the Board, the consideration for the Outgoing Assets and the Incoming Assets was determined on arm’s length negotiations based on the valuation of such assets as at Valuation Benchmark Date as confirmed in the assets valuation reports issued by Orient Appraisal Co., Ltd. and Shanghai Lixin Appraisal Co., Ltd. and filed with the Shanghai SASAC. Outgoing Assets and Incoming Assets excluding Target Properties applied and adopted asset-based valuation approach to appraise the value. The two different valuation approaches adopted to appraise the value of the Target Properties are set out as below: the replacement cost approach is adopted to appraise the value of production buildings and structures; the market approach is adopted to appraise

–78– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER the value of office buildings; replacement cost approach is adopted to appraise the value of equipments; and the market comparison approach is adopted to appraise the value of land use right.

In case of distribution of dividend in cash for the Equity Interests of the Incoming Assets during the period commencing from Valuation Benchmark Date to Assets Closing Date, the consideration of the Incoming Assets shall be finalized after deducting the amount of dividend in cash.

The valuation reports of the Incoming Assets and the Outgoing Assets shall be subject to filing with Shanghai SASAC. As at the date of this circular, the Company has completed the filing of the valuation reports with Shanghai SASAC, and obtained the confirmation for the valuation results from Shanghai SASAC.

(3) Agreement for profit or loss for the period

All the profit or loss of the Outgoing Assets arising from or incurred during the period commencing from Valuation Benchmark Date to Transfer Completion Date for the Outgoing Assets shall belong to or be borne by the Company whereas all the profit or loss of the Incoming Assets arising from or incurred during the period commencing from Valuation Benchmark Date to Transfer Completion Date for the Equity Interests of the Incoming Assets shall belong to or be borne by SEC.

(4) Valuation method

Pursuant to Rule 13.80(2)(d) of the Listing Rules, we have reviewed the qualification and experience of (i) Orient Appraisal Co., Ltd., (ii) Shanghai Lixin Appraisal Co., Ltd. and (iii) JLL in relation to the performance of the valuation of the Equity Interests of the Incoming Assets and Target Properties based on the information available. We noted that Orient Appraisal Co., Ltd., Shanghai Lixin Appraisal Co., Ltd. and JLL have experience in performing valuation services for a large number of enterprises covering a wide range of industries in the PRC. According to the website of CSRC at http://www.csrc.gov.cn, we further noted that both Orient Appraisal Co., Ltd. and Shanghai Lixin Appraisal Co., Ltd. are amongst the 72 qualified asset appraisal firms authorized by the CSRC and the Ministry of Finance of the PRC to perform asset appraisal works in the PRC. We are given the understanding that they have possessed sufficient qualifications and experience in valuing assets similar to that of the Incoming Assets and Outgoing Assets for a number of listed companies in the PRC and Hong Kong over the years. Orient Appraisal Co., Ltd., Shanghai Lixin Appraisal Co., Ltd. and JLL also confirmed that all relevant material information provided by the Company had been incorporated in their valuation reports. In addition, we have also reviewed the terms of engagement and noted that the scope of work is appropriate to the opinion required to be given and we are not aware of any limitation on the scope of work which might have an adverse impact on the degree of assurance given by the valuation reports. Based on the above, we are of the view that the scope of work of Orient Appraisal Co., Ltd., Shanghai Lixin Appraisal Co., Ltd. and JLL are appropriate and they are qualified to perform the valuations of the Equity Interest of the Incoming Assets, Target Properties and Outgoing Assets.

–79– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Valuation of the Incoming Assets

We have reviewed the valuation reports prepared by Orient Appraisal Co., Ltd. as set out in the Appendices to the Announcement published in Shanghai Stock Exchange dated 5 December and to the Circular, and discussed with Orient Appraisal Co., Ltd. regarding the methodologies adopted, and bases and assumptions used in arriving at the valuations of the Incoming Assets, Target Properties and the Outgoing Assets. As advised by Orient Appraisal Co., Ltd., there are three common valuation approaches for determining the enterprise value of a company, namely the income approach, the market approach and asset-based approach.

Regarding the valuation of the Incoming Assets, assets-based approach has been adopted by Orient Appraisal Co., Ltd.. Based on our understanding from Orient Appraisal Co., Ltd., after taking into account (i) the asset-based approach reflects the value of the enterprise from the perspective of enterprise asset construction and provides a basis for the operation, management and assessment of the enterprise after the realization of the economic behavior; (ii) uncertainty for future profit forecast; (iii) the market comparison approach is not appropriate to be applied because of the lack of comparable listed companies and not enough information available for unlisted companies to measure the corporation value; (iv) the asset-based approach is commonly used for the valuation of similar assets; and (v) the valuation report was made based on the audited report as at Valuation Benchmark Date, the asset-based approach method was adopted by Orient Appraisal Co., Ltd.. Having considered the above factors, we concur with Orient Appraisal Co., Ltd.’s view that the asset-based approach would be the preferred approach for the valuations of the Incoming Assets.

Valuation of the Outgoing Assets

We have reviewed the valuation report prepared by Shanghai Lixin Appraisal Ltd. as set out in the Appendices to Announcement published in Shanghai Stock Exchange dated 5 December 2015 and to this Circular, and discussed with Shanghai Lixin Appraisal Co., Ltd. regarding the methodologies adopted, and bases and assumptions used in arriving at the valuations of the Outgoing Assets. As advised by Shanghai Lixin Appraisal Co., Ltd., there are three common valuation approaches for determining the enterprise value of a company, namely the income approach, the market approach and asset-based approach. Regarding the Outgoing Assets, assets-based approach has been adopted by Shanghai Lixin Appraisal Ltd. to determine their enterprise values. As introduced in the valuation report prepared by Shanghai Lixin Appraisal Co., Ltd., the income approach refers to the evaluation approach where the asset value is arrived through estimating the present value of the expected income of the appraised assets. The market comparison approach refers to the evaluation of an asset by comparison or analysis of the market value of a similar assets comparable at the time near to the evaluation date. The asset-based approach is to give a replacement value of the target and then less the devalue amount caused by several factors. It is based on a principle that the price which a willing customer would pay for a certain asset will not exceed the current trading price or the reconstruction cost of that asset. According to the valuation report from Shanghai Lixin Appraisal Co., Ltd., during the first half of 2015, the market of the heavy machinery industry has suffered fierce competition, yet they have not seen a recovery of the market.

–80– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shanghai Heavy Machinery Plant Co. Ltd. has suffered loss in the past few years and the operating performance is not optimistic in the future, so income approach is not appropriate to be applied for an unstable company. The market comparison approach is also not appropriate to be applied because of the lack of available comparable transactions to measure the corporation value where the target is in a negative performance. Therefore, Shanghai Lixin Appraisal Co., Ltd. was of the view that the asset-based approach is the most appropriate valuation method. Having considered the downsides of the market approach and the income approach, we concur with the view of Shanghai Lixin Appraisal Co., Ltd. that the asset-based approach would be the preferred approach for the valuation of the Outgoing Assets.

Valuation of the Target Properties

We have reviewed the valuation report prepared by Orient Appraisal Co. Ltd. as set out in the Appendices to the Announcement published in Shanghai Stock Exchange dated 5 December and to this Circular, and discussed with Orient Appraisal Co. Ltd. regarding the methodologies adopted, and bases and assumptions used in arriving at the valuations of the Target properties. As advised by Orient Appraisal Co. Ltd., pursuant to PRC Standard for Assets Appraisal, generally, there are three theoretical valuation approaches which may be adopted in equity interest valuation report, namely the market comparison approach, the income approach, and the asset-based approach. However, due to the nature of the Target Properties are partial assets owned by SEC, the aforesaid three valuation methods are not appropriate to be applied. After considering the nature of the assets, Orient Appraisal Co. Ltd. is of the view that additive method of single item asset is appropriate to be adopted such that the buildings and structures and equipment are assessed per replacement cost method by referring to and estimating its replacement cost, and the land use right is assessed per residual method by referring to the remaining useful year and the expected recycling of residual value. Having considered the nature of the Target Properties, we concur with Orient Appraisal Co. Ltd.’s view that the above approaches would be the preferred approaches for the valuations of the Target Properties. We have further discussed with PRC legal advisor of the Company and were given the understanding that the completion of the land granting procedures and obtaining relevant title certificates are the prerequisite for obtaining the approval from CSRC, and the CSRC’s approval is a condition precedent for the completion of the Restructuring. Thus, in any situation that the land granting procedures cannot be completed, or relevant title certificates cannot be obtained before 31 March 2016, the Restructuring will not be completed. We further noted from the additional disclosure items in the valuation report prepared by Orient Appraisal Co., Ltd. that Orient Appraisal Co., Ltd has taken into consideration the facts that SEC has signed the land use rights grant contract with the relevant planning and land administration authorities in Shanghai and went through the land compliance procedures after valuation date but before issue date for valuation report, and that SEC has made an undertaking that it would obtain relevant title certificates before 31 March 2016. Having considered the above, we concur with the Board’s view as well as Oriental Appraisal Co. Ltd.’s assumption that the valuation of the Target Properties was board on the relevant time certificates being obtained.

On such basis, we are of the view that the considerations for the Incoming Assets and Outgoing Assets are fair and reasonable so far as the Independent Shareholders are concerned.

–81– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(5) Payment method

The difference between the consideration for the Equity Interests of the Incoming Assets and that for the Outgoing Assets of RMB3,400,913,224 and the consideration for the Target Properties of RMB2,916,326,263 will be settled by way of the issuance of 606,843,370 Consideration Shares by the Company to SEC at the issue price of RMB10.41 per Consideration Share.

The Consideration Shares shall be issued as fully paid and shall rank pari passu in all material respects with the A Shares in issue.

2.2. The Consideration Shares

Comparison of the Consideration Share

Pursuant to the requirements of the Measures for Administration of Material Assets Reorganization of Listed Companies*《上市公司重大資產重組管理辦法》 ( ) issued by the CSRC, the Company and SEC negotiated and determined that the issue price of the Consideration Shares shall be 90% of the average trading price of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date. The Pricing Benchmark Date of the Consideration Shares shall be the publication date of the Board resolution announcement in relation to the Restructuring Agreement and transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares on the Shanghai Stock Exchange (5 December 2015).

The average trading price of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date = the total trading amount of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date/the total trading volume of A Shares for the 20 trading days immediately preceding the Pricing Benchmark Date, i.e. RMB10.41 per A Share.

The issue price of the Consideration Shares is RMB10.41 (equivalent to approximately HK$12.60) per A Share represents:

(a) A discount of approximately 7.30% to the closing price of RMB11.23 (equivalent to approximately HK$13.59) per A Shares as quoted on the SSE on the Last Trading Day before the Pricing Benchmark Date;

(b) A discount of approximately 9.08% to the average closing price of approximately RMB11.45 (equivalent to approximately HK$13.85) per A Share as quoted on the SSE for the preceeding five trading days before the Pricing Benchmark Date;

(c) A discount of approximately 9.95% to the average closing price of approximately RMB11.56 (equivalent to approximately HK$13.99) per A Share as quoted on the SSE for the preceeding ten trading days before the Pricing Benchmark Date;

–82– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(d) A discount of approximately 9.64% to the average closing price of approximately RMB11.52 (equivalent to approximately HK$13.94) per A Share as quoted on the SSE for the preceeding 20 trading days before the Pricing Benchmark Date;

(e) A premium of approximately 161.95% over the closing price of HK$4.81 per H Share as quoted on the Stock Exchange on the Last Trading Day before the Pricing Benchmark Date;

(f) A premium of approximately 189.66% over the average closing price of approximately HK$4.35 per H Share as quoted on the Stock Exchange for the preceeding 20 trading days before the Pricing Benchmark Date; and

(g) A premium of approximately 261.46% over the unaudited net assets attributable to the Shareholders per Share of approximately RMB2.88 (equivalent to approximately HK$3.48), calculated based on the Company’s unaudited net assets attributable to the Shareholders of approximately RMB36,872 million as at 30 June 2015.

We understand from the management of the Company that the issue price shall be RMB10.41 per A Share, with 90% of the average trading price of the A Shares for the 20 trading days prior to the Pricing Benchmark Date. The Pricing Benchmark Date of the Proposed Issuance and Placing of A Shares shall be the publication date of the Board resolution announcement in relation to the Restructuring Agreement and transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares on the Shanghai Stock Exchange (5 December 2015).

In the event that the Company distributes dividends, grants bonus, converts capital reserve into share capital or carries out any other ex-rights or ex-dividends activities during the period commencing from the Pricing Benchmark Date to the Date of issue of A Shares under the Proposed Issuance and Placing of A Shares, the corresponding adjustments shall be made to the issue price.

Historical H Share price performance

The trading of H Shares of the Company was suspended from 8 October 2015 to 4 December 2015 (the “H Shares Suspension Period”) prior to the Announcement regarding the entering into of the Restructuring Agreement dated 2 December 2015. Chart 1 below shows the daily closing price of the H Shares versus the issue price for the Consideration Shares for the period commencing from 3 December 2014, being the first

–83– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER trading day of a year prior to the date of the Restructuring Agreement dated 2 December 2015 up to the last Trading Day before the Pricing Benchmark Date (the “H Share Review Period”) which, in our view, represents a reasonable period of time to provide a general overview of the recent price performance of the H Shares.

Chart 1: Daily closing H Share price performance against the issue price during the H Share Review Period

14 Issue price of RMB10.41 (equivalent to HK$12.60) per Consideration Share 13 12 11 10 9 8 7 6 5 4 H Share price (HK$) 3 2 1 0

9/2015 3/1/2015 3/2/2015 3/3/2015 3/4/2015 3/5/2015 3/6/2015 3/7/2015 3/8/2015 3/ 3/12/2014 3/10/2015 Closing Price Issue Price

Source: The official website of the Stock Exchange (www.hkex.com.hk)

Prior to the suspension of the trading in the H Shares during the H Share Review Period, the closing H Share price was generally volatile with the highest and lowest closing prices of the H Shares being HK$8.76 and HK$3.72 respectively as quoted on the Stock Exchange. The average closing H Share price during the H Share Review Period was approximately HK$5.43. It is noted that the closing H Share price had been surging since 27 March 2015 at HK$4.32 with a peak at HK$8.76 at 22 April 2015. Until the overall A Share market began to crash in mid-June, the closing H Share price retreated to HK$3.91 at 4 September 2015. In light of the generally fluctuating trend of the closing H Share price during the H Share Review Period, we are of the view that the surge during such period is primarily due to the market enthusiasm led by the A Share stock market. The issue price of the Consideration Share of RMB10.41 (equivalent to HK$12.60) falls above the average closing H Share price during the H Share Review Period and represents (i) a premium of approximately 43.84% over the highest closing price of the H Shares of HK$8.76; (ii) a premium of approximately 238.71% over the lowest closing price of the H Shares of HK$3.72; and (iii) a premium of approximately 132.04% over the average closing price of the H Shares during the H Share Review Period of HK$5.43.

–84– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Historical A Share price performance

The trading of A Shares of the Company was suspended from 8 October 2015 to 4 December 2015 (the “A Shares Suspension Period”) prior to the Announcement regarding the entering into of the Restructuring Agreement dated 2 December 2015. Chart 2 below shows the daily closing price of the A Shares versus the issue price for the Consideration Shares for the period commencing from 3 December 2014, being the first trading day of a year prior to the date of the Restructuring Agreement dated 2 December 2015 up to the last Trading Day before the Pricing Benchmark Date (the “A Share Review Period”) which, in our view, represents a reasonable period of time to provide a general overview of the recent price performance of the A Shares.

Chart 2: Daily closing A Share price performance against the issue price during the A Share Review Period

10 Issue price of RMB10.41 (equivalent to HK$12.60) per Consideration Share

A Share price (RMB) 5

9/2015 3/12/2014 3/1/2015 3/2/2015 3/3/2015 3/4/2015 3/5/2015 3/6/2015 3/7/2015 3/8/2015 3/ 3/10/2015 Closing Price Issue Price

Source: The official website of the SSE (http://www.sse.com.cn/)

Prior to the suspension of the trading in the A Shares during the A Share Review Period, the closing A Share price was generally on an upward trend with the highest and lowest closing prices of the A Shares being RMB25.00 and RMB6.55 respectively as quoted on the SSE. The average closing A Share price during the A Share Review Period was approximately RMB13.09. It is noted that the closing A Share price had been surging since 15 April 2015 at RMB12.01with a peak at RMB25.00 at 9 June 2015. Followed by the A Share market in mid-June, the closing A Share price retreated to RMB9.30 at 26 August 2015. In light of the generally fluctuating trend of the closing A Share price during the A Share Review Period, we are of the view that the surge during such period is primarily due to the market enthusiasm on the general A Share stock market. The issue price of the Consideration Share of RMB10.41 falls within the range of the closing A Share price during the A Share Review Period and represents (i) a discount of approximately 58.36% to the highest closing price of the A Shares of RMB25.00; (ii) a premium of approximately 58.93% over the lowest closing price of the A Shares of RMB6.55; and (iii) a discount of approximately 20.47% to the average closing price of the A Shares during the A Share Review Period of RMB13.09.

–85– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to the requirements of the Measures for Administration of Material Assets Reorganization of Listed Companies*《上市公司重大資產重組管理辦法》 ( ) issued by the CSRC, the Consideration Shares issued by the Company to SEC shall not be transferred within 36 months commencing from the date of issuance of the Consideration Shares and are subject to the relevant requirements of the CSRC and Shanghai Stock Exchange thereafter. If the closing prices of A Shares are below the issue price of the Consideration Shares for 20 consecutive trading days within the six-month period commencing from the date of completion of the Restructuring, or the closing price of the A Shares as at the end of the above-mentioned six-month period after the date of completion of the Restructuring is below the issue price of the Consideration Shares, the lock-up period will be automatically extended for at least 6 months.

Further, upon the completion of the issuance, in the event that the Company grants bonus shares, converts capital reserve into share capital etc., SEC shall also comply with the arrangement of the lock-up period in respect of such additional shares.

Based on the above, we noted that the Consideration Shares are subject to a lock-up period of 36 months from the date of issue is in line with the Measures for Administration of Material Asset Reorganization of Listed Companies*《上市公司重大資產重組管理 ( 辦法》).

From 1 April 2015 to the date of shares trading suspension of the Company, the Share price of the Company experienced a notable fluctuation affected by the entire secondary market. As stated in the Letter from Board, by setting the issue price as 90% of the average trading price of 20 trading days prior to the Pricing Benchmark Date, the influence of the notable fluctuation in the domestic secondary market since April 2015 to July 2015 arising from the trading system can be avoided, so that the actual value of Shares could be reflected. Accordingly, based on the negotiation between the Company and SEC and considering the interests of the controlling shareholder and existing public shareholders, the Company determined that the issue price of the Consideration Shares shall be RMB10.41 per Consideration Share, with the average trading price of the A shares for 20 trading days prior to the Pricing Benchmark Date as the market reference price and 90% of such market reference price as the issue price. Such issue price represents:

(i) a premium of approximately 161.95% over the closing price of HK$4.81 per H Share as quoted on the Stock Exchange on the Last Trading Day before the Pricing Benchmark Date; and

(ii) a premium of approximately 189.66% over the average closing price of approximately HK$4.35 per H Share as quoted on the Stock Exchange for the preceding 20 trading days before the Pricing Benchmark Date.

–86– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In the case of the Consideration Shares, 90% of the market reference price represents RMB10.40 (based on the 5-day calculation method), RMB10.53 (based on the 10-day calculation method) and RMB10.40 (based on the 20-day calculation method). Upon enquiry with the management of the Company, we were given to understand that the Company and SEC have agreed to adopt the medium of the aforesaid range of the market reference price. In addition, in order to assess the fairness and reasonableness of the adoption of 90% of the market reference price, we have, to our best effort, identified eight H-share companies which had conducted non-public issuance of A shares with fixed terms and with the issuance announced during the 3-month period prior to the date of the Last Trading Day and up to the Latest Practicable Date. We have identified eight comparable issuance (“Comparable Issuance”) conducted by the companies whose shares are listed on the Stock Exchange and considered that the list of comparables is exhaustive based on the selection criteria as set out above.

Date of announcement Stock Code Stock Short Name Pricing Basis (Note)

2 Jul 2015 1071 Huadian Power 120.89% 13 Jul 2015 2333 Greatwall Motor 90.00% 24 Jul 2015 588 BJ North Star 90.00% 25 Aug 2015 2196 Fosun Pharma 90.00% 25 Aug 2015 1618 MCC 90.00% 9 Sep 2015 1053 Chongqing Iron 90.00% 11 Nov 2015 2899 Beijing Mining 90.00% 19 Nov 2015 300 Kunming Machine 90.00%

Average: 93.86%

Note: Represents the issue price as a percentage of the average trading price of 20 trading days prior to the respective pricing benchmark date.

–87– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that a review period of three months prior to the date of the Last Trading Day and up to the Latest Practicable Date is appropriate to capture the recent market practice as the Comparable Issuance are considered for the purpose of taking a general indication for the recent market practice in relation to the issue price under other non-public A Shares issuances as compared to the relevant prevailing market share prices under the recent market conditions and sentiments. The corresponding percentages of the issue prices to the market reference prices of the Comparables Issuance ranged from approximately 90.00% to approximately 120.89%, with an average of approximately 93.86%. As such, the basis of 90% of the market reference price adopted to the issue price of the Consideration Shares is approximate to the average of the Comparable Issuance. Further, we noted that seven out of the eight Comparable Issuance adopted a basis of 90% or less of the market reference price. Coupled with the fact that 90% of the market reference price based on the 20-day calculation method represents the median of the abovementioned range of the market reference price based on 5-day, 10-day and 20-day calculation methods, we are of the view that the determination of the issue price of the Consideration Shares conforms to the common market practice and is fair and reasonable.

Having considered that (i) the issue price of RMB10.41 per Consideration Share was determined between the Company and SEC after arm’s length negotiations; (ii) the basis of determining the issue price of Consideration Shares is in line with Measures for Administration of Material Asset Reorganisation of Listed Companies; (iii) the determination of the issue price of the Consideration Shares conforms to the common market practice; (iv) the issue price of the Consideration Share shall be RMB10.41 per Consideration Share (equivalent to HK$12.60 with the exchange rate of RMB1:HK$1.21), with the average trading price of the A shares for 20 trading days prior to the Pricing Benchmark Date and is above the average closing H Shares price for 20 trading days prior to the Pricing Benchmark Date; (v) the issue price represents a significant premium over the unaudited net assets attributable to the Shareholders per Share; (vi) the Consideration Shares are subject to a lock-up period of 36 months from the date of issue; and (vii) the issue of the Considering Shares forms part of the Restructuring, which is beneficial to the Group as elaborated in the paragraphs under the section headed “6. Reasons and benefits for the Restructuring” in the Letter from the Board, we concur with the view of the Directors that the issue of the Consideration Shares is fair and reasonable and in the interests of the Company and Shareholders as a whole.

3 The Proposed Issuance of A Shares to SEC

The Company proposed to issue 336,215,171 A Shares to nine specific investors (including SEC) at the issue price of RMB10.41 per A Share. The subscription number of A Shares by each of the target subscribers is calculated by dividing the respective subscription amount of each of the target subscribers by the issue price of RMB10.41 per A Share and rounded down to the nearest whole number. The amount of proceeds to be raised from the Proposed Issuance and Placing of A Shares will be RMB3,500,000,000, which amounts to no more than 100% of the consideration for the Incoming Assets.

The result of the Proposed Issuance and Placing of A Shares, whether successful or not, shall not affect the implementation of the transactions contemplated under the Restructuring Agreement.

–88– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the Measures for Issuance of Securities by Listed Companies*《上市公 ( 司證券發行管理辦法》) issued by the CSRC, the issue price of A Shares under the Proposed Issuance and Placing to be issued by the Company shall not be less than 90% of the market reference price, being the average share price for the preceding 20 trading days, 60 trading days or 120 trading days before the Pricing Benchmark Date.

On condition that the Company obtained all necessary approvals required under the Share Subscription Agreement, additional A Shares will be issued and placed by the Company.

Based on the above, we are of the view that the issue price of the Shares with the average trading price of the A shares for 20 trading days prior to the Pricing Benchmark Date as the market reference price and 90% of such market reference price as the issue price is in line with the Measures for Issuance of Securities by Listed Companies*《上市公 ( 司證券發行管理辦法》).

Details of other terms of Proposed Issurance and Placing of A Shares are set out in the Letter from the Board.

Comparison of the new A Share under the Proposed Issuance and Placing of A Shares:

The issue price of the Proposed Issuance and Placing of A Shares is RMB10.41 (equivalent to approximately HK$12.60) per new A Share represents:

(e) A premium of approximately 161.95% over the closing price of HK$4.81 per H Share as quoted on the Stock Exchange on the Last Trading Day before the Pricing Benchmark Date;

A premium of approximately 189.66% over the average closing price of approximately HK$4.35 per H Share as quoted on the Stock Exchange for the preceeding 20 trading days before the Pricing Benchmark Date; and

–89– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(f) A premium of approximately 261.46% over the unaudited net assets attributable to the Shareholders per Share of approximately RMB2.88 (equivalent to approximately HK$3.48), calculated based on the Company’s unaudited net assets attributable to the Shareholders of approximately RMB36,872 million as at 30 June 2015.

The issue price of Proposed Issuance and Placing of A Shares of RMB10.41 (equivalent to HK$12.60) falls above the average closing H Share price during the H Share Review Period and represents (i) a premium of approximately 43.84% over the highest closing price of the H Shares of HK$8.76; (ii) a premium of approximately 238.71% over the lowest closing price of the H Shares of HK$3.72; and (iii) a premium of approximately 132.04% over the average closing price of the H Shares during the H Share Review Period of HK$5.43.

In addition, the issue price of A Shares under the Proposed Issuance and Placing of RMB10.41 falls within the range of the closing A Share price during the A Share Review Period and represents (i) a discount of approximately 58.36% to the highest closing price of the A Shares of RMB25.00; (ii) a premium of approximately 58.93% over the lowest closing price of the A Shares of RMB6.55; and (iii) a discount of approximately 20.47% to the average closing price of the A Shares during the A Share Review Period of RMB13.09.

We noted from the Measures for Issuance of Securities by Listed Companies*《上市 ( 公司證券發行管理辦法》) issued by the CSRC, the issue price of the Consideration Shares to be issued by the Company shall not be less than 90% of the market reference price, being the average share price for the preceding 20 trading days, 60 trading days or 120 trading days before the Board resolution announcement date regarding the transactions contemplated under the Restructuring Agreement. Based on the above, and to be in compliance with the regulatory requirement as a listed company in the PRC, we are of the view that the Company’s Proposed Issuance and Placing of A Shares at 90% of the average trading price of A Shares for the last 20 trading days as quoted on the SSE prior to the Pricing Benchmark Date as the market reference price is in line with the Measures for Administration of Material Asset Reorganisation of Listed Companies.

On the other hand, pursuant to the requirements of According to the Measures for Issuance of Securities by Listed Companies*《上市公司證券發行管理辦法》 ( ) issued by the CSRC, the A Shares to be issued by the Company under the Proposed Issuance and Placing of A Shares will be subject to a lock-up period of 12 months from the date of issue. As stated in the Letter from the Board, The A Shares subscribed by SEC under the Proposed Issuance and Placing of A Shares shall not be traded or transferred within 36 months upon the completion of issuance of the A shares. If the closing prices of A Shares are below the issue price of the A shares for 20 consecutive trading days within the six-month period upon the completion of issuance of the A shares, or the closing price of A Shares as at the end of the above-mentioned six-month period is below the issue price, the lock-up period for SEC will be automatically extended for at least 6 months. The A Shares subscribed by all target subscribers excluding SEC under the Proposed Issuance and Placing of A Shares shall also not be transferred within 36 months upon the completion of the issuance of the A Shares but such shares may be transferrable thereafter subject to the relevant

–90– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER requirements of the CSRC and Shanghai Stock Exchange. In addition, upon the completion of the issuance, in the event that the Company grants bonus shares, converts capital reserve into share capital etc., all subscribers shall also comply with the arrangement of the lock-up period in respect of such additional shares. Further more, The resolution in relation to the issuance of shares for supporting fund raising under the Proposed Issuance and Placing of A Shares shall be valid within 12 months commencing from the date of the adoption and approval of the resolution at the EGM and the Class meetings. In view of above, we are of the view, that the established lock-up period is in line with the Measures for Issuance of Securities by Listed Companies*《上市公司證券發 ( 行管理辦法》).

Having considered that (i) the basis of determining the issue price of the Proposed Issuance and Placing of A Shares is in line with the Measures for Issuance of Securities by Listed Companies*《上市公司證券發行管理辦法》 ( ); (ii) the issue price shall be RMB10.41 per A Share (equivalent to HK$12.60 with the exchange rate of RMB1:HK$1.21), with the average trading price of the A shares for 20 trading days preceding the Pricing Benchmark Date and is significantly above the average closing H Shares price for 20 trading days prior to the Pricing Benchmark Date; (iii) the issue price represents a significant premium over the unaudited net assets attributable to the Shareholders per Share; (iv) Proposed Issuance and Placing of A Shares are subject to a lock-up period of 36 months from the date of issue; and (v) as stated in the Letter from the Board, the Proposed Issuance and Placing of A Shares is expected to be carried out subject to obtain several approvals from relevant governmental authorities, we concur with the view of the Directors that the issue of the Consideration Shares is fair and reasonable and in the interests of the Company and Shareholders as a whole.

4. Potential dilution to the shareholding of the existing public H Shareholders

Your attention is drawn to the section headed “Effect of the Restructuring and the Proposed A Share Placing” in the Letter from the Board. We noted that the shareholding of the existing public H Shareholders would reduce from approximately 22.95% as at the Latest Practicable Date to (i) approximately 21.92% immediately after completion of the Restructuring; and (ii) approximately 21.38% immediately after the completion of the Restructuring and the Proposed Issuance and Placing of A Shares.

Taking into account (i) the reasons for and benefits of entering into the Restructuring Agreement and the transactions contemplated thereunder as described above; and (ii) the principal terms of the Restructuring Agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole, we consider that the possible dilution effect on the shareholding interests of the existing public H Shareholder is justifiable.

–91– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Financial effects of the entering into of the Restructuring Agreement

5.1 Assets and liabilities

According to the unaudited pro forma financial information of the enlarged Group as set out in section headed “Financial Impact of the Restructuring” in the Letter from Board, the unaudited total assets of the enlarged Group would (i) increase by approximately 4.58% from RMB143,550.56 million as at 31 December 2014 to approximately RMB150,119.37 million, and (ii) increased by approximately 4.43% from RMB159,338.65 million to RMB166,394.74 million as at 30 September 2015, and the unaudited total liabilities of the enlarged Group would (i) decreased by 2.60% from approximately RMB98,125.50 million to approximately RMB95,575.13 million, and (ii) decreased by approximately 2.05% from RMB110,808.14 million to RMB108,531.18 million as at 30 September 2015, upon completion of the Restructuring and Proposed Issuance and Placing of A Shares.

5.2 Earnings

Upon completion of the Restructuring and Proposed Issuance and Placing of A Shares, Shanghai Electric Industrial Company Limited, Shanghai DENSO Fuel Injection Co., Ltd., Shanghai Blower Works Co., Ltd. will become subsidiaries of the Company and their financial results will be consolidated into the account of the enlarged Group; Shanghai Heavy Machinery Plant Co., Ltd. will no longer to be a subsidiary of the Company and its financial results will not be consolidated into the account of the enlarged Group; the Company increased its equity interest in Shanghai Rail Traffic Equipment Development Co., Ltd., but it is not a subsidiary of the Company. According to the unaudited pro forma financial information of the enlarged Group as set out in section headed “Financial Impact of the Restructuring” in the Letter from Board, the unaudited revenue of the enlarged Group would (i) increase by approximately 0.39% from approximately RMB76,784.52 million for the year ended 31 December 2014 to approximately RMB77,083.89 million, and (ii) increased by approximately 0.67% from RMB53,909.59 million for the nine months ended 30 September 2015 to RMB54,271.53 million, and the net profit attributable to owners of the Company would (i) increase by approximately 40.99% from approximately RMB2,554.49 million for the year ended 31 December 2014 to approximately RMB3,601.55 million and (ii) increased by approximately 30.11% from RMB1,892.22 million for the nine months ended 30 September 2015 to RMB2,461.88 million.

5.3 Debt to assets ratio

As at 31 December 2014 and 30 September 2015, the debt to assets ratios of the Group were approximately 68.36% and 69.54%, calculated by dividing the total liabilities of the Group of approximately RMB98,125.50 million by the total assets of the Group of approximately RMB143,550.56 million as at 31 December 2014, and dividing the total liabilities of the Group of approximately RMB110,808.14 million by the total assets of the Group of approximately RMB159,338.65 million as at 30 September 2015, respectively. Based on the unaudited pro forma financial information as set out in section headed

–92– LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

“Financial Impact of the Restructuring” in the Letter from the Board, upon the completion of the Restructuring and Proposed Issuance and Placing of A Shares, the debt to assets ratio of the Group would (i) decrease by 4.69% to approximately 63.67% as at 31 December 2014, calculated by dividing the total liabilities of the Group of approximately RMB95,575.13 million by the total assets of the Group of approximately RMB150,119.37 million, and (ii) decreased by 4.31% to approximately 65.23% as at 30 September 2015, calculated by dividing the total liabilities of the Group of approximately RMB108,531.18 million by the total assets of the Group of approximately RMB166,394.74 million..

RECOMMENDATION

Taking into consideration of the above factors, we consider that (i) the entering into the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC are in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole; and (ii) the terms contained therein are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the special resolutions to be proposed at the EGM and the H Shares Class Meeting to approve the Restructuring Agreement and the transactions contemplated under the Restructuring Agreement and the Proposed Issuance and Placing of A Shares to SEC.

Yours faithfully, For and on behalf of Guotai Junan Capital Limited Anthony Wong Deputy General Manager

* For identification purpose only

Mr. Anthony Wong is a licensed person registered with the Securities and Futures Commission and a responsible officer of Guotai Junan Capital Limited to carry out Type 6 (advising on corporate finance) regulated activities under the SFO and has over 15 years of experience in corporate finance industry.

–93– NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of Shanghai Electric Group Company Limited (the “Company”) will be held at 9:00 a.m. on Monday, 18 January 2016 at Xingyuan Hall, 3/F, B Block, Ramada Plaza Shanghai Caohejing, No. 509 Caobao Road, Shanghai, the PRC for the purpose of considering and, if thought fit, approving the following resolutions:

SPECIAL RESOLUTIONS:

1. To consider and, if thought fit, to approve the resolutions on the proposal of assets swap and issuance of shares for acquisition of assets as well as supporting funds raising (connected transaction) (the “Transaction”) by the company:

Assets swap and issuance of shares for acquisition of assets

1.1 Parties to the transaction;

1.2 Transaction subjects;

1.3 Basis of pricing and transaction price;

1.4 Arrangement for profit or loss for the period;

1.5 Procedures for transfer of ownership and liability for breach of contract;

1.6 Class and nominal value of shares to be issued;

1.7 Target subscribers for shares to be issued;

1.8 Method of issuance and subscription for shares;

1.9 Pricing benchmark date, basis of pricing and issue price for the issuance of shares;

1.10 Number of shares to be issued;

* For identification purpose only

–94– NOTICE OF EXTRAORDINARY GENERAL MEETING

1.11 Lock-up period arrangement;

1.12 Listing place of the shares to be issued;

1.13 Treatment for the company’s undistributed retained earnings prior to the shares issuance;

1.14 The validity of the resolutions;

Issuance of Shares for Supporting Funds Raising

1.15 The class and nominal value of shares to be issued;

1.16 Target subscribers and methods of subscription;

1.17 Issue price;

1.18 Number of shares to be issued;

1.19 Use of proceeds;

1.20 Lock-up period arrangement;

1.21 Stock exchange for the proposed listing; and

1.22 The validity of the resolutions.

2. To consider and, if thought fit, to approve the “The Report for Assets Swap and Issuance of Shares for Acquisition of Assets as well as Supporting Funds Raising (Connected Transaction) by Shanghai Electric Group Company Limited (Draft)” and its summary.

3. To consider and, if thought fit, to approve the resolution in relation to the execution of the Assets Swap and Issuance of Shares for Acquisition of Assets Agreement with Conditions Precedent between Shanghai Electric (Group) Corporation and Shanghai Electric Group Company Limited.

4. To consider and, if thought fit, to approve the resolution in relation to the execution of the share subscription agreement with conditions precedent between the target subscribers and Shanghai Electric Group Company Limited.

5. To consider and, if thought fit, to approve the resolution in relation to the grant of the authorization to the board at the general meeting to deal with relevant matters of the Transaction.

–95– NOTICE OF EXTRAORDINARY GENERAL MEETING

6. To consider and, if thought fit, to approve the resolution in relation to the report on the use of proceeds from the previous fund raising activity by the Company.

ORDINARY RESOLUTIONS:

1. To consider and, if thought fit, to approve the resolution in relation to the connected transactions involving assets swap and issuance of shares for acquisition of assets as well as the supporting funds raising by the Company.

2. To consider and, if thought fit, to approve the resolution in relation to the independence of the appraisal firms, the reasonableness of the appraisal assumptions, the relevance between the appraisal methodology and purpose and the fairness of the valuation in connection with the Transaction.

3. To consider and, if thought fit, to approve the resolution in relation to the approval of relevant reports and audited figures issued by audit firms and asset appraisal firms in respect of the Transaction.

4. To consider and, if thought fit, to approve the resolution on the compliance with the relevant laws and regulations of the assets swap and issuance of shares for acquisition of assets and supporting funds raising (connected transaction) by the Company.

5. To consider and, if thought fit, to approve the resolution in relation to the compliance by the company with Clause 4 under Requirements on Certain Issues Concerning Regulating the Material Asset Reorganizations of Listed Companies in respect of the Transaction.

By order of the Board Shanghai Electric Group Company Limited Huang Dinan Chairman of the Board

Shanghai, the PRC, 4 December 2015

As at the date of this notice, the executive directors of the Company are Mr. HUANG Dinan, Mr. ZHENG Jianhua and Mr. HUANG Ou; the non-executive directors of the Company are Mr. Wang Qiang, Mr. ZHU Kelin and Ms. YAO Minfang; and the independent non-executive directors of the Company are Dr. LUI Sun Wing, Mr. KAN Shun Ming and Dr. Chu Junhao.

–96– NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

1. The voting at the EGM shall be conducted by way of poll.

2. The holders of A Shares and H Shares will vote as one class of shareholders. The Company’s register of members for the H Shares will be closed from Saturday, 19 December 2015 to Monday, 18 January 2016, both days inclusive, during which period no transfer of H Shares will be effected. The holders of H Shares whose names appear on the Company’s register of members on Friday, 18 December 2015 are entitled to attend and vote at the EGM. In order to qualify for attending and voting at the EGM, the holders of H Shares whose transfers have not been registered must deposit transfer documents together with the relevant share certificates at the H share registrar of the Company, Computershare Hong Kong Investor Services Limited, no later than 4:30 p.m. on Friday, 18 December 2015. The address of Computershare Hong Kong Investor Services Limited is Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

3. Each Shareholder entitled to attend and vote at the EGM may appoint one or more proxies to attend and vote on his or her behalf. A proxy needs not be a Shareholder. Each Shareholder who wishes to appoint one or more proxies should first review the Circular in respect of the EGM.

4. The instrument appointing a proxy must be in writing under the hand of a Shareholder or his attorney duly authorised in writing. If the Shareholder is a corporation, that instrument must be either under its common seal or under the hand of its director(s) or duly authorised attorney(s). If that instrument is signed by an attorney of the Shareholder, the power of attorney authorising that attorney to sign or other authorisation document must be notarised.

5. In order to be valid, the form of proxy together with the power of attorney or other authorisation document (if any) signed by the authorised person or notarially certified power of attorney must be deposited at Computershare Hong Kong Investor Services Limited for holders of H Shares at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 24 hours before the time fixed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of a form of proxy will not preclude a Shareholder from attending and voting in person at the EGM if he/she so wishes.

6. Shareholders who intend to attend the EGM in person or by proxy should return the reply slip to Computershare Hong Kong Investor Services Limited for holders of H Shares on or before Tuesday, 29 December 2015. The address of Computershare Hong Kong Investor Services Limited is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

7. The EGM is expected to last for no more than half a day. Shareholders (or their proxies) attending the meeting are responsible for their own transportation and accommodation expenses. Shareholders (or their proxies) attending the meeting shall produce their identity documents.

8. Please refer to the circular of the Company in relation to the EGM to be published on or before 31 December 2015 for details of the resolutions to be proposed at the EGM for consideration and approval.

–97– NOTICE OF H SHARE CLASS MEETING

NOTICE OF H SHARE CLASS MEETING

NOTICE IS HEREBY GIVEN that a class meeting for holders of H Shares (the “H Share Class Meeting”) of Shanghai Electric Group Company Limited (the “Company”) will be held on Monday, 18 January 2016 immediately after the conclusion or adjournment of the extraordinary general meeting (the “EGM”) and the class meeting for holders of A Shares (the “A Share Class Meeting”) of the Company to be convened on Monday, 18 January 2016 at Xingyuan Hall, 3/F, B Block, Ramada Plaza Shanghai Caohejing, No. 509 Caobao Road, Shanghai, the PRC for the purpose of considering and, if thought fit, approving the following resolutions:

SPECIAL RESOLUTIONS:

Assets swap and issuance of shares for acquisition of assets

1.1 Parties to the transaction;

1.2 Transaction subjects;

1.3 Basis of pricing and transaction price;

1.4 Arrangement for profit or loss for the period;

1.5 Procedures for transfer of ownership and liability for breach of contract;

1.6 Class and nominal value shares to be issued;

1.7 Target subscribers for shares to be issued;

1.8 Method of issuance and subscription for shares;

1.9 Pricing benchmark date, basis of pricing and issue price for the issuance of shares;

* For identification purpose only

–98– NOTICE OF H SHARE CLASS MEETING

1.10 Number of shares to be issued;

1.11 Lock-up period arrangement;

1.12 Listing place of the shares to be issued;

1.13 Treatment for the company’s undistributed retained earnings prior to the shares issuance;

1.14 The validity of the resolutions;

Issuance of Shares for Supporting Funds Raising

1.15 The class and nominal value of shares to be issued;

1.16 Target subscribers and methods of subscription;

1.17 Issue price;

1.18 Number of shares to be issued;

1.19 Use of proceeds;

1.20 Lock-up period arrangement;

1.21 Stock exchange for the proposed listing; and

1.22 The validity of the resolutions.

5. To consider and, if thought fit, to approve the resolution in relation to the grant of the authorization to the board at the general meeting to deal with relevant matters of the Transaction.

–99– NOTICE OF H SHARE CLASS MEETING

6. To consider and, if thought fit, to approve the resolution in relation to the report on the use of proceeds from the previous fund raising activity by the Company.

By order of the Board Shanghai Electric Group Company Limited Huang Dinan Chairman of the Board

Shanghai, the PRC, 4 December 2015

Notes:

1. The voting at the H Share Class Meeting shall be conducted by way of poll.

2. The Company’s register of members for the H Shares will be closed from Saturday, 19 December 2015 to Monday, 18 January 2016, both days inclusive, during which period no transfer of H Shares will be effected. The holders of H Shares whose names appear on the Company’s register of members on Friday, 18 December 2015 are entitled to attend and vote at the H Share Class Meeting. In order to qualify for attending and voting at the H Share Class Meeting, the holders of H Shares whose transfers have not been registered must deposit transfer documents together with the relevant share certificates at the H share registrar of the Company, Computershare Hong Kong Investor Services Limited, no later than 4:30 p.m. on Friday, 18 December 2015. The address of Computershare Hong Kong Investor Services Limited is Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

3. Each Shareholder entitled to attend and vote at the H Share Class Meeting may appoint one or more proxies to attend and vote on his or her behalf. A proxy needs not be a Shareholder. Each Shareholder who wishes to appoint one or more proxies should first review the Circular in respect of the EGM and the H Share Class Meeting.

5. In order to be valid, the form of proxy together with the power of attorney or other authorisation document (if any) signed by the authorised person or notarially certified power of attorney must be deposited at Computershare Hong Kong Investor Services Limited for holders of H Shares at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 24 hours before the time fixed for holding the H Share Class Meeting or any adjournment thereof (as the case may be). Completion and return of a form of proxy will not preclude a Shareholder from attending and voting in person at the H Share Class Meeting if he/she so wishes.

6. Shareholders who intend to attend the H Share Class Meeting in person or by proxy should return the reply slip to Computershare Hong Kong Investor Services Limited for holders of H Shares on or before Tuesday, 29 December 2015. The address of Computershare Hong Kong Investor Services Limited is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

– 100 – NOTICE OF H SHARE CLASS MEETING

7. The H Share Class Meeting is expected to last for no more than half a day. Shareholders (or their proxies) attending the meeting are responsible for their own transportation and accommodation expenses. Shareholders (or their proxies) attending the meeting shall produce their identity documents.

8. Please refer to the circular of the Company in relation to the EGM and the H Share Class Meeting to be published on or before 31 December 2015 for details of the resolutions to be proposed at the H Share Class Meeting for consideration and approval.

– 101 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this Circular received from Jones Lang LaSalle Corporate Appraisal and Advisory Limited, an independent valuer, in connection with its valuation as at 30 September 2015 of 10 parcels of land and the buildings with title certificates and structures erected thereon and 4 parcels of land assuming on clear site state held by Shanghai Electric (Group) Corporation (the “Target Properties”).

Jones Lang LaSalle Corporate Appraisal and Advisory Limited 6/F Three Pacific Place 1 uQ een’s Road East Hong Kong tel +852 2846 5000 fax +852 2169 6001 Licence No.: C-030171

31 December 2015

The Board of Directors Shanghai Electric Group Company Limited (the “Company”) 30th Floor, Maxdo Center No. 8 Xingyi Road Shanghai The People’s Republic of China

Dear Sirs,

On 2 December 2015, the Company entered into the Restructuring Agreement, pursuant to which the Company proposed to conduct an assets swap for its 100% equity interests in Shanghai Heavy Machinery Plant Co., Ltd., at a value of RMB1.00, with the equivalent parts of 100% equity interests in Shanghai Electric Industrial Company Limited, 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd., 100% equity interests in Shanghai Blower Works Co., Ltd., 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. held by Shanghai Electric (Group) Corporation (“SEC”). The difference between the consideration for the equity interests of the Incoming Assets and that for the Outgoing Assets of RMB3,400,913,224 and the consideration for Target Properties of RMB2,916,326,263 will be settled by way of the issuance of 606,843,370 Consideration Shares by the Company to SEC at the issue price of RMB10.41 per Consideration Share.

In accordance with your instructions to value the Target Properties held by Shanghai Electric (Group) Corporation in Shanghai, the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the property interests as at 30 September 2015 (the “valuation date”).

– I-1 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

12 parcels of land among the Target Properties are government allocated land or kongzhuan (空轉) land which means government assigned land without purchase price payment. As of the date of this report, SEC has entered into land use rights grant contracts, in respect of the aforementioned 12 parcels of government allocated land or kongzhuan land with the relevant planning and land administration authorities in Shanghai. As advised by SEC, the relevant title certificates in granted land status for such lands are still in the process of being obtained.

Our valuation is carried out on a market value basis. Market value is defined as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

In valuing the property nos. 1 to 7 and property no. 9, due to the nature of the buildings and structures of the properties and the particular location in which they are situated, there are unlikely to be relevant market comparable sales readily available. The property interests have therefore been valued by Cost Approach with reference to their depreciated replacement cost.

Depreciated replacement cost is defined as “the current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimization.” It is based on an estimate of the market value for the existing use of the land, plus the current cost of replacement (reproduction) of the improvements, less deductions for physical deterioration and all relevant forms of obsolescence and optimization. In arriving at the value of land portion, reference has been made to the sales evidence as available in the locality. The depreciated replacement cost of the property interest is subject to adequate potential profitability of the concerned business. In our valuation it applies to the whole of the complex or development as a unique interest, and no piecemeal transaction of the complex or development is assumed.

We have valued the property no. 8 in Group I by income approach by taking into account the net rental income of the property derived from the existing leases and/or achievable in the existing market with due allowance for the reversionary income potential of the leases, which have been then capitalized to determine the market value at an appropriate capitalization rate.

As instructed by the Company, we have valued the property nos. 10 to 13 on clear site sate and disregarded any buildings and structures erected thereon. These properties have been valued by direct comparison approach assuming sale of the property interests on clear site state with the benefit of immediate vacant possession and by making reference to comparable sales transactions as available in the relevant market. Appropriate adjustments and analysis are considered to the differences in location, size, and other characters between the comparable properties and the subject properties.

– I-2 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

Our valuation has been made on the assumption that the seller sells the property interests in the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the values of the property interests.

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

In valuing the property interests, we have complied with all requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; the RICS Valuation — Professional Standards published by the Royal Institution of Chartered Surveyors; the HKIS Valuation Standards published by the Hong Kong Institute of Surveyors and the International Valuation Standards published by the International Valuation Standards Council.

We have relied to a very considerable extent on the information given by Shanghai Electric (Group) Corporation and have accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements, particulars of occupancy, lettings, and other relevant matters.

We have been shown copies of Real Estate Title Certificates relating to the property interests and have made relevant enquiries. Where possible, we have examined the original documents to verify the existing title to the property interests in the PRC and any material encumbrance that might be attached to the property interests or any tenancy amendment. We have relied considerably on the advice given by the Company’s PRC legal advisers – Llinks Law Offices, concerning the validity of the property interests in the PRC.

We have not carried out detailed measurements to verify the correctness of the areas in respect of the properties but have assumed that the areas shown on the title documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

We have inspected the exterior and, where possible, the interior of the properties. However, we have not carried out investigation to determine the suitability of the ground conditions and services for any development thereon. Our valuation has been prepared on the assumption that these aspects are satisfactory. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defect. We are not, however, able to report whether the properties are free of rot, infestation or any other structural defect. No tests were carried out on any of the services.

– I-3 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

Inspection of the properties was carried out in November 2015 by Mr. Edward Yang, Mr. Shawn Sheng and Mr. Bryan Yan. Mr. Edward Yang has obtained the bachelor degree in construction management and has 3 years’ experience in the valuation of properties in the PRC. Mr. Shawn Sheng has obtained the bachelor degree in Surveying and Mapping and has 1 year’s experience in the valuation of properties in the PRC. Mr. Bryan Yan is a probationer of the RICS and has 1 year’s experience in the valuation of properties in the PRC.

We have had no reason to doubt the truth and accuracy of the information provided to us by Shanghai Electric (Group) Corporation. We have also sought confirmation from Shanghai Electric (Group) Corporation that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to arrive an informed view, and we have no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary figures stated in this report are in Renminbi (RMB).

Our valuation is summarized below and the valuation certificates are attached.

Yours faithfully, for and on behalf of Jones Lang LaSalle Corporate Appraisal and Advisory Limited Eddie T. W. Yiu MRICS MHKIS RPS (GP) Director

Note: Eddie T.W. Yiu is a Chartered Surveyor who has 21 years’ experience in the valuation of properties in Hong Kong and the PRC as well as relevant experience in the Asia-Pacific region.

– I-4 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

SUMMARY OF VALUES

GroupI–Target Properties held by Shanghai Electric (Group) Corporation valued in existing state

Market value for Market value in reference (for existing state as property without at 30 September proper title No. Property 2015 certificates*) RMB RMB

1. A parcel of land, 143 buildings and No commercial 1,281,429,000 various structures value located at No. 1076 Jungong Road Yangpu District Shanghai The PRC

2. A parcel of land, 71 buildings and No commercial 210,617,000 various structures value located at No. 200 Jin Sha Jiang Sub-road Jiangding District The PRC

3. A parcel of land, 18 buildings and No commercial 90,667,000 various structures value located at No. 621 Longchang Road Yangpu District Shanghai The PRC

4. A parcel of land and 11 buildings No commercial 302,062,000 located at No. 400 value Wenshui Road Zhabei District Shanghai The PRC

– I-5 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

Market value for Market value in reference (for existing state as property without at 30 September proper title No. Property 2015 certificates*) RMB RMB

5. A parcel of land and 6 buildings No commercial 130,361,000 located at No. 450 value Wenshui Road Zhabei District Shanghai The PRC

6. 2 parcels of land and 10 buildings No commercial 33,250,000 located at No. 750 value Lingshi Road Zhabei District Shanghai The PRC

7. A parcel of land and 13 buildings No commercial 168,899,000 located at No. 115 value Caobao Road Xuhui District Shanghai The PRC

8. An office building 103,160,000 N/A located at No. 7, Lane 1736 Yang Shu Pu Road Yangpu District Shanghai The PRC

9. A parcel of land and a building 391,000 N/A located at No. 4 (Yi) Zhuhang Road Xuhui District Shanghai The PRC

Total: 103,551,000 2,217,285,000

Note: In the valuation of these properties, because the relevant land granting procedures are under processing and the proper title certificates have not been obtained yet, we have attributed no commercial value to these properties. However, for reference purpose, we have assessed the market values of them assuming their proper title certificates without subject to the limitation of kongzhuan or allocated land have been obtained and they can be freely transferred.

– I-6 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

Group II – Target Properties held by Shanghai Electric (Group) Corporation valued on clear site state

Market value for Market value on reference (for clear site state as property without at 30 September proper title No. Property 2015 certificates*) RMB RMB

10. A parcel of land No commercial 12,779,000 located at No. 100 value Wenshui Road Zhabei District Shanghai The PRC

11. A parcel of land No commercial 148,417,000 located at No. 1590 value Longwu Road Xuhui District Shanghai The PRC

12. A parcel of land No commercial 327,023,000 located at No. 1287 value Beijing West Road and No. 154 Nanyang Road Jingan District Shanghai The PRC

13. A parcel of land No commercial 109,822,000 located at No. 3015 value Gonghe Xin Road Zhabei District Shanghai The PRC

Total: Nil 598,041,000

– I-7 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

GroupI–Target Properties held by Shanghai Electric (Group) Corporation valued in existing state

Market value in Particulars of existing state as at No. Property Description and tenure occupancy 30 September 2015 RMB

1. A parcel of land, The property comprises a Except for portions of the No commercial 143 buildings and parcel of land with a site property which were value various structures area of approximately rented to various parties, located at No. 1076 358,219 sq.m. and 143 the remaining portion of Jungong Road buildings and various the property was vacant Yangpu District ancillary structures as at the valuation date. Shanghai erected thereon which The PRC were completed in various stages between 1950 and 1997.

The buildings have a total gross floor area of approximately 188,537.56 sq.m.

The buildings mainly include industrial building, office building and warehouse.

The structures mainly include roads and landscaped area.

The land use rights of the property have been granted by way of kongzhuan (空轉) for a term expiring on 26 June 2051 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2005) Di No. 000235, 143 buildings with a total gross floor area of approximately 188,537.56 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 358,219 sq.m. have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 26 June 2051 for industrial use.

– I-8 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

2. Pursuant to a State-owned Land Use Rights Grant Contract dated 23 November 2015, the land use rights of the property were contracted to be granted to Shanghai Electric (Group) Corporation with the particulars as follows.

Site Area : 358,219 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 210,760.25 sq.m. Land Premium : RMB327,770,000

3. According to various Tenancy Agreements, a portion of land with a site area of 24,018.1 sq.m. and portions of buildings of the property with a total gross floor area of approximately 106,692.71 sq.m. were rented to various parties for various terms with the expiry dates between 31 December 2015 and 31 December 2021 at a total monthly rent of RMB1,768,952.79 for industrial, office and storage uses.

4. Based on our site inspection and the information provided, there are 2 additional buildings with a total gross floor area of approximately 1,011.7 sq.m. erected on the land of the property. These buildings have not obtained Real Estate Title Certificate (building part). As instructed by the Company, these 2 buildings are excluded from the valuation scope.

5. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

b) Shanghai Electric (Group) Corporation has signed State-owned Land Use Rights Grant Contract for the property with the relevant land authorities and the land granting procedures are under processing; and

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

6. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB1,281,429,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

– I-9 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

2. A parcel of land, The property comprises a Except a portion of the No commercial 71 buildings and parcel of land with a site property which was value various structures area of approximately rented to a party, the located at No. 200 126,474 sq.m. and 71 remaining portion of the Jin Sha Jiang buildings and various property was occupied Sub-road ancillary structures by Shanghai Electric Jiangding District erected thereon which (Group) Corporation’s The PRC were completed in subsidiaries for various stages between industrial, office and 1971 and 2004. ancillary purposes as at the valuation date. The buildings have a total gross floor area of approximately 58,748 sq.m.

The buildings mainly include industrial building, office building and dormitory.

The structures mainly include roads and landscaped area.

The land use rights of the property have been granted by way of kongzhuan (空轉) for a term expiring on 26 June 2051 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Jia Zi (2006) Di No. 019483, 71 buildings with a total gross floor area of approximately 58,748 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 126,474 sq.m. have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 26 June 2051 for industrial use.

2. Pursuant to a State-owned Land Use Rights Grant Contract dated 24 November 2015, the land use rights of the property were contracted to be granted to Shanghai Electric (Group) Corporation with the particulars as follows.

Site Area : 126,474 sq.m. Land Use : Industrial Land Term : 20 years Plot ratio : 0.48 Land Premium : RMB48,610,000

– I-10 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

3. According to a Tenancy Agreement entered into between Shanghai Electric (Group) Corporation and Shanghai Li Meng Logistics Service Co., Ltd. (上海立夢倉儲服務有限公司), a portion of land with a site area of 10,000 sq.m. and portions of buildings of the property with a total gross floor area of approximately 4,960 sq.m. of the property were rented to Shanghai Li Meng Logistics Service Co., Ltd. for a term commencing from 28 February 2013 and expiring on 27 February 2016 at a monthly rent of RMB85,866.25 and the monthly management fee of RMB28,622.08.

4. Based on our site inspection and the information provided, there are 5 additional buildings with a total gross floor area of approximately 739 sq.m. erected on the land of the property. These buildings have not obtained Real Estate Title Certificate (building part). As instructed by the Company, these 5 buildings are excluded from the valuation scope.

5. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

6. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB210,617,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

– I-11 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

3. A parcel of land, The property comprises a The property was vacant No commercial 18 buildings and parcel of land with a site as at the valuation date. value various structures area of approximately located at No. 621 16,658.6 sq.m. and 18 Longchang Road buildings and various Yangpu District ancillary structures Shanghai erected thereon which The PRC were completed in various stages between 1964 and 1997.

The buildings have a total gross floor area of approximately 22,549.39 sq.m.

The buildings mainly include industrial building, office building and staff canteen.

The structures mainly include boundary walls and roads.

The land use rights of the property have been granted by way of kongzhuan (空轉) for a term expiring on 26 June 2051 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Yang Zi (2012) Di No. 006531, 18 buildings with a total gross floor area of approximately 22,549.39 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 16,658.6 sq.m. have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 26 June 2051 for industrial use.

Site Area : 16,659 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 22,571.39 sq.m. Land Premium : RMB23,240,000

– I-12 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

3. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

4. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB90,667,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

– I-13 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

4. A parcel of land and The property comprises a Except for a portion of No commercial 11 buildings parcel of land with a site land which was rented to value located at No. 400 area of approximately a party, the remaining Wenshui Road 60,630.82 sq.m. and 11 portion of the property Zhabei District buildings erected thereon was occupied by Shanghai which were completed in Shanghai Engineering The PRC 1980. Machinery Co., Ltd., the subsidiary of SEC for The buildings have a industrial, office, storage total gross floor area of and ancillary purposes as approximately 27,151 at the valuation date. sq.m.

The buildings mainly include industrial building, office building and warehouse.

The land use rights of the property have been granted by way of kongzhuan (空轉) for a term expiring on 26 June 2051 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2005) Di No. 000181, 12 buildings with a total gross floor area of approximately 28,381 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 58,890 sq.m. have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 26 June 2051 for industrial use.

2. According to a document named〈上海電氣（集團）總公司核心資產整體上市閘北區房地產資產評估建築面積與土地面積測算情況表〉dated 20 November 2015, issued by Diji Division of Planning & Land Resources Administration Bureau of Zhabei District, the land area of the property and the gross floor area of the buildings erected on the property (under Hu Fang Di Shi Zi (2005) Di No. 000181) have been re-surveyed. The updated land area of the property is approximately 60,630.82 sq.m. and the gross floor area of 11 buildings with building title is approximately 27,151 sq.m.

3. Pursuant to a State-owned Land Use Rights Grant Contract dated 28 November 2015, the land use rights of the property were contracted to be granted to Shanghai Electric (Group) Corporation with the particulars as follows.

Site Area : 60,630.82 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 27,151 sq.m. Land Premium : RMB80,520,000

– I-14 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

4. According to a Tenancy Agreement entered into between Shanghai Electric (Group) Corporation and China Petroleum & Chemical Corporation, Shanghai Branch (中國石油化工股份有限公司上海石油分公司), a portion of land of the property with a site area of approximately 1,300 sq.m. was rented to China Petroleum & Chemical Corporation, Shanghai Branch for a term commencing from 1 January 2011 and expiring on 30 November 2022 at a monthly rent of RMB10,000.

5. Based on our site inspection and the information provided, there are 5 additional buildings with a total gross floor area of approximately 9,091 sq.m. erected on the land of the property. These buildings have not obtained Real Estate Title Certificate (building part). As instructed by the Company, these 5 buildings are excluded from the valuation scope.

6. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

7. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB302,062,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

– I-15 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

5. A parcel of land and The property comprises a The property was vacant No commercial 6 buildings parcel of land with a site as at the valuation date. value located at No. 450 area of approximately Wenshui Road 26,942.86 sq.m. and 6 Zhabei District buildings erected thereon Shanghai which were completed in The PRC 1980.

The buildings have a total gross floor area of approximately 9,832.71 sq.m.

The buildings mainly include industrial buildings and office building.

The land use rights of the property have been granted by way of kongzhuan (空轉) for a term expiring on 26 June 2051 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2006) Di No. 000086, 6 buildings with a total gross floor area of approximately 9,832.71 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 27,105 sq.m. (including the land use rights of the property) have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 26 June 2051 for industrial use.

2. According to a document named〈上海電氣（集團）總公司核心資產整體上市閘北區房地產資產評估建築面積與土地面積測算情況表〉dated 20 November 2015, issued by Diji Division of Planning & Land Resources Administration Bureau of Zhabei District, the land area of the property and the gross floor area of the buildings erected on the property (under Hu Fang Di Shi Zi (2006) Di No. 000086) have been re-surveyed. The updated land area of the property is approximately 26,942.86 sq.m. and the gross floor area of the buildings with building title is approximately 9,832.71 sq.m.

Site Area : 26,942.86 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 9,832.71 sq.m. Land Premium : RMB35,570,000

– I-16 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

4. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

5. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB130,361,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

– I-17 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

6. 2 parcels of land and The property comprises 2 The property was partly No commercial 10 buildings parcels of land with a vacant and partly value located at No. 750 total site area of occupied by several Lingshi Road approximately 7,079.17 parties as at the valuation Zhabei District sq.m. and 10 buildings date. Shanghai erected thereon which The PRC were completed in various stages between 1972 and 1988.

The buildings have a total gross floor area of approximately 3,991 sq.m.

The buildings mainly include warehouse and office building.

The land use rights of a parcel of land with a site area of approximately 5,362.36 sq.m. have been granted by way of kongzhuan (空轉) for a term expiring on 26 June 2051 for industrial use. The land use rights of the remaining parcel of land with a site area of approximately 1,716.81 sq.m. have been allocated to Shanghai Electric (Group) Corporation.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2005) Di No. 000244, 5 buildings with a total gross floor area of approximately 3,602 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 5,404 sq.m. have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 26 June 2051 for industrial use.

2. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2005) Di No. 000245, 3 buildings with a total gross floor area of approximately 389 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 1,652 sq.m. have been allocated to Shanghai Electric (Group) Corporation for industrial use.

3. According to a document named〈上海電氣（集團）總公司核心資產整體上市閘北區房地產資產評估建築面積與土地面積測算情況表〉dated 13 November 2015, issued by Diji Division of Planning & Land Resources Administration Bureau of Zhabei District, the land area of a parcel of land of the property and the gross floor area of the buildings erected on this land (under Hu Fang Di Shi Zi (2005) Di No. 000244) have been re-surveyed. The updated land area of the property is approximately 5,362.36 sq.m. and the gross floor area of the buildings with building title is approximately 3,602 sq.m.

– I-18 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

4. Pursuant to a State-owned Land Use Rights Grant Contract dated 28 November 2015, the land use rights of the property were contracted to be granted to Shanghai Electric (Group) Corporation with the particulars as follows.

Site Area : 5,362.36 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 3,602 sq.m. Land Premium : RMB7,140,000

5. According to a document named〈上海電氣（集團）總公司核心資產整體上市閘北區房地產資產評估建築面積與土地面積測算情況表〉dated 13 November 2015, issued by Diji Division of Planning & Land Resources Administration Bureau of Zhabei District, the land area of a parcel of land of the property and the gross floor area of the buildings erected on this land (under Hu Fang Di Shi Zi (2005) Di No. 000245) have been re-surveyed. The updated land area of the property is approximately 1,716.81 sq.m. and the gross floor area of the buildings with building title is approximately 389 sq.m.

6. Pursuant to a State-owned Land Use Rights Grant Contract dated 28 November 2015, the land use rights of the property were contracted to be granted to Shanghai Electric (Group) Corporation with the particulars as follows.

Site Area : 1,716.81 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 389 sq.m. Land Premium : RMB2,270,000

7. Based on our site inspection and the information provided, there are 2 additional buildings with a total gross floor area of approximately 436 sq.m. erected on the land of the property. These buildings have not obtained Real Estate Title Certificate (building part). As instructed by the Company, these 2 buildings are excluded from the valuation scope.

8. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

9. In the valuation of this property, we have relied on aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan or allocated and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB33,250,000 assuming all relevant title certificates without subject to the limitation of kongzhuan and allocated land had been obtained and the property could be freely transferred.

– I-19 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

7. A parcel of land and The property comprises a The property was vacant No commercial 13 buildings parcel of land with a site as at the valuation date. value located at No. 115 area of approximately Caobao Road 26,744 sq.m. and 13 Xuhui District buildings erected thereon Shanghai which were completed in The PRC various stages between 1979 and 1988.

The buildings have a total gross floor area of approximately 29,131 sq.m.

The buildings mainly include industrial building, warehouse and office building.

The land use rights of the property have been granted by way of kongzhuan (空轉) for a term expiring on 26 June 2051 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2005) Di No. 000219, 13 buildings with a total gross floor area of approximately 29,131 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 26,744 sq.m. have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 26 June 2051 for industrial use.

2. Pursuant to a State-owned Land Use Rights Grant Contract dated 11 November 2015, the land use rights of the property were contracted to be granted to Shanghai Electric (Group) Corporation with the particulars as follows.

Site Area : 26,744 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 29,581 sq.m. Land Premium : RMB44,870,000

– I-20 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

3. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

4. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB168,899,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

– I-21 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

8. An office building The property comprises a The property was rented 103,160,000 located at No. 7, 9-storey office building to a party for office use Lane 1736 which was completed in as at the valuation date. Yang Shu Pu Road 2004. Yangpu District Shanghai The property has a gross The PRC floor area of approximately 6,173.35 sq.m.

The land use rights of the property have been granted for a term expiring on 29 October 2051 for commercial and office uses.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Yang Zi (2011) Di No. 020517, the property with a gross floor area of approximately 6,173.35 sq.m. is owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 7,299 sq.m. have been granted to Shanghai Electric (Group) Corporation for a term expiring on 29 October 2051 for commercial and office uses.

2. According to a Tenancy Agreement entered into between Shanghai Electric (Group) Corporation and Shanghai Electric Power Generation Equipment Co., Ltd. (上海電氣電站設備有限公司), the property was rented to Shanghai Electric Power Generation Equipment Co., Ltd., the subsidiary of the Company for a term commencing from 1 June 2014 and expiring on 31 May 2017 at a monthly rent of RMB191,528.1 for office use.

3. In the course of valuation, reference has been made to rental evidence and asking rent of similar office developments in the locality which are in the region of RMB2.8 to RMB4 per sq.m./per day. The assumed market yield is 5% which is in line with the market yield of this property sector in the region of 4.5% to 6%.

4. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) Shanghai Electric (Group) Corporation owns the building ownership rights and the land use rights of the property and is entitled to use, transfer, lease, mortgage or otherwise dispose of the property.

– I-22 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value in existing state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

9. A parcel of land and The property comprises a The property was rented 391,000 a building parcel of land with a site to a party for office and located at No. 4 (Yi) area of approximately 188 storage uses as at the Zhuhang Road sq.m. and an industrial valuation date. Xuhui District building erected thereon Shanghai which was completed in The PRC 1991.

The building has a gross floor area of approximately 116 sq.m.

The land use rights of the property have been granted for a term expiring on 9 November 2054 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2005) Di No. 000027, a building with a gross floor area of approximately 116 sq.m. is owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 188 sq.m. have been granted to Shanghai Electric (Group) Corporation for a term expiring on 9 November 2054 for industrial use.

2. According to a Tenancy Agreement entered into between Shanghai Electric Hydraulics Pneumatics Co., Ltd. (上海電氣液壓氣動有限公司), the subsidiary of the Company and Shanghai Shi Mian Sealing Material Co., Ltd. (上海實勉密封材料有限公司), the property was rented to Shanghai Shi Mian Sealing Material Co., Ltd. for a term commencing from 1 January 2015 and expiring on 31 December 2015 at a monthly rent of RMB900 for office and storage uses.

3. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

– I-23 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Group II – Target Properties held by Shanghai Electric (Group) Corporation valued on clear site state

Market value on clear site state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

10. A parcel of land The property comprises a As advised, the property No commercial located at No. 100 parcel of land with a site was rented by Shanghai value Wenshui Road area of approximately Electric Shanghai Renmin Zhabei District 2,896.43 sq.m. Electrical Apparatus Shanghai Works, a subsidiary of The PRC The land use rights of the the Company as at the property have been valuation date. granted by way of kongzhuan (空轉) for a term expiring on 27 June 2051 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2004) Di No. 000137, 11 buildings with a gross floor area of approximately 5,239 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 7,962 sq.m. (including the land use rights of the property) have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 27 June 2051 for industrial use.

2. According to a document named〈上海電氣(集團)總公司核心資產整體上市閘北區房地產資產評估建築面積與土地面積測算情況表〉dated 18 November 2015, issued by Diji Division of Planning & Land Resources Administration Bureau of Zhabei District, the land area of the property and the gross floor area of the buildings erected on the property (under Hu Fang Di Shi Zi (2004) Di No. 000137) have been re-surveyed. The updated land area of the property is approximately 2,896.43 sq.m.

Site Area : 2,896.43 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 916 sq.m. Land Premium : RMB3,820,000

4. Based on our site inspection and the information provided by the Company, there are various buildings erected on the property which are occupied by Shanghai Electric (Group) Corporation for industrial use. As instructed by the Company, these buildings are excluded from our valuation. We have valued the property on the assumption that the property is a clear site.

– I-24 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

5. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

6. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB12,779,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

7. In our valuation for reference purpose as stated in note 6, we have identified and analysed various relevant sales evidence in the locality which have similar characteristic as the subject property. The land price of these comparables range from RMB4,200/sq.m. to RMB4,500/sq.m. Appropriate adjustments and analysis are considered to the differences in location, size and other characters between the comparable properties and the subject property to arrive at an assumed unit rate of RMB4,412/sq.m. for the subject property.

– I-25 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value on clear site state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

11. A parcel of land The property comprises a As advised, the property No commercial located at No. 1590 parcel of land with a site was rented by Shanghai value Longwu Road area of approximately Centrifuge Institute Co., Xuhui District 30,862.37 sq.m. Ltd., a subsidiary of the Shanghai Company as at the The PRC The land use rights of the valuation date. property have been granted by way of kongzhuan (空轉) for a term expiring on 28 July 2054 for science and research use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2004) Di No. 000335, 14 buildings with a total gross floor area of approximately 11,088.25 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 30,766 sq.m. (subsequently changed to 30,862.37 sq.m. as mentioned in note 2) have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 28 July 2054 for science and research use.

2. Pursuant to a State-owned Land Use Rights Grant Contract dated 25 November 2015, the land use rights of the property were contracted to be granted to Shanghai Electric (Group) Corporation with the particulars as follows.

Site Area : 30,862.37 sq.m. Land Use : Science and research Land Term : 50 years Above-land Gross Floor Area : 11,088.25 sq.m. Land Premium : RMB44,330,000

3. Based on our site inspection and the information provided by the Company, there are various buildings erected on the property which are occupied by Shanghai Electric (Group) Corporation for industrial use. As instructed by the Company, these buildings are excluded from our valuation. We have valued the property on the assumption that the property is a clear site.

4. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

– I-26 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

5. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB148,417,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

6. In our valuation for reference purpose as stated in note 5, we have identified and analysed various relevant sales evidence in the locality which have similar characteristic as the subject property. The land price of these comparables range from RMB4,000/sq.m. to RMB5,300/sq.m. Appropriate adjustments and analysis are considered to the differences in location, size and other characters between the comparable properties and the subject property to arrive at an assumed unit rate of RMB4,809/sq.m. for the subject property.

– I-27 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value on clear site state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

12. A parcel of land The property comprises a As advised, the property No commercial located at No. 1287 parcel of land with a site was rented by Shanghai value Beijing West Road area of approximately Institute of Mechanical and No. 154 2,564 sq.m. and Electrical Nanyang Road Engineering Co., Ltd., a Jingan District The land use rights of the subsidiary of the Shanghai property have been Company as at the The PRC granted by way of valuation date. kongzhuan (空轉) for a term expiring on 28 July 2054 for science and research use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2004) Di No. 000272, a building with a gross floor area of approximately 18,822.23 sq.m. is owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 2,564 sq.m. have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 28 July 2054 for science and research use.

2. Pursuant to a State-owned Land Use Rights Grant Contract dated 5 November 2015, the land use rights of the property were contracted to be granted to Shanghai Electric (Group) Corporation with the particulars as follows.

Site Area : 2,564 sq.m. Land Use : Science and research use Land Term : 50 years Above-land Gross Floor Area : 17,793.13 sq.m. Land Premium : RMB94,560,000

3. Based on our site inspection and the information provided by the Company, there is a building erected on the property which is occupied by Shanghai Electric (Group) Corporation for office use. As instructed by the Company, this building is excluded from our valuation. We have valued the property on the assumption that the property is a clear site.

4. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

– I-28 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

5. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB327,023,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

6. In our valuation for reference purpose as stated in note 5, we have identified and analysed various relevant sales evidence in the locality which have similar characteristic as the subject property. The accommodation value of these comparables range from RMB15,000/sq.m. to RMB27,000/sq.m. Appropriate adjustments and analysis are considered to the differences in location, size and other characters between the comparable properties and the subject property to arrive at an assumed accommodation value of RMB18,379/sq.m. for the subject property.

– I-29 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

VALUATION CERTIFICATE

Market value on clear site state as at No. Property Description and tenure Particulars of occupancy 30 September 2015 RMB

13. A parcel of land The property comprises a As advised, the property No commercial located at No. 3015 parcel of land with a site was rented by Shanghai value Gonghe Xin Road area of approximately Electric Shanghai Renmin Zhabei District 21,546.35 sq.m. Electrical Apparatus Shanghai Works, a subsidiary of The PRC The land use rights of the the Company as at the property have been valuation date. granted by way of kokngzhuan (空轉) for a term expiring on 26 June 2051 for industrial use.

Notes:

1. Pursuant to a Real Estate Title Certificate – Hu Fang Di Shi Zi (2004) Di No. 000021, 19 buildings with a total gross floor area of approximately 29,581 sq.m. are owned by Shanghai Electric (Group) Corporation. The land use rights of a parcel of land with a site area of approximately 21,589 sq.m. (including the land use rights of the property) have been granted to Shanghai Electric (Group) Corporation by way of kongzhuan for a term expiring on 26 June 2051 for industrial use.

2. According to a document named〈上海電氣（集團）總公司核心資產整體上市閘北區房地產資產評估建築面積與土地面積測算情況表〉dated 18 November 2015, issued by Diji Division of Planning & Land Resources Administration Bureau of Zhabei District, the land area of the property and the gross floor area of the buildings (under Hu Fang Di Shi Zi (2004) Di No. 000021) erected on the property have been re-surveyed. The updated land area of the property is approximately 21,546.35 sq.m.

Site Area : 21,546.35 sq.m. Land Use : Industrial Land Term : 20 years Above-land Gross Floor Area : 21,950.76 sq.m. Land Premium : RMB33,250,000

5. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

a) The property is not subject to any mortgage or third party encumbrance;

c) There is no legal impediment that the property can be transferred after completing the land granting procedure and obtaining the Real Estate Title Certificate in granted land status.

– I-30 – APPENDIX I PROPERTY VALUATION REPORT FOR TARGET PROPERTIES

6. In the valuation of this property, we have relied on the aforesaid legal opinion and attributed no commercial value to the property as the land use rights of the property were obtained by way of kongzhuan and may not be transferred freely. However, for reference purpose, we are of the opinion that the market value of the property as at the valuation date would be RMB109,822,000 assuming proper title certificates without subject to the limitation of kongzhuan had been obtained and the property could be freely transferred.

7. In our valuation for reference purpose as stated in note 6, we have identified and analysed various relevant sales evidence in the locality which have similar characteristic as the subject property. The land price of these comparables range from RMB4,200/sq.m. to RMB5,800/sq.m. Appropriate adjustments and analysis are considered to the differences in location, size and other characters between the comparable properties and the subject property to arrive at an assumed unit rate of RMB5,097/sq.m. for the subject property.

– I-31 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

The following is the text of the valuation report for the Target Properties dated 2 December A1B5(3) 2015 prepared in Chinese by Orient Appraisal Co., Ltd., the qualified PRC valuer. The Chinese text shall prevail over the English text in the event of inconsistency.

˄Report˅ Vol.1

Project Name: Business Valuation Report on Partial Operating Assets owned by Shanghai Electric Group CORP.with regard to Shanghai Electric Group Co., Ltd’s Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0902053

Orient Appraisal Co., Ltd.

Dec. 2rd, 2015

– II-1 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report (Contents)

Project Name: Business Valuation Report on Partial Operating Assets owned by Shanghai Electric Group CORP.with regard to Shanghai Electric Group Co., Ltd’s Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0902053 I. OUTLINE OF THE CLIENT AND OTHER REPORT USERS...... 6 , 7+(&/,(17 ,, 27+(55(325786(56 II. OUTLINE OF THE ASSESSED PARTY ...... 8 III. VALUATION PURPOSE ...... 8 IV. VALUATION SCOPE AND OBJECTS ...... 8 V. VALUE TYPE AND DEFINITION ...... 13 VI. THE VALUATION DATE ...... 13 VII. VALUATION BASIS ...... 13 , (&2120,&$&7,9,7<%$6,6 ,, 0$-25/(*$/%$6,6255()(5(1&(2)58/( /$: ,,, (9$/8$7,21&5,7(5,21 ,9 35,&,1*%$6,6$'237(' 9 .(<&2175$&76$*5((0(176$1'3523(57<5,*+7&(57,),&$7(6 9, 27+(5),/(6 9,, 5()(5(1&()52027+(5$335$,6(5&203$1< VIII. VALUATION APPROACHES ...... 16 , 287/,1( ,, 7+($3352$&+&+26(15($621$1'27+(5(;3/$1$7,21 ,,, ,1752'8&7,212)$'',7,9(0(7+2'2)6,1*/(,7(0$66(7 IX. VALUATION PROCESS ...... 20 X. PREMISES AND ASSUMPTIONS OF TENABILITY OF THE REPORT ...... 21 XI. VALUATION CONCLUSION ...... 22 , 287/,1( XII. ADDITIONAL DISCLOSURE ITEMS ...... 24 XIII. RESTRICTION OF THE USE OF THE REPORT ...... 25 , 7+(86(6&23(2)7+(5(3257 ,, 9$/,',7<3(5,2'2)7+(5(3257 ,,, 63(&,$/7(5065(*$5',1*7267$72:1('$66(76 ,9 7+((;326,7,9(5,*+72)7+(5(3257 XIV. THE SUBMISSION DATE OF THE REPORT ...... 26 )LOHVIRU5HIHUHQFH

– II-2 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

Appraisersÿ Statement

The signing certified appraisers herein state that we observe the principles of independence, objectivity and fairness, abide by the relative laws, regulations and the rules of valuation standards, the contents expressed in this report is objective and we are willing to take the legal responsibility to the legitimacy of the valuation conclusion according to the collected material in our working process. The assets and liabilities list of valuation objects should be declared and confirmed by the clients and valued partied by sealing on. ‘Valuation Standards-General’ Article 23 stipulates that the appraisers shall take responsibilities for presenting their professional opinion on the value of the engaged objects as at the valuation date through analysis and computation according to the related laws, regulations and the rules of valuation standards, while the Clients as well as concerning parties shall take responsibilities that they would provide necessary materials and make sure that the materials provided by them are real, legal and complete and also take responsibility for using the report properly. We have done the scene survey to the valuation objects and the related assets in this report, checked and paid necessary attention on the related legal property rights conditions of the valuation objects, disclosed the discovered problem strictly according to the facts, and submit to the clients and the certain parties to improved it in according to satisfy the requirement of submitting the valuation report. ‘Valuation Standards-General’ Article 24 and ‘Attention by Certified Asset Appraisers Toward the Legal Ownership of Appraised Objects Guiding Opinion’ stipulate that the Clients as well as concerning parties shall take responsibilities that the materials about legal property right are real, legal and complete. The goal of valuation performed by appraisers is to present their professional opinion on the value of the engaged objects and confirming the legal rights of the objects or putting forth opinions on that is beyond appraisers’ work scope. The report does not provide guarantee or certification of legal property rights of the objects. ‘Valuation Ethics Code -General’ Article 26 stipulates that the report is restricted by professional abilities of the appraisers and the appraisal company. The certified appraisers have the responsibility for warning the report users of understanding and using the report in a proper way and the certified appraisers are exempt from decision-making responsibilities of relevant parties. The analysis, judgments and conclusion in the report restricted by the assumptions and restriction terms, the report user should fully consider the influence to the valuation conclusion by the assumptions, restriction terms, additional disclosure items and others. ‘Valuation Standards-Report’ Article 13 stipulates that the report users should read the whole report carefully and pay special attention to the additional disclosure items and the restriction of the use of the report.

– II-3 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

Valuation Report (Abstract)

Project Name: Business Valuation Report on Partial Operating Assets owned by Shanghai Electric Group CORP.with regard to Shanghai Electric Group Co., Ltd’s Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0902053

The Client Shanghai Electric Group CORP; Shanghai Electric Group Co., Ltd(hereinafter refers to Shanghai Electric)

Other Report Users The legal user of the report including the client and the user formulated by State laws and regulations according to the engagement letter. The Assessed Party Shanghai Electric Group CORP

Valuation Purpose Issue Shares for Assets Purchase The Valuation Date Sep. 30th , 2015 Valuation Scope and Objects The valuation object is partial assets of assessed party. The valuation scope is related partial property(structures), equipment and land use right with regard to issue shares for assets purchase. Including: the book value for buildings and structures is RMB 97,107,330.11 yuan; The building area is 346,230.01 m2. The book value for equipment is RMB 2,859,404.54 yuan; There are engaged 142 sets of equipment. The book value for land use right is RMB 285,359,986.00 yuan; There are engaged 14 pieces of lands. The land area is 688,104.60m2. The engaged assets book value is RMB 385,326,720.65 Yuan.

Value Type Market Value

– II-4 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

Valuation Approach Additive Method of single item asset. Including: The buildings and structures and equipment are assessed per replacement cost method. The intangible assets –land use right is assessed per Market Approach. . Valuation Conclusion Through computation, the engaged assets as of valuation date is valued as RMB 2,916,326,263.48 Yuan. Period Of Validity The validity lasts for one year since the valuation date, i.e. until 29 Sep. 2016. Additional Disclosure Items See special disclosure in valuation report.

Special Notice: This report can only be used on the engaged purpose. The content above abstracts from the text, you can read the text to know the detail information and get a better understanding of the valuation conclusion of this project.

– II-5 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

Valuation Report (Text)

Notice: The Report can be used exclusively for the purpose engaged and is tenable under engaged conditions. To learn all information of this project, please read the whole report and files for reference carefully. Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd: We have received your engagement to evaluate SHANGHAI ELECTRIC GROUP CORP ‘s partial operating assets , according to the law, the regulations ,the asset appraisal principle and standards and the necessary evaluation program, through our computation with the Additive Method of single item asset, in purpose of Shanghai Electric Group Co., Ltd ‘s Issue Shares for Assets Purchase , in order to offer market value dated Sep. 30th , 2015. The report is as follows:

Project Name: Business Valuation Report on Partial Operating Assets owned by Shanghai Electric Group CORP.with regard to Shanghai Electric Group Co., Ltd’s Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0902053

I. Outline of the Client and Other Report Users i.The Client The client1: Shanghai Electric Group CORP.; Registered Address: No.110, Middle Sichuan Road; Registered Capital: RMB 7,024,766,000; Company Type: ownership by the whole people Legal Representative: Dinan Huang Business Scope: contractor business for electric engineering project and conglomeration or division of equipment, labor repatriation, investment of property, produce and sale of machinery equipment and relevant products, provide technique consulting or training services to import or export projects, manage state-owned assets in authorized scope, domestic trading (except special restrains) Ǐspecial projects shall be conducted after approved by relevant government departmentǐ Company Introduction: Shanghai Electric Group CORP. is one of the largest equipment manufacturing and conglomeration companies in China. It engages on the relevant project design and it was formally named as Shanghai Electric Union. On 22 Aug

– II-6 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

1984, the company was approved by Shanghai government, based on the restructuring of the Shanghai Power Station Equipment Company, where Shanghai Motor Factory, Shanghai Steam Turbine Factory, Shanghai Boiler Factory and Shanghai Power Station Auxiliary Equipment Factory and some other factories has been restructured ad had been transferred out from Shanghai Motor Manufacturing Management Bureau. Under the approval of Finance and Commerce Bureau, in 1994, the company changed its name to Shanghai Electric (Group) Corporation

The client 2: Shanghai Electric Group Co., Ltd (Share No. 601727) Registered Address: Floor.30, No.8, Xinyi Road,Shanghai; Registered Capital: RMB 12,823,626,660; Company Type: LLC(Taiwan, Hongkong, Macao and domestic joint venture, listed) Legal Representative: Dinan Huang Business Scope: Power station and electronic transfer, conglomeration of motor/electrical equipment, transportation, design, manufacturing, sales and after sales services for environmental device and related equipment. Wholesales, import and export of goods and technology, agency commission service and other packaging services. Contractor for electronic project, conglomeration and division of device/equipment, and technical services. Ǐspecial projects shall be conducted after approved by relevant government departmentǐ There are 4 major blocks for main business, which are new energy equipment, efficient and clean energy equipment, industrial equipment and modern service industry.

The client 1: Shanghai Electric Group CORP. is the assessed party. The client 2: Shanghai Electric Group Co., Ltd is the acquiring party, which issues shares for assets purchase. ii.Other Report Users The legal users of the report include the users as agreed in the engagement letter and formulated by State laws and regulations, and the relevant

– II-7 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

regulatory departments and authorities of the state-owned assets appraisal for economic behavior. Beyond that, any third party has acquired valuation report , who should not be regarded as the report users.

II. Outline of the Assessed Party The assessed party is Client 1 as of SHANGHAI ELECTRIC GROUP CORP.

III. Valuation Purpose The purpose of report is to provide a market value reference of related assets as of valuation date, in purpose of Shanghai Electric Group Co., Ltd’s Issue Shares for Purchasing Shanghai

Electric Group CORP.’s partial operating assets.

The acquired economic behavior document are as flows:

1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP;

IV. Valuation Scope and Objects 1. The valuation object is partial assets of assessed party. The valuation scope is related partial property(structures), equipment and land use right with regard to issue shares for assets purchase. Including: the book value for buildings and structures is RMB 97,107,330.11 yuan; The building area is 346,230.01m2. The book value for equipment is RMB 2,859,404.54 yuan; There are engaged 142 sets of equipment. The book value for land use right is RMB 285,359,986.00 yuan; There are engaged 14 pieces of lands. The land area is 688,104.60m2. The engaged assets book value is RMB 385,326,720.65 Yuan.

2. Per declaration list, there are 14 pieces of land in use right booked in intangible assets and 10 engaged Real Estates in fixed assets-buildings, including the details are as follows:

– II-8 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

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7UDQVIHU ˄2005˅ 1R1076, ZLWKRXW 1 7UDQVIHU ,QGXVWU\ 358,219.00 000235 -XQJRQJ5RDG SD\LQJ 7UDQVIHUIHH 7UDQVIHU 1R ˄2006˅ ZLWKRXW 2 -LQVKDMLDQJ 7UDQVIHU ,QGXVWU\ 126,474.00 019483 SD\LQJ %UDQFK5RDG 7UDQVIHUIHH 7UDQVIHU 1R ˄2012˅ ZLWKRXW 3 /RQJFKDQJ 7UDQVIHU ,QGXVWU\ 16,658.60 006531 SD\LQJ 5RDG 7UDQVIHUIHH ˄2005˅ 1R=KX[LQJ 4 7UDQVIHU 7UDQVIHU ,QGXVWU\ 188 000027 5RDG % 7UDQVIHU ˄2005˅ 1R ZLWKRXW 5 7UDQVIHU ,QGXVWU\ 60,630.82 000181 :HQVKXL5RDG SD\LQJ 7UDQVIHUIHH 7UDQVIHU ˄2006˅ 1R ZLWKRXW 6 7UDQVIHU ,QGXVWU\ 26,942.86 000086 :HQVKXL5RDG SD\LQJ 7UDQVIHUIHH 7UDQVIHU ˄2005˅ 1R ZLWKRXW 7 7UDQVIHU ,QGXVWU\ 5,362.36 000244 /LQVKL5RDG SD\LQJ 7UDQVIHUIHH ˄2005˅ 1R 8 *UDQWHG 7UDQVIHU ,QGXVWU\ 1,716.81 000245 /LQVKL5RDG 7UDQVIHU ˄2005˅ 12 ZLWKRXW 9 7UDQVIHU ,QGXVWU\ 26,744.00 000219 &DREDR5RDG SD\LQJ 7UDQVIHUIHH 1R/DQH ˄2011˅ %XVLQHVV 10 7UDQVIHU 7UDQVIHU 7,299.00 020517

7RWDO 688,104.60

˄1˅The condition for engaged assets: Including˖No.4#, 10# are assets with full right certificate and no flaw˗ No.1# to 3#, No. 5# to 9# are industrial real estate which are leased and operated for normal use˗ No. 11# to 14# refers to leased land to Shanghai Electric. The buildings on the land are owned by Shanghai Electric. Thus, there is no claim above -ground buildings. The land and above -ground buildings are as follows:

– II-9 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

ķ The industry plant which is located in No.1076,Jungong Road, the area of which amounts to 188,537.56 M2; The engaged land area amounts to 358,219.00 M2. The industrial land was transferred without paying transfer fee, which has full property right certificate. ĸ The industry plant which is located in No.200, Jinshajiang Branch Road, the area of which amounts to 58,748.00 M2; The engaged land area amounts to 126,474.00 M2ˈThe industrial land was transferred without paying transfer fee, which has full property right certificate. ĹThe industry plant which is located in NO. 621, Longchang Road, the area of which amounts to 22,549.39 M2; The engaged land area amounts to 16,658.60 M2. The industrial land was transferred without paying transfer fee, which has full property right certificate. ĺThe industry plant which is located in No.4, Zhuxing Road(B),the area of which amounts to 116.00 M2; The engaged land area amounts to 188.00 M2; The industrial land was transferred land, which has full property right certificate. ĻThe industry plant which is located in No.400, Wenshui Road, the area of which amounts to 27,151.00 M2; The engaged land area amounts to 60,630.82 M2 . The industrial land was transferred without paying transfer fee, which has full property right certificate. ļThe industry plant which is located in No.450, Wenshui Road, the area of which amounts to 9,832.71 M2. The engaged land area amounts to 26,942.86 M2; The industrial land was transferred without paying transfer fee, which has full property right certificate.

ĽThe industry plant which is located in No. 750, Linshi Road,the area of which amounts to 3,602.00 M2. The engaged land area amounts to 5,362.36 M2; The industrial land was transferred without paying transfer fee, which has full property right certificate. ľ The industry plant which is located in No. 750, Linshi Road,the area of which amounts to 389.00M2; The engaged land area amounts to 1,716.81 M2; The industrial land was granted, which has full property right certificate.

– II-10 – APPENDIX II VALUATION REPORT FOR TARGET PROPERTIES

Valuation Report No.(2015)0902053

Ŀ The industry plant which is located in No. 115, Caobao Road, the area of which amounts to 29,131.00 M2; The engaged land area amounts to 26,744.00 M2; The industrial land was transferred without paying transfer fee, which has full property right certificate. ŀ The business office which is located in No.7, Lane 1736, Yangshu Pu Road, the area of which amounts to 6,173.35 M2; The engaged land area amounts to 7,299.00 M2; The business office land was transferred, which has full property right certificate. ŋ The property for scientific research, which is located in No.1590, Longwu Road, the area of which amounts to 11,088.25 M2; The engaged land area amounts to 30,862.37 M2; The scientific research land was transferred without paying transfer fee, which has full property right certificate. Ō The property for scientific research, which is located in No. 1287, West Beijing Road and NO.154,Nanyang Roadˈthe area of which amounts to 18,822.23 M2; The engaged land area amounts to 2,564.00 M2. The scientific research land was transferred without paying transfer fee, which has full property right certificate. ō The industry plant which is located in NO. 3015, New Gonghe Road, the area of which amounts to 21,950.76 M2; The engaged land area amounts to 21,546.35 M2. The industrial land was transferred without paying transfer fee, which has full property right certificate. ŎThe industry plant which is located in No.100, Wenshui Road, the area of which amounts to 916.00 M2; The engaged land area amounts to 2,896.43 M2; The industrial land was transferred without paying transfer fee, which has full property right certificate.

(2) The compliance procedures situation for engaged land after valuation date: The engaged assets have full property right certificates. The usage for land are for being transferred, for being transferred without paying transfer fee and for being granted respectively Before valuation, Shanghai Electric Group CORP. has applied for registration of land-transfer about 12 irregular pieces of land for land regulation department ,which refers to the land of being transferred without paying transfer fee and the land of being granted. As of valuation date, the

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Valuation Report No.(2015)0902053

land transfer contract for above 12 pieces of land has been signed. Per signed land transfer contract, the above 12 pieces of land after compliance procedures are assessed for being transferred. The above-ground buildings are assessed per practical situation. Per acquired documents released from Zhabei Planning and Bureau of Land Management , the area of land and building in Zhabei District for above 12 pieces of lands which are located in No.100, Wenshui Road/NO. 3015, New Gonghe Road/ No.450, Wenshui Road/No.400, Wenshui Road/No.750, Linshi Road are verified again. The area for transferred land is confirmed by land regulation department. The area for other lands which refers to adding land payment is confirmed by “Transfer contract of Shanghai state-owned construction land use right”. The original area for transferred land is confirmed by recorded area in Shanghai property right certificate owned by Shanghai Electric Group CORP. Above all, the verified area by land regulation department or original recorded area in property right certificate for 14 pieces of land amounts to 688,104.60m2. The area for engaged above-ground building released from assessed party amounts to 346,230.01 m2 .

(3) The land condition for above-ground building’s area which are not declared for valuation˖ The buildings, which are on No. 11# to 14# land, are used and operated by Shanghai Electric’s subordinate enterprises. The engaged assets are booked in statement of the related enterprises. Thus, the land use right is only valued herein report. The related above ground building and structures are not included in valuation scope.

3. Per declaration list, there are 142 sets of equipment engaged, which are cranes, water tank, pump, elevator, transformer, controller and etc. The partial equipment remains unused and discarded.

4. The book value for partial assets included in valuation scope is released

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from enterprise management. The data as of valuation date is not audited.

V. Value Type and Definition Value type herein is market value which is of the estimated most probable price to be realized for the engaged objects in an exchange between a willing buyer or seller, with equity to both, neither being under any compulsion to buy or sell as of the valuation date. It should be cautioned that the same assets probably have different value in different market. The valuation herein is based on domestic observable market condition and market environment. The value type we chose herein is based on the elements including valuation purpose, market condition, valuation presumption and the valuation objects. The assessed value herein refers to the opinion, got through process and approaches illustrated in the report, serving only for the purpose engaged within the valuation scope and under the valuation principles, premises and assumptions.

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4. The state-owned assets evaluation management regulations( NO.14 issued by treasury department); 5. Notice of the relevant questions on strengthening the management of enterprises’ state-owned assets evaluation. (No. 274 issued by SASAC property in 2006); 6. Temporary regulations for State-owned assets’ supervision and management (NO.378 issued by state council in 2003); 7. No.3 Ministry of Finance doc, interim measures on transfer management of state-owned property rights˗ 8. No.[2006]306, A notice of relevant matters on enterprise state-owned property rights transferring; 9. No. [2009]941, A notice of valuation report review as of state owned assets; 10.The real estate administration law of the People's Republic of China; 11.Other laws and regulations. iii.Evaluation Criterion

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1. Assets appraisal -Basic Standards; 2. Assets appraisal ethical principles- Basic Principles; 3. Assets appraisal ethical principles-Independence; 4. Assets appraisal standards-Valuation Report; 5. Assets appraisal standard-Valuation Process; 6. Assets appraisal standard-Working Paper; 7. Assets appraisal standard-Engagement Letter; 8. Assets appraisal standard-Equipment; 9. Assets appraisal standard-real estate; 10. Assets appraisal standard-Intangible assets; 11. Guiding Opinions on types of value; 12. Guiding Opinions about CPV ‘s focus on Evaluation objects for legal ownership; 13. Guiding Opinions on valuation report for state-owned assets; 14. Quality control guide for Evaluation institutions; 15. Experts Operation Tips for asset appraisal-report disclosure for listed companies’ major assets restructuring; 16. Assets evaluation professional code of ethics-Independence; 17. ASBE issued by NO.33 Decree of the Ministry of Finance; 18. Code for appraisal of real estate(national standard GB/T50291-2015); 19. Benchmark premium on the valuation of urban land(national standard GB/T18508-2014); 20. Other laws and regulations. iv.Pricing Basis Adopted 1. Manual for the latest assets evaluation data and parameters (China Statistical Publishing House); 2. Quoted Price Pamphlet about machinery equipment˄China Machine PRESS˅; 3. Construction project of cost estimation indicators and application analysis; 4. The budget ration for Shanghai construction engineering (2000); 5. The pricing information for raw material released from http://www.ciac.sh.cn;

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6. http://www.shgtj.gov.cn/; 7. The update project report for benchmark land price (Shanghai 2013); 8. The related website for real estate ; 9. Statistical information from Orient Appraisal Co., Ltd.; 10. Others.

v.Key Contracts, Agreements and Property Right Certificates 1. Property registration; 2. Other related certification documents. vi.Other Files 1. Financial statements of the valuation date, books and vouchers furnished by the party in question; 2. Assets lists with book values provided by the party in question; 3. Technical statistics of Orient; 4. Others. vii.Reference from 1. None. other appraiser company VIII. Valuation Approaches i.Outline Additive Method of single item asset. Including: The buildings and structures and equipment are assessed per replacement cost method; The intangible assets –land use right is assessed per Residual Method. ii.The Approach The valuation object refers to partial assets of assessed party. chosen The assets based approach, income approach and market approach for reason and other enterprise value appraisal is not appropriate to be adopted. Thus, Additive explanation Method of single item asset is adopted herein report. iii.Introduction of Per practical situation for engaged single item asset, the assessed value has Additive

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Valuation Report No.(2015)0902053

Method of been reached per sum of the appraisal for singe item asset respectively by single item means of appropriate method. asset

Fixed assets- The engaged properties refer to production building, structures, office buildings buildings and etc. 1. As for production buildings and structures, the replacement cost method is adopted per replacement full cost and depreciation rate for valuation conclusion. (1) The re-write budget method is adopted for replacement full cost of building and structures, which are confirmed by construction cost, up-front fees, management fees and capital cost comprehensively. “The revised method for unit price” is adopted for other building and structures. Per price of construction and installation for related property released from related department or valuation example, the replacement unit price per unit area (or length)is confirmed by revised related fee. (2) The depreciation rate is confirmed for weighted average with years method and points approach. Per checking construction quality, main building, maintenance structure, water facility, decoration and etc. for repair condition, the appraisers confirmed depreciation rate comprehensively per different years limit for different structure and usage for buildings. 2. As for office buildings, the market approach and income approach are adopted, and the valuation conclusion has been reached finally per market approach. (1) The market comparison approach refers to selecting the several transaction cases of land which has the same condition and right of use as the assessed land on fixed market conditions. We make a comparison between the land of transaction case and the assessed land for transaction condition, transaction date, area conditions and individual conditions. Meanwhile, we shall make an amendment for the transaction cases in order to reach the valuation conclusion of the assessed land.

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Basic formular: Engaged object value= comparable deal case price× correction factor for deal condition ×correction factor for market condition ×correction factor for real estate condition (2)The income approach is a general method for real estate valuation. The valuation conclusion has been reached per sum of discounting the normal future income for valuaion object back to valuation date per appropriate discounting rate and income multiplier. Q )L )RUPXODU˖3 ¦ L L U Including: P: assessed value( discounted value); R: adopted discounting rate; N:income period; Fi: estimated annual income in future income period;( PS: calculate annual income per income period of calendar year; Fi= rental income- yearly operating cost

Fixed As for equipments, Replacement Cost Approach is adopted per practical assets-equipment situation and valuation purpose. 1. The method for normal use equipment: The basic formular per cost method: The value of equipments= replacement full price h comprehensice depreciation rate (1) replacement full price: The purchased price of equipment is acquired by website and market enquiry. Different reasonable fee such as freight fee and installation expenses are considered. As for some equipment, the enquiry price of which cant be acquired, the valuation conclusion has been reached per substitution principle. The replacement full price is confirmed by similar equipment price and reasonable fee. Namely: Replacement total price= replacement current price×(1+ rate of freight and

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Valuation Report No.(2015)0902053

installation fee)+other reasonable fee-VAT (2)Comprehensive depreciation rate The formular:Comprehensive depreciation rate= theoretic depreciation rateh adjustment coefficient K Including: Theoretic depreciation rate = remaining useful years r˄ used service years + remaining useful years˅h100% (3) Assessed value: The value of equipments= replacement full price h comprehensice depreciation rate 2. The method for unused and discarded equipment Per machinery weight, the assessed value has been reached per recovery price of market waste and old materials deducting clearing expense. The VAT is not included for replacement full price of equipment.

Intangible assets-Land The engaged land refers to industry and scientific research land, which belong to level II to VI The market comparison approach and land datum value method are adopted. And the valuation has been finally reached per market comparison approach. 1. The market comparison approach refers to selecting the several transaction cases of land which has the same condition and right of use as the assessed land on fixed market conditions. We make a comparison between the land of transaction case and the assessed land for transaction condition, transaction date, area conditions and individual conditions. Meanwhile, we shall make an amendment for the transaction cases in order to reach the valuation conclusion of the assessed land. 2. Revised method for benchmark land price: The land datum value method is based on standard level of land price. The regional factor and individual factor, as influence the land price, are adjusted per different uses, in order to reach the valuation conclusion of the assessed land. Formular per land datum value method:

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Valuation Report No.(2015)0902053

Assessed value for land=benchmark land price×δ1+ correction factor for deal conditionε×δ1+ correction factor for dateε×δ1+ factor revision coefficientε×correction factor for floor area ratio × correction factor for service life

IX. Valuation Process According to relevant state regulations and principles on appraisal, we performed appraisal and ownership verification on the assets within the scope and conducted necessary due diligence on the operation and management status of the appraised party. The process is as follows: 1. Communicated with the client and appraisal object; Interviewed the staff of company, to better understand its profile, history and current status of assets entrusted for appraisal; to further understand the appraisal purpose, scope and object; set up valuation date, signed the letter of engagement and drafted the appraisal proposal. 2. Mentored the company to fill in the assets appraisal declaration form. 3. Conducted site survey, including the check of the non-physical assets, mainly by reviewing the original accounting documents and letters, and inspecting the formation of creditor’s rights and debts and the authenticity of the book value; and the check of the physical assets, mainly by viewing, taking pictures for and recording the assets and their conditions on site, while collecting the ownership certificates of the assets entrusted for appraisal and reviewing such materials as the machinery operation, maintenance and accident records. And interviewed people in charge of the assets management to understand the operation and management of the assets. 4. Supplemented and completed the assets appraisal declaration form after checking the financial records and data and site survey. 5. Evaluated and estimated. The appraisers selected the appropriate appraisal approaches according to the appraisal object, type of value and collection of relevant materials; made preliminary appraisal conclusion with calculation and judgement after choosing the corresponding model and formula and analyzing reasons for changes of various indicators, analyzed the preliminary conclusions reached by different appraisal approaches, and then finally determined the appraisal conclusion by comprehensively evaluating the reasonability of different appraisal approaches and preliminary appraisal conclusions and the

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Valuation Report No.(2015)0902053

quality and quantity of data used. 6. The appraisers discussed with other intermediaries to confirm there was no overlapping and missing appraisal scope in order to release draft report and appraisal conclusion; 7. After three-grade reviewing, submitted the report to the client and the appraised party and discussed with them thereon; revised and completed the report after exchanging opinions with the client and submitted the formal appraisal report.

X. Premises and Assumptions of Tenability of the Report A Basic Assumptions 1. Open-market hypothesis: Open-market refers to fully developed and perfect market condition, which has willing buyers and willing sellers in volunteer competitive market. In this market, willing buyer and willing seller, who have opportunity and time for enough market information from each other, remain equal position. The transaction between buyers and sellers is based on the condition that the parties had each acted voluntarily, sensibly without compulsion or limitation. 2. Continuous use hypothesis: First, the hypothesis is assumed that the assessed assets are for normal use, including the assets in-use and for backup; Besides, it is assumed that the assets in-use sustain its continuous use per the related data and information. Continuous use hypothesis not only refers to market condition or environment but also focuses on the continuous situation for assets. 3. Continuous operation hypothesis: The report is based on the assumption that the company shall be capable of continuous and legal operation, which shall not be close up for different reasons in the near future, with the existing assets and resource condition. B Specific Assumptions 1. Unless specifically stated herein, the report is based on the assumption that there is no other existing or potential abnormal factor such as mortgage, guarantee and special transaction mode that shall affect the appraisal conclusion.. 2. There is no significant change to the existing laws and regulations, industrial policy, national macroeconomic situation, as well as the political, economic and

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social environment at the place where the appraisal object is located. Meanwhile, the report is based on the assumption that there is no other force majeure events and unforeseeable factors which shall cause significant adverse effects. 3. There is no significant change to the tax policy and tax rate adopted by the appraisal object. The credit policy, interest rate and exchange rate remain basically stable.

4. The type of value has been confirmed as the market value as per the appraisal purpose. Any pricing standard adopted for this appraisal is based on the valid pricing standard and system as at the valuation date.

The valuation conclusion has been reached per condition of valuation object on valuation date, valuation assumptions and restricted condition. The valuation assumes that the premises are valid on valuation date, according to the valuation requirements. The valuation conclusion is usually untenable and the report is invalid in case of changes of forgoing economic environments. We are exempt from relevant responsibilities of changes for assumptions which may deduce different valuation conclusion.

XI. Valuation Conclusion i.Outline According to relevant laws, regulations and standards for assets appraisal, abiding by the principles of independence, objectiveness and fairness, we appraised the market value of the assessed party as of valuation date per necessary appraisal procedures, per Additive Method of single item asset and made the conclusion per as follow: 1. Through computation, the engaged assets as of valuation date is valued as RMB 2,916,326,263.48 Yuan. Including: The buildings engaged in book value amounts to RMB 97,107,330.11, while assessed value amounts to RMB 414,120,325.98, with increase of RMB 317,012,995.87 and increase rate of 326.46%. The equipment engaged in book value amounts to RMB 2,859,404.54, while assessed value amounts to RMB 6,310,543.00, with increase of RMB 3,451,138.46 and increase rate of 120.69%. The intangible assets-land use right engaged in book value amounts to RMB

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285,359,986.00, while assessed value amounts to RMB 2,495,895,394.50, with increase of RMB 2,210,535,408.50 and increase rate of 774.65%.

The valuation conclusion and details are shown as follows. Valuation Sheet Valuation date:Sep 30 2015 UnitφRMB '0000

Increase Increase Item Book Value Assessed value rate %

Fixed Assets-buildings 9,710.73 41,412.03 31,701.30 326.46

Fixed Assets- equipment 285.94 631.05 345.11 120.69

Intangible assets-land use right 28,536.00 249,589.54 221,053.54 774.65

Total 38,532.67 291,632.63 253,099.96 656.85

The reason for appreciation and depreciation of assets and liabilities are as follows: (1) The net book value for Fixed Assets-buildings is RMB 97.1073 million, while the assessed value is RMB 414.1203 million , with increase of RMB 317.0130 million and increase rate of 326.46%. The major reason for appreciation is that the production property was established in earlier time. However, the current construction material price, labor and machinery expenses have been increased hugely compared with that of latest years. Meanwhile, the office buildings reflect objective market value as of valuation date. Shanghai real estate market in latest years remains rising momentum. There are some real estates having objects but no book value which contribute to the appreciation. (2) The net book value for Fixed Assets-equipment is RMB 2.8594 million, while the assessed value is RMB 6.3105 million , with increase of RMB 3.4511 million and increase rate of 120.69%. The rate of net value for lots of equipment included in valuation scope is lower. The assessed value is confirmed by remaining useful year or expected recycling of residual value, which contribute to the appreciation compared with net book value. (3) The book value for Intangible assets-land use right is RMB 285.36 million, while the assessed value is RMB 2,495.8954 million , with increase of RMB

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2,210.5354 million and increase rate of 774.65%. The major reason for appreciation is that the meaning of land use right in book is the lower payment for land’s being transferred without paying transfer fee. Thus, the acquired land cost is so low. The assessed value for land use right is confirmed by market value as of valuation date. The current land market value is much higher than the acquired cost during period of land’s being transferred without paying transfer fee.

Through computation, the engaged assets as of valuation date is valued as RMB 2,916,326,263.48 Yuan.

XII. Additional Disclosure Items The report users shall pay attention to the additional disclosure items which would probably have impacts on the valuation conclusion. 1. In the event that the assets change in quantity and pricing benchmark, the valuation conclusion shall be adjusted with the original valuation approach;. 2. We are exempt from relevant responsibilities of legality, integrity and authenticity of such materials reaching us as the resolutions of the management, the Business Licenses, property right certificates, vouchers and / or files submitted by other intermediaries. 3. After valuation date and before issue date for valuation report, the land compliance procedures for 12 pieces of land in total 14 pieces have been gone through. The land transferred contract has been signed. The appraisers took a full consideration of the above subsequent events which influence the valuation conclusion for engaged assets. The valuation conclusion has been reached per transferring land after valuation date. The related liability as of transfer fee is not considered for partial engaged assets. Thus, the related transfer fee should be undertaken by original ownership as of Shanghai Electric Group CORP. 4. Per acquired documents released from Zhabei Planning and Bureau of Land Management , the area of land and building in Zhabei District for above lands which are located in No.100, Wenshui Road/NO. 3015, New Gonghe Road/No.450, Wenshui Road/No.400, Wenshui Road/ No.750, Linshi

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Valuation Report No.(2015)0902053

Road are verified again. The area for transferred land is confirmed by land regulation department. The area for other lands which refers to adding land payment is confirmed by “Transfer contract of Shanghai state-owned construction land use right”. The original area for transferred land is confirmed by recorded area in Shanghai property right certificate owned by Shanghai Electric Group CORP. Above all, the verified area by land regulation department or original recorded area in property right certificate for 14 pieces of land amounts to 688,104.60m2. 5. We found no other key items that may influence the valuation conclusion within our proficiencies and abilities of valuation and computation. However, users of the report shall not rely on the report but have independent judgment on property rights, values and influences etc. and take them into consideration when performing economic activity. 6. We are exempt from relating responsibilities and/or obligations in the event that relating parties did not state the special items possibly having impacts on the valuation conclusion during engagement or our fieldwork and those special items usually cannot be acknowledged or collected only with appraisers’ professional experiences. 7. The report is invalid and the valuation conclusion is untenable in the event that above-mentioned items do have impacts on the valuation conclusion and no adjustment has been made in the report

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ii.Validity Period of the Report 1.The valuation conclusion will survive a valid period for one year according to prevailing regulations, i.e. it is valid from Sep. 30th, 2015 to Sep. 29th, 2016. 2.The report is not permitted to use after the deadline. iii.Special Terms Regarding to Stat-owned Assets In the event that the report concerning state-owned assets, when it is not formally registered, approved or confirmed by the state-owned assets management branches, the report cannot be regarded as the basis of economic behavior. iv.The Expositive Right of the Report The valuation institution that submits the report owns the expositive rights of opinions in the report. No any other party is authorized to expose and/or explain the report unless the party (parties) is/are allowed exposing and/or explaining them by laws and regulations of the state. This valuation report is written in both Chinese and English. In case there is any discrepancy between the Chinese and English versions of this valuation report, the Chinese version shall prevail.

XIV. The Submission Date of the Report Dec. 2nd, 2015 (No text hereinafter in this page)

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Valuation Report No.(2015)0902053

(No Text in this Page)

Valuation Institution Orient Appraisal Co., Ltd.

Legal Xiaoming Wang Representative

Chief Appraiser Qiquan Li

Signature from Yuanchen Wu Appraisers Gang Wu

The Submission Date of the Report Dec. 2nd, 2015

Address Floor 19, Pacific Center, No. 889, West Yan An Road, Shanghai, 200050, PRC Telephone 86-021-52402166 86-021-62252086(Fax) Website www.dongzhou.com.cn www.oca-china.com E-mail [email protected]

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Valuation Report No.(2015)0902053

Files for Reference Valuation Report (Appendix)

Project Name: Business Valuation Report on Partial Operating Assets owned by Shanghai Electric Group CORP.with regard to Shanghai Electric Group Co., Ltd’s Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0902053

No. Name 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP.; 3. License of Shanghai Electric Group Co., Ltd (Shanghai Electric);

4. License of Shanghai Electric Group CORPχ 5. Property right certificate of Shanghai Electric Group CORP.; 6. Real estate area released from Shanghai Electric Group CORP. and land area measure sheet;

7. Transferred contract of Shanghai state owned construction land use right; 8. Letter of Commitment from the Clients and Concerning Parties; 9. Engagement Letter; 10. Business License of Orient Appraisal Co. Ltd.; 11. License for Undertaking of Securities of Orient Appraisal Co., Ltd.; 12. Credential of Assets Valuation Qualification of Orient Appraisal Co., Ltd.; 13. Letter of Commitment from the Valuation Institution and Appraiser; 14. Assets list and summary sheets.

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The following is the text of the valuation report for Shanghai Electric Industrial Company Limited dated 2 December 2015 prepared in Chinese by Orient Appraisal Co., Ltd., the qualified A1B5(3) PRC valuer. The Chinese text shall prevail over the English text in the event of inconsistency.

Valuation Report for Enterprise Value

˄Report˅ Vol.1

Project Name: Business Valuation Report on Total Equity of SHANGHAI ELECTRICAL INDUSTRIAL INVESTMENT CO.,LTD. with regard to Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0898053

Orient Appraisal Co., Ltd.

Dec. 2rd, 2015

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Valuation Report (Contents)

Project Number: HDZZPBZ No.(2015) 0898053

I. OUTLINE OF THE CLIENT AND OTHER REPORT USERS...... 6 , 7+(&/,(17 ,, 27+(55(325786(56 II. OUTLINE OF THE ASSESSED PARTY ...... 8 III. VALUATION PURPOSE ...... 10 IV. VALUATION SCOPE AND OBJECTS ...... 10 V. VALUE TYPE AND DEFINITION ...... 13 VI. THE VALUATION DATE ...... 13 VII. VALUATION BASIS ...... 13 , (&2120,&$&7,9,7<%$6,6 ,, 0$-25/(*$/%$6,6255()(5(1&(2)58/( /$: ,,, (9$/8$7,21&5,7(5,21 ,9 35,&,1*%$6,6$'237(' 9 .(<&2175$&76$*5((0(176$1'3523(57<5,*+7&(57,),&$7(6 9, 27+(5),/(6 9,, 5()(5(1&()52027+(5$335$,6(5&203$1< VIII. VALUATION APPROACHES ...... 17 , 287/,1( ,, 7+($3352$&+&+26(15($621$1'27+(5(;3/$1$7,21 ,,, ,1752'8&7,212)$66(7%$6('$3352$&+ ,9 ,1752'8&7,212),1&20($3352$&+ IX. VALUATION PROCESS ...... 22 X. PREMISES AND ASSUMPTIONS OF TENABILITY OF THE REPORT ...... 24 XI. VALUATION CONCLUSION ...... 26 , 287/,1( ,, &21&/86,21$1$/<6,6 ,,, 27+(56 XII. ADDITIONAL DISCLOSURE ITEMS ...... 30 XIII. RESTRICTION OF THE USE OF THE REPORT ...... 37 , 7+(86(6&23(2)7+(5(3257 ,, 9$/,',7<3(5,2'2)7+(5(3257 ,,, 63(&,$/7(5065(*$5',1*7267$72:1('$66(76 ,9 7+((;326,7,9(5,*+72)7+(5(3257 XIV. THE SUBMISSION DATE OF THE REPORT ...... 38 )LOHVIRU5HIHUHQFH

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Appraisersÿ Statement

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Valuation Report (Abstract)

Project Number: HDZZPBZ No.(2015) 0898053

The Client Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd Other Report Users The legal user of the report including the client and the user formulated by State laws and regulations according to the engagement letter. The Assessed Party SHANGHAI ELECTRICAL INDUSTRIAL INVESTMENT Co.,LTD. (hereinafter refers to SEII) Valuation Purpose Asset Replacement and Issue Shares for Assets Purchase The Valuation Date Sep. 30th , 2015 Valuation Scope and Objects The valuation object is total equity of shareholders. The valuation scope includes assets and liabilities as of valuation date. Including current assets and non-current assets( financial assets available for sale, long-term investments, investment property, fixed assets) and liabilities. Net assets attributable to the parent company per consolidated statement is RMB 1,254,309,779.85 Net assets per parent company statement is RMB 1,396,290,039.11 Yuan in book. Value Type Market Value Valuation Approach The Asset-based Approach and Income Approach. According to the analysis of the assessed party, we’ve finally adopted Asset-based Approach as our valuation conclusion. Valuation Conclusion

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Through computation, the total equity of shareholders is valued as RMB 1,913,470,400.18 Yuan. Period Of Validity The validity lasts for one year since the valuation date, i.e. until 29 Sep. 2016. Additional Disclosure Items See special disclosure in valuation report.

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Valuation Report (Text)

Notice: The Report can be used exclusively for the purpose engaged and is tenable under engaged conditions. To learn all information of this project, please read the whole report and files for reference carefully. Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd: We have received your engagement to evaluate SEII ‘s total equity, according to the law, the regulations ,the asset appraisal principle and standards and the necessary evaluation program, through our computation with the Asset-based Approach and Income Approach, in purpose of Shanghai Electric Group Co., Ltd ‘s Asset Replacement and Issue Shares for Assets Purchase , in order to offer market value dated Sep. 30th , 2015. The report is as follows:

Project Number: HDZZPBZ No.(2015) 0898053

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design and it was formally named as Shanghai Electric Union. On 22 Aug 1984, the company was approved by Shanghai government, based on the restructuring of the Shanghai Power Station Equipment Company, where Shanghai Motor Factory, Shanghai Steam Turbine Factory, Shanghai Boiler Factory and Shanghai Power Station Auxiliary Equipment Factory and some other factories has been restructured ad had been transferred out from Shanghai Motor Manufacturing Management Bureau. Under the approval of Finance and Commerce Bureau, in 1994, the company changed its name to Shanghai Electric (Group) Corporation

The client 1: Shanghai Electric Group CORP. is the shareholder of the assessed party. The client 2: Shanghai Electric Group Co., Ltd is the acquiring party, which replaces assets and issues shares for assets purchase. ii.Other Report Users

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The legal users of the report include the users as agreed in the engagement letter and formulated by State laws and regulations, and the relevant regulatory departments and authorities of the state-owned assets appraisal for economic behavior. Beyond that, any third party has acquired valuation report , who should not be regarded as the report users.

II. Outline of the Assessed Party The assessed party:SEII Address: Room 1701, No.600, Henfeng Road. Registered Capital: RMB 108.6444 million; Company type: One person limited liability company (sole proprietorship of legal person) Legal Representative: Weiming Zhu;

1.Shareholders of the company as of valuation date is shown as below: (Unit˖RMB million)

Shareholders Investment Percentage (100%)

1 Shanghai Electric Group CORP. 108.6444 100% Total 108.6444 100%

2. Operating conditions of Recent 2 Years plus one period are given as follows:

Operating conditions of Recent 2 Years plus one period per consolidated proforma statement are given as follows: (Unit˖RMB ‘000 Yuan) Item 2013-12-31 2014-12-31 2015-09-30

Asset 1,431,902.60 1,726,424.20 1,633,178.70 Liabilities 153,110.60 132,719.80 315,563.60 Net Assets 1,278,792.00 1,593,704.50 1,317,615.10 Net Assets attribute to 1,278,792.00 1,527,938.60 1,254,309.80 parent company

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Item 2013 2014 Jan. to Sep. 2015

Revenue 92,972.20 84,588.80 67,704.50 Total Profit 96,460.40 115,249.60 18,205.40 Net profit 77,112.00 109,979.70 23,082.90 Net profit attribute to 77,112.00 112,546.90 25,543.50 parent company

Operating conditions of Recent 2 Years plus one period per parent company proforma statement are given as follows: Item 2013-12-31 2014-12-31 2015-09-30

Asset 1,418,650.30 1,495,204.90 1,639,840.90 Liabilities 89,584.20 61,415.20 243,550.90 Net Assets 1,329,066.10 1,433,789.60 1,396,290.00

Item 2013 2014 Jan. to Sep. 2015

Revenue 58,423.90 56,263.00 40,288.70 Total Profit 125,316.90 142,089.30 74,177.50 Net profit 105,970.30 136,993.70 77,013.80

The above statistics abstracts from the historical unqualified audit report for special purpose issued by BAKER TILLY CHINA. SEII adheres to enterprise accounting system. The major tax and tax rate are as follows:

Tax Category Taxation Base Tax Rate

VAT Sale of goods 17%

Business Tax Income from Service Trades 5%

Urban Maintenance Business Tax and VAT 7% and Construction tax

Educational surtax Business Tax and VAT 3%

River management Business Tax and VAT 1% fees

Enterprise Income tax Taxable income 25%

The business tax rate for controlling subsidiary as of Shanghai Electric Inner Mongolia Qingcheng Industrial Company and Shanghai Cyeco Environmental Technology Co., Ltd is 5%. The VAT rate for Shanghai Cyeco Environmental Technology Co., Ltd is 17%. The enterprise income tax rate is 25%.

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The VAT tax rate for controlling subsidiary as of Shanghai Standard Parts Machinery Co., LTD is 17%. The enterprise income tax rate is 15%, for Shanghai Standard Parts Machinery Co., LTD has acquired high-tech enterprise certificate on Oct. 23th 2014 as of GR201431001489. The term of validity is 3 years.

III. Valuation Purpose The purpose of report is to provide a market value reference of related assets of SEII as of valuation date, in purpose of Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for

Purchasing Shanghai Electric Group CORP.’s 100% equity of SEII.

The acquired economic behavior document are as flows:

1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP;

IV. Valuation Scope and Objects 1. The valuation object is total equity of shareholders. The valuation scope includes assets and liabilities as of valuation date. Including current assets and non-current assets( financial assets available for sale, long-term investments, investment property, fixed assets) and liabilities. Net assets attributable to the parent company per consolidated statement is RMB 1,254,309,779.85 Net assets per parent company statement is RMB 1,396,290,039.11 Yuan in book. Assets per parent company statement is RMB 1,639,840,917.19 Yuan in book. Liability per parent company statement is RMB 243,550,878.08 Yuan in book.

2. Per declaration list, there are 8 engaged Investment Real Estates, including the details are as follows: (1)The No.1 industry plant is located in NO.40, Wenshui Road. Per original property ownership certificate as of HFDZZ˄2002˅014725, the recorded building area is 63,945.29 m2. As of valuation date, there are 3

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buildings, which have been dismantled. The actual building area so far is 61,094.55 m2. The area which has no property ownership certificate amounts to 9,074.68 m2. The land area recorded in property ownership certificate is 76,737.00 m2. As of valuation date, the partial lands have been requisitioned. The actual area so far is 72,084.14 m2, which are state-owned granted industrial land. As of issue date of valuation report, the above land transferring contract has been signed. As of valuation date, the transfer fee is simulated in account by CPA per authorization by related department. (2) The NO.2 industry plant is located in NO.999, New Jinqiao Road. Per property ownership certificate as of HFDPZ˄2014˅073976, the recorded building area is 13,621.21 m2. The land area recorded in property ownership certificate is 28,891.00 m2. The land is transferring land, which has full property ownership certificate. (3) The NO.3 residential building is located in NO.29 and 31, Lane 1258, Changde Road. Per property ownership certificate as of HFDPZ˄2014˅007981, 007982, 007983, 007985, 007996, the recorded building area is 416.80 m2. The land is transferring land, which has full property ownership certificate. (4) The NO.4 office building is located in NO.12, Lane 1306, Jiangnin Road. Per property ownership certificate as of HFDPZ˄2014˅002323, the recorded building area is 216.15 m2. The land is transferring land, which has full property ownership certificate. (5) The NO.5 business building is located in NO.534, Fangxie Road. Per property ownership certificate as of HFSZ NO. 03503-1 to 03503-7, the recorded building area is 2,438.00 m2. The recorded land area is 1,082.00 m2. The registration NO. is HGY(Nanshi) No.08144. The land is granted land, which has full property ownership certificate. (6) The NO.6 office building is located in NO.1, Lane 651, South Huangpi Road. Per property ownership certificate as of HFSZ NO. 02650-1, 02650-3 and 02650-5, the recorded building area is 949.00 m2. The recorded land area is 468.00 m2. The registration NO. is HGY(Luwan) No. 009937. The land is granted land, which has full property ownership certificate.

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(7) The NO.7 office building is located in NO.88, North Zhangjiabang Road. Per property ownership certificate as of HFDPZ (2013) No.055932, the recorded building area is 5,984.00 m2. The area of 10,362.81 m2 has no property ownership certificate. The total engaged building area is 16,346.81 m2. The recorded land area is 8,685.00 m2. The registration NO. is HFDPZ(2013) No. 055932. The land is state-owned granted industrial land. (8)The NO.8 industrial building is located in Pujiang Town, Fengshou village. Per property ownership certificate as of HFDMZ (2004) No. 079151, the recorded building area is 14,750.99 m2. The area of 33,876.28 m2 has no property ownership certificate. The total engaged building area is 48,627.27 m2. There are 2 engaged lands. One of the recorded land area is 3,840.00 m2, the certificate of which is HJJ(MD93) No. 000003. The other recorded land area is 56,651.00 m2, the certificate of which is HFDMZ(2004) No. 079151. The land is collective land. 3. Per declaration list, there are 152 sets of equipment engaged, which are cranes, pony cars, computers, printers and other office equipment remaining normal use so far.

4. There are 11 engaged long-term investments of two level as of valuation date, including 3 controlling long-term investments and 8 joint ventures. The details are as follows:

shareholding Investment Book Value Accounting No. Enterprise Name ratio Cost ˄RMB˅ Method Shanghai Electric Inner 100.00% 199,913,829.07 199,913,829.07 1 Mongolia Qingcheng Industrial Cost method Company Shanghai Cyeco 65.00% 161,328,478.04 161,328,478.04 2 Environmental Cost method Technology Co., Ltd Shanghai Standard Parts 100.00% 3,666,366.93 23,330,460.67 3 Cost method Machinery Co., LTD VETCO GRAY PETROLEUM 40.00% 8,633,636.40 59,847,551.51 EQUIPMENT(SHANGHAI)CO., Equity Method 4 LTD Shanghai WOMA-Dalong Super 49.00% 4,548,454.40 25,967,844.12 5 High Pressure Equipment Co., Equity Method Ltd 47.58% 319,025,561.43 527,460,328.46 6 SAEC Mitsubishi Equity Method

Shanghai Advanced Nondestruc 40.00% 18,108,787.85 28,419,371.72 7 Equity Method tive Testing Equipment Co., Ltd 20.00% 3,970,897.33 22,304,625.71 8 Burgmann Shanghai Co., Ltd Equity Method

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30.00% 24,829,500.00 - 9 Fujikura Shanghai Cable Ltd Equity Method

Shanghai Star Modern Agricultu 49.00% 8,518,768.36 27,338,946.21 10 Equity Method re Equipment Co., Ltd Shanghai Qingneng Energy 35.00% 5,157,236.07 - 11 Equity Method Technology Co., Ltd. 5. The so far business building is located in Floor 17, No. 600, Machine and Electricity Building, Henfeng Road. The area amounts to 1180 m2, which is leased from Shanghai Electrical and Mechanical Trade Building. The leased period is from 2006 1st Oct to 2020 30th Sep. 6. The engaged valuation objects and scope are conform to the valuation objects and scope related to the valuation purpose. The balance sheet as of valuation date has been audited without qualification by BAKER TILLY CHINA.

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i.Economic Activity Basis 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP.

ii.Major Legal Basis or Reference of Rule & Law 1. Company Law of the PRC; 2. The law for PRC state-owned enterprises; 3. Order No. 12 of the State-owned Assets Supervision and Administration Commission of the State Council “the Interim Measures for the State-owned Assets Appraisal Management ”˗ 4. The state-owned assets evaluation management regulations( NO.14 issued by treasury department); 5. Notice of the relevant questions on strengthening the management of enterprises’ state-owned assets evaluation. (No. 274 issued by SASAC property in 2006); 6. Temporary regulations for State-owned assets’ supervision and management (NO.378 issued by state council in 2003); 7. No.3 Ministry of Finance doc, interim measures on transfer management of state-owned property rights˗ 8. No.[2006]306, A notice of relevant matters on enterprise state-owned property rights transferring; 9. No. [2009]941, A notice of valuation report review as of state owned assets; 10.The real estate administration law of the People's Republic of China; 11.Other laws and regulations. iii.Evaluation Criterion

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1. Assets appraisal -Basic Standards; 2. Assets appraisal ethical principles- Basic Principles; 3. Assets appraisal ethical principles-Independence; 4. Assets appraisal standards-Valuation Report; 5. Assets appraisal standard-Valuation Process; 6. Assets appraisal standard-Working Paper; 7. Assets appraisal standard-Engagement Letter; 8. Assets appraisal standard- Business Valuation; 9. Assets appraisal standard-Equipment; 10. Guiding Opinions on types of value; 11. Guiding Opinions about CPV ‘s focus on Evaluation objects for legal ownership; 12. Guiding Opinions on valuation report for investment property assets; 13. Guiding Opinions on valuation report for state-owned assets; 14. Quality control guide for Evaluation institutions; 15. Experts Operation Tips for asset appraisal-report disclosure for listed companies’ major assets restructuring; 16. Assets evaluation professional code of ethics-Independence; 17. ASBE issued by NO.33 Decree of the Ministry of Finance; 18. Code for appraisal of real estate(national standard GB/T50291-2015); 19. Benchmark premium on the valuation of urban land(national standard GB/T18508-2014); 20. Other laws and regulations. iv.Pricing Basis Adopted 1. Manual for the latest assets evaluation data and parameters (China Statistical Publishing House); 2. Quoted Price Pamphlet about machinery equipment˄China Machine PRESS˅; 3. http://www.chinacar.com.cn/; 4. Compulsory scrap standard for Motor vehicle( No.12, 2013); 5. http://www.ebook.hc360.com/ as of valuation date; 6. The budget ration for Shanghai construction engineering (2000); 7. The pricing information for raw material released from

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http://www.ciac.sh.cn; 8. Regulations for related fee as of shanghai construction engineer; 9. The deal cases from related property information website; 10. The update project report for benchmark land price (Shanghai 2013); 11. The notice for “land assessment technical regulations of property holdings conditions for Shanghai profit-oriented land ”, ”correction factor for plot ratio of industry land” (Sep 2 2015) 12. http://www.landvalue.com.cn/; 13. http://www.shgtj.gov.cn/; 14. The lease cases from related lease website; 15. Statistical information from Orient Appraisal Co., Ltd.; 16. Audit report for special purpose issued by BAKER TILLY CHINA; 17. Balance sheet as of valuation date released from long term investment companies; 18. Part of the contracts and agreements released from assessed party; 19. Historical financial data and forecasting information; 20. Analysis of Statistical Data for National macro economy , Industry, regional market and enterprise; 21. ”10JQKA” of securities trend analysis system for stock A information; 22. Rate of return on national debt and lone interest rate close to valuation date; 23. Others.

v.Key Contracts, Agreements and Property Right Certificates 1. Property registration; 2. Investment contracts, agreement, vehicle license; 3. Other related certification documents. vi.Other Files

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vii.Reference from 1. None. other appraiser company VIII. Valuation Approaches i.Outline There are 3 Approaches of valuation, which are Cost Approach, Income Approach, Market Approach. ķThe Cost Approach is also called Assets-based Approach. The valuation conclusion for net assets has been reached based on deducting assessed liabilities from sum of the assessed assets. ĸThe Income Approach refers to discount or capitalize future income per appropriate discounting rate in order to reach the valuation conclusion. ĹThe Market Approach refers to make comparisons between valuation object and enterprise reference, enterprise which has deal cases in market, shareholders’ equity, securities and other equity assets in order to reach valuation conclusion by adjustment and revise.

ii.The Approach Per “Assets appraisal principles---business valuation”, the appraisers shall chosen analyze the feasibility of Assets-based Approach, Income Approach and reason and other Market Approach in order to adopt one or multiple methodology explanation appropriately, per valuation objects, value type, condition for collecting documents, during conducting business value appraisal. Per valuation purpose, valuation objects, value type, condition for collecting documents and analysis of applicable conditions for three basic valuation approaches: Firstly, with regard to assets features of valuation object, the major assets for assessed party refer to current account, financial assets available for sale, long-term equity investments, investment property, fixed assets, intangible assets and related liabilities, which have been audited as of valuation date by CPA. The book value is clear.

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The Assets based Approach is based on balance sheet The valuation conclusion for net assets has been reached based on deducting assessed liabilities from sum of the assessed assets, by means of replacing

historical cost with market value of individual assets and liabilities. It is appropriate to adopt Assets based Approach herein report. Secondly, the assessed company has stable scale and overall profitability. The income in future forecast and other major business index can be estimated per historical information. The cost can also be estimated per historical information. The business condition will maintain rising momentum with stable profit source. Thus, it is appropriate to adopt income approach. Thirdly, the subsidiary companies of assessed party have industrial production enterprises and trading companies, which refer to different industries. It is hard to acquire the financial information for similar non-listed companies in same industry for public market. The appraisers can not use public information for contrastive analysis. Thus, it is not appropriate to adopt Market Approach. Above all, it is appropriate to adopt Assets based Approach and Income Approach. iii.Introduction of The Asset-based Approach is also called Cost Approach. The valuation Asset-based conclusion for total shareholders’ equity has been reached,on the assomption Approach of replacement of different production factors on valuation date,per specific condition of the engaged assets by item, adopting appropriate methodology in oder to sum up the assessed assets by item, meanwhile deducting assessed value for related debts.

Cash & cash equivalent For the appraisal of monetary capital, we checked the cash as at the verification date according to the account statement provided by the enterprise, and retrodicted the cash amount as at the appraisal date based on the cash receipts and payments from the appraisal date to the check date, and confirmed the appraisal value with the verified book value; we made and checked the trial balance for the bank reconciliation, and confirmed the

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appraisal value with the verified book value.

Receivables The receivables refers to accounts receivable and other accounts receivable. If there is reasonable ground to believe that the receivables can be recoverable totally, they are valued acording to the book value; For those long aging receivables,if they can not be recoverable for specific identification, they are valued as zero according to the historical dunning information, annalysis of reasons for arrear, of fund ,credit and management status for debtors. The rest receivables are valued per risk condition combined with provision for bad debt of accounting. The valuation conclusion has been reached per the receivables deducting amount that may not be paid back. Meantime, the provision for bad debt set by the assessed party is valued as zero.

Other current assets They are valued per remaining benefit right or recoverable assets.

Financial assets The circulating stocks purchased from secondary market is assessed per available for sale closing price as of valuation date.

Long-term (1)As for absolute holding investment item, the assessed value has been investment reached per valuation for total assets of subsidiary and investment ratio.

(2)As for non-absolute holding investment item with huge assets, the

assessed value has been reached per valuation for total assets of subsidiary and investment ratio. (3) As for non-absolute holding investment item, the assessed value has been reached per analysis of net assets in balance sheet and investment ratio.

Investment Investment property refers to leased properties. The engaged real estate is Property industry plant, residence, stores and office. (1) As for industry building, the land and buildings are assessed respectively. The industry plant is the constuction project designed for individual users. The replacement cost approach can reflects the market value for real estate. The industry plant is assessed per replacement cost approach. As for industry land, there are lots of simiar land deal cases close to engaged land during latest years after mraket survey by appraisers. There is full land

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benchmark revised system. The market approach can reflect the market value and the assessed value can be verified per land datum value method. (2)As for residential houses, office and stores, there are lots of similar deal cases and rent cases close to the related engaged property. It is appropriate to adopt market approach and income approach in order to estimate the market value for land and building together. The related land price should be deducted because land transfer fee should be paid for some land. (3) As for collective land, it is assessed per cost approach for value of land use right.

Fixed assets As for machines, vehicles and electronic equipments, Replacement Cost Approach is adopted. The value of equipments= replacement pricehcomprehensice depreciation rate Per 2008 NO. 170, the VAT regulation and 2009 NO.113 “Notice about deducting input VAT from fixed assets”, the VAT is not included for some equipments which meet the requirements.

Liabilities The assessed value is determined based on the verified book value and the actual liabilities payable.

iv.Introduction of The Income Approach refers to a kind of appraisal approach to calculate the Income value of assets by discounting the future expected assets income based on Approach appropriate discounting rate, which means to compute the total shareholders’ equities by subtracting the interest-bearing debts from the sum of the value of business assets calculated by discounting the free cash flows in the future years at appropriate discounting rate, and the value of surplus assets, non-business assets, ending assets.

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Total productive asset value (P)= present value of free cash flow during certain forecast period+ present value of free cash flow after certain forecast period n F F 1 g p i n ¦ i n i 1 1 r r g 1 r

Wherein: r Ɇ the selected discounting rate. Fi Ɇestimated income in period i n Ɇspecific forecast period from valaution date to stable operating date. The N is chosen for 6 years for specific forecast period. Per current business,financial condition,asset specificity,resource condition and prospect of development, the after-date earnings period are confirmed per indefinite period.

g- annual growth rate of future earnings, if Fi is invariant after n

years,g will take zero.

Evaluation idea 1.Review of the income for the forecast period submitted by the

management; 2. By analysising historical revenues, costs, expenses and other financial data, combined with the reasonable adjustment for management forecast during definit period after taking capital struture, operating condition, historical performance, development prospect into consideration. 3. The appraisal hypothesis is confirmed reasonably by considering different possilibility and influence in future 4. According to macro and regional economic situation, prospects for industry development, business model, to predict later sustainable income trend analysis, to choose appropriate approach for estimating value after forecast period. 5. The working capital and capital expenditure are confirmed by considering assets allocation and utility condition of the fixed assets.

Discounting rate Discounting rate is also called the expected rate of return on investment,

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which is the key parameter to determine the appraisal value in the Income Approach. According to the principle of consistency of income amount and discounting rate, the income amount in this appraisal is the net cash flow, and the discounting rate is based on Weighted Average Cost of Capital (WACC) method, which is weighted average of rate of return on equity and rate of return on creditors’ rights with the adjusted income tax. WACC = (Re×We) η [Rd × (1ιT) × Wd] Wherein: Re is cost of equity capital of company; Rd is cost of debt capital of company; We is the percentage of equity capital in the capital structure; Wd is the percentage of debt capital in the capital structure; T is effecient income tax rate of company; The modified Capital Assets Pricing Model (CAPM) is adopted for this appraisal to determine the cost of equity capital. Formula is as follows. Re = Rf + ǃ × MRP + ǆ Wherein: Rf is risk-free rate of return; ǃ is risk factor of the company; MRP is the risk premium; ǆ is adjusted factor of specific risk of company. Surplus assets and Surplus assets are extra assets which aren’t directly related to the main non-business assets business earnings and beyond assets necessary to the enterprise’s business, & liabilities including surplus cash and idle assets. Non-business assets and liabilities aren’t directly related to enterprise’s business and are excluded from the earnings forecast scope, normally inculuding the non-ctrolling long-term investment, deferred income tax assets and liabilities, investment real estate, retirement pension, etc., which are added after being appraised separately.

Interest bearing It refers to the loan borrowed by the appraised party from financial debts institutions or other companies or individuals, such as short-term loan, long-term loan or bonds payable.There is no Interest bearing debts after verification.

IX. Valuation Process According to relevant state regulations and principles on appraisal, we

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performed appraisal and ownership verification on the assets within the scope and conducted necessary due diligence on the operation and management status of the appraised party. The process is as follows: 1. Communicated with the client and appraisal object; Interviewed the staff of company, to better understand its profile, history and current status of assets entrusted for appraisal; to further understand the appraisal purpose, scope and object; set up valuation date, signed the letter of engagement and drafted the appraisal proposal. 2. Mentored the company to fill in the assets appraisal declaration form. 3. Conducted site survey, including the check of the non-physical assets, mainly by reviewing the original accounting documents and letters, and inspecting the formation of creditor’s rights and debts and the authenticity of the book value; and the check of the physical assets, mainly by viewing, taking pictures for and recording the assets and their conditions on site, while collecting the ownership certificates of the assets entrusted for appraisal and reviewing such materials as the machinery operation, maintenance and accident records. And interviewed people in charge of the assets management to understand the operation and management of the assets. 4. Supplemented and completed the assets appraisal declaration form after checking the financial records and data and site survey. 5. Interviewed the management and learnt the introduction of the enterprise operating mode, status of income from major product or service business and changes thereof, cost composition and changes thereof, earning status for the previous years and key reason for changes; understood the accounting systems & management mode, core technology, R&D power, future development plan, competitive advantage and disadvantage; learnt about the surplus assets and non-business assets and the utilization condition thereof. 6. Collected the operational indicators, financial indicators, business plan in the future and materials of renewal of fixed assets or investment plan; investigated the status of industry, regional market condition and development trend; analyzed the macro-economic situation and industrial environmental factors influencing the enterprise’s operation; conducted market research and enquiry, and collected information about the capital market of the same industry. 7. Evaluated and estimated. The appraisers selected the appropriate appraisal

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approaches according to the appraisal object, type of value and collection of relevant materials; made preliminary appraisal conclusion with calculation and judgement after choosing the corresponding model and formula and analyzing reasons for changes of various indicators, analyzed the preliminary conclusions reached by different appraisal approaches, and then finally determined the appraisal conclusion by comprehensively evaluating the reasonability of different appraisal approaches and preliminary appraisal conclusions and the quality and quantity of data used. 8. The appraisers discussed with other intermediaries to confirm there was no overlapping and missing appraisal scope in order to release draft report and appraisal conclusion; 9. After three-grade reviewing, submitted the report to the client and the appraised party and discussed with them thereon; revised and completed the report after exchanging opinions with the client and submitted the formal appraisal report.

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B Specific Assumptions 1. Unless specifically stated herein, the report is based on the assumption that there is no other existing or potential abnormal factor such as mortgage, guarantee and special transaction mode that shall affect the appraisal conclusion.. 2. There is no significant change to the existing laws and regulations, industrial policy, national macroeconomic situation, as well as the political, economic and social environment at the place where the appraisal object is located. Meanwhile, the report is based on the assumption that there is no other force majeure events and unforeseeable factors which shall cause significant adverse effects. 3. There is no significant change to the tax policy and tax rate adopted by the appraisal object. The credit policy, interest rate and exchange rate remain basically stable.

C Income Approach Assumptions

1. The materials such as the business contract, Business License, Articles of Association, signed agreement, audit report and financial documents provided by the appraised party are authentic and valid.

2. The in-service and future management of the appraised party will fulfill their duties. There will be no major violations that may impede the company’s development and income realization, and the existing operation and management mode will maintain.

3κThe contracts signed by the company in the current and previous year are valid and the contracting parties will keep on performing the contracts.

4. The appraisal refers to reasonable forecast based on current market situation, without considering significant changes and fluctuation unpredictable at the moment in future market, such as political unrest, economic crisis and hyperinflation, etc.

5. The different income, related prices and costs used in the report are the

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professional judgement after due diligence, based on historical data provided by the assessed party.

6. It is assumed that the investment properties which are rented shall be renewed when the lease period has been expired. The vacancy rate is not considered for valuation conclusion if the property is not renewed.

XI. Valuation Conclusion i.Outline According to relevant laws, regulations and standards for assets appraisal, abiding by the principles of independence, objectiveness and fairness, we appraised the market value of the assessed party as of valuation date per necessary appraisal procedures, and made the conclusion per Asset-based Approach and Income Approach as follow: 1. Appraisal conclusion per Assets-based Approach: Through computation by Asset-based Approach, the total equity of shareholders is valued as RMB 1,913,470,400.18 as of valuation date in market condition. Including: total assets engaged in book value amounts to RMB 1,639,840,917.19, while assessed value amounts to RMB 2,157,021,278.26θwith the increase of RMB 517,180,361.07 and increase rate of 31.54%; Liabilities engaged in book value amounts to RMB 243,550,878.08, while assessed value amounts to RMB 243,550,878.08, without increase and decrease; Net assets engaged in book value amounts to RMB 1,396,290,039.11, while assessed value amounts to RMB 1,913,470,400.18, with increase of RMB 517,180,361.07 and increase rate of 37.04%. The valuation conclusion and details are shown as follows.

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Valuation Sheet Valuation date:Sep 30 2015 UnitφRMB '000

Assessed Increase/ Increase/decre Item Book Value value decrease ase rate%

Current Assets 307,616.90 307,616.80 -0.10

None-Current Assets 1,332,224.00 1,849,404.50 517,180.50 38.82

Including: Financial assets available for 888.80 888.80 0.00 sale

Net investment held to maturity 0.00 0.00 0.00

Term account receivable 0.00 0.00 0.00

Long-term Investment 1,075,911.40 1,062,666.00 -13,245.40 -1.23

Investment real estate 250,628.20 779,197.70 528,569.50 210.90

Fixed Assets 4,795.60 6,652.00 1,856.40 38.71

Construction in Progress 0.00 0.00 0.00

Project goods and material 0.00 0.00 0.00

Disposal of fixed assets 0.00 0.00 0.00

The productive biological net assets 0.00 0.00 0.00

Hydrocarbon net assets 0.00 0.00 0.00

Intangible Assets Net Amount 0.00 0.00 0.00

Development expenditure 0.00 0.00 0.00

Good will 0.00 0.00 0.00

Long-term deferred expense 0.00 0.00 0.00

Deferred tax assets 0.00 0.00 0.00

Other non current assets 0.00 0.00 0.00

Total Assets 1,639,840.90 2,157,021.30 517,180.40 31.54

Current Liabilities 243,349.40 243,349.40 0.00

Non-current Liabilities 201.50 201.50 0.00

Total liabilities 243,550.90 243,550.90 0.00

Net Assets 1,396,290.00 1,913,470.40 517,180.40 37.04

The reason for appreciation and depreciation of assets and liabilities are as follows: (1) The book value for current assets is RMB 307.6169 million, while the assessed value is RMB 307.6168 million , with decrease of RMB 0.1K.

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The major reason is that the Cash & cash equivalent is assessed by foreign currency and exchange rate as of valuation date . (2) The book value for long-term investment is RMB 1,075.9114 million, while the assessed value is RMB 1,062.666 million , with decrease of RMB 13.2454 million. As for long-term investment, the assessed value has been reached per valuation for total assets of subsidiary and investment ratio. (3) The book value for investment property is RMB 250.6282 million, while the assessed value is RMB 779.1977 million , with increase of RMB 528.5695 million. The major reason for appreciation is that the property has acquired in earlier time, the price of which was at low level. However, the current property price has been increased hugely compared with that of latest years. (4)The net book value for fixed assets is RMB 4.7956 million, while the assessed value is RMB 6.6520 million, with increase of RMB 1.8564 million. The major reason are as follows: A. There are 24 sets of equipment, which were acquired in 2012. The original book value for above equipment was booked per net assessed value, which re-accrued depreciation. Thus, the book value was so low. The replacement current price has increased hugely so far, which contribute to the huge appreciation for original assessed value, with increase rate of 30.38%. B. The vehicles license in Shanghai is for auction. There are 2 service vehicles for enterprise. The valuation conclusion includes the market value of license, which contributes to the huge appreciation for net assessed value of transportation. C. The accounting depreciation for electronic equipment is quick and the net book value is lower. The assessed value is confirmed by economic useful year and actual condition, which contribute to the difference. Thus, there is appreciation for net assessed value. 2. Appraisal conclusion per Income Approach: Through computation by Income Approach, the total equity of shareholders on basis of the above assumptions are valued RMB 1,425.00 million Yuan, increased by RMB 28.71 million compared to the audited book value of net assets, with increase rate of 2.06%. ii. Conclusion The difference rate is 25.53% per Assets based Approach and Income Approach. Analysis The major reasons for difference between Assets based Approach and Income

– III-28 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

Approach are as follows: The lease rent fee of assessed party is less than growth rate of real estate market value. The Assets-based Approach is to appraise the value of the appraised object by reasonably appraising the itemized assets and liabilities, which means calculating the value of the total shareholders’ equities by subtracting the appraised value of liabilities from the total value of itemized assets. The Income Approach refers to reflect comprehensive profitability of each asset with a perspective of future profitability for enterprise. The two appraisal approaches reflects the different value scope of the enterprise. Intangible resources such as enterprise’s operation qualification, service platform, R&D capability, management team and other good will could not be calculated or quantized with the Assets-based Approach measurably and quantitatively, while the value of the appraised party during certain continuing period may be reflected with the Income Approach. Therefore, the appraisal conclusion as per two approaches for reflecting value is different. The major assets for SEII are investment property. The properties have been acquired in earlier days. The real estate price has been increased hugely compared with that of latest years. Thus, there is huge appreciation for investment property per assets based approach. SEII’s major profit is generated from investment income of subsidiary company. The profit from leased rent fee accounts for less percentage in net profit. The subsidiary companies refer to mechanism manufacture industry, which are majorly sino-foreign joint ventures.

For the growth of raw material, human resource and financing cost and the lack of internal talent cultivation mechanism, it is hard to estimate the future tendency. The growth for machinery manufacturing of industry production is slow. Meanwhile, the subsidiary as of foreign joint venture is influenced by macro policy and foreign exchange market. The forecast maybe influenced by subjective judgment, which has certain uncertainty. Thus, the Assets based Approach is better than Income Approach with regard to pertinence and precision.

– III-29 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

The valuation conclusion has been reached finally per Assets based Approach. Through computation, the total equity of shareholders is valued as RMB 1,913,470,400.18 Yuan. iii.Others With regard to limitation of market information, the premium and discount generated by controlling interest and minority interest haven’t been considered herein. Besides, the influence for liquidity discount hasn’t been considered for valuation conclusion.

Amount of Guarantee Guarantee Due No. Guarantor Secured party Guarantee Starting Date date δmillionε Fujikura Shanghai 1 SEII 15.00 2015.6.2 2018.6.2 Cable Ltd Fujikura Shanghai 2 SEII 15.00 2015.6.29 2018.7.1 Cable Ltd Fujikura Shanghai 3 SEII 14.50 2015.7.9 2018.7.8 Cable Ltd

4. As of valuation date, per related property documents, the ownership name recorded in property ownership certificate is not consistent with the actual name for assessed party because of enterprise reformation, acquisitions and mergers.

No. Location Certification of the right Ownership Survey Reason

name not changed NO.40, 1 HFDZZδ2002εNO.014725 SEII for enterprise Wenshui Road reformation

Shanghai Sinocom NO.534, name not changed 2 HGYδNANSHIεNO.08144 Electromechanical Fangxie Road for M&A Co., LTD

– III-30 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

NO.1, Lane 651, Shanghai Sinocom name not changed 3 South Huangpi HGY(Luwan) No. 009937 Electromechanical for M&A Road. Co., LTD

DuhangTown, DuhangTown, Fengshou village name not changed 4 Fengshou HJJδMD93εNo. 000003 δSatellite Cutting for M&A village,Group 5 Tools Plantε

Shanghai Pujiang Town, FengGuang name not changed 5 Fengshou HFDMZ(2004) No. 079151 Industrial for M&A village Company The above property ownership certificate is not consistent with the actual name for assessed party. The appraisers checked and verified details during site survey. The relevant evidential documents have been collected in order to confirm the ownership of related assets. The flaw issues for related name are not considered for valuation conclusion. 5. As of valuation date, per related documents released from SEII per consolidated statement, the engaged investment property refers to granted, collective land. The details are as follows: Land Land Certificate Land area NO. Location Land Use Property ownership No. δm2ε

NO.88, HFDPZ (2013) North 1 SEII 8685 Industry granted No.055932 Zhangjiaba ng Road

NO.534, HGY(Nanshi) 2 Shanghai Fangxie 1082 Business granted No.08144 Sinocom Road Electromech NO.1, Lane anical Co., HGY(Luwan) No. 651, South 3 468 Industry granted LTD 009937 Huangpi Road Duhang Town, Pujiang Fengshou HJJ(MD93) No. Town, 4 village 3840 Industry collective 000003 Fengshou δSatellite village Cutting Tools Plantε Shanghai Pujiang FengGuang HFDMZ(2004) Town, 5 56651 Industry collective Industrial No. 079151 Fengshou Company village Shanghai Standard Zhenbei HFDPZδ2005ε 6 Parts Road, 12,113.00 Industry granted No.042625 Machinery No.451 Co., LTD

As of issue date of valuation report, the appraisers have acquired documents for NO.88, North Zhangjiabang Road/ NO.534, Fangxie Road/ NO.1, Lane 651, South Huangpi Road, which state that the transfer fee can not be paid for supplementary to stock plants.

– III-31 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

The lands which are located in Pujiang Town, Fengshou village and NO.451, Zhenbei Road are planned for purchasing and storage by country. (See following 9# and 11# disclosure) Per land practical situation recorded in land rights certificate, the transferring fee should be deducted for 4 granted lands. As for 2 collective lands, they are valued per current objective acquired cost and current land condition. 6. As of valuation date, for accounting ledger- investment property, the use of property , which is located in NO.40, Wenshui Road, the certificated of which is HFDZZ˄2002˅014725, is for industry and the ownership is state-owned. The land area recorded in property ownership certificate is 76,737.00 m2. The building area recorded in property ownership certificate is 63,945.29 m2. Per related document released from Zhabei Planning and Bureau of Land Management and contract of selling, the building area as can be for certificate handling is 52,773.77 m2, the 753.9 m2 of which has been dismantled after site survey and the land area amounts to 72,084.14m2. Meanwhile, per data released from assessed party, the area which has no property ownership certificate amounts to 9,074.68 m2. Thus, as of valuation date, the land area is 72,084.14m2 and the building area is 61,094.55 m2 . The appraisers assessed area on this basis.

Remaining area for certificate Assessed building Assessed building NO.40, Wenshui Land Area handling released area area(without Road from Zhabei Land (with certificate) certificate) Department recorded in property 76,737.00 52,773.77 63,945.29 not quite clear ownership certificate Minus: dismantled after 4,652.86 753.9 11,925.42 site survey as of valuation date Remaining area as 72,084.14 52,019.87 52,019.87 9,074.68 of valuation date

After valuation date, before issue date of valuation report, SEII has applied for land transfer. As of issue date of valuation report, the land transfer contract has been signed. The transfer fee has been confirmed by land regulation department and simulated in book by CPA. – III-32 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

Per land transfer contract, the above land is assessed for transfer. The buildings on land are assessed per practical situation as of valuation date. The assessed value shall be adjusted if the property and land area is not consistent with the measured area by authority departments of surveying and mapping, when the property ownership certificate shall be re-registered in future. 7. As of valuation date, the No.108# in investment property surveyed by appraisers, the building area is 8,052.00 m2, which is located in leased land(Pujiang Town, Fengshou village) and is used together with SEII owned 2 collective lands, the registration No. of which are HJJ(MD93) No. 000003 and HFDMZ (2004) No. 079151.

Per land renting agreement signed by SEII and Shanghai Minghang District Pujiang Town, Fengshou village committee, the leased period has been expired as of 31st May 2015. As of valuation date, the leased contract has not been renewed. The land renewed issue is not considered for valuation conclusion 8. The flaw issues for injected assets in investment property are as follows after site survey by appraisers.

9DOXDWLRQ %XLOGLQJ VKHHW12 %RRN9DOXH $VVHVVHG9DOXH 1R /DQG %XLOGLQJ $UHD ˄

– III-33 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

12 1RUWK 11 88 =KDQJMLDED &DQWHHQ 1,134.60 18,459.10 1,359,228.11 QJ5RDG 12 1RUWK 12 89 =KDQJMLDED ZDUHKRXVH 261.9 14,519.30 174,805.16 QJ5RDG 3XMLDQJ 7RZQ 2IILFH 13 100 1,200.00 261,056.04 865,620.00 )HQJVKRX EXLOGLQJ YLOODJH 3XMLDQJ 7RZQ +HDY\DVVHPEO\ 14 102 768 / 1,501,478.40 )HQJVKRX VKRS YLOODJH 3XMLDQJ 7RZQ &UXVKHU 15 103 2,088.00 995,909.64 3,449,334.24 )HQJVKRX DVVHPEO\VKRS YLOODJH 3XMLDQJ 7RZQ SURFHVVLQJ 16 104 2,160.00 3,921,228.08 2,920,320.00 )HQJVKRX ZRUNVKRS YLOODJH 3XMLDQJ 7RZQ ,QGRRU 17 105 337.28 2,731,313.77 352,228.25 )HQJVKRX ZDUHKRXVH YLOODJH 3XMLDQJ 7RZQ &UXVKHU 18 106 4,171.00 5,360,380.23 4,006,162.08 )HQJVKRX DVVHPEO\VKRS YLOODJH 3XMLDQJ 7RZQ 6XEVWDWLRQ 19 107 144 2,214,208.76 158,814.72 )HQJVKRX EXLOGLQJ YLOODJH 3XMLDQJ 7RZQ %ODQNLQJ 20 108 8,052.00 12,765,560.28 )HQJVKRX ZRUNVKRS YLOODJH 3XMLDQJ 19,977,813.55 7RZQ %ODQNLQJ 21 109 11,640.00 19,044,320.40 )HQJVKRX ZRUNVKRS YLOODJH 3XMLDQJ 7RZQ 22 110 )HQJVKRX WRLOHW 80 37,165.79 51,044.80 YLOODJH 3XMLDQJ 7RZQ 23 111 )HQJVKRX &OHDQLQJVKRS 100 48,377.57 103,639.00 YLOODJH 3XMLDQJ 7RZQ $VVHPEO\ 24 112 3,024.00 2,667,023.36 5,269,773.60 )HQJVKRX :RUNVKRS YLOODJH 3XMLDQJ 7RZQ )HQJJXDQJ 25 113 112 61,968.83 597,219.84 )HQJVKRX 6XEVWDWLRQ YLOODJH

6XEWRWDO 53,313.77 49,839,728.90 71,065,638.36 ,QMHFWLRQ RIUHDO 143,709.79 117,222,853.23 283,782,410.76 HVWDWH 3URSRUWLRQ ZLWK IODZ 37.10% 42.52% 25.04% LVVXHV P.s: The property certificate (102# Heavy assembly shop) has not been registered for the area exceeds red line. The book value was included in 101# Heavy assembly shop, the registration No. of which is HFDMZ (2004) No. 079151.

The replacement cost approach is adopted for proporty with flaw issues, which have no property certificate and the area of which exceeds red line. Per principle of value contribution and actual condition as of valuation date,

– III-34 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

the assessed value has been reached per replacement cost and depreciation rate. The influence for flaw property issues is not considered. The proportion for assessed value of flaw issues in total engaged investment property is about 25.04%. 9. Per “MPF(2013) 62, Pujiang Coutry Park’s opinion for site selection” and “official letter”, SEII’ s property which is located in Pujiang Town, Fengshou village is included in construction scope for Pujiang Coutry Park, which should be cooperated to implement relocation work. As of valuation date, the relocation work has not been started. The assessed party has not signed compensation agreement to this related issue. The relocation work is not considered for valuation conclusion. 10. Per “Experts Operation Tips for asset appraisal-report disclosure for listed companies’ major assets restructuring”, the valuation issues in latest three years as of valuation date for subsidiary as of Shanghai Cyeco Environmental Technology Co., Ltd(hereinafter refers to SCET) are as follows: April 2014, Shanghai Prime Machinery Co., Ltd. purchased Jiming’s and Zengxiaoyan’s partial equity of SCET. After equity purchase, Shanghai Prime Machinery Co., Ltd. held shares of 65%; Jiming held shares of 18%; Zengxiaoyan held shares of 17%. This economic behavior was assessed by˄2014˅No. 2021, Shanghai Cai Rui Assets Evaluation Co., LTD’s valuation report and the valuation date was 31st March 2014. The audited net assets is RMB 50,941.90 K, while the assessed value is RMB 256,175.10 K, with the increase of 402.88%. The valuation report was filed by Shanghai Electric Group CORP. June 2015, per SCET ‘s shareholder resolution, Shanghai Prime Machinery Co., Ltd. transferred 65% equity of SCET to SEII. This economic behavior was assessed by˄2015˅No. 2010, Shanghai Cai Rui Assets Evaluation Co., LTD’s valuation report and the valuation date was 31st Dec 2014. The audited net assets is RMB 54,755.00 K, while the assessed value is RMB 306,049.40 K, with the increase of 458.94%. The valuation report was filed by Shanghai Electric Group CORP. As for this valuation, the injected assets’ related SCET 65% equity of SCET is

– III-35 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

assessed per assets based approach and income approach. And the valuation conclusion has been reached per assets based approach. The difference between this and last appraisal is for estimation judge for different valuation company and different valuation date. May report users attention. 11. For subsidiary as of Shanghai Standard Parts Machinery Co., LTD, per HGTZY No.151(2010) “Shanghai municipal planning and land resources administration files”, the notice of land resumption for implementation during early development about land in Putuo District, Zhenbei Village, the land owned by Shanghai Standard Parts Machinery Co., LTD, which is located in No.451, Zhenbei Road, is included in resumption scope. As of valuation date, the above resumption has not kicked off. The assessed party has not signed compensation agreement for land resumption. The land resumption issue is not considered for valuation conclusion. 12. As for subsidiary as of SAEC Mitsubishi, the property is located in No. 505, Nanyangjing Road, the registration No. of which is HFDSZ (2004) 000315. The land is used for industry, the right of which is granted. The land area amounts to 36,547.00 m2. The real estate area amounts to 35,919.69 m2. Per articles of association reviewed by appraisers, the above business real estate is invested by China shareholder during joint venture established. The area of building on the above land which has not transacted property certificate amounts to 14,837.25 m2 . The replacement cost approach is adopted for proporty Per principle of value contribution, the influence for flaw property issues having no property certificate (14,837.25 m2 )is not considered for valuation conclusion. Meanwhile, the renew or transfer issue for granted land if the joint venture term due, which is invested by China shareholder during joint venture established, is not considered in valuation conclusion. 13. We found no other key items that may influence the valuation conclusion within our proficiencies and abilities of valuation and computation. However, users of the report shall not rely on the report but have independent judgment on property rights, values and influences etc. and take them into consideration when performing economic activity.

– III-36 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

14. We are exempt from relating responsibilities and/or obligations in the event that relating parties did not state the special items possibly having impacts on the valuation conclusion during engagement or our fieldwork and those special items usually cannot be acknowledged or collected only with appraisers’ professional experiences. 15. The report is invalid and the valuation conclusion is untenable in the event that above-mentioned items do have impacts on the valuation conclusion and no adjustment has been made in the report

XIII. Restriction of the Use of the Report i.The Use Scope of the Report 1. The report is used by the report users exclusively for the purpose stated herein and the necessary investigation by the related government departments; 2. We entitle no any other party with any other use of the report, neither admit any other parties showed or having the report unless both the behavior and the party are approved by us formally. We shall take no responsibility of the abuse of the report without our formal approval; 3. The appendixes and the other formal materials specially provide for the government and administrations have the same legal rights and sanctions as the report. ii.Validity Period of the Report 1.The valuation conclusion will survive a valid period for one year according to prevailing regulations, i.e. it is valid from Sep. 30th, 2015 to Sep. 29th, 2016. 2.The report is not permitted to use after the deadline. iii.Special Terms Regarding to Stat-owned Assets In the event that the report concerning state-owned assets, when it is not formally registered, approved or confirmed by the state-owned assets management branches, the report cannot be regarded as the basis of economic behavior. iv.The Expositive Right of the Report The valuation institution that submits the report owns the expositive rights of opinions in the report. No any other party is authorized to expose and/or

– III-37 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

explain the report unless the party (parties) is/are allowed exposing and/or explaining them by laws and regulations of the state. This valuation report is written in both Chinese and English. In case there is any discrepancy between the Chinese and English versions of this valuation report, the Chinese version shall prevail.

XIV. The Submission Date of the Report Dec. 2nd, 2015 (No text hereinafter in this page)

– III-38 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

(No Text in this Page)

Valuation Institution Orient Appraisal Co., Ltd.

Legal Xiaoming Wang Representative

Chief Appraiser Qiquan Li

Signature from Yuanchen Wu Appraisers Gang Wu

The Submission Date of the Report Dec. 2nd, 2015

– III-39 – APPENDIX III VALUATION REPORT FOR SHANGHAI ELECTRIC INDUSTRIAL COMPANY LIMITED Valuation Report No.(2015)0898053

Files for Reference Valuation Report (Appendix)

Project Number: HDZZPBZ No.(2015) 0898053

No. Name 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP.; 3. License of Shanghai Electric Group Co., Ltd (Shanghai Electric);

4. License of Shanghai Electric Group CORPχ 5. License of SEII; 6. Capital verification report of SEII; 7. Audit report for special purpose of SEII; 8. Property certificate of SEII; 9. Vehicles of license of SEII; 10. The business license, Capital verification report, balance sheet as of valuation date for SEII’s subsidiary; 11. Letter of Commitment from the Clients and Concerning Parties; 12. Engagement Letter; 13. Business License of Orient Appraisal Co. Ltd.; 14. License for Undertaking of Securities of Orient Appraisal Co., Ltd.; 15. Credential of Assets Valuation Qualification of Orient Appraisal Co., Ltd.; 16. Letter of Commitment from the Valuation Institution and Appraiser; 17. Assets list and summary sheets.

– III-40 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD.

The following is the text of the valuation report for Shanghai DENSO Fuel Injection Co., Ltd. dated 2 December 2015 prepared in Chinese by Orient Appraisal Co., Ltd., the qualified PRC A1B5(3) valuer. The Chinese text shall prevail over the English text in the event of inconsistency.

Valuation Report for Enterprise Value

˄Report˅ Vol.1

Project Name: Business Valuation Report on Total Equity of SHANGHAI DENSO FUEL INJECTION CO.,LTD. with regard to Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015)0900053

Orient Appraisal Co., Ltd.

Dec. 2rd, 2015

– IV-1 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD.

Valuation Report (Contents)

Project Number: HDZZPBZ No.(2015)0900053 I. OUTLINE OF THE CLIENT AND OTHER REPORT USERS...... 6 , 7+(&/,(17 ,, 27+(55(325786(56 II. OUTLINE OF THE ASSESSED PARTY ...... 8 III. VALUATION PURPOSE ...... 9 IV. VALUATION SCOPE AND OBJECTS ...... 9 V. VALUE TYPE AND DEFINITION ...... 12 VI. THE VALUATION DATE ...... 12 VII. VALUATION BASIS ...... 13 , (&2120,&$&7,9,7<%$6,6 ,, 0$-25/(*$/%$6,6255()(5(1&(2)58/( /$: ,,, (9$/8$7,21&5,7(5,21 ,9 35,&,1*%$6,6$'237(' 9 .(<&2175$&76$*5((0(176$1'3523(57<5,*+7&(57,),&$7(6 9, 27+(5),/(6 9,, 5()(5(1&()52027+(5$335$,6(5&203$1< VIII. VALUATION APPROACHES ...... 16 , 287/,1( ,, 7+($3352$&+&+26(15($621$1'27+(5(;3/$1$7,21 ,,, ,1752'8&7,212)$66(7%$6('$3352$&+ ,9 ,1752'8&7,212),1&20($3352$&+ IX. VALUATION PROCESS ...... 23 X. PREMISES AND ASSUMPTIONS OF TENABILITY OF THE REPORT ...... 24 XI. VALUATION CONCLUSION ...... 26 , 287/,1( ,, &21&/86,21$1$/<6,6 ,,, 27+(56 XII. ADDITIONAL DISCLOSURE ITEMS ...... 30 XIII. RESTRICTION OF THE USE OF THE REPORT ...... 31 , 7+(86(6&23(2)7+(5(3257 ,, 9$/,',7<3(5,2'2)7+(5(3257 ,,, 63(&,$/7(5065(*$5',1*7267$72:1('$66(76 ,9 7+((;326,7,9(5,*+72)7+(5(3257 XIV. THE SUBMISSION DATE OF THE REPORT ...... 32 )LOHVIRU5HIHUHQFH

– IV-2 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD. Valuation Report No.(2015)0900053

Appraisersÿ Statement

– IV-3 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD. Valuation Report No.(2015)0900053

Valuation Report (Abstract)

Project Number: HDZZPBZ No.(2015)0900053

The Client Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd Other Report Users The legal user of the report including the client and the user formulated by State laws and regulations according to the engagement letter. The Assessed Party SHANGHAI DENSO FUEL INJECTIONCO.,LTD. (hereinafter refers to DENSO ) Valuation Purpose Asset Replacement and Issue Shares for Assets Purchase The Valuation Date Sep. 30th , 2015 Valuation Scope and Objects The valuation object is total equity of shareholders. The valuation scope includes assets and liabilities as of valuation date. Including current assets and non-current assets( fixed assets, intangible assets and differed tax assets) and liabilities. Net assets engaged for valuation amount to RMB 797,544,979.12 Yuan in book. Value Type Market Value Valuation Approach The Asset-based Approach and Income Approach. According to the analysis of the assessed party, we’ve finally adopted Asset-based Approach as our valuation conclusion. Valuation Conclusion Through computation, the total equity of shareholders is valued as RMB 874,897,326.16 Yuan.

– IV-4 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD. Valuation Report No.(2015)0900053

Period Of Validity The validity lasts for one year since the valuation date, i.e. until 29 Sep. 2016. Additional Disclosure Items See special disclosure in valuation report.

– IV-5 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD. Valuation Report No.(2015)0900053

Valuation Report (Text)

Notice: The Report can be used exclusively for the purpose engaged and is tenable under engaged conditions. To learn all information of this project, please read the whole report and files for reference carefully. Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd: We have received your engagement to evaluate DENSO ‘s total equity, according to the law, the regulations ,the asset appraisal principle and standards and the necessary evaluation program, through our computation with the Asset-based Approach and Income Approach, in purpose of Shanghai Electric Group Co., Ltd ‘s Asset Replacement and Issue Shares for Assets Purchase , in order to offer market value dated Sep. 30th , 2015. The report is as follows:

Project Number: HDZZPBZ No.(2015)0900053

– IV-6 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD. Valuation Report No.(2015)0900053

There are 4 major blocks for main business, which are new energy equipment, efficient and clean energy equipment, industrial equipment and modern service industry.

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ii.Other Report Users The legal users of the report include the users as agreed in the engagement letter and formulated by State laws and regulations, and the relevant regulatory departments and authorities of the state-owned assets appraisal for economic behavior. Beyond that, any third party has acquired valuation report , who should not be regarded as the report users.

II. Outline of the Assessed Party The assessed party:DENSO Address: No.118, Chenpu Road, Fenxian District, Shanghai City; Registered Capital: US$ 29.40 million; Company type:LLC (Sino-foreign joint ventures) Legal Representative: Jianjin Li;

1.Shareholders of the company as of valuation date is shown as below: (Unit˖US$ million)

Percentage Shareholders Investment (100%)

1 Shanghai Electric Group CORP. 17.9340 61.00

2 Shanghai Dongsong International Trading Co.,LTD 1.47 5.00

3 DENSO China 9.9960 34.00

Total 29.40 100

The paid-in capital is consistent with the registered capital, which is verified by No. 039 capital verification report in 2008 released from Qindao Zhenqin CPA Co., Ltd(Shanghai Branch).

2. Operating conditions of Recent 2 Years plus one period are given as follows: (Unit˖RMB ‘000 Yuan) Item 2013-12-31 2014-12-31 2015-09-30

Asset 836,721.20 1,005,435.00 1,021,112.20

Liabilities 158,602.80 216,928.00 223,567.20

Net Assets 678,118.40 788,507.00 797,545.00

– IV-8 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD. Valuation Report No.(2015)0900053

Item 2013 2014 Jan. to Sep. 2015 Revenue 632,641.40 748,351.30 447,258.90 Total Profit 133,599.20 187,206.50 130,171.50 Net profit 114,660.00 160,182.40 111,836.80

The above statistics abstracts from the historical unqualified audit report for special purpose issued by BAKER TILLY CHINA.

DENSO adheres to enterprise accounting system. The VAT rate is 17%. The urban construction tax ,educational surtax, local educational surtax and river management fee are 1%, 3%, 2%,1% of turnover tax respectively. The income tax rate is 15%. DENSO is Hi-tech Enterprise, which enjoys preferential income tax rate of 15% as of issue date of valuation report.

III. Valuation Purpose The purpose of report is to provide a market value reference of related assets of DENSO as of valuation date, in purpose of Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Purchasing Shanghai Electric Group CORP.’s 61% equity of DENSO. The acquired economic behavior document are as flows:

1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP;

IV. Valuation Scope and Objects 1. The valuation object is total equity of shareholders for DENSO as of valuation date. The valuation scope includes total assets and liabilities. Including current assets and non-current assets( fixed assets, intangible assets and differed tax assets) and liabilities. The booked net equity amount to RMB 797,544,979.12 Yuan in book. Assets amount to RMB 1,021,112,161.64Yuan in book. Liabilities amount to 223,567,182.52 Yuan in book. 2. Per declaration list, there is 1 engaged property, which is located in No.118, Chenpu Road, Nanqiao town, Fenxian District, Shanghai City.

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The certificate No. is (2015) 014561, which only records land information. The property area is 32,723.10 m2 per acceptance certificate for Shanghai construction project completion planning and planning permit of construction engineering. The land area is 79,698.90 m2, per real estate right certificate. The land use right refers to transferring land. There are 4 sets of structures on land, which are greening, roads and parking lot. They remain normal use. 3.Per declaration list, there are 1,065.00 sets of equipment engaged, which are 402 sets of machinery, 4 sets of vehicles, 659 sets of electronic equipment. 27 sets of equipment and 1 vehicle remain scrap status and the others remain normal use. 4. Per declaration list, there are 35 sets of intangible assets. Including: 4 sets of booked non-patent technology, the 3 of which have been amortized totally. Meanwhile, there are 4 sets of brands and 27 sets of patents, which are not reflected in book. The details for non-patent technology are as follows:

Acquired Content and Name Acquired Date Original book valueδYuanε Book ValueδYuanε Method NB ⌫䶔щᴿᢶᵥ 2000.10.21 6,131,920.28 - purchased Ḫ⋯௭⋯ಞᢶᵥ 2003.11.19 752,780.07 0.23 purchased P7PE ᢶᵥ 2003.11.30 2,500,000.00 - purchased SA3 ශḪ⋯௭⋯⌫ᨆ 2005.09.30 275,113.53 6,878.16 purchased ࢃಞ

The details for patents are as follows:

registration Verification services No. No. categories Name Period of validity

1 12428683 7 SDFI 2014.09.21-2024.09.20

2 12428650 7 SDFI graph 2014.09.21-2024.09.20

3 12428568 7 SDFI graph 2014.09.21-2024.09.20

4 12162766 7 SDFI 2014.07.28-2024.07.27

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The acquired patents are as follows:

3DWHQW 3HULRGRI 1R $SSOLFDWLRQ1XPEHU Name &DWHJRU\ YDOLGLW\ =/ SDWHQWIRU 20 years from Ԧڦ䟷⭘䶤ᖒ׋⋩㿴ᖻⲴḡຎ LQYHQWLRQ 20061226 =/ ⟳⋩௧ሴ⌥Ⲵ㚄䖤㢲㻵䝽䱢䭉 SDWHQWIRU 20 years from ᯩ⌅ LQYHQWLRQ 20120925 =/; 8WLOLW\ 10 years from 䖖ᒺཀྵާ㺘䶒䫱ኁỰ⍻㻵㖞 PRGHO 20150604

=/ 8WLOLW\ 10 years from ঻㻵ᥑ⋩ᶯⲴ䇮༷ PRGHO 20150505 =/ 8WLOLW\ 10 years from ⭘Ҿ䖖䖶䈳䙏ಘⲴ䘎᧕ᵶ䬰 PRGHO 20150119

=/; 8WLOLW\ 10 years from Ḥ⋩ਁࣘᵪⴤࡇ௧ሴ⌥ PRGHO 20150119 =/ 8WLOLW\ 10 years from 䖖᡻ᷴ㻵㖞ڌ PRGHO 20150119 =/ 8WLOLW\ 10 years from ߿঻ಘ䙊≄ᆄᣔᑭ PRGHO 20150119 =/ ⨙⼘ᵶഎ䘰㻵㖞৺वᤜަⲴ⨙ 8WLOLW\ 10 years from ⼘ᵪ PRGHO 20140609 =/ 8WLOLW\ 10 years from ௧ሴ⌥઼ਁࣘᵪ䘎᧕Ⲵ㌫㔏 PRGHO 20140609

=/ 8WLOLW\ 10 years from ާ⁑ᗳ䖞৺ٿᨀࡽಘⲴ PRGHO 20140609 =/ 8WLOLW\ 10 years from 䖜ੁᵶ∋ඟ PRGHO 20140609 =/ 8WLOLW\ 10 years from ሱ๥㻵㖞 PRGHO 20140609 =/ 8WLOLW\ 10 years from 䗃⋩⌥Ⲵ䗷⑑ᓗ PRGHO 20140609 =/ 8WLOLW\ 10 years from ⭘Ҿ䫒⡷䫶᧕Ⲵ䱢䭉ཀྵާ PRGHO 20140609

=/ 8WLOLW\ 10 years from ׋⋩䀂ᓖ㠚ࣘᨀࡽಘ PRGHO 20140609 =/ 8WLOLW\ 10 years from ؍Ḥ⋩ᵪⴤࡇ௧ሴ⌥ࠪ⋩ਓⲴ ᣔᑭ PRGHO 20120925 =/ ⭘Ҿ䱢→Ḥ⋩ᵪ⟳⋩௧ሴ⌥䘶 8WLOLW\ 10 years from എ䖜ᰦ௧⋩Ⲵࠨ䖞䖤 PRGHO 20120925

=/ Ḥ⋩ᵪⴤࡇ௧ሴ⌥ѝ䈳䙏ಘਾ 8WLOLW\ 10 years from ༣㔃ᶴ PRGHO 20120925

=/ Ḥ⋩ᵪ⟳⋩௧ሴ㻵㖞ѝⲴ䖜ੁ 8WLOLW\ 10 years from ᵶ PRGHO 20120925 =/ Ḥ⋩ᵪ⟳⋩௧ሴ⌥Ⲵ䱢঑⋩䟿 8WLOLW\ 10 years from ᧗ࡦ྇ㆂ PRGHO 20120925

=/ Ḥ⋩ᵪ⟳⋩௧ሴ㻵㖞ѝⲴ䗷⑑ 8WLOLW\ 10 years from ⴈ PRGHO 20120925

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=/ Ḥ⋩ᵪⴤࡇ௧ሴ⌥Ⲵ亦ḡփ㔃 8WLOLW\ 10 years from ᶴ PRGHO 20120925 =/ ⭘Ҿ⟳⋩௧ሴ⌥⌥փሬ〻ᆄ࣐ 8WLOLW\ 10 years from ᐕ࠰ާ PRGHO 20120925

=/ ⭘ҾḤ⋩ᵪ⟳⋩௧ሴ㻵㖞ѝ䗷 8WLOLW\ 10 years from ⑑ⴈᆹ㻵㷪ᆄ䱢⑇┿㔃ᶴ PRGHO 20120925

=/ 8WLOLW\ 10 years from а⿽価઼㫨⊭␵⍇㻵㖞 PRGHO 20110701 =/ 8WLOLW\ 10 years from Ḥ⋩ᵪ௧⋩ಘⲴᯠර㔃ᶴ PRGHO 20110624

5. The engaged valuation objects and scope are conform to the valuation objects and scope related to the valuation purpose. The balance sheet as of valuation date has been audited without qualification by BAKER TILLY CHINA.

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factors. The pricing standards of the valuation are based on the effective prices as at the valuation date. VII. Valuation Basis i.Economic Activity Basis 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP. ii.Major Legal Basis or Reference of Rule & Law 1. Company Law of the PRC; 2. The law for PRC state-owned enterprises; 3. Order No. 12 of the State-owned Assets Supervision and Administration Commission of the State Council “the Interim Measures for the State-owned Assets Appraisal Management ”˗ 4. The state-owned assets evaluation management regulations( NO.14 issued by treasury department); 5. Notice of the relevant questions on strengthening the management of enterprises’ state-owned assets evaluation. (No. 274 issued by SASAC property in 2006); 6. Temporary regulations for State-owned assets’ supervision and management (NO.378 issued by state council in 2003); 7. No.3 Ministry of Finance doc, interim measures on transfer management of state-owned property rights˗ 8. No.[2006]306, A notice of relevant matters on enterprise state-owned property rights transferring; 9. No.[2013]64, the guide for valuation project filing of enterprise state owned assets; 10.No. [2009]941, A notice of valuation report review as of state owned assets; 11.The real estate administration law of the People's Republic of China; 12.The land administration law of the People's Republic of China; 13.Other laws and regulations. iii.Evaluation Criterion

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1. Assets appraisal -Basic Standards; 2. Assets appraisal ethical principles- Basic Principles; 3. Assets appraisal ethical principles-Independence; 4. Assets appraisal standards-Valuation Report; 5. Assets appraisal standard-Valuation Process; 6. Assets appraisal standard-Working Paper; 7. Assets appraisal standard-Engagement Letter; 8. Assets appraisal standard- Business Valuation; 9. Assets appraisal standard-Equipment; 10. Assets appraisal standard-Real Estate; 11. Assets appraisal standard-Intangible Assets; 12. Assets appraisal standard-patents; 13. Assets appraisal standard—brands; 14. Guiding Opinions on types of value; 15. Guiding Opinions about CPV ‘s focus on Evaluation objects for legal ownership; 16. Guiding Opinions on valuation report on state owned assets; 17. Quality control guide for Evaluation institutions; 18. Experts Operation Tips for asset appraisal-report disclosure for listed companies’ major assets restructuring; 19. ASBE issued by NO.33 Decree of the Ministry of Finance; 20. Code for appraisal of real estate(national standard GB/T50291-2015); 21. Benchmark premium on the valuation of urban land(national standard GB/T18508-2014); 22. Other laws and regulations. iv.Pricing Basis Adopted 1. Manual for the latest assets evaluation data and parameters (China Statistical Publishing House); 2. Quoted Price Pamphlet about machinery equipment˄China Machine PRESS˅; 3. http://www.chinacar.com.cn/; 4. Compulsory scrap standard for Motor vehicle( No.12, 2013); 5. http://www.ebook.hc360.com/ as of valuation date;

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6. Urban real estate administration law of PRC; 7. Assets valuation standards-real estate; 8. Shanghai construction engineering budget ration 2000; 9. The pricing information for raw material released from http://www.ciac.sh.cn 2014; 10. Regulations for related fee as of shanghai construction engineer; 11. PRC Law on Land Management; 12. http://www.shgtj.gov.cn/; 13. http://shtdsc.com/; 14. Updated result of Shanghai land price benchmark in 2013; 15. http://www.landvalue.com.cn/; 16. Audit report for special purpose issued by BAKER TILLY CHINA; 17. Part of the contracts and agreements released from assessed party; 18. Historical financial data and forecasting information; 19. Analysis of Statistical Data for National macro economy , Industry, regional market and enterprise; 20. ”10JQKA” of securities trend analysis system for stock A information; 21. Rate of return on national debt and lone interest rate close to valuation date; 22. Others.

v.Key Contracts, Agreements and Property Right Certificates 1. Investment contracts and agreements; 2. Shanghai acceptance certificate for construction completion of planning; 3. Planning permit of construction engineering; 4. Land transfer contract for Shanghai state-owned land use right; 5. Vehicle license; 6. Brands and patents; 7. Other related certification documents. vi.Other Files

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1. Financial statements of the valuation date, books and vouchers furnished by the party in question; 2. Assets lists with book values provided by the party in question; 3. Technical statistics of Orient; 4. Relating price information; 5. Others. vii.Reference from 1. None. other appraiser company VIII. Valuation Approaches i.Outline There are 3 Approaches of valuation, which are Cost Approach, Income Approach, Market Approach. ķThe Cost Approach is also called Assets-based Approach. The valuation conclusion for net assets has been reached based on deducting assessed liabilities from sum of the assessed assets. ĸThe Income Approach refers to discount or capitalize future income per appropriate discounting rate in order to reach the valuation conclusion. ĹThe Market Approach refers to make comparisons between valuation object and enterprise reference, enterprise which has deal cases in market, shareholders’ equity, securities and other equity assets in order to reach valuation conclusion by adjustment and revise. ii.The Approach Per “Assets appraisal principles---business valuation”, the appraisers shall chosen analyze the feasibility of Assets-based Approach, Income Approach and reason and other Market Approach in order to adopt one or multiple methodology explanation appropriately, per valuation objects, value type, condition for collecting documents, during conducting business value appraisal. Per valuation purpose, valuation objects, value type, condition for collecting documents and analysis of applicable conditions for three basic valuation approaches: Firstly, with regard to assets features of valuation object, the major assets for assessed party refer to current account, fixed assets, intangible assets and related liabilities, which have been audited as of valuation date by CPA. The book value is clear. The Assets based Approach is based on balance sheet

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The valuation conclusion for net assets has been reached based on deducting assessed liabilities from sum of the assessed assets, by means of replacing historical cost with market value of individual assets and liabilities. It is

appropriate to adopt Assets based Approach herein report. Secondly, the assessed party is manufacturing enterprise. The major products are fuel oil injection pump. The future income period and future income can be forecast by currency. The risk from future income can be quantified. It is appropriate to adopt Income Approach. Thirdly, there are lots of similar companies in related industry for assessed party. However, the company’s scale and business model are not comparable with listed companies in same industry. It is hard to quantization adjusting the difference between assessed party and comparable cases in same industry. Meanwhile, it is hard to acquire the financial information for similar non-listed companies in same industry for public market. It is not appropriate to adopt Market Approach. Above all, it is appropriate to adopt Assets based Approach and Income Approach. iii.Introduction of The Asset-based Approach is also called Cost Approach. The valuation Asset-based conclusion for total shareholders’ equity has been reached,on the assomption Approach of replacement of different production factors on valuation date,per specific condition of the engaged assets by item, adopting appropriate methodology in oder to sum up the assessed assets by item, meanwhile deducting assessed value for related debts.

Interest receivable They are valued according to the verificated book value.

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Receivables If there is reasonable ground to believe that the receivables can be recoverable totally, they are valued acording to the book value; For those long aging receivables,if they can not be recoverable for specific identification, they are valued as zero according to the historical dunning information, annalysis of reasons for arrear, of fund ,credit and management status for debtors. The rest receivables are valued per risk condition combined with provision for bad debt of accounting. The valuation conclusion has been reached per the receivables deducting amount that may not be paid back. Meantime, the provision for bad debt set by the assessed party is valued as zero.

Inventory The replacement unit price is based on market price,which is acquired according to the maket price information or company’s factory price. The assessed value is calculated by replacement unit price combined with quantity. For the inventories of which replacement unit price is just about the unit price in book, the unit price in book will be choosen as the replacement unit price; For finished product, the unit price will be calculated as current factory price deducting sale cost, tax (including income tax) and certain profit according to the sale condition. The unfinished products are valued per the finished products methodoly combined with condition of equivalent production. For inventory of damage, deterioration, disqualification and out of date, they are valued per recoverable net income. For merchandise inventory, the appraisers checked related invoices and accounting vonchers, got the genaral idea of custodial system and internal control system, and checked detail account for in-out stock after valuation date per inventory list released from assessed party. The book value for merchandise inventory refers to purchased price and reasonable fee, which are purchase in latest days. They are assessed per verified book value.

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Fixed assets As for building and structures of production, Replacement Cost Method is adopted.The valuation conclusion is reached based on the replacement unit combined with depreciation rate.

Replacement Cost Method refers to the amount it would cost to replace assessed assets at current prices in new condition, with deduction of physical depreciation, functional depreciation and economical depreciation, in order to valuate the assets. Assessed value for assets= Replacement Cost- physical depreciation-functional depreciation -economical depreciation Or: Assessed value for assets=

replacement price per area ×building area ×depreciation rate

As for machines, vehicles and electronic equipments, Replacement Cost Approach is adopted. The value of equipments= replacement pricehcomprehensice depreciation rate Per 2008 NO. 170, the VAT regulation and 2009 NO.113 “Notice about deducting input VAT from fixed assets”, the VAT is not included for some equipments which meet the requirements. As for scraping equipments, the conlusion has been reached per recoverable net value.

Land-use right The market comparison approach and land datum value method are adopted. And the valuation has been finally reached per market comparison approach. 1. The market comparison approach refers to selecting the several transaction cases of land which has the same condition and right of use as the assessed land on fixed market conditions. We make a comparison between the land of transaction case and the assessed land for transaction condition, transaction date, area conditions and individual conditions. Meanwhile, we shall make an amendment for the transaction cases in order to reach the valuation conclusion of the assessed land.

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2. The land datum value method is based on standard level of land price. The regional factor and individual factor, as influence the land price, are adjusted per different uses, in order to reach the valuation conclusion of the assessed land.

Intangible Other intangible assets refer to non-patents. The brands and patents not assets-other booked are also included in valuation scope. As for purchased non-patents in use, the value conclusion has been reached per replacement cost and depreciation rate. As for eliminated purchased non-patents, they are valued as 0.As for registered patents and brands, the products are facing elimination, they are valued per cost approach, because the excess earnings can not be generated in foreseeable future. As for brands, the paid reasonable design cost and fees during period of registration should be considered in order to reach conclusion, when the assets value are replaced. As for patents, the conclusion has been reached per objective material cost, registered cost and reasonable R&D profit for intangible assets.

Deferred The appraisers get a general idea of the content and counting process of DTA. tax assets(DTA) The valuation conclusion has been reached per valuation for subject and recalculation. Liabilities The assessed value is determined based on the verified book value and the actual liabilities payable.

Appraisal model and In the Income Approach, the model of enterprise free cash flow discounting was

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formula selected after taking the enterprise business model into account. Total shareholders’ equities = total enterprise value – value of interest-bearing debts Total enterprise value= value of productive assets + value of surplus and non-business assets Total productive asset value (P)= present value of free cash flow during certain forecast period+ present value of free cash flow after certain forecast period n F F 1 g p i n ¦ i n i 1 1 r r g 1 r

g- annual growth rate of future earnings, if Fi is invariant after n

years,g will take zero.

Evaluation idea 1.Review of the income for the forecast period submitted by the

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5. The working capital and capital expenditure are confirmed by considering assets allocation and utility condition of the fixed assets.

Discounting rate Discounting rate is also called the expected rate of return on investment, which is the key parameter to determine the appraisal value in the Income Approach. According to the principle of consistency of income amount and discounting rate, the income amount in this appraisal is the net cash flow, and the discounting rate is based on Weighted Average Cost of Capital (WACC) method, which is weighted average of rate of return on equity and rate of return on creditors’ rights with the adjusted income tax. WACC = (Re×We) η [Rd × (1ιT) × Wd] Wherein: Re is cost of equity capital of company; Rd is cost of debt capital of company; We is the percentage of equity capital in the capital structure; Wd is the percentage of debt capital in the capital structure; T is effecient income tax rate of company; The modified Capital Assets Pricing Model (CAPM) is adopted for this appraisal to determine the cost of equity capital. Formula is as follows. Re = Rf + ǃ × MRP + ǆ Wherein: Rf is risk-free rate of return; ǃ is risk factor of the company; MRP is the risk premium; ǆ is adjusted factor of specific risk of company.

Surplus assets and Surplus assets are extra assets which aren’t directly related to the main non-business assets business earnings and beyond assets necessary to the enterprise’s business, & liabilities including surplus cash and idle assets. Non-business assets and liabilities aren’t directly related to enterprise’s business and are excluded from the earnings forecast scope, normally inculuding the non-ctrolling long-term investment, deferred income tax assets and liabilities, investment real estate, retirement pension, etc., which are added after being appraised separately.

Interest bearing It refers to the loan borrowed by the appraised party from financial debts institutions or other companies or individuals, such as short-term loan,

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long-term loan or bonds payable.There is no Interest bearing debts after verification.

IX. Valuation Process According to relevant state regulations and principles on appraisal, we performed appraisal and ownership verification on the assets within the scope and conducted necessary due diligence on the operation and management status of the appraised party. The process is as follows: 1. Communicated with the client and appraisal object; Interviewed the staff of company, to better understand its profile, history and current status of assets entrusted for appraisal; to further understand the appraisal purpose, scope and object; set up valuation date, signed the letter of engagement and drafted the appraisal proposal. 2. Mentored the company to fill in the assets appraisal declaration form. 3. Conducted site survey, including the check of the non-physical assets, mainly by reviewing the original accounting documents and letters, and inspecting the formation of creditor’s rights and debts and the authenticity of the book value; and the check of the physical assets, mainly by viewing, taking pictures for and recording the assets and their conditions on site, while collecting the ownership certificates of the assets entrusted for appraisal and reviewing such materials as the machinery operation, maintenance and accident records. And interviewed people in charge of the assets management to understand the operation and management of the assets. 4. Supplemented and completed the assets appraisal declaration form after checking the financial records and data and site survey. 5. Interviewed the management and learnt the introduction of the enterprise operating mode, status of income from major product or service business and changes thereof, cost composition and changes thereof, earning status for the previous years and key reason for changes; understood the accounting systems & management mode, core technology, R&D power, future development plan, competitive advantage and disadvantage; learnt about the surplus assets and non-business assets and the utilization condition thereof. 6. Collected the operational indicators, financial indicators, business plan in the future and materials of renewal of fixed assets or investment plan; investigated

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the status of industry, regional market condition and development trend; analyzed the macro-economic situation and industrial environmental factors influencing the enterprise’s operation; conducted market research and enquiry, and collected information about the capital market of the same industry. 7. Evaluated and estimated. The appraisers selected the appropriate appraisal approaches according to the appraisal object, type of value and collection of relevant materials; made preliminary appraisal conclusion with calculation and judgement after choosing the corresponding model and formula and analyzing reasons for changes of various indicators, analyzed the preliminary conclusions reached by different appraisal approaches, and then finally determined the appraisal conclusion by comprehensively evaluating the reasonability of different appraisal approaches and preliminary appraisal conclusions and the quality and quantity of data used. 8. The appraisers discussed with other intermediaries to confirm there was no overlapping and missing appraisal scope in order to release draft report and appraisal conclusion; 9. After three-grade reviewing, submitted the report to the client and the appraised party and discussed with them thereon; revised and completed the report after exchanging opinions with the client and submitted the formal appraisal report.

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condition or environment but also focuses on the continuous situation for assets. 3. Continuous operation hypothesis: The report is based on the assumption that the company shall be capable of continuous and legal operation, which shall not be close up for different reasons in the near future, with the existing assets and resource condition.

C Income Approach Assumptions

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3κThe contracts signed by the company in the current and previous year are valid and the contracting parties will keep on performing the contracts.

5. The different income, related prices and costs used in the report are the professional judgement after due diligence, based on historical data provided by the assessed party.

XI. Valuation Conclusion i.Outline According to relevant laws, regulations and standards for assets appraisal, abiding by the principles of independence, objectiveness and fairness, we appraised the market value of the assessed party as of valuation date per necessary appraisal procedures, and made the conclusion per Asset-based Approach and Income Approach as follow: 1. Appraisal conclusion per Assets-based Approach: Through computation by Asset-based Approach, the total equity of shareholders is valued as RMB 874,897,326.16 as of valuation date in market condition. Including: total assets engaged in book value amounts to RMB 1,021,112,161.64, while assessed value amounts to RMB 1,098,464,508.68θwith the increase of RMB 77,352,347.04 and increase rate of 7.58%; Liabilities engaged in book value amounts to RMB 223,567,182.52, while assessed value amounts to RMB 223,567,182.52, without any increase or decrease; Net assets engaged in book value amounts to RMB 797,544,979.12, while

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assessed value amounts to RMB 874,897,326.16, with the increase of RMB 77,352,347.04 and increase rate of 9.70%. The valuation conclusion and details are shown as follows. Valuation Sheet Valuation date:Sep 30 2015 UnitφRMB '000

Assessed Increase/ Increase/decre Item Book Value value decrease ase rate%

Current Assets 711,569.10 731,622.90 20,053.80 2.82

None-Current Assets 309,543.00 366,841.50 57,298.50 18.51 Including: Financial assets available for 0.00 0.00 0.00 sale 0.00 0.00 0.00 Net investment held to maturity

Term account receivable 0.00 0.00 0.00

Long-term Investment 0.00 0.00 0.00

Investment real estate 0.00 0.00 0.00

Fixed Assets 263,498.30 278,695.30 15,197.00 5.77

Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00 Project goods and material

Disposal of fixed assets 0.00 0.00 0.00 0.00 0.00 0.00 The productive biological net assets

Hydrocarbon net assets 0.00 0.00 0.00 34,910.10 78,799.60 43,889.50 125.72 Intangible Assets Net Amount

0.00 0.00 0.00 Development expenditure

Good will 0.00 0.00 0.00 0.00 0.00 0.00 Long-term deferred expense

Deferred tax assets 11,134.60 9,346.60 -1,788.00 -16.06

Other non current assets 0.00 0.00 0.00

Total Assets 1,021,112.20 1,098,464.50 77,352.30 7.58

Current Liabilities 223,567.20 223,567.20 0.00

Non-current Liabilities 0.00 0.00 0.00 223,567.20 223,567.20 0.00 Total liabilities

Net Assets 797,545.00 874,897.30 77,352.30 9.70

The reason for appreciation and depreciation of assets and liabilities are as follows: (1) The book value for current assets is RMB 711.5691 million, while the assessed value is RMB 731.6229 million, with increase of RMB 20.0538 million .The partial

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profit is considered for finished goods. (2) The book value for fixed assets-building is RMB 130.3798 million, while the assessed value is RMB 133.2555 million, with increase of RMB 2.8757 million. The major reason is that the accounting depreciation year for fixed assets-building is shorter than actual useful year. (3) The net book value for fixed assets-equipment is RMB 133.1185 million, while the assessed value is RMB 145.4398 million, with increase of RMB 12.3213 million and increase rate of 9.26%. The major reason are as follows: 1) The original acquired net book value for equipment CIF is higher in latest years. The exchange rate as of RMB to US $( Euro) decreased hugely, which contribute to the huge depreciation for original assessed value. Meanwhile, the production market is facing shrink. The auditors accrued the provision for related equipment. However, the assessed value is confirmed by economic useful year and actual condition, which contribute to the minor difference. Thus, there is little appreciation for assessed value compared with net book value. 2) The price for vehicles decreased hugely in latest years, which contribute to the minor depreciation for original book value of transportation. The vehicles license in Shanghai is for auction. The valuation conclusion includes the market value of license, which contributes to the appreciation for net assessed value of transportation. 3) The electronic equipment update quickly in latest years and the price decreased hugely, which contribute to the depreciation for original book value. But the accounting depreciation for electronic equipment is quick and the net book value is lower. The assessed value is confirmed by economic useful year and actual condition, which contribute to the difference. Thus, there is appreciation for net assessed value. (4) The book value for intangible assets is RMB 34.9101 million, while the assessed value is RMB 78.7996 million, with increase of RMB 43.8895 million .The major reason is that the land was acquired in 2008. The acquired cost is lower because the acquired time is earlier. There is huge increase for market value in Fengxian Industry land market. The accounting depreciation year is straight-line amortization, while the appraisal depreciation year is year correction per land use. There is difference in

– IV-28 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD. Valuation Report No.(2015)0900053

year limit and approach, which contribute to the appreciation.

2. Appraisal conclusion per Income Approach: Through computation by Income Approach, the total equity of shareholders on basis of the above assumptions are valued RMB 727 million Yuan, decreased by RMB 70.5450 million compared to the audited book value of net assets, with decrease rate of 8.85%. ii. Conclusion The difference rate is 16.90% per Assets based Approach and Income Analysis Approach.

The major reasons for difference between Assets based Approach and Income Approach are as follows: The Assets-based Approach is to appraise the value of the appraised object by reasonably appraising the itemized assets and liabilities, which means calculating the value of the total shareholders’ equities by subtracting the appraised value of liabilities from the total value of itemized assets. The Income Approach refers to reflect comprehensive profitability of each asset with a perspective of future profitability for enterprise. The two appraisal approaches reflects the different value scope of the enterprise, which contribute to the difference.

The major products for DENSO are fuel oil injection pump, which are updating gradually per higher emissions standards. The environment and structure for shrinking product market are changing frequently. It has been applied into the new product introduction plan at the beginning of this year by board of directors. The shareholder as of DENSO Corp. prepared strategy plan for assessed party in next 10 year in July. For major product market of DENSO is shrinking and the new products and technology are not yet clear, there is a certain uncertainty for the cautious forecast released from management per so far situation. The Assets based Approach is based on balance sheet The valuation conclusion for net assets has been reached based on deducting assessed liabilities from sum of the assessed assets, by means of replacing historical cost with market value of individual assets and liabilities. For DENSO is an enterprise with heavy assets, the Assets based Approach can

– IV-29 – APPENDIX IV VALUATION REPORT FOR SHANGHAI DENSO FUEL INJECTION CO., LTD. Valuation Report No.(2015)0900053

reflect the total equity value soundly. Thus, the Assets based Approach is better than Income Approach with regard to pertinence and precision.

The valuation conclusion has been reached finally per Assets based Approach. Through computation, the total equity of shareholders is valued as RMB 874,897,326.16 Yuan. iii.Others With regard to limitation of market information, the premium and discount generated by controlling interest and minority interest haven’t been considered herein. Besides, the influence for liquidity discount hasn’t been considered for valuation conclusion.

XII. Additional Disclosure Items The report users shall pay attention to the additional disclosure items which would probably have impacts on the valuation conclusion. 1. In the event that the assets change in quantity and pricing benchmark, the valuation conclusion shall be adjusted with the original valuation approach;. 2. We are exempt from relevant responsibilities of legality, integrity and authenticity of such materials reaching us as the resolutions of the management, the Business Licenses, property right certificates, vouchers and / or files submitted by other intermediaries. 3. As of valuation date, DENSO has acquired property ownership certificate. The certificate No. is (2015) 014561, which only records land information. The land area is 79,698.90 m2 . The property area is 32,723.10 m2 per acceptance certificate for Shanghai construction project completion planning and planning permit of construction engineering. The assessed value shall be adjusted if the property and land area is not consistent with the measured area by authority departments of surveying and mapping. The property right certificate is under transaction. 4. We found no other key items that may influence the valuation conclusion within our proficiencies and abilities of valuation and computation. However, users of the report shall not rely on the report but have independent judgment on property rights, values and influences etc. and take them into consideration when performing economic activity.

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5. We are exempt from relating responsibilities and/or obligations in the event that relating parties did not state the special items possibly having impacts on the valuation conclusion during engagement or our fieldwork and those special items usually cannot be acknowledged or collected only with appraisers’ professional experiences. 6. The report is invalid and the valuation conclusion is untenable in the event that above-mentioned items do have impacts on the valuation conclusion and no adjustment has been made in the report.

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explaining them by laws and regulations of the state. This valuation report is written in both Chinese and English. In case there is any discrepancy between the Chinese and English versions of this valuation report, the Chinese version shall prevail.

XIV. The Submission Date of the Report Dec. 2nd, 2015 (No text hereinafter in this page)

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(No Text in this Page)

Valuation Institution Orient Appraisal Co., Ltd.

Legal Xiaoming Wang Representative

Chief Appraiser Qiquan Li

Signature from Yuanchen Wu Appraisers Gang Wu

The Submission Date of the Report Dec. 2nd, 2015

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Files for Reference Valuation Report (Appendix)

Project Number: HDZZPBZ No.(2015)0900053

No. Name 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP.; 3. License of Shanghai Electric Group Co., Ltd (Shanghai Electric);

4. License of Shanghai Electric Group CORPχ 5. License of DENSO; 6. Capital verification report of DENSO; 7. Audit report for special purpose of DENSO; 8. Property certificate of DENSO; 9. Shanghai acceptance certificate for construction completion of planning; 10. Planning permit of construction engineering; 11. Vehicles license and other property certificate for assessed party; 12. Letter of Commitment from the Clients and Concerning Parties; 13. Engagement Letter; 14. Business License of Orient Appraisal Co. Ltd.; 15. License for Undertaking of Securities of Orient Appraisal Co., Ltd.; 16. Credential of Assets Valuation Qualification of Orient Appraisal Co., Ltd.; 17. Letter of Commitment from the Valuation Institution and Appraiser; 18. Assets list and summary sheets.

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The following is the text of the valuation report for Shanghai Blower Works Co., Ltd. dated 2 December 2015 prepared in Chinese by Orient Appraisal Co., Ltd., the qualified PRC valuer. The A1B5(3) Chinese text shall prevail over the English text in the event of inconsistency.

Valuation Report for Enterprise Value

˄Report˅ Vol.1

Project Name: Business Valuation Report on Total Equity of SHANGHAI BLOWER WORKS CO.,LTD. with regard to Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0899053

Orient Appraisal Co., Ltd.

Dec. 2rd, 2015

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APPENDIX V VALUATION REPORT FOR SHANGHAI BLOWER WORKS CO., LTD.

Valuation Report (Contents)

Project Name: Business Valuation Report on Total Equity of SHANGHAI BLOWER WORKS CO.,LTD. with regard to Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0899053 I. OUTLINE OF THE CLIENT AND OTHER REPORT USERS...... 6 , 7+(&/,(17 ,, 27+(55(325786(56 II. OUTLINE OF THE ASSESSED PARTY ...... 8 III. VALUATION PURPOSE ...... 9 IV. VALUATION SCOPE AND OBJECTS ...... 9 V. VALUE TYPE AND DEFINITION ...... 12 VI. THE VALUATION DATE ...... 12 VII. VALUATION BASIS ...... 12 , (&2120,&$&7,9,7<%$6,6 ,, 0$-25/(*$/%$6,6255()(5(1&(2)58/( /$: ,,, (9$/8$7,21&5,7(5,21 ,9 35,&,1*%$6,6$'237(' 9 .(<&2175$&76$*5((0(176$1'3523(57<5,*+7&(57,),&$7(6 9, 27+(5),/(6 9,, 5()(5(1&()52027+(5$335$,6(5&203$1< VIII. VALUATION APPROACHES ...... 16 , 287/,1( ,, 7+($3352$&+&+26(15($621$1'27+(5(;3/$1$7,21 ,,, ,1752'8&7,212)$66(7%$6('$3352$&+ ,9 ,1752'8&7,212),1&20($3352$&+ IX. VALUATION PROCESS ...... 22 X. PREMISES AND ASSUMPTIONS OF TENABILITY OF THE REPORT ...... 24 XI. VALUATION CONCLUSION ...... 26 , 287/,1( ,, &21&/86,21$1$/<6,6 ,,, 27+(56 XII. ADDITIONAL DISCLOSURE ITEMS ...... 30 XIII. RESTRICTION OF THE USE OF THE REPORT ...... 31 , 7+(86(6&23(2)7+(5(3257 ,, 9$/,',7<3(5,2'2)7+(5(3257 ,,, 63(&,$/7(5065(*$5',1*7267$72:1('$66(76 ,9 7+((;326,7,9(5,*+72)7+(5(3257 XIV. THE SUBMISSION DATE OF THE REPORT ...... 32 )LOHVIRU5HIHUHQFH

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Valuation Report No.(2015)0899053

Appraisersÿ Statement

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Valuation Report No.(2015)0899053

Valuation Report (Abstract)

Project Name: Business Valuation Report on Total Equity of SHANGHAI BLOWER WORKS CO.,LTD. with regard to Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0899053

The Client Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd Other Report Users The legal user of the report including the client and the user formulated by State laws and regulations according to the engagement letter. The Assessed Party SHANGHAI BLOWER WORKS CO.,LTD.. (hereinafter refers to BLOWER WORKS) Valuation Purpose Asset Replacement and Issue Shares for Assets Purchase The Valuation Date Sep. 30th , 2015 Valuation Scope and Objects The valuation object is total equity of shareholders. The valuation scope includes assets and liabilities as of valuation date. Including current assets and non-current assets( fixed assets, intangible assets) and liabilities. Net assets engaged for valuation amount to RMB 327,587,201.71 Yuan in book. Value Type Market Value Valuation Approach The Asset-based Approach and Income Approach. According to the analysis of the assessed party, we’ve finally adopted Asset-based Approach as our valuation conclusion. Valuation Conclusion Through computation, the total equity of shareholders is valued as RMB 784,920,958.73 Yuan.

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Valuation Report No.(2015)0899053

Period Of Validity The validity lasts for one year since the valuation date, i.e. until 29 Sep. 2016. Additional Disclosure Items See special disclosure in valuation report.

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Valuation Report No.(2015)0899053

Valuation Report (Text)

Notice: The Report can be used exclusively for the purpose engaged and is tenable under engaged conditions. To learn all information of this project, please read the whole report and files for reference carefully. Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd: We have received your engagement to evaluate BLOWER WORKS ‘s total equity, according to the law, the regulations ,the asset appraisal principle and standards and the necessary evaluation program, through our computation with the Asset-based Approach and Income Approach, in purpose of Shanghai Electric Group Co., Ltd ‘s Asset Replacement and Issue Shares for Assets Purchase , in order to offer market value dated Sep. 30th , 2015. The report is as follows:

Project Name: Business Valuation Report on Total Equity of SHANGHAI BLOWER WORKS CO.,LTD. with regard to Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0899053

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Valuation Report No.(2015)0899053

and conglomeration companies in China. It engages on the relevant project design and it was formally named as Shanghai Electric Union. On 22 Aug 1984, the company was approved by Shanghai government, based on the restructuring of the Shanghai Power Station Equipment Company, where Shanghai Motor Factory, Shanghai Steam Turbine Factory, Shanghai Boiler Factory and Shanghai Power Station Auxiliary Equipment Factory and some other factories has been restructured ad had been transferred out from Shanghai Motor Manufacturing Management Bureau. Under the approval of Finance and Commerce Bureau, in 1994, the company changed its name to Shanghai Electric (Group) Corporation

There are 4 major blocks for main business, which are new energy equipment, efficient and clean energy equipment, industrial equipment and modern service industry.

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Valuation Report No.(2015)0899053

II. Outline of the Assessed Party The assessed party:BLOWER WORKS Address: No.3000, Gonghexin Road, Shanghai City; Registered Capital: RMB 239.76 million; Company type: One person limited liability company (sole proprietorship of legal person) Legal Representative: Jinyi Cai;

1.Shareholders of the company as of valuation date is shown as below: (Unit˖RMB million)

Percentage Shareholders Investment (100%)

1 Shanghai Electric Group CORP. 239.76 100% Total 239.76 100%

2. Operating conditions of Recent 2 Years plus one period are given as follows:

(Unit˖RMB ‘000 Yuan) Item 2013-12-31 2014-12-31 2015-09-30

Asset 1,402,061.10 1,545,990.60 1,471,873.60 Liabilities 1,001,425.80 1,140,881.80 1,144,286.40 Net Assets 400,635.30 405,108.80 327,587.20

Item 2013 2014 Jan. to Sep. 2015

Revenue 924,174.90 1,056,278.30 956,709.80 Total Profit 9,313.20 13,589.40 -77,829.50 Net profit 6,103.20 7,525.10 -78,988.60

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Valuation Report No.(2015)0899053

The above statistics abstracts from the historical unqualified audit report for special purpose issued by BAKER TILLY CHINA.

BLOWER WORKS adheres to enterprise accounting system. The major tax and tax rate are as follows:

Tax Category Taxation Base Tax Rate

VAT Sale of goods 17%,13%,6%

Business Tax Income from Service Trades 5%

Urban Maintenance and Business Tax and VAT 7% Construction tax

Educational Business Tax and VAT 3%,2% surtax

River Business Tax and VAT 1% management fees

Enterprise Income Taxable income 15% tax

III. Valuation Purpose The purpose of report is to provide a market value reference of related assets of BLOWER WORKS as of valuation date, in purpose of Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Purchasing Shanghai Electric Group CORP.’s 100% equity of BLOWER

WORKS.

The acquired economic behavior document are as flows:

1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP;

IV. Valuation Scope and Objects 1. The valuation object is total equity of shareholders for BLOWER WORKS as of valuation date. The valuation scope includes total assets and liabilities. Including current assets and non-current assets( fixed assets, intangible assets)

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Valuation Report No.(2015)0899053

and liabilities. The booked net equity amount to RMB 327,587,201.71 Yuan in book. Assets amount to RMB 1,471,873,582.01 Yuan in book. Liabilities amount to 1,144,286,380.30 Yuan in book. 2. Per declaration list, there are 75 engaged properties, including 64 sets of real estate and 11 sets of structure. The related 41 sets of physical buildings are used for industry and office, the 40 of which are industrial occupancies located in Room 3000, Gonghe Xin Road, Zhabei District, Shanghai City. The real estate area is 76,023.38 m2. The land area is 109,328.00 m2 , which are selling lands with full property certificates. There is one engaged office building, which is located in 6FA1 , Keyuan Road, Beilun District, Universal JIN MAO tower, Ningbo district. The real estate area is 132m2, which has full property certificates.

3. Per declaration list, there are 27 sets of intangible assets which are not reflected in book, including: 2 sets of brands, 6 sets of patents for an invention, 18 sets of patents for utility models and 1 set of copyright of computer software. The above intangible assets are included in valuation scope after survey of assets and discussion with clients. The acquired brands are as follows on valuation date:

registration Verification services No. No. categories Name Period of validity Blower, 1089942 Coupling, Compressor, 1 Fan silencer 2007.08.28-2017.08.27 Blower, Compressor, Fan 1107876 2007.09.21-2017.09.20 2 silencer

The acquired patents are as follows on valuation date:

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=/ ঻㕙ᵪ≄㕨䘋ࠪਓ᧕㇑঻ᖒ㻵 3DWHQWIRU \HDUVIURP 㖞 ,QYHQWLRQ

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Valuation Report No.(2015)0899053

=/ / ᖒᐳ㖞Ⲵཊਠঅ㓗䖤⍱仾ᵪѢ 3DWHQWIRU \HDUVIURP 㚄㘼ᡀⲴ䖤⍱঻㕙ᵪ ,QYHQWLRQ

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The acquired copyright of computer software are as follows on valuation date:

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Valuation Report No.(2015)0899053

No. Register Number Name First Publication Date Registration Date 1 2010SR039553 EIMS VO.1 2009.11.30 2010.08.05

4. The engaged valuation objects and scope are conform to the valuation objects and scope related to the valuation purpose. The balance sheet as of valuation date has been audited without qualification by BAKER TILLY CHINA.

ii.Major Legal Basis or Reference of Rule & Law

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Valuation Report No.(2015)0899053

1. Company Law of the PRC; 2. The law for PRC state-owned enterprises; 3. Order No. 12 of the State-owned Assets Supervision and Administration Commission of the State Council “the Interim Measures for the State-owned Assets Appraisal Management ”˗ 4. The state-owned assets evaluation management regulations( NO.14 issued by treasury department); 5. Notice of the relevant questions on strengthening the management of enterprises’ state-owned assets evaluation. (No. 274 issued by SASAC property in 2006); 6. Temporary regulations for State-owned assets’ supervision and management (NO.378 issued by state council in 2003); 7. No.3 Ministry of Finance doc, interim measures on transfer management of state-owned property rights˗ 8. No.[2006]306, A notice of relevant matters on enterprise state-owned property rights transferring; 9. No. [2009]941, A notice of valuation report review as of state owned assets; 10.The real estate administration law of the People's Republic of China; 11.Other laws and regulations. iii.Evaluation Criterion

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Valuation Report No.(2015)0899053

1. Assets appraisal -Basic Standards; 2. Assets appraisal ethical principles- Basic Principles; 3. Assets appraisal ethical principles-Independence; 4. Assets appraisal standards-Valuation Report; 5. Assets appraisal standard-Valuation Process; 6. Assets appraisal standard-Working Paper; 7. Assets appraisal standard-Engagement Letter; 8. Assets appraisal standard-Reference on Experts opinions; 9. Assets appraisal standard- Business Valuation; 10. Assets appraisal standard-Equipment; 11. Assets appraisal standard-Real Estate; 12. Assets appraisal standard-Intangible Assets; 13. Assets appraisal standard-patents; 14. Assets appraisal standard—brands; 15. Assets appraisal standard—copyrights; 16. Guiding Opinions on types of value; 17. Guiding Opinions about CPV ‘s focus on Evaluation objects for legal ownership; 18. Guiding Opinions on valuation report on state owned assets; 19. Quality control guide for Evaluation institutions; 20. Experts Operation Tips for asset appraisal-report disclosure for listed companies’ major assets restructuring; 21. ASBE issued by NO.33 Decree of the Ministry of Finance; 22. Urban real estate administration law of the PRC; 23. PRC Law on Land Management; 24. Code for appraisal of real estate(national standard GB/T50291-2015); 25. Benchmark premium on the valuation of urban land(national standard GB/T18508-2014); 26. Other laws and regulations. iv.Pricing Basis Adopted 1. Manual for the latest assets evaluation data and parameters (China Statistical Publishing House); 2. Quoted Price Pamphlet about machinery equipment˄China Machine

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Valuation Report No.(2015)0899053

PRESS˅; 3. http://www.chinacar.com.cn/; 4. Compulsory scrap standard for Motor vehicle( No.12, 2013); 5. http://www.ebook.hc360.com/ as of valuation date; 6. Deal case of property or listing documents; 7. The budget ration for Shanghai construction engineering (2000); 8. The pricing information for raw material released from http://www.ciac.sh.cn; 9. Regulations for related fee as of shanghai construction engineer; 10. http://www.landvalue.com.cn/; 11. Rental information for industrial housing; 12. http://www.shgtj.gov.cn/; 13. The update project report for benchmark land price (Shanghai 2013); 14. The policy for land valuation; 15. Audit report for special purpose issued by BAKER TILLY CHINA; 16. Part of the contracts and agreements released from assessed party; 17. Historical financial data and forecasting information; 18. Analysis of Statistical Data for National macro economy , Industry, regional market and enterprise; 19. ”10JQKA” of securities trend analysis system for stock A information; 20. Rate of return on national debt and lone interest rate close to valuation date; 21. Others.

v.Key Contracts, Agreements and Property Right Certificates 1. Property registration; 2. Investment contracts, agreement, vehicle license; 3. Brands and patents; 4. Other related certification documents. vi.Other Files

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Valuation Report No.(2015)0899053

1. Financial statements of the valuation date, books and vouchers furnished by the party in question; 2. Assets lists with book values provided by the party in question; 3. Technical statistics of Orient; 4. Relating price information; 5. Others. vii.Reference from 1. None. other appraiser company VIII. Valuation Approaches i.Outline There are 3 Approaches of valuation, which are Cost Approach, Income Approach, Market Approach. ķThe Cost Approach is also called Assets-based Approach. The valuation conclusion for net assets has been reached based on deducting assessed liabilities from sum of the assessed assets. ĸThe Income Approach refers to discount or capitalize future income per appropriate discounting rate in order to reach the valuation conclusion. ĹThe Market Approach refers to make comparisons between valuation object and enterprise reference, enterprise which has deal cases in market, shareholders’ equity, securities and other equity assets in order to reach valuation conclusion by adjustment and revise. ii.The Approach Per “Assets appraisal principles---business valuation”, the appraisers shall chosen analyze the feasibility of Assets-based Approach, Income Approach and reason and other Market Approach in order to adopt one or multiple methodology explanation appropriately, per valuation objects, value type, condition for collecting documents, during conducting business value appraisal. Per valuation purpose, valuation objects, value type, condition for collecting documents and analysis of applicable conditions for three basic valuation approaches: Firstly, with regard to assets features of valuation object, the major assets for assessed party refer to current account, inventory, buildings, equipment, land use right and related liabilities, which have been audited as of valuation date by CPA. The book value is clear.

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Valuation Report No.(2015)0899053

historical cost with market value of individual assets and liabilities. It is appropriate to adopt Assets based Approach herein report. Secondly, the assessed company has stable scale and overall profitability. The income in future forecast and other major business index can be estimated per historical information. The cost can also be estimated per historical information. The business condition will maintain rising momentum with stable profit source. Thus, it is appropriate to adopt income approach. Thirdly, there are lots of similar companies in related industry for assessed party. However, the company’s scale and business model are not comparable with listed companies in same industry. It is hard to quantization adjusting the difference between assessed party and comparable cases in same industry. Meanwhile, it is hard to acquire the financial information for similar non-listed companies in same industry for public market. It is not appropriate to adopt Market Approach. Above all, it is appropriate to adopt Assets based Approach and Income Approach. iii.Introduction of The Asset-based Approach is also called Cost Approach. The valuation Asset-based conclusion for total shareholders’ equity has been reached,on the assomption Approach of replacement of different production factors on valuation date,per specific condition of the engaged assets by item, adopting appropriate methodology in oder to sum up the assessed assets by item, meanwhile deducting assessed value for related debts.

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appraisal value with the verified book value.

Prepayment The assessed value is determined according to the value of recoverable assets or rights. For the recoverable assets and rights, the book value after verification is regarded as the assessed value. For those long aging receivables,if they can not be recoverable for specific identification, they are valued as zero according to the historical dunning information, annalysis of reasons for arrear, of fund ,credit and management status for debtors. The rest receivables are valued per risk condition combined with provision for bad debt of accounting. The valuation conclusion has been reached per the receivables deducting amount that may not be paid back. Meantime, the provision for bad debt set by the assessed party is valued as zero.

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the sale condition. The unfinished goods are raw material, which are assessed per valuation method for raw material. For inventory of damage, deterioration, disqualification and out of date, they are valued per recoverable net income.

Fixed assets (1)As for building and structures of production, Replacement Cost Method is adopted.The valuation conclusion is reached based on the replacement unit combined with depreciation rate. The budget adjustment method or analogy method are adopted for real estate valuation per Replacement Cost Method.The assessed value has been reached per replacement unit combined with depreciation rate. Replacement full price is confirmed by project cost,upfront fee, management fee,capital cost and reasonable construction profit. Depreciation rate is confirmed by weighted average per years method and scoring method (2)As for machines, vehicles and electronic equipments, Replacement Cost Approach is adopted. The value of equipments= replacement pricehcomprehensice depreciation rate Per 2008 NO. 170, the VAT regulation and 2009 NO.113 “Notice about deducting input VAT from fixed assets”, the VAT is not included for some equipments which meet the requirements.

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land. 2. The land datum value method is based on standard level of land price. The regional factor and individual factor, as influence the land price, are adjusted per different uses, in order to reach the valuation conclusion of the assessed land.

Intangible Other intangible assets refer to brands and patents not booked, as are assets-other assessed per cost approach. As for purchased general software, the methods are as follows. The market value is adopted for assessed value if purchased general software can be sold in market as of valaution date. The market value deducting software upgrade fee is adopted for assessed value if purchased general software can be sold but having upgrade version in market as of valaution date. Liabilities The assessed value is determined based on the verified book value and the actual liabilities payable.

Appraisal model and In the Income Approach, the model of enterprise free cash flow discounting was formula selected after taking the enterprise business model into account. Total shareholders’ equities = total enterprise value – value of interest-bearing debts Total enterprise value= value of productive assets + value of surplus and non-business assets Total productive asset value (P)= present value of free cash flow during certain forecast period+ present value of free cash flow after certain forecast period

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n F F 1 g p i n ¦ i n i 1 1 r r g 1 r

g- annual growth rate of future earnings, if Fi is invariant after n

years,g will take zero.

Evaluation idea 1.Review of the income for the forecast period submitted by the

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and the discounting rate is based on Weighted Average Cost of Capital (WACC) method, which is weighted average of rate of return on equity and rate of return on creditors’ rights with the adjusted income tax. WACC = (Re×We) η [Rd × (1ιT) × Wd] Wherein: Re is cost of equity capital of company; Rd is cost of debt capital of company; We is the percentage of equity capital in the capital structure; Wd is the percentage of debt capital in the capital structure; T is effecient income tax rate of company; The modified Capital Assets Pricing Model (CAPM) is adopted for this appraisal to determine the cost of equity capital. Formula is as follows. Re = Rf + ǃ × MRP + ǆ Wherein: Rf is risk-free rate of return; ǃ is risk factor of the company; MRP is the risk premium; ǆ is adjusted factor of specific risk of company.

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status of the appraised party. The process is as follows: 1. Communicated with the client and appraisal object; Interviewed the staff of company, to better understand its profile, history and current status of assets entrusted for appraisal; to further understand the appraisal purpose, scope and object; set up valuation date, signed the letter of engagement and drafted the appraisal proposal. 2. Mentored the company to fill in the assets appraisal declaration form. 3. Conducted site survey, including the check of the non-physical assets, mainly by reviewing the original accounting documents and letters, and inspecting the formation of creditor’s rights and debts and the authenticity of the book value; and the check of the physical assets, mainly by viewing, taking pictures for and recording the assets and their conditions on site, while collecting the ownership certificates of the assets entrusted for appraisal and reviewing such materials as the machinery operation, maintenance and accident records. And interviewed people in charge of the assets management to understand the operation and management of the assets. 4. Supplemented and completed the assets appraisal declaration form after checking the financial records and data and site survey. 5. Interviewed the management and learnt the introduction of the enterprise operating mode, status of income from major product or service business and changes thereof, cost composition and changes thereof, earning status for the previous years and key reason for changes; understood the accounting systems & management mode, core technology, R&D power, future development plan, competitive advantage and disadvantage; learnt about the surplus assets and non-business assets and the utilization condition thereof. 6. Collected the operational indicators, financial indicators, business plan in the future and materials of renewal of fixed assets or investment plan; investigated the status of industry, regional market condition and development trend; analyzed the macro-economic situation and industrial environmental factors influencing the enterprise’s operation; conducted market research and enquiry, and collected information about the capital market of the same industry. 7. Evaluated and estimated. The appraisers selected the appropriate appraisal approaches according to the appraisal object, type of value and collection of relevant materials; made preliminary appraisal conclusion with calculation and

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judgement after choosing the corresponding model and formula and analyzing reasons for changes of various indicators, analyzed the preliminary conclusions reached by different appraisal approaches, and then finally determined the appraisal conclusion by comprehensively evaluating the reasonability of different appraisal approaches and preliminary appraisal conclusions and the quality and quantity of data used. 8. The appraisers discussed with other intermediaries to confirm there was no overlapping and missing appraisal scope in order to release draft report and appraisal conclusion; 9. After three-grade reviewing, submitted the report to the client and the appraised party and discussed with them thereon; revised and completed the report after exchanging opinions with the client and submitted the formal appraisal report.

B Specific Assumptions

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1. Unless specifically stated herein, the report is based on the assumption that there is no other existing or potential abnormal factor such as mortgage, guarantee and special transaction mode that shall affect the appraisal conclusion.. 2. There is no significant change to the existing laws and regulations, industrial policy, national macroeconomic situation, as well as the political, economic and social environment at the place where the appraisal object is located. Meanwhile, the report is based on the assumption that there is no other force majeure events and unforeseeable factors which shall cause significant adverse effects. 3. There is no significant change to the tax policy and tax rate adopted by the appraisal object. The credit policy, interest rate and exchange rate remain basically stable.

C Income Approach Assumptions

3κThe contracts signed by the company in the current and previous year are valid and the contracting parties will keep on performing the contracts.

5. The different income, related prices and costs used in the report are the professional judgement after due diligence, based on historical data provided by

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the assessed party.

XI. Valuation Conclusion i.Outline According to relevant laws, regulations and standards for assets appraisal, abiding by the principles of independence, objectiveness and fairness, we appraised the market value of the assessed party as of valuation date per necessary appraisal procedures, and made the conclusion per Asset-based Approach and Income Approach as follow: 1. Appraisal conclusion per Assets-based Approach: Through computation by Asset-based Approach, the total equity of shareholders is valued as RMB 784,920,958.73 as of valuation date in market condition. Including: total assets engaged in book value amounts to RMB 1,471,873,582.01, while assessed value amounts to RMB 1,921,919,439.03θwith the increase of RMB 450,045,857.02 and increase rate of 30.58%; Liabilities engaged in book value amounts to RMB 1,144,286,380.30, while assessed value amounts to RMB 1,136,998,480.30, with decrease of RMB 7,287,900.00 and decrease rate of 0.64%; Net assets engaged in book value amounts to RMB 327,587,201.71, while assessed value amounts to RMB 784,920,958.73, with the increase of RMB 457,333,757.02 and increase rate of 139.61%.The valuation conclusion and details are shown as follows.

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Valuation Report No.(2015)0899053

Valuation Sheet Valuation date:Sep 30 2015 UnitφRMB '000

Assessed Increase/ Increase/decre Item Book Value value decrease ase rate%

Current Assets 1,223,281.30 1,241,946.80 18,665.50 1.53

None-Current Assets 248,592.30 679,972.60 431,380.30 173.53

Including: Financial assets available for 0.00 0.00 0.00 sale 0.00 0.00 0.00 Net investment held to maturity

0.00 0.00 0.00 Term account receivable

0.00 0.00 0.00 Long-term Investment

0.00 0.00 0.00 Investment real estate

Fixed Assets 138,176.00 151,098.70 12,922.70 9.35 0.00 0.00 0.00 Construction in Progress

0.00 0.00 0.00 Project goods and material

0.00 0.00 0.00 Disposal of fixed assets

0.00 0.00 0.00 The productive biological net assets

0.00 0.00 0.00 Hydrocarbon net assets

110,416.30 528,873.90 418,457.60 378.98 Intangible Assets Net Amount

0.00 0.00 0.00 Development expenditure

0.00 0.00 0.00 Good will

0.00 0.00 0.00 Long-term deferred expense

0.00 0.00 0.00 Deferred tax assets

0.00 0.00 0.00 Other non current assets

Total Assets 1,471,873.60 1,921,919.40 450,045.80 30.58

Current Liabilities 1,135,712.40 1,135,712.40 0.00 0.00

Non-current Liabilities 8,574.00 1,286.10 -7,287.90 -85 1,144,286.40 1,136,998.50 -7,287.90 -0.64 Total liabilities

Net Assets 327,587.20 784,920.90 457,333.70 139.61

The reason for appreciation and depreciation of assets and liabilities are as follows: (1) The book value for current assets is RMB 1,223,281.30 k, while the assessed

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value is RMB 1,241,946.80 k, with increase of RMB 18,665.50 k. The major reason is that the unit price will be calculated as current sales price deducting related tax for enforcement sale as of finished product. (2) The book value for fixed assets-building is RMB 71.8034 million, while the assessed value is RMB 81.5183 million, with increase of RMB 9.7149 million. The major reason is that the accounting depreciation year for fixed assets-building is shorter than actual useful year. The net book value for fixed assets-equipment is RMB 66.3726 million, while the assessed value is RMB 69.5804 million, with increase of RMB 3.2078 million. The major reason are as follows:

A.The original book value includes the VAT for partial equipment. The replacement full price has deducted VAT per regulations for “VAT deduction” which contribute to the depreciation for original assessed value. The assessed value is confirmed by economic useful year and actual condition, which contribute to the difference so that to reflect the actual value of assets objectively. Thus, there is appreciation for assessed value compared with net book value. B. The price for vehicles decreased hugely in latest years. However, the vehicles license in Shanghai is for auction. There are 4 service vehicles for enterprise. The valuation conclusion includes the market value of license, which contributes to the huge appreciation for net assessed value of transportation. C. The original book value for electronic equipment includes the VAT for partial equipment. The replacement full price has deducted VAT per regulations for “VAT deduction” . The electronic equipment update quickly in latest years and the price decreased hugely, which contribute to the depreciation.

(3) The book value for intangible assets is RMB 110.4163 million, while the assessed value is RMB 528.8739 million, with increase of RMB 418.4576 million .The major reasons are as follows.

A.The intangible assets- land in use right increased RMB 418.0961 million.

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Valuation Report No.(2015)0899053

The acquired date for land is so earlier, which is located in NO.3000, Gonghe Xin Road, Shanghai. The acquired cost is lower. However, the land price in Shanghai increased continually in latest years, which contributes to the valuation appreciation. B.The brands and patents, which are not reflected in book, are included in valuation scope. The appreciation for patent is RMB 0.3615 million. (4) The book value for liabilities is RMB 1,144,286.40 K, while the assessed value is RMB 1,136,998.50 K, with decrease of RMB 7.2879 million. The depreciation for liability is valuation 0 for “special accounts payable”. Meanwhile, the deferred tax liability is assessed as valuation depreciation of “special accounts payable” combined with enterprise income tax rate.

2. Appraisal conclusion per Income Approach: Through computation by Income Approach, the total equity of shareholders on basis of the above assumptions are valued RMB 88 million Yuan, decreased by RMB 239.5872 million compared to the audited book value of net assets, with decrease rate of 73.14%. ii. Conclusion The difference rate is 88.79% per Assets based Approach and Income Approach. Analysis The major reasons for difference between Assets based Approach and Income

Approach are as follows: The assets based approach is based on market price, which reflects the current price of assets. However, the valuation conclusion per income approach reflects the enterprise value with regard to profitability in future based on going concern assumption, which reflects the difference per 2 methods. The major products for BLOWER WORKS are electrical mechanical and equipment manufacturing industry, with heavy assets. The major assets refers to inventory, fixed assets, land in use right and etc. The Assets based Approach is based on balance sheet The valuation conclusion for net assets has been reached based on deducting assessed liabilities from sum of the assessed assets, by means of replacing historical cost with market value of individual assets and liabilities. The Income Approach refers to reflect comprehensive profitability of each asset

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Valuation Report No.(2015)0899053

with a perspective of future profitability for enterprise. Although the assessed company in future years has stable source of profit, which will maintain rising momentum, the overall profitability is common. Thus, the income approach is difficult to reflect the assets value so far.

The valuation conclusion has been reached finally per Assets based Approach. Through computation, the total equity of shareholders is valued as RMB 784,920,958.73 Yuan. iii.Others With regard to limitation of market information, the premium and discount generated by controlling interest and minority interest haven’t been considered herein. Besides, the influence for liquidity discount hasn’t been considered for valuation conclusion.

XII. Additional Disclosure Items The report users shall pay attention to the additional disclosure items which would probably have impacts on the valuation conclusion. 1. In the event that the assets change in quantity and pricing benchmark, the valuation conclusion shall be adjusted with the original valuation approach;. 2. We are exempt from relevant responsibilities of legality, integrity and authenticity of such materials reaching us as the resolutions of the management, the Business Licenses, property right certificates, vouchers and / or files submitted by other intermediaries. 3. As of valuation date, there is no other important issues for assessed party per statement released from engaged party and related parties. 4. We found no other key items that may influence the valuation conclusion within our proficiencies and abilities of valuation and computation. However, users of the report shall not rely on the report but have independent judgment on property rights, values and influences etc. and take them into consideration when performing economic activity. 5. We are exempt from relating responsibilities and/or obligations in the event that relating parties did not state the special items possibly having impacts on the valuation conclusion during engagement or our fieldwork and those special items usually cannot be acknowledged or collected only with

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appraisers’ professional experiences. 6. The report is invalid and the valuation conclusion is untenable in the event that above-mentioned items do have impacts on the valuation conclusion and no adjustment has been made in the report.

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Valuation Report No.(2015)0899053

XIV. The Submission Date of the Report Dec. 2nd, 2015 (No text hereinafter in this page)

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Valuation Report No.(2015)0899053

(No Text in this Page)

Valuation Institution Orient Appraisal Co., Ltd.

Legal Xiaoming Wang Representative

Chief Appraiser Qiquan Li

Signature from Yuanchen Wu Appraisers Gang Wu

The Submission Date of the Report Dec. 2nd, 2015

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Valuation Report No.(2015)0899053

Files for Reference Valuation Report (Appendix)

Project Name: Business Valuation Report on Total Equity of SHANGHAI BLOWER WORKS CO.,LTD. with regard to Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015) 0899053

No. Name 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP.; 3. Shareholder resolution of BLOWER WORKS; 4. License of Shanghai Electric Group Co., Ltd (Shanghai Electric); 5. License of Shanghai Electric Group CORPχ 6. License of BLOWER WORKS; 7. Capital verification report of BLOWER WORKS; 8. Audit report for special purpose of BLOWER WORKS;

9. Property certificate of BLOWER WORKS; 10. Letter of Commitment from the Clients and Concerning Parties; 11. Engagement Letter; 12. Business License of Orient Appraisal Co. Ltd.; 13. License for Undertaking of Securities of Orient Appraisal Co., Ltd.; 14. Credential of Assets Valuation Qualification of Orient Appraisal Co., Ltd.; 15. Letter of Commitment from the Valuation Institution and Appraiser; 16. Assets list and summary sheets.

– V-34 – APPENDIX VI VALUATION REPORT FOR SHANGHAI RAIL TRAFFIC EQUIPMENT DEVELOPMENT CO., LTD. The following is the text of the valuation report for Shanghai Rail Traffic Equipment Development Co., Ltd. dated 2 December 2015 prepared in Chinese by Orient Appraisal Co., A1B5(3) Ltd., the qualified PRC valuer. The Chinese text shall prevail over the English text in the event of inconsistency.

Valuation Report for Enterprise Value

˄Report˅ Vol.1

Project Name: Business Valuation Report on Total Equity of SHANGHAI RAIL TRAFFIC EQUIPMENT DEVELOPMENT CO,.LTD with regard to Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Assets Purchase

Project Number: HDZZPBZ No.(2015)0901053

Orient Appraisal Co., Ltd.

Dec. 2rd, 2015

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APPENDIX VI VALUATION REPORT FOR SHANGHAI RAIL TRAFFIC EQUIPMENT DEVELOPMENT CO., LTD.

Valuation Report (Contents)

Project Number: HDZZPBZ No.(2015)0901053 I. OUTLINE OF THE CLIENT AND OTHER REPORT USERS...... 6 , 7+(&/,(17 ,, 27+(55(325786(56 II. OUTLINE OF THE ASSESSED PARTY ...... 8 III. VALUATION PURPOSE ...... 10 IV. VALUATION SCOPE AND OBJECTS ...... 11 V. VALUE TYPE AND DEFINITION ...... 12 VI. THE VALUATION DATE ...... 13 VII. VALUATION BASIS ...... 13 , (&2120,&$&7,9,7<%$6,6 ,, 0$-25/(*$/%$6,6255()(5(1&(2)58/( /$: ,,, (9$/8$7,21&5,7(5,21 ,9 35,&,1*%$6,6$'237(' 9 .(<&2175$&76$*5((0(176$1'3523(57<5,*+7&(57,),&$7(6 9, 27+(5),/(6 9,, 5()(5(1&()52027+(5$335$,6(5&203$1< VIII. VALUATION APPROACHES ...... 16 , 287/,1( ,, 7+($3352$&+&+26(15($621$1'27+(5(;3/$1$7,21 ,,, ,1752'8&7,212)$66(7%$6('$3352$&+ ,9 ,1752'8&7,212),1&20($3352$&+ IX. VALUATION PROCESS ...... 21 X. PREMISES AND ASSUMPTIONS OF TENABILITY OF THE REPORT ...... 22 XI. VALUATION CONCLUSION ...... 24 , 287/,1( ,, &21&/86,21$1$/<6,6 ,,, 27+(56 XII. ADDITIONAL DISCLOSURE ITEMS ...... 28 XIII. RESTRICTION OF THE USE OF THE REPORT ...... 30 , 7+(86(6&23(2)7+(5(3257 ,, 9$/,',7<3(5,2'2)7+(5(3257 ,,, 63(&,$/7(5065(*$5',1*7267$72:1('$66(76 ,9 7+((;326,7,9(5,*+72)7+(5(3257 XIV. THE SUBMISSION DATE OF THE REPORT ...... 31 )LOHVIRU5HIHUHQFH

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Appraisersÿ Statement

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Valuation Report (Abstract)

Project Number: HDZZPBZ No.(2015)0901053

The Client Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd Other Report Users The legal user of the report including the client and the user formulated by State laws and regulations according to the engagement letter. The Assessed Party Shanghai Rail Traffic Equipment Development Co,.Ltd . (hereinafter refers to SRTED ) Valuation Purpose Asset Replacement and Issue Shares for Assets Purchase The Valuation Date Sep. 30th , 2015 Valuation Scope and Objects The valuation object is total equity of shareholders. The valuation scope includes assets and liabilities as of valuation date. Including current assets and non-current assets( long-term investments , fixed assets, intangible assets) and liabilities. Net assets attributable to the parent company per consolidated statement is RMB 998,100,176.08 Net assets per parent company statement is RMB 914,184,985.41 Yuan in book. Value Type Market Value Valuation Approach The Asset-based Approach and Income Approach. According to the analysis of the assessed party, we’ve finally adopted Asset-based Approach as our valuation conclusion. Valuation Conclusion

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Through computation, the total equity of shareholders is valued as RMB 1,141,544,945.05 Yuan. Period Of Validity The validity lasts for one year since the valuation date, i.e. until 29 Sep. 2016. Additional Disclosure Items See special disclosure in valuation report.

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Valuation Report (Text)

Notice: The Report can be used exclusively for the purpose engaged and is tenable under engaged conditions. To learn all information of this project, please read the whole report and files for reference carefully. Shanghai Electric Group CORP and Shanghai Electric Group Co., Ltd: We have received your engagement to evaluate SRTED ‘s total equity, according to the law, the regulations ,the asset appraisal principle and standards and the necessary evaluation program, through our computation with the Asset-based Approach and Income Approach, in purpose of Shanghai Electric Group Co., Ltd ‘s Asset Replacement and Issue Shares for Assets Purchase , in order to offer market value dated Sep. 30th , 2015. The report is as follows:

Project Number: HDZZPBZ No.(2015)0901053

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There are 4 major blocks for main business, which are new energy equipment, efficient and clean energy equipment, industrial equipment and modern service industry. The client 1: Shanghai Electric Group CORP. is the non-controlling shareholder of the assessed party. The client 2: Shanghai Electric Group Co., Ltd is the acquiring party, which replaces assets and issues shares for assets purchase. ii.Other Report Users

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II. Outline of the Assessed Party The assessed party:SRTED Address: Room A,B,C,D, No. 212, Floor 7, Jiangning Road, Jinan District, Shanghai; Registered Capital: RMB 676.04 million; Company type:LLC (Domestic Joint Ventures) Legal Representative: Yanping Wang; Business scope of the Company: manufacturing, selling, and maintenance service of urban rail transit equipment, components and parts and accessories, technical development and consultation, enterprise investment, electromechanical equipment installation, imports and exports of goods and technologies, intellectualized design of buildings, urban rail transit, fire-fighting equipment, anti-corrosion and heat-preservation, building intellectualization, specialized contract of environmental protection projects. [The operation of items, which shall be approved according to laws, cannot be conducted before an approval is obtained from relevant department.] 1. Shareholders of the company as of valuation date is shown as below: (Unit˖RMB million)

Percentage Shareholders Investment (100%)

1 China CNR Corporation Limited 344,780.80 51.00%

2 Shanghai Electric Group Co., Ltd 231,260.00 34.21%

3 Shanghai Electric Group CORP. 100,000.00 14.79% Total 676,040.80 100.00%

2. Operating conditions of Recent 2 Years plus one period per consolidated statement are given as follows:

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(Unit˖RMB ‘000 Yuan) Item 2013-12-31 2014-12-31 2015-09-30

Asset 2,057,126.70 2,070,721.10 2,162,723.30 Liabilities 979,459.20 954,077.20 1,002,707.10 Net Assets 1,077,667.50 1,116,643.90 1,160,016.20 Net assets attribute to 916,082.60 956,380.60 998,100.20 parent company

Item 2013 2014 Jan. to Sep. 2015

Revenue 936,501.30 948,066.60 540,488.50 Total Profit 40,441.70 46,673.80 48,977.60 Net profit 37,742.80 39,070.50 42,765.50 Net Profit attribute to 37,365.00 38,535.30 41,361.30 parent company

Operating conditions of Recent 2 Years plus one period per parent company statement are given as follows: (Unit˖RMB ‘000 Yuan) Item 2013-12-31 2014-12-31 2015-09-30

Asset 1,300,850.40 1,232,201.50 1,248,321.70 Liabilities 456,176.60 351,659.40 334,136.70 Net Assets 844,673.90 880,542.10 914,185.00

Item 2013 2014 Jan. to Sep. 2015

Revenue 431,569.20 428,168.00 109,068.60 Total Profit 70,594.00 39,517.30 37,082.50 Net profit 70,594.00 34,910.00 33,657.40

The above statistics abstracts from the historical unqualified audit report for special purpose issued by BAKER TILLY CHINA in 2013, 2014 and Jan. to Sep. in 2015.

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SRTED adheres to enterprise accounting system. The major tax is as follows.

Tax Category Taxation Base Tax Rate

VAT Sale of goods or providing taxable services 6%,17%

Business Tax Taxable turnover 3%, 5%

Taxation according to priceθ 1.2% to original book value of real estate which Building Tax deducts 20%. 1.2% Taxation according to lease, the 12% to rent revenue

Urban Maintenance and Payable turnover tax 7% Construction tax

Educational Payable turnover tax 3% surtax

Additional local educational Payable turnover tax 2% expenses

Enterprise Income Taxable income 25% tax

The subsidiary company- Shanghai CRC Rail Transportation Vehicle Equipment Co.,Ltd adheres to enterprise accounting system. The income tax rate is 25%. The business tax rate is 5%. The VAT rate is 17%. The urban construction tax ,educational surtax, local educational surtax are 7%θ3%θ2% of turnover tax respectively. The subsidiary company- Shanghai ALSTOM Transport Co,.Ltd adheres to enterprise accounting system. The income tax rate is 25%. The business tax rate is 3% and 5%. The VAT rate is 6% to 17%.

III. Valuation Purpose Per Board approval of Shanghai Electric Group Co., Ltd and Shanghai Electric Group CORP ,The purpose of report is to provide a market value reference of related assets of SRTED as of valuation date, in purpose of

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Shanghai Electric Group Co., Ltd’s Asset Replacement and Issue Shares for Purchasing Shanghai Electric Group CORP.’s 14.79% equity of SRTED. The acquired economic behavior document are as flows: 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP;

IV. Valuation Scope and Objects 1. The valuation object is total equity of shareholders. The valuation scope includes assets and liabilities as of valuation date. Including current assets and non-current assets( long-term investments , fixed assets, intangible assets) and liabilities. Net assets attributable to the parent company per consolidated statement is RMB 998,100,176.08. Net assets per parent company is RMB 914,184,985.41 Yuan in book. Assets per parent company is RMB 1,248,321,662.33 Yuan in book. Liabilities per parent company is RMB 334,136,676.92 in book.

2. Per declaration list, the engaged properties are located in Room 202, No.96/Room 201, No.118/ Room 401, No.119/ Room 202, No.120, Zhongchun Road, Lane 3455, Shanghai, the area of which amounts to 385.82m2. The property owner is SRTED. 3.Per declaration list, there are 262 sets of equipment engaged, which remain normal use. 4.There are 4 engaged long-term investments of two level as of valuation date. Including 2 controlling long-term investments and 2 joint ventures. The details are as follows:

shareholding Book Value Accounting No. Enterprise Name ratio δRMBε Method Shanghai CRC Rail 1 Transportation Vehicle 100.00% 30,049,666.58 Cost method Equipment Co.,Ltd Shanghai ALSTOM Transport 2 60.00% 146,683,723.21 Cost method Co,.Ltd Shanghai ALSTOM Transport 3 40.00% 82,593,103.95 Equity Method Electrical Equipment Co,.Ltd SNδShanghaiε 4 20.00% 11,375,544.38 Equity Method Corporation,Limited

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5. Per declaration list, there are 15 sets of engaged intangible assets. Including 1 software which has been reflected and 14 sets of patents which have not been reflected. The declared patents remain unused state. The owner is SRTED. The details for patents as of valuation date are as follows:

Patent NO. Patent No. Name Period of validity Categories а⿽ᑨሬ੨࣋ර⻱⎞䖖Ⲵᛜ 1 ZL200810036595.0 invention 20 years from 2008-4-24 ⎞઼ሬੁ㌫㔏 а⿽⭘Ҿൠ䫱䖖䖶䖜ੁᷦⲴ 10 years from 2 ZL201020579087.X Utility model ѝཞ⢥ᕅ㻵㖞 2010-10-27

а⿽⭘Ҿൠ䫱䖖䖶䖜ੁᷦⲴ 10 years from 3 ZL201020579011.7 Utility model ᶴᷦ 2010-10-27

а⿽⭘Ҿ儈䙏ൠ䫱ࡇ䖖Ⲵ䖜 10 years from 4 ZL201020579088.4 Utility model ੁᷦ 2010-10-27 а⿽⭘Ҿൠ䫱ࡇ䖖䖜ੁᷦⲴ 10 years from 5 ZL201020579004.7 Utility model ཙ㓯᭟ᷦ 2010-10-27 а⿽⭘Ҿൠ䫱䖖䖶Ⲵ㠚❦ᧂ 10 years from 6 ZL201020579111.X Utility model 仾㻵㖞 2010-10-27 а⿽⭘Ҿൠ䫱䖖䖶オ䈳ᵪ㓴 7 ZL201020587280.8 Utility model 10 years from 2010-11-1 Ⲵࡦߧ㌫㔏

а⿽⭘Ҿൠ䫱オ䈳ᵪ㓴Ⲵഋ 8 ZL201020587282.7 Utility model 10 years from 2010-11-1 㓗ࡦߧ㌫㔏

10 years from 9 ZL201030576827.X ᑖਨᵪᇔᤆ䖖˄Tc-001˅ appearance 2010-10-27 10 years from 10 ZL201030576804.9 ᑖਨᵪᇔᤆ䖖˄Tc-002˅ appearance 2010-10-27 10 years from 11 ZL201030576816.1 ᑖਨᵪᇔᤆ䖖˄Tc-003˅ appearance 2010-10-27 а⿽ᑖᴹ✝ӔᦒᕪࡦᓏᧂⲴ 12 ZL201220271550.3 Utility model 10 years from 2012-6-8 ൠ䫱オ䈳ᵪ㓴 ੁחа⿽䖘䚃Ӕ䙊ࡇ䖖ᇒᇔ 13 ZL201420024157.3 Utility model 10 years from 2014-1-15 䘳⭏䰘㔃ᶴ

14 ZL201420478184.8 а⿽෾ᐲ䖘䚃Ӕ䙊㌫㔏 Utility model 10 years from 2014-8-22

6. The operating address is located in No.99 Guijing Road, Xuhui district, the area of which amounts to 3600m2. The place is leased from Shanghai Electric Group Co., Ltd. The leased period lasts from Jan 1 2015 to Dec 31 2015. 7. The engaged valuation objects and scope are conform to the valuation objects and scope related to the valuation purpose. The balance sheet as of valuation date has been audited without qualification by BAKER TILLY CHINA.

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buy or sell as of the valuation date. It should be cautioned that the same assets probably have different value in different market. The valuation herein is based on domestic observable market condition and market environment. The value type we chose herein is based on the elements including valuation purpose, market condition, valuation presumption and the valuation objects. The assessed value herein refers to the opinion, got through process and approaches illustrated in the report, serving only for the purpose engaged within the valuation scope and under the valuation principles, premises and assumptions.

VI. The Valuation Date 1. The valuation date is set on Sep 30th, 2015. 2.The valuation date is selected with permission of the clients and is after the consideration of the realized valuation purpose and the fiscal year. 3.The selection of the valuation date is in a common way and affected by no factors. The pricing standards of the valuation are based on the effective prices as at the valuation date. VII. Valuation Basis i.Economic Activity Basis 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP. ii.Major Legal Basis or Reference of Rule & Law 1. Company Law of the PRC; 2. The law for PRC state-owned enterprises; 3. Order No. 12 of the State-owned Assets Supervision and Administration Commission of the State Council “the Interim Measures for the State-owned Assets Appraisal Management ”˗ 4. The state-owned assets evaluation management regulations( NO.14 issued by treasury department); 5. Notice of the relevant questions on strengthening the management of enterprises’ state-owned assets evaluation. (No. 274 issued by SASAC property in 2006); 6. Temporary regulations for State-owned assets’ supervision and management (NO.378 issued by state council in 2003);

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7. No.3 Ministry of Finance doc, interim measures on transfer management of state-owned property rights˗ 8. No.[2006]306, A notice of relevant matters on enterprise state-owned property rights transferring; 9. No. [2009]941, A notice of valuation report review as of state owned assets; 10.The real estate administration law of the People's Republic of China; 11.Other laws and regulations. iii.Evaluation Criterion 1. Assets appraisal -Basic Standards; 2. Assets appraisal ethical principles- Basic Principles; 3. Assets appraisal ethical principles-Independence; 4. Assets appraisal standards-Valuation Report; 5. Assets appraisal standard-Valuation Process; 6. Assets appraisal standard-Working Paper; 7. Assets appraisal standard-Engagement Letter; 8. Assets appraisal standard- Business Valuation; 9. Assets appraisal standard-Equipment; 10. Assets appraisal standard-Real Estate; 11. Assets appraisal standard-Intangible Assets; 12. Assets appraisal standard-patents; 13. Guiding Opinions on types of value; 14. Guiding Opinions about CPV ‘s focus on Evaluation objects for legal ownership; 15. Guiding Opinions on valuation report on state owned assets; 16. Quality control guide for Evaluation institutions; 17. Experts Operation Tips for asset appraisal-report disclosure for listed companies’ major assets restructuring; 18. ASBE issued by NO.33 Decree of the Ministry of Finance; 19. Code for appraisal of real estate(national standard GB/T50291-2015); 20. Benchmark premium on the valuation of urban land(national standard GB/T18508-2014); 21. Other laws and regulations.

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iv.Pricing Basis Adopted 1. Manual for the latest assets evaluation data and parameters (China Statistical Publishing House); 2. Quoted Price Pamphlet about machinery equipment˄China Machine PRESS˅; 3. http://www.chinacar.com.cn/; 4. Compulsory scrap standard for Motor vehicle( No.12, 2013); 5. http://www.ebook.hc360.com/ as of valuation date; 6. Audit report for special purpose issued by BAKER TILLY CHINA; 7. Balance sheet as of valuation date for subsidiaries; 8. Part of the contracts and agreements released from assessed party; 9. Historical financial data and forecasting information; 10. Analysis of Statistical Data for National macro economy , Industry, regional market and enterprise; 11. ”10JQKA” of securities trend analysis system for stock A information; 12. Rate of return on national debt and lone interest rate close to valuation date; 13. Others.

v.Key Contracts, Agreements and Property Right Certificates 1. Property registration; 2. Vehicle license; 3. Patents; 4. Other related certification documents. vi.Other Files 1. Financial statements of the valuation date, books and vouchers furnished by the party in question; 2. Assets lists with book values provided by the party in question; 3. Technical statistics of Orient; 4. Relating price information; 5. Others. vii.Reference from 1. None. other appraiser company

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VIII. Valuation Approaches i.Outline There are 3 Approaches of valuation, which are Cost Approach, Income Approach, Market Approach. ķThe Cost Approach is also called Assets-based Approach. The valuation conclusion for net assets has been reached based on deducting assessed liabilities from sum of the assessed assets. ĸThe Income Approach refers to discount or capitalize future income per appropriate discounting rate in order to reach the valuation conclusion. ĹThe Market Approach refers to make comparisons between valuation object and enterprise reference, enterprise which has deal cases in market, shareholders’ equity, securities and other equity assets in order to reach valuation conclusion by adjustment and revise. ii.The Approach Per “Assets appraisal principles---business valuation”, the appraisers shall chosen analyze the feasibility of assets-based method, income method and market reason and other method in order to adopt one or multiple methodology appropriately, per explanation valuation purpose, valuation objects, value type, condition for collecting documents, during conducting business value appraisal. Through analysis:The valuation purpose herein report is Asset Replacement and Issue Shares for purchasing assets. The value type is market value. Per condition of collecting documents, the assets-based method and income method are appropriately adopted for the assessed party. Because the valuation conlusion has been reached per assests-based method with regard to investment. The future income can be forecast by currency. The risk related to the future income can be calculated. Therefore,it is also appropriate to adopt income method. The main business scope refers to project for city rail traffic engineering, as is not consistent with listed companies in same industry so far. It’s not appropriate to adopt market method for lack of comparability. iii.Introduction of The Asset-based Approach is also called Cost Approach. The valuation Asset-based conclusion for total shareholders’ equity has been reached,on the assomption Approach of replacement of different production factors on valuation date,per specific

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condition of the engaged assets by item, adopting appropriate methodology in oder to sum up the assessed assets by item, meanwhile deducting assessed value for related debts.

Transaction Transaction monetary assets with no current market nor future income are monetary assets valued according to the verificated book value.

Inventory For the raw materials whose replacement unit price is just about the unit price in book, the unit price in book will be choosen as the replacement unit price; As for “engineering construction”, the appraisers checked related contracts and accounting vonchers, got the genaral idea of custodial system and internal control system, and checked detail account per inventory list released from assessed party.The engineer profit has been booked in “engineering construction”, which are assessed per verified book value. The “engineering settlement” is reclassed to “advance from customers” for valuation.

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Other current assets They are valued per remaining benefit right or recoverable asset value

Long-term As for absolute holding investment item, the assessed value has been reached investment per valuation for total assets of subsidiary and investment ratio. As for non-absolute holding investment item, the assessed value has been reached per analysis of net assets in balance sheet and investment ratio.

Fixed assets As for building and structures of production, Replacement Cost Method is adopted.The valuation conclusion is reached based on the replacement full price combined with depreciation rate. As for business shop or single office buiding, the valuation conclusion is reached per real estate and land totally by means of income approach and market approach, together with business model. As for machines, vehicles and electronic equipments, Replacement Cost Approach is adopted. The value of equipments= replacement full price h comprehensice depreciation rate Per 2008 NO. 170, the VAT regulation and 2009 NO.113 “Notice about deducting input VAT from fixed assets”, the VAT is not included in replacement full price for some equipments which meet the requirements.

Intangible As for purchased general software, the valuation method is as follows: assets-other The valuation concluson for purchased software has been reached per market price.

Liabilities The assessed value is determined based on the verified book value and the actual liabilities payable.

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years at appropriate discounting rate, and the value of surplus assets, non-business assets, ending assets.

g- annual growth rate of future earnings, if Fi is invariant after n

years,g will take zero.

Evaluation idea 1.Review of the income for the forecast period submitted by the

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4. According to macro and regional economic situation, prospects for industry development, business model, to predict later sustainable income trend analysis, to choose appropriate approach for estimating value after forecast period. 5. The working capital and capital expenditure are confirmed by considering assets allocation and utility condition of the fixed assets.

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retirement pension, etc., which are added after being appraised separately.

IX. Valuation Process According to relevant state regulations and principles on appraisal, we performed appraisal and ownership verification on the assets within the scope and conducted necessary due diligence on the operation and management status of the appraised party. The process is as follows: 1. Communicated with the client and appraisal object; Interviewed the staff of company, to better understand its profile, history and current status of assets entrusted for appraisal; to further understand the appraisal purpose, scope and object; set up valuation date, signed the letter of engagement and drafted the appraisal proposal. 2. Mentored the company to fill in the assets appraisal declaration form. 3. Conducted site survey, including the check of the non-physical assets, mainly by reviewing the original accounting documents and letters, and inspecting the formation of creditor’s rights and debts and the authenticity of the book value; and the check of the physical assets, mainly by viewing, taking pictures for and recording the assets and their conditions on site, while collecting the ownership certificates of the assets entrusted for appraisal and reviewing such materials as the machinery operation, maintenance and accident records. And interviewed people in charge of the assets management to understand the operation and management of the assets. 4. Supplemented and completed the assets appraisal declaration form after checking the financial records and data and site survey. 5. Interviewed the management and learnt the introduction of the enterprise operating mode, status of income from major product or service business and changes thereof, cost composition and changes thereof, earning status for the previous years and key reason for changes; understood the accounting systems & management mode, core technology, R&D power, future development plan,

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competitive advantage and disadvantage; learnt about the surplus assets and non-business assets and the utilization condition thereof. 6. Collected the operational indicators, financial indicators, business plan in the future and materials of renewal of fixed assets or investment plan; investigated the status of industry, regional market condition and development trend; analyzed the macro-economic situation and industrial environmental factors influencing the enterprise’s operation; conducted market research and enquiry, and collected information about the capital market of the same industry. 7. Evaluated and estimated. The appraisers selected the appropriate appraisal approaches according to the appraisal object, type of value and collection of relevant materials; made preliminary appraisal conclusion with calculation and judgement after choosing the corresponding model and formula and analyzing reasons for changes of various indicators, analyzed the preliminary conclusions reached by different appraisal approaches, and then finally determined the appraisal conclusion by comprehensively evaluating the reasonability of different appraisal approaches and preliminary appraisal conclusions and the quality and quantity of data used. 8. The appraisers discussed with other intermediaries to confirm there was no overlapping and missing appraisal scope in order to release draft report and appraisal conclusion; 9. After three-grade reviewing, submitted the report to the client and the appraised party and discussed with them thereon; revised and completed the report after exchanging opinions with the client and submitted the formal appraisal report.

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2. Continuous use hypothesis: First, the hypothesis is assumed that the assessed assets are for normal use, including the assets in-use and for backup; Besides, it is assumed that the assets in-use sustain its continuous use per the related data and information. Continuous use hypothesis not only refers to market condition or environment but also focuses on the continuous situation for assets. 3. Continuous operation hypothesis: The report is based on the assumption that the company shall be capable of continuous and legal operation, which shall not be close up for different reasons in the near future, with the existing assets and resource condition.

C Income Approach Assumptions

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3κThe contracts signed by the company in the current and previous year are valid and the contracting parties will keep on performing the contracts.

5. The different income, related prices and costs used in the report are the professional judgement after due diligence, based on historical data provided by the assessed party. The valuation conclusion has been reached per condition of valuation object on valuation date, valuation assumptions and restricted condition. The valuation assumes that the premises are valid on valuation date, according to the valuation requirements. The valuation conclusion is usually untenable and the report is invalid in case of changes of forgoing economic environments. We are exempt from relevant responsibilities of changes for assumptions which may deduce different valuation conclusion.

XI. Valuation Conclusion i.Outline According to relevant laws, regulations and standards for assets appraisal, abiding by the principles of independence, objectiveness and fairness, we appraised the market value of the assessed party as of valuation date per necessary appraisal procedures, and made the conclusion per Asset-based Approach and Income Approach as follow: 1. Appraisal conclusion per Assets-based Approach: Through computation by Asset-based Approach, the total equity of shareholders is valued as RMB1,141,544,945.05 as of valuation date in market condition. Including: total assets engaged in book value amounts to RMB 1,248,321,662.33, while assessed value amounts to RMB 1,482,360,191.68θwith the increase of RMB 234,038,529.35 and increase rate of 18.75 %; Liabilities engaged in book value amounts to RMB 334,136,676.92, while assessed value amounts to RMB 340,815,246.63, with the increase of RMB 6,678,569.71 and increase rate of 2.00 %; Net assets engaged in book value amounts to RMB 914,184,985.41, while

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assessed value amounts to RMB 1,141,544,945.05, with the increase of RMB 227,359,959.64 and increase rate of 24.87%. The valuation conclusion and details are shown as follows. Valuation Sheet Valuation date:Sep 30 2015 UnitφRMB '000

Assessed Increase/ Increase/decre Item Book Value value decrease ase rate%

Current Assets 973,736.80 980,415.40 6,678.60 0.69 274,584.90 501,944.90 82.80 None-Current Assets 227,360.00 Including: Financial assets available for 0.00 0.00 - sale 0.00 0.00 - Net investment held to maturity

0.00 0.00 - Term account receivable

270,702.00 488,676.80 80.52 Long-term Investment 217,974.80 0.00 0.00 - Investment real estate

Fixed Assets 3,842.20 13,160.10 9,317.90 242.51 0.00 0.00 - Construction in Progress

0.00 0.00 - Project goods and material

0.00 0.00 - Disposal of fixed assets

0.00 0.00 - The productive biological net assets

0.00 0.00 - Hydrocarbon net assets

40.70 108.00 67.30 165.36 Intangible Assets Net Amount

0.00 0.00 - Development expenditure

0.00 0.00 - Good will

0.00 0.00 - Long-term deferred expense

0.00 0.00 - Deferred tax assets

0.00 0.00 - Other non current assets

Total Assets 1,248,321.70 1,482,360.30 234,038.60 18.75

Current Liabilities 334,136.70 340,815.20 6,678.50 2.00 0.00 0.00 - Non-current Liabilities

334,136.70 340,815.20 6,678.50 2.00 Total liabilities

Net Assets 914,185.00 1,141,545.10 227,360.10 24.87

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The reason for appreciation and depreciation of assets and liabilities are as follows: (1) The book value for inventory is RMB 38.8677 million, while the assessed value is RMB 45.5463 million, with increase of RMB 6.6786 million . The negative part , which refers to “receivable in advance” in ” inventory- finished goods” exceeding “cost of production”, is reclassed to “receivable in advance”, as contributes to the appreciation.

(2) The book value for long-term investment is RMB 270.7020 million, while the assessed value is RMB 488.6768 million, with increase of 217.9748 million. As for absolute holding investment item, the assessed value has been reached per valuation for total assets of subsidiary and investment ratio. As for non-absolute holding investment item, the assessed value has been reached per analysis of net assets in balance sheet and investment ratio,which contribute to the appreciation.

(3) The book value for fixed assets is RMB 3.8422 million, while the assessed value is RMB 13.1601 million, with increase of RMB 9.3179 million. The major reason is as follows: A) The real estate in fixed assets is RMB 3.4165 million, while the assessed value is RMB 10.3129 million, with increase of RMB 6.8963 million. The major reason is the increase of real estate price in latest years. B) The fixed assets-equipment is RMB 0.4256 million, while the assessed value is RMB 2.8472 million, with increase of RMB 2.4216 million. The accounting depreciation for equipment is so quick and the net book value is so low. The assessed value is confirmed by economic useful year and actual condition in order to reflect the actual value for equipment, which contributes to the difference. Thus, there is appreciation for net assessed value. Plus, the enterprise has 13 service vehicles. The vehicles license in Shanghai is for auction. The valuation conclusion includes the market value of license, which contributes to the appreciation for net assessed value of transportation. (4) The book value for “receivable in advance” is RMB 54.1723 million, while the assessed value is RMB 60.8509 million, with increase of 6.6786 million. The negative part, which refers to “receivable in advance” in ” inventory-

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finished goods” exceeding “cost of production”, is reclassed to “receivable in advance”, as contributes to the appreciation.

2. Appraisal conclusion per Income Approach: Through computation by Income Approach, the total equity of shareholders on basis of the above assumptions are valued RMB 921 million Yuan, increased by RMB 6.8151 million compared to the audited book value of net assets, with increase rate of 0.75%. ii. Conclusion The difference rate is 19.32% per Assets based Approach and Income Approach. Analysis The major reasons for difference between Assets based Approach and Income

Approach are as follows: The Assets-based Approach is to appraise the value of the appraised object by reasonably appraising the itemized assets and liabilities, which means calculating the value of the total shareholders’ equities by subtracting the appraised value of liabilities from the total value of itemized assets The Income Approach refers to reflect comprehensive profitability of each asset with a perspective of future profitability for enterprise. The two appraisal approaches reflects the different value scope of the enterprise, which contribute to the difference. SRTED and its subsidiaries belong to railway equipment industry, which has heavy assets and light profit. The business performance in latest years fluctuated hugely. Although the industry outlook is better, the competition in same industry is so fierce per local policy influence. There is a certain uncertainty for the forecast released from management. The Assets based Approach is better than Income Approach with regard to pertinence and precision. Thus, the valuation conclusion has been reached finally per Assets based Approach. Through computation, the total equity of shareholders is valued as RMB 1,141,544,945.05 Yuan. iii.Others With regard to limitation of market information, the premium and discount generated by controlling interest and minority interest haven’t been considered herein. Besides, the influence for liquidity discount hasn’t been considered for

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valuation conclusion.

XII. Additional Disclosure Items The report users shall pay attention to the additional disclosure items which would probably have impacts on the valuation conclusion. 1. In the event that the assets change in quantity and pricing benchmark, the valuation conclusion shall be adjusted with the original valuation approach;. 2. We are exempt from relevant responsibilities of legality, integrity and authenticity of such materials reaching us as the resolutions of the management, the Business Licenses, property right certificates, vouchers and / or files submitted by other intermediaries. 3. Per experts tips for asset appraisal operation – valuation report disclosure for major assets restruction in listed companies, the appraisers found that the subsidiary Shanghai ALSTOM Transport Co,.Ltd as of valuation date in latest 3 years: ALSTOM (China) Investment Co., Ltd. transferred 34% equity of Shanghai ALSTOM Transport Co,.Ltd in 2013, June. The above economic behavior is valued per valuation report released from Orient Appraisal Co., Ltd. as of 0944227 (2013). The valuation date is 30th June 2013. The audited net assets is RMB 269.3165 million, while the assessed value is RMB 297 million, with increase of 10.28%. The valuation report refers to adjustment of internal foreign ownership , which is not required to be filed. As for this valuation, for related long term investment of injected assets ,as is the 60% equity of Shanghai ALSTOM Transport Co,.Ltd, the assets based approach and income approach are adopted. And the major valuation conclusion has been reached per assets based approach. The difference between this and last appraisal is for estimation judge for different valuation date and different valuation purpose. May report users attention.

4. As of valuation date, the flaw issues for related long term investment of injected assets , as is Shanghai ALSTOM Transport Co,.Ltd, are as follows.

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– VI-29 – APPENDIX VI VALUATION REPORT FOR SHANGHAI RAIL TRAFFIC EQUIPMENT DEVELOPMENT CO., LTD. Valuation Report No.(2015)0901053

6XEWRWDO 37,373.10 90,400,972.75 112,197,590.01 ,QMHFWLRQRIUHDO 48,044.86 131,168,790.88 178,620,720.00 HVWDWH 3URSRUWLRQZLWKIODZ 77.79% 68.92% 62.81% LVVXHV

The replacement cost approach is adopted for proporty with flaw issues, which have no property certificate. Per principle of value contribution and actual condition as of valuation date, the assessed value has been reached per replacement cost and depreciation rate. The influence for flaw property issues is not considered. The proportion for assessed value of flaw issues in total engaged property is about 62.81%. 5. As of valuation date, there is no other important issues for assessed party per statement released from engaged party and related parties. 6. We found no other key items that may influence the valuation conclusion within our proficiencies and abilities of valuation and computation. However, users of the report shall not rely on the report but have independent judgment on property rights, values and influences etc. and take them into consideration when performing economic activity. 7. We are exempt from relating responsibilities and/or obligations in the event that relating parties did not state the special items possibly having impacts on the valuation conclusion during engagement or our fieldwork and those special items usually cannot be acknowledged or collected only with appraisers’ professional experiences. 8. The report is invalid and the valuation conclusion is untenable in the event that above-mentioned items do have impacts on the valuation conclusion and no adjustment has been made in the report.

– VI-30 – APPENDIX VI VALUATION REPORT FOR SHANGHAI RAIL TRAFFIC EQUIPMENT DEVELOPMENT CO., LTD. Valuation Report No.(2015)0901053

3. The appendixes and the other formal materials specially provide for the government and administrations have the same legal rights and sanctions as the report. ii.Validity Period of the Report 1.The valuation conclusion will survive a valid period for one year according to prevailing regulations, i.e. it is valid from Sep. 30th, 2015 to Sep. 29th, 2016. 2.The report is not permitted to use after the deadline. iii.Special Terms Regarding to Stat-owned Assets In the event that the report concerning state-owned assets, when it is not formally registered, approved or confirmed by the state-owned assets management branches, the report cannot be regarded as the basis of economic behavior. iv.The Expositive Right of the Report The valuation institution that submits the report owns the expositive rights of opinions in the report. No any other party is authorized to expose and/or explain the report unless the party (parties) is/are allowed exposing and/or explaining them by laws and regulations of the state. This valuation report is written in both Chinese and English. In case there is any discrepancy between the Chinese and English versions of this valuation report, the Chinese version shall prevail.

XIV. The Submission Date of the Report Dec. 2nd, 2015 (No text hereinafter in this page)

– VI-31 – APPENDIX VI VALUATION REPORT FOR SHANGHAI RAIL TRAFFIC EQUIPMENT DEVELOPMENT CO., LTD. Valuation Report No.(2015)0901053

(No Text in this Page)

Valuation Institution Orient Appraisal Co., Ltd.

Legal Xiaoming Wang Representative

Chief Appraiser Qiquan Li

Signature from Yuanchen Wu Appraisers Gang Wu

The Submission Date of the Report Dec. 2nd, 2015

– VI-32 – APPENDIX VI VALUATION REPORT FOR SHANGHAI RAIL TRAFFIC EQUIPMENT DEVELOPMENT CO., LTD. Valuation Report No.(2015)0901053

Files for Reference Valuation Report (Appendix)

Project Number: HDZZPBZ No.(2015)0901053

No. Name 1. Board approval of Shanghai Electric Group Co., Ltd; 2. Board approval of Shanghai Electric Group CORP.; 3. License of Shanghai Electric Group Co., Ltd (Shanghai Electric);

4. License of Shanghai Electric Group CORPχ 5. License of SRTED; 6. Capital verification report of SRTED; 7. Audit report for special purpose of SRTED;

8. Property certificate of SRTED; 9. Letter of Commitment from the Clients and Concerning Parties; 10. Engagement Letter; 11. Business License of Orient Appraisal Co. Ltd.; 12. License for Undertaking of Securities of Orient Appraisal Co., Ltd.; 13. Credential of Assets Valuation Qualification of Orient Appraisal Co., Ltd.; 14. Letter of Commitment from the Valuation Institution and Appraiser; 15. Assets list and summary sheets.

– VI-33 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

The following is the text of the valuation report for Shanghai Heavy Machinery Plant Co., Ltd. dated 2 December 2015 prepared in Chinese by Shanghai Lixin Appraisal Co., Ltd., A1B5(3) the qualified PRC valuer. The Chinese text shall prevail over the English text in the event of inconsistency.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

EVALUATION REPORT FOR ENTERPRISE VALUE

(REPORT)

PROJECT NAME:

EVALUATION REPORT FOR 100% EQUITY INTERESTS’ VALUE OF THE OUTGOING

ASSETS-SHANGHAI HEAVY MACHINERY PLANT CO., LT REGARD TO SHANGHAI

ELECTRIC GROUP CO., LTD’S ASSET SWAP AND SHARE ISSURANCE FOR ASSETS

PURCHASE

LXA (2015) No.464

Prepared by

Shanghai Lixin Appraisal Ltd

Dec. 2015

– VII-1 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

TABLE OF CONTENTS

EVALUATION REPORT FOR 100% EQUITY INTERESTS’ VALUE OF THE OUTGOING ASSETS-SHANGHAI HEAVY MACHINERY PLANT CO., LTD...... 1 VALUER’S DECLARATION...... 3 EXECUTIVE SUMMARY...... 5 EVALUATION REPORT FOR 100% EQUITY INTERESTS’ VALUE OF THE OUTGOING ASSETS-SHANGHAI HEAVY MACHINERY PLANT CO., LTD...... 7 1.THE ENTRUSTING PARTIES: TARGET COMPANY, SHAREHOLDERS OF TARGET COMPANY AND THE REPORT USERS...... 7 2. PURPOSE OF EVALUATION...... 13 3. SCOPE OF EVALUATION...... 13 4. TYPE OF VALUE & THEIR DEFINITION...... 14 5. DATE OF EVALUATION...... 15 6. EVALUATION BASIS...... 15 7. EVALUATION APPROACH...... 18 8. EVALUATION PROCEDURES...... 27 9. ASSUMPTIONS AND CONDITIONS...... 28 10. EVALUATION CONCLUSION...... 28 11. SPECIAL MATTERS AND DISCLAIMERS...... 31 12. LIMITATIONS ON THE USE OF THIS REPORT...... 36 13. DATE OF REPORT ISSUED...... 37

APPENDIX 1. OFFICIAL DOCUMENTS LEADING TO THIS EVALUATION ACTIVITY······ 38 2. BUSINESS LICENSE OF ENTRUSTING PARTIES AND SHMP····················· 43 3. AUDIT REPORT OF SHMP··································································· 46 4. CAPITAL VERIFICATION REPORT OF SHMP·········································125 5. PROPRTY CERTIFICATE AND VEHICLE LISENCE································· 141 6. LETTER OF COMMITMENT OF ENTRUSTING PARTIES AND SHMP(ORIGINAL COPY) ···························································································187 7. LETTER OF COMMITMENT OF EVALUATOR( ORIGINAL COPY) ············190 8. BUSINESS LICENSE OF LIXIN ASSETS APPRAISAL LTD·························191 9. LIXIN’S EVALUTION CERTIFICATE···················································· 192 10. SECURITY CERTIFICATE OF LIXIN·····················································193 11. EVALUATORS’ CERTIFICATES·························································· 194 12. SERVICE AGREEMENT····································································· 195

– VII-2 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

VALUER’S DECLARATION

The Valuer’s Declaration is extracted from this report. It should not be used or be interpreted independently from the complete report [LXA-2015-464].

Pursuant to the engagement and in accordance with relevant laws and regulations of the assets evaluation, we conducted an evaluation on Shanghai Heavy Machinery Plant Co., Ltd, adopting the appropriate evaluation approaches. We hereby make the following statements: 1The contents in this evaluation report are true and objective. Our analysis and conclusions in this report are based on the principle of independence, objectiveness and fairness wherein we are not subject to any influence or restrictions of any third party. 2The evaluators’ responsibility is to provide professional comments on the value of the target company as at the date of evaluation by applying to the evaluation standards and the relevant laws and regulations for the specific purpose, while it is the responsibility of our clients and the relevant parties to provide necessary information to ensure the genuineness, legality and completeness of the information provided, as well as the proper use the evaluation report. 3We assess the evaluation subject and the scope of the target company designated by the entrusting parties. The entrusting parties provided detail stamped list of the target assets and liabilities. The relevant off-balance assets are also taken into consideration. We suggest report users pay high attention to the subject and the scope of target assets to be transferred is as same as the evaluation subject and the scope designated by the entrusting parties. 4We have no previous, present and future interests with the target company. We have neither interest nor bias toward the relevant parties and the relevant persons. 5The purpose of the evaluation herein is to evaluate the value of the target company and to give our professional opinions. We are not liable to the decision-making of the relevant parties. The users of this report are advised to pay high attention to the evaluation conclusion which is only effective under the assumptions and the restrictions stated in this report, and shall not be deemed as a guaranteed value which could be realized in the market.

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

6We paid necessary attention to the legal ownership of the target and checked the information provided by the client, we only expressed opinion on the value of the target assets and we are not authorized to make any form of guarantee to their legal titles. This report shall not be used as any form of the ownership supporting document. 7Our inspection on the fixed assets is limited to their appearance quality and the existing condition. We are not qualified to carry out a full technical and professional evaluation on the fixed assets involving invisible and/or untouchable parts. Our evaluation is based on the materials provided by the client and the evaluation conclusion will be impacted in case of any defects in the inner quality of the target assets. 8For the proper use of this report, we suggest the report users pay high attention to the ‘Assumptions and Conditions’, ‘Special Matters and Disclaimers’ and ‘Limitations On The Use of This Report’ when reading this report. 9 This report can only be used for the stated evaluation purpose for the entrusting parties and the review by the competent authorities. The use right of this report belongs to the client. The whole or any part of this report shall not be published on any public media without our consent, except it is to be filed with the relevant government authorities or required to be disclosed publicly by the law.

In case of any discrepancy between the Chinese and the English version of this report, the Chinese version shall prevail.

– VII-4 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

EXECUTIVE SUMMARY

LXA (2015) No.464

The executive summary is extracted from the main body of this evaluation report. To get more detail information and to understand our conclusion, please read the report thoroughly.

Pursuant to the engagement by Shanghai Electric (Group) Corporation (The entrusting party 1: SH Electric (Group) )and Shanghai Electric Group Co. Ltd (The entrusting party 2: SEC) and subject to the relevant PRC laws and regulations, Shanghai Lixin Appraisal Co., Ltd., conducted an evaluation in connection with the proposed transfer of 100% of equity interests of Shanghai Heavy Machinery Plant Co., Ltd (The asset owner: SHMP) regarding to the assets swap and share issuance activity of SEC based on the principles of objectiveness, independence, fairness, and scientific. We have undertaken this project through fieldwork, market research and inquiries on evidences to figure out the market value of the equity of SHMP on the date of 30 Sep 2015. The evaluation result is as follows: Subject of Evaluation: the total value of Shareholders’ equity of Shanghai Heavy Machinery Plant Co., Ltd as at 30 Sep. 2015, and Scope of Evaluation: total assets and liabilities of Shanghai Heavy Machinery Plant Co., Ltd, with the book value of the equity RMB-264,325,927.45 Date of Evaluation: 30 Sep 2015 Purpose of Evaluation: Equity transfer Type of evaluation: Market value Evaluation Approach: Asset-Based Approach

– VII-5 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

Conclusion: under the Asset-Based Approach, the total equity of Shanghai Heavy Machinery Plant Co., Ltd has the following market value, as at the date of evaluation is: RMB -184,868,000

Summary of Evaluation

Date of Evaluation: 30 Sep. 2015 Unit:’000 (RMB) Increase/ Net Book Valuated Increase/ decrease Accounts Value Value Decrease Ratio (%) ABC=B-AD=C/A Current Assets 3,874,220.30 3,920,894.10 46,673.80 1.2 Non-current Assets 1,712,313.30 1,702,829.60 -9,483.70 -0.55 Incl.:Long term equity 130,018.90 132,157.00 2,138.10 1.64 investment Fixed Assets 1,217,208.10 1,231,288.50 14,080.40 1.16 CIP 77,118.00 78,798.80 1,680.80 2.18 Intangible Assets 1,964.80 9,470.70 7,505.90 382.02 Development expenditure 709.70 709.70 - 0 Long term deferred expenses 285,293.80 250,404.90 -34,888.90 -12.23 Total Assets 5,586,533.60 5,623,723.70 37,190.10 0.67 Current Liabilities 5,650,450.10 5,648,023.20 -2,426.90 -0.04 Non-current Liabilities 200,409.40 160,568.50 -39,840.90 -19.88 Total Liabilities 5,850,859.50 5,808,591.70 -42,267.80 -0.72 Net Assets -264,325.90 -184,868.00 79,457.90 30.06

This report is dated on 2 Dec. 2015, and it will be expired on 29 Sep. 2016.

Please pay attention to the ‘Valuer’s Declaration’, ‘Assumptions and Conditions’ and ‘Special Matters and Disclaimers’ when using this report.

This report can only be used after filed with the State-owned Assets Supervision and Administration Commission of Shanghai Municipal Government and the relevant authorities.

In case of any discrepancy between the Chinese and the English version of this report, the Chinese version shall prevail.

– VII-6 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

EVALUATION REPORT FOR 100% EQUITY INTERESTS’ VALUE OF

THE OUTGOING ASSETS-SHANGHAI HEAVY MACHINERY PLANT

CO., LTD

LXA (2015) No.464

Shanghai Electric (Group) Corperation and Shanghai Electric Group Co. Ltd: Pursuant to the engagement by entrusting party 1: Shanghai Electric (Group) Corporation (SH Electric Group) and entrusting party 2: Shanghai Electric Group Co. Ltd (SEC) and subject to the related PRC laws and regulations, Shanghai Lixin Appraisal Co., Ltd., conducted an evaluation in connection with the proposed transfer of 100% of equity interests of Shanghai Heavy Machinery Plant Co., Ltd (The asset owner: SHMP) regarding to the assets swap and share issuance activity of SEC based on the principles of objectiveness, independence, fairness, and scientific. We have undertaken this project through fieldwork, market research and inquiries on evidences to figure out the market value of the equity on the date of 30 Sep 2015. The evaluation result is as follows:

1. The Entrusting Parties: Target Company, Shareholders of the Target Company and the Report Users

1.1 The Entrusting Party 1: Shanghai Electric (Group) Corperation Registered Address: No.110 Sichuan Zhong Road Registered Capital: RMB 7,024,766,000 Type of Company: industrial enterprises owned by the whole people Legal Representative: Huang Dinan Business Scope: contractor business for electric engineering project and conglomeration or division of equipment, labor repatriation, investment of property, produce and sale of

– VII-7 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

machinery equipment and relevant products, provide technique consulting or training services to import or export projects, manage state-owned assets in authorized scope, domestic trading (except special restrains) special projects shall be conducted after approved by the relevant government department

Company Introduction: Shanghai Electric Group Corporate is one of the largest equipment manufacturing and conglomeration companies in China. It engages in the relevant project design and it was formally named as Shanghai Electric Union. On 22 Aug. 1984, the company was approved by Shanghai government, as part of the restructuring for Shanghai Power Station Equipment Company, where Shanghai Motor Factory, Shanghai Steam Turbine Factory, Shanghai Boiler Factory and Shanghai Power Station Auxiliary Equipment Factory and some other factories had been transferred out from Shanghai Motor Manufacturing Management Bureau. Under the approval of the relevant Finance and Commerce Bureau, in 1994, the company changed its name to Shanghai Electric (Group) Corporation.

1.2 The Entrusting Party 2: Shanghai Electric Group Co. Ltd (stock code: 601727) Registered Capital: RMB 12,823,626,660 Registered address: 30/F, No.8 Xingyi Road, Type of Company: Limited Company (Joint venture of Taiwan, Hong Kong, Macau and Mainland Company, listing company) Legal Representative: Huang Dinan Business Scope: Power station and electronic transfer, conglomeration of motor/electrical equipment, transportation, design, manufacturing, sales and after sales services for environmental device and related equipment. Wholesales, import and export of goods and technology, agency commission service and other packaging services. Contractor for electronic project, conglomeration and division of device/equipment, and technical services. special projects shall be conducted after approved by the relevant government department

1.3 The Target Company: Shanghai Heavy Machinery Plant Co., Ltd (SHMP)

– VII-8 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

Type of Company: Single Person Limited Liability Company (wholly owned by the legal representative) Address: No.1800 Jiangchuan Road Legal Representative: Zhang Anpin Registered Capital: RMB 2,473,210,000 Operating Period: 1 Jan.1992 to 30 Jun.2054 Business Scope: Metallurgy, building resistance, military equipment, gas furnace, casting and forging, mining accessories, power stations, pressure vessels, motor transportation of cargo import and export business, forging, dock landing barge business, railway vehicle’s consolidating, transportation and loading. Mining and water projects, maintenance of two types of motor vehicle (large and medium-sized truck maintenance). Design, manufacture, installation production of complete sets of engineering, technical consulting services regarding machinery, electronic equipment and their accessories. Industrial oxygen (self-production and self-use) the following restrictions on branches: hotels and hostels. Special projects shall be conducted after approved by the relevant government department

1.3.1 Company introduction: SHMP was named as Shanghai Heavy Machinery Plant Co., Ltd, (referred as ‘Shanghai Heavy’ or SHMP). It was jointly invested by Shanghai Electric Group Co.Ltd and Shanghai Power Station Auxiliary Equipment Works Co., Ltd on 1 Jan. 1993. It obtained its business license on 30 Sep.2004 with registered capital RMB 1,205,510,000. After several share transfers and capital injections, the shareholder structure of Shanghai Heavy is as follows: Shareholder Investment Amount(RMB) Shareholding % Shanghai Electric Group Co.Ltd 2,473,210,000 100% Total 2,473,210,000 100% Above information are quoted from No.201455 capital verification report issued by Shanghai Shangshen

Certified Public Accountants Co., Ltd

1.3.2 Historical operation performance of SHMP SHMP’s financial position for the period 2013-2015.9 is as follows:

– VII-9 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

Unit: ‘000 (RMB) Accounts 2013-12-31 2014-12-31 2015-9-30 Total Assets 7,836,371.50 6,251,694.90 5,586,533.60 Total Liabilities 7,269,371.40 5,994,023.80 5,850,859.50 Net Assets 567,000.10 257,671.10 -264,325.90

Financial performance of SHMP for the period 2013-2015.9 is as follows:

Unit: ‘000 (RMB) Accounts 2013 2014 2015.1-9 Sales revenue 2,374,295.90 1,990,559.60 999,935.10 Less : Cost of sales 3,000,607.20 2,248,691.60 1,107,116.60 Less Business Tax and surcharge 375.00 359.60 109.90 Sales expenses 51,458.90 59,069.40 34,975.30 Management and Admin. Expenses 245,774.30 199,108.10 117,322.00 Financial Expenses 187,687.50 169,011.70 107,525.10 Assets impairment losses 177,777.30 279,328.00 178,252.70 Add: Income on investment - Operating profit -1,289,384.30 -965,008.90 -545,366.60 Add: non –operating income 176,486.60 156,145.00 23,148.10 Less non –operating expense 187.40 3,369.00 7,091.80 Profit Before Tax -1,113,085.10 -812,232.90 -529,310.30 Less: Cor. Income tax -49,278.20 45.40 75,000.00 Net Profit -1,063,806.90 -812,278.30 -604,310.30 Financial data is quoted from 2013-2015.9’s audit report issued by Baker Tilly CPA Limited.

– VII-10 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

1.3.3 Long term equity investments (Subsidiaries) SHMP’s subsidiaries are as follows: Capital Established Date Ownership Subsidiary (RMB: Main Business (year-month-day) (%) million) Design, manufacture, installation, and after sale Shanghai services on environmental Shangzhong equipment. Design, Environmental development, consulting 1 protection 8 June 2001 35.5 49.29% services, mechanical and equipment electrical equipment Engineering Co., manufacturing, installation Ltd. and maintenance on environmental project. Shanghai electric Manufacture and 2 (Wuxi) forging 10 May 2010 250 51.00% processing of forge piece Co., Ltd. Design of nuclear Shanghai Nuclear equipment, IT system Technology service, technique 3 13 April 2006 5 50.00% Equipment Co., consulting business of Ltd nuclear, Equipment and appliance sales.

1.3.4 Accounting Policy, Key Tax Rate and Depreciation Policy SHMP follows the PRC Accounting Standard for Business Enterprises. The in charge tax bureau of SHMP is Minhang District Tax Bureau in Shanghai. SHMP is a VAT general taxpayer. The applying tax rates are as follows:

Taxes Tax Rate

VAT-Value Added Tax 17%,6%

CIT-Corporate Income Tax 15%

Urban maintenance and construction tax 7%

NoteSHMP was recognized as a High and New Technology Enterprise in October 2014 (Certification No.GF201431001732), so as to enjoy CIT rate at 15% from 2014 to 2016.

SHMP adopted straight-line depreciation method and the depreciation policy of fixed assets is

– VII-11 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

illustrated as follows: Estimated Service Annual Depreciation Type of fixed assets Residual Value Rate Life Rate Property 20-40 year 5% 2.375-4.75% General motor & 5-28 year 5% 3.39-19.00% equipment Special used equipment 10 year 5% 9.50% vehicle 5-12 year 5% 9.72-19.00% Office & Other equipment 1.5-18 year 5% 5.28-63.33% The operating plant of SHPM is located at No.1800 Jiangchuan Road, Minhang Distrct which is rented from Shanghai Electric (Group) Corporation.

1.3.5 Shareholders: Shanghai Electric Group Co. Ltd

1.3.6 The relation of entrust parties and target company Entrust Party 1 Shanghai Electric (Group) Corporation is the shareholder of Entrust party 2 Shanghai Electric Group Co. Ltd. Entrust party 2 Shanghai Electric Group Co. Ltd is the 100% holding company of the target Shanghai Heavy Machinery Plant Co Ltd.

Entrusting party 1 Shanghai Electric (Group) Corporation

Entrusting party 2 Shanghai Electric Group Co. Ltd

100%

The target: Shanghai Heavy Machinery Plant Co., Ltd

1.3.7 The report users This report can only be used for the stated evaluation purpose for the entrusting parties and the review by the competent authorities. The use right of this report belongs to the entrusting parties. The report users: (1) the entrusting parties and

– VII-12 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

(2) the other report users subject to the laws and regulations.

2. Purpose of Evaluation

The purpose of the evaluation is for equity transfer.

According to the Resolution of Board of Directors of Shanghai Electric (Group) Corporation (SH Electric Group) and Shanghai Electric Group Co. Ltd (SEC) SEC plans to transfer 100% equity interests in SHMP for the incoming assets by assets swap of the outgoing assets and share issuance .The evaluation is conducted herein for the above purpose.

3. Scope of Evaluation

3.1 Evaluation Scope and Subject: Subject of Evaluation: Shareholders’ equity of Shanghai Heavy Machinery Plant Co., Ltd as at 30 Sep. 2015, and Scope of Evaluation: total assets and liabilities of Shanghai Heavy Machinery Plant Co., Ltd, at the book value RMB-264,325,927.45, including:

Current assets—cash, notes receivable, trade receivable, prepayment, other receivables, inventory

Non-current assets—long term equity investment, fixed assets, CIP, intangible assets, development expenditure and Long term prepaid expenditures

Current Liabilities—short term borrowings, Notes payable, trade payables, Receipts in advance, salaries payable, tax payables, other payable, non-current liability due within 1 year

Non-current liabilities—Estimated Liabilities and deferred revenue The scope of assets and liabilities in this evaluation is the same as that upon the engagement by the client. The book value of the total assets is RMB 5,586,533,559.27, consisting of the current assets RMB3,874,220,269.32 and the non-current assets RMB1,712,313,289.95, the book value of total liabilities is RMB5,850,859,486.72, including the current liabilities of

– VII-13 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

RMB5,650,450,116.43 and the non-current liabilities of RMB200,409,370.29. The book value of the net assets is RMB-264,325,927.45. As at 30 Sep. 2015, the financial position of the target is as follows:

Unit: RMB Accounts Book value Cash and cash equivalents 61,560,011.06 Notes receivable 137,998,156.24 Trade receivable 1,810,219,104.83 Prepayments 166,032,160.34 Other receivables 80,176,883.44 Inventories 1,618,233,953.41 Long term equity investment 130,018,880.71 Fixed assets 1,217,208,064.06 Construction in progress 77,118,014.89 Intangible assets 1,964,771.61 Development expenditure 709,741.78 Long term prepaid expenditures 285,293,816.90 Short term borrowings 2,679,745,918.70 Notes payable 637,760,316.12 Trade payables 1,703,736,008.50 Receipts in advance 381,257,275.32 Employee benefits payable 13,266,943.29 Tax payables 53,006,226.63 Other payables 48,329,394.87 Non-current liability due within 1 year 133,348,033.00 Estimated Liabilities 108,729,613.29 Deferred revenue 91,679,757.00 Besides the above assets and liabilities, there are off balance sheet intangibles assets available, including 144 patents, 3 trademarks and 2 copyrights of software. (Please refer to the spreadsheets for more details) Besides, there are 369 scrap equipment with nil book value that has been included in the evaluation scope. (Please refer to the spreadsheets for more details)

4. Type of value & the definition

On this report, the type of value refers to the market value.

– VII-14 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

The market value refers to the estimated amount for which an asset should be exchanged on the date of evaluation between a willing buyer and a willing seller in an arm’s length principle that both parties are acted knowledgeably, prudently and without compulsion.

5. Date of Evaluation

The date of evaluation is on 30 Sep. 2015 because:

5.1 The financial accounts is closed at the month end and the information is complete and accurate

5.2 Close to the date on which the purpose of evaluation can be realized.

The standard price or price index used in this report to determine the value of target assets are effective as at the evaluation date.

6. Evaluation Basis

6.1 Legislation Basis (1) Company Law of the People's Republic of China (2) Securities Law of the People’s Republic of China (3) Copyright Law of the People's Republic of China (4) Trademark Law of the People's Republic of China (5) Implementing Regulations of the Trademark Law of the People's Republic of China (6) Patent Law of the People's Republic of China (7) Implementing Regulations of the Patent Law of the People's Republic of China (8) Accounting Standard for Business Enterprises of the People's Republic of China (9) Corporate income tax law of the People's Republic of China (10) Implementation regulations of the Provisional Regulations on the value added tax of the People's Republic of China (11)Measures for Administration of Important restructuring of Companies (12)Regulations of Urban Real Estate Administration of the People's Republic of China

– VII-15 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

(13)Law of State-owned Assets of the People's Republic of China (14)Rules on the Evaluation and Management of State Assets (15)Implementing Regulations of on the Evaluation and Management of State–owned Assets (16)The Notice to strengthen the evaluation and management of state-owed Assets (17)The guidelines of evaluation record registration of state-owned assets evaluation (18)The manual for enterprises’ to achieve evaluation result approvals or evaluation record registration to the government of the state-owned assets of Shanghai (19)Real estate appraisal standard (20)Other related legislations and regulations

6.2 Principles Basis (1) Standard for Assets Appraisal– General Principle CAIQI[2004]20, (2) Ethic Standard for Assets Appraisal Principle– General PrincipleCAIQI[2004]20 (3) Standard for Assets Appraisal–Enterprise ValueCAS[2011]227 (4) Standard for Assets Appraisal–Evaluation ReportCAS[2011]230 (5) Standard for Assets Appraisal–Evaluation ProcedureCAS[2007]189 (6) Standard for Assets Appraisal–Engagement LetterCAS[2011]230 (7) Guide Note for type of value of assets evaluationCAS[2007]189 (8) Standard for Assets Appraisal–EquipmentCAS[2007]189 (9) Standard for Assets Appraisal–Immovable propertyCAS[2007]189 (10) Guidelines for Assets Appraisal Report of State-owned Enterprise (CAS [2008]218) (11) Standard for Assets Appraisal–Intangible AssetsCAS[2008]217 (12) Guidance Note for of trademark evaluationCAS [2011]228 (13) Guidance Note for of copyright evaluationCAS [2010]215 (14) Guidance Note for of patent evaluationCAS [2008]217 (15) Guidance Note for legal titles of the evaluation subjectCAS [2003]18 (16) Expert Tip for Assets Appraisal Practice–Disclosure on the evaluation report for important restructuring of listed companiesCAS [2012]246 (17) Ethics of Standard for Assets Appraisal-independenceCAS [2012]248 (18) Other appraisal principles, guidelines or guiding opinions issued by the Municipal of

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

Finance and China Appraisal Society

6.3 Behavior Basis (1) The evaluation service contract (2) Official documents leading to this evaluation activity

6.4 Ownership Basis (1) Business license of SHMP (2) Property certificates and land use right certificates of SHMP (3) Trademark certificates patent certificates and copyright certificates of software of SHMP (4) Vehicle licenses of SHMP

6.5 Evaluation Basis (1) 2015 Price information of Equipment (2) 2015 Price information of assets evaluation (3) Equipment price for 2015 and price information from internet (4) Construction price index issued by National Bureau of Statistics of China (5) Financial statements and audit reports on evaluation date provided by the entrusting parties (6) Index issued by the Construction Engineering Bureau regarding equipment’s industrial construction projects Jixieji19951041 (7) Loan rate and deposit rate issued by People’s Bank Of China (8) On-site work records (9) Provisions on the Standards for Compulsory Retirement of Motor Vehicles(Issued on 27 Dec.2012 by Ministry of Commerce, National Development and Reform Commission, the Ministry of Public Security, and the Ministry of Environmental Protection) (10)Other supporting information collected by evaluators

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

7. Evaluation Approach

7.1 Introduction of Evaluation Approach There are three theoretical evaluation approaches, the Market Comparison approach, the Income Capitalization Approach, and the Asset-Based Approach.

The Market Comparison Approach refers to the evaluation of an asset by comparison or analysis of the market value a similar comparable at the time near to the evaluation date. Market approach will be adopted under the condition that the asset can be traded in an active and open market.

The Income Approach refers to the evaluation approach where the asset value is arrived through estimating the present value of the expected income of the appraised assets. The rationale underlying of the income approach is that a willing buyer will not pay for an asset in an amount higher than the return that asset could bring to him in the future.

The Prerequisites for adopting the income approach including: the expected income can be quantified, the term of the expected income can be forecasted, and the risks correlated to the discounting for the expected income can be forecasted.

The Asset-Based Approach is to give a replacement value of the target and then less the devalue amount caused by several factors. It is based on a principle that the price which a willing customer would pay for a certain asset will not exceed the current trading price or the reconstruction cost of that asset.

Each approach evaluates the subject assets from different perspectives. They are adopted according to the evaluation purpose, the evaluation subject, the market conditions, and the statistics that can be collected.

According to the statistics, during the first half of 2015, the market of the heavy machinery

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

industry has shown a significant downturn and suffered fierce competition, yet we have not seen a recovery of the market at the date of issuing this report.

SHMP is a national machinery enterprise. Due to the overcapacity in the industry and the negative impact of macro economy, the financial position of SHMP’s Y2013-YTD 2015 is as follows:

Unit:’000(RMB) Account 2013 2014 YTD 2015 Sales revenue 2,374,295.90 1,990,559.60 999,935.10 Net profit -1,063,806.90 -812,278.30 -604,310.30

The SHMP has suffered loss in the past few years and the operating performance is not optimistic in the future, so Income Approach is not appropriate to be applied for an unstable company. The Market Comparison Approach is also not appropriate to be applied because of the lack of available comparable transactions to measure the corporation value where the target is in a negative performance. Consider the above factors, in this evaluation the Asset-Based Approach is adopted.

7.2 Brief Introduction of Asset-Based Approach : Asset-Based Approach is a type of that focuses on a company's net asset value, or the fair-market value of its total assets minus its total liabilities. Reasonable evaluation approaches on each category of the target assets and liabilities shall be adopted accordingly. 7.1.1 Evaluation of Current Assets Current Assets refer to the assets can be cashed or consumed within one year or one operation period in the company’s operating activities.

Current assets can be classified into 13 categories, including cash, financial assets held for trading, notes receivables, dividend receivables, interest receivables, account receivable, other receivables, prepayment, subsidy receivables, inventories, deferred expenses, non-current assets due within 1 year and other current assets. For different current assets, we have adopted

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

different evaluation approaches. In this evaluation, the current assets include cash, trade receivables, prepayments, other receivables and inventories. 1. Cash and cash equivalents Cash and cash equivalents, are cash and cash in banks during this evaluation. Their value are determined based on book value after checking the bank records, bank reconciliation statement and the bank’s ending balance adjustment sheets.

2. Trade receivablesIncluding notes receivable, trade receivables, other receivables and prepayment Depending on the company’s practice and our inspection, we have verified the accuracy of each receivable by checking the details of the accounts and sending inquiry letters. Based on the information we verified to determine the assessed value of each receivable according to the possibility of recovery. The evaluators by means of the historical data and the current investigation, the amount by specific analysis, the time and cause of arrears, the payments situation, the defaulters capital, the credit, the operation status etc. For there are substantial grounds to believe that full amount can be recovered, assessed according to the book value after verification, comply with the relevant provisions of the management guidelines, those amount should be written off, or the expenses should be included in profit or loss. If a clear indication that the amount cannot be recovered, assessed according at nil value. The evaluation results summarized the variety of the situations to assess the present value of all receivables.

3. Evaluation of Inventory There are 4 kinds of inventories: materials purchased, raw materials, finished goods and work in progress. 1 Materials purchased and raw materials : Value of materials purchased and raw materials = market unit price × quantity of raw materials + reasonable expenses (freight, damages and storage expenses happened before accepted by warehouse) The market price can be collected by checking the inventory record or from procurement

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

department. For materials that are at the book value and is not different significantly from the market price, the estimated unit value based on unit price at the book value .For the over-stocked materialsit can be valued under discounted market price or recoverable value.

2 Finished goods To some extent, part of profit margin is taken into account while evaluate the finished goods. We have verified the quantity of the finished goods and the appraised value of finished goods are based on the actual sales price less the relevant taxes. Value of product in progress sales revenue - selling expenses - tax and surcharges- appropriate margin after tax = sales revenue × [1- Sales Expense Rate - sales tax and surcharges rate - gross profit margin × income tax rate - gross profit margin × (1- income tax rate) × net profit discount rate] 3 Work in Progress (21)During this evaluation, WIP is raw materials and manufacturing costs. After enquired the manufacturing staff of the SHMP, it is known that some projects are delayed or even suspended due to clients’ responsibility which lead to the over stocked of the WIP. For the risk control purposes, the provision is accrued on the WIP. As such discounts are taken into account while assess the value of the WIP.

7.2.2 Evaluation of long term equity investment Long term equity investment (here refer to SHMP’s subsidiaries) is recognized as a corporate asset. The company has a certain interests in these subsidiaries which has to be evaluated. Value of subsidiary= shareholding percentage of target subsidiary × equity value of subsidiary on evaluation date Regarding the long term investment, the equity value of the subsidiary is based on the evaluation result of the total value of the subsidiary. Value of controlling subsidiary = shareholding percentage of target subsidiary × Market value of equity of the target on evaluation date

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

7.2.3 Evaluation of buildings and constructions 1Market comparison approach Market comparison approach is adopted while evaluating apartments. Similar comparable samples in the same area are collected to compare the trading condition, the market situation, the location and the physical condition with targets and adjustment are made to achieve the market price of the targets.

P=PJ×A×B×C×D P — the value of target property

PS— the value of sample property collected A — adjustment parameter of trading condition B — adjustment parameter of market condition C —adjustment parameter of location D —adjustment parameter of physical condition 2Income approach Income approach estimates the sum of present value of the net revenue in each period of the target properties in the future, using an applied capitalization rate. The formula of income approach is as follows:

V value of target property r capitalization rate n prospective term Fi net operating income in period i

7.2.4 Evaluation of Equipment Equipment is valued based on the market price, and the cost replacement approach is adopted. Value= Replacement cost × Newness rate (1) Determine of replacement cost

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

Replacement cost refers to the cost of a new equipment or other improvement which has the same utility, or similar functions. Replacement cost of imported equipment=CIF + Tariff + import VAT + consumption tax + Bank charges + Foreign trade commission fee + Inspection fee + Local freight fee + Base fee + Installing & trial running Fee + Other reasonable expenses

CIF can be replaced by the purchase price of the domestic manufactured equipment with similar function as of the imported one.

CIF can be determined by inquiry with the manufactures or the trading agency, or figure out from the purchasing contract.

Import taxes, consumption tax and import VAT are determined according to the related tax regulations.

Freight and shipping fee is calculated based on the weight, the bulk, the volume, the shipping miles and some other relevant factors to determinate a composition percentage in relation to the CIF. In addition, the rates set by the government should also be followed.

Bank charges, trading company agency fee, and inspection fee, can be estimated in terms of 1.5% of CIF.

Base fee and installing & trial running fee can be estimated according to the relevant available information.

Other reasonable expenses include the expenses such as the capital cost and the training expenses. For equipment with high value and long purchase and construction circle, its capital cost is taken into consideration.

The replacement cost of the domestic purchased equipment can be determined by the purchase cost of a similar comparable equipment plus reasonable expenses including the base fee, the transportation fee, the installation, the adjustment fee and the cost of capital etc.

As at the evaluation date, input VAT of the target equipment can be deducted as input

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

credit by SHMP as SHMP is a general VAT taxpayer, so VAT are excluded from the replacement cost in this report.

Replacement cost of the vehicle is calculated as follows: Replacement cost of vehicle= vehicle purchase price + vehicle purchase tax + other reasonable costs Other reasonable costs of the vehicle including the examination fee, the photo fees for apply license, the stamp fees etc. If we were unable to inquire the price of the target equipment, the market price of a similar equipment is used as a reference and it is adjusted by some relevant factors to determine the replacement cost. (2) Determination of the Newness rate Newness rate A. Newness rate for key and special equipment

We apply different weighting between the straight line method and the technology inspection method to integrate a composite newness rate. Straight line method newness rate = remaining useful life ÷ (used years + remaining useful life ) × 100% Or (estimated useful life – used years) ÷ expected useful life ×100% The remaining useful life of the equipment is based on the professional judgment by the evaluators, considering the utilization, the loading, the maintenance, the original manufacturing quality, the failure frequency, the environment conditions.

Integrated newness rate = (technical assessed rate × 60% + life method newness rate × 40%)

B. Newness rate for general equipment

Newness rate= (economic useful life – used years) ÷ economic life × 100% For the equipment exceeded its economic useful life but continue to be used, the newness rate is determined based on the actual operating status observed.

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

C. Newness rate of vehicles

For the vehicles, the newness rate is determined with reference to the regulation ‘Mandatory Retirement Standards for Motor Vehicles’ issued by Ministry of Commerce, The National Development and Reform Commission, Ministry of Public Security and Ministry of Environmental Protection Bureau on 14 Jan. 2013. It stipulates the provisions of retirement age and retirement exercise miles, and we also refer to the ‘Asset Appraisal Common Manual’ and the ‘Economic Life of Vehicle Reference Table’ to determine the estimated economic useful life of the vehicle, in order to identify a newness rate based on the technical assessment and life method to integrate a rate, the formula is as follows:

Integrated newness rate = (technical inspection method newness rate × 60% + life method newness rate × 40%)

7.2.5 Evaluation of Construction in Progress- Constructions a. Since the content in CIP are project costs for industrial natural gas engineering project, it is measured at the value with all the cost of projects in processing. Value of CIP-Construction= construction cost + management expenses + cost of capital

b. Evaluation of Construction in Progress-Equipment in installation (1) For the equipment in installation, the physical status, the construction cycle are taken into consideration, the cost invested by the target company and reasonable management fees are also analyzed while determine the value of CIP-equipment in installation. Value of CIP-Equipment in installation= Equipment cost + installment & Management fee + cost of capital VAT shall be deducted from the book value of equipment since the SHMP is a general VAT payer.

Project management fee is estimated at 1%-3%, includes the staff salary, the deprecation fee

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

and the travel expense, etc. For equipment with long construction period and high value, we also have considered the construction period and the payment method to determine the cost of capital. (2) For equipment used in the suspending projects, we analyzed the suspension reasons. For those projects that would re-start, they are evaluated as CIP-equipment. For ceased projects, their recoverable value will be estimated.

7.2.6 Evaluation of Intangible assets—Other intangible assets (a) Intangible assets recorded on the balance sheet The book value of intangible assets are the residual value of software, so the value of intangible assets can be determined through market inquiry. (b) Intangible assets- off balance sheets intangible assets Excessing earnings generated by the intangible assets are not available in this case. The trademarks were stopped using and the company has been suffering losses. The copyrights of software were stopped upgrading and cannot meet the requirement for the existing manufacturing. Off-balance sheet intangible assets are difficult to find comparable and detailed data. Thus, the market comparison approach and the income approach are not suitable and thus the cost approach is adopted.

Value of patent= Replacement cost × (1-devalued rate) Replacement cost = application fee for registration of patent+ maintenance fee + patent registration fee+ printing fee+stamp duty+ material cost + production cost Devalued rate due to time = used life / patent protection period

Value of trademark = replacement cost= trademark registration fee + design fee

Value of copyright of software = Replacement cost × (1- devalued rate due to time) × (1- devalued rate due to function) Replacement costapplication fee+ registration fee+ maintenance and protection fee of software source code + checking fee on data base +files searching fee + material cost+ +

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

producing charges + labor cost Devalued rate due to timeused life of copyright of software/copy right protection period

7.2.7 Evaluation of development expenditure Development expenditure incurred in some projects. We verified the incurred development expenses of those projects in the operation period and the value of development expenditure is remained as the book value.

7.2.8 Evaluation of Long term prepaid expenditures Long term deferred expenses include the maintenance expenses and the transportation expenses on equipment. We considered above factors while evaluate equipment, as such we assess it at nil. For the amortized furnishing expense we value it at the net book value. For the amortized manufacturing tools & supplementary items, we spited them into the normal use and the idle one, where we value them at the market value and at disposal value respectively.

7.2.9 Evaluation of liabilities Liabilities are the economic debts that can be quantified by money and undertaken by enterprises that should be paid by future cash flows generated by the assets or by providing services. The evaluation of liabilities is the progress of verification of actual amount of debt borne by the target company. Liabilities that are not actually borne by the company are measured at nil.

8. Evaluation Procedures

Pursuant to the ‘Management Method of Evaluation of State Owned Assets’, we conducted necessary evaluation procedures in this evaluation, which are summarized as follows: (1) Communicate with the entrusting parties to determine the evaluation objective and scope of evaluation. The service contract LXA (2015No. 464 was signed in Oct. 2015. (2) Collect data and relevant information, such as list of assets and accounting vouchers. Interview the relevant personnel of SHMP regarding the current operation of the

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

company and the historical and current status of the target assets. The evaluation date, the proposal and the procedure were then determined according to the evaluation objective, the evaluation scope and the evaluation subject. (3) Carry out onsite -work inspection in SHMP from 15 Oct.2015 . The on site work lasted for 45 days. (4) Analyze the information collected and carry out market research and the necessary inquiries. Approperiate approaches are then be adopted to evalute the target assests. (5) Analyze the evaluation result and issue our draft report. Communication with the entrusting parties are processed and the final report are submitted after our internal 3-level review.

9. Assumptions and Conditions

9.1 Assumptions 9.1.1 General assumptions (1) The stable macroeconomic environment The value of asests is also impacted by the the macro econmy. We assumed that the industrial policies, the tax policies and the economic policies remain stable to ensure the result of this report to be reasonable in a certain period. (2) The going concern As at 30 Sep.2015, SHMP’s working capital is negative. To keep its normal operating, the controlling shareholder of SHMP will not stop providing financial supports. The evaluation report is based on the assumption that SHMP will continue its operating in a certain period. (3) Inflation impact is not taken into consideration in this evaluation. (4) We assumed that the interest rates and the extrange rates will not be fluctuated significantly with refer to the current rates.

10. Evaluation Conclusion

The equity value of SHMP under Asset-Based Approach, as at the date of evaluation (30 Sep.

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

2015) is RMB -184,868,000, increasing RMB 79,457,900 or 30.06% compared to the book value.

The NBV of net assets increased RMB 79,457,900, increasing 30.06% because: Current assets: The value of current assets increased because the inventory provision were cautiously recorded into book value by the auditor according to the accouting standard , which decreased the net book value of the inventory and thus increased the value of inventory measured under market price.

Long-term equity investment: The value of long term equity investment increased because we appraised subsidiaries of SHMP respectively. The value of subsidiary company Shanghai electric (Wuxi) forging Co., Ltd increased (refer to the spreadsheet) , and thus increased the value of 51% shares held by SHMP.

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

Fixed assets- properties: The value of properties increased only because the property price has been soaring in the past few years in Shanghai. Fixed assets- equipment: The value of equipment decreased because: Most of equipment’s book value included VAT which shall be excluded from the assessed value since SHMP is a genernal VAT payer. The appreciation of RMB in the past years led to a lower import price for a similar equipment, so the market price declined. The decreasing market demand of heavy machines made the lower import price which decrease the replacement cost of the target equipment. The accounting depreciation rate is lower than the evalution newness rate which reflected the actual using condition of target equipment. It thus make the net assessed value higher than the net book value of equipment . CIP: The value of CIP increased because the cost of capital and management expnese are taken into account while evaluating CIP assets. Intangible assets: The value of intangible assets increased because some off-balance sheet intangible assets are included in the evaluation scope. Long-term defferred expenses: The value of long-term defferred expenses decreased due to: 1the maitenance costs record to the book value are considered while evaluting equipment, so they are valued at nil value. 2the depreciation factors are taken into account on tools and appliances which make the assesed value declined. Current liabilities: The value of current liabilities decreased because the education expense for staff was valued at nil . Deferred revenue

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

The value of the deferred revenue decrease because of the projects revenue for the completed projects which their revenues carried over by the percentage of completion and some non-refundable subsidies are valued at nil value.

11. Special Matters and Disclaimers

11.1 The evaluation conclusion reflects the market value on the evaluation date only. During the recent period from evaluation date, the prices of the materials and the labors keep stable as recent and the exchange rate fluctuates in a reasonable range, as a result, the assets value will not change dramatically on the date of transfer which is close to the date of evaluation.

11.2 The ‘appraisal value’ in this report refers to the market value on the open market of the subject assets while SHMP will continue its operation following the original practice and to manufacture the same or similar products. We do not consider present and future mortgages or guarantees, or benefit from different way of transaction. Besides, force majeure is also not taken into consideration.

11.3 In the event of any changes of above items or evaluation principles, the result of this report will partly or completely invalid.

11.4 This report is prepared for the appointed purpose of SHMP only. Different objective, different type of evaluation and different date of evaluation will lead to different evaluation conclusion for the same asset, so we are not responsible for inappropriate use of this report.

11.5 Our company and the evaluators are not responsible for the flaws that could not be identified under normal circumstance, the flaws may affect the evaluation result if the entrusting parties or the owner do not notify the information to the evaluators on time of appointment.

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

11.6 During our inspection, we were provided with the copies of documents, business license, certificates, accounting evidences, and other relevant materials. We have not carried out an independent verification of the provided materials, and we are not responsible the genuine of the provided materials.

11.7 This report is prepared to reflect the market value of target assets. It is not necessary for the assets’ owner to adjust the book value in its financial statements accordingly. Whether to pay tax and conduct tax reporting should follow the guidance of local tax bureau and act according to the tax regulations.

11.8 The evaluation objective is equity transfer. We did not consider taxes and the other expenses afforded by the buyer or the seller which might affect the final result. Individual income tax and CIT payment should follow the tax bureau and the relative regulations. Usually, the equity transfer is a transaction between the shareholders and it will not impact the tax position of the target company. During this report, we have not provide any tax or tax provision for the target that caused by the evaluation result.

11.9 In case of any factual changes in quantity of the assets and the market price after the date of evaluation and thus affect the value under Asset-Based Approach, the entrusting party should engage an appraisal firm to carry out a new evaluation.

11.10 Pending litigations As of 30 September 2015, ,there are 7 unsettled lawsuits and arbitrations as follows 1 SHMP (the seller) signed two Sales and Purchase Agreements, including Two Sets of Single-stand Six-roller Reversible Mill Equipment for 100t Tonggang One Megaton Cold-rolled Sheet Project and Supply Contract of Single-stand Temper Mill for 100t Tonggang One Megaton Cold-rolled Sheet Project with Jilin Tonggang Cold-rolled Sheet Co., Ltd. (referred as Jilin Company) on 27 Dec.2005 for selling equipment to Jilin Company. SHMP lodged an arbitration in May 2015 with Tonghua Arbitration Commission, requesting Jilin Company to pay for the overdue payment RMB

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

26,636,529,the overdue payment interest RMB1, 874,044.01, and the relevant legal fee. The Arbitration is still in the progress and has not settled yet. The full amount was accrued as bad debt provision by the auditor and the trade receivable is measured at nil.

2 SHMP signed purchase contracts with Tianjin Hongan Heavy Industrial Machinery Co., Ltd (referred as Tianjin Company) during the period Jan.2007 to May 2014. Tianjin Company filed a lawsuit to Shanghai People’s Court of Minhang District in Jun.2014, requesting SHMP to pay the outstanding payment RMB17, 202,337.70 ,the overdue payment interest RMB 10,393,449 and the relevant legal fee. Tianjing Company also requested the purchasing contract for equipment purchasing shall continue to implement. The court entered a judgement according to (2014) Min Min Er (Shang) Chu Zi No.1062 Civil Ruling Paper on 7 Jan.2015. The lawsuit is in the first trial stage and has not been settled yet. The corresponding outstanding payment RMB14, 330,130.90 was recorded in the trade payable and thus it is measured at the book value.

3 SHMP (the seller) signed Bhushan Hot-rolling Equipment Manufacturing and Supplying Contract with SMS (Beijing) International Trading Co.Ltd (referred as SMS Beijing) on 22 Feb.2011, WAHAB Project Manufacturing and Supplying

Contract on 20 Oct.2011 and Purchase Order on 8 Mar.2013 with SMS (Beijing)

International Trade Co., Ltd. (referred as SMS Beijing). The dispute was caused by the overdue payment regarding the 3 SPAs, as a result SHMP lodged two arbitrations with China International Economic and Trade Arbitration Commission regarding the 3 SPAs, requesting SMS Beijing for the overdue payment of RMB 20,676,161.93 and the relevant legal fee. The lawsuit is still in the arbitration progress and has not settled been yet. 20% of corresponding trade receivable was recorded as bad debt provision and the trade receivable is measured at the book value.

4 SHMP (the seller) entered into 4 SPAs on 19 Apr.2010 and 19 Jun.2010 respectively,

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

selling 4 set of equipment including 140mn quickly-forging oil press, 100t/600t.m rail-bound forging manipulator, 66MN quickly-forging oil press and 80t, 200t.m rail-bound forging manipulator to Jiangsu Sunan Heavy Industrial Machinery Co., Ltd (referred as Jiangsu Company). SHMP sued to Suzhou Intermediate People's Court, requiring for the outstanding payment RMB 99,866,474.38 together with the overdue payment interests, and the relevant legal fee. The lawsuit is still in the progress of waiting for the court session to open. During this evaluation, the relevant trade receivable is measured at the book value

5 SHMP’s affiliated company Shanghai Shangzhong Environmental protection equipment Engineering Co., Ltd. (SSEPEE) entered into a Contract and a Technology Agreement with Tianyang Sewage Treatment (Dalian) Co. Ltd.referred as Dalian Companyon 22 Apr.2007, for the re-construction project conducted by SSEPEE. Due to the quality of re-construction projects conducted by SSEPEE, Dalian Company lodged an appeal with LiaoNing Province Dalian Intermediate People's Court in Jan.2014, requesting for the loss of RMB10, 610,314. SHMP was ranked as the number three defendant with joint liabilities to the obligations. Dalian Company also claimed that the legal fee shall be borne by SSEPEE and SHMP. The court issued the written sentence of first trial on 22 Nov. 2014, stated that SSEPEE shall pay for RMB2, 218,886 to the Dalian Company as compensation in 30 days after the effectiveness of the sentence. Other claims are dismissed by the Court. As at report date, SSEPEE lodged an appeal with to the Liaoning High People’s Court. The book value of corresponding trade receivable is CNY 2,249,460.00 and it is measured at the book value.

6 SHMP’s affiliated company Shanghai Shangzhong Environmental protection equipment Engineering Co., Ltd. (SSEPEE) entered into a Construction Contract and a Technology Agreement with Tianyang Sewage Treatment (Dalian) Co. Ltd.referred as Dalian Companyon 22 Apr.2007, for the construction project conducted by SSEPEE. Due to the disputation of construction quality, Dalian Company lodge an

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Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

appeal with Dalian Jinzhou People’s Court, requesting SSEPEE for the construction cost and improvement cost RMB5, 891,100, including the advance payment of RMB 522,700 made on behalf of Dalian Company by SSEPEE, the relevant interests and the incurred construction cost of RMB 4,150,000. SHMP was required to bear the joint liabilities as to the obligations. The lawsuit is still in the progress of first trail.

7 SHMP signed a Cooperate Agreement and a Trading Contract with Brighton GmbH, Inc (former name: Schiess Brighton Gmbh, Inc and now Brighton Gmb, Inc, referred as the Germen Company) on 10. Jan.2006 and 25 Jan.2006 respectively. SHMP agreed to manufacture 20M vertical lathe as a sub-contractor of the Germen Company who won the bidding of Shanghai Electric Lingang Heavy Machinery Equipment Co Ltd on 20 Dec.2005. Due to the dispute regarding the payment, SHMP lodged with Shanghai No.1 Intermediate People's Court requiring Germen Company for the cost of the spare parts of 20M vertical lathe in the amount of EUR 2,400,000 and the interests on the overdue payment and the relevant legal fee. The suit is still in the progress of arbitration. The full amount of the relevant trade receivable was accrued as a bad debt provision, and thus the trade receivable is measured at nil value.

11.11 During this evaluation, there are 401 equipment recorded in the fixed assets of SHMP, with the historical original book value RMB 377,312,233.33 and the net book value RMB197,574,263.38 ,planned to be transferred to Shanghai Electric SHMP Casting & Forging Co.,Ltd. and Shanghai Electric SHMP Pulverizing & Special Equipment Co., Ltd.please refer to the spread sheets for more details.

11.12 The company also has the following disclosures related to limited ownership or limited use right of assets: 1) The cash in bank RMB23, 940,441.75 was frozen by Shanghai Minhang People’s court due to the pending litigations. 2) The bank loan RMB75, 000,000.00 was obtained by a domestic factoring contract with recourse signed with bank on the trade receivables RMB

– VII-35 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

Evaluation Report For 100% Equity Interests’ Value of Shanghai Heavy Machinery Plant Co., Ltds

92,263,410.40.

11.13 SHEPEE transferred part of properties, land and whole equipment on the valuation date 31 Aug.2012 due to the cease of operation. Shanghai Electric (Group) Corporation entered into a property transfer contract with SHEPEE on 17 Jul.2013 and paid RMB23, 400,000.00 as a deposit. However, as at the evaluation date, the transfer has not completed legally. The additional charges for land granting fee and relevant taxes based on the contract amount have been taken into consideration. As at the date of this report, except the above issues, we are not aware of any other specific issues that may impact the valuation result and shall be disclosed, as according to the observation of our evaluation work by and the information provided by the entrust parties and SHMP.

11.14 In case of any discrepancy between the Chinese and English version of this report, the Chinese version shall prevail.

12. Limitations On The Use of This Report

12.1 This report can only be used for listed appraisal objective only. The entrusting party has the right to use the report. Without consent by the appraisal firm the report shall not be delivered to any third parties or persons other than the report users, the report, part or whole, shall not be published on any public media.

12.2 The report users are : (1) the entrusting parties and (2) other relevant parties subject to the relevent laws and regulations.

12.3 This report can only be released to the public after filed with the State-owned Assets Supervision and Administration Commission.

– VII-36 – APPENDIX VII VALUATION REPORT FOR SHANGHAI HEAVY MACHINERY PLANT CO., LTD.

– VII-37 – APPENDIX VIII GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Group. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. SHARE CAPITAL

As at the Latest Practicable Date, the share capital of the Company was as follows:

Number of % to the existing total Shares issued share capital of (ten thousand shares) the Company

SEC (A Share) 703,045.87 54.82% SEC (H Share) 2,933.40 0.23% Public (A Share + H Share) 576,451.16 44.95%

Total 1,282,430.43 100.00%

– VIII-1 – APPENDIX VIII GENERAL INFORMATION

3. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions and advice contained in this circular:

Name Qualification

Guotai Junan Capital Limited A corporation licensed to carry out type 6 (advising on corporate finance) regulated activities under SFO Jones Lang LaSalle Corporate Qualified Independent Professional Appraisal and Advisory Limited Valuer Orient Appraisal Co., Ltd. Qualified PRC Valuer Shanghai Lixin Appraisal Co., Ltd. Qualified PRC Valuer Llinks Law Offices Legal Adviser as to PRC Law

As at the Latest Practicable Date, the above experts have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion of their reports or letters and/or references in the form and context in which they are included.

As at the Latest Practicable Date, each of the experts above neither had any shareholding in any member of the Group nor had any right (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any securities in any member of the Group.

As at the Latest Practicable Date, each of the experts above did not have any direct or indirect interest in any assets which have been acquired or disposed of by, or leased to any member of the Group, or are proposed to be acquired or disposed of by, or leased to any member of the Group since 31 December 2014, being the date to which the latest published audited annual financial statements of the Company were made up.

4. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, certain businesses of the Company are undergoing a new round of economic restructuring and transformation to cope with, among others, the evolving macro-economic environment, and the Company intends to adopt more prudent strategies accordingly. Save as disclosed above, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2014, being the date to which the latest published audited annual financial statements of the Company were made up.

– VIII-2 – APPENDIX VIII GENERAL INFORMATION

5. SERVICE CONTRACTS OF DIRECTORS

As at the Latest Practicable Date, none of the Directors or Supervisors of the Company had any existing or proposed service contract with the Company or any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of compensation other than statutory compensation).

6. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, none of the Directors has any direct or indirect interest in any asset which has been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2014, being the date to which the latest published audited annual financial statements of the Company were made up.

Except Mr. Huang Dinan’s, Mr. Zheng Jianhua’s and Mr. Wang Qiang’s positions in SEC Group and its associates, none of the Directors or Supervisors has material interests in any contract or arrangement which has been entered by any member of the Group since 31 December 2014, being the date to which the latest published audited annual financial statements of the Company were made up, was subsisting as at the Latest Practicable Date and significant in relation to the business of the Group.

As at the Latest Practicable Date, the Directors, Supervisors or chief executive(s) of the Company had the following interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Directors, Supervisors or chief executive(s) is taken or deemed to have under such provisions of the SFO) or which was required to be entered in the register required to be kept by the Company pursuant to Section 352 of the SFO or which was otherwise required to be notified to the Company and the Hong Kong Stock

– VIII-3 – APPENDIX VIII GENERAL INFORMATION

Exchange pursuant to the Model Code for Securities Transactions adopted by the Company:

Type of Number of Name interest Class of shares shares held

Chief Information Officer Personal A Shares of the 2,996 Li Jing Company

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors, Supervisors or chief executive(s) of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Directors, Supervisors or chief executive(s) is taken or deemed to have under such provisions of the SFO) or which was required to be entered in the register required to be kept by the Company pursuant to Section 352 of the SFO or which was otherwise required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions adopted by the Company.

7. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and any of their associate(s) had interest in a business which competes or may compete with the business of the Group, or may have any conflicts of interest with the Group pursuant to Rule 8.10 of the Listing Rules.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Clifford Chance at 28th Floor, Jardine House, Central, Hong Kong during normal business hours from the date of this circular up to 18 January 2016 (both days inclusive):

1) Restructuring Agreement;

2) Share Subscription Agreements;

3) Letter from the Independent Board Committee;

4) Letter from the Independent Financial Adviser;

5) Valuation report for 100% equity interests in Shanghai Electric Industrial Company Limited dated 2 December 2015 prepared by Orient Appraisal Co., Ltd. with the document No. of HDZZPBZ No. (2015) 0898053;

6) Valuation report for 61% equity interests in Shanghai DENSO Fuel Injection Co., Ltd. dated 2 December 2015 prepared by Orient Appraisal Co., Ltd. with the document No. of HDZZPBZ No. (2015) 0900053;

– VIII-4 – APPENDIX VIII GENERAL INFORMATION

7) Valuation report for 100% equity interest in Shanghai Blower Works Co., Ltd. dated 2 December 2015 prepared by Orient Appraisal Co., Ltd. with the document No. of HDZZPBZ No. (2015) 0899053;

8) Valuation report for 14.79% equity interests in Shanghai Rail Traffic Equipment Development Co., Ltd. dated 2 December 2015 prepared by Orient Appraisal Co., Ltd. with the document No. of HDZZPBZ No. (2015) 0901053;

9) Valuation report for the Target Properties dated 2 December 2015 prepared by Orient Appraisal Co., Ltd. with the document No. of HDZZPBZ No. (2015) 0902053;

10) Valuation report for 100% equity interests in Shanghai Heavy Machinery Plant Co., Ltd. dated 2 December 2015 prepared by Shanghai Lixin Appraisal Co., Ltd. with the document No. of LXA (2015) No. 464;

11) Audit report of the pro forma consolidated financial statements of Shanghai Electric Industrial Company Limited and its subsidiaries dated 2 December 2015 prepared by Baker Tilly China Certified Public Accountants with the document No. of Baker Tilly China [2015] No. 14362;

12) Audit report of the pro forma financial statements of Shanghai Electric Industrial Company Limited (stand-alone) dated 2 December 2015 prepared by Baker Tilly China Certified Public Accountants with the document No. of Baker Tilly China [2015] No. 14362-1;

13) Audit report of the financial statements of Shanghai DENSO Fuel Injection Co., Ltd. dated 2 December 2015 prepared by Baker Tilly China Certified Public Accountants with the document No. of Baker Tilly China [2015] No. 14326;

14) Audit report of the financial statements of Shanghai Blower Works Co., Ltd. dated 2 December 2015 prepared by Baker Tilly China Certified Public Accountants with the document No. of Baker Tilly China [2015] No. 14239;

15) Audit report of the consolidated financial statements of Shanghai Rail Traffic Equipment Development Co., Ltd. and its subsidiaries dated 2 December 2015 prepared by Baker Tilly China Certified Public Accountants with the document No. of Baker Tilly China [2015] No. 14491;

16) Audit report of the financial statements of Shanghai Rail Traffic Equipment Development Co., Ltd. (stand-alone) dated 2 December 2015 prepared by Baker Tilly China Certified Public Accountants with the document No. of Baker Tilly China [2015] No. 14491-1;

– VIII-5 – APPENDIX VIII GENERAL INFORMATION

17) Audit report of the consolidated financial statements of Shanghai Heavy Machinery Plant Co., Ltd. and its subsidiaries dated 2 December 2015 prepared by Baker Tilly China Certified Public Accountants with the document No. of Baker Tilly China[2015] No. 14289;

18) Audit report of the financial statements of Shanghai Heavy Machinery Plant Co., Ltd. (stand-alone) dated 2 December 2015 prepared by Baker Tilly China Certified Public Accountants with the document No. of Baker Tilly China [2015] No. 14289-1;

19) Review report of the pro forma consolidated financial statements of the Company dated 2 December 2015 prepared by PricewaterhouseCoopers Zhong Tian LLP with the document No. of PwC ZT Yue Zi (2015) No. [068]; and

20) The letter of consent from the experts referred to in the paragraph headed “EXPERTS AND CONSENTS” in this Appendix.

– VIII-6 –