XIAMEN INTERNATIONAL PORT CO., LTD* (A Joint Stock Limited Company Incorporated in the People’S Republic of China with Limited Liability) (Stock Code: 3378)

XIAMEN INTERNATIONAL PORT CO., LTD* (A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock code: 3378)

Overseas Regulatory Announcement

This is not the announcement of the audited financial results of Xiamen International Port Co., Ltd. for the year ended 31 December 2005. This announcement is made pursuant to Rule 13.09(2) of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

The following announcement is released by Xiamen Port Development Co., Ltd., a subsidiary of Xiamen International Port Co., Ltd, whose A shares are listed on the Shenzhen Stock Exchange. The audited financial statements of Xiamen Port Development Co., Ltd. have been prepared in accordance with PRC GAAP.

Hong Kong, 25 March 2006

XIAMEN PORT DEVELOPMENT CO., LTD. ANNUAL REPORT 2005 23 MARCH 2006 IMPORTANT

The Board of Directors, Supervisors and Directors, supervisors and the senior management warrant that no false representation, misleading statements or material omissions have been contained in this report, and shall take the responsibility severally and jointly for its truthfulness, accuracy and completeness.

The annual financial statements have been audited by Xiamen Tian Jian Hua Tian Certified Public Accountants Co., Ltd. which submit these statements without any qualified opinion.

As Mr. Wu Laichuan, Chairman, Mr. Shen Yifeng and Mr. You Xiang Hua, Independent Directors are engaged in other official businesses and are therefore unable to attend the meeting. Mr. Chen Yongjun is unable to attend the meeting as he is indisposed. Mr. Wu Laichuan has appointed Mr. Ke Dong to vote for him, and Mr. You Xianghua has appointed Ms Miao Luping to vote on his behalf, and Mr. You Yifeng and Mr. Chen Yongjun have not appointed anyone yet.

Mr. Wu Laichuan, Chairman, and Mr. Ke Dong, General Manager and Ms Song Yanping, Financial Manager of the Company hereby warrant the truthfulness and completeness of the financial statements in this report.

1 CONTENTS

Section 1 General situation of the Company 3

Section 2 Highlights of accounting data and business data 4

Section 3 Changes in share capital and shareholders 7

Section 4 Directors, supervisors, senior management and staff 10

Section 5 Structure of corporate governance 15

Section 6 Introduction of the shareholders’ general meeting 16

Section 7 Report of the Directors 16

Section 8 Report of the supervisors 26

Section 9 Important events 27

Section 10 Financial Statements 36

Section 11 List of documents for inspection 103

2 SECTION 1 GENERAL SITUATION OF THE COMPANY

1. Statutory name of the Company in Chinese: Statutory name of the Company in English: XIAMEN PORT DEVELOPMENT CO., LTD.

2. Authorized representative: Wu Laichuan

3. Secretary to the Board of Directors: Liu Qiang Contact address: 13/F Lian Jian Building, Hai Tian Gang Area, Chang An Road, Huli District, Xiamen. Contact telephone no.: 0592-5829955 Fax: 0592-5829990 E-mail: [email protected]

4. Registered address: 13/F Lian Jian Building, Hai Tian Gang Area, Chang An Road, Huli District, Xiamen. Business address: 13/F Lian Jian Building,HaiTianGangArea,ChangAnRoad, Huli District, Xiamen. Postal code: 361006 E-mail: [email protected] Website: www.xmgw.com.cn

5. Newspapers for disclosure of the Company’s information: Securities Time, China Securities International website specified by CSRC for publishing of the Company’s annual reports: http://www.cninfo.com.cn Place for inspection of the Company’s annual report: 13/F Lian Jian Building, Hai Tian Gang Area, Chang An Road, Huli District, Xiamen.

6. Stock exchange for listing of the shares of the Company: Shenzhen Stock Exchange Stock name: Xiamen Port Stock code: 000905

7. Other information 1. Date of registration of the Company for the first time: 21 April 1999 2. Place of registration of the Company for the first time: Industrial and Commercial Administration Bureau of Xiamen 3. Date of the Company’s latest changes in registration: 12 August 2005 4. Place of the Company’s changes in registration: Industrial and Commercial Administration Bureau of Xiamen 5. Legal person business license No.: 3502001001672 6. Taxation registration of the Company (1) National taxation registration No.: 350204705409738 (2) Local taxation registration No.: 3502047054097380 7. Name of accounting firm engaged by the Company: Xiamen Tian Jian Hua Tian Hua Certified Public Accountants Co., Ltd. Business address: 17/F & 18/F, Jin Yuan Building, 57 Hu Bin Nan Road, Xiamen

3 SECTION 2 HIGHLIGHTS OF ACCOUNTING DATA AND BUSINESS DATA

1. KEY ACCOUNTING DATA OF THE YEAR

Unit: RMB Item 2005

Gross profit 172,735,918.38 Net profit 117,540,723.05 Net profit after non-operating losses/gains 107,541,470.60 Profit from core operations 242,565,579.28 Profit from other operations 15,010,330.72 Operating profit 152,619,987.96 Investment income 8,382,104.01 Subsidy 11,000,000.00 Net income and expenses other than operations 733,826.41 Net cash flow from operating activities 249,185,185.23 Net increase in Cash and cash equivalents -38,666,619.97

Note: amounts net of non-recurrent losses/gains:

Unit: RMB Non-recurrent losses and gains Amount

Income other than operation 1,692,369.98 Expenses other than operation –958,543.57 Gain from transfer (clearing) of shareholding 30,000.00 Subsidy income 11,000,000.00 Effect of income tax –1,764,573.96 Total 9,999,252.45

4 2. KEY ACCOUNTING DATA AND FINANCIAL INDICATORS FOR THE 3 YEARS PRIOR TO THE END OF THIS REPORT

Unit: RMB Item 2005 2004 2003

Income from core operations 748,243,124.32 538,619,814.34 415,370,549.29 Net profit 117,540,723.05 98,214,416.98 89,785,162.82 Total assets 2,082,680,851.25 2,058,067,329.06 2,721,372,995.63 Shareholders’ equity (excluding minority interests) 1,211,205,488.98 1,135,428,645.77 1,032,446,060.64 Earnings per share fully diluted 0.40 0.33 0.30 Earnings per share weighted average 0.40 0.33 0.30 Earnings per share fully diluted net of non-operating losses and gains 0.36 0.30 0.27 Earnings per share weighted average net of non-operating losses and gains 0.36 0.30 0.27 Net assets per share 4.11 3.85 3.50 Adjusted net assets per share 4.09 3.83 3.39 Net cash flow per share from operating activities 0.84 0.36 0.61 Yield from net assets fully diluted (%) 9.70 8.65 8.70 Yield from net assets weighted average (%) 9.84 9.06 9.09 Yield from net assets fully diluted net of losses and gains from non- operating activities (%) 8.88 7.73 7.61 Yield from net assets weighted average net of losses and gains from non-operating activities (%) 9.01 8.10 7.96

5 3. CHANGES IN SHAREHOLDERS’ EQUITY DURING THE REPORT PERIOD

Unit: RMB Statutory Statutory Total of Capital surplus public welfare Unallocated shareholders’ Item Share capital reserve reserve fund profit equity

Beginning of period 295,000,000.00 509,869,380.09 52,092,371.72 36,448,251.08 242,018,642.88 1,135,428,645.77 Increase for the period — 2,486,120.16 23,508,144.62 11,754,072.31 117,540,723.05 75,776,843.21 Decrease for the period — — — — 67,758,144.62 —

End of period 295,000,000.00 512,355,500.25 75,600,516.34 48,202,323.39 291,801,221.31 1,211,205,488.98

Reasons for the changes:

1. The capital reserve increased by RMB2,486,120.16 during the report period, which arose from China Ocean Shipping Tally Company Xiamen Branch, a subsidiary of the Company which was approved to undergo corporate transformation into a company with limited liabilities, and 14% of the shareholding in Tally company was acquired in cash by China Ocean Shipping Tally Company. The assets of Tally company was valued to have increased by RMB2,486,120.16, and the Company increased its provision for investment in proportion to its shareholding.

2. Increase in statutory surplus reserve fund was the result of appropriation of 10% for the statutory surplus reserve according the net profit achieved during the report period in 2005.

3. Increase in statutory public welfare fund during the report period was the result of appropriation of 10% for the statutory public welfare fund according the net profit achieved during the report period in 2005.

4. Increase in unallocated profit during the period was the result of newly added profit, decrease during the period was the appropriation of statutory surplus reserve fund of RMB23,508,144.62, payment of cash dividend of RMB44,250,000.00. Payment of cash dividend was as follows: pursuant to the resolution of the shareholders’ general meeting for 2004 held in June 2005, bases on the total share capital of RMB295 million as at 31 December 2004, the profit distribution plan of paying RMB1.5 per every 10 shares (tax included)to the investors was implemented, and the cash dividend of a total of RMB44,250,000.00 had been paid.

6 SECTION 3 CHANGES IN SHARE CAPITAL AND SHAREHOLDERS

1. CHANGES IN SHARE CAPITAL

1. Changes in share capital

Before the change Increase/decrease of the change (+,-) After the change Conversion of statutory Proportion Issue of new surplus Proportion Number (%) shares Bonus issue reserve Others Sub-total Number (%)

1. Unlisted and non-marketable shares 1. Promoter’s shares 200,000,000 67.80 200,000,000 67.80 Of which: Shares held by the State 200,000,000 67.80 200,000,000 67.80 Domestic legal person shares Overseas legal person shares Others 2. Promoter shares 3. Employee shares 4. Preferential shares and others 2. Listed and marketable shares 1. Ordinary shares in RMB 95,000,000 32.20 95,000,000 32.20 2. Domestic Foreign investment shares 3. Overseas listed Foreign investment shares 4. Others

3. Total number of shares 295,000,000 100 295,000,000 100

2. Issue and listing of shares

(1) No shares had been issued in the 3 years period to the end of reporting period.

(2) There had been no changes in the total number of shares and in shareholding structure;

(3) There were no employees’ shares.

7 2. SHAREHOLDERS

1. No. of shareholders and the shareholdings

Unit: shares Total number of shareholders 51785 Top ten shareholders Number of non- Shareholding Total number marketable Number of Name of shareholders Nature proportion of shares held shares shares pledged

Xiamen International Port Co., Ltd State-own 55.13% 162,620,000 162,620,000 0 Huajian Jiaostory Jingji Kaifa Zhongxin State-own 12.67% 37,380,000 37,380,000 0 Ma Xuefeng Others 0.25% 723,600 0 unknown Western Trust of Investment Co., Ltd. Others 0.24% 710,129 0 unknown New China Life Insurance Co., Ltd. Others 0.21% 630,595 0 unknown Bohai Securities Co., Ltd. Others 0.16% 469,462 0 unknown Shaanxi Yi Yuan Technology Development Co., Ltd. Others 0.13% 393,563 0 unknown Shaanxi Changan Technology Industrial Co., Ltd. Others 0.12% 360,170 0 unknown Yuan Yanglong Others 0.11% 312,333 0 unknown Lu Dexiang Others 0.09% 252,200 0 unknown

Top ten shareholders holding marketable shares Number of marketable Name of shareholder shares held Type of shares

Ma Xuefeng 723,600 A shares Western Trust of Investment Co., Ltd. 710,129 A shares New China Life Insurance Co., Ltd. 630,595 A shares Bohai Securities Co., Ltd. 469,462 A shares Shaanxi Yi Yuan Technology Development Co., Ltd. 393,563 A shares Shaanxi Changan Technology Industrial Co., Ltd. 360,170 A shares Yuan Yanglong 312,333 A shares Lu Dexiang 252,200 A shares Chen Hui 237,992 A shares Shenyang Construction, Investment and Asset Management Co., Ltd. 223,200 A shares Remarks on the connected relationship or concerted actions Of the top ten shareholders, the major shareholder has no connected relationship with the other 9 shareholders; it is uncertain whether there is any connected relationship among the remaining 9 shareholders or if there is any concerted action between them (Measures of information Disclosure for Changes in Shareholding of Shareholders of Listed Companies).

2. Controlling shareholder and beneficial owners

(1) Position of controlling shareholding

Name of Company: Xiamen International Port Co. Ltd; Authorized representative: Zeng Yingguo; Date of incorporation: 25 May 1998; Registered capital: RMB1,829,200,000; Scope of operation: 1. Operation of berths and other port facilities; 2. Loading and unloading of cargoes in the port area, transport of cargoes and warehousing; 3. operation of port facilities; 4. Leasing of, maintenance and operation of port machines, facilities; 5. Services for berthing vessels(a project which can only be operated with the necessary approval and permit obtained pursuant to the laws and regulations)

(2) Position of Indirect shareholdings

Name of company: Xiamen Port Holding Co., Ltd.; Authorized representative: Zeng Yingguo; Date of incorporation: 4 November 1997; Registered capital: RMB3.3 billion; Scope of operation: 1. exercised the right of capital contributor for the State-owned assets authorized by the Supervision and Administration of State-owned Assets of the Municipal Government of Xiamen, and took part in the assets

8 investment, regulation and operation by way of controlling shareholding and stake holder, for the preservation and appreciation of these State-owned assets; 2. Pursuant to the industry development policies formulated by the municipal government, it was re-structured and reorganized by means of transfer, merger and acquisition, these State-owned assets are being elevated to a higher level of efficiency; 3. facilitate financing according to the law and obtain capital from various means to make investment; 4. development and sale of information products, construction and consulting information services and the development and construction of information engineering and related operations; 5. works development. Construction and consulting services of the port; 6. treatment of ocean oil and water recovery, environmental monitoring and oil analysis, consulting; 7. other operations relating to port construction.(a project which can only be operated with the necessary approval and permit obtained pursuant to the laws and regulations)

(3) Beneficial owner

Xiamen Port Holding Co., Ltd. is a wholly-owned integrated company of the State with the right operation State-owned granted. The Supervision and Administration of State-owned Assets of the Municipal Government of Xiamen performs the functions as a capital contributor on behalf of the Municipal government of Xiamen. Therefore, the beneficial owner of the Company is Supervision and Administration of State-owned Assets of the Municipal Government of Xiamen

(4) The property rights and controlling relationship between the beneficial owner and the Company are as follows:

Supervision and Administration of State-owned Assets of the Municipal Government of Xiamen

100%

Xiamen Port Holding Co., Ltd.

61.13%

Xiamen International Port Co., Ltd

55.13%

Xiamen Port Development Co., Ltd.

3. Description of legal person shareholders with holdings of over 10%

The second largest substantial shareholder of the Company is Huajian Jiaostory Jingji Kaifa Zhongxin, which owns shares in the Company as at the end of this report. As at the end of this report period, it was owed as to 12.67% in the shares of the Company. The company was established in December 1993.It was a collectively-owned enterprise with Fu Yuning as the authorized representative of the company. Its registered capital was: RMB500,000,000; its principal scope of operation involved : comprehensive development of highways, piers and waterways, contracted construction, transport infrastructure, new technologies, new products, new materials, development and sale of products. It is also engaged in construction materials, electrical and mechanical equipment, motor vehicles(excluding sedan cars)and components, metals and electricity, sales of commodity; economic and information consulting and training of human resources.

9 4. Shareholdings of top ten shareholders of marketable shares:

Unit: shares No. of marketable shares held at Type(A,B,H Name of shareholder (Full name) theyearend shares and others)

Note: it is uncertain whether there is any connected relationship among the top ten shareholders holding marketable shares or if there is any concerted action between them (Measures of information Disclosure for Changes in Shareholding of Shareholders of Listed Companies)

SECTION 4 GENERAL SITUATION OF DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND STAFF

1. GENERAL SITUATION OF DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT

1. General situation

Shareholding Shareholding at beginning at end of of period period Changes Name Post Sex Age Tenure (years) (shares) (shares) (shares)

Wu Laichuan Chairman Male 55 2004–2006 0 0 0 Ke Dong Director, General Male 46 2004–2006 0 0 0 Manager Miao Luping Director Female 42 2002–2006 0 0 0 Lin Kaibiao Director Male 40 2004–2006 0 0 0 Wong Jingyu Director Male 39 2004–2006 0 0 0 Zhang Yong Director Female 42 2002–2006 0 0 0 Chen Yongjun Independent Male 52 2002–2006 0 0 0 Director Shen Yifeng Independent Male 43 2003–2006 0 0 0 Director Yo Xiaghua Independent Male 41 2003–2006 0 0 0 Director Luo Jianzhong Chairman of Male 51 2004–2006 0 0 0 Supervisory Committee Wu Weijian Supervisor Male 47 2004–2006 0 0 0 Ma Ning Supervisor Female 50 2002–2006 0 0 0 Lin Meida Supervisor Male 48 2002–2006 0 0 0 Lin Xueling Supervisor Female 37 2004–2006 0 0 0 Zhou Yirong Supervisor Female 33 2002–2006 0 0 0 Mao Yuming Supervisor Male 31 2002–2006 0 0 0 Cai Lijun Deputy General Male 37 2004–2006 0 0 0 Manager

10 2. Working experience of current directors, supervisors and senior management

(1) Director

Mr. Wu Laichuan: born in 1951,holder of master’s degree,an economist. He is the chairman of the Company. He has worked at and , deputy general manager and general manager of .

Mr. Ke Dong: born in 1960,he is a university graduate and an economist. He is a director and the general manager of the Company and non-executive director of Xiamen International Port Co., Ltd. He has worked at as a salesman and deputy general manager, general manager of and general manager of .

Ms Miao Luping: born in 1964, holder of master’s degree in economics. She is a senior Economist. She is a director of the Company, non-executive director of Xiamen International Port Co., Ltd, director of Xiamen Port Holdings Co, Ltd, chief economist. She has worked at as a deputy manager and deputy director of , manager of , director and general manager of , general manager and chief economist of Xiamen Port Group Co., Ltd.

Ms Zhang Yang: born in 1964, holder of bachelor’s degree in economics, postgraduate, . She is a director of the Company, assistant to the general manager and manager of the securities department of , director of , director of , director of . She has worked as a deputy division head of and division head.

Mr. Lin Kaibiao: born in 1966, undergraduate for master’s degree and an economist. He is a director of the Company, executive director, vice general manager and manager of Xiamen International Port Co., Ltd. He has worked as a charge-hand for workers at , deputy director and director of the office, manager and vice general manager of , director and general manager of , general manager of , manager of the operation management department of Xiamen Port Group Co., Ltd.

Mr. Wong Jingyu: born in 1967. He has obtained a bachelor’s degree and is an engineer. He is a director of the company, general manager of . He has worked as a technician at , engineer of and deputy general manager of .

Mr. Chen Yongjun: born in 1954, holder of doctor’s degree in economics. He is a professor of and an independent director of the Company. He has been a deputy professor, professor and supervisor for undergraduate for doctor’s degree of , and is also a deputy director of , director of and vice dean of .

Mr. Shen Yifeng: born in 1963, he is holder of doctor’s degree in management (accounting). He is a professor, vice dean and supervisor for undergraduate for doctor’s degree of . He is also an independent director. He has been a deputy professor and deputy director of deputy professor vice officer, .

Mr. You Xianghua: born in 1965, he is a holder of doctor’s degree in management (accounting) and a senior accountant. He is a deputy professor of and a independent director of the Company. He has been a financial manager of and chief accountant of .

11 (2) Supervisors

Mr. Luo Jianzhong: born in 1955 and is a holder of bachelor’s degree. He is an economist. He is the chairman of the supervisory committee of the Company, a supervisor of Xiamen International Port Co., Ltd, chairman of the labor union of Xiamen Port Holding Co., Ltd. He has worked as a staffer, major of , , , , assistant to director of and chairman of the staff union of Xiamen Port Group Co., Ltd.

Ms. Lin Xueling: born in 1969 and a holder of bachelor’s degree. She is an auditor and a supervisor of the Company. He is a deputy manager of Xiamen Port Holding Co., Ltd. She has been an auditing officer of and a division head of Xiamen Port Group Co., Ltd.

Ms. Ma Ning: born in 1956. She has received tertiary education and is an accountant. She is a supervisor of the Company, deputy manager of , supervisor of .She has been a , controller accountant of , deputy manager of , deputy manager of .

Mr. Wu Weijian: born in 1959. He has received tertiary education and a, .He is currently the Xiamen Port Development Co., Ltd. .Hehas been a 87060 , , , deputy secretary and secretary of , .

Ms. Zhou Yirong, born in 1973. She has received tertiary education and is registered accountant of the PRC. She is currently the deputy manager of the investment management department of the Company. He has worked at , , and also a project manager.

Mr. Lin Meida: born in 1958. He has graduated . He is an accountant. He is currently the . He has been 32110 , , , , , , chairman of the labor union of and .

Mr. Mao Yuming: born in 1975. He has received tertiary education. He is an assistant accountant. He is currently the vice manager of . He has worked at the finance of .

(3) Senior management

Mr. Cai Lijun: born in 1969. He has received tertiary education. He is a senior economist. He is currently a deputy general manager of the Company. He has been , deputy general manager of , deputy director of , deputy general manager of and deputy manager of .

12 3. directors and supervisors working at other members of the Group:

Position at member Name of member Company Companytheyarenow Name they are now working at working at tenure

Ke Dong Xiamen International Port Non-executive director March 2005 Co., Ltd until present Miao Luping ditto Non-executive director March 2005 until present Lin Kaibiao ditto Director, deputy general March 2005 manager until present Luo Jianzhong ditto supervisor March 2005 until present Zhang Yang assistant to general manager 1998 until and manager of securities present management division Ma Ning ditto 1998 until present

4. Employment or part-time employment of directors, supervisors and senior management at units other than members of the Group

Name/Position held Connection with at the Company Entity working/part-time the Company Position

Miao Luping/ Xiamen Port Holding Co., Ltd. connected Director, Director chief economist Lin Kaibiao/Director Controlling Chairman shareholding Controlling Director shareholding Zhang Yang/Director Not connected Director Not connected Director Not connected Director Shen Yifeng/ Not connected Independent Independent director Director You Xianghua/ Not connected Independent Independent director Director Not connected Independent director Wang Jingyu/ Controlling Director Director shareholding Lin Xueling/ Controlling Supervisor Supervisor shareholding connected Supervisor connected Supervisor connected Supervisor Ma Ning/Supervisor Not connected Supervisor

13 2. REMUNERATION FOR THE YEAR

1. Remuneration of Directors, supervisor and senior management:

Serial no. Name Annual remuneration

1 Wu Laichuan RMB378,000 2 Ke Dong RMB336,000 3 Miao Luping paid by Xiamen Port Holding Co., Ltd. 4 Lin Kaibiao paid by Xiamen International Port Co., Ltd. 5 Wang Jingyu paid by 6 Zhang Yang Director’s allowance of RMB28,800 7 Chen Yongjun Allowance for independent directors of RMB36,000 8 Shen Yifeng Allowance for independent directors of RMB36,000 9 You Xianghua Allowance for independent directors of RMB36,000 10 Luo Jianzhong paid by Xiamen Port Holding Co., Ltd. 11 Wu Waijian RMB268,000 12 Ma Ning Allowance for supervisors of RMB26,400 13 Lin Meide Allowance for supervisors of RMB26,400 14 Lin Xueling paid by Xiamen Port Holding Co., Ltd. 15 Zhou Yirong RMB127,000 16 Mao Yuming Allowance for supervisors of RMB26,400 17 Cai Liqun RMB294,000

In 2005, the annual remuneration received from the Company by directors, supervisors and senior management had been determined based on the Salary System of Xiamen Port Development Co., Ltd. and the relevant resolutions considered and passed at the annual shareholders’ meeting for 2001 on the remuneration for directors, supervisors and senior management.

The aggregate remuneration of directors, supervisors and senior management was RMB1.619 million.

3. CHANGES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT DURING THE REPORT PERIOD

There had been no changes in directors, supervisors and senior management during the report period.

4. STAFF

As at 31 December 2005, the total number of staff employed by the Company and its subsidiaries was 2,703, of which, 964were employed by the Company, 1,739 were employed by our subsidiaries. In respect of our professional structure, 244 were management staff, representing 9% of the total number of staff; 73 were finance staff, representing 2.7% of the total; 2,263 were production staff, representing 83.8%; 123 were technical staff,representing 4.6% of the total. In respect of education level, 763 have received tertiary education or above, representing 28% of the total, 1,940 have received education at tertiary level or below, representing 72% of the total.

Salary expenses for staff who have left their employment or who have resigned are taken care of by social security institutions.

14 SECTION 5 STRUCTURE OF CORPORATE GOVERNANCE

1. CORPORATE GOVERNANCE

During the report period, the Company strictly adhered to the requirements of the laws and regulations of the State such as the Company Law, Governance Standard of Listed Companies and the Listing Rules of Shenzhen Stock Exchange to improve our corporate governance to govern the operations of the Company. With reference to the regulatory documents issued by the CSRC in respect of the governance of listed companies, our corporate governance had met these requirements.

2. PERFORMANCE OF INDEPENDENT DIRECTORS

Attendance at the meeting of the Name of independent director board of directors In person By proxy Absent

Chen Yongjun 7 5 2 0 ShenYifeng 7520 You Xianghua 7 7 0 0

During the report period, independent directors had raised no objection to the resolutions considered at meetings of the board of directors, nor to other matters of the Company. Significant issues which required the opinions of independent directors had been seriously considered by them, who had produced their letters of independent opinions.

3. DESCRIPTION OF THE ‘‘FIVE SEPARATIONS’’ BETWEEN THE COMPANY AND THE CONTROLLING SHAREHOLDERS IN RESPECT OF OPERATIONS, PEOPLE, ASSETS, ORGANIZATION AND FINANCE

1. In respect of operations, the Company has independent and integral operations and the capability to operate, and the Company is separated from the controlling shareholder in operations. Also, given the differentiation of the market, there has been no question of competition between the Company and its subsidiaries and the controlling shareholder and its subsidiaries.

2. In respect of people, the Company has come up with an independent labor, personnel and salary management system with an independent labor and human resources department, which precludes any mixed management with the controlling shareholder.

3. In respect of assets, the asset ownership between the Company and the controlling shareholder are clearly defined.

4. In respect of organization, establishment of the corporate legal person governing institution and its operation adhere strictly to the Articles of Association, with production and operation completely independent from the controlling shareholder, as the Company already has its own organization which can best cater to the need of development of the Company.

5. In respect of finance, an independent financial accounting department has been established, and independent bank accounts have been opened, in addition to the independent accounting and financial management system,and the Company makes independent financial decisions.

4. APPRAISAL AND INCENTIVE MECHANISMS FOR THE SENIOR MANAGEMENT

During the report period, salaries and allowance of the senior management of the Company linked with their responsibilities, and the effective salary linked with the operating results of the Company.

15 SECTION 6 DESCRIPTION OF THE SHAREHOLDERS’ GENERAL MEETING

During the report period, 2 shareholders’ general meetings had been convened.

1. At 9 am, 15 June 2005, the annual general meeting of the Company for 2004 was held at the conference room of the Company. 2 persons who were shareholder and proxy attended the meeting, who represented 200 million shares, accounting for 67.8% of the total share capital of the Company. The meeting was chaired by Mr. Wu Laichuan, chairman of the Company.

Resolutions of this meeting were published in the China Securities and Securities Time dated 16 June 2005.

2. At 9 am on 12 August 2005, the first extraordinary general meeting in 2005 was convened at the conference room of the Company. 2 persons who were shareholder and proxy attended the meeting, who represented 200 million shares, accounting for 67.8% of the total share capital of the Company. The meeting was chaired by Mr. Wu Laichuan, chairman of the Company.

Resolutions of this meeting were published in the China Securities and Securities Time dated 3 August 2005.

SECTION 7 REPORT OF THE DIRECTORS

I. REVIEW OF THE COMPANY’S OPERATIONS DURING THE REPORTING PERIOD

(I) Overall operating conditions of the Company during the reporting period

During the reporting period, the Company’s income from principal operations increased 38.92% to RMB748,240,000, as compared to the corresponding period of last year. Profit from principal operations increased 20.64% to RMB242,570,000 and profit after taxation increased 19.68% to RMB117,540,000.

Significant year-on-year growth of the above indicators was mainly attributable to changes in the Company’s scope of consolidation, operating activities and characteristics following an asset swap exercise in 2004. As such, it is inappropriate to make year-on- year comparison of the above indicators.

During the reporting period, the Company increased its marketing efforts and explored new markets pro-actively. Service quality was improved to enhance core competitiveness. Competitive advantages of various business segments were reinforced and strengthened, resulting in varying growth in all business areas:

1. Steady growth in major business segments as the Company’s overall competitiveness improved

(1) Port operations for bulk/general cargoes: The Company endeavored to increase its market share by expanding its export hinterland with geared up marketing efforts and improving services standards by proactive communication and coordination with cargo owners. Meanwhile, it helped to create a more favorable port environment for cargo owners with shortened lead time in customs clearance by pro-active efforts on the public relations front. There was stable annual growth in business volume, with a total of 3.79 million tons of general cargo handled during the year and customer satisfaction maintained at high levels.

(2) Container business for domestic trade: Stronger marketing efforts were made to solicit cargo business from peripheral regions such as Quanzhou, Zhangzhou and Longyan. Further inroads were made in the market hinterland with two barge vessels were hired to operate the Xiamen-Fuzhou and Xiamen-Shantou lines. Offices were set up in Fuzhou and Shantou to support stronger and more in-depth business solicitation. In 2005, new shipping routes were established

16 with the Company’s assistance, including routes from Xiamen to Qingdao, Lianyungang, Beijing/Tangshan and Hainan by the shipping company, from Xiamen to Ningbo and Yangpu by Nanqing, Xiamen to Taicang by Zhongliang and Xiamen-Ningbo-Lanshan by Yangzijiang. The volume of domestic container shipment completed during the year was 0.24 million TEU, representing a 25.52% growth as compared to the previous year.

(3) Tugboat business: All employees were encouraged to help in marketing while production was articulately organized and service undertakings diligently performed. At the same time, tugboat services for peripheral regions were actively explored, creating a new growth niche that contributed to the steady development of the tugboat market. In 2005, the tugboat berthing business registered an 8.66% growth as compared to the previous year.

(4) Storage: The Company maintained its leadership in the market for on-site assembly and recorded profit from the container assembly business for the first time on the back of efforts to provide differentiated services and regulate internal process flows, despite difficulties arising from the vacating and relocation of stacks to make way for interactive development of free trade zones and ports. In 2005, the devanning business handled 81,600 TEU, representing growth of 8.22% or 16.7% in terms of horizontal transportation, as compared to the previous year.

(5) Shipping agency: The Company refined its shipping agency business by providing differentiated and customized services to shipping companies. Its electronic network system was also further improved. This business segment maintained leadership in the shipping agency market, accounting for market shares of over 70% in the container liner market and over 61% in the general/ bulk cargo shipping agency market.

(6) Tallying: In response to market liberalization underpinned by direct competition from new entrants employing low-price expansion strategies and systematic marketing initiatives, the Companystrengtheneditsmarketingwith stronger efforts to improve its organizational structure, management regime, response mechanism, incentive regime and internal controls and consolidated its position in the tallying market with shares of over 70% in the container tallying sector, over 90% in the bulk cargo sector and 100% in the general cargo.

(7) Building materials: The Company maintained its leading position in this industry during the year as it focused on the enhancement of operating efficiency and overall competitiveness. Strong efforts were made to explore new markets for the core concrete business, while measures to ensure production safety were also put in place.

2. Interactive development of free trade zones and ports to progress as scheduled

The project of interactive development of free trade zones and ports is strategically significant in terms of the development of Xiamen port into an international transport hub. It was listed as a key provincial project in 2005. As the main party responsible for the construction and development of the project, the Company was vigorously carrying out the project in accordance with its overall planning and arrangements. Site relocation, business planning and work construction, etc were completed at relevant stages in accordance with the plan. On 21 December 2005, the Xiamen Xiangyu Free Trade Zone was officially commissioned upon inspection and acceptance by the joint inspection and acceptance team of the State Council.

Since the commencement of the interactive development project, invitation for business tenants had been progressing as scheduled. The Company facilitated the business transformation of Xiamen Port Logistics Co., Ltd by defining the business

17 groupings for the southern and northern sections of the zone in accordance with the overall planning of the interactive development project, thereby avoiding business losses and mitigating the business risk following the formal operation of the interactive development zone.

3. Continuing with the construction of passages and business development for sea-rail joint transportation through multi-party collaboration

(1) Nanchang-Xiamen sea-rail joint transportation. Commercial operation began in the first quarter and container transshipment was operational by the end of May 2005. The service is currently making a positive impact on the markets of both cities after completing transportation of 1,029 TEU for the year.

(2) Sanming/Yongan-Xiamen sea-rail joint transportation. Sanming/Yongan-Xiamen sea-rail joint transportation became the first route launch group rail transportation of containers under the sea-rail joint transportation mode in April 2005, after its transshipment model was promoted by the Fujian port authorities as an exemplary model for transshipment trade. This route completed transportation of 932 TEU during the year.

(3) Ganzhou-Xiamen sea-rail joint transportation. During the first half of the year, the operation was engaged in market survey prior to the operation of the Ganlong Rail. At the end of June 2005, container transshipment under Ganzhou-Xiamen Sea-Rail Joint Transportation commenced operation and finished the year with 405 TEU.

Through efforts in various areas, the operation of sea-rail joint transportation had delivered solid results.

4. Integrating the business supply chain for a standardized marketing pattern

(1) An overall marketing strategy was formulated to integrate customer resources based on changing needs for logistics services by leveraging its business strengths and marketing resources. The target of marketing customers shifted from ship owners to cargo owners in a bid to win customers among ship owners through the referral of cargo owners and to win customers’ recognition by providing integrated solutions.

(2) An integrated sales model for the supply chain was initially formed by leveraging the influence of terminals — the upper-end of the logistics supply chain — on ship owners and cargo owners.

5. Capitalizing on the Company’s strengths to identify new niche for profit growth.

The Company officially commenced domestic trade operations in September 2005, in a bid to further improve the port supply chain regime taking into account the Company’s business characteristics and leveraging its strengths. Aside from providing a new niche for profit growth, the commencement of the port trade business also boosted the throughput volume of Dongdu Branch to give initial effect to the strategy of lifting port business through trade activities and combining trade and port operations.

(II) Principal business of the Company and its state of affairs

The Company is principally engaged in container loading and unloading for international and domestic trade as well as bulk/general cargo loading and unloading for international and domestic trade. Our business scope includes the operation of terminal and port facilities, cargo loading and unloading, warehousing, integrated logistics, transshipment, multi-modal transportation and management of logistics information.

18 The state of affairs regarding our principal business is set out as follow:

1. Analysis of principal business by business nature:

RMB

Profit Nature Income Cost Profit margin

Sale of building materials 177,494,483.13 148,053,891.51 27,477,754.37 16.59% Construction work 2,755,046.57 2,599,056.76 125,522.90 5.66% Labor for loading and unloading 203,380,019.41 123,218,857.46 72,253,771.53 39.41% Labor for agency services 127,998,847.54 47,991,525.79 75,030,742.12 62.51% Labor for transportation 79,578,480.73 68,912,559.03 7,571,920.05 13.40% Tugboat berthing business 89,850,539.32 41,022,116.58 45,335,044.70 54.34% Labor for tallying 29,190,328.29 10,768,401.80 17,287,010.08 63.11% Labor for stacking 17,216,889.08 23,247,648.78 –6,700,150.25 –35.03% Others 20,778,490.25 15,786,661.29 4,183,963.79 24.02% Total 748,243,124.32 481,600,719.00 242,565,579.28

2. Analysis of principal business by business sector:

RMB

Profit Business Income Cost Profit margin

Sale of building materials 177,494,483.13 148,053,891.51 27,477,754.37 16.59% Construction work 2,755,046.57 2,599,056.76 125,522.90 5.66% Port logistics services 567,993,594.62 330,947,770.73 214,962,302.01 41.73% Total 748,243,124.32 481,600,719.00 242,565,579.28

3. Analysis of principal business by geographical locations:

Profit Area Income Cost Profit Margin

Fujian Province 748,243,124.32 481,600,719.00 242,565,579.28 35.64%

During the reporting period, the Company purchased an aggregate of RMB48,357,767.01 from the five largest suppliers, which accounted for 25.96% of the Company’s total purchases. The Company provided an aggregate of RMB99,834,144.80 of sales to the five largest customers, which accounted for 70.38% of the Company’s total sales for the same reporting period.

19 (III) Items constituting the Company’s assets and variations in expense

RMB

Increase/ 31 December 2005 31 December 2004 decrease in %of %of %of Item Amount total asset Amount total asset total asset

Accounts receivable 324,736,966.62 15.59% 378,061,669.52 18.37% –2.78 Inventories 64,463,244.95 3.10% 49,993,612.77 2.43% 0.67 Long-term equity investments 81,682,057.38 3.92% 133,512,128.56 6.49% –2.57 Fixed assets 736,617,657.10 35.37% 712,162,621.28 34.60% 0.77 Construction-in-progress 79,142,453.25 3.80% 28,214,756.30 1.37% 2.43 Short-term loans 45,000,000.00 2.16% 17,000,000.00 0.83% 1.33 Long-term loans 35,445,688.00 1.70% — — 1.70

Item 2005 2004 Increase/decrease

Operating costs 2,143,640.27 1,604,441.13 539,199.14 Administrative costs 106,634,410.53 59,419,531.40 47,214,879.13 Finance costs –3,822,128.76 12,065,454.94 –15,887,583.70 Income tax 30,750,335.56 25,987,423.29 4,762,912.27

Notes:

1. The increase in construction-in-progress in proportion to total asset was mainly attributable to the commencement of initial construction work of phase I of Xiangyu free trade zone logistics park by the Company during the year.

2. The decrease in long-term equity investments in proportion to total asset was mainly attributable to a decrease of RMB80.0 million in investment to Tiantong Securities Company Limited subsequent to a transfer of the said investment.

3. The increase in long-term loans in proportion to total assets was mainly attributable to a new long-term loan of RMB35,445,688 by Xiamen Port Shipping Co., Ltd., a subsidiary of the Company, for the construction of tugboat during the period.

4. The increase in operating cost was mainly attributable to an increase in production volume in Xiamen Road & Bridge Building Materials Corporation Ltd.

5. The increase in administrative costs was mainly attributable to a change in business nature and company structure and an increase of employee as a result of an asset swap.

6. The decrease in finance costs was mainly attributabletoadecreaseinbankloansubsequenttoanasset swap.

20 (IV) Relevant data variation in cash flow statement of the Company

(%) increase/ 2005 2004 decrease

Cash flow generated from operating activities: Subtotal of cash inflow 832,829,710.44 551,255,417.23 51.08 Subtotal of cash outflow 583,644,525.21 107,415,221.65 443.35 Net cash generated from operating activities 249,185,185.23 444,042,560.36 –43.88 Cash flow generated from investing activities: Subtotal of cash inflow 64,833,003.28 440,550,028.13 –85.23 Subtotal of cash outflow 162,673,107.72 74,632,072.36 117.97 Net cash generated from investing activities –97,840,104.44 365,917,955.77 –126.74 Cash flow generated from financing activities: Subtotal of cash inflow 80,445,688.00 90,000,000.00 –10.62 Subtotal of cash outflow 271,115,925.26 275,053,292.77 –1.43 Net cash generated from financing activities –190,670,237.26 –185,053,292.77 3.04

Notes:

1. The decrease in net cash generated from operating activities was mainly attributable to a change in business nature subsequent to an asset swap.

2. The decrease in net cash generated from investing activities was mainly attributable to new investments in the interactive development of Free Trade Zone and Ports and the construction of tugboat undertook by Xiamen Port Shipping Co., Ltd., a subsidiary of the Company.

(V) Business and results of major controlling and investing companies

1. Xiamen Road & Bridge Building Materials Corporation Ltd. is a 95% owned company of the Company with a registered capital of RMB20.0 million and a total asset of RMB187,588,315.80. It mainly engages in the manufacturing, processing, wholesaling and retailing of concrete and building materials, wholesaling, retailing and repairing of electrical appliances and equipments and storage. In 2005, the revenue from its principal business was RMB180,249,529.70 and its net profit amounted to RMB8,335,832.04.

2. Xiamen Port Shipping Co., Ltd. is a 90% owned company of the Company with a registered capital of RMB25.0 million and a total asset of RMB218,770,112.38. It mainly engages in tugboat berthing and unberthing, tug and craft services, port cargo transshipment, storage, cargo loading and unloading, port fire services and marine vessel repair services. In 2005, the revenue from its principal business was RMB89,850,539.32 and its net profit amounted to RMB35,852,326.24.

3. Xiamen Port Logistics Co., Ltd. is a 97% owned company of the Company with a registered capital of RMB65.0 million and a total asset of RMB257,605,567.23. It mainly engages in: a. highway transportation of cargo, transportation of containers; b. container repair, lease and cleaning services; c. refrigerated containers pre- examination and controlling services; d. logistics information consultancy services; e. international transportation agency services of sea, road and air cargo import and export, including freight broking, space booking, storage, transshipment, vanning and devanning of containers, settlement of transportation and miscellaneous fees, customs clearance, customs declaration, related short distance transportation services and transportation consultancy services (where a particular type of

21 business is required to obtain approval under legal requirements, a company must obtain approvals before engaging in such business). In 2005, the revenue from its principal business was RMB122,194,553.91 and its net profit amounted to RMB18,158,037.19.

4. Xiamen Waili Tally Company is a 86% owned company of the Company with a registered capital of RMB17.0 million and a total asset of RMB42,396,545.51. It mainly engages in tallying of international vessels in Xiamen Port and tallying of domestic cargo in Xiamen Port and container vanning and devanning in different region and such tallying services assigned. In 2005, the revenue from its principal business was RMB29,190,328.29 and its net profit amounted to RMB7,381,587.15.

5. China Ocean Shipping Agency (Xiamen) Co., Ltd. is a 60% owned company of the Company with a registered capital of RMB30.0 million and a total asset of RMB589,817,921.55. It mainly engages in shipping agency services of domestic or overseas registered vessels; process of document, signing bill of lading, transportation contract and as well as protocol of demurrage and dispatch; collecting and ordering payment; arranging ship’s port clearance, pilotage, berthing, loading and unloading, custom clearance, transit transportation, freight broking and contacting for marine salvage as well as all kinds of matters related to ships, crews, passengers and cargo (where a particular type of business is required to obtain approval under legal requirements, a company must obtain approvals before engaging in such business). In 2005, the revenue from its principal business was RMB159,763,890.64 and its net profit amounted to RMB47,034,681.91.

6. Xiamen Port (Group) Domestic Shipping Agent Co. Ltd. is an 80% owned company of the Company with a registered capital of RMB2.0 million and a total asset of RMB10,613,247.24. It mainly engages in agency services for domestic trade vessels, cargo and containers and tourist vessels and related services. In 2005, the revenue from its principal business was RMB2,155,053.93 and its net profit amounted to RMB7,903.55.

7. Xiamen Harbor Lurong Water-and-Railway Coordinated is a 48% owned company of the Company with a registered capital of RMB0.5 million and a total asset of RMB1,111,621.95. It mainly engages in railway coordinated cargo transportation (including containers) and agency services, cargo transshipment (including containers) and related storage services, cargo loading and unloading and agency services; trading in electrical appliances and equipments, electric and chemical products, mineral materials (excluding dangerous chemical goods), building materials, mineral products, raw wood material wholesaling and retailing. In 2005, the net profit was RMB106,758.48 and its attributable investment gains amounted to RMB51,244.17.

II. PROSPECTS OF FUTURE DEVELOPMENT

(I) Trends in industry development and market competition facing the Company

Due to improving economic environment and competitive labor capacity and costs, global manufacturers will continue to shift their manufacturing centers to China and China’s status as the ‘‘world’s factory’’ is expected to continue to drive up trade volumes as well as port throughputs, providing a direct drive to the development of port logistics business.

Port terminals are developing rapidly in Xiamen port’s neighboring region to present intense competition primarily in terms of prices, loading/unloading efficiency, the ratio of loaded goods to damaged goods and service quality.

22 (II) Development strategies and business plans for the forthcoming year

1. Development strategies:

The Company will map out development in tandem with State policies for the industry. While marketing initiatives will remain a focus, it will also resort to capital operations and leverage its strengths in capital, scale, human resources and management to pursue rapid expansion of scale and market share by way of organic growth, acquisitions and equity/cooperative joint ventures. With piling strengths and profitability, the Company will grow into a regional supplier of integrated logistics services well recognized in Fujian and the wider southeastern coastal region of China, offering sound economic returns and social benefits.

2. Business plans for the forthcoming year

(1) Advancing the interactive development of free trade zones and ports to ensure deliverables

The construction of the first bonded logistics warehouse has started and the Company targets completion and commencement of operation by the end of the first quarter. Invitation for tenancy of the warehouse has been basically completed and agreements have been signed. A joint venture plan for the second bonded logistics warehouse has been drawn up and construction is targeted to commence in the first half of the year so that it could be put to use at an earlier date. The development and operation of the bonded logistics warehouse project is set to bolster overall operating levels of the integrated logistics at related ports.

(2) Proactive restructuring of the Company’s business resources to integrate the logistics chain and enhance the overall standard of logistics services

A. Integrating the logistics chain to facilitate bundled marketing. The Company will leverage its business strengths and marketing resources to provide integrated solutions to customers from the arrival of the vessel through its departure after delivery and value-added logistics services based on changing needs for logistics services. It will develop and improve the price regulation regime for the Company’s resources and consolidate its position in traditional businesses.

B. Actively expanding the market hinterland and continuing to develop logistics passages such as sea-rail joint transportation, domestic sub-routes and domestic trade transportation to realize their strategic coordination effect for the port, ship owners and cargo owners. For sea-rail joint transportation, efforts will continue to be made in marketing and public coordination in Nanchang, Sanming, Yongan and Ganzhou. Increased efforts will be made to solicit cargo business and source cargoes proactively. Business development and marketing for the domestic sub- routes of Fuzhou-Xiamen and Shantou-Xiamen will be enhanced and cargo sources will be streamlined. Meanwhile, the Company will persuade existing shippers to increase the frequency of domestic container routes capitalizing on the advantageous position of Dongdu Terminal, so that more shippers will be encouraged to open up domestic container routes.

C. Continuing to develop the steel trade business and integrate the Company’s relevant resources for port trade to enhance overall competitive strengths and regulate operating levels. The Company will continue to strengthen its domestic steel trade and improve the management, servicing and risk control models of trade activities based on experience gained from preliminary operations. At the same time, the Company is also integrating other port trade resources within the system

23 to increase the competitiveness of its trade business and regulate operating levels, expanding and bolstering its port trade business to become a new niche for profit growth.

(3) Strengthening internal management to enhance ongoing competitiveness of the Company

Comprehensive budget management will remain a primary task, with special emphasis on the development of support systems for budget works on the basis of budget tracking and differentiation analysis. Effective measures will be adopted to enhance fund management and finance cost reductions will be sought to improve the efficiency of fund application.

(III) Fund requirements and capital expenditure plans

In 2005, the Board of Directors of the Company resolved to invest in the Phase 1 start-up project of Xiamen Xiangyu Free Trade Zone. The Phase 1 project of Xiangyu Free Trade Zone comprised logistics warehouses and the expansion of foodstuff transshipment facilities at Dongdu Terminal. The total investment amount for the above projects was RMB317,598,300 and total fund requirements for these projects in 2006 were estimated to be RMB232.53 million. The Company will finance these fund requirements mainly with internal resources and bank loans. Funds will be appropriated and utilized according to the progress of the projects.

(IV) Unfavorable factors and risks in the Company’s development

1. Intensive market competition

Comparing to its neighboring ports, the Xiamen port has a relatively limited hinterland. With increasing competition among port operators, there is a risk that the market will mature and become fragmented.

Policies and measures in response: Given its solid business foundations, the Company will first of all leverage the strengths associated with its modernized corporate structure to enhance its operating efficiency and competitive edge by resorting to scientific decision-making processes and management initiatives. Secondly, it will identify opportunities for internal cost reductions while looking to upgrade its service standards on all fronts by improving the soft/hardware of its port logistics business as well as various management and ancillary facilities. Meanwhile, the Company will seek to add value for customers with its logistics services by enhancing port storage and logistics management, in a bid to ultimately transform its port services into modern logistics operations.

2. Lower entry barriers

The port service industry will be gradually opened up to foreign investments, while entry barriers will also be lowered. As a result, more companies are expected to tap the port service business and competition willbeintensifiedwiththepresenceof foreign companies.

Policies and measures in response: The Company will seek to increase income by stepping up cargo business solicitation and optimizing its cargo mix. It will also strengthen scientific management and identify opportunities for cost savings to increase inherent competitiveness by ensuring maximum reduction of operating costs. Meanwhile, the Company will continue to develop sea-rail joint transportation to extend its economic hinterland. It will reinforce and consolidate its leading position in the port service industry by consistently improving its service standards and quality to assure maximum customer satisfaction.

24 III. INVESTMENT OF THE COMPANY

1. Use of proceeds

During the reporting period, there was no proceed raised and no proceed raised in the previous period was utilized in the reporting period.

2. Non-proceed capital investment

Approximate total Investment Project investment in 2005 Progress

Initial construction work of Phase I of RMB179.34 RMB42.17 In-progress Xiamen Xiangyu Free Trade Zone million million Logistics Park

Initial construction work of Phase I of RMB66.54 RMB0.18 In-progress Xiamen Xiangyu Free Trade Zone million million Logistics Park — logistics warehouse

Dongdu Terminal food transshipment RMB71.71 Not yet Planning and facility expansion project million injected design

IV. AUDITOR’S OPINION AND ACCOUNTING POLICY, CHANGES IN ACCOUNTING ESTIMATION AND CORRECTION ON MATERIAL ACCOUNTING MISTAKES

During the reporting period, Xiamen Tian Jian Hua Tian Certified Public Accountants Co. Ltd. issued an auditor’s report with a standard unqualified opinion.

Compared with the previous year, there was no material change in accounting policy and no material correction in accounting mistakes. Upon approval by the 25th meeting of the second session of the Board and 16th meeting of the second session of the Supervisory Committee, the Company resolved on 7 April 2005 that, the changes on the estimated useful life of depreciation items will be effective from 1 January 2005. Relevant announcement was published in the Securities Times and China Securities Journal on 11 April 2005. The changes in accounting estimation resulted in an RMB5.1479 million increase in net profit for 2005.

V. WORK OF THE BOARD

1. Board meeting and resolutions

(1) The Company convened the 25th meeting of the second session of the Board on 7 April 2005. The announcement of the related resolution was published on Securities Times and China Securities Journal on 11 April 2005.

(2) The Company convened the 26th meeting of the second session of the Board on 15 April 2005. The first quarterly report of Xiamen Port Development Co., Ltd. in 2005 was approved. The report was published on Securities Times and China Securities Journal on 18 April 2005.

(3) The Company convened the 27th meeting of the second session of the Board on 12 May 2005. The announcement of the related resolution was published on Securities Times and China Securities Journal on 14 May 2005.

(4) The Company convened the 28th meeting of the second session of the Board on 30 June 2005. The announcement of the related resolution was published on Securities Times and China Securities Journal on 2 July 2005.

25 (5) The Company convened the 29th meeting of the second session of the Board on 9 August 2005. The announcement of the related resolution was published on Securities Times and China Securities Journal on 11 August 2005.

(6) The Company convened the 30th meeting of the second session of the Board on 20 October 2005. The announcement of the related resolution was published on Securities Times and China Securities Journal on 22 October 2005.

(7) The Company convened the 31st meeting of the second session of the Board on 23 December 2005. The resolution regarding the Dongdu Terminal food transshipment facility expansion project and the resolution regarding the subcontract contract of container transport were considered and approved in the meeting.

2. The implementation of the general meeting’s resolutions by the Board

The Board implemented the resolutions resolved by the general meeting seriously and consistently during the reporting period. In July 2005, the Company distributed a RMB1.50 cash dividend for every 10 Shares according to the profit allocation scheme of 2004 approved by the 2004 Annual General Meeting.

VI. 2005 PROFIT ALLOCATION SCHEME

Net profit realized by the Company in 2005, as audited by Pan-China (Xiamen) Certified Public Accountants, was RMB117,540,723.05. Pursuant to the relevant provisions of the Company Law and the Articles, 10% of the net profit of RMB11,754,072.31 was allocated to the statutory reserve fund, 10% of RMB11,754,072.31 to the statutory public welfare fund together with a cash dividend paid of RMB44,250,000.00 in June 2005. Taking into account the undistributed profit of RMB242,018,642.88 brought forward from the previous year, the total profit available for distribution to the shareholder was RMB291,801,221.31.

Having regard to the operation and cash-flow position of the Company and in order to safeguard the healthy, sustainable and stable development of the Company, the motion of the 2005 Profit Distribution was: On the basis of the total share capital of 295,000,000 shares as at 31 December 2005, a dividend of RMB1.50 (tax included) for every 10 shares will be paid to the shareholders. Undistributed profit after the implementation of the distribution motion will be carried forward to the next year. The Company will not carry any transfer of capital surplus to share capital in 2005.

The above proposal will be considered at the shareholders’ meeting for 2005.

SECTION 8 REPORT OF THE SUPERVISORY COMMITTEE

1. WORK STATUS OF THE SUPERVISORY COMMITTEE

The 16th Meeting of the 2nd Session of the Supervisory Committee duly convened on 7 April 2005, the Committee considered and approved unanimously the following resolutions:

a. that the 2004 Work Report of the Supervisory Committee be considered and approved;

b. that the Statement relating to the Accounting Policy and Changes in Accounting Estimates of the Company be considered and approved;

c. that the 2004 Annual Report and Highlights be considered and approved;

d. that the 2004 Profit Distribution plan be considered and approved.

26 2. INDEPENDENT OPINION OF THE SUPERVISORY COMMITTEE

During the reporting period, the Supervisory Committee has proactively carried out its work and diligently performed its supervisory functions in strict accordance with the laws and regulations of the Company Law of the PRC, the Securities Laws of the PRC and the Articles of the Company and through attendances at the Board of Directors’ meetings and General Meetings. The Supervisory Committee has issued the following opinion in respect of the operational status of the Company in 2005:

a. Legal operation of the Company

The Supervisory Committee was of the opinion that, during the year, the Company’s decision-making processes were lawful and the internal control system was relatively enhanced. The Directors, General Manager and senior officers of the Company did not engage in any act in their daily work that had infringed any laws and regulations and the Articles or harmed the interests of the Company nor abuse their powers in any act that had harmed the interests of the shareholders and workers.

b. Financial reporting of the Company

During the year, the Supervisory Committee has inspected the operation and financial position of the Company and audited the annual financial report and other documents submitted by the Board of Directors. The Supervisory Committee was of the opinion that, the financial report has reflected a true and fair view of the financial position and operating results of the Company. The annual report of the Company has been audited by Xiamen Tian Jian Hua Tian Certified Public Accountants Co., Ltd. and issued with a standard unqualified audit report. The Supervisory Committee was of the opinion that the audit opinion issued by Xiamen Tian Jian Hua Tian Certified Public Accountants Co., Ltd. was objective.

c. Application of funds raised

During the reporting period, the Company did not raise any funds nor was there any funds being raised in the previous period but used in the current reporting period.

d. Acquisitions and disposals of fixed assets

During the reporting period, the considerations of the acquisitions and disposals of fixed assets were reasonable and the transactions had complied with the legal procedures. There was no insider trading, no harm to some of shareholders’ equity interests, or no loss of the Company’s assets.

e. Connected transactions

During the reporting period, the connected transactions between the Company and the related parties were transacted on arms’ length basis in accordance with the fair value pricing and there was no act that harmed the interests of the Company and the shareholders.

SECTION 9 IMPORTANT ISSUES

I. MAJOR LITIGATIONS AND ARBITRATIONS

The Company has not been involved in any major litigations and arbitrations this year.

II. ACQUISITION AND SALES OF ASSETS,MERGERBYABSORPTION

1. The Company acquired some real estates and land use rights from Xiamen Port Holding Co., Ltd. (hereafter the ‘‘Port Holding’’). The price for the acquisition was RBM 25,212,400.00, representing 14.60% of the total profit. The related announcement was

27 published in ‘‘Securities Times’’ and ‘‘China Securities Daily’’ dated April 11, 2005. The Company acquired some land use rights from Xiamen International Port Co., Ltd. The price for the acquisition was RBM 4,529,357.90, representing 2.62% of the total profit. As of the date of the audit report, the Company has paid in full the land transfer fee. The procedures of the land transfer have been carried out.

2. The Company has sold the real estates and the land use rights to the Port Holding. The sale price was RMB1,386,970.52, representing 0.80% of the total profit. As of the date of the audit report, the Company has received the land transfer fee. The procedures of the land transfer have been carried out.

3. The Company executed the ‘‘Share Transfer Agreement’’ with the Port Holding on December 31, 2004. It is agreed in the agreement that the Port Holding will acquire 3.27% interests in Tiantong Securities Co., Ltd held by the Company for a total consideration of RMB51.5 million. The above mentioned share transfer was approved in the 34th meeting of the second board of directors, and was approved by a document entitled ‘‘Reply Concerning the Approval of the Change in the Interests of Tiantong Securities Co., Ltd’’ (document number: zhengjianjigouzi [2005]60) issued by the China Securities Regulatory Commission. The related announcement was published in ‘‘Securities Times’’ and ‘‘China Securities Daily’’ dated January 5, 2005. The Company received the above mentioned share transfer fee of RMB51.5 million. The procedures of the share transfer have been carried out.

The above mentioned issues do not affect the ongoing business of the Company or the stability of the management.

III. MAJOR RELATED TRANSACTION

Because the industry of comprehensive logistics which the Company is in has a long chain of business, it is unavoidable that transactions between related parties will occur, and connected transactions are necessary to the Company, and to a certain degree, some of the auxiliary services rely on such transactions. In the foreseeable future, such connected transactions will continue to occur, and will not affect the independence of the Company. The Company will enter into agreements with the companies which engage in connected transactions with the Company. The agreements will regulate such connected transactions and ensure that prices of such transactions are equitable and fair, and ensure that connected transactions are carried out in accordance with the principle of market price.

1. Connected Transactions in Relation to Daily Business

(1) The Company provides services to the Related Parties:

Year 2005 Representing the Number of Percentage of Transactions the Amount of Name of the Pricing which have Various Method of Related Party The Transactions Principle Occurred Transactions Settlement

Xiamen Haitian Transportation Pricing by 32,858,779.80 41.29% Bank transfer Container Terminals service agreement Co. Ltd.

Xiamen International Transportation Pricing by 8,685,433.68 10.91% Bank transfer Container Terminals service agreement Ltd.

Xiamen Port Holding Management of the Cost plus a 1,080,000.00 100% Bank Transfer Co., Ltd. railway percentage connection

28 (2) The Company receives the services provided by the Related Parties:

Amount of the Name of the The Principle Transaction Method of Related Party Transactions of Pricing of the Year Settlement

Xiamen Port Labour Handling and Market 17,087,336.91 Bank transfer Service Co., Ltd. loading/ transaction unloading price

Xiamen Port Engineering Market 15,279,810.04 Bank transfer Engineering Co., services transaction Ltd. price

Xiamen Haitian Container Pricing by 3,972,645.00 Bank transfer Container delivery agreenent Terminals Co. Ltd. charges

Xiamen Port Handling and Pricing by 239,589.00 Bank transfer Hailongchang loading/ agreement International unloading Freight Co., Ltd.

Xiamen Port Power Engineering Pricing by 696,993.52 Bank transfer Supply Service Services agreement Co., Ltd.

The Company entered into the ‘‘Comprehensive Services Agreement’’ with Xiamen Port (Group) Co., Ltd. in 2004. The agreement will be effective for three years. It is agreed in the agreement that Xiamen Port (Group) Co., Ltd. will provide the following comprehensive services for the Company at equitable and fair price:

(a) As for the staff transferred from Xiamen Port (Group) Co., Ltd. to the Company, Xiamen Port (Group) Co., Ltd. will provide them with a complete set housing facilities and related services in accordance with the original standards. The staff of the Company will pay rents and service fees in accordance with the same standards not higher than those of the staff of Xiamen Port (Group) Co., Ltd..

(b) The canteen of the staff of Xiamen Port (Group) Co., Ltd. will provide food and drinks for the staff of the Company and charge them the same fee as those which it charges the staff of Xiamen Port (Group) Co., Ltd.. The Company will pay RMB749,500 as the fee for the food and drinks. Xiamen Port (Group) Co., Ltd. will provide sufficient drinking tea or boiled water for the staff of the Company working in Dongdu Port.

Xiamen Port (Group) Co., Ltd. will provide cleaning service to the area of 332,200 square meters of Dongdu Port Docks. The fee for this is RMB3.6 per square meter per year.

Xiamen Port (Group) Co., Ltd. will provide cleaning service for the office building, and the apartments. The area for the service is 34,028 square meters. The fee for it is RMB4.8 per square meter per year.

Xiamen Port (Group) Co., Ltd. will be responsible for planting and gardening and managing the grass, trees and flowers within the area of Dondu port, and be responsible for the setting and managing the the flowers and evergreen plants within the office building of Dongdu Port. The fee for this is RMB245,000.

29 On February 28, 2005, Xiamen Port (Group) Co., Ltd. was reorganized as Xiamen International Port Co., Ltd.. The above mentioned business will be succeeded by its subsidiary Xiamen Port Property Co., Ltd. (hereafter ‘‘Port Property’’).The logistic comprehensive service fee payable by the Company to the Port Property is RMB2,301,602.52. As of December 31, 2005, the Company has paid all the above mentioned comprehensive service fee.

(d) Communication and power supply service

Xiamen Port Power Supply Service Co., Ltd. (hereafter ‘‘Port Power Supply’’) provide power and communication services to the Company. It will charge the Company fees in accordance the standard fees specified by the communication authority and the sale electricity price of Xiamen city. In 2005, RMB2,127,920.50 (excluding the electricity fee collected for the Port Power Supply) should be payable by the Company to Port Power Supply for the above mentioned communication and power services. As of December 31, 2005, the Company has paid all the fees mentioned above to the Port Power Supply.

(3) Leases to related parties by the Company are as follows:

Amount of transactions Name of related Particulars of for current Method of parties transactions Pricing basis year settlement

Xiamen International Lease of land Contract price 3,034,704.00 Bank transfer Port Co., Ltd

Xiamen Shuichan Lease of land Contract price 1,788,305.80 Bank transfer Group Co., Ltd.

Xiamen Port Holding Lease of Contract price 644,441.00 Bank transfer Co. Ltd. building

Xiamen Port Holding Lease of Contract price 1,754,200.00 Bank transfer Co. Ltd. depots

Xiamen Haitian Lease of Contract price 800,000.00 Bank transfer Container premises Terminals Co., Ltd.

Note: The Company entered into the ‘‘Lease Agreement of Land Use Rights’’ with Port Group in 2004. Under the agreement, the Company agreed to lease a piece of land in Dongdu Terminal with an area of 63,223 sq.m. from Port Group, for a lease duration of 20 years commencing from August 2004. The annual rent is RMB48 per square meter, totalling RMB3,034,704.00 per annum. Subsequent to the full conversion in which Port Group has changed to Xiamen International Port in 2005, the above lease was subsequently changed to Xiamen International Port. As at 31 December 2005, the Company has not settled the above rents in full to Port Group.

30 (4) Leases to the Company by the related parties are as follows:

Amount of transactions Name of related Particulars of for current Method of parties transactions Pricing basis year settlement

Xiamen Haitian Lease of Contract price 957,248.00 Bank transfer Container equipment Terminals Co., Ltd.

Xiamen International Lease of Contract price 224,400.00 Bank transfer Container Terminal equipment Ltd.

2. Connected transactions arising from transfer of assets and equity interests

(1) Sales of fixed assets and intangible assets to related party by the Company are as follows:

Amount of transactions Name of related Particulars of for current Method of parties transactions Pricing basis year settlement

Xiamen Port Holding Sale of Contract price 1,386,970.52 Bank transfer Co. Ltd. property and transfer of land rights

(2) Purchase of fixed assets and intangible assets from related parties by the Company are as follows:

Amount of transactions Name of related Particulars of for current Method of parties transactions Pricing basis year settlement

Xiamen Port Holding Purchase of Contract price 25,212,400.00 Bank transfer Co. Ltd. property and land rights

Xiamen International Purchase of Contract price 4,529,357.90 Bank transfer Port Co., Ltd land rights

(3) Transfer of equity interests

On 31 December 2004, the Company entered into the ‘‘Agreement on Transfer of Equity Interests’’ with Xiamen Port Holding Co., Ltd. Under the agreement, Xiamen Port Holding agreed to acquire the equity interests of 3.27% in Tiantong Securities held by the Company with a considerations of RMB51,500,000.

31 3. Credit, indebtedness and guarantees between the Company and related parties

(1) Credit and indebtedness between the Company and related parties

Unit: RMB

Provision of capital to the Provision of capital to the Company by related related parties parties Amount Amount Names of related parties incurred Balance incurred Balance

Xiamen Haitian Container Terminals Co. Ltd. 255,371,971.09 3,000,000.00 250,493,450.36 26,667,271.80 Xiamen International Container Terminals Ltd. 87,027,595.29 1,717,021.86 90,409,029.34 8,578,231.67 3,577,261.62 91,129.35 3,381,011.81 19,690.00 Xiamen Port Holding Co. Ltd. 55,238,339.26 2,124,556.28 53,900,259.91 1,928,193.40 Xiamen Port Power Supply Service Co., Ltd. 5,585,828.91 2,200,875.29 5,964,135.38 783,733.57 Xiamen Port Gaoqi Ship Repairing Factory 20,700.00 224,924.63 Xiamen Port Property Management Co., Ltd 160,000.00 0.00 346,233.4 269,927.86 Xiamen Port Labour Services Co. Ltd 16,675,635.79 13,771,020.50 439,481.30 Xiamen Port Hailongchang International Freight Co. Ltd 74,991.44 239,589.00 242,657.60 Xiamen International Port Co., Ltd 4,634,644.9 9,393,546.6 4,758,901.7 Xiamen Port Development and Construction Co. Ltd 3,573,735.89 4,119,850.89 Total 428,366,968.30 9,358,507.41 431,472,012.19 47,807,939.79

Note: (a) The greater incurred amount and balance with related parties between the Company and Xiamen Haitian Container Terminals Co. Ltd. and Xiamen International Container Terminals Ltd. were mainly due to larger payments and receipts made on behalf by Penavico Company, a subsidiary of the Company, in its agency business. Trade payables comprised a balance of RMB26,667,271.80 payable to Xiamen Haitian Container Terminals Co. Ltd., a majority of which was loading/unloading charge of RMB22,660,847.43 collected on behalf but yet to be paid by the Company’s subsidiary Penavico Company; amount payable of RMB8,578,231.67 due to Xiamen International Container Terminals Ltd., which was loading/unloading charge collected on behalf but yet to be paid by the Company’s subsidiary Penavico Company; and amount payable of RMB439,481.30 due to Xiamen Port Labour Services Co. Ltd, which was unsettled labour fee for transporting and loading/unloading.

(b) The greater incurred amount with related parties between the Company and Xiamen Port Holding Co. Ltd. was mainly due to an amount of RMB51,500,000 for equity transfer receivable and received from Tiantong Securities Co., Ltd.

32 (2) Guarantees provided by the Company for the bank notes issued by subsidiaries

Percentage of guarantee balance to Accumulated Amount at Including: the net amount for the end of the default assets of the Name of company the year year guarantee Company

Xiamen Road & 54,267,465.00 26,799,034.00 Nil 2.21% Bridge Building Materials Corporation Ltd.

Note: (a) The guarantee period for the aforesaid unsettled banker’s acceptance at the end of the year is from 16 August 2005 to 4 August 2006.

(b) In January 2005, the Company’s subsidiary Logistics Company signed a guarantee contract with maximum amount (Xing Yin E Zi [2005] No. 001) with Industrial Bank Co., Ltd Xiamen Branch, pursuant to which Logistics Company shall provide a guarantee of RMB24,000,000 for the short term facility granted to Xiamen Road & Bridge Building Materials Corporation Ltd. In August 2005, the Company signed a guarantee contract with maximum amount (Xing Yin E Zi [2005] No. 028) with Industrial Bank Co., Ltd Xiamen Branch, pursuant to which the Company shall provide a guarantee of RMB30,000,000 for the short term facility granted to Xiamen Road & Bridge Building Materials Corporation Ltd. Industrial Bank Co., Ltd Xiamen Branch shall issue a banker’s acceptance on behalf of Xiamen Road & Bridge Building Materials Corporation Ltd. within the maximum amount guaranteed.

(3) Guarantees provided by the Company for the bank loans granted to subsidiaries:

Percentage of guarantee balance to Accumulated Amount at Including: the net amount for the end of the default assets of the Name of company the year year guarantee Company

Xiamen Port 35,445,688.00 35,445,688.00 Nil 2.93% Shipping Co., Ltd.

Note: On 10 March 2005, Shipping Company, a subsidiaryoftheCompany,enteredintoacapital entrustment loan contract with and China Construction Bank Corporation Zhangzhou Branch, pursuant to which Shipping Company borrowed a sum of RMB48,000,000 from by way of bank entrustment loan. The loan will be utilized for the construction of 2 fully reversible tugboats with operating capacities of 4,000 hp, and the Company shall provide guarantee for this loan. According to the provisions of the entrustment loan agreement, the principal of the loan shall be repaid over a period of 12 years starting from the month after the 2 tugboats have commenced operation. Interests on loans are accrued on the day after 10 months from the day on which the loan is deposited into the account of Shipping Company. The first interest payment day is the first day of the month after the 2 fully reversible tugboats (with operating capacities of 2,942 KW) have commenced operation for one year. Subsequently, that date will be used as a basis on which interests accrued on a monthly and daily basis shall be settled annually. In accordance with the provisions of the aforesaid contract, Shipping Company is not required to provide and pay for the interests of that loan for the year ended 31 December 2005.

IV. MATERIAL CONTRACTS AND ITS PERFORMANCE

1. Trust, contract management or lease of assets of other companies by the Group or of the Group’s assets by other companies:

During the Company’s reporting period, there was no material contract in which its profit accounted for more than 10% (10% inclusive) of the total profit for the year.

33 2. Material guarantee:

(1) Guarantees provided by the Company for the bank notes issued by subsidiaries

Percentage of guarantee balance to Accumulated Amount at Including: the net amount for the end of the default assets of the Name of company the year year guarantee Company

Xiamen Road & 54,267,465.00 26,799,034.00 Nil 2.21% Bridge Building Materials Corporation Ltd.

Note: (a) The guarantee period for the aforesaid unsettled banker’s acceptance at the end of the year is from 16 August 2005 to 4 August 2006.

(2) Guarantees provided by the Company for the bank loans granted to subsidiaries:

Percentage of guarantee balance to Accumulated Amount at Including: the net amount for the end of the default assets of the Name of company the year year guarantee Company

Xiamen Port 35,445,688.00 35,445,688.00 Nil 2.21% Shipping Co., Ltd.

3. Trust management of cash assets

During the reporting period, the Company had not entrusted other parties to manage its cash assets.

34 4. Other Material Contract

The Company signed a ‘‘Dismantle Compensation Agreement’’ with Xiamen Port Logistics Co., Ltd. on 20 December 2005, with a total consideration of RMB25,480,000. The contract was completed.

V. UNDERTAKINGS FROM SHAREHOLDERS RELATED TO REFORM OF SHARE CLASSIFICATION

The application for share reform and the announcement document will be submitted to the Shenzhen Stock Exchange before 31 March 2006.

VI. ENGAGEMENT AND DISMISSAL OF THE AUDITOR

At the 30th meeting of the second session of the Board of Directors of the Company, it was considered and approved to further engage Xiamen Tianjian Huatian Certified Public Accountants as the Company’s auditor for the year 2005. Auditor fee for the year was RMB400,000. The engagement shall be proposed at the shareholders’ general meeting for approval. Xiamen Tianjian Huatian Certified Public Accountants was engaged by the Company as financial auditor for the year 1999 to 2001 and for the year 2004, and has provided auditing services for the Company for 4 years. Remuneration of RMB400,000 was paid by the Company in the reporting period.

VII. DURING THE REPORTING PERIOD, THE COMPANY, ITS BOARD OF DIRECTORS AND ITS DIRECTORS HAVE NOT BEEN INVESTIGATED BY CSRC, CRITICISED, PUBLICLY CENSURED BY THE STOCK EXCHANGE, NOR HAS IT BEEN IMPOSED OF ANY ADMINISTRATIVE PENALTY.

35 SECTION 10 FINANCIAL STATEMENT

1. AUDITORS’ REPORT

To the shareholders of Xiamen Development Port Co., Ltd.:

We have audited the accompanying balance sheets and the consolidated balance sheets of Xiamen Port Development Co., Ltd. (hereinafter referred to as the ‘‘XPD’’) as at 31 December 2005, the income statements and the income distribution statements, the consolidated income statements and the consolidated income distribution statements, and the statements of cash flows and the consolidated statements of cash flows for the year then ended. The preparation of these financial statements is the responsibility of XPD’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We plan and perform our audit in accordance with the Independent Auditing Standards for Certified Public Accountants in the People’s Republic of China in order to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant accounting estimates made by management in the preparation of the financial statements, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the above financial statements conform with the Accounting Standards for Business Enterprises and the ‘‘Accounting System for Business Enterprises’’ promulgated by the People’s Republic of China and present fairly, in all material respects, the financial position of XPD as at 31 December 2005 and the results of its operations and its cash flows for the year then ended.

Xiamen Tian Jian Hua Tian Certified Public Accountants Co., Ltd. Chang Xuan Zhang Guolin Certified Public Accountants of China Certified Public Accountants of China

Xiamen, PRC 23 March 2006

36 2. FINANCIAL STATEMENTS

Balance Sheet As at 31 December, 2005

Prepared by: Xiamen Port Development Co., Ltd. Currency: RMB

Consolidated Parent Company As at As at As at As at 31 December, 31 December, 31 December, 31 December, Assets Note 2005 2004 Note 2005 2004

Current assets: Monetary assets 1 396,010,359.86 418,608,395.44 65,778,219.25 98,040,851.11 Short-term investments 2 853,614.06 837,655.74 Bills receivable 3 19,053,028.83 5,200,000.00 16,309,567.93 3,200,000.00 Dividends receivable 12,124,634.28 Interest receivable Accounts receivable 4 305,643,651.74 362,648,413.32 40 26,181,123.62 24,612,386.97 Other receivables 5 19,093,314.88 15,413,256.20 41 8,353,358.19 14,963,287.53 Prepayments 6 33,068,181.84 4,099,122.15 30,483,479.53 610,001.30 Subsidies receivable Inventories 7 64,463,244.95 49,993,612.77 13,708,997.42 6,100,680.01 Unamortised expenses 8 2,699,411.48 2,160,526.35 116,667.00 Long-term debt investments due within one year Other current assets Total current assets 840,884,807.64 858,960,981.97 172,939,380.22 147,643,873.92 Long-term investments Long-term equity investments 9 78,939,787.08 130,166,648.62 42 550,145,663.01 535,164,142.11 Long-term debt investments Consolidated difference 10 2,742,270.30 3,345,479.94 Total long-term investments 81,682,057.38 133,512,128.56 550,145,663.01 535,164,142.11 Fixed assets Fixed assets at costs 11 1,149,214,128.89 1,077,065,785.17 559,323,530.19 538,435,731.65 Less: Accumulated depreciation 11 412,029,396.99 364,203,463.29 202,957,206.01 181,362,284.97 Net fixed assets 11 737,184,731.90 712,862,321.88 356,366,324.18 357,073,446.68 Less: Provision for impairment on fixed assets 11 567,074.80 699,700.60 330,470.14 330,470.14 Fixed assets (Net book value) 11 736,617,667.10 712,162,621.28 356,035,854.04 356,742,976.54 Construction materials 218,915.00 Construction-in-progress 12 79,142,453.25 28,214,756.30 42,391,518.57 659,690.00 Disposal of fixed assets Total fixed assets 815,760,110.35 740,596,292.58 398,427,372.61 357,402,666.54 Intangible assets and other assets: Intangible assets 13 343,185,211.32 322,497,088.30 301,871,642.03 316,347,752.77 Long-term unamortised expenses 14 1,168,664.56 2,500,837.65 Other long-term investments

Total intangible assets and other assets 344,353,875.88 324,997,925.95 301,871,642.03 316,347,752.77 Deferred taxation payment: Deferred taxation credit Total assets 2,082,680,851.25 2,058,067,329.06 1,423,384,057.87 1,356,558,435.34

Person in charge: Accounts Officer: Chief of Accounts Department:

37 Balance Sheet (Continued) As at 31 December, 2005

Prepared by: Xiamen Port Development Co., Ltd. Currency: RMB

Consolidated Parent Company As at As at As at As at 31 December, 31 December, 31 December, 31 December, Liabilities and equity interest Note 2005 2004 Note 2005 2004

Current liabilities: Short-term loans 15 45,000,000.00 17,000,000.00 45,000,000.00 Bills payable 16 90,578,142.26 23,051,238.60 48,135,000.00 Accounts payable 17 407,618,706.44 418,895,881.88 12,202,861.39 1,269,374.59 Advances from customers 18 23,053,040.81 30,198,378.74 356,721.21 1,967,547.49 Salaries payable 33,274,097.51 18,122,110.60 7,340,953.02 2,602,168.00 Accrued Welfare 15,431,688.47 15,570,930.08 3,461,944.56 4,331,199.40 Dividends payable 19 Taxes payable 20 25,670,564.65 26,262,356.20 5,852,773.61 6,674,061.86 Other levies payable 21 251,376.48 153,365.11 38,871.98 23,896.50 Other payables 22 41,310,051.97 87,353,204.84 89,789,443.12 71,761,541.73 Fees in advance 219,739.34 110,264.08 Estimated liabilities Long-term liabilities due within one year 23 12,245,900.00 9,045,900.00 Other current liabilities Total current liabilities 694,653,307.93 645,763,630.13 212,178,568.89 88,629,789.57 Long-term liabilities Long-term loans 24 35,445.688.00 Debenture payables Long-term payables 25 36,668,476.16 181,414,376.16 132,500,000.00 Special payables Long-term liabilities Total long-term liabilities 72,114,164.16 181,414,376.16 132,500,000.00 Deferred taxation payment: Deferred taxation debit Total Liabilities 766,767,472.09 827,178,006.29 212,178,568.89 221,129,789.57 Minority interests 26 104,707,890.18 95,460,677.00 Shareholders’ interests Share capital 27 295,000,000.00 295,000,000.00 295,000,000.00 295,000,000.00 Less: Repaid investments Net share capital 27 295,000,000.00 295,000,000.00 295,000,000.00 295,000,000.00 Capital reserve 28 512,355,500.25 509,869,380.09 512,355,500.25 509,869,380.09 Surplus reserve 29 112,048,767.42 88,540,622.80 112,048,767.42 88,540,622.80 Included: Statutory public welfare fund 29 48,202,323.39 36,448,251.08 48,202,323.39 36,448,251.08 Estimated loss on investment Undistributed profit 30 291,801,221.31 242,018,642.88 291,801,221.31 242,018,642.88 Exchange difference in foreign currency statements Total shareholders’ interests 1,211,205,488.98 1,135,428,645.77 1,211,205,488.98 1,135,428,645.77 Total liabilities and shareholders’ interests 2,082,680,851.25 2,058,067,329.06 1,423,384,057.87 1,356,558,435.34

Person in charge: Accounts Officer: Chief of Accounts Department:

38 Table 1 for Balance Sheet: Details for provision for impairment on assets December 2005

Prepared by: Xiamen Port Development Co., Ltd. Currency: RMB

Beginning Decrease balance of the Increase for the (reversal) for Ending balance of Items year year the year the year

1. Aggregate provision for bad debts 13,762,762.40 3,345,237.26 — 17,107,999.66 Of which: Accounts receivable 8,936,599.36 3,008,976.24 11,945,575.60 Other receivables 4,826,163.04 336,261.02 5,162,424.06

2. Aggregate provision for decrease in value on short-term investments 307,810.73 — 47,770.68 260,040.05 Of which: Investments in stocks 307,810.73 47,770.68 260,040.05 Investments in debentures

3. Aggregate Provision for decrease in value on Inventory — — — — Of which: Merchandise-in-stock — — Raw materials — —

4. Aggregate provision for decrease in value on long-term investments 28,975,000.00 — 28,655,000.00 320,000.00 Of which: long-term equity investments 28,975,000.00 — 28,655,000.00 320,000.00 Long-term debt investments — —

5. Aggregate provision for impairment on fixed assets 699,700.60 — 132,625.80 567,074.80 Of which: Premises, buildings Machinery and equipment 699,700.60 132,625.80 567,074.80

6. Provision for impairment on intangible assets — — Of which: Royalties License

7. Provision for impairment on construction-in- progress — —

8. Impairment provision for entrusted loan — —

Person in charge: Accounts Officer: Chief of Accounts Department:

39 Table 2 for Balance Sheet: Change in Shareholders’ Interests December 2005

Prepared by: Xiamen Port Development Co., Ltd. Currency: RMB

Corresponding amount for the Amount for period last Items the period year

1. Paid-up capital (or share capital) Opening balance 295,000,000.00 295,000,000.00 Increase during the period Of which: capital reserve Surplus reserve Profit distribution Increase in paid-in capital (or share capital) Decrease during the period Closing balance 295,000,000.00 295,000,000.00

2. Capital reserve: Opening balance 509,869,380.09 505,101,211.94 Increase during the period 2,486,120.16 4,768,168.15 Of which: Premium on capital (or share capital) Provision for non-cash assets donations Credit of cash donation Provision for equity investment 2,486,120.16 4,768,168.15 Credit of appropriation Exchange difference on capital in foreign currencies Provision for increase in value of capital revaluation Other capital reserve Decrease during the period Of which: Increase in capital (or share capital) Closing balance 512,355,500.25 509,869,380.09

3. Statutory and discretionary reserve Opening balance 52,092,371.72 42,270,930.02 Increase during the period 11,754,072.31 9,821,441.70 Of which: Transfer from net profit 11,754,072.31 9,821,441.70 Of which: Statutory surplus reserve 11,754,072.31 9,821,441.70 Discretionary surplus fund Reserve fund Development fund Credit of statutory public welfare fund Decrease during the period Of which: Making up losses Increase in capital (or share capital) Distribution of cash dividends or profit Distribution of dividend for shares Closing balance 63,846,444.03 52,092,371.72 Included: Statutory surplus reserve 63,846,444.03 52,092,371.72 Reserve fund Development fund

40 Table 2 for Balance Sheet: Change in Shareholders’ Interests (Continued) December 2005

Corresponding amount for the Amount for period last Items the period year

4. Statutory public welfare fund Opening balance 36,448,251.08 26,626,809.38 Increase during the period 11,754,072.31 9,821,441.70 Of which: Transfer from net profit 11,754,072.31 9,821,441.70 Decrease during the period Of which: General welfare expenses Closing balance 48,202,323.39 36,448,251.08

5. Undistributed profit: Opening balance 242,018,642.88 163,447,109.30 Net profit for the period 117,540,723.05 98,214,416.98 Profit distribution for the period 67,758,144.62 19,642,883.40 Closing balance 291,801,221.31 242,018,642.88

Person in charge: Accounts Officer: Chief of Accounts Department:

41 Income Statements and Statements of Income Distribution For the year of 2005

Prepared by: Xiamen Port Development Co., Ltd. Currency: RMB

Consolidated Parent Company For the For the For the For the Items Note year of 2005 year of 2004 Note year of 2005 year of 2004

1. Revenue from principal operations 31 748,243,124.32 538,619,814.34 43 164,839,228.53 216,472,529.90 Less: Cost of principal operations 31 481,600,719.00 318,200,402.30 43 107,178,181.76 96,423,528.40 Taxes and surcharges for principal 32 24,076,826.04 19,349,763.29 5,670,894.53 10,674,344.91 operations

2. Profit from principal operations 242,565,579.28 201,069,648.75 51,990,152.24 109,374,656.59 Add: Other operating profit 33 15,010,330.72 8,173,611.74 8,663,352.71 5,914,463.70 Less: Operation expenses 2,143,640.27 1,604,441.13 245,260.89 Management expenses 106,634,410.53 59,419,531.40 38,729,214.11 27,847,014.45 Finance costs 34 -3,822,128.76 12,065,454.94 -1,202,264.55 13,180,993.48

3. Profit from operations (Losses are 152,619,987.96 136,153,833.02 23,126,555.39 74,015,851.47 indicatedwith‘‘–’’) Add: Revenue from investments (Losses 35 8,382,104.01 –13,542,510.35 44 92,379,185.78 28,542,442.19 are indicated with ‘‘–’’) Subsidy income 36 11,000,000.00 11,000,000.00 11,000,000.00 11,000,000.00 Revenue received apart from 1,692,369.98 2,048,079.28 466,642.73 179,063.24 operations Less: Expenses incurred apart from 958,543.57 755,964.49 24,243.77 18,259.08 operations

4. Total profit (Losses are indicated with 172,735,918.38 134,903,437.46 126,948,140.13 113,719,097.82 ‘‘–’’ ) Less: Income tax 37 30,750,335.56 25,987,423.29 9,407,417.08 15,504,680.84 Profit and loss of minority interest 38 24,444,859.77 10,701,597.19 Add: Estimated loss on investment

5. Netprofit(Lossesareindicatedwith 117,540,723.05 98,214,416.98 117,540,723.05 98,214,416.98 ‘‘–’’ ) Add: Opening undistributed profit 242,018,642.88 163,447,109.30 242,018,642.88 163,447,109.30 Other credits

6. Attributable profit 359,559,365.93 261,661,526.28 359,559,365.93 261,661,526.28 Less: Transfer to statutory surplus 29 11,754,072.31 9,821,441.70 11,754,072.31 9,821,441.70 reserve Transfer to statutory public welfare 29 11,754,072.31 9,821,441.70 11,754,072.31 9,821,441.70 fund Transfer to staff reward and welfare fund Transfer to Reserve fund Transfer to development fund Transfer of profit to investment

7. Profit attributable to investors 336,051,221.31 242,018,642.88 336,051,221.31 242,018,642.88 Less: Dividends payable to preference shareholders Appropriation of discretionary reserve Dividends payable to ordinary 30 44,250,000.00 44,250,000.00 shareholders Transfer to dividends payable to ordinary shareholders

8. Closing balance for undistributed 291,801,221.31 242,018,642.88 291,801,221.31 242,018,642.88 profit

42 Supplementary Information

Items:

1. Sale and disposal of departments or invested units

2. Loss incurred from natural disasters

3. Total increase (or decrease) in profit arising from change of accounting policy

4. Total increase (or decrease) in profit arising from change of estimation on accounting

5. Loss from debt reorganization

6. Others

Person in charge: Accounts Officer: Chief of Accounts Department:

Income Statements December 2005

Prepared by: Xiamen Port Development Co., Ltd. Currency: RMB

Rate of return Rate of return on net assets Earnings per Earnings per on net assets (weighted share (fully share (weighted (fully diluted) average) diluted) average) Profit for the report period (%) (%) (RMB/share) (RMB/share)

Profit from principal operations 20.03 20.31 0.82 0.82 Profit from operations 12.60 12.78 0.52 0.52 Net profit 9.70 9.84 0.40 0.40 Net profit before extraordinary profit and loss 8.88 9.01 0.36 0.36

Person in charge: Accounts Officer: Chief of Accounts Department:

43 Cash Flow Statements For the year of 2005

Prepared by: Xiamen Port Development Co., Ltd. Currency: RMB

Items Note Consolidated Note Parent Company

1. Cash flow generated from operating activities Cash from sale of commodity and provision of services 764,102,091.24 170,261,589.48 Tax rebate received Cash received from other operating activities 39 68,727,619.20 45 97,164,843.27 Total cash inflow 832,829,710.44 267,426,432.75 Cash for purchasing of commodity and receiving of service 274,334,440.07 51,334,950.78 Cash paid to and for staff 180,497,854.51 50,471,425.73 Cash paid for various taxation payments 80,403,140.42 18,952,222.07 Cash paid for other operating activities 39 48,409,090.21 45 20,744,982.01 Total cash outflow 583,644,525.21 141,503,580.59 Net cash flow generated from operating activities 249,185,185.23 125,922,852.16

2. Cash flow generated from investing activities Cash from recovery of investments 54,325,755.83 54,325,755.83 Cash from gains in investments 8,898,152.82 46,550,144.34 Net cash received for disposal of fixed assets, intangible assets and other long-term investments 1,609,089.63 1,386,970.52 Cash received from other investing activities Total cash inflow 64,833,003.28 102,262,870.69 Net cash paid for acquisition and installation of fixed assets, intangible assets and other long-term assets 160,704,849.07 90,909,626.06 Cash paid for investments 1,968,258.65 1,743,258.65 Cash paid for other investing activities Total cash outflow 162,673,107.72 92,652,884.71 Net cash flow generated from investing activities –97,840,104.44 9,609,985.98

3. Cash flow generated from financing activities Cash from recovery of investment Cash received from borrowings 80,445,688.00 45,000,000.00 Cash received from other financing activities Total cash inflow 80,445,688.00 45,000,000.00 Cash paid for repayment of indebtedness 208,545,900.00 182,500,000.00 Cash paid for distribution of dividends, profit or interest payments 39 62,570,025.26 44,320,470.00 Cash paid for other financing activities Total cash inflow 271,115,925.26 226,820,470.00 Net cash flow generated from financing activities –190,670,237.26 –181,820,470.00

4. Influence of change of exchange rates 658,536.50

5. Net increase in cash and cash equivalents –38,666,619.97 –46,287,631.86

Person in charge: Accounts Officer: Chief of Accounts Department:

44 Cash Flow Statements (Continued) For the year of 2005

Prepared by: Xiamen Port Development Co., Ltd. Currency: RMB

Supplementary information Note Consolidated Note Parent Company

1. Net profit adjusted as cash flow from operating activities Net profit 117,540,723.05 117,540,723.05 Add: *Minority interests 24,444,859.77 Provision of impairment of assets 3,297,466.98 270,195.79 Depreciation of fixed assets 60,536,000.77 24,164,178.96 Amortization of fixed assets 7,238,020.57 6,378,035.08 Long-term unamortised expenses 1,345,733.09 Decrease in unamortised expenses (Less: Increase) –538,885.13 116,667.00 Increase in provision expenses (Less: Decrease) 109,475.26 Loss on disposal of fixed assets, tangible assets and other long-term assets –551,659.74 251,776.61 Loss on scrapped fixed assets 180,232.88 Finance costs 1,414,729.54 70,470.00 Loss on investment (Less: Surplus) –8,382,104.01 –92,379,185.78 Deferred taxation debit (Less: Credit) Decrease in inventories (Less: Increase) –14,469,632.18 –7,608,317.41 Decrease in operational receivables (Less: Increase) 10,502,614.38 –37,941,853.47 Increase in operational payables (Less: Increase) 46,920,380.00 115,060,162.33 Others Net cash flow generated from operating activities 249,185,185.23 125,922,852.16

2. Investing and financing activities which involve no cash flow Capitalized liabilities Convertible bonds due within one year Finance lease fro fixed assets

3. Net increase in cash and cash equivalents Closing balance of monetary fund 39 359,743,120.58 45 51,753,219.25 Less: Opening balance of monetary fund 39 398,409,740.55 98,040,851.11 Add: Closing balance of cash equivalents Less: Opening balance of cash equivalents Net increase in cash and cash equivalents –38,666,619.97 –46,287,631.86

Person in charge: Accounts Officer: Chief of Accounts Department:

45 NOTE TO FINANCIAL STATEMENTS 2005

I. COMPANY BACKGROUND

Xiamen Port Development Co., Ltd. (the ‘‘Company’’), formerly known as Xiamen Luqiao Joint Stock Company Limited, changed to its present name on 22 November 2004. Road & Bridge Construction Investment Corporation of Xiamen, the original sole promoter, injected into the Company, after assessment and valuation, all net assets of Xiamen Bridge Management Company and the related assets and liabilities of the Haicang Bridge project under construction, which were converted into shares of the Company. The joint-stock limited company was established by means of public subscription through an offering of Renminbi- denominated ordinary shares (A Shares) to the general public on 3 February 1999. The Shares of the Company were quoted and dealt on the Shenzhen Stock Exchange on 29 April 1999.

On 31 July 2004, pursuant to the resolution passed by the first extraordinary general meeting of 2004 of the Company and the approval under Document Zheng Jian Gong Si Zi (2004) No. 25 (Opinion in respect of the Significant Asset Reorganisation Proposal of Xiamen Luqiao Joint Stock Company Limited) issued by China Securities Regulatory Commission, the Company and Xiamen Port (Group) Co., Ltd. (‘‘Port Group’’) entered into swaps of significant assets, that is, Port Group swapped its own assets, being its equity interests in Xiamen Waili Tally Co. Ltd. (‘‘Tally Company’’), China Ocean Shipping Agency (Xiamen) Co., Ltd. (‘‘Xiamen Ocean Shipping Agency’’), Xiamen Port Logistics Co., Ltd. (‘‘Logistics Company’’), Xiamen Port (Group) Domestic Shipping Agent Co. Ltd. (‘‘Domestic Shipping Agency’’), Xiamen Harbour Lurong Water-and-Railway Coordinated Transportation Co. Ltd. (‘‘Lurong Company’’) and Xiamen Port Shipping Co., Ltd. (‘‘Shipping Company’’) and all net assets and certain land use rights of Xiamen Port (Group) Co. Ltd. Dongdu Branch (‘‘Dongdu Branch’’), for the assets and corresponding liabilities of two bridges (Xiamen Bridge and Dongdu Bridge) owned by the Company.

Subsequent to the assets swap, the Company changed to its present name and also its scope of operation to: operation of terminals and other port infrastructure, engaging in the operation of loading and unloading and warehousing and storage of cargoes within ports area; integrated logistics services (operating with related permits), trans-shipments and multi-modal consolidation services (excluding transportation), and logistics information management.

On 12 August 2005, the Company changed its scope of operation to: operation of terminals and other port infrastructure, engaging in the operation of loading and unloading and warehousing and storage of cargoes within port areas; management of logistics supply chains, planning and consultancy of overall logistics solutions, trans-shipments and multi-modal consolidation services (excluding transportation), logistics information management; operation of imports- exports of all merchandises and technologies (other than those operated by companies designated or merchandises and technologies forbidden for imports by the State); wholesaling and retailing of construction materials, petrochemical raw materials and products (excluding dangerous chemicals and controlled chemicals), mining products (excluding those under state controls and monopolies), machinery and equipment, metallic, alternate current and electronic products, textile products, garments and daily consumables, farming and husbandry products, stationery, sports goods and appliances, and handicraft art works.

II. PRINCIPAL ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF CONSOLIDATED ACCOUNTING STATEMENTS

1. Current accounting standards and accounting system of the Company

The Company has implemented the Accounting Standards for Business Enterprises and the relevant regulations of the ‘‘Accounting System for Business Enterprises’’.

2. Accounting year

The accounting year of the Company runs from 1 January to 31 December of each calendar year.

46 3. Reporting currency for accounting

The reporting currency of the Company for accounting is Renminbi.

4. Basis of accounting and principle of cost measurement

The Company adopts the accrual basis as its basis of accounting and the double-entry method of bookkeeping. Unless otherwise specified in the notes, assets are recorded at the historical (actual) costs of acquisition. Provisions of corresponding impairment losses are recognised in respect of any subsequent impairment of assets.

The carrying amounts of assets acquired by the Company under the assets swap are reconfirmed in accordance with the ‘‘Accounting Standards for Business Enterprises — Non-monetary Transactions’’, and corresponding adjustments have been made to the carrying amounts of long-term investments, fixed assets and land use rights.

5. Foreign currency transactions and translation for financial statements denominated in foreign currency

Non-reporting currency transactions are translated into Renminbi at the mid-market exchange rates quoted by the People’s Bank of China prevailing at the transaction dates. All year-end balances of monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at the year-end mid-market exchange rates. Foreign exchange differences arising in the period of construction are recognised in long-term unamortised expenses and those arising from borrowings for the acquisition and construction of fixed assets are dealt with according to the principle of capitalisation of borrowing costs; other differences are recognised in the profit and loss of the period as foreign exchange gains and losses.

6. Recognition of cash equivalents

In preparing the cash flow statements of the Company, cash equivalents represent short- term highly liquid investments which are readily convertible into known amounts of cash, subject to an insignificant risk of changes in value.

Restricted bank balances do not form part of cash and cash equivalents in the cash flow statements.

7. Short-term investments

Short-term investments are stated at the investment costs on acquisition. Cash dividends and interest of short-term investments are initially offset against the carrying amounts of investments upon actual receipt. Upon disposals, the differences between the carrying amounts of short-term investments and the actual considerations received are recognised as investment gains in the current period.

Short-term investments are stated at the lower of costs and market value at the year-end. Provision for impairment of short-term investments is made in respect of any differences where cost is higher than market price on an individual investment category basis. Estimated impairment losses of short-term investments are included in the profit and loss of the current period.

8. Bad debts provision on accounts receivable, bad debts losses and bad debts provision

The Company adopts the provision method in respect of bad debt losses. Bad debts provisions are calculated as certain percentages of the accounts receivable (including accounts receivable and other receivables) balances at year-end. Subsequent to the assets swap, based on the special characteristics of the retained assets of the Company (primarily building materials production) and the swapped assets from Port Group (primarily port

47 logistics services), bad debts provisions are calculated as certain percentages of the accounts receivable (including accounts receivable and other receivables) balances at year-end, details of the percentage of provision are as follows:

Port Logistics Services Building Materials Production Percentage (%) of provision Percentage (%) of provision on Ageing on accounts receivable accounts receivable

Within 1 year 0.5 0 (inclusive) 1yearto2years 10 10 2 years to 3 years 50 20 3 years to 5 years 100 50 Over 5 years 100 100

Note: No bad debts provision has been made in respect of inter-group accounts receivable consolidated by the Company as well as guarantee funds, pledge funds and standby funds deposited with other companies. Where the recoverability of a certain account receivable is significantly different from other accounts receivable, the Company will adopt an individual method for bad debts provision of that account receivable.

Recognition criteria for bad debts losses:

(1) the irrecoverable amount of a bankrupt or deceased debtor whose assets or estate are insufficient to repay the debt;

(2) the irrecoverable receivables, with clear specific evidences, of a debtor who is unable to perform the repayment obligation after the debt was overdue.

In the event that the accounts receivable is confirmed to be irrecoverable, it is offset against the corresponding bad debts provision when approved as bad debt losses.

9. Inventories

Inventories are materials and supplies held for sale in the process of production for such sale, or to be consumed in the process of production or in the rendering of services and merchandises consigned for sale. Inventories comprise raw materials, merchandises-in- stock, finished goods, despatched merchandises and low-value consumables.

Inventories are stated at actual costs on acquisition and cost of requisitioned or despatched inventories are confirmed either in accordance with the method applicable to the situation or the weighted average method.

Inventories of raw materials for concrete are kept on a periodic inventory system whereas inventories of spare parts and components are kept on a perpetual inventory system. Physical stock-takings of inventories are carried out at year-end with any differences and spoilages being recognised in the profit and loss of the current period.

Low-value consumables are amortised one-off upon requisition.

Year-end inventories are stated at the lower of carrying amounts and net realisable value. Provision for impairment of inventories is made in respect of any difference where net realisable value is lower than the carrying amount on an individual inventory category basis. Estimated impairment losses of inventories are included in the profit and loss of the current period.

10. Long-term investments

Long-term investments comprise equity investments, unrealisable or non-realisable bond investments, other debenture investments and other investments intended to be held for over one year (exclusive).

48 Long-term equity investments are accounted for as follows: the equity method is adopted where the Company holds 20% or more of the total voting rights of the investee company or, holds less than 20% but exercises any significant influence over the investee company; the cost method is adopted where the Company holds less than 20% of the total voting rights of the investee company or, holds 20% or more but does not exercise any significant influence over the investee company; the equity method is adopted where the Company holds, directly or indirectly, 50% or more of the total voting rights of the investee company whose accounting statement will be consolidated by the Company.

When the equity method is adopted, the difference between the initial investment cost of the long-term equity investment and its share of owner’s equity in the investee company is regarded as an equity investment difference which will have different accounting treatments as follows: where the equity investment difference is formed prior to the announcement of the ‘‘Questions and Answers (2) relating to the Implementation of Accounting System for Business Enterprises and related Accounting Standards’’, it is amortised over a period of 10 years by equal instalments in the profit and loss; where the equity investment difference is formed subsequent to the above announcement, the difference where initial investment cost is less than credit balance of the share of owner’s equity in the investee company, is not amortised in the profit and loss and is credited to capital reserve.

Long-term debenture investments are accounted for as follows: long-term debenture investments are stated at actual costs of acquisition and the related investment gains are recognised by instalments over their investment terms. Premiums or discounts on bond investments are amortised over the remaining terms of the bonds by straight-line method.

Other investments, such as investments in sino-foreign and project cooperative joint ventures, are accounted for by the cost method.

Long-term investments are stated at the lower of carrying amounts and recoverable amount at year-end. Provision for impairment of long-term investments is made in respect of any difference where recoverable amount is lower than carrying amount on an individual investment category basis and recognised in the profit and loss of the current period.

11. Basis, classification and valuation of fixed assets, depreciation policy and provision for impairment

Fixed assets represent tangible assets in the form of buildings, structures, equipment, machinery, electronics, transportation vehicles and other equipment and appliances with the following features: (1) held for the purpose of producing merchandise, rendering services, leasing or operating management; (2) with a useful life of over one year; (3) with unit value in excess of RMB2,000. Fixed assets are recognised when the following two conditions are satisfied: (1) economic benefits associated with the fixed asset will flow to the Company; (2) the cost of the fixed asset can be reliably measured.

Fixed assets, other than the carrying amounts of assets swapped by the assets swap which are reconfirmed in accordance with the ‘‘Accounting Standards for Business Enterprises — Non-monetary Transaction Standard’’, are stated at cost of acquisition. The cost of acquisition comprises purchase price, import duties, related expenses in transportation and insurance, and costs necessary to bring the asset to the working condition for its intended use.

Subsequent expenditure related to the fixed assets are included in the fixed assets’ carrying amounts only when the economic benefits associated with the assets that will flow to the enterprise exceed the original estimates, such as extending its useful life, enhancing product quality or reducing product cost. The amount so increased will not exceed the recoverable amount of the assets. Subsequent expenditure incurred in respect of repair and maintenance of the assets is charged to expenses in the period in which it is incurred.

49 Depreciation on fixed assets is provided by the straight-line method, based on the original costs, estimated economic useful lives and estimated residual value of each category of fixed assets with the following annual depreciation rates:

Estimated Estimated Annual depreciation Asset type useful life residual value rate

Buildings and structures 5–40 years 0–5% 2.375%–20.00% Port infrastructure 50 years 0–5% 1.90%–2.00% Storage infrastructure 25 years 0–5% 3.80%–4.00% Loading and unloading 8–25 years 0–5% 3.80%–12.50% equipment Vessels 18 years 3% 5.39% Machinery and equipment 6–12 years 0–5% 7.91%–16.67% Transportation vehicles 5–10 years 0–5% 9.50%–20.00% Electronics and other equipment 5–10 years 0–5% 9.50%–20.00%

Note: The estimated useful life of temporary buildings and structures and improvements is 5 years and that of old vessels acquired is 5 years.

Fixed assets are stated at the lower of the carrying amount and the recoverable amount at year-end. The difference where recoverable amount is lower than carrying amount is recognised as a provision for impairment of fixed assets on an individual asset basis and charged to the profit and loss of the current period.

12. Construction-in-progress and provision for impairment

Construction-in-progress is stated at actual cost. Interest charges and foreign currency exchange differences arising from borrowings used to finance engineering construction projects that have satisfied the conditions for capitalisation of borrowing costs are included in construction costs until the fixed asset is ready for intended use. Until the day when construction-in-progress is ready for intended use, it is transferred to fixed assets irrespective of completion of the final costing. The cost of fixed asset will be adjusted after the final costing is completed.

Construction-in-progress is fully reviewed at year-end. If there are evidences indicating that impairment of construction-in-progress has incurred, the construction-in-progress is stated at the lower of carrying amount and recoverable amount. Provision for impairment of construction-in-progress is made in respect of any difference where recoverable amount is lower than carrying amount on an individual construction basis and recognised in the profit and loss of the current period.

13. Capitalisation of borrowing costs

Recognition criteria for capitalisation of borrowing costs:

Interest, amortisation of discount or premium and exchange differences incurred on specific borrowings used to finance the acquisition and construction of fixed assets are capitalised as cost of asset when the conditions for capitalisation in respect of the period and amount are satisfied. Other interest expenses, amortisation of discount or premium and exchange differences are recognised as expenses when incurred. Ancillary costs incurred for arranging specific borrowings are capitalised if incurred prior to the asset being ready for intended use. Other ancillary costs are recognised as expenses when incurred. Where the ancillary costs is small, it is recognised as expenses when incurred.

Capitalisation period of borrowing costs:

(1) Commencement of capitalisation: capitalisation of interest, amortisation discount or premium and exchange differences incurred on specific borrowings commences when the following three conditions are satisfied concurrently: (1) expenditure for asset

50 are incurred; (2) borrowing costs are incurred; (3) acquisition and construction activities that are necessary to bring the asset ready for intended use have commenced.

(2) Suspension of capitalisation: capitalization of borrowing costs is suspended during the period in which the acquisition or construction of an asset is abnormally interrupted, and the interruption period is more than 3 consecutive months. Borrowing costs are recognised as expenses of the current period until acquisition and construction activities are resumed.

(3) Cessation of capitalisation: capitalization of borrowing costs ceases when the asset being acquired and constructed is ready for its intended use.

Capitalised amount of borrowing costs:

The capitalized amount of interest is computed as the quotient of the weighted average of accumulated expenditure incurred for the acquisition or construction of fixed asset up to the end of the current year times the capitalisation rate.

14. Valuation of intangible assets, amortisation and provision for impairment

Intangible assets, other than the carrying amounts of land use rights swapped by the assets swap which are recognised in accordance with the ‘‘Accounting Standards for Business Enterprises — Non-monetary Transaction Standard’’, comprise land use rights, software and other intangible assets, are stated at cost of acquisition. The amortisation of intangible assets is as follows:

Amortisation Category method Amortisation period

Land use rights Straight line Term of grant Software* Straight line Term of contract or beneficial period (5 years for unspecified term) Other intangible assets Straight line Term of contract or beneficial period (5 years for unspecified term)

Note: Software bundled with computers are included in the original cost of fixed assets.

Intangible assets are stated at the lower of carrying amount and recoverable amount at year-end. Provision for impairment of intangible assets is made in respect of any difference where recoverable amount is lower than the carrying amount on an individual asset basis and recognised in the profit and loss of the current period.

15. Long-term unamortised expenses

Long-term unamortised expenses comprise other long-term unamortised expenses, such as improvement expenditure of leased assets, withanamortisationperiodofover1year.The amortisation of long-term unamortised expenses is as follows:

Amortisation Category method Amortisation period

Improvement expenditure of leased assets* Straight line Beneficial period Rental charges Straight line Beneficial period Others Straight line Beneficial period

* Improvement expenditure of leased assets formed prior to the announcement of ‘‘Questions and Answers (2) relating to the Implementation of Accounting System for Business Enterprises and related Accounting Standards’’ by the Ministry of Finance will continue to be accounted for in this item, and improvement expenditure of leased assets incurred subsequent to the announcement are included in fixed assets.

51 16. Revenue recognition

(1) Revenue from sales of goods is recognised when the following 4 conditions are satisfied concurrently:

(a) when significant risks and rewards of ownership of the goods have been transferred to the buyer;

(b) no longer has custody usually associated with ownership, and effective control over the goods sold;

(d) when related revenue and costs can be reliably measured.

(2) Revenue from labour service is recognised:

(a) Revenue from labour service is recognised when the labour service has commenced and been completed within the same accounting year. If the labour service does not commence or complete within the same accounting year, related revenue from labour service is recognised according to the percentages of completion on the balance sheet date, when the result of the supply of labour service transaction can be reliably estimated.

(b) The transaction result of the labour service can be reliably estimated when the following conditions can be satisfied: total revenue and total costs from labour service can be reliably measured; economic benefits associated with the transaction can flow to the Company; the degree of completion of labour service can be reliably confirmed.

(c) The degree of completion of labour service is recognised as follows: survey of the work completed; the proportion of labour service rendered to the total labour services to be rendered; the proportion of costs incurred to the total estimated costs.

(3) Other revenue is recognised as follows:

Revenue is recognised when it is probable that economic benefits associated with the transaction will flow to the Company and the amount of revenue can be measured reliably.

17. Accounting of income tax

Enterprise income tax of the Company is accounted for by the tax liability method.

18. Basis of preparation of consolidated financial statements

The Company’s consolidated financial statements, prepared in accordance with relevant provisions of the Provisional Regulations Governing the Publication of Consolidated Financial Statements (Cai Kuai Zi 1995 No. 11) issued by the Ministry of Finance, comprise the financial statements of the Company and its subsidiaries which are consolidated. The Company and the subsidiaries in which the Company owns more than 50% of their voting capital are consolidated. The Company adopts the full consolidation method in the consolidated financial statement.

All inter-company investments, significant transactions, current accounts and unrealised gains on transactions between the Company and its subsidiaries and among subsidiaries are eliminated on consolidation.

52 Minority interests are recognised as the owner’s equity in the subsidiaries attributable to the Company less the share attributable to the parent company and is presented as a separate item between liabilities and owner’s equity on the balance sheet. Profit or loss of minority shareholders is recognised according to profit or loss realised by the subsidiaries less the investment income of the parent company and is presented as a separate item below total profit on the income statement.

19. Changes in accounting policies and account estimates

(1) There is no significant change in the accounting policies of the Company between the current year and the previous year.

(2) In March 2005, the controlling shareholder of the Company, Xiamen Port (Group) Co. Ltd., was fully converted into Xiamen International Port Co., Ltd. (‘‘International Port’’) In compliance with the requirement by Xiamen International Port for the depreciation period of the same category of fixed assets within the group companies to be consistent, as well as to reflect the economic useful lives in line with the related technical benchmarks of fixed assets, the twenty-fifth board meeting of the second session of the board of directors of the Company approved the following changes to the depreciation period of the fixed assets of the Company with effect from 1 January 2005:

Depreciation Period Depreciation Period Category of Fixed Assets prior to the change after the change

Loading and unloading machinery 8–15 years 8–25 years Vessels 5–15 years 18 years Port infrastructure 40 years 50 years

Adjustments to this change in accounting estimates shall be adopted by the methods applicable in future. The net profit of the Company has been increased by RMB5,147,900 following such change in accounting estimate.

III. MAJOR TAXES

Major taxes payable by the Company and its subsidiaries were as follows:

1. Turnover tax and surcharges

Tax (levy) rate Item Basis of tax (levy) (%)

Business tax Income from labour services 5 or 3 Value-added tax Value added in sales of goods 4, 6 or 17 Urban construction and Amount of turnover taxes payable 7 or 5 maintenance tax Education surcharge Amount of turnover taxes payable 3 Local education Amount of turnover taxes payable 1 surcharge Resources tax per cubic meter of crude ore (30% of sales RMB1.5/cubic converted into crude ore) meter

2. Enterprise income tax

The enterprise income tax rate applicable to the Company and its subsidiaries is 15%.

Pursuant to the Provisional Regulations for Tax Credit of Technology Upgrade Investment in Domestic Equipment against Enterprise Income Tax (Cai Shui Zi (1999) No. 290) issued by the Ministry of Finance and the State Administration of Taxation and the Audit Rules for Tax Credit of Technology Upgrade Investment in Domestic Equipment against

53 Enterprise Income Tax (Guo Shui Fa 2000 No. 013) issued by the State Administration of Taxation, 40% of technology upgrade investments in domestic equipment may be credited against the amount of increase in enterprise income tax payable for the year during which such domestic equipment is purchased as compared to the previous year. The enterprise income tax amount offset by investment each year shall not exceed the additional enterprise income tax amount for the year during which such domestic equipment is purchased as compared to the previous year. If the additional enterprise income tax amount for the year falls short of the investment amount available for credit, the balance of the investment amount not credited may be carried forward to offset additional enterprise income tax amount for a future year during which such domestic equipment is purchased as compared to the previous year, provided the period of tax credit should not be longer than five years.

As confirmed by the Xiamen Local Tax Bureau by the Document (0010) Xia Di Shui Zheng — 2003 No. 01 Confirmation of Tax Credit of Technology Upgrade Investment for Domestic Equipment against Enterprise Income Tax, the 2940KW fully reversible harbour tug technology upgrade project of Xiamen Port Shipping Co., Ltd., a subsidiary of the Company (applying under the name of Port Group), qualified for tax credit against enterprise income tax under the policy of tax credit of technology upgrade investment for domestic equipment against enterprise income tax and might proceed to apply for such tax credit in accordance with the relevant provisions. As confirmed by the Xiamen Local Tax Bureau by the Document (0016) Xia Di Shui Zheng — 2003 No. 07 Confirmation of Tax Credit of Technology Upgrade Investment for Domestic Equipment against Enterprise Income Tax, the towing vehicle technology upgrade project of Xiamen Port Logistics Co., Ltd., a subsidiary of the Company, qualified for tax credit against enterprise income tax under the policy of tax credit of technology upgrade investment for domestic equipment against enterprise income tax and might proceed to apply for such tax credit in accordance with the relevant provisions. As confirmedbytheHaicangDistrictLocalTax Bureau, Xiamen by the Document (0001) Xia Cang Di Shui — 2005 No. 001 Confirmation of Tax Credit of Technology Upgrade Investment for Domestic Equipment against Enterprise Income Tax, the HZS75 mixing station technology upgrade project of Xiamen Road & Bridge Building Materials Corporation Ltd. Haicang Branch, a subsidiary of the Company, qualified for tax credit against enterprise income tax under the policy of tax credit of technology upgrade investment for domestic equipment against enterprise income tax and might proceed to apply for such tax credit in accordance with the relevant provisions.

3. Property tax

Property tax is payable on 75% of the cost value of the property at a tax rate of 1.2% or on the rental income of such property at a tax rate of 12%.

4. Personal income tax

Personal income taxes payable by staff are withheld and paid by the Company on their behalf.

54 IV. SUBSIDIARIES AND SCOPE OF CONSOLIDATION

1. Basic information of subsidiaries consolidated

Percentage Included in Registered Registered Legal Investment of equity scope of Company Name Capital address Principal activities representative amount interests consolidation (RMB) (RMB)

Xiamen Road & Bridge 20,000,000 Xiamen Production and sales of Hong Hexiang 19,000,000 95% Yes Building Materials building materials Corporation Ltd.

Xiamen Jinluqiao Raw 10,000,000 Xiamen Production and sales of Hong Hexiang 8,400,000 79.80% Yes Materials Co. Ltd.(c) building materials

Xiamen Port Logistics 65,000,000 Xiamen Road cargo transportation, Lin Kaibiao 65,000,000 100% Yes Co., Ltd. container transportation

Xiamen Port Shipping 25,000,000 Xiamen Berthing and unberthing by Wang Jingyu 22,500,000 90% Yes Co., Ltd.(a) tugboats

China Ocean Shipping 30,000,000 Xiamen Domestic and international Chen Dingyu 18,000,000 60% Yes Agency (Xiamen) shipping agency Co., Ltd.

Xiamen Waili Tally 17,000,000 Xiamen Port tallying business Cheng Peixiong 14,620,000 86% Yes Co. Ltd.(a)

Xiamen Port (Group) 2,000,000 Xiamen Domestic transportation Xu Yinger 1,600,000 80% Yes Domestic Shipping and shipping agency Agent Co. Ltd

Xiamen Port Logistics 5,000,000 Xiamen Transshipment of Wu Yehong 5,000,000 100% Yes Free Trade international containers, Co., Ltd.(d) bonded warehousing

Xiamen Ganghua Container 6,630,000 Xiamen Container repair and Zeng Yingguo 3,315,000 50% Yes Service maintenance Co. Ltd.(b)

Xiamen Dongling Terminal 4,000,000 Xiamen Port cargo stacking, Xu Yinger 3,000,000 75% Yes Co., Ltd. loading and unloading

Xiamen Penavico 6,000,000 Xiamen International cargo Song Xiaojian 6,000,000 60% Yes International Freight transportation and Forwarding Co., Ltd.(c)

Xiamen Penavico 2,000,000 Xiamen Freight agency Yang Qingquan 2,000,000 60% Yes Navigation Co., Ltd.(c)

Xiamen Penavico Customs 1,800,000 Xiamen Customs declaration Song Xiaojian 1,800,000 60% Yes Broker Co. Ltd.(c) agency business

Xiamen Penavico Air 5,000,000 Xiamen Air freight agency Song Xiaojian 5,000,000 60% Yes Freight Co., Ltd.(c)

Xiamen Penavico Logistics 3,800,000 Xiamen Bonded warehousing Song Xiaojian 3,800,000 60% Yes Co., Ltd.(c)

Notes:

(a) During the year, China Ocean Shipping Tally Company Xiamen Branch changed its name to Xiamen Waili Tally Co., Ltd. following the conversion and at the same time the shareholding of the Company was changed from 100% to 86%. During the year, Xiamen Shipping Company changed its name to Xiamen Port Shipping Co., Ltd. following the conversion and the shareholding percentage of the Company remained unchanged.

55 (b) The Company holds a 50% equity interests in Xiamen Ganghua Container Service Co. Ltd. and is responsible for the day-to-day production and operations of the company pursuant to an agreement. It has been included in the scope of consolidation as the Company exercises effective control.

(c) Xiamen Penavico International Freight and Forwarding Co., Ltd, Xiamen Penavico Navigation Co., Ltd, Xiamen Penavico Customs Broker Co. Ltd., Xiamen Penavico Air Freight Co., Ltd and Xiamen Penavico Logistics Co., Ltd, are wholly-owned subsidiaries of Xiamen Ocean Shipping Agency, a subsidiary of the Company, which owns 100% interests in each of these companies directly or indirectly. The Company has effective equity interests of 60% in each of these companies. The Company has effective equity interests of 79.80% in Xiamen Jinluqiao Raw Materials Co. Ltd., a subsidiary of Xiamen Road & Bridge Building Materials Corporation Ltd (‘‘Xiamen Road & Bridge Building Materials’’), a subsidiary of the Company, which owns a direct equity interest of 84%. Investments in the above companies represent the investments in the Company’s subsidiaries, namely Xiamen Ocean Shipping Agency and Xiamen Road & Bridge Building Materials.

(d) The Company owns 10% of the shares in Xiamen Port Logistics Free Trade Co., Ltd., a 90%-owned subsidiary of Xiamen Port Logistics Co., Ltd. which is a subsidiary of the Company.

2. Changes in scope of consolidation compared to the previous year

The Company conducted significant assets swap with Port Group during the financial period of previous year, resulting in significant changes to the scope of consolidation for the year as compared to the previous year. Details are as follows:

Changes to the scope of consolidation of the income statement, profit distribution statement and cash flow statement are set out as follows:

Scope of consolidation Scope of consolidation for 2004 for 2005 Reason for change

Financial statements of Xiamen Disposal by assets swap in Luqiao Real Estate Development July 2004 Co. from January to July 2004

Financial statements of Xiamen Disposal by assets swap in Luqiao Logistic Co. from January July 2004 to July 2004

Financial statements of Xiamen Port Financial statements of Xiamen Port Acquisition by assets swap in Logistics Co., Ltd. from August to Logistics Co., Ltd. for the year July 2004 December 2004 ended 2005

Financial statements of Xiamen Port Financial statements of Xiamen Port Acquisition by assets swap in Shipping Co., Ltd. from August to Shipping Co., Ltd. for the year July 2004 December 2004 ended 2005

Financial statements of China Ocean Financial statements of China Ocean Acquisition by assets swap in Shipping Agency (Xiamen) Co., Shipping Agency (Xiamen) Co., July 2004 Ltd. from August to December Ltd. for the year ended 2005 2004

Financial statements of Xiamen Waili Financial statements of Xiamen Waili Acquisition by assets swap in Tally Co. Ltd. from August to Tally Co. Ltd. for the year ended July 2004 December 2004 2005

Financial statements of Xiamen Port Financial statements of Xiamen Port Acquisition by assets swap in (Group) Domestic Shipping Agent (Group) Domestic Shipping Agent July 2004 Co. Ltd from August to December Co. Ltd for the year ended 2005 2004

56 Scope of consolidation Scope of consolidation for 2004 for 2005 Reason for change

Financial statements of Xiamen Financial statements of Xiamen Acquisition by assets swap in Ganghua Container Service Co. Ganghua Container Service Co. July 2004 Ltd. from August to December Ltd. for the year ended 2005 2004

Financial statements of Xiamen Financial statements of Xiamen Acquisition by assets swap in Dongling Terminal Co., Ltd. from Dongling Terminal Co., Ltd for the July 2004 August to December 2004 year ended 2005

Financial statements of Xiamen Financial statements of Xiamen Acquisition by assets swap in Penavico International Freight and Penavico International Freight and July 2004 Forwarding Co., Ltd. from August Forwarding Co., Ltd. for the year to December 2004 ended 2005

Financial statements of Xiamen Financial statements of Xiamen Acquisition by assets swap in Penavico Navigation Co., Ltd. from Penavico Navigation Co., Ltd. for July 2004 August to December 2004 the year ended 2005 Financial statements of Xiamen Financial statements of Xiamen Acquisition by assets swap in Penavico Customs Broker Co. Ltd. Penavico Customs Broker Co. Ltd. July 2004 from August to December 2004 for the year ended 2005

Financial statements of Xiamen Financial statements of Xiamen Acquisition by assets swap in Penavico Air Freight Co., Ltd. Penavico Air Freight Co., Ltd. for July 2004 from August to December 2004 the year ended 2005

Financial statements of Xiamen Financial statements of Xiamen Acquisition by assets swap in Penavico Logistics Co., Ltd from Penavico Logistics Co., Ltd for the July 2004 August to December 2004 year ended 2005

Notes:

(a) The Company and Port Group conducted assets swap with 31 July 2004 as the benchmark date. In this connection, the scope of consolidation for 2004 income statement, profit distribution statement and cash flow statement included disposed assets for the period from January to July 2004 and acquired assets for the period from August to December 2004.

(b) See Note IV. 1 for details of the change in name of Xiamen Port Shipping Co., Ltd and Xiamen Waili Tally Co., Ltd and changes in the Company’s shareholding percentage during the year.

V. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS

The significant increases or decreases in the amounts of items of the Company’s income statement and profit allocation statement for the year as compared to the previous year were mainly attributable to the significant assets swap between the Company and Port Group on 31 July 2004. Subsequent to the assets swap, the components in total assets and liabilities and the principal operations of the Company were changed significantly. As stated in Note IV.2, there were significant impact in the consolidated income statement and profit allocation statement for the year as compared to the previous year. In the following notes to the financial statements, the assets swap’s effects on each item will not be stated, unless otherwise specifically indicated.

Unless otherwise stated, the monetary amounts in these notes are denominated in RMB.

57 (I) Notes to major items of the consolidated financial statements

1. Monetary funds

Monetary funds are analysed as follows:

Ending balance of the year Beginning balance of the year Original Exchange RMB Original Exchange RMB Items Currency rate equivalent Currency rate equivalent

Cash 91,154.94 18,482.66 Bank deposits 375,813,951.81 414,103,300.10 Of which: USD 12,928,958.35 8.0702 104,339,222.09 13,070,727.23 8.2765 108,179,835.91 HKD 1,668,413.10 1.0403 1,735,650.15 563,249.67 1.0643 599,466.62 EUR 26,378.02 9.5797 252,693.52 10,129.47 11.2767 114,226.99 Other 20,105,253.11 4,486,612.68 monetary funds

Total 396,010,359.86 418,608,395.44

Notes:

(a) Out of the balance of bank deposits at the end of the year, term deposits amounted to RMB154,468,023.80, comprising RMB term deposits of RMB104,017,168.77, USD term deposits of US$6,122,593.62 (equivalent to RMB49,410,555.03) and HKD deposits of HK$1,000,000.00 (equivalent to RMB1,040,300.00) .

(b) Due to the restricted usage of the staff housing renovation and repair fund account, the total amount of RMB16,161,986.17 and RMB15,712,042.21 at the end and at the beginning of the year respectively, which was included in the balance of bank deposits, have not been stated as cash and cash equivalents in preparing the cash flow statements.

(c) Since deposits of guarantee nature, such as bank acceptance bills, are not readily available for payment, other monetary funds of RMB20,105,253.11 and RMB4,486,612.68 at the end and at the beginning of the year respectively, have not been stated as cash and cash equivalents in preparing the cash flow statements.

2. Short-term investments

(1) Details of short-term investments and provision for their impairment are set out as follows:

Beginning balance of Ending balance of the year the year Provision Provision Investment for Investment for Type amount impairment amount impairment

Share investments 1,113,654.11 260,040.05 1,145,466.47 307,810.73

Total 1,113,654.11 260,040.05 1,145,466.47 307,810.73

Note: Short-term investments at the end of the year were not subject to material restrictions upon realisation.

58 (2) Provision for impairment of short-term investments

Source of Beginning Increase Decrease Ending market balance of for the for the balance of price Item the year year year the year information

Share 307,810.73 47,770.68 260,040.05 Closing investments price at date of quotation

Total 307,810.73 47,770.68 260,040.05

3. Bills receivable

(1) Details of the bills receivable are set out as follows:

Beginning Ending balance balance of the Items of the year year

Bank acceptance bills 17,942,117.23 5,200,000.00 Commercial acceptance bills 1,110,911.60

Total 19,053,028.83 5,200,000.00

(2) No amount due from related parties of the Company in bills receivable at the end of the year.

(3) No commercial acceptance bill discounted or pledged in bills receivable at the end of the year.

4. Accounts receivable

(1) Ageing analysis of accounts receivable is set out as follows:

Ending balance of the year Beginning balance of the year Percentage Bad debts Percentage Bad debts Ageing Amount (%) provision Amount (%) provision

Within 1 year 285,226,564.01 89.80 3,885,162.85 338,513,249.16 91.10 1,532,285.21 1yearto 19,566,338.17 6.16 1,673,073.84 24,528,133.94 6.60 2,182,263.46 2 years 2yearsto 7,102,075.54 2.24 1,141,326.50 3,948,971.75 1.06 885,373.55 3 years 3yearsto 3,014,454.71 0.95 2,609,613.78 2,066,426.58 0.56 1,945,012.74 4 years 4yearsto 151,563.66 0.05 108,167.38 200,593.70 0.05 100,296.85 5 years Over 5 years 2,528,231.25 0.80 2,528,231.25 2,327,637.55 0.63 2,291,367.55

Total 317,589,227.34 100.00 11,945,575.60 371,585,012.68 100.00 8,936,599.36

(2) There was no amounts due from shareholders holding 5% or more of the voting shares of the Company at the end of the year.

(3) Of balance of accounts receivable at the end of the year, top 5 customers amounted to RMB36,697,337.22, accounting for 11.55% of total accounts receivable.

59 (4) The accounts receivable at the end of the year comprised mainly RMB142,236,802.52, being reimbursable freight fees and port-related fees paid on behalf of customers in agency services, and from which the amount transferred from accounts payable by the same customer at the end of the year in respect of reimbursable freight fees and port-related fees paid on behalf of customers incurred from agency services of RMB31,740,000 has been offset.

(5) Details of major accounts receivable which have been provided in full or over 40% for bad debts at the end of year are set out as follows:

Outstanding Bad debts Reasons for Name of customers amount Percentage provision provision

Zhongxin International 1,519,678.19 89.47% 1,359,678.19 See Note (a) Transportation Ltd. Xiamen Branch

Zhongxin International 612,783.24 100% 612,783.24 See Note (b) Transportation Ltd. Xiamen Branch, Zhangzhou Office

272,187.00 100% 272,187.00 Based on ageing

737,718.13 100% 737,718.13 Based on ageing

142,705.78 100% 142,705.78 Based on ageing

Xiamen International Trade 666,534.00 100% 666,534.00 Doubtful debt, Group Corp., Ltd basedonageing

493,799.90 100% 493,799.90 Based on ageing

290,853.40 100% 290,853.40 Based on ageing

Xiamen Xiagong Group Co., 243,994.40 100% 243,994.40 Based on ageing Ltd.

213,336.90 100% 213,336.90 Based on ageing

158,567.64 100% 158,567.64 Based on ageing

125,000.00 100% 125,000.00 Based on ageing

180,167.52 100% 180,167.52 Based on ageing

231,048.75 100% 231,048.75 Based on ageing

Total 5,888,374.85 5,728,374.85

Notes:

(a) During April to May 2005, Xiamen Ocean Shipping Agency, a subsidiary of the Company, entered into periodic settlement arrangements for marine transport fees with Zhongxin International Transportation Ltd. Xiamen Branch (‘‘Zhongxin Xiamen Branch’’). However, ZhongxinXiamenBranchdefaultedandfailedtopaythemarinetransportfeesaccordingto agreed schedules. On 16 August 2005, the Company commenced actions at the Xiamen Maritime Court in respect of Zhongxin Xiamen Branch’s failure to perform its undertaking in full. On 18 November 2005, the Xiamen Maritime Court issued a civil judgement (2005) Xia Hai Fa Shang Chu Zi No. 344 in favour of Xiamen Ocean Shipping Agency. During the proceedings, Xiamen Ocean Shipping Agency applied to the Xiamen Maritime Court for non- segregation of properties, which was granted the Xiamen Maritime Court by virtue of the civil judgement (2005) Xia Hai Fa Shang Chu Zi No. 344, pursuant to which bank deposits of Zhongxin Xiamen Branch amounting to RMB160,000 were effectively frozen. In view of the virtual suspension of Zhongxin Xiamen Branch’s operations and the negative prospects of

60 its business, Xiamen Ocean Shipping Agency made a full provision for bad debts for the year for the net amount of RMB1,359,678.19, arrived at after deducting the frozen bank deposits of RMB160,000 from RMB1,519,678.19, being the book balance of account receivable.

(b) A full provision for bad debts was made in respect of amounts due to the Logistics Company, a subsidiary of the Company, from Zhongxin International Transportation Ltd. Xiamen Branch, Zhangzhou Office, as such amounts were likely non-recoverable given the virtual suspension of operations and the dim operational condition of Zhongxin International Transportation Ltd. Xiamen Branch, Zhangzhou Office.

(6) Bad debts provision has not been made in respect of the following accounts receivable of Xiamen Road & Bridge Building Materials, a subsidiary of the Company:

Ending Reason of not balance of Nature of making bad debts Items the year Ageing receivables provision

CHEC Tianjin Port 682,185.37 1 year to 2 years Guarantee Guarantee deposit Construction deposit for for construction Corporation construction quality is quality retained according to construction contract and will not constitute bad debt losses

Zhongtie No. 2 4,577,570.10 1 year to 2 years Guarantee Ditto Engineering RMB2,156,985.86 deposit for Bureau 2yearsto3years construction RMB2,420,584.24 quality

Total 5,259,755.47

5. Other receivables

(1) Ageing analysis of other receivables is set out as follows:

Ending balance of the year Beginning balance of the year Amount Percentage Bad debts Amount Percentage Bad debts Ageing (%) provision (%) provision

Within 1 year 8,640,218.15 35.62 52,858.76 10,587,853.56 52.31 28,832.32 1 year to 2 years 8,045,762.34 33.17 81,303.53 4,406,073.24 21.77 285,435.92 2 years to 3 years 3,174,919.09 13.09 731,489.99 1,108,656.94 5.48 451,762.54 3 years to 4 years 1,108,656.94 4.57 1,027,189.36 3,649,514.38 18.03 3,608,991.14 4 years to 5 years 3,103,832.30 12.80 3,087,232.30 325,563.38 1.61 289,383.38 Over 5 years 182,350.12 0.75 182,350.12 161,757.74 0.80 161,757.74

Total 24,255,738.94 100.00 5,162,424.06 20,239,419.24 100.00 4,826,163.04

(2) There were no amount due from shareholders holding 5% or more of the voting shares of the Company at the end of the year.

61 (3) Details of other receivables which have material amount at the end of the year, are set out as follows:

Names or items Amount Nature or details Remarks

Borrowings to staff for 2,116,645.03 Borrowings to staff of Approved by its Board purchasing vehicle subsidiaries for of Directors, no bad purchasing vehicle debt provision 2,470,514.00 Advances on another’s Irrecoverable behalf 1,870,000.00 Tender deposit of RMB1,800,000 Xiamen Port Holding Co. Ltd 2,124,556.28 Custodian fee and Related parties current account Xiamen Port Power Supply 2,200,875.29 Current account of Related parties Service Co., Ltd contract work

Total 10,782,590.60

Note: Of balance of other receivables at the end of the year, top 5 customers (entities) amounted to RMB10,782,590.60, accounting for 44.45% of total other receivables.

(4) Major debtors with ageing of over 3 years at the end of the year are as follows:

Reasons for Names Amount Reasons for debt irrecoverability

2,470,514.00 Advances on another’s Operationceasedand behalf irrecoverable Trade Union of China Ocean 530,000.00 Advances on another’s Irrecoverable Shipping Tally Company behalf Xiamen Branch 109,288.60 Advances on another’s Irrecoverable behalf

Total 3,109,802.60

(5) Details of major other receivables which have been provided in full for bad debts at the end of the year are set out as follows:

Bad debts Reasons Names Amount Percentage provision for provision

2,470,514.00 100% 2,470,514.00 Based on ageing Trade Union of China Ocean 530,000.00 100% 530,000.00 Based on ageing Shipping Tally Company Xiamen Branch 109,288.60 100% 109,288.60 Based on ageing

Total 3,109,802.60 3,109,802.60

62 6. Prepayments

(1) Ageing analysis of prepayments is set out as follows:

Beginning balance of the Ending balance of the year year Amount Percentage Amount Percentage Ageing (%) (%)

Within 1 year 32,442,756.28 98.11 3,683,459.20 89.86 1 year to 2 years 416,222.56 1.26 412,822.95 10.07 2 years to 3 years 206,363.00 0.62 2,840.00 0.07 Over 3 years 2,840.00 0.01

Total 33,068,181.84 100.00 4,099,122.15 100.00

Notes:

(a) The increase in prepayments of RMB28,969,100 during the year was mainly attributable to the increase in prepayments for new trading business which commenced during the year.

(b) No amount due from shareholders holding 5% or more of the voting shares of the Company at the end of the year.

7. Inventories

(1) Details of inventories are set out as follows:

Ending balance Beginning balance Items of the year of the year

Raw materials 14,399,115.01 13,008,926.76 Merchandise-in-stock (Finished 7,357,928.36 416,291.39 goods) Despatched goods(b) 42,138,692.69 34,179,336.09 Low-value consumables 34,389.37 23,052.37 Construction-in-progress 533,119.52 2,366,006.16

Total 64,463,244.95 49,993,612.77

Notes:

(a) Increase of RMB14,469,600, representing 28.94%, in inventories during the year was mainly attributable to the increase in merchandise-in-stock required for the new trading business of the Company. Despatched goods held by the Company’s subsidiary, Xiamen Road & Bridge Building Materials increased during the year as a result of significant growth in production and sales.

(b) Dispatched goods were concrete products of Xiamen Road & Bridge Building Materials. Income generated from and related costs arising from such dispatch will be recognised upon final confirmation of the quantity and quality of the concrete products by customers and the quality inspection authorities, respectively.

(2) No provision for impairment has been made as there was no impairment in the aforesaid inventories as at 31 December 2005.

63 8. Unamortised expenses

Details of unamortised expenses are set out as follows:

Ending Beginning balance of balance of Reasons for ending Items the year the year balance of the year

Insurance 1,587,701.92 1,563,750.26 Entitlement period falls within 2006 Road maintenance 429,848.71 247,333.09 Entitlement period falls within 2006 Others 681,860.85 349,443.00 Entitlement period falls within 2006

Total 2,699,411.48 2,160,526.35

9. Long-term equity investments

Details of long-term equity investments are set out as follows:

Beginning Ending balance of the Increase for Decrease for balance of Items year the year the year the year

Long-term investments 22,783,488.64 503,270.59 610,132.13 22,676,627.10 under equity method Long-term investments 121,418,148.00 80,000,000.00 41,418,148.00 under cost method Other equity investments 14,940,011.98 225,000.00 15,165,011.98 Less: Provision for 28,975,000.00 28,655,000.00 320,000.00 impairment of long-term investments

Total 130,166,648.62 728,270.59 51,955,132.13 78,939,787.08

(1) Details of long-term equity investments under the equity method are set out as follows:

Accumulated Initial Subsequent change in Accumulated Name of investees investment investment equity cash dividend

Xiamen Road & Bridge Concrete 6,000,000.00 -455,041.35 Engineering Corporation Ltd(a) Xiamen Sandeli Container 12,816,757.13 699,796.82 403,695.91 Storage Co., Ltd Xiamen Harbour Lurong Water- 435,895.98 86,069.06 66,749.41 and-Railway Coordinated Transportation Co. Ltd. Quanzhou Qing Meng Logistics 3,703,219.04 -139,624.26 Co., Ltd. Xiamen Dongling Work & 125,000.00 -125,000.00 Service Co., Ltd(b)

Total 23,080,872.15 66,200.27 470,445.32

64 (above table continued)

Increase/ Increase/ Beginning decrease in decrease in Cash Ending balance of investment equity for dividend balance of Name of investees the year for the year the year for the year the year

Xiamen Road & Bridge 5,575,877.67 -30,919.02 5,544,958.65 Concrete Engineering Corporation Ltd.(a) Xiamen Sandeli 13,064,527.53 452,026.42 403,695.91 13,112,858.04 Container Storage Co., Ltd Xiamen Harbour Lurong 403,971.46 51,244.17 455,215.63 Water-and-Railway Coordinated Transportation Co. Ltd. Quanzhou Qing Meng 3,614,111.98 -50,517.20 3,563,594.78 Logistics Co., Ltd. Xiamen Dongling Work 125,000.00 -125,000.00 &ServiceCo.,Ltd(b)

Total 22,783,488.64 -125,000.00 421,834.37 403,695.91 22,676,627.10

Notes:

(a) The initial investment of Xiamen Road & Bridge Building Materials, a subsidiary of the Company, in Xiamen Road & Bridge Concrete Engineering Corporation Ltd was RMB6,000,000 and its initial registered capital was RMB20,000,000. The Company’s initial shareholding percentage was 30%. On 30 June 2005, the registered capital of Xiamen Road & Bridge Concrete Engineering Corporation Ltd increased by RMB20,000,000 to RMB40,000,000. The additional capital was entirely invested by Road & Bridge Construction Investment Corporation of Xiamen. The Company’s shareholding percentage decreased to 15% following the increase of capital. The Company has changed to the cost method in accounting for this investment since July 2005.

(b) Xiamen Dongling Work & Service Co., Ltd., which has been dormant for a number of years, was liquidated and struck off during the year.

(2) Details of long-term equity investments under cost method are set out as follows:

Beginning Ending Investment balance of the Change for balance of Shareholding Name of investees period year the year the year percentage

Zhongxin Securities Since 1999 8,000,000.00 8,000,000.00 0.24% Co., Ltd Tiantong Securities Since 2000 80,000,000.00 -80,000,000.00 Co., Ltd.(a) Shenzhen Citic Since 2003 168,148.00 168,148.00 0.24% United Venture Capital Co., Ltd Xiamen COSCO Since 1998 325,000.00 325,000.00 10.00% Logistics Co., Ltd(b) Xiamen Haitian Since 1993 285,000.00 285,000.00 4.15% Container Co. Ltd(b) Xiamen Haitian Since 2001 30,000,000.00 30,000,000.00 15.00% Containers Terminal Co. Ltd(b) Xiamen Electronic Since 1999 2,640,000.00 2,640,000.00 15.00% Commerce Centre Co., Ltd.(b)

Total 121,418,148.00 -80,000,000.00 41,418,148.00

65 Notes:

(a) The Company’s investment in Tiantong Securities Co., Ltd (‘‘Tiantong Securities’’) was reduced by RMB80,000,000 during the year as a result of the transfer of this investment. See Note VI (II).3.

(b) Both Xiamen COSCO Logistics Co., Ltd and Xiamen Port Haitian Container Co. Ltd. are equity investments held by Xiamen Ocean Shipping Agency, a subsidiary of the Company. Both Xiamen Haitian Container Terminals Co. Ltd. and Xiamen Electronic Centre Co., Ltd. are equity investments held by Logistics Company, a subsidiary of the Company.

(3) Details of other equity investments are set out as follows:

Beginning Increase Decrease Ending balance of the for the for the balance of Items year year year the year

Xiamen Ocean 13,558,397.98 13,558,397.98 Shipping Agency Tungya Logistics Co., Ltd(a) Fuzhou-Xiamen 400,000.00 400,000.00 Inbound-Route Container Liner Transport Project(b) Golf club 981,614.00 225,000.00 1,206,614.00 membership

Total 14,940,011.98 225,000.00 15,165,011.98

Notes:

(a) Xiamen Penavico Tungya Logistics Co., Ltd is a sino-foreign joint venture in which Xiamen Ocean Shipping Agency, a subsidiary of the Company, held an equity interest. Its registered capital is RMB18,000,000 (in which Xiamen Ocean Shipping Agency held 35.72%) and its total investment amount is RMB27,000,000 (in which Xiamen Ocean Shipping Agency held 57.15%). Parties to the joint venture have agreed to a profit-sharing ratio of 50% for Xiamen Ocean Shipping Agency and profit would be distributed annually. Land use rights are to be reverted to Xiamen Ocean Shipping Agency upon expiry of the cooperation period. Other net assets are to be distributed in the same proportion as profit sharing. Xiamen Ocean Shipping Agency’s investment of RMB13,558,397.98 in Xiamen Penavico Tungya Logistics Co., Ltd included the registered capital of RMB6,430,000.00 (monetary funds) invested in accordance with the contract, agreement and supplemental agreement and a total investment amount of RMB7,128,397.98 (including monetary funds of RMB1,000,000.00 and the land use rights of a piece of land with an area of 20,000 sq.m. for 25 years valued at RMB6,128,397.98). Xiamen Ocean Shipping Agency accounted for this contractual investment by cost method and investment gains will be recognised upon dividend distribution by the joint venture company. Dividend of RMB1,885,532.28 for 2004 was received in 2005.

(b) The ‘‘Fuzhou-Xiamen Inbound-Route Container Liner Transport Project’’ was a cooperative project invested by Xiamen Ocean Shipping Agency, a subsidiary of the Company. Pursuant to the joint venture agreement, Xiamen Ocean Shipping Agency invested RMB500,000.00 for a 20% interest and a 20% profit-sharing ratio of the project. The actual investment contributed by Xiamen Ocean Shipping Agency was RMB400,000.00. The project has yet to make any profit distribution since commencement. The Company accounted for the cooperative project under cost method and investment gains will be recognized upon profit distribution by the project.

66 (4) Changes to and reasons for provisions for impairment of long-term equity investments are set out follows:

Beginning Decrease Ending balance of Increase for (transfers) balance of Reasons for Investment projects the year the year for the year the year provision

Tiantong Securities 28,530,000.00 28,530,000.00 See Note (a) Co., Ltd Fuzhou-Xiamen 320,000.00 320,000.00 See Note (b) Inbound-Route Container Liner Transport Project Xiamen Dongling Work 125,000.00 125,000.00 See Note (c) &ServiceCo.,Ltd

Total 28,975,000.00 28,655,000.00 320,000.00

Notes:

(a) Provision for impairment of Tiantong Securities Co., Ltd was decreased by RMB28,530,000 because the Company transferred out the investment during the year. See Note VI (II).3.

(b) Losses have been recorded by the Fuzhou-Xiamen Inbound-Route Container Liner Transport Project since commencement. A provision of 80% for impairment was made in previous years based on its accumulated losses.

(c) Provision for impairment of Xiamen Dongling Labour Services Co., Ltd. decreased by RMB125,000 for the year as it was liquidated and struck off and the provision was offset against the impairment provision made previously.

(5) The aforesaid long-term investments were not subject to any material restrictions in realization of investments and remittance of investment gains.

10. Differences in valuation for consolidation

Differences in valuation for consolidation and their increases/decreases are analyzed as follows:

Beginning Amortised Ending Initial Amortisation balance of Increase for during the balance of Items amount Reasons period the year the year year the year

Xiamen Road & Bridge 6,646,703.74 Premium on 10 years 3,821,854.69 664,670.40 3,157,184.29 Building Materials acquisition Corporation Ltd Xiamen Ganghua -614,607.46 Discount on 10 years -476,374.75 -61,460.76 -414,913.99 Container Service acquisition Co. Ltd.

Total 6,032,096.28 3,345,479.94 603,209.64 2,742,270.30

Note: The equity investment difference in respect of Xiamen Road & Bridge Building Materials and Logistics Company, a subsidiary of the Company, Xiamen Ganghua Container Service Co. Ltd. represented the differences between the Company’s investment costs for such equity interests and its share of the owner’s equity in these companies. Such difference was expressed as ‘‘differences in valuation for consolidation’’.

67 11. Fixed assets and accumulated depreciation

(1) Details of fixed assets and accumulated depreciation and their movements are set out as follow:

Beginning balance of the Increase for Decrease for Ending balance Items year the year the year of the year

1. Cost Buildings 187,158,122.78 14,448,338.17 10,232,613.66 191,373,847.29 Machinery equipment 71,664,144.06 7,086,902.74 1,059,919.31 77,691,127.49 Transportation vehicles 99,627,436.77 13,966,584.43 2,701,851.82 110,892,169.38 Port infrastructure 228,128,180.87 228,128,180.87 Vessels 140,869,968.01 55,010,000.00 195,879,968.01 Loading and unloading 180,511,206.07 17,687,828.95 2,174,470.50 196,024,564.52 equipment Storage infrastructure 135,150,964.93 799,030.20 23,413,490.78 112,536,504.35 Electronic and office 33,955,761.68 4,607,566.81 1,875,561.51 36,687,766.98 equipment

Total cost 1,077,065,785.17 113,606,251.30 41,457,907.58 1,149,214,128.89 2. Accumulated depreciation Buildings 16,016,579.74 7,363,966.47 2,439,366.86 20,941,179.35 Machinery equipment 32,126,940.46 7,653,752.22 889,423.18 38,891,269.50 Transportation vehicles 54,556,563.21 11,068,129.17 2,645,413.20 62,979,279.18 Port infrastructure 62,496,428.44 4,562,563.62 67,058,992.06 Vessels 69,798,408.67 5,587,156.48 75,385,565.15 Loading and unloading 91,951,860.89 12,298,037.45 1,650,610.63 102,599,287.71 equipment Storage infrastructure 20,523,431.62 6,427,144.97 3,321,940.65 23,628,635.94 Electronic and office 16,733,250.26 5,575,250.39 1,763,312.55 20,545,188.10 equipment

Total accumulated 364,203,463.29 60,536,000.77 12,710,067.07 412,029,396.99 depreciation 3. Net value Buildings 171,141,543.04 170,432,667.94 Machinery equipment 39,537,203.60 38,799,857.99 Transportation vehicles 45,070,873.56 47,912,890.20 Port infrastructure 165,631,752.43 161,069,188.81 Vessels 71,071,559.34 120,494,402.86 Loading and unloading 88,559,345.18 93,425,276.81 equipment Storage infrastructure 114,627,533.31 88,907,868.41 Electronic and office 17,222,511.42 16,142,578.88 equipment

Total net value 712,862,321.88 737,184,731.90

Notes:

(a) Included in the additions of fixed asset during the year was RMB82,521,608.27 transferred from construction-in-progress to fixed assets.

(b) Fixed assets at the end of the year included fixed assets under finance lease at cost of RMB17,956,454.18, accumulated depreciation of RMB13,972,397.10 and net value of RMB 3,984,057.08.

(c) Fixed assets at the end of the year included fixed assets under operating lease at cost of RMB2,708,658.29, accumulated depreciation of RMB1,750,670.57 and net value of RMB 957,987.72.

(d) Decrease in fixed asset during the year was mainly attributable to the commencement of construction of a yard project in ‘‘Xiangyu free trade zone logistics park’’ by the Company on the yard owned by Logistics Company, a subsidiary of the Company. The net fixed asset value was transferred by Logistics Company to the Company under the construction cost of ‘‘Xiangyu free trade zone logistics park’’.

(e) Of the balance of buildings and structures at the end of the year, buildings of RMB4,828,800 were pending the issuance of Realty Title Certificate.

68 (2) Provision for impairment of fixed assets

Details of provision for impairment of fixed assets are set out as follow:

Beginning Increase Decrease Ending balance of for the (reversal) balance of Reason for Items the year year for the year the year provision

Machinery 369,230.46 132,625.80 236,604.66 Damaged, left equipment unused Loading and 75,770.24 75,770.24 Cannot be used or unloading has no repair equipment value, provision for impairment was based on net value Storage 254,699.90 254,699.90 Ditto infrastructure

Total 699,700.60 132,625.80 567,074.80

Note: Decrease in the provision for impairment of fixed assets for the year by RMB132,625.80 was attributed to the relevant provision written off.

12. Construction-in-progress

(1) Details of construction-in-progress are set out as follow:

Beginning Source balance of the Increase for Name of construction projects Budget of funds year the year

Equipment pending installation 8,037,960.00 Self-owned 50,066.30 7,987,894.24 Commencement of construction 179,340,000.00 Self-owned 42,169,482.08 of Phase I for Xiangyu free trade sone logistics park Vessels under construction 55,000,000.00 Self-owned 27,505,000.00 27,505,000.00 (2 vessels) Rail-mounted container gantry 16,858,000.00 Self-owned 16,858,000.00 cranes 2942KW fully-reversible 52,680,000.00 Entrusted loan 35,445,688.00 tugboats (2 tugboats)* Modification of exit E of 750,000.00 Self-owned 600,690.00 226,780.00 Railway Other piecemeal construction Self-owned 59,000.00 3,256,460.90

Total 28,214,756.30 133,449,305.22

(above table continued)

Transfers to Ending As a fixed assets Other balance of percentage of Name of construction projects for the year decrease the year budget

Equipment pending installation 7,939,848.24 98,112.30 100.00% Commencement of construction 42,169,482.08 23.52% of Phase I for Xiangyu free trade zone logistics park Vessels under construction 55,010,000.00 100.02% (2 vessels) Rail-mounted container gantry 16,858,000.00 100.00% cranes 2942KW fully-reversible 35,445,688.00 67.29% tugboats (2 tugboats)* Modification of exit E of 827,470.00 110.32% Railway Other piecemeal construction 1,886,290.03 1,429,170.87

Total 82,521,608.27 79,142,453.25

Note: The 2942KW fully reversible tugboats (2 tugboats) project was funded by entrusted loan, see No. 24 in Note 5(1) for details on entrusted loan and the calculation of interest thereon. During the year, there was no interest expense incurred on the said entrusted loan and no interest is capitalised. As at 31 December 2005, there was no capitalised interest expense incurred on the above mentioned construction-in-progress.

69 (2) As at 31 December 2005, there was no impairment incurred on the above mentioned construction-in-progress, and no provision for impairment of construction-in-progress is required.

13. Intangible assets

(1) Details of intangible assets are set out as follow:

Beginning Method of balance of the Increase for Transfer for Items possession Cost year the year the year

Land use rights of Swap 5,808,565.71 5,756,979.86 Waidai Haicang Land use rights of Swap 123,325,657.12 122,275,183.02 Logistics Company Land use rights of Swap 195,526,542.84 193,861,069.75 783,795.31 Dongdu Company Land use rights of 14,175,591.00 14,175,591.00 Xiangyu free trade zone logistics park Land use rights of 4,529,357.90 4,529,357.90 Logistics Company Land use rights in Acquisition 9,816,870.00 9,816,870.00 Dongdu port area Premises use rights Swap 47,221.38 33,332.73 Computer software Acquisition 937,560.36 570,522.94 188,120.00 or Swap

Total 354,167,366.31 322,497,088.30 28,709,938.90 783,795.31

(above table continued)

Amortisation Ending Remaining during the Accumulated balance of the period for Items year amortisation year amortisation

Land use rights of Waidai 123,806.04 175,391.89 5,633,173.82 546 months Haicang Land use rights of Logistics 2,521,137.79 3,571,611.89 119,754,045.23 570 months Company Land use rights of Dongdu 3,986,287.04 5,651,760.13 189,090,987.40 570 months Company Land use rights of Xiangyu free 147,662.41 147,662.41 14,027,928.59 570 months trade zone logistics park Land use rights of Logistics 66,509.50 66,509.50 4,462,848.40 570 months Company Land use rights in Dongdu port 102,259.08 102,259.08 9,714,610.92 570 months area Premises use rights 33,332.73 47,221.38 Computer software 257,025.98 435,943.40 501,616.96 1–3 years

Total 7,238,020.57 10,198,359.68 343,185,211.32

Note: Land use rights of RMB783,795.31 were transferredbytheCompanytoXiamenPort Holding Co. Ltd. (‘‘Port Holding’’) during the year.

(2) As at 31 December 2005, there was no impairment incurred in respect of the above mentioned intangible assets, and no provision is made for the impairment of intangible assets.

70 14. Long-term unamortised expenses

(1) Details of long-term unamortised expenses are set out as follow:

Beginning balance of the Increase for Transfer for Items Initial amount year the year the year

Fixed assets improvement 2,331,044.40 947,940.54 expenditure Long-term premises rent 1,381,328.04 431,582.67 13,560.00 Leveling and compensation 1,066,208.69 583,657.73 cost Leased assets improvement 474,208.61 243,203.23 expenditure Long-term lease expenses 141,666.69 100,000.00 Others 670,364.64 194,453.48

Total 6,064,821.07 2,500,837.65 13,560.00

(above table continued)

Ending Remaining Amortisation Accumulated balance of the period for Items for the year amortisation year amortisation

Fixed assets improvement 378,247.03 1,761,350.89 569,693.51 1–2 years expenditure Long-term premises rent 343,194.23 1,279,379.60 101,948.44 1 year Leveling and compensation 241,409.40 723,960.36 342,248.33 1–2 years cost Leased assets improvement 216,902.46 447,907.84 26,300.77 1 year expenditure Long-term lease expenses 100,000.00 141,666.69 Others 65,979.97 541,891.13 128,473.51 1–2 years

Total 1,345,733.09 4,896,156.51 1,168,664.56

15. Short-term loans

Details of short-term loans are set out as follows:

Ending Beginning balance of the balance of the Type of loans year year Remarks

Guaranteed loans 17,000,000.00 Credit loans 45,000,000.00

Total 45,000,000.00 17,000,000.00

16. Notes payable

(1) Detail of notes payable is set out as follows:

Ending Beginning balance of the balance of the Type of notes year year

Bank acceptance bills 90,578,142.26 23,051,238.60

Total 90,578,142.26 23,051,238.60

Note: During the year, increase in notes payable by RMB67,526,900 was primarily attributable to an increase in demand for capital by the newly trading business.

(2) No amount due to shareholders who held 5% or more of the voting shares of the Company at the end of the year.

71 17. Accounts payable

Balances of accounts payable amounted to RMB407,618,706.44 at the end of the year, in which:

(1) The agency business of Xiamen Ocean Shipping Agency, a subsidiary of the Company, incurred a transportation and port handling fee payable of RMB299,861,153.72;

(2) Of the balance of total accounts payable at the end of the year, accounts payable with ageing over 1 year amounted to RMB4,542,208.76, accounting for 1.11% of the total accounts payable; details of accounts payable which have material amount at the end of the year and with ageing over 3 years are as follows:

Time of Customers Amount incurrence Remarks

1,169,373.29 1997 Fuel charge 359,958.00 1998 Outstanding Hong Kong Graceful Shipping 148,270.08 1998 Fuel charge for Limited vessels

Total 1,677,601.37

(3) No amount due to shareholders who held 5% and more of the voting shares of the Company.

18. Advances from customers

Balances of advances from customers amounted to RMB23,053,040.81 at the end of the year, in which:

(1) Advances from customers with ageing over 1 year amounted to RMB328,193.05 accounting for 1.42% of total advances from customers, details of which are set out as follow:

Time of Reason for Customer Amount incurrence non-payment

Xiamen Mingda Glass Company 134,212.00 2003 Outstanding Limited ( ) tugboat fee

Total 134,212.00

(2) No amount due to shareholders who held 5% and more of the voting shares of the Company at the end of the year.

72 19. Dividends payable

Details of dividends payables are set out as follow:

Beginning Payment Ending balance of Provision for during the balance of Items the year the year year the year

Xiamen International 24,393,000.00 24,393,000.00 Port Co., Ltd Huajian Jiaotong 5,607,000.00 5,607,000.00 Jingji Kaifa Zhongxin Public shareholders 14,250,000.00 14,250,000.00

Total 44,250,000.00 44,250,000.00

Note: See No. 30 in Note 5(1).

20. Taxes payable

(1) Details of taxes payable are set out as follows:

Beginning Payment Other Ending balance of Increase for during the decrease for balance Types of tax the year the year year the year of the year

Value-added tax 835,166.69 11,857,884.12 11,911,354.96 781,695.85 Business tax 3,095,248.99 22,854,697.42 20,869,036.48 5,080,909.93 Resources tax 37,345.34 286,242.19 295,813.67 27,773.86 Enterprise income 21,313,984.81 41,187,284.89 37,283,783.12 6,141,474.78 19,076,011.80 tax Urban construction 239,513.07 2,203,388.47 2,033,054.08 409,847.46 & maintenance tax Property tax 11,833.52 670,239.79 619,380.00 62,693.31 Land use tax 836,236.02 836,236.02 Individual income 729,475.44 2,968,803.97 3,489,187.86 209,091.55 tax Stamp duty -211.66 80,298.47 57,545.92 22,540.89

Total 26,262,356.20 82,945,075.34 77,395,392.11 6,141,474.78 25,670,564.65

Note: Other decrease of enterprise income tax for the year was primarily due to tax credit related to technology upgrade investment of domestic equipment against enterprise income tax. Increase of enterprise income tax for the year exceeded income tax expenses by RMB436,949.33. See in No. 37 in Note 5(1).

73 21. Other levies payables

Other levies payables are listed in details as follows:

Ending Beginning balance of balance of Basis Items the year the year Nature of levy

Education surcharge 191,999.32 109,547.08 Surcharge on 3% business and value-added taxes Local education surcharge 53,008.81 31,752.24 Surcharge on 1% business and value-added taxes Others 6,368.35 12,065.79 Deduction from reserves

Total 251,376.48 153,365.11

22. Other payables

Balances of other payables amounted to RMB41,310,051.97 at the end of the year, details of which are set out as follows:

(1) Other payables which have material amount at the end of the year and with ageing over three years are set out as follows:

Time of Reasons for non- Items Amount incurrence payment

Improvement to transformer 1,245,000.00 2000 Originally included station No. 6 in Port Group, not yet settled Fire prevention facilities for 400,000.00 1996 Originally included vessels in Port Group, not yet settled 257,918.76 1999 Outstanding loading/ unloading charges 213,140.00 1999 Outstanding loading/ unloading charges Waterway fees 106,655.54 1999 Outstanding waterway fees

Total 2,222,714.30

(2) Of the balances of other payables at the end of the year, amounts due to shareholder holding 5% and more of the voting shares of the Company amounted to RMB4,758,901.70, details of which are shown in No. 7 in Note 6(2).

74 (3) Material year-end balances of other payables are set out as follows:

Ending Beginning balance of balance of Nature or Items the year the year particulars

Xiamen Municipal Bureau 50,000,000.00 See Note of Finance Ministry of 7,475,863.75 8,678,511.93 Collection of port Communications construction fees on other’s behalf Harbour fee payable 1,708,911.81 1,717,287.04 Collection and payment of port fees on other’s behalf Xiamen Port Holding Co., 1,928,193.40 1,849,716.47 Land lease payments, Ltd. rail switching fee Improvement to 1,245,000.00 1,245,000.00 Transformer station transformer station construction fees No. 6 Xiamen International Port 4,758,901.70 Land rental and use Co., Ltd of funds Road & Bridge 1,568,030.72 Uses of assets fees Construction Investment Corporation of Xiamen 1,027,516.79 Transportation fee

Total 19,712,418.17 63,490,515.44

Note: Amounts payable to Xiamen Municipal Bureau of Finance at the beginning of the year totalled RMB50,000,000.00 was a debt resulted from the repayment of the loan principal by Xiamen Municipal Bureau of Finance on behalf of the Company to China Development Bank. The Company has repaid the debt in accordance with the relevant reply issued by Xiamen Municipal Bureau of Finance this year, details of which are shown in No. 25 in Note 5 (1).

23. Long-term liabilities due within one year

Details of long-term liabilities due within one year are set out as follows:

Ending Maturity Accrued balance of Types date Principal interest the year

Xiamen International 2006.10.15 10,400,000.00 10,400,000.00 Port Co., Ltd Xiamen Huaxia 2006.2.1 1,845,900.00 1,845,900.00 International Electric Power Development Co., Ltd.

Total 12,245,900.00 12,245,900.00

Note: See No. 25 in Note 5 (1).

75 24. Long-term loans

Details of long-term loans at the end of the year are set out as follows:

Lending Principal of RMB Lender Currency condition loan equivalent Remark

China Construction RMB Guarantee 35,445,688.00 35,445,688.00 See Note Bank Corporation, Zhang Zhou Branch

Total 35,445,688.00 35,445,688.00

Note: On 10 March 2005, Shipping Company, a subsidiary of the Company, and the China Construction Bank Corporation, Zhang Zhou Branch entered into the Entrusted Funds Loan Contract, pursuant to which Shipping Company borrowed RMB48,000,000 from by means bank entrusted loan, for the construction of two 4,000 horse-power fully-reversible tugboats and the loan was guaranteed by the Company. According to the Entrusted Loans Agreement, the principal of the loan will be repaid by instalments over 12 years commencing from the second month of the day when the two tugboats are formally commissioned. Loan interest is calculated 10 months after the credit of such loan to the account of Shipping Company. The first interest payment date is the first day of the second month following one year after the two 2942KW tugboats are formally commissioned. Thereafter, the first interest payment day will be the basis day of future interest payments. According to the above agreement, the Company is not required to provide and pay for interest on such loan as at 31 December 2005.

25. Long-term payables

Details of long-term payables are set out as follows:

Beginning balance Types Term Initial Amount of the year

Interest-free loan from Xiamen Nil 100,000,000.00 100,000,000.00 Municipal Bureau of Finance(a) Increase in investment of national Nil 32,500,000.00 32,500,000.00 bonds of Xiamen Municipal Bureau of Finance(a) Xiamen International Port 2004.10– 54,583,027.54 44,653,876.16 Co., Ltd(b) 2009.10 Xiamen Huaxia International Electric 1996.02– 6,105,500.00 4,260,500.00 Power Development Co., Ltd.(c) 2008.01

Total 193,188,527.54 181,414,376.16

(above table continued)

Principals at Increase for Decrease for Accrued the end of Types the year the year interest the year

Interest-free loan from Xiamen 100,000,000.00 Municipal Bureau of Finance(a) Increase in investment of 32,500,000.00 national bonds of Xiamen Municipal Bureau of Finance(a) Xiamen International Port Co., 10,400,000.00 34,253,876.16 Ltd(b) Xiamen Huaxia International 1,845,900.00 2,414,600.00 Electric Power Development Co., Ltd.(c)

Total 144,745,900.00 36,668,476.16

76 Notes:

(a) According to the ‘‘Reply relating to the funds of loan advances by Municipal Bureau of Finance repayable by Xiamen Port Development Co., Ltd.’’ (Xia Cai Han Qi [2005] No. 50) issued by Xiamen Municipal Bureau of Finance, the aggregate amounts due to Municipal Bureau of Finance are RMB182,500,000 and payable to Xiamen Port Holding Co., Ltd. by the Company, including interest-free loans of RMB100,000,000, national bonds investment of RMB32,500,000, and a loan principal of RMB50,000,000 advanced by Municipal Bureau of Finance on behalf of the Company to the State Development Bank. The use of funds will be further agreed by Xiamen Municipal Bureau of Finance and Xiamen Port Holding Co., Ltd. As at 31 December 2005, the above amounts have been paid to Xiamen Port Holding Co., Ltd. by the Company.

(b) In 2004, Shipping Company, a subsidiary of the Company, and Xiamen International Port Co., Ltd (formerly known as Port Group) signed a ‘‘tugboat repayment agreement’’ in respect of the tugboat construction fees due to Port Group by Shipping Company prior the assets swap of the Company as follows: Shipping Company shall repay the principal of the tugboat construction fees of RMB 54,583,027.54 together with interest to Port Group before 15 October 2009 in two instalments on 15 April and 15 October each year, at an interest rate of LIBOR + 0.6%. As at 31 December 2005, tugboat construction fees due to Port Group by Shipping Company amounted to RMB 44,653,876.16. The principal of RMB10,400,000.00 repayable in 2006 has been classified as ‘‘long-term liabilities due within one year’’.

(c) Amounts due to Xiamen Huaxia International Electric Power Development Co., Ltd. are vessels finance lease payables. According to an agreement entered into between Shipping Company, a subsidiary of the Company, and Xiamen Huaxia International Electric Power Development Co., Ltd., the latter financed the construction of a 3,500 hp new tugboat with RMB17,960,000 for the use of Shipping Company. Shipping Company shall repay the actual costs of the tugboat by way of rentals over a period of 12 years. As at 31 December 2005, finance lease payables to Xiamen Huaxia International Electric Power Development Co., Ltd. by Shipping Company amounted to RMB 4,260,500.00 of which RMB1,845,900.00 repayable in 2006 has been classified as ‘‘long-term liabilities due within one year’’.

26. Minority interests

Details of minority interests are set out as follows:

Beginning Minority Ending balance balance of the Companies consolidated Minority shareholders Shareholding of the year year

Xiamen Road & Bridge Road & Bridge 5% 4,439,703.77 4,022,912.17 Building Materials Engineering Corporation Ltd. Material Corporation of Xiamen Xiamen Jinluqiao Raw Zhongtie 17th Bureau 16% 1,842,003.59 1,662,202.86 Materials Co. Ltd. Group No. 6 Construction Company Limited China Ocean Shipping China Ocean Shipping 40% 76,672,024.60 73,882,942.69 Agency (Xiamen) Co., Agency Co. Ltd. Ltd. Xiamen Port Shipping Co., Xiamen International 10% 11,570,445.12 7,985,212.50 Ltd. Port Co., Ltd Xiamen Ganghua Container Xiamen International 50% 3,835,167.69 4,955,263.58 Service Co. Ltd. Port Co., Ltd Xiamen Port (Group) Xiamen Port (Group) 20% 594,913.31 593,332.60 Domestic Shipping Agent Shihushan Terminal Co. Ltd. Co., Ltd. Xiamen Dongling Terminal Hong Kong Shia Ning 25% 2,229,742.64 2,358,810.60 Co., Ltd. Limited Xiamen Waili Tally Co. Ltd. China Ocean Shipping 14% 3,523,889.46 Tally Company

Total 104,707,890.18 95,460,677.00

77 27. Share capital

(1) Movements of share capital during the year are set out as follows:

Beginning Movements for the year (+, –) balance of the Bonus share Others Sub-total Ending balance Items year of the year

I. Non-trading shares 1. Promoters’ shares 200,000,000.00 200,000,000.00 Including: State-owned 200,000,000.00 200,000,000.00 shares

Total non-trading shares 200,000,000.00 200,000,000.00

II. Trading shares 1. Domestic listed RMB 95,000,000.00 95,000,000.00 ordinary shares

Total trading shares 95,000,000.00 95,000,000.00

Total number of shares 295,000,000.00 295,000,000.00

(2) Shareholding of corporate shareholders:

unit: ’0,000 shares As a Beginning Ending percentage Name of balance of Increase for Decrease for balance of (%)oftotal shareholders the year the year the year the year share capital

Xiamen 16,262.00 16,262.00 55.13 International Port Co., Ltd Huajian Jiaotong 3,738.00 3,738.00 12.67 Jingji Kaifa Zhongxin

Total 20,000.00 20,000.00 67.80

Note: For details relating to the full conversion of Xiamen Port (Group) Co. Ltd., the controlling shareholder of the Company, into Xiamen International Port Co., Ltd, see No. 1 in Note 10.

28. Capital reserve

Movements of capital reserve during the year are as follows:

Beginning balance of the Increase for the Decrease for Ending balance Total year year the year of the year

Capital (or share) premium 501,010,278.22 501,010,278.22 Provision for equity investments 5,253,490.72 2,486,120.16 7,739,610.88 Others 3,605,611.15 3,605,611.15

Total 509,869,380.09 2,486,120.16 512,355,500.25

Note: During the year, provision for equity investments was increased by RMB2,486,120.16, due to the approved conversion of Tally Company ( ), an original wholly-owned subsidiary of the Company, into a company with limited liability, and the acquisition of 14% equity interests in Tally Company by China Ocean Shipping Tally Company in cash after the completion of reorganisation. Since value of assets of Tally Company were increased by RMB 2,486,120.16 after valuation, the Company increased its provision for equity investments in accordance with its shareholding.

78 29. Surplus reserve

Details of surplus reserve are as follows:

Beginning Ending balance of Increase for Decrease for balance of the Items the year the year the year year

Statutory surplus 52,092,371.72 11,754,072.31 63,846,444.03 reserve Statutory public 36,448,251.08 11,754,072.31 48,202,323.39 welfare fund

Total 88,540,622.80 23,508,144.62 112,048,767.42

Note: During the year, 10% of the net profit of the Company were transferred to statutory surplus reserve of RMB11,754,072.31 and statutory public welfare fund RMB11,754,072.31 respectively.

30. Undistributed profit

At the end of the year, balance of undistributed profit was RMB291,801,221.31. The movements of undistributed profit during the year are as follows:

Items Amount

Undistributed profit at beginning of the year 242,018,642.88 Add: Net profit for the year 117,540,723.05 Profit available for distribution 359,559,365.93 Less: Dividend distributed during the year(a) 44,250,000.00 Less: Transfer to surplus reserve during the year(b) 23,508,144.62

Undistributed profit at end of the year 291,801,221.31

Notes:

(a) Pursuant to the resolution of the 2004 annual general meeting of the Company held in June 2005, it was approved to distribute dividend of RMB1.5 (including tax) for every 10 shares held by the shareholders, totalling RMB44,250,000, based on a total of 295,000,000 shares issued as at 31 December 2004. The aforesaid cash divided was paid during the year.

(b) SeeNo.29inNote5(1).

79 31. Revenue and cost of principal operations

(1) By business nature:

Current year Previous year Revenue from Costs of Revenue from Costs of principal principal principal principal Business nature operations operations operations operations

Bridge tolls 154,341,439.00 56,155,781.78 Construction contract 750,000.00 18,970.00 management Sale of building materials 177,494,483.13 148,053,891.51 127,684,557.98 106,203,147.21 Construction works 2,755,046.57 2,599,056.76 27,887,627.98 24,781,048.49 Loading and unloading 203,380,019.41 123,218,857.46 77,736,602.22 47,024,456.20 services Agency labour service 127,998,847.54 47,991,525.79 46,508,749.73 16,322,498.00 Transportation labour 79,578,480.73 68,912,559.03 40,091,424.04 31,233,705.58 service Tugboat berthing service 89,850,539.32 41,022,116.58 33,681,724.56 17,361,620.46 Tallying labour service 29,190,328.29 10,768,401.80 14,841,031.11 3,324,489.69 Stacking labour service 17,216,889.08 23,247,648.78 6,475,776.10 9,463,962.56 Others 20,778,490.25 15,786,661.29 8,620,881.62 6,310,722.33

Total 748,243,124.32 481,600,719.00 538,619,814.34 318,200,402.30

Note: Regarding revenue and costs of principal operations of the previous year, bridge tolls and construction contract management reflect the revenue and costs of the Company before the assets swap (i.e. January to July 2004); loading and unloading, agency, transportation, tugboat berthing, tallying and stacking services reflect the revenue and costs of the Company subsequent to the assets swap (i.e. August to December 2004).

(2) By business segments:

Current year Previous year Revenue from Costs of Revenue from Costs of principal principal principal principal Segments operations operations operations operations

Logistics and 154,341,439.00 56,155,781.78 transportation Real estate 750,000.00 18,970.00 Sale of building materials 177,494,483.13 148,053,891.51 127,684,557.98 106,203,147.21 Construction works 2,755,046.57 2,599,056.76 27,887,627.98 24,781,048.49 Port logistics services 567,993,594.62 330,947,770.73 227,956,189.38 131,041,454.82

Total 748,243,124.32 481,600,719.00 538,619,814.34 318,200,402.30

(3) By geographical areas:

Current year Previous year Revenue from Costs of Revenue from Costs of principal principal principal principal Regions operations operations operations operations

Fujian Province 748,243,124.32 481,600,719.00 538,619,814.34 318,200,402.30

Total 748,243,124.32 481,600,719.00 538,619,814.34 318,200,402.30

(4) Total revenue from the top five customers for the year amounted to RMB 65,395,621.87, representing 8.74% of the total revenue from principal operations.

80 32. Taxes and surcharges on principal operations

Details of taxes and surcharges on principal operations are as follows:

Previous Types Current year year Basis of assessment

Business tax 20,424,404.16 16,500,760.68 3% or 5% of labour income Resources tax 269,304.77 197,223.43 30% of sales counted as crude ore, RMB1.5 levied on each cubic metre of crude ore Urban construction and 2,040,769.51 1,617,434.67 5% or 7% of business maintenance tax and value-added taxes payable Education surcharge 981,998.33 756,073.14 3% of business and value-added taxes payable Local education surcharge 359,756.50 278,271.37 1% of business and value-added taxes payable River and embankment 592.77 maintenance charge

Total 24,076,826.04 19,349,763.29

33. Other operating profit

Details of other operating profit are set out as follows:

Revenue Expenditure Profit Current year Previous Current Previous Current year Previous Business types year year year year

Sale of materials 4,951,511.40 2,003,449.32 401,574.57 83,196.58 4,549,936.83 1,920,252.74 Lease of premises 3,987,739.62 2,678,440.22 531,642.08 1,720,428.28 3,456,097.54 958,011.94 and equipment Precise processing 3,726,805.72 3,805,398.65 2,683,264.27 2,489,798.90 1,043,541.45 1,315,599.75 and sale of crushed stones Agency services for 563,546.09 977,028.42 31,276.80 58,580.21 532,269.29 918,448.21 purchase and sale of building materials Labour 1,636,666.67 1,549,930.00 54,501.00 47,632.87 1,582,165.67 1,502,297.13 management Railway concession 1,080,000.00 450,000.00 59,940.00 24,975.00 1,020,060.00 425,025.00 Refund of port fees 1,116,055.38 482,555.40 37,164.64 16,069.09 1,078,890.74 466,486.31 Technical services 250,000.00 13,875.00 236,125.00 Others 2,114,867.82 1,271,383.46 603,623.62 603,892.80 1,511,244.20 667,490.66

Total 19,427,192.70 13,218,185.47 4,416,861.98 5,044,573.73 15,010,330.72 8,173,611.74

81 34. Finance costs

Details of finance costs are set out as follows:

Items Current year Previous year

Interest expenses 2,285,345.20 15,340,786.29 Less: Interest income 5,685,655.81 3,052,663.85 Exchange loss 239,399.39 58,808.77 Less: Exchange gains 820,182.57 344,818.35 Others 158,965.03 63,342.08

Total -3,822,128.76 12,065,454.94

Note: Finance costs decreased by RMB15,887,600 over the previous year were primarily attributed to the fact that the Company had more bank loans and larger amount of interest expenses prior to the assets swap on 31 July 2004.

35. Income from investments

(1) Details of income from investments are set out as follows:

Items Current year Previous year

Income from investments under cost 8,427,712.50 6,230,289.36 method(a) Income from investments under equity 421,834.37 -751,477.06 method Provision for impairment of short-term 47,770.68 -71,949.13 shares investment Provision for impairment of long-term -18,397,440.94 equity investments(b) Amortisation of differences in equity -603,209.64 -639,061.73 investments Gain on shares investment 72,363.50 Other income 87,996.10 14,765.65

Total 8,382,104.01 -13,542,510.35

Notes:

(a) Xiamen Haitian Container Terminals Co., Ltd. and Xiamen Penavico Tungya Logistics Co., Ltd distributed RMB5,835,824.77 and RMB1,885,532.2877 out of the income from investments under cost method for the year, as cash dividend for 2004, respectively;

(b) Income from investment increased by RMB21,924,600 over the previous year was mainly attributable to the provision for impairment of long-term equity investment RMB18,397,400 made against Tiantong Securities Co., Ltd in the previous year.

(2) No significant restrictions in reversal of the above income from investments.

82 36. Subsidy income

Detail of subsidy income is set out as follows:

Source of income Item Current Year Previous Year and basis

Financial subsidy 11,000,000.00 11,000,000.00 See Note

Total 11,000,000.00 11,000,000.00

Note: Pursuant to ‘‘Reply of Xiamen Municipal Bureau of Finance concerning issues relating to financial subsidies subsequent to assets swap of Xiamen Luqiao Joint Stock Company Limited (Document Xia Cai Qi (2004) No. 80)’’ issued by Xiamen Municipal Bureau of Finance, Xiamen Municipal Bureau of Finance shall offer annual financial subsidies of RMB11,000,000 in full by the end of each year for 5 years to the Company subsequent to the assets swap in order to support development of port logistics industry in Xiamen. The Company received the said financial subsidy in 2005, which was included in ‘‘Subsidy income’’ for the year.

37. Income tax

Income tax incurred for the year was RMB30,750,335.56. Adjustments made by the Company in respect of income tax payable for the year are still pending calculation by tax authority, including:

(1) During the year, tax credit of RMB5,145,236.65 against enterprise income tax of Shipping Company and tax refund of RMB4,023,274.55 received by Shipping Company from the tax authority for income tax overpaid in 2004, both related to technical upgrade investment in domestic equipment, totalling RMB9,168,511.20, have been utilised to offset against income tax expenses for the year.

(2) During the year, tax credit of RMB915,038.13 related to technical upgrade investment in domestic equipment against enterprise income tax of Logistics Company, has been utilised to offset against income tax expenses for the year.

(3) During the year, tax credit of RMB81,200.00 related to technical upgrade investment in domestic equipment against enterprise income tax of Xiamen Road & Bridge Building Materials Haicang branch, has been utilised to offset against income tax expenses for the year.

(4) During the year, income tax incentive of RMB272,200.00 received by Xiamen Ocean Shipping Agency, has been utilised to offset against income tax expenses.

83 38. Profit and loss of minority interests

Details of the profit and loss of minority interests are set out as follows:

Shareholding of Minority minority Companies consolidated shareholders shareholders Current year Previous year

Xiamen Road & Bridge Road & Bridge 5% 416,791.60 394,581.08 Building Materials Engineering Corporation Ltd. Material Corporation of Xiamen Xiamen Jinluqiao Raw Zhongtie 17th 16% 227,800.73 104,735.64 Materials Co. Ltd. Bureau Group No. 6 Construction Company Limited Xiamen Real Estate Road & Bridge 30% -271,604.93 Development Co. Construction Investment Corporation of Xiamen Xiamen Luqiao Logistic Co. Xiamen 5% -5,997.02 Transportation Development Co. Ltd China Ocean Shipping China Ocean 40% 18,813,872.76 8,675,101.16 Agency (Xiamen) Co., Shipping Agency Ltd. Co. Ltd. Xiamen Port Shipping Co., Xiamen International 10% 3,585,232.62 1,314,944.54 Ltd. Port Co., Ltd Xiamen Ganghua Container Xiamen International 50% 200,069.13 283,955.53 Service Co. Ltd. Port Co., Ltd Xiamen Port (Group) Xiamen Port (Group) 20% 1,580.71 46,519.66 Domestic Shipping Agent Shihushan Co. Ltd. Terminal Co., Ltd. Xiamen Dongling Terminal Hong Kong Shia 25% 501,378.60 159,361.53 Co., Ltd. Ning Limited Xiamen Waili Tally Co. Ltd. China Ocean 14% 698,133.62 Shipping Tally Company

Total 24,444,859.77 10,701,597.19

39. Relevant items in consolidated cash flow statements

(1) Due to the restricted usage of staff housing renovation and repair fund account, the total amount of RMB16,161,986.17 and RMB15,712,042.21 at the end and at the beginning of the year respectively, which was included in the balance of bank deposits, have not been stated as cash and cash equivalents in preparing the cash flow statements. Similarly, due to the restricted usage of bank deposits as guarantee deposit for bank acceptance bills as well as of guarantee fund nature, other monetary funds of RMB20,105,253.11 and RMB4,486,612.68 at the end and at the beginning of the year respectively, have not been stated as cash and cash equivalents in preparing the cash flow statements.

84 (2) Other material items relating to operating activities of RMB68,727,619.20 in cash received this year are as follows:

Items Amount

Financial subsidy received from Xiamen Municipal Bureau of 11,000,000.00 Finance Interest income received on bank deposits 5,685,655.81 Net amount collected on others’ behalf in agency services 34,041,373.09 Guarantee deposits received 4,882,502.13 Compensation for requisition of land received 1,581,707.92

Total 57,191,238.95

(3) Other material items relating to operating activities of RMB48,409,090.21 in cash paid this year are as follows:

Items Amount

Guarantee fund of bills paid 16,166,233.85 Operating and management expenses paid 23,263,429.80 Port construction fee collected and paid on others’ behalf 5,202,648.18

Total 44,632,311.83

(4) RMB62,570,025.26 in cash for dividend and profit distribution or interest repayments paid in the year comprised dividends paid by the Company’s subsidiaries, such as Xiamen Ocean Shipping Agency, to their respective minority shareholders in the amount of RMB16,552,413.86.

(II) Notes to major items of the accounting statement of the parent company

40. Accounts receivable

(1) Ageing analysis of accounts receivable is set out as follows:

Ending balance of the year Beginning balance of the year Amount Percentage Bad debts Amount Percentage Bad debts Ageing (%) provision (%) provision

Within one 26,002,288.97 90.65 123,635.43 24,709,372.95 91.22 112,650.22 year 1yearto 336,077.87 1.17 33,607.79 2 years 2yearsto 31,328.49 0.12 15,664.25 3 years Over 3 years 2,346,596.89 8.18 2,346,596.89 2,346,596.89 8.66 2,346,596.89

Total 28,684,963.73 100.00 2,503,840.11 27,087,298.33 100.00 2,474,911.36

(2) No amount due from shareholders holding 5% and more of the voting shares of the Company at the end of the year.

(3) Of balance of accounts receivable at the end of the year, top 5 customers amounted to RMB11,980,417.56, accounting for 41.77% of the total accounts receivable.

85 (4) Details of major accounts receivable which have been provided in full or over 40% for bad debts at the end of the year are as follows:

Outstanding Bad debts Reasons for Name of customers amount Percentage provision provision

666,534.00 100% 666,534.00 Doubtful debt, basedonageing 493,799.90 100% 493,799.90 Based on ageing 290,853.40 100% 290,853.40 Based on ageing 243,994.40 100% 243,994.40 Based on ageing 213,336.90 100% 213,336.90 Based on ageing

Total 1,908,518.60 1,908,518.60

41. Other receivables

(1) Ageing analysis of other receivables is set out as follows:

Ending balance of the year Beginning balance of the year Amount Percentage Bad debts Amount Percentage Bad debts Ageing (%) provision (%) provision

Within one 3,130,354.42 33.10 14,570.98 13,069,379.64 82.58 14,377.15 year 1yearto2 4,094,911.58 43.30 19,648.35 1,944,428.58 12.29 194,442.86 years 2yearsto3 1,538,891.51 16.27 633,289.99 316,598.65 2.00 158,299.33 years 3yearsto4 223,668.05 2.36 223,668.05 84,718.30 0.54 84,718.30 years 4yearsto5 81,718.30 0.86 81,718.30 289,383.38 1.83 289,383.38 years Over 5 years 388,161.07 4.11 131,451.07 121,858.69 0.76 121,858.69

Total 9,457,704.93 100.00 1,104,346.74 15,826,367.24 100.00 863,079.71

(2) No amount due from shareholders holding 5% and more of the voting shares of the Company at the end of the year.

(3) Details of other receivables, which have material amount at the end of the year, are as follows:

Names Amount Natures or descriptions Remarks

Xiamen Port Holding Co. Ltd. 2,124,556.28 Entrustment fee and current account Xiamen Port Power Supply 2,200,875.29 Construction by contract Service Co., Ltd. and current account Xiamen Port (Group) Domestic 2,000,071.51 Current account between Shipping Agent Co. Ltd. related parties 340,417.01 Reimbursed railway transportation fees 298,194.95 Reimbursed railway transportation fees

Total 6,964,115.04

Note: Of balance of other receivables at the end of the year, top 5 customers amounted to RMB6,964,115.04, accounting for 73.63% of the total other receivables.

(4) Balance of other receivables at the end of the year does not contain any material amount with long credit period.

86 42. Long-term equity investments

Details of long-term equity investments are set out as follows:

Beginning balance of Increase for Decrease for Ending balance Items the year the year the year of the year

Long-term investments under 471,704,139.42 125,474,220.51 58,358,029.21 538,820,330.72 equity method Long-term investments under 88,168,148.00 80,000,000.00 8,168,148.00 cost method Less: provision for 28,530,000.00 28,530,000.00 impairment of long-term equity investments

Sub-total 531,342,287.42 125,474,220.51 109,828,029.21 546,988,478.72 Differences in equity 3,821,854.69 664,670.40 3,157,184.29 investments

Total 535,164,142.11 125,474,220.51 110,492,699.61 550,145,663.01

(1) Details of long-term equity investments under equity method are set out as follows:

Initial Additional Accumulated investment investment change of Accumulated Name of investees amount amount equity cash bonus

Xiamen Road & Bridge 45,636,100.00 38,718,271.60 Building Materials Corporation Ltd. China Ocean Shipping Agency 97,811,762.29 41,233,460.89 24,037,186.27 (Xiamen) Co., Ltd. Xiamen Port Logistics Co., 169,188,147.56 33,050,000.00 27,527,143.89 19,425,590.12 Ltd. Xiamen Port Shipping Co., 60,032,411.61 44,101,594.51 Ltd. Xiamen Waili Tally Co., Ltd. 24,600,615.81 -2,825,755.83 14,767,142.36 14,895,252.82 Xiamen Port (Group) Domestic 2,187,251.77 192,401.47 Shipping Agent Co., Ltd. Xiamen Harbour Lurong 435,895.98 86,069.06 66,749.41 Water-and-Railway Coordinated Transportation Co., Ltd. Xiamen Port Logistics Free 500,000.00 2,596.37 Trade Co., Ltd.

Total 400,392,185.02 30,224,244.17 166,628,680.15 58,424,778.62

87 (above table continued)

Changes in Beginning investment Change in Ending balance of amount for equity for the Cash bonus balance of Name of investees the year the year year for the year the year

Xiamen Road & 76,435,331.16 7,919,040.44 84,354,371.60 Bridge Building Materials Corporation Ltd. China Ocean 110,824,414.03 28,220,809.15 24,037,186.27 115,008,036.91 Shipping Agency (Xiamen) Co., Ltd. Xiamen Port 179,101,995.38 33,050,000.00 17,613,296.07 19,425,590.12 210,339,701.33 Logistics Co., Ltd. Xiamen Port 71,866,912.50 32,267,093.62 104,134,006.12 Shipping Co., Ltd. Xiamen Waili Tally 30,198,184.49 -2,825,755.83 9,169,573.68 14,895,252.82 21,646,749.52 Co., Ltd. Xiamen Port (Group) 2,373,330.40 6,322.84 2,379,653.24 Domestic Shipping Agent Co., Ltd. Xiamen Harbour 403,971.46 51,244.17 455,215.63 Lurong Waterand- Railway Coordinated Transportation Co., Ltd. Xiamen Port 500,000.00 2,596.37 502,596.37 Logistics Free Trade Co., Ltd.

Total 471,704,139.42 30,224,244.17 95,249,976.34 58,358,029.21 538,820,330.72

(2) Details of long-term equity investments under cost method are set out as follows:

Beginning Ending Year of balance of Change for balance of Percentage Name of investees investment the year the year the year of equity

Zhongxin Securities Since 1999 8,000,000.00 8,000,000.00 0.24% Co., Ltd. Tiantong Securities Since 2000 80,000,000.00 -80,000,000.00 Co., Ltd. Shenzhen Citic Since 2003 168,148.00 168,148.00 0.24% United Venture Capital Co., Ltd.

Total 88,168,148.00 -80,000,000.00 8,168,148.00

Note: The investment in Tiantong Securities Co., Ltd. decreased by RMB80,000,000 for the year. SeeNo.3inNote6(2).

(3) Changes in and reasons for provision for impairment of long-term equity investments are as follows:

Beginning Decrease Ending balance of Increase for (reversal) for balance of Reasons for Investment the year the year the year the year provision

Tiantong 28,530,000.00 28,530,000.00 See Note Securities Co., Ltd.

Total 28,530,000.00 28,530,000.00

88 Note: Provision for impairment of Tiantong Securities Co., Ltd. was decreased by RMB28,530,000 for the year, because the Company has transferred out the relevant investment in the year. SeeNo.3inNote6(2).

(4) Details of differences in equity investments are set out as follows:

Beginning Ending Initial Term of balance Change for balance of Items amount Reason amortisation of the year the year the year

Xiamen Road & 6,646,703.74 Acquisition 10 years 3,821,854.69 -664,670.40 3,157,184.29 Bridge at premium Building Materials Corporation Ltd.

Total 6,646,703.74 3,821,854.69 -664,670.40 3,157,184.29

(5) No significant restrictions of reversal of realisation from investments and income from investments in the above long-term investments.

43. Revenue and cost of principal operations

Details of revenue and cost of principal operations by nature of business are set out as follows:

Current year Previous year Revenue from Cost of Revenue from Cost of principal principal principal principal Nature of business operations operations operations operations

Bridge toll 154,341,439.00 56,155,781.78 Loading and unloading services 156,756,626.60 92,690,444.87 59,203,694.93 34,193,380.68 Stacking services 7,939,140.40 14,487,736.89 2,927,395.97 6,074,365.94 Others 143,461.53

Total 164,839,228.53 107,178,181.76 216,472,529.90 96,423,528.40

Note: Of revenue and cost of principal operations in the previous year, bridge toll reflected the revenue and cost from January to July 2004, loading and unloading services and storage services reflected the revenue and cost from August to December 2004.

89 44. Income from investments

(1) Details of income from investments are set out as follows:

Items Current year Previous year

Income from investments under equity 92,763,856.18 47,050,074.81 method Income from investments under cost 250,000.00 550,000.00 method Provision for impairment of short-term -64,119.13 investments Provision for impairment of long-term -18,397,440.94 equity investments Amortisation of differences in equity -664,670.40 -664,670.37 investments Gain on shares investments 68,597.82 Income from transfer/disposal of 30,000.00 investments

Total 92,379,185.78 28,542,442.19

(2) No significant restrictions in reversal of the above income from investments.

45. Relevant items in cash flow statements of parent company

(1) Due to the restricted usage of guarantee deposits for bank acceptance bills, the monetary funds of RMB14,025,000.00 at the end of the year have not been stated as cash and cash equivalents in preparing the cash flow statements of the Company.

(2) Other material items relating to operating activities of RMB97,164,843.27 in cash received this year are as follows:

Items Amount Remarks

Financial subsidy from Xiamen Municipal 11,000,000.00 Bureau of Finance Current account balances received from 77,758,900.00 subsidiaries Guarantee deposits received 4,882,502.13

Total 93,641,402.13

(3) Other material items relating to operating activities of RMB20,744,982.01 in cash paid this year are as follows:

Items Amount Remarks

Operating expenses and management fee 5,581,744.61 paid Guarantee deposits of bank acceptance 14,025,000.00 bills paid

Total 19,606,744.61

90 VI. RELATED PARTIES AND RELATED PARTY TRANSACTIONS

(1) Relationship of related parties

1. Related parties with control relationship

Relationship Place of with the Economic Legal Name of companies registration Principal operations Company nature or type representative

Xiamen Xiamen Operating and managing Parent company Joint stock Zeng Yingguo International Port state-owned assets within of the company with Co., Ltd* authorized scope; loading Company limited and unloading, storage, liability transshipment of cargo at ports; loading and unloading, transshipment of containers; development and construction of port engineering Xiamen Port Xiamen Operating and managing Controlling State-owned Zeng Yingguo Holding Co., state-owned assets within shareholder enterprise Ltd.* authorized scope; loading of parent and unloading, storage, company transshipment of cargo at ports; loading and unloading, transshipment of containers; development and construction of port engineering Xiamen Road & Xiamen Production and sale of Subsidiary Limited Hong Hexiang Bridge Building building materials company Materials Corporation Ltd. Xiamen Jinluqiao Xiamen Production and sale of Subsidiary Limited Hong Hexiang Raw Materials building materials company Co., Ltd. Xiamen Port Xiamen Road transportation of cargo Subsidiary Limited Lin Kaibiao Logistics Co., and container company Ltd. Xiamen Port Xiamen Tugboat berthing services Subsidiary Limited Wang Jinyu Shipping Co., company Ltd. China Ocean Xiamen Shipping agency services for Subsidiary Limited Chen Dingyu Shipping Agency international vessels company (Xiamen) Co., Ltd. Xiamen Waili Tally Xiamen Port tallying business Subsidiary Limited Chen Peixiong Co., Ltd. company Xiamen Port Xiamen Agency services for domestic Subsidiary Limited Xu Yinger (Group) shipping company Domestic Shipping Agent Co., Ltd. Xiamen Port Xiamen Transshipment of Subsidiary Limited Wu Yehong Logistics Free International containers company Trade Co., Ltd. andbondedwarehouse Xiamen Ganghua Xiamen Repair and maintenance of Subsidiary Limited Zeng Yingguo Container Service container company Co., Ltd. Xiamen Dongling Xiamen Container loading and Subsidiary Limited Xu Yinger Terminal Co., unloading, storage company Ltd. Xiamen Penavico Xiamen International cargo Subsidiary Limited Song Xiaojian International transportation company Freight and Forwarding Co., Ltd. Xiamen Penavico Xiamen Agency services for cargo Subsidiary Limited Yang Qingquan Navigation Co., transportation company Ltd.

91 Relationship Place of with the Economic Legal Name of companies registration Principal operations Company nature or type representative

Xiamen Penavico Xiamen Agency services for customs Subsidiary Limited Song Xiaojian Customs Broker declaration company Co., Ltd. Xiamen Penavico Xiamen Agency services for air Subsidiary Limited Song Xianjian Air Freight Co., transportation company Ltd. Xiamen Penavico Xiamen Operations of bonded Subsidiary Limited Song Xianjian Logistics Co., warehouse company Ltd.

Note: As discussed in Note 12 (1), Xiamen Port (Group) Co., Ltd. has changed to Xiamen International Port Co., Ltd after full conversion with the approval of relevant authority. The holder of 162,620,000 State-owned shares of the Company, representing 55.13% of the total share capital of the Company, has changed from Xiamen Port (Group) Co. Ltd. to Xiamen International Port Co., Ltd.

2. Registered capital and its changes of related parties in control relationship

(1) Controlling shareholders and controlling parties of the Company

Unit: RMB’0,000

Beginning Ending Name of balance Increase Decrease balance companies of the year for the year for the year of the year

Xiamen 50,000.00 132,920.00 182,920.00 International Port Co., Ltd Xiamen Port 10,971.00 299,029.00 310,000.00 Holding Co., Ltd.

92 (2) Subsidiaries of the Company

Unit: RMB’0,000

Beginning Ending Name of balance Increase Decrease balance companies of the year for the year for the year of the year

Xiamen Road & 2,000.00 2,000.00 Bridge Building Materials Corporation Ltd. Xiamen Jinluqiao 1,000.00 1,000.00 Raw Materials Co., Ltd. Xiamen Port 3,158.00 3,342.00 6,500.00 Logistics Co., Ltd. Xiamen Port 2,500.00 2,500.00 Shipping Co., Ltd. China Ocean 3,000.00 3,000.00 Shipping Agency (Xiamen) Co., Ltd. Xiamen Waili 50.00 1,650.00 1,700.00 Tally Co., Ltd.* Xiamen Port 200.00 200.00 (Group) Domestic Shipping Agent Co., Ltd. Xiamen Port 500.00 500.00 Logistics Free Trade Co., Ltd. Xiamen Ganghua 663.00 663.00 Container Service Co., Ltd. Xiamen Dongling 400.00 400.00 Terminal Co., Ltd. Xiamen Penavico 600.00 600.00 International Freight and Forwarding Co., Ltd. Xiamen Penavico 200.00 200.00 Navigation Co., Ltd. Xiamen Penavico 180.00 180.00 Customs Broker Co., Ltd. Xiamen Penavico 500.00 500.00 Air Freight Co., Ltd. Xiamen Penavico 380.00 380.00 Logistics Co., Ltd.

93 3. Shares held by related parties in control relationship and change of shareholding

(1) Controlling shareholders of the Company

Unit: ’0,000 shares

Beginning balance Increase Decrease Ending balance of the year for the year for the year of the year Name of Company Amount Percentage Amount Percentage Amount Percentage Amount Percentage

Xiamen International Port 16,262.00 55.13% 16,262.00 55.13% Co., Ltd

(2) Subsidiaries of the Company

Unit: RMB’0,000

Beginning balance Increase Decrease Ending balance of the year for the year for the year of the year Name of Companies Amount Percentage Amount Percentage Amount Percentage Amount Percentage

Xiamen Road & Bridge 1,900.00 95% 1,900.00 95% Building Materials Corporation Ltd. Xiamen Jinluqiao Raw 840.00 79.80% 840.00 79.80% Materials Co., Ltd. Xiamen Port Logistics 3,158.00 100% 3,342.00 100% 6,500.00 100% Co., Ltd. Xiamen Port Shipping 2,250.00 90% 2,250.00 90% Co., Ltd. China Ocean Shipping 1,800.00 60% 1,800.00 60% Agency (Xiamen) Co., Ltd. Xiamen Waili Tally Co., 50.00 100% 1,412.00 86% 1,462.00 86% Ltd. Xiamen Port (Group) 160.00 80% 160.00 80% Domestic Shipping Agent Co., Ltd. Xiamen Port Logistics 500.00 100% 500.00 100% Free Trade Co., Ltd. Xiamen Ganghua 331.50 50% 331.50 50% Container Service Co., Ltd. Xiamen Dongling 300.00 75% 300.00 75% Terminal Co., Ltd. Xiamen Penavico 600.00 60% 600.00 60% International Freight andForwardingCo., Ltd. Xiamen Penavico 200.00 60% 200.00 60% Navigation Co., Ltd. Xiamen Penavico Customs 180.00 60% 180.00 60% Broker Co., Ltd. Xiamen Penavico Air 500.00 60% 500.00 60% Freight Co., Ltd. Xiamen Penavico 380.00 60% 380.00 60% Logistics Co., Ltd.

94 4. Related parties without control relationship

Name of companies Relationship with the Company

Xiamen Road and Bridge Concrete 15% equity interests held by the Engineering Corporation Ltd. Company Xiamen Haitian Container Terminals Under the same parent company, 15% Co., Ltd. equity interests held by the Company Xiamen Port (Group) Shihushan Subsidiary of Xiamen Port Holding, the Terminal Co., Ltd. controlling shareholder of the parent company of the Company Xiamen International Container Terminal Under common control of another Ltd. shareholder and Xiamen Haicang Port Co. Ltd., subsidiary of Xiamen International Port, parent company of the Company Xiamen Harbour Lurong Water-and- 48% equity interests held by the Railway Coordinated Transportation Company Co. Ltd. Xiamen Electronic Centre Co., Ltd. 15% equity interests held by the Company Quanzhou Qing Meng logistics Co., Ltd. 40% equity interests held by the Company Xiamen Sandeli Container Storage Co., 45% equity interests held by the Ltd. Company 10% equity interests held by the Company Xiamen Haitian Container Co. Ltd. 4.15% equity interests held by the Company Xiamen Port Engineering Company Subsidiary of Xiamen Port Holding, the controlling shareholder of parent company of the Company Xiamen Penavico Tungya Logistics Co., 35.72% equity interests under contractual Ltd. investment held by the Company Xiamen Port Power Supply Service Co., Same parent company Ltd. Xiamen Waili Tally Service Company Subsidiary of Xiamen Port Holding, the controlling shareholder of parent company of the Company Xiamen Port Hailongchang International Subsidiary of Xiamen Port Holding, the Freight Co., Ltd. controlling shareholder of parent company of the Company Xiamen Port Gaoqi Ship Repairing Subsidiary of Xiamen Port Holding, the Factory controlling shareholder of parent company of the Company Xiamen Port Labour Services Co., Ltd. Subsidiary of Xiamen Port Holding, the controlling shareholder of parent company of the Company Xiamen Shuichan Group Co. Ltd. Subsidiary of Xiamen Port Holding, the controlling shareholder of parent company of the Company

95 (2) Related party transactions and current accounts

1. Sales of goods or provision of labour services

(1) Labour services provided to related parties by the Company are as follows:

2005 2004 Amount Amount incurred in As percentage incurred in As percentage Name of Particulars of Pricing related party of all related party of all related parties transactions basis transactions transactions transactions transactions

Xiamen Haitian Transportation services Contract 32,858,779.80 41.29% 13,937,380.00 34.76% Container price Terminals Co., Ltd. Xiamen Transportation services Contract 8,685,433.68 10.91% 2,129,879.58 5.31% International price Container Terminal Ltd. Xiamen Port Specific wire pipes for Cost-plus 1,080,000.00 100% 450,000.00 100% Holding Co., railway pricing Ltd.

(2) Services provided to the Company by related parties are as follows:

Name of related Particulars of Amount of transactions parties transactions Pricing basis Current year Previous year

Xiamen Port Labour Transit, loading and Market 17,087,336.91 6,527,825.39 Services Co., Ltd. unloading transaction price Xiamen Port Engineering labour Market 15,279,810.04 2,492,733.98 Engineering services transaction Company price Xiamen Haitian Container delivery Contract price 3,972,645.00 1,249,040.00 Container Terminals charge Co., Ltd. Xiamen Port Transit, loading and Contract price 239,589.00 Hailongchang unloading International Freight Co., Ltd. Xiamen Port Power Engineering labour Contract price 696,992.52 Supply Service Co., services Ltd. Xiamen Road and Toll collection and Contract price 17,736,000.00 Bridge Management maintenance of Corporation Ltd. bridge Road and Bridge Development and Contract price 750,000.00 Construction management of Investment property Corporation of Xiamen Road and Bridge Landscaping of bridge Contract price 964,196.00 Horticulture Engineering Corporation of Xiamen Road and Bridge Maintenance of bridge Contract price 388,000.00 Information lighting Technology of Xiamen

96 (3) Sales of fixed assets and intangible assets to related party by the Company are as follows:

Particulars of Amount of transaction Name of related party transaction Pricing basis Current year Previous year

Xiamen Port Holding Sale of property and Contract price 1,386,970.52 Co., Ltd. transfer of land use rights

(4) Purchase of fixed assets and intangible assets from related parties by the Company are as follows:

Name of related Particulars of Amount of transactions parties transactions Pricing basis Current year Previous year

Xiamen Port Holding Purchase of property Contract price 25,212,400.00 Co., Ltd. and land use rights Xiamen International Purchase of land use Contract price 4,529,357.90 Port Co., Ltd rights

2. Guarantees

(1) Guarantees provided by the Company for bank bills issued by its subsidiary:

Guaranteed amount as a In which: percentage Accumulated Ending guarantees in of net assets amount balance violation of of the Name of company for the year of the year regulations Company

Xiamen Road & 54,267,465.00 26,799,034.00 Nil 2.21% Bridge Building Materials Corporation Ltd.

Notes:

(a) The guarantee period for the above bank acceptance bills outstanding at the end of the year is from 16 August 2005 to 4 August 2006.

(b) In January 2005, Logistics Co., subsidiary of the Company, entered a guarantee cap contract ‘‘NCB E Zi (2005) 001’’ with The National Commercial Bank, Ltd. (Xiamen Branch). Under the contract, Logistics Co. will provide guarantees of RMB24,000,000 for short-term credit facilities of Xiamen Road & Bridge Building Materials. In August 2005, the Company entered a guarantee cap contract ‘‘NCB E Zi (2005) 028’’ with The National Commercial Bank, Ltd. (Xiamen Branch). Under the contract, the Company will provide guarantees of RMB30,000,000 for short-term credit facilities of Xiamen Road & Bridge Building Materials. In the event of not exceeding the cap, The National Commercial Bank, Ltd. will issue bank acceptance bills to Xiamen Road & Bridge Building Materials.

97 (2) Guarantees provided by the Company for bank loans of its subsidiary:

Guaranteed amount as a In which: percentage Accumulated Ending guarantees in of net assets amount for balance violation of of the Name of company the year of the year regulations Company

Xiamen Port Shipping 35,445,688.00 35,445,688.00 Nil 2.93% Co., Ltd.

Note: see No. 24 in Note 5 (1).

3. Transfer of equity interests

On 31 December 2004, the Company entered into the ‘‘Agreement on Transfer of Equity Interests’’ with Xiamen Port Holding. Under the agreement, Xiamen Port Holding agreed to acquire the equity interests of 3.27% in Tiantong Securities held by the Company with a considerations of RMB51,500,000.

The above equity transfer was approved at the 24th meetings of the second session of the Board of Directors of the Company. It was also approved by the China Securities Regulatory Commission by the Document Zheng Jian Ji Gou Zi (2005) No. 60 ‘‘Approval concerning the Agreement to Change of Equity Interests in Tiantong Securities Co., Ltd.’’ and registration procedures for the above change of equity interests were completed by Tiantong Securities Co., Ltd. in July 2005. In April 2005, the Company received an amount of RMB51,500,000 for the above transfer of equity interest. The difference between the amount from transfer and net value at par of investments RMB51,470,000 (less provision for impairment of long- term investment RMB25,830,000) has been recorded in the income from transfer of equity interest for the year.

4. Leases

(1) Leases to related parties by the Company are as follows:

Name of related Particulars of Amount of transactions parties transactions Pricing basis Current year Previous year

Xiamen International Lease of land Contract price 3,034,704.00 1,264,460.00 Port Co., Ltd Xiamen Shuichan Group Lease of land Contract price 1,788,305.80 Co., Ltd. Xiamen Port Holding Lease of building Contract price 644,441.00 238,456.20 Co., Ltd. Xiamen Port Holding Lease of depots Contract price 1,754,200.00 Co., Ltd. Xiamen Haitian Lease of premises Contract price 800,000.00 Container Terminals Co., Ltd. Road and Bridge Lease of land Contract price 3,196,667.00 Construction Investment Corporation of Xiamen

Note: The Company entered into the ‘‘Lease Agreement of Land Use Rights’’ with Port Group in 2004. Under the agreement, the Company agreed to lease a piece of land in Dongdu Terminal with an area of 63,223 sq.m. from Port Group, for a lease dyration of 20 years commencing from August 2004. The annual rent is RMB48 per square meter, totaling RMB 3,034,704.00 per annum. Subsequent to the full conversion in which Port Group has changed to Xiamen International Port in 2005, the above lease was subsequently changed to Xiamen International Port. As at 31 December 2005, the Company has not settled the above rents in full to Port Group.

98 (2) Leases to the Company by the related parties are as follows:

Name of related Particulars of Amount of transactions parties transactions Pricing basis Current year Previous year

Xiamen Haitian Lease of equipment Contract price 957,248.00 Container Terminals Co., Ltd. Xiamen International Lease of equipment Contract price 224,400.00 Container Terminal Ltd. Road & Bridge Lease of premises Contract price 188,400.00 183,733.00 Engineering Material Corporation of Xiamen

5. Logistic composite services

The Company entered into the ‘‘Agreement on Composite Services’’ with Port Group for a period of 3 years. Under the agreement, Xiamen Port Group agreed to provide the following composite services to the Company at a fair and reasonable price:

(1) The staff reallocated from Port Group to the Company is provided housing ancillary facilities and related services on the original terms set by Port Group, and the staff of the Company will pay rent and services fees to Port Group on the terms not higher than those of the staff of Port Group.

(2) Staff canteen of Port Group provides catering services to the staff of the Company at the same price as to its staff. The Company pays an annual fee of RMB749,500 for catering services to Port Group, in return, Port Group provides sufficient drinking water free of charge at the kiosk operated at Dongdu Port of the Company.

(3) Environmental protection and landscaping services:

Cleaning services, including waste treatment, of a depot with an area of 33.22 sq.m in Dongdu Terminal of the Company are provided by Port Group at an annual fee of RMB3.6 per square meter.

Cleaning services of office and apartment of the Company are provided by Port Group at an annual fee of RMB4.8 per square meter covering a services area of 34,028 sq.m.

Port Group is responsible for planting, maintenance and management of lawn, flowers and trees in Dongdu port area of the Company as well as design and management of flowers and evergreen plants in the office of Dongdu port area.

On 28 February 2005, Port Group was converted into to Xiamen International Port. The above businesses were assumed by Xiamen Port Property Management Co., Ltd. (‘‘Port Property’’), a subsidiary of Port Holding. In 2005, the amount of composite services fee RMB2,301,602.52 was payable to Port Property by the Company. As at 31 December 2005, the Company settled the above composite services fee in full with Port Property.

(4) Communications and power supply services:

Xiamen Port Power Supply Service Co., Ltd. (‘‘Power Supply Service’’) provides power supply and communications services to the Company for a fee at the standard prescribed by the communications authority and the sales price of electricity in Xiamen.

99 In 2005, the service fee for communications and power supply of RMB 2,127,920.50 (excluding payment of reimbursed electricity charge) was payable to Xiamen Port Holding by the Company. As at 31 December 2005, the Company settled the above fee in full with Power Supply Service.

6. Other related party transactions

(1) An amount due to Port Group for use of funds of RMB1,954,154.45 was payable to Port Group by the Company for the year. See No. 25 in Note 5(1) for the reasons of payment and basis. As at 31 December 2005, the Company has paid above expense by RMB1,494,400.

(2) Operations management entrustment

In June 2005, Port Holding, Xiamen Liuwudian Terminal Company (the ‘‘management entrustor’’) and the Company (the ‘‘management entrustee’’) entered into an operations management entrustment contract. Under the contract, the Company is responsible for the operations management of Xiamen Liuwudian Terminal Company for a period from 1 January 2005 to 31 December 2007, including all assets and businesses of Xiamen Liuwudian Terminal Company related to storage and loading and unloading of bulk/ general cargo located at Liuwudian port area, Liuwudian village, Xindian Town, Xiangan District, Xiamen. The management entrustment fee is divided into two parts: basic management fee and incentive management fee. Basic management fee is the cost received by management entrustee for providing operations management of entrusted assets which is RMB60,000 per annum. Incentive management fee is a certain percentage of net profit after tax receivable by the management entrustor in stages as a result of the operations management on the entrusted assets by the management entrustee. The management entrustor is entitled to 40% of the net profit after tax between RMB0 and RMB500,000, 30% of the net profit after tax between RMB500,000 to RMB1,000,000, and 20% of the net profit after tax in excess of RMB1,000,000. As the demolition and renovation of the terminal was not completed until December 2005, the Company will commerce to collect the above entrustment fee in 2006.

100 7. Amounts due to/from related parties

Beginning balance of the Increase for Decrease for Ending balance Items Related parties year the year the year of the year

Accounts receivable Xiamen Haitian Container 3,097,500.00 33,958,620.80 34,056,120.80 3,000,000.00 Terminals Co., Ltd. Accounts receivable Xiamen International 947,874.82 9,796,429.68 9,027,282.64 1,717,021.86 Container Terminal Ltd. Accounts receivable Xiamen Waili Tally 1,435,439.59 1,344,310.24 91,129.35 Services Company Other receivables Xiamen Port Holding Co., 2,245,625.78 121,069.50 2,124,556.28 Ltd. Other receivables Xiamen Port Power 1,795,448.19 405,427.10 2,200,875.29 Supply Service Co., Ltd. Other receivables Xiamen Haitian Container 405,106.93 405,106.93 Terminals Co., Ltd. Other receivables Xiamen Port Gaoqi Ship 204,224.63 20,700.00 224,924.63 Repairing Factory Other receivables Xiamen Harbour Lurong 175,439.82 175,439.82 Water-and-Railway Coordinated Transportation Co. Ltd Accounts payable Xiamen Haitian Container 31,643,292.53 216,437,329.56 221,413,350.29 26,667,271.80 Terminals Co., Ltd. Accounts payable Xiamen International 4,427,650.58 81,381,746.70 77,231,165.61 8,578,231.67 Container Terminal Ltd. Accounts payable Xiamen Port Labour 3,344,096.59 13,771,020.50 16,675,635.79 439,481.30 Services Co. Ltd. Accounts payable Xiamen Port Hailongchang 78,060.04 239,589.00 74,991.44 242,657.60 International Freight Co. Ltd. Accounts payable Xiamen International Port 4,484,644.90 4,484,644.90 Co., Ltd Accounts payable Xiamen Port Development 546,115.00 3,573,735.89 4,119,850.89 andConstructionCo. Ltd Accounts payable Xiamen Port Engineering 30,000.00 542,481.48 572,481.48 Company Accounts payable Xiamen Port Power 696,992.52 418,195.51 278,797.01 Supply Service Co., Ltd. Accounts payable Xiamen Waili Tally 473,065.00 2,036,701.57 2,490,076.57 19,690.00 Services Company Other payables Xiamen International Port 4,908,901.70 150,000.00 4,758,901.70 Co., Ltd Other payables Xiamen Port Property 83,694.46 346,233.40 160,000.00 269,927.86 Management Co., Ltd Other payables Xiamen Port Holding Co., 1,849,716.47 53,779,190.41 53,700,713.48 1,928,193.40 Ltd. Other payables Xiamen Port Power 5,672,569.96 5,167,633.40 504,936.56 Supply Service Co., Ltd. Long-term liabilities Xiamen Port (Group) Co., 7,200,000.00 10,400,000.00 7,200,000.00 10,400,000.00 due within one Ltd year Long-term payables Xiamen Port (Group) Co., 44,653,876.16 10,400,000.00 34,253,876.16 Ltd

101 Notes:

(a) The amounts of the related party transactions and the balances between the Company and Xiamen Haitian Container Terminals Co., Ltd. and Xiamen International Container Terminal Ltd. were relatively high, because the reimbursed payments and collections incurred in the agency business of Xiamen Penavico, a subsidiary of the Company, were high. Out of the balance of amounts due to Xiamen Haitian Container Terminals Co., Ltd. of RMB26,667,271.80, RMB22,660,847.43 was the outstanding loading and unloading charges collected and not yet paid by Xiamen Penavico, a subsidiary of the Company; and amount due to Xiamen International Container Terminal Ltd. of RMB8,578,231.67 was the outstanding loading and unloading charges collected and not yet paid by Xiamen Penavico; amount due to Xiamen Port Labour Services Co. Ltd. of RMB439,481.30 was transit and loading and unloading charges pending settlement.

(b) The related party balances between the Company and Xiamen Port Holding Co., Ltd. was relatively high due to the amount received and receivable from the transfer of equity interests in Tiantong Securities of RMB51,500,000.

VII. CONTINGENT LIABILITIES

The Company does not any material or contingent liability which requires disclosure.

VIII.COMMITMENT

The Company does not have any material commitment which requires disclosure.

IX. NON-ADJUSTABLE SUBSEQUENT EVENTS

At the 33rd meeting of the 2nd session of the Board of Directors held on 23 March 2006, the resolution on profit distribution in respect of the net profit for 2005 was passed. The Company has allocated 10% each of the net profit for the year to the statutory surplus reserve of RMB11,754,072.31 and the public welfare reserve of RMB11,75,072.31 respectively. As the Company has a larger number of major investments and construction projects in 2006, there will be heavy demands for funding thereon. In accordance with the current requirements of operations and development, and taking into account the tighter demands for funds in order to realise our long-term sustainable development goals, the Company does not intend to make any profit distribution nor any conversion of capital reserves to share capital for the year.

X. OTHER SIGNIFICANT EVENTS

1. Change of controlling shareholder

In February 2005, Port Group, the controlling shareholder of the Company, converted itself into a joint stock company with limited liability with the approval document of the Xiamen Municipal Government Xia Fu 2005 No. 32. When the procedure for change of business registration was completed in March 2005, the Company changed its name to Xiamen International Port Co., Ltd. On 9 May 2005, the State-owned Assets Supervision and Administration Commission under State Council agreed to the change of holder of the 162,620,000 State-owned shares (representing 55.13% of total share capital of the Company) from Port Group to Xiamen International Port Co., Ltd by issuing the Reply Concerning the Management of State-owned Equity Interests by Xiamen International Port Co., Ltd (Guo Zi Chan Quan 2005 No. 481), the nature of the shares are state-owned legal person shares. As at 31 December 2005, the change of name and the nature of shares of the controlling shareholder of the Company, Xiamen International Port Co., Ltd, were completed. On 19 December 2005, Xiamen International Port Co., Ltd was listed on Hong Kong Stock Exchange.

102 2. Financial subsidy

Pursuant to the Reply Concerning the Financial Subsidy to Xiamen Luqiao Joint Stock Company Limited after the assets swap (XiaCaiQi 2004 No. 80) issued by Xiamen Municipal Bureau of Finance, Xiamen Municipal Bureau of Finance provides an annual subsidy of RMB11,000,000 for 5 years to the Company at the end of each year in order to encourage the development of the port logistics industry in Xiamen. In 2005, the Company received the above subsidy and recognised as ‘‘subsidy income’’ of the year.

11. Extraordinary income and expenses

Extraordinary income and expenses include non-operating income (excluding all provisions for impairment of assets made in accordance with ‘‘Corporate Accounting System’’ in day-to-day operations), extraordinary income arising from funds usage, retrospective adjustments of net profit due to change in accounting policies of the current year against the prior year and loss of physical inventories during the reporting period. Extraordinary income and expenses for the year are as follows:

Unit: RMB

Items Current year

Income from non-operating activities 1,692,369.98 Expenses from non-operating activities -958,543.57 Income from financial subsidy 11,000,000.00 Proceeds from (disposal) transfer of equity interests 87,996.10 Reversal of provisions for impairment of short-term investments 47,770.68

Sub-total 11,869,593.19 Less: Effects of income tax 1,876,820.57

Total 9,992,772.62

SECTION 11 DOCUMENTS AVAILABLE FOR INSPECTION

1. Financial statements signed and sealed by the legal representative, the person-in-charge of the accounting functions and the person-in-charge of the accounting organisation.

2. Original copy of the auditors’ report sealed by the accounting firm and signed and sealed by the certified public accountant.

3. Original copies of all corporate documents and announcements publicly disclosed in newspapers designated by the China Securities Regulatory Commission during the reporting period.

The Board of Directors Xiamen Port Development Co., Ltd. WU Laichuan Chairman

23 March 2006

* For identification purpose only

103