China Vanke Co., Ltd. 2008 Interim Report (As at the End of 30 June 2008)

China Vanke Co., Ltd. 2008 Interim Report (As at the end of 30 June 2008)

Important Notice: The Board of Directors of the Company, the Supervisory Committee and the Directors, members of the Supervisory Committee and senior management of the Company warrant that in respect of the information contained in this report, there are no misrepresentations or misleading statements, or material omission, and individually and collectively accept full responsibility for the authenticity, accuracy and completeness of the information contained in this report. The interim report of the Company has not been audited. Vice Chairman Song Lin, Director Wang Yin and Director Jiang Wei were not able to attend the board meeting in person due to business engagements and had authorised Director Yu Liang to attend the board meeting and vote on behalf of them. Independent Director Qi Daqing and Charles Li were not able to attend the board meeting in person due to their business engagements and had authorized Independent Director David Li Ka Fai to represent them and vote on behalf of them at the board meeting.

The Company’s Chairman Wang Shi, Director and President Yu Liang, and Executive Vice President and Supervisor of Finance Wang Wenjin, declare that the financial report contained in the interim report is warranted to be true and complete.

Basic Corporate Information………………………………………………………………………2

Changes in Share Capital and Shareholdings of Major Shareholders………………………3

Directors, Members of the Supervisory Committee, Senior Management …………………6

Directors’Report…………………………………………………………………………………………7

Significant Events…………………………………………………………………………………..…..21

Financial and Accounting Reports (unaudited) ………………………………………………....37

1 I. Basic Corporate Information

1. Company Name (Chinese): 万科企业股份有限公司 Company Name (English): China Vanke Co., Ltd. (“Vanke”)

2. Registered address: Vanke East Coast Buildings C02, Dameisha, Yantian District Shenzhen, the People’s Republic of China Postal code: 518083 Office address: Vanke Architecture Research Centre No. 63, Meilin Road, Futian District Shenzhen, the People’s Republic of China Postal code: 518049 Website: www.vanke.com E-mail address: [email protected]

3. Legal representative: Wang Shi

4. Secretary to the Company’s Board of Directors: Shirley L. Xiao E-mail address: [email protected] Securities Affairs Representative: Liang Jie E-mail address: [email protected] Contact Address: Office address of the Company Telephone Number: 0755-25606666 Fax Number: 0755-25531696

5. Media for disclosure of information: “China Securities Journal”, “Securities Times”, “Shanghai Securities News” and an English Newspaper in Hong Kong. Website for publication of regular reports: www.cninfo.com.cn Location where the Company’s interim report is available for inspection: Office of the Company’s Board of Directors

6. Stock exchange on which the Company’s shares are listed: Shenzhen Stock Exchange Company’s share abbreviation and stock codes on the stock exchange: Vanke A 000002 Vanke B 200002

2 7. Major Financial Data and Indicators (1)Major Financial Indicators（Unit: RMB）

Financial Indicators Jan-Jun 2008 Jan-Jun 2007 Change（+/-) Revenue 16,246,106,110 10,346,347,590 57.02% Results from operating activities 4,484,930,226 3,302,672,466 35.80% Profit before taxation 4,323,755,521 3,086,539,242 40.08% Profit attributable to equity shareholders 2,061,055,712 1,667,999,941 23.56% Basic EPS 0.187 0.155 20.65% Diluted EPS 0.187 0.155 20.65% Down by 3.59 Return on equity 6.87% 10.46% percentage Point Net cash used in operating activities -1,488,888,723 -2,978,922,684 50.02% Net cash used in operating activities per share -0.14 -0.45 68.89%

Financial Indicators 30-Jun-08 31-Dec-07 Change（+/-) Current assets 107,807,379,361 96,475,679,238 11.75% Current Liabilities 61,552,939,828 49,279,050,805 24.91% Total assets 112,524,305,740 101,137,627,958 11.26% Equity attributable to equity shareholders of the 30,019,950,382 29,278,647,601 2.53% Company Net assets per share 2.73 2.66 2.63%

Note: (i): Earnings per share and return on equity are calculated based on net profit attributable to equity shareholders of the Company after extraordinary gains/(losses). (ii): During the period under review, the Company implemented the proposal on the transfer of capital surplus reserve to share capital for the year 2007, pursuant to which six shares were transferred to shareholders for every 10 shares held. The Company’s total shares rose from 6,872,006,387 shares at the end of 2007 to 10,995,210,218 shares at the end of the period under review, representing an increase of 4,123,203,831 shares or 60 per cent, and as a result the earnings per share and net assets per share were diluted by 60 per cent accordingly.

（2）Impact of IFRS Adjustments on Net Profit

Profit attributable to Equity attributable to equity shareholders equity shareholders of the Item of the Company Company Jan-Jun 2008 As at 30 Jun 2008 Prepared in accordance with IFRS 2,061,055,712 30,019,950,382 Prepared in accordance with PRC Accounting Standards 2,061,055,712 30,019,950,382 Remarks on the differences N/A

II. Changes in Share Capital and Shareholdings of Major Shareholders 1. Changes in the share capital of the Company (Unit: shares; as at 30 June 2008)

3 Balance, at the Changes during the Balance, at the end of the beginning of the reporting period reporting period

Type of shares reporting period Transfer of Quantity Percentage capital surplus Others Quantity Percentage reserve I. Restricted shares 1. State shares and state- 165,000,000 2.40% 99,000,000 0 264,000,000 2.40% owned legal person’s shares 2. Domestic non-state-owned legal person’s shares 3. Domestic natural person’s 1,733,278 0.03% 898,663 -235,506 2,396,435 0.02% share

4. Foreign shares Total number of restricted 166,733,278 2.43% 99,898,663 -235,506 266,396,435 2.42% shares

II. Non-restricted shares 1. RMB-denominated 5,883,425,941 85.61% 3,530,196,868 235,506 9,413,858,315 85.62% ordinary shares (A shares) 2. Domestic listed foreign 821,847,168 11.96% 493,108,300 0 1,314,955,468 11.96% shares (B shares) Total number of non- 6,705,273,109 97.57% 4,023,305,168 235,506 10,728,813,783 97.58% restricted shares

III. Total number of shares 6,872,006,387 100.00% 4,123,203,831 0 10,995,210,218 100.00% Notes: 1. During the reporting period, the Company implemented the proposal on the transfer of capital surplus reserve to share capital for the year 2007, pursuant to which six shares were transferred to shareholders for every 10 shares held; the total number of shares of the Company thus increased accordingly; 2. During the reporting period, the restricted shares held by senior management were adjusted according to the relevant regulations of the Shenzhen branch of China Securities Depository and Clearing Corporation Limited; accordingly, the number of restricted tradable shares held by the Company’s domestic natural persons decreased, while the number of non-restricted tradable shares held by them increased.

2. The shareholdings of the Company’s top 10 shareholders and the shareholdings of the top 10 holders of the non-restricted shares (as at 30 June 2008)

Total number of shareholders 1,070,587 (including 1,038,535 holders of A shares, and 32,052 holders of B shares) Shareholdings of the top 10 shareholders Name of shareholder Classification of Percentage of Number of Number of Number of

4 shareholder shareholdings shares held restricted pledged or shares held locked-up shares China Resources Co., State-owned 14.63% 1,609,094,796 264,000,000 0 Limited (“CRC”) Liu Yuansheng Others 1.22% 133,791,208 0 0 Guangfa Jufeng Stock 0 Securities Investment Fund Others 1.03% 112,759,315 0 (广发聚丰股票型证券投资基金) TOYO Securities Asia Foreign 0 0 1.00% 110,005,757 Limited-A/C Client shareholder Naito Securities Company Foreign 0 0.70% 77,043,495 0 Limited shareholder Citigroup Global Markets Others 0.65% 71,850,806 0 0 Limited China Life Insurance Company Limited－ Others 0.65% 71,774,782 0 0 Traditional－General Insurance Products Rongtong Shenzhen Stock Exchange 100 Index Others 0.65% 71,695,657 0 0 Securities Investment Fund Guangfa Small-cap Growth Stock Securities Investment Fund (广发小 Others 0.61% 67,250,432 0 0 盘成长股票型证券投资基金) Staff Committee of China Others 0.61% 67,168,517 0 0 Vanke Co., Ltd. Shareholdings of the top 10 shareholders of non-restricted shares Name of shareholder Number of non-restricted shares held Class of shares Ordinary RMB-denominated shares (A CRC 1,345,094,796 shares) Ordinary RMB-denominated shares (A Liu Yuansheng 133,791,208 shares) Guangfa Jufeng Stock Ordinary RMB-denominated 112,759,315 Securities Investment Fund shares (A shares) TOYO Securities Asia Domestic listed foreign shares (B 110,005,757 Limited-A/C Client. shares) Naito Securities Company Domestic listed foreign shares (B 77,043,495 Limited shares) Citigroup Global Markets Ordinary RMB-denominated 71,850,806 Limited shares (A shares) China Life Insurance Company Limited－ Ordinary RMB-denominated 71,774,782 Traditional－General shares (A shares) Insurance Products Rongtong Shenzhen Stock Ordinary RMB-denominated Exchange 100 Index 71,695,657 shares (A shares) Securities Investment Fund Guangfa Small-cap Ordinary RMB-denominated Growth Stock Securities 67,250,432 shares (A shares) Investment Fund Staff Committee of China Ordinary RMB-denominated 67,168,517 Vanke Co., Ltd. shares (A shares) Remarks on the connected Guangfa Jufeng Stock Securities Investment Fund and Guangfa Small-cap Growth Stock relationship or action in Securities Investment Fund are both managed by GF Fund Management. concert of the aforementioned shareholders Note: As at the end of the reporting period, China Vanke A shares held by the 2006 incentive fund, the 2007 incentive fund and the advanced appropriation for the 2008 incentive fund under Phase One of the

5 Restricted Stock Incentive Plan (the “Incentive Plan”) amounted to 61,447,370 shares, 46,341,761 shares, and 60,925,820 shares respectively. The total number of China Vanke A shares held by the three independent incentive funds was 168,714,951, representing 1.53 per cent of the Company’s total number of shares at the end of the reporting period and exceeding the percentage of shareholding of the second largest shareholder of the Company at the end of the reporting period. Pursuant to the requirements of Phase One of the Incentive Plan of China Vanke, “the stock incentive plan of each year is an individual trust plan and the shares purchased by the incentive fund appropriated according to the plan of a given year are maintained by an individual share account.” As such, the incentive plans of different years are independent from each other. There will also be certain change in the target beneficiaries in different years, and the aforementioned incentive shares do not carry voting rights before being transferred to the personal accounts of the beneficiaries. In addition, whether to implement the plan is subject to the operating results and stock price performance during the year in which the plan is implemented.

3. Number of shares held by the top 10 shareholders of restricted shares and the conditions of selling restrictions

Number of new Seri Number of Date on which listing Conditions of Name of shareholder of shares allowed al restricted shares and trading may selling restricted shares to be listed and No. held commence restrictions traded

1 CRC 264,000,000 2009-12-27 264,000,000 Note 1

Note: 1. The lock-up period of the shares subscribed by CRC during the private placing of the Company’s A shares in 2006 is from 27 December 2006 to 26 December 2009.

4. Change in controlling shareholders and beneficial controllers

There was no controlling shareholders nor beneficial controllers in the Company, and this situation remained the same during the reporting period.

III. Directors, Members of the Supervisory Committee and Senior Management

1. Changes in the shareholdings of Directors, members of Supervisory Committee and senior management during the reporting period (Unit: shares)

6 Name Capacity No. of shares held at the No. of shares held at beginning of the reporting the end of the period reporting period Wang Shi Chairman 993,835 1,590,136 Yu Liang Director, President 277,116 443,385 Ding Fuyuan Chairman of the Supervisory 293,431 469,490 Committee Sun Jianyi Director 432,648 692,336 Note: （1） During the reporting period, the Company implemented the proposal on the transfer of capital surplus reserve to share capital for the year 2007, resulting in a corresponding increase in the shareholdings of the Directors, member of the Supervisory Committee and senior management. （2） Save for the above-mentioned persons, other Directors, members of the Supervisory Committee and senior management of the Company do not hold any Company’s shares.

2. Appointment of Directors, members of the Supervisory Committee and senior management of the Company during the reporting period

At the 2007 Annual General Meeting of the Company held on 23 April 2008, Wang Shi, Song Lin, Yu Liang, Sun Jianyi, Wang Yin, Jiang Wei and Shirley L. Xiao were elected as Directors for the Fifteenth Board of Directors, and David Li Ka Fai, Judy Tsui Lam Sin Lai, Qi Daqing, Charles Li were elected as Independent Directors for the Fifteenth Board of Directors.

IV、Directors’ Report 1. Management Discussion and Analysis Changes in operating environment and the Company’s judgment Rational adjustment in the residential property market appeared at the end of 2007 continued into the reporting period. The comparison between similar properties in similar locations of different regions showed a downward adjustment in the transaction price of properties in the Pearl River Delta and certain central cities in Mainland China. The property prices in the Yangtze River Delta and Bohai-Rim region were relatively stable, and in certain cities there were even signs of an upward trend in prices. However, the market was mainly adopting a wait-and-see approach, and transaction volume retreated.

To certain extent, this round of adjustments was affected by the global economy and the PRC’s macro-economy. But more importantly, it had to do with the industry’s self-regulation. After experiencing a rapid expansion in 2007, the market needs a rational adjustment before entering a new development stage.

The Company has analysed this issue in its 2007 annual report and 2008 first quarter report. The

7 Company believed that the adjustment inevitably aroused anxiety and wait-and-see attitude of some market players. The market needs some time to reach a consensus again. During this process, there is the possibility of excessive adjustments in the short run. However, the Company also wanted to emphasize that as long as the fundamental factors that determine the foundation of the industry is in place, adjustment is a necessary stage and will not alter the development chart of the industry.

From a historical perspective, China is not alone in witnessing its property industry experience a short-term downward adjustment during the process of its long-term development. In the early 1970s, the Japanese real estate industry, after 20 years of expansion, underwent a relatively large adjustment due to the impact of international and domestic economic factors. However, the slump was temporary, and was followed by a period of more than 10 years of prosperity. From history, we learned that some factors in social economic development could affect the market in the short run, but the long-term development trend of the industry hinges on the process of urbanization, economic growth, population structure and the change in the way of living. As long as there is no fundamental change in the above-mentioned factors, the industry will basically remain on the right track of development. The development process of the Japanese real estate market over the past 50 years is strong evidence to this analysis.

To the PRC’s real estate industry, which is in its growing stage, there is still a long way for development. The PRC urbanisation rate currently stands at approximately 45 per cent, which is the level Japan achieved in the 1960s. People aged over 65 account for 8 per cent of the national population, which is equivalent to the level in Japan in 1970s. Due to special population policy, there is a concern for a declining young population. However, it should be noted that the migration of population, which is largely made up of young people, over a long period of time will help mitigate the impact of a decreasing young population on urban population. The census of population in 2000 revealed that approximately 30 per cent of the migrating population in the PRC aged between 25 and 39, 50 per cent aged between 10 and 24. From 2000 to 2005, the total population aged between 25 and 39 dropped by 30 million, but during the same period, the total population aged between 25 and 39 in urban areas increased by approximately 15 million. Considering that the major destinations for the migrating population are central cities with well- developed economies, it is apparent that the trend for young population and young families to move into these areas will rise. Over a long period of time in the future, the demand for residential housing in the central cities with well-developed economies will remain strong. To this, the Company has not wavered in its judgment.

We are facing not a sunset industry due to dwindling demand, but a market with a rational return after a period of excessive activities. The international and domestic macroeconomic factors have

8 increased the complexity of this round of adjustments, and the time for this cycle to complete may therefore be prolonged. Some cities may even witness excessive adjustments in the short run. However, the outlook for the property market in the long run is still promising. Following the rationalisation of the pricing for residential housing and the emergence of demand for housing for self-use, the market is expected to reach a new stage of rational and healthy development.

On the other hand, the industry adjustments not only signify challenges, but also opportunities. Traditional mechanism in place in the market is reflected in the linkage between housing prices and land prices of the property industry. To China Vanke and those enterprises with strong manufactory characteristics, the impact of any changes in the housing prices will, to certain extent, be offset by changes in the land prices in the long run. The rapid upsurge in housing prices may not indicate a positive sign, because what comes after may be a rise in land prices, which will put enterprises in a dilemma. On the contrary, excessive concern for adjustments in the housing prices is not necessary, as adjustments may bring forth good opportunities in the land market.

This trend began to emerge during the reporting period, and is likely to grow after the reporting period. Affected by the overall monetary policy and slowdown in cash inflow in the market, the industry’s cash position will further tighten. Despite a tight cash situation, the industry in general is not exposed to cash flow risk, at least for now. However, the situation has a great impact on the supply-demand relationship of the land market. During the reporting period, land auctions in various regions were called off from time to time, and looking ahead consolidation of the stock land market is likely to further accelerate. Enterprises with good credibility and a wide range of financing channels will thus face with more opportunities and be in a better position to cope with the industry restructuring.

Compared with market changes, declining professionalism amid a bull market deserves greater attention from property developers. When the market overheated in 2007, most of the products sold well, and even at a satisfactory price. Under this situation, enterprises tended to pay less attention to customers nor did they attempt to make effort to improve in their products and services. This is a test that even China Vanke has to face. In view of this, the Company has set “Being prepared for long-term development, building core competitiveness to pursue our goal” as its corporate motto for year 2008.

Company’s response and operating results There was a steady growth in the Company’s operating results during the reporting period. The Company’s revenue and net profit amounted to RMB16.246 billion and RMB2.06 billion respectively in the first half of the year, representing increases of 57.02 per cent and 23.56 per cent from those of the same period of the previous year respectively.

In the first half of the year, the booked area and booked revenue of the Company amounted to 2,081,000 sq m and RMB16.019 billion respectively, representing increases of 69.74 per cent and 57.10 per cent from those of the same period last year respectively. At the end of the reporting period, the Company still had an area of 3,198,000 sq m sold but not yet booked, which involved a total contract amount of approximately RMB28.64 billion. From January to June 2008, the Company realised sales area of 2,658,000 sq m, with a sales amount of RMB24.13 billion, representing increases of 14.97 per cent and 38.12 per cent from those in the same period of the previous year respectively. Of the total, Shanghai Company’s sales area and sales amount were 364,000 sq m and RMB4.62 billion respectively, mainly attributable to projects including Charming Garden, Golden Yazhu, Everest Town, Wonderland and Rancho Santa Fe; Guangzhou Company’s sales area and sales amount were 247,000 sq m and RMB2.47 billion respectively, mainly attributable to projects including The Dream Town, Golden Liyuan, Golden Kangyuan, Golden Home; Shenzhen Company’s sales area and sales amount were 161,000 sq m and RMB2.25 billion respectively, mainly attributable to projects including The Dream Town, The Village and East Holy Valley. Waterfront in Tianjin, Glamorous City in Hangzhou, The Dream Town in Shenyang, The Dream Town in Foshan, Glamorous City in Wuhan reported satisfactory sales and sold 90,000 sq m, 70,000 sq m, 69,000 sq m, 60,000 sq m, and 59,000 sq m respectively during the reporting period, with sales revenue of RMB570 million, RMB640 million, RMB380 million, 360 million and 310 million.

The total planned GFA for the projects added by the Company in proportion to China Vanke’s equity holding during the reporting period was 3.30 million sq m. From the end of the reporting period to the date of announcement of this report, the Company acquired additional project resources with a total planned GFA of 570,000 sq m in proportion to China Vanke’s equity holding. As at the date of announcement of this report, the total planned GFA of the new projects acquired by the Company in the current year which was in proportion to China Vanke’s equity holding was 3.87 million sq m. As at the date of announcement of this report, the GFA of the Company’s projects under planning in proportion to China Vanke’s equity holding was 19.09 million sq m.

Since the beginning of this year, the Company insisted on adopting the business strategies of “Focus on the mainstream product and respond rationally to market changes”. Capitalising on fundamental demand, the Company has actively responded to market changes. Among the Company’s product mix, the proportion of properties with demand from end-users and small to medium-sized properties continued to rise. At the same time, the Company’s market share expanded, rising from 2.07 per cent in 2007 to 2.7 per cent in the first half of 2008, which represented an increase of 0.8 percentage point, when compared with 1.9 per cent in the first half of 2007.

The Company believed that with further industry consolidation, professionalism is the key to survive competition, which will be reflected in the survival of the fittest mechanism. The adjustment period will also provide stronger motivation to the Company, to pay more attention to customers’ needs, improve its product and service quality and enhance operational efficiency. During the reporting period, China Vanke had put greater emphasis on customer orientation. All front-line companies were required to return to basic business logic, to carry out work with market and customer focus, to augment the quality of products and services, and to maximise value for customers. At the same time, the Company carried further study on “lean management”, advocating “streamlined” culture, in an attempt to explore potential for greater efficiency through designing sophisticated furbished units, enhancing central procurement and optimising cost allocation.

During the adjustment period, there was short-term uncertainty in the market. Under the tight cash situation in the industry lay future opportunities. Against this backdrop, it was important to uphold the business concept of “Cash is king”. During the reporting period, the Company persevered with its prudent business strategies, paying greater attention to a healthy financial position and assets safety. Despite the substantial increase in receipts in advance, the Company’s gearing ratio remained relatively stable. As at the end of the reporting period, the Company’s receipts in advance amounted to RMB26.5 billion, which accounted for is 34.49 % of the total liabilities. The aforementioned receipts in advance will be booked into the Company’s revenue along with the booking of completed projects. The liabilities structure showed that 47.79 per cent of the Company’s interest-bearing liabilities were long-term liabilities, while short-term liabilities accounted for 52.21 per cent, indicating a relatively low repayment pressure. As at the end of the reporting period, the Company’s net gearing ratio was 37.10 per cent, with a cash balance of RMB15.37 billion. The high liquidity ensured that the Company had a strong financial position and ability to achieve future development.

At the beginning of the year, the Company’s planned area for newly commenced construction and completed area were 8.48 million sq m and 6.89 million sq m respectively. To be prepared to respond to the prevailing market situation and to capture any future opportunities, the Company will make appropriate adjustment to its plan for area for newly commenced construction and completed area for the second half of the year. The Company expected the area for newly commenced construction and completed area for the entire year to reach 6.83 million sq m and 5.86 million sq m respectively. the Company had adopted a more satisfactory sales strategy at the beginning of the industry adjustment period, which led to a faster cash-to-cash cycle and effective results. On the other hand, in view of the fact that adjustment in the land market lags behind the adjustment in the residential property market, and more cooperation opportunities will arise from

11 further integration of industry resources, the Company will adopt a more prudent approach to acquiring project resources, and will replenish the land reserve for its future development at the right timing.

During the reporting period, the Company continued to intensify cooperation activities, while the acceleration in industry resources integration also provided more opportunities for cooperation. Between January and June, 76.2 per cent of the project resources were acquired by the Company through collaboration. The average cost of newly added land resources was approximately RMB2,155 per sq m, which was far lower than the average cost of last year.

For a long period of time, the Company has won the trust of the capital market and collaborative partners through the continued growth in operating results, as well as regulated and transparent governance. Even in times of tightened credit policy, the Company could still obtain financial resources from various sources. In addition to strengthening its cooperation with banks, the Company continued to explore new financing channels during the reporting period, including the proposal on the issue of not more than RMB5.9 billion corporate bonds, which was vetted and approved by the Stock Issuance Examination and Verification Committee of China Securities Regulatory Commission (“CSRC”). On the other hand, the Company took into account the impact on investors of the financing method it chose. At the beginning of the year, the Company indicated that it intended to conduct an equity financing exercise at an appropriate time, but it also emphasised that it would be very cautious about this matter, and would consider if the capital market and investors are ready for such an exercise. In view of the prevailing market condition, it is not the right timing to conduct an equity financing exercise. As such, the Company has no intention to make such a proposal in the near future.

During the reporting period, the Company had been named “The Most Respected Enterprise in the PRC” jointly by The Economic Observer Newspaper and the Management Case Study Center of Peking University for the sixth consecutive year. According to the “2008 Top 100 Property Development Enterprises in the PRC” Report jointly issued by the three research institutions, namely Enterprise Research Institute of the Development Research Center of the State Council of the PRC, the Institute of Real Estate Studies, Tsinghua University and the Institute of China Index, the Company ranked first in the “Overall Strengths” category.

The Company’s expertise in property development and product quality also gained further public recognition. After three of its projects received Gold Awards in 2007, four projects namely Zhongshan City Scenery, Tianjin Waterfront, Beijing Zitai and Chengdu Glamorous City received the “Golden Prize of Excellent Residential Development of Zhan Tianyou Award” in 2008. The Zhongshan City Scenery was nominated for the prestigious “Zhan Tianyou Civil Engineering

12 Award”. Vanke Tangyue project, which aims at environmental protection and cultural heritage, received the “Global Human Settlements Best Model Community Award” at the “2008 Global Human Settlements Best Model Forum”.

At the “2007 Top 100 Main Board Listed Companies By Market Capitalisation” selection jointly organised by Securities Times and China Southern Fund, China Vanke received the prestigious awards of “Top 100 by Market Capitalisation”, “Top 10 Best Management Team of Main Board Listed Companies”, and “Top 100 Best Company Secretaries”. At the “Golden Bull Award – Top 100 Listed Companies” selection organised by China Securities Journal, China Vanke received the “2007 Golden Bull Award – Top 100 China Listed Companies” and the special award “Sustainable Companies Award” of the “Golden Bull Award – China Listed Companies”.

2. Operating plan for the second half of the year At the beginning of the year, the Company initially planned to achieve an 8.48 million sq m of area for newly commenced construction and a 6.89 million sq m of completed area for the year 2008. In the first half of the year, the Company’s aggregate area for newly commenced construction and completed area amounted to 3.33 million sq m and 1.57 million sq m respectively. As this round of market adjustment will last for some time, the Company will make appropriate adjustment to its plan for newly commenced construction and completion for the second half of the year, in order to adjust its sales schedule and have a strong cash position to capture opportunities according to the prevailing market situation. The Company planned to adjust the area for newly commenced construction for the second half of the year to 3.50 million sq m. The area for newly commenced construction for the entire year will be 1.65 million sq m less than the planned target at the beginning of the year. On the other hand, the Company will also adjust its plan for completed area, after taking into account the temporary suspension of construction work in Beijing during the Olympic Games period, and the delay and slowdown in construction projects in Chengdu after the earthquake. The Company’s completed area for the second half of the year will be adjusted to 4.29 million sq m. The completed area for the entire year will be 1.03 million sq m less than the planned target at the beginning of the year. After the adjustment, the Company’s area for newly commenced construction and completed area will be 6.83 million sq m and 5.86 million sq m respectively for the entire year. Details of the plan for newly commenced construction and completion work in various regions are as follows:

Unit：000 sq m

13 Planned area for newly commenced Planned area for completed construction Beginning Beginning of the Present Change of the Present Change year year Pearl River Delta 2470 2140 -13.4% 2040 1710 -16.2% Region Yangtze River Delta 3100 2340 -24.5% 2220 2130 -4.1% Region Bohai-rim 2040 1540 -24.5% 1630 1460 -10.4% Region Others 870 810 -6.9% 1000 560 -44.0% Total 8480 6830 -19.5% 6890 5860 -14.9%

In view of the uncertainty in the market environment, the policies and regulations in various regions and dramatic changes in weather, there may be further adjustments to the aforementioned plans for newly commenced construction and completed construction.

3. Principal operations of the Company during the reporting period (1) The scope and operations of the Company’s core businesses The Company specialises in property development with commodity housing as its major products. During the reporting period, the booked area and booked revenue from the Company’s property projects were 2.081 million sq m and RMB 16.02 billion respectively, representing increases of 69.74 per cent and57.10 per cent respectively when compared with those of the corresponding period of the previous year. The gross profit margin from the property business was 29.23 per cent, down by 4.63 percentage points from that of the same period last year.

（Unit: RMB’000）

Revenue Cost of sales Gross margin Net profit Sector Amount Change Amount Change Amount Change Amount Change Down by 4.63 Property 16,019,260 57.10% 10,050,095 69.41% 29.23% percentage 2,463,705 29.81% point Down by 6.90 Property 226,846 51.66% 155,749 36.56% 29.52% percentage (402,649) -75.11% management point Down by 4.47 Total 16,246,106 57.02% 10,205,844 68.79% 29.23% percentage 2,061,056 23.56% point Note: Land appreciation tax, business tax and surcharge were deducted in calculating gross profit margin

(2) Comparison of major assets and liabilities with operating metrics (RMB ’000)

Financial indicators 30-Jun-08 31-Dec-07 Change(+/-) Reasons for changes

Increase in the payment of land Cash and cash equivalent 15,369,846 17,046,505 -9.84% premium and construction fee Company expansion and Property under development 52,532,996 34,338,168 52.99% increase in resources of property development Joint venture in the previous Interest in jointly controlled 1,272,623 2,031,523 -37.36% period included in the entities consolidated statements Expansion in operation scale and Total assets 112,524,306 101,137,628 11.26% growth in net assets and liabilities Expansion in operation scale and Short-term interest-bearing 14,962,767 8,593,527 74.12% increase in expenses on new borrowings project preparations

Trade and other payables 43,625,739 37,246,428 17.13% Increase in pre-sale projects

Increase in net profit and Shareholders' equity 30,019,950 29,278,648 2.53% dividend paid to equity holders

Financial indicators Jan-Jun 2008 Jan-Jun 2007 Change(+/-) Reasons for changes

Expansion in the scale of the Revenue 16,246,106 10,346,348 57.02% development and property sales volume Growth in revenue generated Cost of sales 10,205,844 6,046,315 68.79% from the property sales

Growth along with expanding Distribution costs 709,183 406,959 74.26% operation scale Growth along with expanding Administrative expenses 834,559 586,131 42.38% operation scale and employee's share awards scheme Results from operating Growth in revenue generated 4,484,930 3,302,672 35.80% activities from the property sales

Growth in results from operating Profit before taxation 4,323,756 3,086,539 40.08% activities

Income taxation 2,017,085 1,285,674 56.89% Growth in profit before taxation

Profit for the period 2,306,670 1,800,865 28.09% Growth in profit before taxation

Profit attributable to equity 2,061,056 1,668,000 23.56% Growth in profit for the period shareholders of the Company

15 （3）Analysis of the core businesses by geographical segment The revenue and profits from the core operations of the property business by geographical segment during the reporting period are as follows: Revenue Net profit Booked Area （RMB ‘000） % （RMB’000） % （’000 sq m） %

Pearl River Delta Region

Shenzhen 1,895,803.54 11.83 374,165.30 15.19 110.60 5.32 Guangzhou 742,836.87 4.64 142,611.50 5.79 128.06 6.16 Dongguan 906,443.42 5.66 147,696.90 5.99 102.67 4.94 Foshan 1,320,306.95 8.24 310,565.00 12.61 158.50 7.62 Zhuhai 268,033.28 1.67 81,059.70 3.29 21.98 1.06 Xiamen 127,436.29 0.80 30,363.90 1.23 11.24 0.54 Changsha 11,975.70 0.07 (3.80) 0.00 2.29 0.11 Sub-total 5,272,836.05 32.91 1,086,458.50 44.10 535.34 25.74 Yangtze River Delta Region Shanghai 2,666,613.58 16.65 268,301.20 10.89 378.07 18.17 Suzhou & Wuxi 771,895.35 4.82 23,852.30 0.97 120.14 5.77 Hangzhou 305,928.62 1.91 4,903.00 0.20 38.33 1.84 Nanjing 948,626.46 5.92 133,196.30 5.41 139.34 6.70 Nanchang 71,784.68 0.45 7,396.00 0.30 17.02 0.82 Sub-total 4,764,848.69 29.75 437,648.80 17.77 692.90 33.30 Bohai-rim Region Beijing 2,240,194.57 13.98 398,069.60 16.15 241.99 11.63 tianjing 1,699,213.36 10.61 210,657.90 8.55 212.07 10.19 Shenyang 781,826.06 4.88 157,359.70 6.39 129.07 6.21 Dalian 193,283.36 1.21 11,737.00 0.48 23.93 1.15 Qingdao 66,769.85 0.42 195.90 0.01 12.93 0.62 Changchun 216,430.41 1.35 35,126.30 1.43 44.41 2.13 Anshan 133,029.03 0.83 18,097.50 0.73 32.66 1.57 Sub-total 5,330,746.64 33.28 831,243.90 33.74 697.07 33.50 Others Wuhan 548,909.12 3.42 138,780.50 5.63 126.60 6.08 Chengdu 101,919.71 0.64 (30,426.90) -1.24 28.70 1.38 Sub-total 650,828.83 4.06 108,353.60 4.39 155.30 7.46 Total 16,019,260.21 100.00 2,463,704.80 100.00 2,080.60 100.00

4. Investment of the Company （1）Use of proceeds from the capital market

A. Public issue of A shares in 2007 Having obtained the approval from the relevant authorities, on 22 August 2007, the Company published the prospectus for the public issue of A shares. The number of shares issued was 317,158,261 A shares (with a nominal value of RMB1 per share), the issue price was RMB31.53 per share and the total proceeds amounted to RMB9,999,999,969.33. After deducting the issue expenses of RMB63,398,268.11, the net proceeds of RMB9,936,601,701.22 were received on 30 August 2007 and were certified and filed under

16 Shennan Yanzi (2007) No 155 by Shenzhen Nanfang Minhe CPA (深圳南方民和会计师事务所).

Details on the investment amount, investment gain, development progress of the projects as at the end of the reporting period are as follows: (Unit: RMB ’000)

Total amount of Fund used for the year 1,082,940 9,936,600 proceeds Accumulated fund used 7,760,260 Actual Change in Planned Investment project investment On schedule Estimated gains Gains generated project investment made Science City H3, No 600,000 600,000 Yes 116,820 - Guangzhou Baiyun Jinshazhou No 800,000 800,000 Yes 712,240 - Project, Guangzhou Chancheng Nanzhuang Project, No 900,000 784,160 Yes 725,680 146,150 Foshan Zhuhai Hotel, No 650,000 525,310 No 239,730 - Xiangzhou, Zhuhai Jiangcun Project West Lake District, No 700,000 700,000 Yes 369,630 - Hangzhou Liangzhu Project, Yuhang District, No 1,700,000 1,700,000 Yes 1,912,800 66,180 Hangzhou Jinse Shuian Project, Yinzhou district, No 1,636,600 1,066,870 Yes 350,990 - Ningbo Wujiefang Project, No 1,200,000 512,470 No 168,830 - Pudong, Shanghai Zhonglin Project, No 700,000 335,800 Yes 145,090 - Pudong, Shanghai Anpin Street Project, Baixia district, No 650,000 444,200 No 130,350 - Nanjing Huangjiayu Project, Xiaguan district, No 400,000 291,450 Yes 159,090 - Nanjing Total - 9,936,6007,760,260 5,031,250 213,330 1. The Zhuhai hotel project in Xiangzhou Zhuhai was affected by the Zhuhai municipal government’s adjustment of the overall planning of the city centre, and had not commenced construction according to schedule. Currently the Company is applying for the approval of the planning for the project, preparing for the commence of construction. Explanation on delay 2. As the government adjusted the road plan due to concern over the World Expo, and estimated gains Shanghai Wujiefang Project had not commenced construction according to schedule. (by projects) The Company has been preparing for the commence of construction. 3. Nanjing Anpin Street Project was not able to commence construction according to schedule, as the government had adjusted the planning for the area due to concern over the preservation of the city’s heritage. Currently the Company is applying for the approval of the planning for the project, , preparing for the commence of construction. Reasons and procedures for N/A changes (by project) As of 30 June 2008, the Company had applied RMB7,760.26 million of the proceeds in Application of the accordance with the prospectus, The amount represented 78 per cent of the net proceeds of balance of the RMB9,936.6 million. The balance of proceeds of RMB2,176.34 million will be applied in proceeds accordance with the progress of project development.

To improve the efficiency in the utilization of the proceeds, to reduce financial costs, and to safeguard the interests of the Company and its investors, the Company submitted the “Resolution regarding the use of certain portion of the capital that has been designated for specific projects to increase working capital on a short-term basis” to the Board for consideration and approval on 18 February 2008 . With the approval of the Board, the Company applied not more than RMB980 million of the proceeds from the public issue of A shares that had been designated for specific projects and would not be used for that purpose in the near term, to increase its working capital on a short-term basis, i.e. up to 27 August 2008. The use of certain portion of the capital that had been designated for specific projects for increasing working capital will not affect the normal operation of the investment projects financed by the proceeds. For details, please refer to the announcement published in China Securities Journal, Securities Times, Shanghai Securities News and The Standard in Hong Kong on 28 February 2008.

Note: Receipt in advance from the Hangzhou Liangzhu Project amounted to RMB648.04 million at the end of June 2008, which is expected to be booked in the second half of the year and will be realised as revenue.

B. About the Company’s convertible bonds issued in 2004

Having obtained the approval from the relevant authorities, the Company issued RMB1.99 billion convertible bonds to the public on 24 September 2004. As at the end of 2007, with the exception that the balance of RMB106.12 million intended for the investment in Shanghai Qibao, Land Lot No. 53 had not been applied, the funds for the other projects had been fully applied. The overall return on the application of the fund had been higher than that disclosed in the offering circular.

Shanghai Qibao No. 53 Project is located in Qibao Town, Minhang district, Shanghai. Construction of the project has not commenced due to the government’s subway development. The fund designated for the project has, therefore, not been fully applied according to schedule. During the reporting period, as the government adjusted its planning, the project has been amended from a composite project for residential and commercial purpose to a project with a commercial focus, and the commencement date of construction has yet to be confirmed. With the approval from the 2007 annual general meeting, the Company plans to apply RMB106.12 million from the fund originally designated for the Shanghai Qibao No. 53 Project, to invest in District 3, Phase II of the Wonderland project in Shanghai, to improve the fund application efficiency.

For details, please refer to the announcements published in China Securities Journal, Securities Times, Shanghai Securities News and The Standard of Hong Kong on 18 March 2008 and 24 April 2008. During the reporting period, details of the fund application are as follows:

(Unit: RMB ’000) Total amount of capital for new project 106,120 Actual Planned investment Achieve estimated New project Original project investment Gains generated On schedule for the new project gains amount District 3, Phase II of Shanghai Qibao 106,120 32,920 Yes Yes Wonderland, Shanghai No. 53 Project - Total - 106,120 32,920 - - - Explanation for delay and not achieving the N/A estimated gains

18 （2）Use of capital not from the capital market

Major equity investment 1）During the reporting period , the Company promoted and established six new subsidiaries each with registered capital of over RMB20 million. The details are as follows: Equity Companies Currency Registered Capital Core business interest Vanke (Chongqing) Real Estate 1 Company Limited (万科（重庆）房 RMB 80,000,000.00 100% Real estate development 地产有限公司) Hangzhou Vanke Rongda Real Estate 2 Company Limtied (杭州万科容大房 RMB 30,000,000.00 55% Real estate development 地产有限公司) Hefei Vanke Property Company 3 RMB 20,000,000.00 100% Real estate development Limited (合肥万科置业有限公司) Xi’an Vanke Enterprise Company 4 RMB 20,000,000.00 100% Real estate development Limited (西安万科企业有限公司) Tianjin Zhongtian Wanfang Investment 5 Company Limited (天津中天万方投 RMB 20,000,000.00 100% Investment 资有限公司) Tianjin Wanzhu Investment Company 6 RMB 20,000,000.00 100% Investment Limited (天津万筑投资有限公司) Save as the aforesaid companies, the Company had promoted and established another six companies, with a total investment of RMB37.1 million.

2）The major companies the Company acquired during the reporting period are as follows:

A．Pursuant to the agreement entered into with co-partners, the Company acquired 100 per cent equity interest in Shanghai Xiangda Real Estate Development Company Limited (上海祥大房地产发展有限公司) for a total consideration of RMB2,056 million and obtained the Shanghai Tongshan Jia Project. On 5 January 2008, the Company has settled over 50 per cent of the payment for the acquisition. The change of ownership and registration procedure has been completed.

B．On 31 March 2008, the Company signed an agreement with co-partners to acquire 51 per cent equity interest in Suzhou Huihua Property Investment Company Limited (苏州汇华投资置业有限公司) for a total consideration of RMB214 million. At the end of the reporting period, the Company has already settled more than 80 per cent of the payment for the acquisition. The change of ownership and registration procedure has been completed.

C．On 2 March 2008, the Company entered into an agreement with co-partners for increasing the share capital of Tianjin Binhai Modern Property Company Limited (天津滨海时尚置业有限公司) by RMB110 million. After the capital injection, the Company’s shareholding in Tianjin Binhai Modern Property Company Limited is 69 per cent. As at the end of the reporting period, the Company had paid the amount for capital injection in full, and had obtained the new business licence after the change in ownership.

During the period, the Company also acquired another seven companies, with a total investment amount of RMB165 million.

3）During the reporting period, the Company increased the capital of 11 subsidiaries by RMB2.5 billion to facilitate their business development. Of the amount, RMB1.3 billion

19 was for capital injection in Shanghai Xiangda Real Estate Development Company Limited (上海祥大房地产发展有限公司), RMB500 million was for Shanghai Meilan Home Property Company Limited (上海美兰华府置业有限公司), RMB370 million was for Shanghai Luolian Property Company Limited (上海罗联置业有限公司), RMB161 million was for Chengdu Vanke Guobin Property Company Limited (成都万科国宾置业有限公司), RMB150 million was for Shanghai Junke Investment Management Company Limited (上海郡科投资管理有限公司), RMB14.5 million was for four other property management subsidiaries. Capital injection into other companies amounted to RMB5 million.

②Other Investments During the reporting period, the Company had 17 new projects, with a total planned GFA of approximately 4.228 million sq m, of which approximately 3.299 million sq m of planned GFA is in proportion to China Vanke’s equity holding. The details of the projects are as follows: Planned Equit Planned GFA to y Site Area City Project Location GFA (sq Vanke’s Intere (sq m） Progress m) Equity sts ( sq m) Garden View, the Village, Shenzhen Longgang 100%39,400 74,650 74,650 On sale Shenz Shenzhen Airport hen Pre- Yingguan Shan (深圳机场 constructio 英管山) Baoan 100% 72,410 156,586 156,586 n Pre- Hongtu Road Project, constructio Dongguan Nancheng 52% 189,928 491,938 254,332 n Dong Songshan guan Songshan Lake I Garden, Lake Pre- Dongguan (东莞松山湖 1 Industrial constructio 号花园) Garden 100% 288,900 202,200 202,200 n Pre- Huizh Twin Moonbay I, Huizhou Huidong constructio ou (惠州双月湾一期) Huizhou 100% 360,000 360,000 360,000 n Under Suzho Jinji Lake project, Suzhou Industrial constructio u (苏州金鸡湖项目) Garden 51% 47,177 118,099 60,230 n Under Ningb constructio o Golden City, Ningbo Yinzhou 75% 18,500 49,800 37,350 n Pre- Binhai New City, Tianjin Development constructio (天津滨海新城项目) District 100% 32,000 45,000 45,000 n Binhai Modern Project, Tianji Pre- Tianjin (天津滨海时尚项 n Development constructio 目) District 100% 6,500 40,312 40,312 n Under Tianjin Holiday Dew constructio Mansion (天津假日润园) Xiqing 100% 229,300 343,100 343,100 n Sifang Qingd Pre- District (四方 ao constructio Golden City, Qingdao 区) 100% 61,873 179,500 179,500 n

20 Under Sheny Hunnan New constructio ang The Paradisco, Shenyang Town 100% 226,356 673,056 673,056 n Pre- Chen Hairongchang Project, constructio gdu Chengdu Wuhou 49%54,969 217,262 106,458 n Under Golden Junjing, Wuhan (武 constructio Wuha 汉金色骏景) Jianghan 90% 65,900 296,550 266,895 n n Pre- Caimao Street project, constructio Wuhan (武汉才茂街项目) Wuchang 55% 59,790 191,058 105,082 n Pre- Wan’an Land Lot Hefei constructio (合肥皖安地块) Shushan 50% 107,904 375,455 187,728 n Hefei Pre- Jianghuai Land Lot, Hefei constructio (合肥江淮地块) Shushan 50% 115,714 413,784 206,892 n Total 1,976,621 4,228,350 3,299,371

From the end of the reporting period to the date of announcement of this report, the Company acquired two new project, with a planned GFA of 571,000 sq m, of which 571,000 sq m of planned GFA is in proportion to China Vanke’s equity holding. The total land premium is RMB700 million. Details are as follows:

Planned GFA in Percenta Currently proportion ge of Site Area City Project Location planned to Vanke’s sharehol (sq m) Progress GFA (sq m) equity ding holding ( sq m) Guangyuan Project Changchun Pre- (广源项目) Jingyue 100% 75,000 48,792 48,792 construction Hongxin Road Project Pre- Chengdu (红星路项目) Jinjiang 100% 104,383 522,298 522,298 construction Total - - - 179,383 571,090 571,090 -

5. Comparison between the actual operating results during the reporting period and the planned targets at the beginning of the period The Company’s actual operating results during the reporting period did not deviate much from the planned targets at the beginning of the period. However, in view of the plan for the entire year, the Company has made relative large adjustment to its plan for commenced construction and completed work according to the prevailing market situation. For details, please refer to the “Operating plan for the second half of the year”.

V. Significant events 1. Corporate governance As one of the first companies listed in the PRC, the Company has always abided by its corporate values: to pursue simplicity, to be transparent, to be regulated and responsible. It

21 continues to explore and fine-tune its corporate governance. With a foundation built on sound corporate governance, China Vanke has established long-standing trust and win-win relationships with its investors. The Company’s actual corporate governance practice showed no deviation from the requirements of the relevant documents issued by the CSRC. As the Company’s single largest shareholder, CRC, and its connected companies have remained independent of the Company in respect of operations, employees, assets, organisation and finance, thereby ensuring the Company’s operation autonomy. During the reporting period, the Company amended the implementation details of the Audit Committee according to the relevant requirements. The Company will continue to commit to corporate governance, insist on enhancing its corporate governance, thereby providing a solid foundation for the Company’s healthy long-term development.

2. Internal control of development progress In 2007, the Company appointed a professional institution to assist with the establishment of an internal control system according to the “Shenzhen Stock Exchange Guidelines for Internal Control of Listed Companies” issued by Shenzhen Stock Exchange. The institution also helped overhaul the Company’s entire business process, and conduct necessary inspection and evaluation of the headquarters and major subsidiaries.

During the first half of 2008, the Company continued to strengthen and improve its internal control system. The Company has established an evaluation mechanism with emphasis on the appraisal of the internal control system, extending the scope of internal control evaluation to all the subsidiaries, and from financial report to operation control. All these helped promote continued improvement in internal control management. The Company will strive to utilise a systematic internal control management system to ensure operational efficiency and effectiveness, true, reliable and complete financial reports and management information, the safety and integrity of assets, and to comply with the law, regulations and relevant regulatory requirements of the PRC.

3. Social responsibility

Somewhere around the Spring festival, one of the worst snow storms in decades ravaged a vast area of China. 16 subsidiaries of China Vanke mobilised over 2,000 employees to participate in rescue work, donated RMB2,876,500 of aids, gave psychological support to relief workers and close to 7,000 construction workers, and donated clothes and money to disaster areas.

On 12 May, an earthquake measuring 8 on the Richter scale rocked Sichuan Wenchuan area.

22 Within 24 hours of the quake, China Vanke had the necessary equipment ready to be sent to the disaster areas for rescue operations. Moreover, within the limit approved by the shareholders meeting, China Vanke made a donation of RMB2.2 million, and confirmed the safety of the residents, staff and construction site of all the projects in the earthquake zone. On 5 June, the Company held its first special general meeting in 2008. Under the enthusiastic support of the attending shareholders, the meeting approved, with a 99.80% voted in favour, the relevant resolutions pursuant to which RMB100 million will be offered for post earthquake resettlement and reconstruction in the disaster areas. The management team also made a donation of RMB10 million, which will be used to finance the rescue operation that began prior to the shareholders meeting, as well as for post earthquake redevelopment programme.

During the reporting period, the projects initiated by China Vanke’s construction donations in the disaster areas were taking shape. The Company has entered into agreements with Sichuan Mianzhu Municipality for financing the construction of public facilities including a school, kindergarten and hospital, and with Sichuan Chengdu municipal government entered into framework agreements for assisting in the construction of emergency shelters and government centres in Xiang'e county and Bailu town of Chengdu city. In addition, the Company paid RMB16 million to support Shenzhen to assist Shifang city in the construction of more than 10,000 transitional settlement houses.

China Vanke continues to pay high regard to the housing problem of low to middle income group. During the reporting period, construction of the “Wan-hui building”, a prototype located in Guangdong for residential housing target at the low to middle income family group, has completed, and is now available for lease. This project gained the approval of Guangdong Construction Department for being “A pilot housing project funded by Guangdong enterprise for lease to low income group”.

4. The implementation of the Company’s proposal on dividend distribution and transfer of capital surplus reserve to share capital for the previous year and the profit appropriation for the interim period of 2008

The proposal on dividend distribution and transfer of capital surplus reserve to share capital for the year 2007 was approved at the 2007 Annual General Meeting held on 23 April 2008. The proposal on dividend distribution was: based on the total share capital as at the close of the market on the registration day for entitlement of the Company, a cash dividend of RMB1.0 (including tax; after deducting tax, individual shareholders and investment funds of A shares would actually receive RMB0.9 cash dividend for every 10 existing shares held, while B shares would not be subject to taxation) will be distributed to shareholders on the

23 basis of every 10 existing shares held. The proposal on the transfer of capital surplus reserve to share capital was: based on the total share capital as at the close of the market on the registration day for entitlement of the Company, six shares will be transferred from the capital surplus reserve to the share capital on the basis of every 10 existing shares held. The aforesaid proposals were implemented during the reporting period: the registration day for entitlement for A shares was 13 June 2008, ex-rights and ex-dividend date was 16 June 2008, and the day on which the shares transferred from capital surplus reserve were listed was 16 June 2008; the last trading day of B shares was 13 June 2008, ex-rights and ex- dividend date was 16 June 2008, while the registration day for entitlement for B shares was 18 June 2008, and the day on which the shares transferred from capital surplus reserve were listed was 19 June 2008. For details on the implementation of the proposals, please refer to China Securities Journal, Securities Times, Shanghai Securities News and The Standard of Hong Kong on 5 June 2008. The Company will not carry out profit appropriation nor the transfer of capital surplus reserve to share capital for the interim period of 2008.

5. The implementation of the Incentive Plan

(1) The relevant procedures and overview of the implementation of Phase One of the the Incentive Plan during the reporting period

Phase One (2006-2008) of the Incentive Plan (“Phase One Incentive Plan”) was approved by the Company’s Fourteenth Board of Director in 2006 and was filed on record by CSRC without objection, and was approved at the Company’s 2005 Annual General Meeting. The basic operating mechanism of the Incentive Plan is as follows: the Company adopts the method of advanced appropriation plus supplementary appropriation for the incentive fund as the incentive for the beneficiaries of the Incentive Plan. The beneficiaries authorise the Company to appoint the Trustee, who will operate on an independent basis, to use the aforesaid incentive fund to purchase the Company’s listed A shares within a specified period and to transfer all the restricted shares to the accounts of the beneficiaries of the Stock Incentive Plan upon fulfilment of the conditions. Pursuant to the authorisation of the beneficiaries, the Company appointed an independent third party, Shenzhen International Trust & Investment Co., Ltd. (“Shenzhen Trust”) as the Company’s trustee for “Phase One Incentive Plan”. Shenzhen Trust established three independent trusts for the management of the three relatively independent incentive plan for the year 2006, 2007 and 2008 respectively. At present, the Company has appropriated

24 RMB215,463,931.52 and RMB484,423,549.42 for the 2006 incentive fund and 2007 incentive fund respectively, and pre-appropriated RMB763,905,518.41 for the 2008 incentive fund according to the requirements of “Phase One Incentive Plan”. Shenzhen Trust has already used all the money in the incentive fund to purchase the Company’s A shares.

（(2）) Appropriation and distribution Accounting treatment of Phase One of the Iincentive Planfund during the reporting period During the reporting period, according to the requirements of “Phase One (2006-2008) Incentive Plan” and the Company’s actual operating results in 2007 results, the supplementary additional appropriation for the 2007 incentive fund was of RMB243,140,599.90 and the advanced appropriation for 2008 incentive fund was of RMB763,905,518.41. According to the requirements of “Phase One Incentive Plan” and the Company’s actual operating results, the Company in 2006 and 2007 made a total appropriation of RMB215,463,931.52 for 2006 incentive fund and an advanced appropriation of RMB241,282,949.52 for 2007 incentive fund. For details, please refer to the Company’s 2006 and 2007 annual report. As at the date of the announcement of this report, all the incentive fund appropriated according to “Phase One Incentive Plan” was used to purchase the Company’s A shares. The shares bought by the incentive fund have not been transferred into the personal account of the beneficiaries.

(3) Changes in the incentive stock of Phase One of the Incentive Plan during the reporting period All the incentive shares of Phase One of the Incentive Plan have been purchased by Shenzhen Trust from the secondary market using the incentive fund as authorised by the beneficiaries. On 2 June 2008, Shenzhen Trust informed the Company in writing that: the supplementary appropriation for 2007 incentive fund was used to purchase 11,533,195 China Vanke A shares in the secondary market, while the advanced appropriation for 2008 incentive fund was used to purchase 37,804,258 shares. On 16 June, the Company implemented the proposals on dividend distribution and transfer of capital surplus reserve to share capital for year 2007. After the transfer of capital surplus reserve to share capital, the A shares of China Vanke held by 2006 incentive fund, 2007 incentive fund and 2008 incentive fund amounted to 61,022,670 shares, 46,020,261 shares and 60,486,813 shares respectively. Meanwhile, the 2006 incentive fund, 2007 incentive fund and 2008 incentive fund were entitled to dividends of RMB3,813,916.90, RMB2,876,266.30 and RMB3,780,425.80 respectively.

25 According to the notice from Shenzhen Trust on 4 July 2008, dividends had been used to purchase China Vanke A shares in the secondary market. The supplementary purchase for 2006 incentive fund and for 2007 incentive fund was 424,700 shares and 321,500 shares respectively, while the advanced appropriation for 2008 incentive fund was used to purchase 439,007 shares. As at the end of the reporting period, the number of China Vanke A shares held by the 2006 incentive fund, the 2007 incentive fund and the 2008 incentive fund under Phase One of the Incentive Fund amounted to 61,447,370 shares, 46,341,761 shares and 60,925,820 shares. (4) Appraisal of beneficiaries and adjustment to the qualification of a beneficiary According to the requirements of the Phase One Incentive Plan, the distribution plan of Phase One Incentive Plan is determined based on the combination of responsibilities, rights and the obligations, including the duties and performance of the beneficiaries. The Company has established a complete assessment system around the centre of the balanced score card, and the system works well. Detail assessment subjects covered different aspects, including financial, custormer, internal procedure, and employee study and development. The Company has established objective results indexes for all aspects, and the indexes are used as assessment base. The Company’s Phase One Incentive Plan has settled the range of beneficiary, the range of beneficiary has not changed during the reporting period. (5) Accounting treatment of the Phase One Incentive Plan and impact on the financial situation and operating results According to the requirement of Item 3 of Provision 15 of the Phase One Incentive Plan, the Incentive Fund appropriated will be classified as the Company’s costs and expenses in accordance with the relevant requirements of the document titled “Questions and Answers on Regulation of Disclosures of Public Listed Companies (No. 2) – Appropriation for Incentive Fund for Middle to Senior Management Members” ([2001] Document No 15 from China Securities Regulatory Commission). With the implementation of the incentive plan, the “Notice regarding the publication of the details of the 38 standards including the ‘Accounting Standards for Business Enterprises No.1 -- Inventory’” (Caikuai [2006] Document No. 3) is published by Ministry of Finance. Pursuant to the Notice, accounting treatment has been made to the Incentive Plan in accordance with the ”Accounting Standards for Business Enterprises No. 11 – Share-based payment” since 2006. According to related accounting standards, the Phase One Incentive Plan is an arrangement of share- based payment through equity settlement, and benificiary’s services are recognised as cost basing on the fair value of the equity instrument and increase the capital reserve at the same time. At the time of incentive fund appropriation, deduct the “Bank deposit” and

26 recognised in the “capital reserve — reserve for the stock incentive fund”, as the deduction of capital reserve; For the amortization of incentive fund, increase the “administrative expenses” and recognised in the “capital reserve — reserve for the stock incentive fund”, as the addition of capital reserve. The Company assesses the fair value of incentive plan of each year using the Monte Carlo Simulation method. The fundamental assumption of the assessment is that the change in Δs = μΔt +σε Δt stock price follows the Geometric Brownian Motion, s , of which: s is simulated stock price, μ is the expected return of the stock, σ is the volatility of stock price, ε is random sample from standard normal distribution. In the simulation, time 10,000 future stock price tracks are created to calculate the average closing price of comparative years, in order to determine the fair value of the incentive plan of different years. Pursuant to the assessment report of the Phase One Incentive Plan, fair value of 2006 incentive fund, and 2007 incentive fund are RMB218,690,000.00 (assessment parameters: 2006=5.97 ， 2006= 0.35 ， 2006=0.30), and RMB470,000,000.00

(assessment parameters: 2007=6.81， 2007= 0.5106， 2007= 0.6232) respectively. The incentive fund for every year are amortised using the straight line method during the waiting period of each incentive plan. Of the amortisation amount of 2006 incentive fund, RMB80,569,999.99 was recognised as “administrative expenses” in the year 2006 and RMB138,120,000.00 was recognised as “administrative expenses” in the year 2007. The 2006 incentive fund had been fully amortised. Of the amortization amount of 2007 incentive fund, RMB235,000,000.00 was recognised as “administrative expenses” in the year 2007. A total amount of RMB373,120,000.00 from the 2006 incentive fund and 2007 incentive fund has been recognised as “administrative expenses” in the year 2007. Of the amortisation amount of 2007 incentive fund, RMB235,000,000.00 was recognised as “administrative expenses” in the year 2008, of which RMB117,500,000.00 has been recognised as “administrative expenses” in the first half of the year 2008. An advanced appropriation of RMB763,905,518.41 for the 2008 incentive fund was amortised using the straight-line method during the expected waiting period (from 1 January 2008 to 31 December 2009) . As at the end of the year, the Company will adjust the amortization amount based on the fair value of 2008 incentive fund. Of the amortisation amount of 2008 incentive fund, RMB190,976,379.60 was recognised as “administrative expenses” in first half of 2008. A total amount of RMB308,476,379.60 from the 2007 incentive fund and 2008 incentive fund has been recognised as “administrative expenses” in the first half of the year 2008, and the amount will be shown in the “capital reserve — reserve for the stock incentive fund”.

27 Details of the accounting treatment for the Phase One Incentive Plan please refer to the Notes to Financial Report, Notes 29 – Capital Reserve, and Note 42 – Employee Incentive Plan. (6) Latest development of the 2006 incentive plan Taking 1 January 2006 as the base day, the average closing price of China Vanke A shares in 2006 after ex-right price backward adjustment was RMB7.10, while the average closing price of China Vanke A shares in 2007 after ex-right price backward adjustment was RMB33.81. The stock incentive plan for year 2006 has met the conditions for transferring shares into the share accounts of beneficiaries of the incentive plan. Pursuant to the regulations of Phase One Incentive Plan and related guide of Shenzhen Stock Exchange and Shenzhen Branch of China Securities Depository and Clearing Corporation Limited, the Company will handle the matters in relation to the transfer of the 2006 incentive plan into the personal share accounts of the beneficiaries at the earliest. The implementation of the Incentive Plan promotes the establishment of a control mechanism between the shareholders and management team that is built upon common interests, and further optimises the Company’s corporate governance structure, helps the Company to attract and retain high-calibre talents, enhances the Company’s competitiveness, and ensures the Company’s long-term stable development.

6. Material litigation and arbitration During the reporting period, the Company was not involved in any material litigation and arbitration.

7. Significant acquisition and disposal of assets

During the reporting period, there were no significant acquisition and disposal of assets by the Company.

8. Other matters in relation to investment

8.1 Securities investments □ Applicable √ Not applicable

8.2 Equity interests held in other listed companies

Booked value Gains/(losses”) Changes in Initial Stock Stock Percentage of as at the end during the equity investment code abbreviation shareholdings of the reporting attributable to amount reporting period equity holders

28 period during the reporting period 600329 Tianjin Zhongxin Pharmaceutical 306,000.00 0.02% - 601,532.94 58,543.46 Group Corporation Limited 000001 Shenzhen Development 11,582,347.80 0.10% 44,814,672.00 - (42,699,888.00) Bank Co., Ltd – A 600697 Changchun Eurasia Group 5,070,000.00 1.18% 34,892,027.22 - (12,945,937.94) Co., Ltd 600680 Shanghai Potevio 8,841,200.00 1.41% 31,170,360.00 - (22,700,620.80) Co., Ltd 600751 S*ST Tianjin Marine Shipping 143,600.00 0.04% 143,600.00 - - Co., Ltd. Total 111,020,659.22 601,532.94 (78,287,903.28) 25,943,147.80 Note:

1. The above-mentioned equity interests are legal person shares of the Company over the years. At present, the S*ST Tianjin Marine Shipping Co., Ltd has not undergone share reform, and Shenzhen Development Bank Co., Ltd – A and Changchun Eurasia Group Co., Ltd are still subject to a lock-up period.

2. During the reporting period, the equity interests held in Tianjin Zhongxin Pharmaceutical Group Corporation Limited by the Company had been disposed. Gains from the disposal of the equity interests have been booked into the “investment income” for the reporting period. The change in fair value of other equity interests at the end of the reporting period reduced the “tradable financial assets”, and also reduced “capital reserve”.

8.3 Shareholding in non-listed financial corporations and companies planning for listing No.

9. Major connected transactions

During the reporting period, the Company was not involved in any substantial connected transactions.

10. Major contracts and their implementation （1） During the reporting period, the Company did not put any material assets under custodial management, sub-contract or lease any assets from other companies, nor were the Company’s material assets put under custodial management, subcontracted or leased by other companies. （2） During the reporting period, the Company did not have any entrustment of financial management. （3） Details on the new guarantees made by the Company during the reporting period are

29 as follows:

Serial Guarantor Company for which Guarantee amount Remarks Guarantee

no. (% of equity interest guarantee was granted Period

held by China Vanke ) (% of equity interest held

by China Vanke ) Provided a guarantee Shenyang Vanke Yongda in proportion to the Real Estate Development Company’s equity 16 April 2008 to China Vanke Co., Ltd. Company Limited RMB49 million 1 30 October 2009 (49%)(沈阳万科永达房地 holding (49%) for a 产开发有限公司) bank loan of RMB100 million Provided a guarantee in proportion to the Shenyang Vanke Yongda Company’s equity 28 April 2008 to China Vanke Co., Ltd. Real Estate Development RMB34.3 million 2 30 October 2009 Company Limited (49%) holding (49%) for a bank loan of RMB70 million Provided a guarantee Beijing Jinyu Vanke Real in proportion to the Estate Development Beijing Vanke Company’s equity 22 May 2008 to Enterprises Company Company Limited RMB68.6 million 30 December 3 Limited (100%) (49%)(北京金隅万科房地 holding (49%) for a 2008 产开发有限公司) bank loan of RMB140 million Provided a guarantee 1 June 2008 to 30 in proportion to the May 2010 Beijing Vanke Beijing Jinyu Vanke Real Company’s equity Enterprises Company Estate Development RMB45.1878 million 4 Limited (100%) Company Limited (49%) holding (49%) for a bank loan of RMB92.22 million Tianjin Binhai Modern Provided a guarantee 30 April 2008 to Tianjin Vanke Real Estate Real Estate Co., Limited 29 April 2009 5 RMB100 million for a trust loan of Co., Limited (100%) (68.75%)(天津滨海时尚置 RMB100 million 业有限公司) Wuhan Vanke Tiancheng 22 February 2008 Provided a guarantee Wuhan Vanke Real Estate Real Estate Co., Limited to 22 January 6 RMB100 million for a bank loan of Co., Limited (100%) (55%)(武汉万科天诚房地 2010 产有限公司) RMB100 million Hangzhou Xihu 25 January 2008 International Golf Club Provided a counter to 30 June 2009 Zhejiang Vanke Nandu guarantee for a bank 7 Real Estate Co., Ltd Company Limited (0%)(杭 RMB22.3572 million (100%) 州西湖国际高尔夫乡村俱 guarantee of

乐部有限公司) RMB22.3572 million Provided a counter 9 May 2008 to 5 guarantee in May 2009 Zhejiang Nandu Real proportion to the Estate Co., Ltd (100%) Zhejiang Wankun Co., 8 RMB12.8954 million Company’s equity （浙江南都置业有限公 Limited (51%) 司） holding (51%) for a bank loan of RMB25.285 million

30 Shenzhen Yili Real Estate 1 June 2008 to 5 Shenzhen Vanke Real Development Co., Limited Provided a guarantee April 2009 9 Estate Co., Limited RMB165 million (56.7%)(深圳市易理房地 for a bank loan of (100%) 产开发有限公司) RMB165 million Shenzhen Vanke Real Shenzhen Yili Real Estate Provided a guarantee 19 June 2008 to 5 10 Estate Co., Limited Development Co., Limited RMB5 million for a bank loan of April 2009 (100%) (56.7%) RMB5 million

During the reporting period, the amount of new guarantees made by the Company and its majority-owned subsidiaries was RMB602 million, and the amount of guarantees terminated was RMB778 million. As at the end of the reporting period, the outstanding amount of guarantees made by the Company was RMB1,639 million, accounting for 5.46 per cent of the Company’s net assets. (The amount of guarantees at the beginning of the reporting period changed slightly because of the exchange rate adjustment.) The outstanding amount of bank loan guarantees made by the Company and its majority-owned subsidiaries for other majority- owned subsidiaries was RMB1,125 million, the outstanding amount of bank loan guarantees made by the Company and its majority-owned subsidiaries for associated companies was RMB352 million, the outstanding amount of external guarantees made by the Company and its majority-owned subsidiaries was RMB162 million. The Company’s external guarantees were mainly the guarantees made in relation to the transfer of the equity interests in Zhejiang Nandu and other companies. According to the relevant regulations, these guarantees had gone through the relevant vetting procedures, and in accordance with the conditions set out in the equity transfer agreement, the party who transferred the equity interests will be responsible for handling any disputes and claims arising from the guarantees, as well as the relevant obligations and responsibility for claims. At present, the relevant guarantees are being processed.

The Company did not provide guarantee for shareholders, beneficial controller and its connected parties, nor did it, directly or indirectly, provide guarantee for companies with an assets/liabilities ratio exceeding 70 per cent.

11. Specific elaboration and independent opinions of the independent directors on the use of capital by connected parties and external guarantee

No capital was used by controlling shareholders or other connected parties of the Company.

During the reporting period, the Company strictly abided by the related rules, regulating its external guarantee in order to control the risks. There was no violation against the “Notice regarding the regulation of external guarantee by listed companies”. The Company’s guarantee fulfilled needs of operation and reasonable use of capital of the Company. The procedures for the determination of guarantee are legal and reasonable without prejudice to the interests of the Company and its shareholders.

12. Undertaking China Resources National Corporation (“CRNC”) – the parent company of CRC, being the

31 Company’s original single largest shareholder and the present single largest shareholder, gave a significant undertaking to the Company in 2001: CRNC would provide as much support to the Company as it did in the past, as long as such support was beneficial to the Company’s development, and that it would remain impartial in the event of any competition between the investment projects of the Company and that of CRNC and its subsidiaries, and in the event of any disagreements or disputes arising from horizontal competition. CRNC has fulfilled its undertaking.

Shareholders holding more than 5% of equity interests in the Company did not make additional undertaking for their restricted shares in 2008. For the Company’s private placing of A shares in 2006, CRC, a shareholder holding more than 5% of the Company’s equity interests, undertook to be subject to a lock-up period of 36 months for the subscribed shares of its own accord. CRC holds 264,000,000 restricted tradable shares of the Company from private placing, representing 2.4 per cent of the Company’s total number of shares. The lock- up period of these shares will expire on 26 December 2009.

13. Meeting with investors Issues discussed Type of Classification of Date Location Approach and meeting visitors information provided

United Securities companies, (I) Major issues Securities 2008.1 Xiamen Face to Face Meeting discussed: meeting funds, investors (1) The CLSA Securities companies, Company’s 2008.1 Hong Kong Face to Face Meeting meeting funds, investors daily Deutsche operations; Securities companies, (2)The Bank 2008.1 Beijing Face to Face Meeting funds, investors Company’s meeting development strategies; UBS Securities companies, (3)The 2008.1 Shanghai Face to Face Meeting meeting funds, investors Company’s opinion on the CITIC changes in the Securities companies, industry. Securities 2008.1 Dongguan Face to Face Meeting funds, investors meeting (II) Major CLSA 2008.3 Hong Kong Visit Securities companies, information meeting funds, investors provided: Hong Including the Annual Kong, Securities companies, results 2008.3 Shenzhen, Face to Face Meeting funds and individual Company’s presentation Shanghai, investors, etc. regular reports. Beijing

32 Credit Securities companies, Suisse 2008.4 Hong Kong Face to Face Meeting funds, investors meeting

JP Morgan Securities companies 2008.4 Singapore Visit meeting funds, investors

JP Morgan Securities companies, 2008.4 Beijing Face to Face Meeting meeting funds, investors

China Merchants Securities companies, 2008.4 Shenzhen Face to Face Meeting Securities funds, investors meeting Guotai Securities companies, Junan 2008.5 Shenzhen Face to Face Meeting funds, investors meeting

CLSA Securities companies, 2008.5 Shanghai Face to Face Meeting meeting funds, investors

Shenjin Securities companies, Wanguo 2008.5 Wuhan Face to Face Meeting funds, investors meeting Daiwa Securities companies, Securities 2008.5 Japan Face to Face Meeting funds, investors meeting Deutsche Securities companies, Bank 2008.5 Hong Kong Face to Face Meeting funds, investors meeting

Macquarie Securities companies 2008.5 Guangzhou Face to Face Meeting meeting funds, investors

CITIC Securities companies, Securities 2008.6 Beijing Face to Face Meeting funds, investors meeting Everbright Securities companies, Securities 2008.6 Shanghai Face to Face Meeting funds, investors meeting Ping An Securities companies, Securities 2008.6 Shenzhen Face to Face Meeting funds, investors meeting Haitong Securities companies, Securities 2008.6 Shanghai Face to Face Meeting funds, investors meeting Orient Securities companies, Securities 2008.6 Shanghai Face to Face Meeting funds, investors meeting Essence Securities companies, Securities 2008.6 Shanghai Face to Face Meeting funds, investors meeting

33 Guosen Securities companies, Securities 2008.6 Kunming Face to Face Meeting funds, investors meeting

JP Morgan Securities companies, 2008.6 Hong Kong Face to Face Meeting meeting funds, investors

China Jianyin Securities companies, Investment 2008.6 Shenzhen Face to Face Meeting funds, investors Securities meeting Note: The above-mentioned meetings were either one-on-one meetings, small group meetings or large group presentation. The Company received or met with investors from over 50 companies. ICEA, Haitong Securities, Goldman Sachs, Chengjiang Securities, CICC, Everbright Securities, CITIC Securities, China Shenzhen, Merchants Securities, Shenyin Wanguo, GF Dongguan, Securities, United Wuhan, Securities, China Jianyin Investment Securities, Changsha, Ping An Securities, Guotai Guangzhou, Junan, Bohai Securities, Essence Securities, Tianjin, During Taiwan Securities, Guosen Shanghai, Securities, BOC the International, Dongxing Securities Small group or one-on- Xiamen, Securities, Industrial Companies reporting one Beijing, Securities, Mitsubishi UFJ period Securities Co., First Nanjing, Shanghai Securities Co., Chengdu, Limited, Capital Securities, UOB Kay Zhuhai, Hian, CLSA, UBS, Shenyang, Citigroup, Morgan Stanley, BNP, JPmorgan, Changchun, Credit Suisse, Goldman Dalian, etc Sachs, Daiwa Securities, Macquarie, DB, DBS Vickers (Hong Kong) Limited, Nomura Securities, Merrill Lynch, Lehman Brother, Piper Jaffray Asia Securities Limited, etc

34 Power of Corporation of Canada, Hua An Fund, Rongtong Fund, Southern, Bosera, Dacheng, Harvest, Amassriche (汇金泰富), Chang Xin Asset Management, China AMC, ICBC Credit Suisse, AMRO Teda Fund, E Fund, Capital Partners Investment (凯华投资) , First State Cinda Fund, China Merchants Fund, Bank of Communications Schroders, China Universal Asset Management, China Life, Hillhouse Capital, Taikang Asset, Yinhua Fund, New China Life, New Century Fund, Dingtian Asset Management Co., Limited, Runhui Investment, Nikko Asset, Invesco Great Wall, Zhonghai Fund, UBS SDIC, Provident Asset Management Co., Limited, Singular Asset Investment Management, Egerton Capital Ltd, Brookside Capital, Barring Asset Management, UBS Global Asset Management, Boyer Allan Investment Management, Mirae Asset Management, Value Partners Asset Management, Ward Ferry Asset Management, Prime Capital Asset Management, Capital Research Global, HBK Investments Hong Kong, doric capital, Presima Inc, Mondrian Investment, Pyrenees Investment, Aetos, Prudential Asset Mgmt. (HK), AT Asset, PMA Global, Lone Pine Capital, Tiger Asia, Walter Scott & Partners, Shenzhen, TY Advisors, Duquesne Dongguan, Capital Management, Oaktree Capital Wuhan, Management, Pacific Changsha, Alliance, BDT Investment Management Ltd., Genesis Guangzhou, Investment Management, Fund and Tianjin, Owl Creek, Sansar During Capital, Blackstone Asia other Shanghai, investment the Advisors, Avenue Capital Small group or one-on- companies Xiamen, Group, JF Asset Mgmt, one and reporting Baillie Gifford & Co, Beijing, Credit Suisse Asset Mgmt, individual period investors Nanjing, Nomura Asset Management, Union Chengdu, Investment, ING Clarion, 35 Zhuhai, Wellington, highbridge Capital Management, ING Shenyang, Real Estate Investment Mondrian Investment, Pyrenees Investment, Aetos, Prudential Asset Management. (HK), AT Asset, PMA Global, Lone Pine Capital, Tiger Asia, Walter Scott & Partners, TY Advisors, Duquesne Capital Management, Oaktree Capital Management, Pacific Alliance, BDT Investment Management Ltd., Genesis Investment Management, Owl Creek, Sansar Capital, Blackstone Asia Advisors, Avenue Capital Group, JF Asset Management, Baillie Gifford & Co, Credit Suisse Asset Management, Nomura Asset Management, Union Investment, ING Clarion, Wellington, Highbridge Capital Management, ING Real Estate Investment Management, Standard Capital, Tree Line Advisors, Legg Mason, RCM, Societe Generale Asset Management, Government of Singapore Corporation, Everest Capital, Taifook Asset Management, Mizuho Asset Management, HSBC Halibis, American Century Investment Management, CREF, Aetos Capital Asia, Schroder investment Management, New World Investments, Satellite Asset Management, First State, Credit Agricole Asset Management, Marvin&Palmer, Buena Vista Fund Management, TPG Axon, T Rowe Price, Mercury, APG Investments, Harvest, Chilton, ML Prop, Henderson Global, Fidelity, Tiedemann, AllianceBernstein, RAB Capita, Broad

36 Peak Investment Advisers, AXA Framlington Investment, Oppenheimer, Moore Capital, Seacross Global, Akana Capital, Imperial Dragon Asset Management, Pacific Alliance Group, F.T.M.F. Distribution Ltd, Oasis Group Holdings, Sun Hung Kai Financial, Nordea Investment Funds, Alpha Capital, Fortune SG, Liu Yufeng (刘宇峰), Wang Xiaoxia (王晓霞), Northern Trust Global Investments, Hansberger Global, Gandhara Capital, Fox-Pitt, Kelton, Sloane Robinson, Craig, Emerging Markets Management, Maverick, Black River Asset Management, Standard Pacific, Kylin management, Wexford Capital, Lombard Odier Darier Hentsch (Asia) Ltd, Apex Capital Management

VI. Financial and Accounting Reports (Unaudited)

China Vanke Co., Ltd. 萬科企業股份有限公司 30 June 2008

38 Consolidated income statement for the period ended 30 June 2008 (Expressed in Renminbi Yuan)

Note Jan-Jun 2008 Jan-Jun 2007

Revenue 3 16,246,106,110 10,346,347,590 Cost of sales (10,205,843,769) (6,046,315,357)

Gross profit 6,040,262,341 4,300,032,233

Other income 5 41,685,283 39,447,126 Distribution costs (709,183,337) (406,959,104) Administrative expenses (834,558,734) (586,131,154) Other expenses (43,507,221) (24,689,421) Impairment losses (9,768,106) (19,027,214)

Profit from operating activities 4,484,930,226 3,302,672,466 ------

Finance income 6 165,087,195 88,087,696 Finance expenses 6 (348,042,936) (266,234,610) ------

Net finance costs 6 (182,955,741) (178,146,914) ------Share of profits less losses of associates 1,765,632 (8,742,810)

Share of profits less losses of jointly Controlled entities 20,015,404 (29,243,500) ------

Profit before income tax 4,323,755,521 3,086,539,242

Income tax 7(a) (2,017,085,451) (1,285,674,262)

Profit for the period 2,306,670,070 1,800,864,980

39 Consolidated income statement for the period ended 30 June 2008 (continued) (Expressed in Renminbi Yuan)

Note Jan-Jun 2008 Jan-Jun 2007 Attributable to:

Equity shareholders of the Company 2,061,055,712 1,667,999,941 Minority interests 24 245,614,358 132,865,039

Profit for the period 2,306,670,070 1,800,864,980

Earnings per share 8

Basic 0.187 0.155

Diluted 0.187 0.155

The accompanying notes form part of these financial statements.

40 Consolidated balance sheet at 30 June 2008 (Expressed in Renminbi Yuan)

Note 30 June 2008 31 December 2007 ASSETS

Non-current assets Property, plant and equipment 10 660,460,957 582,077,206 Investment properties 11 137,815,094 277,090,575 Construction in progress 12 399,596,372 271,270,240 Interest in associates 14 834,121,539 326,433,224 Interest in jointly controlled entities 15 1,272,622,515 2,031,523,200 Other financial assets 16 488,489,396 569,496,856 Deferred tax assets 17(a) 923,820,506 604,057,419

Total non-current assets 4,716,926,379 4,661,948,720 ------

Current assets Inventories 18 78,314,234 63,748,758 Properties held for development 19 24,202,048,413 27,877,597,737 Properties under development 19 52,532,995,617 34,338,168,018 Completed properties for sale 19 4,764,409,084 4,654,628,030 Trade and other receivables 20 10,859,766,383 12,495,032,111 Cash and cash equivalents 21 15,369,845,630 17,046,504,584

Total current assets 107, 807,379,361 96,475,679,238 ------

TOTAL ASSETS 112,524,305,740 101,137,627,958

EQUITY

Share capital 22 10,995,210,218 6,872,006,387 Reserves 23 20,488,533,164 22,873,182,760 Awarded Shares purchased for the Employees’ Share Award Scheme 28 (1,463,793,000) (466,541,546)

Total equity attributable to equity shareholders of the Company 30,019,950,382 29,278,647,601

Minority interests 24 5,803,053,073 4,640,875,428

TOTAL EQUITY 35,823,003,455 33,919,523,029 ------

41 Consolidated balance sheet at 30 June 2008 (continued) (Expressed in Renminbi Yuan)

Note 30 June 2008 31 December 2007 LIABILITIES

Non-current liabilities Interest-bearing borrowings 25 13,698,727,369 16,362,079,840 Deferred tax liabilities 17(b) 1,434,902,697 1,567,060,453 Other long term liabilities 14,732,391 9,913,831

Total non-current liabilities 15,148,362,457 17,939,054,124 ------

Current liabilities Interest-bearing borrowings 25 14,962,767,416 8,593,526,904 Financial derivatives 23,973,840 20,957,112 Trade and other payables 26 43,625,739,363 37,246,428,026 Current taxation 2,900,082,486 3,380,175,810 Provisions 27 40,376,723 37,962,953

Total current liabilities 61,552,939,828 49,279,050,805 ------

TOTAL LIABILITIES 76,701,302,285 67,218,104,929 ------

TOTAL EQUITY AND LIABILITIES 112,524,305,740 101,137,627,958

Approved and authorized for issue by the board of directors on 1 August 2008

) ) ) Directors ) )

The accompanying notes form part of these financial statements.

42 Consolidated statement of changes in equity for the period ended 30 June 2008 (Expressed in Renminbi Yuan)

Note 30 June 2008 31 December 2007

Total equity at 1 January 33,919,523,029 17,453,503,541 ------

Net income recognised directly in equity Exchange differences on translation of financial statements of foreign subsidiaries 23 130,804,522 137,730,285 Change in fair value of available-for-sale securities, net of related deferred tax 23 (64,787,076) 91,536,520

Net income recognised directly in equity for the period 66,017,446 229,266,805

Profit for the period 2,306,670,070 5,317,500,818

Total recognised income and expense for the period 2,372,687,516 5,546,767,623 ------

Attributable to: - Equity shareholders of the Company 2,127,073,158 5,073,502,299 - Minority interests 245,614,358 473,265,324

2,372,687,516 5,546,767,623 ------Dividends Declared or approved during the period 9 (687,200,638) (655,484,812) Less: Reverse the dividends entitled to the Employees’ Share Award Scheme (9,794,665) - Amount paid to Employees’ Share Award Scheme - 6,057,621

(696,995,303) (649,427,191) ------

43 Consolidated statement of changes in equity for the period ended 30 June 2008 (continued) (Expressed in Renminbi Yuan)

Note 30 June 2008 31 December 2007 Movements in equity arising from capital transactions Shares issued upon placing - 10,000,000,000 Share issuance costs upon placing 23(ii) - (63,398,299) Purchase of Awarded Shares for the Employees’ Share Award Scheme 28 (997,251,454) (321,097,534) Fair value adjustments arising from stepped acquisitions of interests in subsidiaries 23(ii) - (62,599,404) Employee share-based compensation 28 308,476,380 373,120,000 Dividends paid to minority interests 24 (63,439,074) (139,091,005) Capital injections from minority interests of subsidiaries 24 316,529,750 2,018,703,898 Minority interests arising from acquisition of non-wholly owned subsidiaries 24 674,441,255 216,799,086 Acquisitions of minority interests 24 (10,968,644) (453,757,686) Disposal of partial interests in subsidiaries 24 - -

227,788,213 11,568,679,056 ------

Total equity 35,823,003,455 33,919,523,029

The accompanying notes form part of these financial statements.

44 Consolidated cash flow statement for the period ended 30 June 2008 (Expressed in Renminbi Yuan) Note Jan-Jun 2008 Jan-Jun 2007 Operating activities

Cash received from customers 21,952,546,322 15,577,034,938 Cash paid to suppliers (16,079,764,320) (14,300,182,313) Cash paid to and for employees (1,850,285,760) (890,088,348) Cash paid for taxes (4,624,472,477) (1,748,540,914) Cash generated from other operating activities 1,546,511,369 1,267,323,784 Cash used in other operating activities (2,433,423,857) (2,884,469,831)

Net cash used in operating activities (1,488,888,723) (2,978,922,684) ------

Investing activities

Proceeds from disposal of interest in subsidiaries - (1,361,044) Proceeds from disposal of property, plant and equipment 3,412,609 239,518 Proceeds from sales of investments 306,000 18,016,351 Cash received from other operating activities 122,869,659 79,338,721 Dividends received 32,426,533 27,694,824 Acquisitions of subsidiaries, net of cash acquired (1,768,566,734) (1,071,780,530) Acquisitions of interest in associates, jointly controlled entities and other investments (731,273,193) (1,205,588,882) Acquisitions of property, plant and equipment and construction in progress (228,756,900) (41,617,008)

Net cash used in investing activities (2,569,582,026) (2,195,058,050) ------

45 Consolidated cash flow statement (continued) for the period ended 30 June 2008 (Expressed in Renminbi Yuan)

Note Jan-Jun 2008 Jan-Jun 2007

Financing activities

Capital injections from minority interests of subsidiaries 356,507,408 218,046,239 Proceeds from loans and borrowings 10,545,464,342 11,052,223,304 Repayment of loans and borrowings (6,614,274,805) (3,523,204,011) Interests and dividends paid (1,842,913,054) (1,224,489,847)

Net cash generated from financing activities 2,444,783,891 6,522,575,685 ------

Net increase in cash and cash equivalents (1,613,686,858) 1,348,594,951

Cash and cash equivalents at 1 January 17,046,504,584 10,743,695,198

Effect of foreign exchange rates (62,972,096) (6,355,095)

Cash and cash equivalents at 30 June 15,369,845,630 12,085,935,054

The accompanying notes form part of these financial statements.

46 Notes to the consolidated financial statements (Expressed in Renminbi Yuan)

1 REPORTING ENTITY

China Vanke Co., Ltd (the “Company”) is a company domiciled in the People’s Republic of China (the “PRC”). The consolidated financial statements of the Company for the period ended 30 June 2008 comprising the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates and jointly controlled entities. The Group is primarily involved in the development and sale of properties in the PRC (see note 3). The consolidated financial statements were approved and authorised for issue by the Company’s board of directors on [1 August 2008.]

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board (“IASB”). IFRSs include International Accounting Standards (“IAS”) and interpretations. A summary of the significant accounting policies adopted by the Group is set out below.

(b) Basis of preparation of the financial statements

The consolidated financial statements are presented in Renminbi Yuan, which is the Group’s functional currency. The measurement basis used in the preparation of the consolidated financial statements is the historical cost basis, except for financial instruments classified as available-for-sale (see note 2(g)), which are stated at their fair value. The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

47 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity shareholders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between minority interests and the equity shareholders of the Company. Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered. Loans from holders of minority interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated balance sheet in accordance with notes 2(r) and 2(s) depending on the nature of the liability.

(d) Associates and jointly controlled entities

An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions. A jointly controlled entity is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes that the Group and one or more of the other parties share joint control over the economic activity of the entity.

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(d) Associates and jointly controlled entities (continued)

An investment in an associate or a jointly controlled entity is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the associate’s or the jointly controlled entity’s net assets. The consolidated income statement includes the Group’s share of the post-acquisitions, post-tax results of the associates and jointly controlled entities for the year, including any impairment loss on goodwill relating to the investment in associates and jointly controlled entities recognised for the year (see notes 2(e) and 2(l)). When the Group’s share of losses exceeds its interest in the associate or the jointly controlled entity, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or the jointly controlled entity. For this purpose, the Group’s interest in the associate or the jointly controlled entity is the carrying amount of the investment under the equity method together with the Group’s long- term interests that in substance form part of the Group’s net investment in the associate or the jointly controlled entity. Unrealised profits and losses resulting from transactions between the Group and its associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the associate or jointly controlled entity, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

(e) Goodwill

Goodwill represents the excess of the cost of a business combination or an investment in an associate or a jointly controlled entity over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment as well as when there are indications of impairment (see note 2(l)). In respect of associates or jointly controlled entities, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or jointly controlled entity. Any excess of the Group’s interest in the net fair value of the acquirer’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate or a jointly controlled entity is recognised immediately in profit or loss. On disposal of a cash generating unit, an associate or a jointly controlled entity during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

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(f) Business combinations

When an acquisition is completed by a series of successive transactions, each significant transaction is considered individually for the purpose of the determination of the fair value of the identifiable assets, liabilities and contingent liabilities acquired and hence for the goodwill associated with the acquisition. The fair values of the identifiable assets and liabilities acquired can vary at the date of each transaction. When a transaction results in taking over the control of the entity, the interests of the entity previously recorded in the Group’s financial statements are revalued on the basis of the fair values of the identifiable assets and liabilities at the transaction date. Any revaluation surplus/deficits are recorded in equity. When control already exists at the date of addition in interest in an entity, no fair value adjustment is made to the identifiable assets, liabilities and contingent liabilities of the entity. Any difference between the considerations and the carrying amount of interests previously recorded in the Group’s financial statements is dealt with in equity. Where the Group decreases its interest in a subsidiary without losing control, any gain or loss on the partial disposal is recognised in profit or loss.

(g) Other investments in debt and equity securities

The Group’s policies for investments in debt and equity securities, other than investment in subsidiaries, associates and jointly controlled entities are as follows: Investments in debt and equity securities are initially stated at cost, which is their transaction price unless fair value can be more reliably estimated using valuation techniques whose variables include only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as follows, depending on the classification: Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognised in profit or loss as incurred. At each balance sheet date the fair value is remeasured, with any resultant gain or loss being recognised in profit or loss. The net gain or loss recognised in profit and loss does not include any dividends or interest earned on these investments as these are recognised in accordance with the policies set out in notes 2(x)(iv) and (v). Dated debt securities that the Group has the positive ability and intention to hold to maturity are classified as held-to-maturity securities. Held to maturity securities are stated in the balance sheet at amortised cost less impairment losses (see note 2(l)). Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognised in the balance sheet at cost less impairment losses (see note 2(l)).

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(g) Other investments in debt and equity securities (continued)

Investments in securities which do not fall into the above categories are classified as available-for-sale securities. At each balance sheet date the fair value is remeasured, with any resultant gain or loss being recognised directly in equity. Dividend income from these investments is recognised in profit or loss in accordance with the policy set out in note 2(x)(v). When these investments are derecognised or impaired (see note 2(l)), the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss. Investments are recognised/derecognised on the date the Group commits to purchase/sell the investments.

(h) Investment properties

Investment properties are land and buildings which are owned or held under a leasehold interest (see note 2(k)) to earn rental income and/or for capital appreciation. Investment properties are stated in the consolidated balance sheet at cost less accumulated depreciation and impairment losses (see note 2(l)). The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs. Any gain or loss arising from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment property is accounted for as described in note 2(x)(iii). Depreciation is calculated to write off the cost of items of investment properties, less their estimated residual value of 4% of costs, using straight line method over their estimated useful lives of 12.5 to 40 years.

(i) Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost less accumulated depreciation and impairment losses (see note 2(l)). The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see note 2(z)). Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

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(i) Property, plant and equipment

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows: Estimated residual value as a percentage Year of costs

Buildings 12.5 – 40 4% Improvements to premises 5 - 10 - Plant and machinery 5 - 10 4% Furniture, fixtures and equipment 5 - 10 4% Motor vehicles 5 4% Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

(j) Construction in progress

Construction in progress represents items of property, plant and equipment under construction and pending installation, and is stated at cost less impairment losses (see note 2(l)). Cost comprises cost of materials, direct labour, borrowing costs capitalised (see note 2(z)), and an appropriate proportion of production overheads incurred during the periods of construction and installation. Capitalisation of those costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use. No depreciation is provided in respect of construction in progress.

(k) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made.

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(k) Leased assets (continued)

Contingent rentals are charged to profit or loss in the accounting period in which they are incurred. The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term except where the property is held for development, under development or completed and held for sale (see notes 2(n) and 2(o)).

(l) Impairment of assets

(i) Impairment of investments in securities and other receivables Investments in securities (other than investments in associates and jointly controlled entities: see note 2(l)(ii)) and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events: - significant financial difficulty of the debtor; - a breach of contract, such as a default or delinquency in interest or principal payments; - it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; - significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and - a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. If any such evidence exists, any impairment loss is determined and recognised as follows: - For unquoted securities that are carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for securities are not reversed.

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(l) Impairment of assets (continued)

(i) Impairment of investments in securities and other receivables (continued) - For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years. - For available-for-sale securities, the cumulative loss that has been recognised directly in equity is removed from equity and is recognised in profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss. Impairment losses recognised in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised directly in equity. Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are recognised in profit or loss. Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors and bills receivable included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors and bills receivable directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

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(l) Impairment of assets (continued)

(ii) Impairment of other assets Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased: - investment properties; - property, plant and equipment; - construction in progress; - interest in associates; and - interest in jointly controlled entities. If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment. - Calculation of recoverable amount The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). - Recognition of impairment losses An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable. - Reversals of impairment losses In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

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(l) Impairment of assets (continued)

(iii) Interim financial reporting and impairment The Group prepares an interim financial report in respect of each quarter of the financial year. At the end of each quarter, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see notes 2(l)(i) and (ii)). Impairment losses recognised in each quarter period in respect of goodwill, available-for-sale equity securities and unquoted equity securities carried at cost are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the quarter period relates.

(m) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(n) Properties under development and properties held for development

Properties under development are stated at the lower of cost and net realisable value. The cost of properties under development and properties held for development comprise specifically identified cost, including the acquisition cost of land, aggregate cost of development, materials and supplies, wages and other direct expenses, an appropriate proportion of overheads and borrowing costs capitalised (see note 2(z)). Net realisable value represents the estimated selling price less the estimated costs of completion and the estimated costs to be incurred in selling the properties.

(o) Completed properties for sale

Completed properties for sale are stated at the lower of cost and net realisable value. Cost is determined by apportionment of the total development costs for that development project attributable to the unsold properties. Net realisable value represents the estimated selling price less the estimated costs to be incurred in selling the properties. The cost of completed properties for sale comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

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(o) Completed properties for sale (continued)

When properties are sold, the carrying amount of those properties is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of properties to net realisable value and all losses of properties are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of properties is recognised as a reduction in the amount of properties recognised as an expense in the period in which the reversal occurs.

(p) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter at amortised cost less impairment losses for bad and doubtful debts (see note 2(l)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts (see note 2(l)).

(q) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group operates predominantly in one business segment, property development in the PRC. In accordance with the Group’s internal financial reporting system the Group’s has presented geographical segment information as the segment reporting format for the purposes of these financial statements. Segment revenue and assets (note3) include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue is determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

(r) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

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(s) Trade and other payables

Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance with note 2(w), trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(t) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, and demand deposits with banks. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.

(u) Employee benefits

(i) Short term employee benefits and contributions to defined contribution retirement plans Salaries, annual bonuses, paid annual leave and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. The Group’s contributions to defined contribution retirement plans administrated by the PRC government are recognised as an expense when incurred according to the contribution defined by the plans. (ii) Share based payments The Group has adopted an equity-settled Employees’ Share Award Scheme (the “Scheme”) for its employees (note 28) and the Group’s policy for the Scheme is set out below. The fair value of the shares granted to the employees (the “Awarded Shares”) is recognised as an employee cost with a corresponding increase in capital reserve within equity. As the employees have to meet vesting conditions before becoming unconditionally entitle to the Awarded Shares, the total estimated fair value of the Awarded Shares is spread over the vesting period, taking into account the probability that the Awarded Shares will vest. As the duration of the vesting period depends on the market price of the Company’s A shares, the estimation on the vesting period is reviewed at each balance sheet date. Any adjustment to the employee cost recognised in prior years is charged/credited to the profit or loss for the year of review with a corresponding adjustment to the capital reserve. The amortisation amount was recognised as the “administrative expenses” during the reporting period, and was shown in the item “capital surplus reserve — reserve for the stock incentive fund”.

According to the Incentive Plan, the Company appropriates for the incentive fund, and appoint a Trustee, who will operate on an independent basis. This amount will be transferred out of the “capital surplus reserve — reserve for the stock incentive trust fund”, thereby reducing the unappropriated profit.

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(v) Income tax

Income tax for the year comprises current tax and movements in deferred assets and liabilities. Current tax and movement in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from certain limited exceptions, all deferred tax liabilities and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria is adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised. No temporary differences are recognised on the initial recognition of goodwill. In addition, the following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available. Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

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(v) Income tax (continued)

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current liabilities and the following additional conditions are met: - in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or - in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either: - the same taxable entity; or - different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(w) Financial guarantees issued, provisions and contingent liabilities

(i) Financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income. The amount of the guarantee initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised in accordance with note 2(w)(iii) if and when (i) it becomes probable that the holder of the guarantee will call upon the group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.

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(w) Financial guarantees issued, provisions and contingent liabilities (continued)

(ii) Contingent liabilities acquired in business combinations Contingent liabilities acquired as part of a business combination are initially recognised at fair value, provided the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate, and the amount that would be determined in accordance with note 2(w)(iii). Contingent liabilities acquired in a business combination that cannot be reliably fair valued are disclosed in accordance with note 2(w)(iii). (iii) Other provisions and contingent liabilities Provisions are recognised for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(x) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows: (i) Sale of properties Revenue from the sale of completed properties for sale is recognised upon the signing of the sale and purchase agreement and the receipt of the deposits pursuant to the sale and purchase agreement or the issue of a completion certificate by the relevant government authorities, whichever is the later. Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the consolidated balance sheet under sales deposits received in advance. (ii) Provision of services Revenue from services is recognised when services are rendered.

61 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(x) Revenue recognition (continued)

(iii) Rental income from operating leases Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned. (iv) Interest income Interest income is recognised as it accrues using the effective interest method. (v) Dividend income - Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established. - Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend. (vi) Government grants Government grants are recognised in the balance sheet initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as other sundry income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted in arriving at the carrying amount of the asset and consequently are recognised in profit or loss over the useful life of the asset. The above revenue is net of the relevant taxes and is after the deduction of any trade discounts. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

(y) Translation of foreign currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

62 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(y) Translation of foreign currencies (continued)

The results of foreign operations are translated into Renminbi Yuan at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items are translated into Renminbi Yuan at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in a separate component of equity. On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign operation is included in the calculation of the profit or loss on disposal.

(z) Borrowing costs

Borrowing costs are expensed in profit or loss in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(aa) Derivative financial instruments

Derivative financial instruments are recognised initially at fair value. At each balance sheet date the fair value is re-measured. The gain or loss on re-measurement to fair value is charged immediately to profit or loss.

(ab) Related parties

For the purposes of these financial statements, a party is considered to be related to the Group if: (i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group. (ii) the Group and the party are subject to common control; (iii) the party is an associate of the Group or a joint venture in which the Group is a venturer; (iv) the party is a member of key management personnel of the Group, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;

63 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(ab) Related parties (continued)

(v) the party is close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or (vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group. Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

3 SEGMENT REPORTING

The principal activities of the Group are property development, property management and property investment. The Group’s results for the year ended 30 June 2008 were almost entirely attributable to the property development in the PRC. Accordingly, no analysis by business segment has been presented.

During the period under review, the Company continued to emphasis its urban-economy-oriented strategy with Pearl River Delta, Yangtze River Delta, Bohai-Rim Region and other region being its Core development areas and with Shenzhen, shanghai, Guangzhou, Beijing and Tianjin remaining as core development cities.

According to the Company's development strategy, the presentation of the Segment reporting is revised and the comparable data are represented during the period under review. Revenue, expenses and results from operating activities are based on the geographical location of the Property development projects. Assets and liabilities are disclosed by the geographical location of the assets and liabilities.

Notes: (1) Other cities in Pearl River Delta represent Foshan, Zhuhai, Xiamen and Zhongshan, Changsha. (2) Other cities in Yangtze River Delta represent Nanjing, Nanchang, Zhenjiang, and Ningbo. (3) Other cities in Bohai-Rim region represent Shenyang, Dalian, Qingdao, Changchun and Anshan. (4) Others represent the parent company of the Group and other non real state companies. (5) Expenses include cost of sales, distribution cost, administrative expenses and impairment loss.

64 3 SEGMENT REPORTING (CONTINUED)

An analysis of the revenue and assets of the Group according to the geographical location of the property development projects within the PRC is set out below:

Region Results from Revenue Expense(note(5)) Assets Liabilities operating activities

Shenzhen 2008.1-6 2,720,029,500 1,334,522,153 1,760,354,449 2008.6.30 11,708,948,226 8,577,648,720

2007.1-6 3,170,790,711 1,771,640,466 1,622,618,174 2007.12.31 16,471,900,737 12,587,031,959

Guangzhou/Dongguan 2008.1-6 1,710,828,402 1,163,369,993 589,289,145 2008.6.30 18,632,093,052 16,463,341,543

2007.1-6 1,431,576,076 891,383,298 592,690,609 2007.12.31 15,204,960,586 13,905,930,535

Other cities in Pearl River Delta 2008.1-6 1,883,400,663 1,039,751,470 1,033,941,594 2008.6.30 7,626,072,095 6,401,201,168

(note(1)) 2007.1-6 1,034,252,812 692,893,179 351,229,564 2007.12.31 9,701,117,877 8,750,646,337

Shanghai 2008.1-6 3,186,022,483 2,064,560,685 1,260,386,754 2008.6.30 17,185,543,914 13,301,009,257

2007.1-6 1,484,366,282 1,011,141,968 465,204,057 2007.12.31 16,910,009,418 13,358,559,562

Suzhou and Hangzhou，Wuxi 2008.1-6 1,159,000,843 887,752,337 239,950,485 2008.6.30 15,704,554,936 13,021,724,478

2007.1-6 1,248,947,067 1,026,999,868 77,328,747 2007.12.31 14,433,344,461 11,895,408,557 other cities in Yangtze River Delta 2008.1-6 1,021,684,921 726,682,242 300,868,858 2008.6.30 7,967,500,646 6,899,080,050

(note(2)) 2007.1-6 318,587,081 222,647,623 93,695,107 2007.12.31 7,835,450,319 6,949,995,095

Beijing 2008.1-6 2,274,668,071 1,455,532,344 929,374,855 2008.6.30 5,646,349,771 2,508,576,851

2007.1-6 569,060,091 414,049,466 141,618,185 2007.12.31 7,034,490,475 4,712,039,110

Tianjin 2008.1-6 1,707,703,802 1,204,805,755 518,577,335 2008.6.30 5,282,088,419 4,110,825,633

2007.1-6 370,016,287 300,956,375 42,147,537 2007.12.31 5,540,193,359 4,499,026,385

Other cities in Bohai-Rim region 2008.1-6 1,420,968,459 998,442,041 438,008,393 2008.6.30 5,990,070,646 4,344,949,579

(note(3)) 2007.1-6 281,974,635 233,908,417 32,144,096 2007.12.31 4,555,068,194 3,268,616,918

Chengdu 2008.1-6 105,847,336 138,432,117 (69,776,618) 2008.6.30 6,083,416,396 4,947,472,158

2007.1-6 183,561,274 139,610,658 36,159,173 2007.12.31 4,754,700,654 3,285,220,631 wuhan 2008.1-6 571,518,554 344,121,115 268,017,046 2008.6.30 3,847,859,837 2,721,663,321

2007.1-6 252,272,323 191,888,366 49,665,478 2007.12.31 3,013,595,881 1,941,742,995

Others 2008.1-6 2,932,759,849 252,648,328 3,794,354,146 2008.6.30 78,485,624,369 55,181,911,636

(note(4)) 2007.1-6 942,951 165,353,623 (208,186,742) 2007.12.31 53,859,624,051 31,677,184,322

Inter-segment transactions 2008.1-6 (4,448,326,773) 148,733,366 (6,578,416,216) 2008.6.30 (71,635,816,567) (61,778,102,109)

2007.1-6 - (4,040,478) 6,358,481 2007.12.31 (58,176,828,054) (49,613,297,477)

Consolidated 2008.1-6 16,246,106,110 11,759,353,946 4,484,930,226 2008.6.30 112,524,305,740 76,701,302,285

2007.1-6 10,346,347,590 7,058,432,829 3,302,672,466 2007.12.31 101,137,627,958 67,218,104,929

65 4 ACQUISITIONS OF SUBSIDIARIES AND MINORITY INTERESTS

(i) Acquisitions of subsidiaries and minority interests by the Group during the period ended 30 June 2008:

(a) Pursuant to an equity transfer agreement dated 18 January 2008, the Company acquired an entire equity interest in Wuhan Guohao Real Estate Company Limited( "Wuhan Guohao"). The registered capital of Wuhan Guohao is RMB10 million, and Wuhan Guohao is principally engaged in property development, selling and management. The acquisition was completed on 27 February 2008. Upon acquisition, the total assets and total liabilities of Wuhan Guohao were RMB10 million and RMB0 respectively. (b) Pursuant to an equity transfer agreement dated 17 April 2007, the Company acquired a 60% equity interest in Qingdao Dashan Real Estate Development Company Limited( "Qingdao Dashan"). Qingdao Dashan is principally engaged in property development. As at 30 June 2008, the payment of the acquisition was more than 50%. Upon acquisition date, the total assets and total liabilities of Qingdao Dashan were RMB143 million and RMB94 million respectively. (c) Pursuant to an equity transfer agreement dated 21 November 2007, the Company acquired an entire equity interest in Shanghai Xiangda Real Estate Development Company Limited( "Shanghai Xiangda"). Shanghai Xiangda was established on 14 June 1996, of which the registered capital was RMB20 million. Shanghai Xiangda is principally engaged in real estate development, property management, and decoration services. The acquisition was completed on 5 January 2008, and the payment of the acquisition was more than 50%. Upon acquisition date, the total assets and total liabilities of Shanghai Xiangda were RMB764 million and RMB1,326 million respectively. (d) Pursuant to an equity transfer agreement dated 6 May 2008, the Company acquired a 57% equity interest in Shenzhen Yili Real Estate Development Company Limited( "Shenzhen Yili"). Shenzhen Yili was established on 14 January 2003, of which the registered capital was RMB39 million. Shenzhen Yili is principally engaged in real estate development. The acquisition was completed on 26 May 2008. Upon acquisition date, the total assets and total liabilities of Shenzhen Yili were RMB282 million and RMB248 million respectively. (e) Pursuant to an equity transfer agreement dated 31 March 2008, the Company acquired a 51% equity interest in Suzhou Huihua Real Estate Investment Company Limit( "Jiangsu Huihua"). Jiangsu Huihua was established on 17 February 2006, of which the registered capital was RMB355 million. Suzhou Huihua is principally engaged in property development. As at 30 June 2008, the payment of the acquisition was more than 80%. Upon acquisition date, the total assets and total liabilities of Suzhou Huihua were RMB366 million and RMB11 million respectively. (f) Pursuant to an equity transfer agreement dated 2 March 2008, the Company acquired a 69% equity interest in Tianjin Binhai Shishang Real Estate Company Limited( "Tianjin Binhai"), the total equity investment to Tianjin Binhai is RMB110 million. The registered capital of Tianjin Binhai is increased from RMB50 million to RMB160 million. Tianjin Binhai was established on 15 May 2006, which is principally engaged in property development. The acquisition was completed on 21 March 2008. Upon acquisition date, the total assets and total liabilities of Tianjin Binhai were RMB191 million and RMB141 million respectively.

4 ACQUISITIONS OF SUBSIDIARIES AND MINORITY INTERESTS (CONTINUED) (g) Pursuant to an equity transfer agreement dated 1 January 2008, the Company acquired a 39% equity interest in Dongguan Xintong Industry Company Limited( "Dongguan Xintong"). Dongguan Xintong was established on 5 May 2006, of which the registered capital was RMB10 million. Dongguan Xintong is principally engaged in property development. The acquisition was completed

66 on 14 January 2008. Upon acquisition date, the total assets and total liabilities of Dongguan Xintong were RMB720 million and RMB710 million respectively. (h) Pursuant to an equity transfer agreement dated 4 January 2008, the Company acquired an entire equity interest in Guangdong Shangcheng Construction Company Limited( "Guangdong Shangcheng"). Guangdong Shangcheng was established on 27 December 2006, of which the registered capital was RMB20 million. Guangdong Shangcheng is principally engaged in property development and landscaping. The acquisition was completed on 11 February 2008. Upon acquisition date, the total assets and total liabilities of Guangdong Shangcheng were RMB20 million and RMB0 respectively. (i) Pursuant to an equity transfer agreement dated 1 February 2008, the Company acquired a 75% equity interest in Ningbo Jinsheng Real Estate Company Limited( "Ningbo Jinsheng"). Ningbo Jinsheng was established on 8 December 2004, of which the registered capital was RMB20 million. Ningbo Jinsheng is principally engaged in property development. The acquisition was completed on 1 February 2008. Upon acquisition date, the total assets and total liabilities of Ningbo Jinsheng were RMB20 million and RMB0 respectively. (j) Pursuant to an equity transfer agreement dated 20 January 2008, the Company acquired a 55% equity interest in Qingdao Haoren Real Estate Company Limited( "Qingdao Haoren"). Qgdao Haoren was established on 1 July 2005, of which the registered capital was USD8.58 million. Qingdao Haoren is principally engaged in property development, property leasing and management. The acquisition was completed on 14 May 2008. Upon acquisition date, the total assets and total liabilities of Qingdao Haoren were RMB81 million and RMB14 million respectively.

67 4 ACQUISITIONS OF SUBSIDIARIES AND MINORITY INTERESTS (CONTINUED)

The acquisitions had the following effect on the Group’s assets and liabilities on acquisition date: Recognised Carrying Fair value values on amount adjustments acquisitions

Current assets 2,554,559,194 2,731,098,568 5,285,657,762 Non-current assets 42,829,250 5,000,000 47,829,250 Total assets 2,597,388,444 2,736,098,568 5,333,487,012 Current liabilities 2,404,069,747 - 2,404,069,747 Non-current liabilities 140,000,000 - 140,000,000 Total liabilities 2,544,069,747 - 2,544,069,747

Net identifiable assets and liabilities 53,318,697 2,736,098,568 2,789,417,265

Considerations 2,544,877,258 Considerations prepaid in 2007 （800,000,000） Considerations to be paid subsequent to June 2008 （313,554,858） Considerations paid during the period, satisfied in cash 1,431,322,400 Cash acquired (22,855,286)

Net cash outflow during the period 1,408,467,114

All subsidiaries set out above were acquired from third parties.

68 5 OTHER INCOME 2008 2007 Jan-Jun Jan-Jun Forfeited deposits and compensation from customers 6,641,152 3,579,032 Gain on disposals of partial interest in subsidiaries 116,218 - Gain on disposals of available-for-sale securities 601,533 27,694,824 Government subsidies 19,151,553 - Gain on fair value adjustments - 1,710,798 Other sundry income 15,174,827 6,462,472

41,685,283 39,447,126

6 NET FINANCE COSTS 2008 2007 Jan-Jun Jan-Jun Interest income 122,869,658 79,338,721 Foreign exchange gain 42,217,537 8,748,975

Finance income 165,087,195 88,087,696 ------Interest expense and other borrowing costs 932,074,076 525,994,758 Less: Interest capitalized (584,031,140) (259,760,148)

Finance expenses 348,042,936 266,234,610 ------

Net finance costs (182,955,741) (178,146,914)

Interest expense and other borrowing costs have been capitalised at an average rate of 5.2% (2007: 7.1%) per annum.

69 7 TAXATION

(a) Taxation in the consolidated income statement represents: 2008 2007 Jan-Jun Jan-Jun Current tax PRC Enterprise Income Tax Provision for the year 1,398,247,132 749,551,218 Land Appreciation Tax 1,030,231,356 559,994,949

2,428,478,488 1,309,546,167 ------

Deferred tax Fair value adjustments arising from business combinations - PRC Enterprise Income Tax (57,197,726) - - Land Appreciation Tax (34,432,225) - Land Appreciation Tax (186,656,472) - Utilisation of tax losses (53,859,788) - Other temporary differences (79,246,826) - Change in deferred taxation - (23,871,905)

------

2,017,085,451 1,285,674,262

The provision for PRC Enterprise Income Tax is calculated based on the estimated taxable income at the rates applicable to each company in the Group. The income tax rates applicable to the principal subsidiaries in the PRC range between 17.5% and 25%. According to the China's Corporate Income Tax ("CIT") Law that was passed by the Standing Committee of the Tenth National People's Congress ("NPC") on 16 March 2007 and the Notice of the State Council on the Transitional Preferential Policy regarding implementation of the CIT Law (Guo Fa [2007] No.39) issued on 26 December 2007, income tax rate is revised to 25% with effect from 1 January 2008. For certain enterprises that are entitled to preferential income tax rate of 15% before the implementation of the CIT Law, the income tax rate applicable will be 18%, 20%, 22%, 24% and 25% in 2008, 2009, 2010, 2011, and 2012 and thereafter respectively. As at 30 June 2008, deferred tax assets and liabilities are calculated based on the applicable income tax rates enacted by the NPC from 1 January 2008.

70 7 TAXATION (CONTINUED)

(a) Taxation in the consolidated income statement represents (continued):

Pursuant to the new tax law passed on 16 March 2007, a 10% withholding tax will be levied on dividends declared to foreign investors from the PRC effective from 1 January 2008. a lower withholding tax rate may be applied if there is a tax treaty arrangement between the PRC and the jurisdiction of the foreign investors. On 22 February 2008, Caishui (2008) No.1 was promulgated by the tax authorities to specify that dividends declared and remitted out of the PRC from the retained earnings as at 31 December 2007 are exempted from the withholding tax. Land Appreciation Tax is levied on properties developed by the Group for sale, at progressive rates ranging from 30% to 60% on the appreciation of land value, which under the applicable regulations is calculated based on the proceeds of sales of properties less deductible expenditures including lease charges of land use rights, borrowing costs and relevant property development expenditures. Given the uncertainties of the calculation of Land Appreciation Tax to be interpreted by local tax bureau, the actual outcomes may be higher or lower than estimated at the balance sheet date. Any increase or decrease in estimates would affect profit or loss in future years. The following is reconciliation between tax expense and accounting profit at applicable tax rates: 2008 2007 Jan-Jun Jan-Jun Profit before income tax 4,323,755,521 3,086,539,242

Notional tax on profit before taxation calculated at the income tax rates application to profits in the cities concerned 1,192,281,772 772,114,924 Non-taxable income & non-deductible expenses 205,965,360 (22,563,706) Change in deferred taxation (411,393,037) (23,871,905)

PRC Enterprise Income Tax 986,854,095 725,679,313 Land Appreciation Tax 1,030,231,356 559,994,949

Actual total tax expense 2,017,085,451 1,285,674,262

(b) Taxation recognized directly in equity 30 June 2008 31 December2007 Arising from fair value adjustments on available-for-sale securities (note 17(b)) (14,102,360) 21,981,456

71 8 EARNINGS PER SHARE

(a) Basic and diluted earnings per share

The calculation of basic earnings per share is based on the net profit for the year attributable to equity shareholders of the Company of RMB2,061,055,712 (2007: RMB1,667,999,941) and on the weighted average number of ordinary shares outstanding during the year of 10,995,210,218 (2007: 10,678,051,957) shares. Since there were no diluted factors, the basic and the diluted earnings per share and the diluted earnings per share are the same for both the period of six months in 2007 and 2008.

(b) During the period, the Company capitalised the share premium for additional ordinary shares in the ratio of 10:6. Accordingly, the weighted average number of ordinary shares used in the calculation of the basic and diluted earnings per share in 2007 was adjusted to 10,995,210,218 and 10,678,051,957. As a result, the basic and diluted earnings per share were both adjusted to RMB0.19.

9 DIVIDENDS

A cash dividend of RMB0.1 per share, resulting in a dividend payment of RMB 687,200,638 in respect of the year ended 31 December 2007 was declared during the period ended 30 June 2008.

72 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

10 PROPERTY, PLANT AND EQUIPMENT

Furniture, Improvements Plant and fixtures and Motor Buildings to premises machinery equipment vehicles Total Cost: At 1 January 2007 475,034,862 72,242,841 8,646,876 107,050,135 70,806,531 733,781,245 Additions 91,736,604 7,673,375 16,900,999 42,733,097 26,818,954 185,863,029 Disposals (20,868,516) (824,100) (299,951) (9,920,670) (14,308,249) (46,221,486)

At 31 December 2007 545,902,950 79,092,116 25,247,924 139,862,562 83,317,236 873,422,788 ------Additions 69,572,926 25,715,949 14,752,999 19,473,305 11,164,807 140,679,986 Disposals (11,687,082) (3,061,162) (74,894) (4,339,656) (14,021,378) (33,184,172)

At 30 June 2008 603,788,794 101,746,903 39,926,029 154,996,211 80,460,665 980,918,602 ------

73 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

10 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Furniture, Improvements Plant and fixtures and Motor Buildings to premises machinery equipment vehicles Total

Accumulated depreciation and impairment loss: At 1 January 2007 63,510,444 51,697,739 4,405,961 58,500,489 39,365,283 217,479,916 Charge for the year 53,545,494 9,349,994 4,497,608 23,194,076 20,051,525 110,638,697 Written back on disposals (18,637,981) (602,017) (233,988) (8,357,966) (8,941,079) (36,773,031)

At 31 December 2007 98,417,957 60,445,716 8,669,581 73,336,599 50,475,729 291,345,582 ------Charge for the period 10,518,307 9,720,499 5,097,671 11,125,988 8,283,771 44,746,236 Written back on disposals (4,803,909) (1,625,901) (37,826) (2,940,615) (6,225,922) (15,634,173)

At 30 June 2008 104,132,355 68,540,314 13,729,426 81,521,972 52,533,578 320,457,645 ------

Net book value: At 30 June 2008 499,656,439 33,206,589 26,196,603 73,474,239 27,927,087 660,460,957

At 31 December 2007 447,484,993 18,646,400 16,578,343 66,525,963 32,841,507 582,077,206

74 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

11 INVESTMENT PROPERTIES 30 Jun. 2008 31 Dec. 2007 Cost: At 1 January 292,999,574 107,604,755 Transfer from completed properties for sale - 227,557,176

Disposals (148,403,497) (42,162,357) At balance sheet day 144,596,077 292,999,574 ------

Accumulated depreciation and impairment loss: At 1 January 15,908,999 50,625,631 Charge for the year 2,633,089 5,749,943

Written back on disposals (11,761,105) (40,466,575) At balance sheet day 6,780,983 15,908,999 ------

Net book value:

At balance sheet day 137,815,094 277,090,575

Investment properties comprise certain commercial properties that are leased to external parties. The Group, having regard to recent market transactions of similar properties in the same location as the Group’s investment properties, considered the estimated fair value of the investment properties to be RMB 246,390,540 (2007: RMB577,570,000). The Group leases out investment properties under operating leases. The leases typically run for an initial period of two to five years. None of the leases includes contingent rentals. The Group’s total future minimum lease incomes under non-cancellable operating leases are as follows: 30 Jun. 2008 31 Dec. 2007

Within 1 year 11,509,391 23,553,374 After 1 year but within 5 years 51,489,271 80,152,231

After 5 years 29,442,346 101,365,185

92,441,008 205,070,790

12 CONSTRUCTION IN PROGRESS 30 Jun. 2008 31 Dec. 2007

At 1 January 271,270,240 3,272,023 Additions 145,128,992 267,998,217 Transfer to property, plant and equipment (16,802,861) -

399,596,372 271,270,240

Construction in progress represents self-constructed office premises under construction.

75 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

13 PRINCIPAL SUBSIDIARIES Percentage of interest Place of held held by incorporation by the the held by a Principal Name of company and operation Paid in capital Group Company subsidiary activities Anshan Vanke Property Property Development Co., Ltd. Anshan USD5,172,700 100% - 100% development Anshan Vanke Property Property Management Company Limited Anshan RMB3,000,000 100% - 100% management Beijing Chaoyang Vanke Property Property Development Company Limited Beijing RMB200,000,000 60% 60% - development Enterprise Beijing Huayuhong Consultancy Management Company Limited Beijing RMB100,000 100% - 100% Consultancy Beijing Vanke Wonderland Real Estate Development Company Property Limited Beijing RMB10,000,000100% - 100% development Beijing Vanke Enterprises Property Shareholding Company Limited Beijing RMB1,000,000,000 100% 90% 10% development Beijing Vanke Haikai Real Estate Property Development Company Limited Beijing RMB10,000,000 100% - 100% development Beijing Vanke Property Company Property Limited Beijing USD2,760,000100% - 100% development Beijing Vanke Property Property Management Company Limited Beijing RMB5,000,000 100% - 100% management Beijing Vanke Zhongliang Jiarifengjing Real Estate Development Company Limited Property (note(i)) Beijing RMB830,000,000 50% - 50% development Beijing Wanxin Investment Development Company Limited Beijing RMB30,000,000 60% - 60% Investment Changchun Vanke Real Estate Property Company Limited Changchun RMB50,000,000 100% 95% 5% development Changchun Wanrun Real Estate Property Company Limited Changchun RMB10,000,000 100% - 100% development Changchun Vanke Property Property Management Company Limited Changchun RMB3,000,000 100% - 100% management Changsha Hongcheng Real Estate Property Development Company Limited Changsha RMB20,000,000 80% - 80% development Changsha Vanke Property Property Management Company Limited Changsha RMB5,000,000 100% - 100% management Changsha Vanke Real Estate Property Company Limited Changsha RMB20,000,000 100% - 100% development Chengdu Vanke Bei Fu Property Property Company Limited Chengdu RMB10,000,000 90% - 90% development Chengdu Vanke Chenghua Property Property Company Limited Chengdu USD75,142,857 100% - 100% development Chengdu Vanke Guanghua Property Property Company Limited Chengdu USD66,000,000 100% - 100% development Chengdu Vanke Guobin Property Property Company Limited Chengdu USD140,000,000 60% - 60% development Chengdu Vanke Jinjiang Property Property Company Limited Chengdu RMB10,000,000 100% - 100% development Chengdu Vanke Property Property Development Company Limited Chengdu USD12,100,000 60% - 60% development Chengdu Vanke Property Property Management Company Limited Chengdu RMB5,000,000 100% - 100% management Chengdu Vanke Real Estate Property Company Limited Chengdu RMB80,000,000 100% 90% 10% development Vanke (Chongqing) Real Estate Property Company Limited Chongqing RMB80,000,000 100% 100% - development Dalian Vanke City Real Property Property Company Limited Dalian USD42,000,000 55% - 55% development

76 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

13 PRINCIPAL SUBSIDIARIES (CONTINUED) Percentage of interest

Place of held held by incorporation by the the held by a Principal Name of company and operation Paid in capital Group Company subsidiary activities Dalian Vanke Jinxiu Flower City Property Development Company Limited Dalian RMB70,000,000 100% 65% 35% development Dalian Vanke Real Estate Property Development Company Limited Dalian RMB32,000,000 100% 5% 95% development Dalian Vanke Property Property Management Company Limited Dalian RMB500,000 100% - 100% management Dongguan Songshanju Property Property Company Limited Dongguan RMB10,000,000 100% - 100% development Dongguan Vanke Sunshine Real Property Estate Company Limited Dongguan RMB25,000,000 100% - 100% development Dongguan Vanke Construction Construction Research Company Limited Dongguan RMB20,000,000 100% 100% - research Dongguan Vanke Property Property Company Limited(note(i)) Dongguan RMB10,000,000 50% - 50% development Dongguan Vanke Real Estate Property Company Limited Dongguan RMB20,000,000 100% - 100% development Dongguan Xintong Property Investment Company Limited Property (note(i)) Dongguan RMB10,000,00039% - 39% development Dongguan Xinwan Property Property Development Company Limited Dongguan RMB10,000,000 51% - 51% development Dongguan New Century Mingshangju Commercial Real Estate Development Company Property Limited Dongguan RMB1,000,00051% - 51% development Dongguan Songhuju Property Property Company Limited Dongguan RMB10,000,000 100% - 100% development Dongguan Vanke Property Property Management Company Limited Dongguan RMB3,000,000 100% - 100% management Foshan Vanke Property Property Management Company Limited Foshan RMB3,000,000 100% - 100% management Foshan Shunde District Vanke Property Property Company Limited Foshan RMB10,000,000 100% - 100% development Foshan Vanke Investment Property Company Limited Foshan RMB10,000,000 100% - 100% development Foshan Vanke Property Company Property Limited Foshan RMB20,000,000 100% - 100% development Foshan Vanke Real Estate Property Company Limited Foshan RMB80,000,000 100% - 100% development Foshan Nanhai District Jinyuhuating Propoerty Property Company Limited Foshan USD44,000,000 55% - 55% development Fuzhou Vanke Real Estate Property Company Limited Fuzhou RMB20,000,000 100% 40% 60% development Guangzhou Fusheng Decoration Decoration and Engineering Company Limited Guangzhou RMB10,000,000 100% - 100% Design Guangzhou Pengwan Property Property Company Limited (note(i)) Guangzhou RMB200,000,000 50% - 50% development Guangzhou Vanke Duhua Real Property Estate Company Limited Guangzhou RMB10,000,000 100% - 100% development Guangzhou Vanke Property Property Company Limited Guangzhou RMB30,000,000 100% - 100% development Guangzhou Vanke Property Property Management Company Limited Guangzhou RMB5,000,000 100% - 100% management Guangzhou Vanke Real Estate Property Company Limited Guangzhou RMB50,000,000 100% 90% 10% development Guangzhou Vanke Star Property Property Company Limited (note(i)) Guangzhou USD18,600,000 50% - 50% development

77 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

13 PRINCIPAL SUBSIDIARIES (CONTINUED) Percentage of interest

Place of held held by incorporation by the the held by a Principal Name of company and operation Paid in capital Group Company subsidiary activities Guangzhou Vanke Suidong Real Property Estate Company Limited Guangzhou RMB10,000,000 100% - 100% development Guangzhou Wanxin Property Property Company Limited Guangzhou HKD760,000,000 100% - 100% development Top Glory International Property Property (Guangzhou) Company Limited Guangzhou HKD85,550,000 100% - 100% development Hainan Fuchun East Company Property Limited Hainan RMB20,000,000100% - 100% development Hangzhou Vanke Property Property Management Company Limited Hangzhou RMB2,000,000 100% - 100% management Hangzhou Bailuwan Holiday Hotel Hotel Company Limited Hangzhou RMB10,000,000 100% - 100% Investment Hangzhou Vanke Property Property Company Limited Hangzhou RMB320,000,000 100% - 100% development Hangzhou Vanke Rongda Real Property Estate Company Limited Hangzhou RMB30,000,000 55% - 55% development Hangzhou Yuhang Xindu Real Estate Development Company Property Limited Hangzhou RMB20,000,000100% - 100% development Hangzhou Qianjiangwan Gargen Property Company Limited Hangzhou RMB57,000,000 90% - 90% development Zhejiang Nandu Property Group Property Company Limited Hangzhou RMB300,000,000 100% - 100% development Zhejiang Vanke Nandu Real Estate Property Company Limited Hangzhou RMB150,000,000 100% - 100% development Hangzhou Changyuan Tourist Development Company Limited Hangzhou RMB90,000,000 100% - 100% Tourism Hangzhou Liangzhu Culture Town Property Development Company Limited Hangzhou RMB30,000,000 100% - 100% development Hangzhou Linlu Real Estate Property Development Company Limited Hangzhou RMB170,000,000 100% - 100% development Hangzhou Nandu Yousheng Real Estate Development Company Property Limited Hangzhou RMB10,000,00060% - 60% development Hangzhou Wankun Property Property Development Company Limited Hangzhou RMB350,000,000 51% - 51% development Hangzhou Yindu Property Property Company Limited Hangzhou RMB20,000,000 100% - 100% development Hefei Vanke Property Company Property Limited Hefei RMB20,000,000 100% 100% - development Tander China Investment Company Limited Hong Kong HKD50,000 100% - 100% Investment Euston Capital Limited Hong Kong HKD1,000 100% - 100% Investment Ample Gain Capital Ltd Hong Kong HKD1,000 100% - 100% Investment Vanke Real Estate (Hong Kong) Company Limited Hong Kong HKD15,600,000 100% 80% 20% Investment Vanke Property (Hong Kong) Company Limited Hong Kong USD9,500,000 100% - 100% Investment Huizhou Liwan Real Estate Property Company Limited Huizhou RMB10,000,000 67% - 67% development Huizhou Vanke Property Company Property Limited Huizhou RMB10,000,000 100% - 100% development Huizhou Vanke Real Estate Property Company Limited Huizhou RMB10,000,000 100% - 100% development Jiangxi Vanke Yida Property Property Management Company Limited Jiangxi RMB1,000,000 90% - 90% management

78 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

13 PRINCIPAL SUBSIDIARIES (CONTINUED) Percentage of interest

Place of held held by incorporation by the the held by a Principal Name of company and operation Paid in capital Group Company subsidiary activities Jiangxi Vanke Qingshanhu Real Estate Development Company Property Limited (note(i)) Jiangxi RMB20,000,000 50% 50% - development Jiangxi Vanke Yida Property Development Company Limited Property (note (i)) Jiangxi RMB20,000,000 50% 50% - development Kunshan Jiahua Investment Company Limited Kunshan RMB50,000,000 85% - 85% Investment Nanjing Vanke Property Property Management Company Limited Nanjing RMB3,000,000 100% - 100% management Nanjing Hengyue Property Property Company Limited (note(i)) Nanjing RMB10,000,000 100% - 100% development Nanjing Jinyu Blue Property Property Company Limited Nanjing RMB90,000,000 100% - 100% development Nanjing Vanke Property Company Property Limited Nanjing RMB150,000,000 100% - 100% development Nanjing Yunjie Real Estate Property Development Company Limited Nanjing RMB10,000,000 100% - 100% development Nanjing Fuchun East Real Estate Property Devalopment Company Limited Nanjing USD2,000,000 90% - 90% development Nanjing Hengbang Real Eatate Property Development Company Limited Nanjing USD2,000,000 90% - 90% development Ningbo Jinsheng Property Property Company Limited Ningbo RMB20,000,000 75% - 75% development Ningbo Vanke Property Property Management Company Limited Ningbo RMB3,000,000 100% - 100% management Ningbo Vanke Real Estate Property Company Limited Ningbo RMB150,000,000 100% - 100% development Qingdao Da Shan Real Estate Property Development Company Limited Qingdao RMB100,000,000 60% - 60% development Qingdao Hao Ren Property Property Company Limited Qingdao USD18,680,000 55% - 55% development Qingdao Vanke Real Estate Property Company Limited Qingdao RMB20,000,000 100% 100% - development Qingdao Vanke Yinshengtai Real Property Estate Development Co., Ltd Qingdao RMB100,000,000 80% 80% - development Shanghai Blue Mountain Property Property Company Limited Shanghai RMB10,000,000 100% - 100% development Shanghai Boxuan Decoration Decoration and Engineering Company Limited Shanghai RMB5,000,000 100% - 100% Design Shanghai Hongjun Property Property Management Company Limited Shanghai RMB5,000,000 100% - 100% Management Shanghai Jiaminglvhua Decoration Decoration and Engineering Company Limited. Shanghai RMB2,000,000 100% - 100% Design Shanghai Jinchuan Property Property Development Company Limited Shanghai RMB100,000,000 100% - 100% development Shanghai Jinhua Property Property Development Company Limited Shanghai RMB100,000,000 100% - 100% development Shanghai Junke Investment Management Company Limited Shanghai RMB350,000,000 100% - 100% Investment Investment Shanghai Liantu Investment trading and Management and Consultancy Consultancy Company Limited Shanghai RMB1,000,000 90% - 90% services Shanghai Luolian Property Property Company Limited. Shanghai RMB470,000,000 100% - 100% development Shanghai Meilanhuafu Property Property Company Limited Shanghai RMB700,000,000 100% - 100% development

79 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

13 PRINCIPAL SUBSIDIARIES (CONTINUED) Percentage of interest Place of held held by incorporation by the the held by a Principal Name of company and operation Paid in capital Group Company subsidiary activities Shanghai Vanke Investment Property Management Company Limited Shanghai RMB204,090,000 100% 100% - development Shanghai Tianyi Property Property Development Company Limited Shanghai RMB50,000,000 90% - 90% development Shanghai Vanke Baobei Property Property Company Limited Shanghai RMB10,000,000 100% - 100% development Shanghai Vanke Baonan Property Property Company Limited Shanghai RMB10,000,000 100% - 100% development Shanghai Vanke Baoshan Property Property Company Limited Shanghai RMB50,000,000 100% - 100% development Shanghai Vanke Hengda Property Property Shareholding Company Limited Shanghai RMB141,348,200 100% - 100% development Shanghai Vanke Property Property Management Company Limited Shanghai RMB15,000,000 100% - 100% management Shanghai Vanke Pudong Property Property Company Limited Shanghai RMB160,000,000 100% - 100% development Shanghai Vanke Rancho Property Property Company Limited Shanghai RMB193,940,000 75% - 75% development Shanghai Vanke Real Estate Property Company Limited Shanghai RMB800,000,000 100% - 100% development Shanghai Vanke Xiangnan Property Property Company Limited Shanghai RMB10,000,000 100% - 100% development Shanghai Vanke Zhongshi Property Property Company Limited (note(i)) Shanghai RMB20,000,000 50% - 50% development Shanghai Xiangda Real Estate RMB1,320,000,0 Property Development Company Limited Shanghai 00 100% - 100% development Shanghai Zhonglin Property Property Development Company Limited Shanghai RMB20,000,000 100% - 100% development Shanghai Vanke Changning Property Property Company Limited Shanghai RMB30,000,000 100% - 100% development Shanghai Vanke Xunhui Property Property Company Limited Shanghai RMB15,000,000 100% - 100% development Shanghai Landa Property Company Property Limited Shanghai RMB10,000,000 100% - 100% development Shanghai Dijie Property Company Property Limited Shanghai RMB20,000,000 50% - 50% development Shenyang East Property Property Development Company Limited Shenyang RMB10,000,000 80% - 80% development Shenyang Vanke Property Property Development Company Limited Shenyang RMB10,000,000 75% - 75% development Shenyang Vanke City Garden Property Development Company Limited Shenyang RMB12,000,000 100% - 100% development Shenyang Vanke Hunnan Real Property Estate Company Limited Shenyang RMB10,000,000 100% - 100% development Shenyang Vanke Property Property Management Company Limited Shenyang RMB10,000,000 100% - 100% management Shenyang Vanke Real Estate Property Development Company Limited Shenyang RMB100,000,000 100% 95% 5% development Shenyang Vanke Wonderland Property Company Limited Shenyang RMB10,000,000 100% - 100% development Shenyang Vanke Xinshu Property Property Company Limited Shenyang USD15,800,000 100% - 100% development Shenyang Zhengdayongfeng Real Estate Development Company Property Limited Shenyang RMB8,000,000 100% - 100% development

80 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

13 PRINCIPAL SUBSIDIARIES (CONTINUED) Percentage of interest Place of held held by incorporation by the the held by a Principal Name of company and operation Paid in capital Group Company subsidiary activities Decoration and Design, Enginerring, Guangdong Shangcheng Property Construction Company Limited Shenzhen RMB20,000,000 100% - 100% development Shenzhen Daolin Investment Property Development Company Limited Shenzhen RMB20,000,000 98% - 98% development Shenzhen East Xinyue Property Property Company Limited Shenzhen RMB10,000,000 100% - 100% development Shenzhen East Zunyu Real Estate Property Company Limited Shenzhen RMB10,000,000 100% - 100% development Shenzhen Fuchun East (Group) Property Company Limited Shenzhen RMB14,600,000 90% - 90% development Shenzhen Fuchun East Real Estate Property Company Limited Shenzhen RMB158,000,000 100% - 100% development Shenzhen Hengda Property Property Company Limited Shenzhen RMB96,375,000 100% - 100% development Shenzhen Longcheer Yacht Club Company Limited Shenzhen RMB57,100,000 100% - 100% Club Service Shenzhen Vanke City Real Estate Property Development Company Limited Shenzhen USD12,100,000 100% - 100% development Shenzhen Vanke City Scenery Property Property Company Limited Shenzhen RMB120,000,000 100% - 100% development Shenzhen Vanke East Coast Property Development Company Property Limited Shenzhen RMB10,000,000100% - 100% development Shenzhen Vanke Real Estate Property Company Limited Shenzhen RMB600,000,000 100% 95% 5% development Shenzhen Vanke East Coast Real Estate Development Company Property Limited Shenzhen RMB10,000,000100% - 100% development Shenzhen Vanke Fifth Garden Property Company Limited Shenzhen RMB200,000,000 100% - 100% development Investment trading and Shenzhen Vanke Financial Consultancy Consultancy Company Limited Shenzhen RMB15,000,000 100% 95% 5% services Shenzhen Vanke Hengfeng Real Property Estate Company Limited Shenzhen RMB51,871,586 55% - 55% development Shenzhen Vanke Huayu Garden Real Estate Development Property Company Limited Shenzhen RMB95,909,045 60% - 60% development Shenzhen Vanke Jiuzhou Property Property Company Limited Shenzhen RMB10,000,000 90% - 90% development Shenzhen Vanke Nancheng Real Property Estate Company Limited Shenzhen RMB10,000,000 90% - 90% development Shenzhen Vanke New City Property Property Company Limited Shenzhen USD6,250,000 100% - 100% development Shenzhen Vanke Property Property Company Limited Shenzhen RMB80,000,000 100% - 100% development Shenzhen Vanke Property Property Management Company Limited Shenzhen RMB10,000,000 100% 95% 5% management Shenzhen Vanke Xingye Property Property Company Limited Shenzhen RMB62,413,230 100% - 100% development Shenzhen Vanke Xizhigu Real Property Estate Company Limited Shenzhen RMB10,000,000 60% - 60% development Shenzhen Wanzhuang Decoration Decoration Engineering Company Limited Shenzhen RMB10,000,000 100% - 100% and Design Shenzhen Yili Real Estate Property Development Company Limited Shenzhen RMB39,000,000 57% - 57% development

81 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008 13 PRINCIPAL SUBSIDIARIES (CONTINUED) Perce Place of ntage incorporatio of Place of n and intere Principal Name of incorporation Name of company operation Paid in capital st activities company and operation Wanxuan Property (Shenzhen) Property Company Limited Shenzhen USD10,000,000 90% - 90% development Shenzhen Fuchun East Hotel Hotel Company Limited Shenzhen RMB1,000,000 100% 0% 100% Investment Suzhou Huihua Investment and Property Property Company Limited Suzhou RMB355,000,000 51% - 51% development Suzhou Nandu Jianwu Company Property Limited Suzhou RMB300,000,000 70% - 70% development Suzhou Vanke Property Company Property Limited Suzhou USD42,500,000 55% - 55% development Jiangsu Sunan Vanke Real Estate Property Company Limited Suzhou RMB30,000,000 100% - 100% development Suzhou Vanke Zhongliang Property Property Company Limited Suzhou RMB230,000,000 51% - 51% development Tianjin Binhai Fashion Property Property Company Limited Tianjin RMB160,000,000 69% - 69% development Decoration,La Tianjin Shangmei Landscape and ndscape,Engin Decoration Engineering eering and Company Limited. Tianjin RMB5,000,000 100% - 100% Design Tianjin Vanke Property Property Management Company Limited Tianjin RMB10,000,000 100% - 100% management Tianjin Vanke Real Estate Property Company Limited Tianjin RMB390,000,000 100% 15% 85% development Tianjin Vanke Xingye Property Development Company Limited Tianjin RMB60,000,000 100% - 100% development Tianjin Vanke Xinhu Property Property Company Limited Tianjin RMB17,000,000 100% 75% 25% development Tianjin Vanke Xinlicheng Property Company Limited Tianjin RMB230,000,000 55% - 55% development Tianjin Vanke Xinrui Real Estate Property Company Limited Tianjin RMB120,000,000 100% - 100% development Tianjin Wanbin Real Estate Property Development Company Limited Tianjin RMB140,000,000 100% - 100% development Tianjin Wanfu Investment Company Limited Tianjin RMB10,000,000 100% - 100% Investment Decoration,En Tianjin Wanju Decoration gineering and Engineering Company Limited Tianjin RMB2,000,000 100% - 100% Design Tianjin Wansheng Investment Company Limited Tianjin RMB80,000,000 100% - 100% Investment Tianjin Wantai Fashion Property Property Company Limited Tianjin RMB200,000,000 96% - 96% development Tianjin Wanzhu Investment Company Limited Tianjin RMB20,000,000 100% - 100% Investment Tianjin Xinfeng Time Investment Company Limited Tianjin RMB10,000,000 80% - 80% Investment Tianjin Xinghai Real Estate Property Development Company Limited Tianjin RMB15,000,000 55% - 55% development Tianjin Zhongtian Wanfang Investment Company Limited Tianjin RMB20,000,000 100% - 100% Investment Wuhan Guohao Property Company Property Limited Wuhan RMB10,000,00055% - 55% development Wuhan Vanke Property Property Management Company Limited Wuhan RMB12,000,000 100% - 100% management Wuhan Vanke Qinganju Real Estate Property Company Limited Wuhan RMB100,000,000 80% - 80% development Wuhan Vanke Real Estate Property Company Limited Wuhan RMB150,000,000 100% 95% 5% development

82 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008 13 PRINCIPAL SUBSIDIARIES (CONTINUED) Perce Place of ntage incorporatio of Place of n and intere Principal Name of incorporation Name of company operation Paid in capital st activities company and operation Wuhan Vanke Tiancheng Real Property Estate Co., Ltd Wuhan USD12,100,000 55% - 55% development Wuhan Vanke Tianrun Real Estate Property Company Limited Wuhan USD57,600,000 100% - 100% development Wuhan Xinbao Property Property Management Company Limited Wuhan RMB500,000 100% - 100% management Wuxi Dingan Real Estate Company Property Limited Wuxi RMB10,000,000 100% - 100% development Wuxi East City Investment Management Company Limited Wuxi USD49,800,000 55% - 55% Investment Wuxi Vanke Property management Property Company Limited Wuxi RMB3,000,000 100% - 100% management Wuxi Vanke Real Estate Company Property Limited Wuxi RMB300,000,000 60% 60% - development Wuxi Vansheng Real Estate Property Development Company Limited Wuxi USD49,200,000 55% - 55% development Wuxi Xinvan Real Estate Company Property Limited Wuxi RMB126,000,000 70% - 70% development Xiamen Vanke Real Estate Property Company Limited Xiamen RMB20,000,000 100% - 100% development Xiamen Hengbang Real Estate Property Development Company Limited Xiamen RMB50,000,000 100% - 100% development Xiamen Fuchun East Real Estate Property Devalopment Company Limited Xiamen RMB10,000,000 100% - 100% development Xiamen Vanke Star Property Property Company Limited Xiamen USD2,333,000 55% - 55% development Xiamen Vanke Property Property Management Company Limited Xiamen RMB3,000,000 100% - 100% management Xi'an Vanke Cheng'nan Property Property Company Limited Xi'an RMB10,000,000 100% - 100% development Xi'an Vanke Real Estate Company Property Limited Xi'an RMB20,000,000100% 100% - development Zhenjiang Rundu Property Property Company Limited Zhenjiang RMB10,000,000 100% - 100% development Zhenjiang Runnan Property Property Company Limited Zhenjiang RMB50,000,000 100% - 100% development Zhenjiang Runqiao Property Property Company Limited Zhenjiang RMB10,000,000 100% - 100% development Zhenjiang Runzhong Property Property Company Limited Zhenjiang RMB10,000,000 100% - 100% development Zhongshan Vanke Real Estate Property Company Limited Zhongshan USD12,000,000 100% - 100% development Zhuhai Vanke Property Property Management Company Limited Zhuhai RMB3,000,000 100% - 100% management Zhuhai Vanke Real Estate Property Company Limited Zhuhai RMB10,000,000 100% - 100% development Zhuhai Zhubin Property Property Development Company Limited Zhuhai RMB109,000,000 100% - 100% development Zhuhai Wanmao Investment and Property Consultancy Company Limited Zhuhai USD33,400,000 55% - 55% development

Note (i): The directors consider these entities as subsidiaries of the Group as the Group has the power to govern the financial and operating policies of these entities.

83 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

14 INTEREST IN ASSOCIATES Details of the Group’s principal associates at 30 June 2008 are as follows: Group's held by the Group Principal Net Profit/ effective Percentage Percentage Name of company of voting activities assets Revenue (loss) interest of interest rights Dongguan Vanke Property Company Property Limited 20% 20% development 82,786,449 10,713,927 (9,587,882 ) 16,557,290 Changsha Orient City Real Estate Property - 3,724,024 Company Limited 20% 20% development 9,965,609 1,993,121 Shanghai Zhongfangbinjiang Real Property 202,409,389 - 2,735 Estate Company Limited 25% 25% management 50,602,347 Shanghai Wansheng Real Estate Property - - Company Limited 50% 50% development 13,085,704 6,542,852 Hangzhou Xingchen Real Estate Property Company Limited 20% 20% development 134,924,056 60,266,784 21,832,798 6,362,770 Beihai Wanda Real Estate Company Property - - Limited 40% 40% development (2,335,874) 33,500 (736,420) Beijing Vanke Consultancy Company - (13,352) Limited 20% 20% Consultancy 86,648 17,330 Beijing Jinyu Vanke Real Estate Property - Company Limited 49% 40% development 88,197,122 (10,871,968 ) 43,216,590 Chengdu Yihang Vanke Binjiang Property - Real Estate Company Limited 15% 49% development 49,250,410 (745,664) 7,132,701 Wuhan Golf City Garden Real Estate Property Company Limited (note (i)) 15% 49% development 282,941,885 89,392,970 16,078,434 68,492,974 Shanghai Nandu White Horse Real Property Estate Company Limited (note (i)) 15% 49% development 222,822,261 75,279,640 (2,699,951) 66,405,462 Suzhou Yihang Vanke Changfeng

Real Estate Company Limited Property - - 200,000,000 43,200,000 (note(i)) 21.60% 49% development Shenyang Vanke Yucheng Real Property - Estate Company Limited 20% 40% development 68,892,867 (2,815,149) 13,778,574 Shenyang Vanke Hunnan Jinyu Real Property - (546,282) Estate Company Limited 30% 30% development 919,217,898 306,592,193 Shenyang Vanke Jinyu Lanwan Real Property - Estate Company Limited 30% 30% development 520,265,535 (64,465) 173,430,660 Hefei Yihang Vanke Real Estate Property - Company Limited (note (i)) 50% 29.60% development 101,005,350 (195,058) 29,796,675 All the above companies’ country of establishment and operation is the PRC.

15 INTEREST IN JOINTLY CONTROLLED ENTITIES

Details of the Group’s principal jointly controlled entities at 30 June 2008 are as follows: Group's held by the Group Principal Net Profit/ effective Percentage Percentage of voting Name of company of interest rights activities assets Revenue (loss) interest Shenyang Yong Da Property Property 289,345,898 135,608,853 23,032,457 141,779,490 Company Limited 49% 50% development Shenyang Vanke Shengbao 1,025,176 - (23,587) 484,926 Consultancy Company Limted 20% 50% Consultancy Hangzhou Song City Property Property 623,925,988 233,286,355 69,016,034 352,608,513 Company Limited 50% 50% development Yihang Vanke Company Property 994,474,171 4,694,020 (4,504,159) 397,789,668 Limited 40% 50% development Shanghai Jialai Real Estate Property 236,734,390 - (567,564) 115,999,850 Development Company Limited 49% 50% development Wuhan Wangjiadun Morden City Real Estate Company Property - - - 263,960,068 Limited 90% 50% development All the above companies’ country of establishment and operation is the PRC.

84 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

16 OTHER FINANCIAL ASSETS 30 Jun. 2008 31 Dec. 2007 Available-for-sale securities in the PRC

Equity securities - Unlisted at cost less impairment losses 88,491,477 80,652,742 - Listed in the PRC, at fair value 111,020,659 191,693,489

Debt securities - Unlisted at cost less impairment losses 288,977,260 297,150,625

488,489,396 569,496,856

17 DEFERRED TAX ASSETS/LIABILITIES

(a) Deferred tax assets

Deferred tax assets are attributable to the items detailed as follows:

30 Jun. 2008 31 Dec. 2007

Tax losses 126,699,360 72,839,572 Impairment loss of trade and other receivables 11,911,166 17,878,224 Land Appreciation Tax 634,788,854 448,132,382 Accruals for construction cost 114,172,806 40,794,813

Others 36,248,320 24,412,428

923,820,506 604,057,419

Movements in deferred tax assets: 30 Jun. 2008 31 Dec. 2007

At 1 January 604,057,419 233,532,009 Transferred to consolidated income statement 319,763,087 370,525,410

At balance sheet day 923,820,506 604,057,419

85 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

17 DEFERRED TAX ASSETS/LIABILITIES(CONTINUED)

(b) Deferred tax liabilities

Deferred tax liabilities are attributable to the items detailed as follows:

30 Jun. 2008 31 Dec. 2007 Fair value adjustments on available-for-sale securities 15,369,033 29,652,390 Fair value adjustments arising from business combinations 1,419,533,664 1,537,408,063

1,434,902,697 1,567,060,453

Movements in deferred tax liabilities: 30 Jun. 2008 31 Dec. 2007

At 1 January 1,567,060,453 1,292,534,798 Recognized in equity (note 7(b)) (14,102,360) 21,981,456 Arising from business combinations - 586,748,704 Effect of change of tax rate (26,425,446) - Transfer out upon disposals of subsidiaries - (105,209,510) Transferred to consolidated income statement (91,629,950) (228,994,995)

At balance sheet day 1,434,902,697 1,567,060,453

18 INVENTORIES 30 Jun. 2008 31 Dec. 2007

Raw materials 62,702,279 51,135,271 Finished goods 15,611,955 12,613,487

78,314,234 63,748,758

Inventories recognized as cost of sales for the period 6,894,675 6,783,183

86 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

19 PROPERTIES HELD FOR DEVELOPMENT/PROPERTIES UNDER DEVELOPMENT/COMPLETED PROPERTIES FOR SALE

The analysis of carrying value of land held for property development for sale is as follows:

30 Jun. 2008 31 Dec. 2007

With lease term of 50 years or more 48,058,483,708 40,531,359,746 With lease term of less than 50 years 2,811,806,802 1,936,608,577

50,870,290,510 42,467,968,323

20 TRADE AND OTHER RECEIVABLES 30 Jun. 2008 31 Dec. 2007

Debtors and other receivables 2,922,915,280 2,349,890,069 Less: allowance for doubtful debts (113,739,804) (104,140,223)

2,809,175,476 2,245,749,846 ------Amount due from associates and jointly controlled entities 1,221,871,419 1,384,754,138 Less: allowance for doubtful debts (1,732,521) (1,564,102)

1,220,138,898 1,383,190,036 ------Prepaid taxes 1,005,170,681 581,894,379 ------Deposits and prepayments 5,825,281,328 8,284,197,850 ------

10,859,766,383 12,495,032,111

Note: The Group’s credit policy is set out in note 32(b).

Apart from the amounts due from associates of RMB 365,077,568 (2007: RMB412,485,921) which are interest bearing at market interest rate, amounts due from associates and jointly controlled entities are interest free, unsecured and have no fixed terms of repayment. The interest income received from associates during the period amounted to RMB 15,926,365 (2007: RMB11,087,555). Deposits and prepayments mainly represented tendering deposits for acquisitions of land and prepayment for land and development costs of projects undertaken by the Group.

87 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

21 CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand and balance with banks. The balance includes deposits with banks of RMB14, 732,391 (2007: RMB9, 913,831) with restriction for designated purposes. Included in cash and cash equivalents are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

30 June 2008 31 December 2007 United States Dollars US$74,622,421 US$85,583,066 Hong Kong Dollars HK$7,350,208 HK$12,061,299 Jananese Yen ¥380,267 ¥173,596 Euro € 836 € 836 Australian Dollars AUD 3,186 AUD 3,186

22 SHARE CAPITAL 30 June 2008 31 December 2007 Number of Nominal Number of Nominal shares value shares value Registered, issued and fully paid: A shares of RMB1 each 9,680,254,750 9,680,254,750 6,050,159,219 6,050,159,219 B shares of RMB1 each 1,314,955,468 1,314,955,468 821,847,168 821,847,168

10,995,210,218 10,995,210,218 6,872,006,387 6,872,006,387

The holders of A and B share are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company.

A summary of the movements in the Company’s share capital during the period is as follows:

Issued share capital A shares B shares Total

At 1 January 2007 3,822,000,639 547,898,112 4,369,898,751 Issue of shares upon placing 317,158,261 - 317,158,261 Capitalisation of share premium (note 23 (a)) 1,911,000,319 273,949,056 2,184,949,375

At 31 December 2007 6,050,159,219 821,847,168 6,872,006,387

At 1 January 2008 6,050,159,219 821,847,168 6,872,006,387 Capitalisation of share premium (note 23 (a)) 3,630,095,531 493,108,300 4,123,203,831

At 30 June 2008 9,680,254,750 1,314,955,468 10,995,210,218

88 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008

23 RESERVES

Foreign share-based reserve arising exchange Statutory compensation Revaluation from stepped Retained Share premium reserve reserves reserve reserve acquisitions profits Total (note (a)) (note (b)) (note (c))

At 1 January 2008 12,949,848,236 147,798,941 5,395,470,156 453,690,000 134,801,554 (241,332,344) 4,032,906,217 22,873,182,760 Equity settled share- based transactions (note 2) - - - 308,476,380 - - - 308,476,380 Placing of A shares ------Share issuance costs ------Profit for the year ------2,061,055,712 2,061,055,712 Transfer from retained profits ------Adjustment on translation of foreign subsidiaries - 130,804,522 - - - - - 130,804,522 Fair value adjustments arising from stepped acquisitions of interest in subsidiaries ------Change in fair value of available-for-sale securities, - - - - (64,787,076) - - (64,787,076) Capitalisation of share premium (4,123,203,831) ------(4,123,203,831) Dividend declared-2007 (note 9) ------(687,200,638) (687,200,638) Reverse the dividends entitled to Employees’ Share Award Scheme (note 28) ------(9,794,665) (9,794,665) At 30 June 2008 8,826,644,405 278,603,463 5,395,470,156 762,166,380 70,014,478 (241,332,344) 5,396,966,626 20,488,533,164

89 China Vanke Co., Ltd. Financial statements for the year ended 30 June 2008 23 RESERVES (CONTINUED)

Employee Capital Foreign share-based reserve arising exchange Statutory compensation Revaluation from stepped Retained Share premium reserve reserves reserve reserve acquisitions profits Total (note (a)) (note (b)) (note (c)) )

At 1 January 2007 5,515,354,171 10,068,656 4,402,087,927 80,570,000 43,265,034 (178,732,940) 831,480,143 10,704,092,991 Equity settled share- based transactions (note 28) - - - 373,120,000 - - - 373,120,000 Placing of A shares 9,682,841,739 ------9,682,841,739 Share issuance costs (63,398,299) ------(63,398,299) Profit for the year ------4,844,235,494 4,844,235,494 Transfer from retained profits - - 993,382,229 - - - (993,382,229) - Adjustment on translation of foreign subsidiaries - 137,730,285 - - - - - 137,730,285 Fair value adjustments arising from stepped acquisitions of interest in subsidiaries - - - - - (62,599,404) - (62,599,404) Change in fair value of available-for-sale securities, net of deferred tax of RMB21,981,455 - - - - 91,536,520 - - 91,536,520 Capitalisation of share premium (2,184,949,375) ------(2,184,949,375) Dividend declared--2006 ------(655,484,812) (655,484,812) Dividend reinvested in the Employees’ Share Award Scheme (note 28) ------6,057,621 6,057,621

At 31 December 2007 12,949,848,236 147,798,941 5,395,470,156 453,690,000 134,801,554 (241,332,344) 4,032,906,217 22,873,182,760

90 China Vanke Co., Ltd. Financial statements for the period ended 30 June 2008

23 RESERVES (CONTINUED)

Notes:

(a) Share premium

During the period, the Company issued 4,123,203,831 shares with a par value of RMB1 each to all shareholders for every 1.60 shares held as recorded in the register of shareholders on 13 June 2008, upon capitalisation of share premium.

(b) Employee share-based compensation reserve The Company assesses the fair value of incentive plan of each year using the Monte Carlo Simulation method. The fundamental assumption of the assessment is that the change in stock price follows the Δs = μΔt +σε Δt Geometric Brownian Motion, s , of which: s is simulated initial stock price, μ is the expected return of the stock, σ is the volatility of stock price, ε is random sample from standard normal distribution. In the simulation, 10,000 future stock price tracks are created to calculate the closing price of comparative years, in order to determine the fair value of the incentive plan of different years. The evaluation report of the plan is as follows:

1) The fair value of the 2006 incentive fund and 2007 incentive fund amounted to RMB218,690,000.00 and RMB470,000,000.00 respectively. The incentive plans were amortized based on its fair value using the straight-line method during the waiting period (30 May 2006 to 31 December 2007 and 1 January 2007 to 31 December 2008) of the incentive plan. The amortisation amount was recognised as “administrative expenses” in the year 2006 and the year 2007, and was shown as a negative figure in the reserve for the stock incentive fund. The 2006 incentive plan had been fully amortised on 31 December 2007.

Parameters used in the evaluation of the 2007 incentive fund: Simulated initial stock price RMB 6.81 The expected return of the stock 51.06% Risk-free interest rate 4.5% The volatility of stock price 62.32%

2) During the reporting period, the Company made an advanced appropriation of RMB763,905,518.41 for the 2008 incentive fund. During the reporting period, the 2008 incentive fund was amortised based on the pre-appropriated amount using the straight-line method during the waiting period. The amortisation amount of RMB190,976,379.60 was recognised as the “administrative expenses” during the reporting period, and was shown in the item “capital surplus reserve — reserve for the stock incentive fund”. During the reporting period, the amortisation amount of 2007 incentive fund of RMB117,500,000.00 was recognised as the “administrative expenses” during the reporting period, and was shown in the item “capital surplus reserve — reserve for the stock incentive fund”

91 China Vanke Co., Ltd. Financial statements for the period ended 30 June 2008

23 RESERVES (CONTINUED)

Notes:

(b) Employee share-based compensation reserve(continued)

In conclusion, the total amortisation amount for the reporting period was RMB308,476,379.60, which was recognized as the “administrative expenses” during the reporting period, and was shown as a negative figure in “capital reserve — reserve for the stock incentive fund”.

Revaluation reserve comprises the cumulative net change in fair value of available-for-sale securities held at the balance sheet date and is dealt with in accordance with the accounting policy in note 2(g).

24 MINORITY INTERESTS 30 Jun. 2008 31 Dec. 2007

At 1 January 4,640,875,428 2,524,955,811 Profit attributable to minority interests for the year 245,614,358 473,265,324 Capital injections from minority interests of subsidiaries 316,529,750 2,018,703,898 Dividends paid to minority interests (63,439,074) (139,091,005) Minority interests arising from acquisitions of non-wholly owned subsidiaries 674,441,255 216,799,086 Acquisitions of minority interests (10,968,644) (453,757,686)

At balance sheet day 5,803,053,073 4,640,875,428

92 China Vanke Co., Ltd. Financial statements for the period ended 30 June 2008

25 INTEREST-BEARING BORROWINGS

This note provides information about the contractual terms of the Group’s interest-bearing borrowings. For more information about the Group’s exposure to interest rate and foreign exchange risks, please refer to note 32. 30 Jun. 2008 31 Dec. 2007 Non-current Secured - bank loans 2,219,854,949 1,387,163,655 ------

Unsecured - bank loans 7,277,422,379 7,687,026,185 - other borrowings 4,201,450,041 7,287,890,000

11,478,872,420 14,974,916,185 ------

13,698,727,369 16,362,079,840

Other borrowings represent: Proceeds 4,260,000,000 7,427,859,800 Transaction costs (58,549,959) (139,969,800)

4,201,450,041 7,287,890,000

Other borrowings represent interest bearing borrowings raised from third party lenders through trust companies at market interest rates. Transaction costs represented the costs for obtaining other borrowings except for the borrowing costs.

93 China Vanke Co., Ltd. Financial statements for the period ended 30 June 2008

25 INTEREST-BEARING BORROWINGS (CONTINUED)

At 30 June 2008, non-current bank loans and other borrowings were repayable as follows: 30 Jun. 2008 31 Dec. 2007

After 1 year but within 2 years 12,062,303,672 14,084,944,887 After 2 years but within 5 years 1,636,423,697 2,277,134,953

13,698,727,369 16,362,079,840

30 Jun. 2008 31 Dec. 2007 Current Secured -bank loans 98,000,000 69,600,000 -current portion of long term bank loans 310,000,000 536,939,550

408,000,000 606,539,550 ------Unsecured -bank loans 1,152,616,528 1,035,250,000 -current portion of long term bank loans 5,842,955,576 6,054,077,354 -current portion of long term other borrowings 3,459,195,312 897,660,000 -other borrowings 4,100,000,000 -

14,554,767,416 7,986,987,354 ------

14,962,767,416 8,593,526,904

94 China Vanke Co., Ltd. Financial statements for the period ended 30 June 2008

26 TRADE AND OTHER PAYABLES 30 Jun. 2008 31 Dec. 2007

Trade payable 10,315,114,902 11,755,718,066 Amounts due to associates 351,893,988 59,828,480 Amounts due to jointly controlled entities 504,282,618 303,411,587 Receipt in advance 26,453,686,006 21,622,747,401 Other payables and accrued expenses 5,912,249,762 3,486,912,140 Other taxes 88,512,087 17,810,352

43,625,739,363 37,246,428,026

All of the trade and other payables, except for RMB1, 717 million (2007: RMB355 million), are expected to be settled within one year.

27 PROVISIONS 30 Jun. 2008 31 Dec. 2007

Balance at 1 January 37,962,953 31,677,271 Provisions made during the period 2,424,868 8,118,984 Provisions used during the period (11,098) (1,833,302)

Balance at balance sheet day 40,376,723 37,962,953

The balance represents the estimated losses to be borne by the Group in relation to the property management projects.

95 China Vanke Co., Ltd. Year ended 31 December 2007

28 EMPLOYEES’ SHARE AWARD SCHEME Note 1: Phase One (2006-2008) of The Restricted Stock Incentive Plan of China Vanke Co., Ltd. (the “Incentive Plan”) was approved by the Annual General Meeting held on 30 May 2006. The Incentive Plan was carried out in three phases:

1) According to the Incentive Plan, the Company pre-appropriated RMB141,706,968.51 for the 2006 Incentive Fund in 2006, and the ultimate appropriation amount should be RMB215,463,931.52. As such, the Company made a supplementary appropriation of RMB73,756,963.01 in 2007.

2) According to the Incentive Plan, the Company pre-appropriated RMB241,282,949.52 for the 2007 Incentive Fund in 2007, and the ultimate appropriation amount should be RMB484,423,549.42. As such, the Company made a supplementary appropriation of 243,140,599.90 in 2008.

3) According to the Incentive Plan, the Company pre-appropriated RMB763,905,518.41 for the 2008 Incentive Fund in 2008.

The aggregate amount of the aforementioned is RMB1,463,792,999.35 and will be shown in the stock incentive trust fund. At the same time, the accumulative dividends of RMB9,794,664.45 distributed to the 2006 incentive fund and the 2007 incentive fund was managed by an independent trustee according to the requirements of the Incentive Plan. This amount will be transferred out of the “capital surplus reserve — reserve for the stock incentive trust fund”, thereby reducing the unappropriated profit.

According to the Incentive Plan, the Company appropriates for the incentive fund, and appoint a Trustee, who will operate on an independent basis, to use the aforesaid incentive fund to purchase the Company’s listed A shares and to transfer all the restricted shares to the accounts of the beneficiaries of the Incentive Plan upon fulfilment of the conditions.

The appropriation amount for the Incentive Fund for each year is calculated as follows: the amount of increase in net profit for the year will be the base, while the percentage for appropriation will be determined according to the net profit growth rate:

1. If the growth rate of net profit is less than 15 per cent, no appropriation will be made. 2. If the growth rate of net profit is more than 15 per cent but less than 30 per cent, the net profit growth rate will serve as the percentage for appropriation; 3. If the growth rate of net profit exceeds 30 per cent, 30 per cent will serve as the percentage for appropriation;

According to the above-mentioned appropriation method, the appropriation for the incentive fund should not exceed 10 per cent of the net profit for the given year. As such, the Company had appropriated 215,463,931.52 for the 2006 incentive plan and RMB484,423,549.42 for the 2007 incentive plan.

96 China Vanke Co., Ltd. Year ended 31 December 2007

28 EMPLOYEES’ SHARE AWARD SCHEME (CONTINUED)

According to the requirement of Item 3 of Provision 15 of the Incentive Plan: The “incentive fund appropriated according to the Incentive Plan will be shown in the cost of the Company in accordance with the relevant requirements of ‘Issue No. 2 Q&A regarding the regulation of information disclosure of IPO Companies – Appropriation of incentive fund for mid-level and senior management’ (Zhengjian Kuaiji Zi [2001] No. 15)”. As the incentive plan is intended to use stock as a consideration in return for the service of employees, the Company ensured that the incentive plan used the equity-settled share-based payment arrangement, and applied the ”Accounting Standards for Business Enterprises No. 11 – Share-based payments” for accounting treatment. On each balance sheet date within the waiting period, the services obtained in the given period shall, based on the best estimate of the number of vested equity instruments, be included in the relevant costs or expenses and the capital surplus reserves of the given period at the fair value of the equity instruments on the date of the grant.

Pursuant to the evaluation report of Phase One of the Incentive Plan, the fair value of the incentive fund of the 2006 and 2007 incentive plans was RMB218,690,000.00 and RMB470,000,000.00 respectively.

Pursuant to the incentive plan, the waiting period of the plan for each year is normally 2 years. The conditions for vesting are: if the average closing price (“annual average price”) of China Vanke A shares after ex-right price backward adjustment in the second year is higher than the first year’s annual average price, but the vesting conditions are not fulfilled, the plan will be postponed for one year. If the third year’s annual average price is higher than the annual average price of the first and second years, the beneficiary can still be able to exercise the right to vest. Otherwise, the trustee will dispose of the shares under the incentive plan of the given year at the beginning of the fourth year, and return to the Company the proceeds from the sale of the Shares.

The amount of advanced appropriation for the 2008 incentive fund during the reporting period was RMB763,905,518.41 and was amortized during the estimated waiting period. At the end of the year, the Company will adjust the amortisation amount based on its fair value.

97 China Vanke Co., Ltd. Year ended 31 December 2007

29 MATERIAL RELATED PARTY TRANSACTIONS

Associates (notes 14, 20, 26) Jointly controlled entities (notes 15, 20, 26)

30 COMMITMENTS

(a) Commitments outstanding at 30 June 2008 not provided for in the financial statements were as follows: 30 Jun. 2008 31 Dec. 2007

Contracted for /Authorised but not contracted for 20,819,840,459 14,046,463,000

Commitments mainly related to land and development costs for the Group’s properties under development.

(b) At 30 June 2008, the total future minimum lease payments under non-cancellable operating leases are payable as follows: 30 Jun. 2008 31 Dec.2007

Within 1 year 20,493,696 32,253,028 After 1 year but within 2 years 16,624,326 26,628,049 After 2 year but within 5 years 25,296,218 28,840,987 After 5 years 11,800,946 2,936,318

74,215,186 90,658,382

The Group is the lessee in respect of a number of properties held under operating leases. The leases typically run for an initial period of two to ten years. None of the leases includes contingent rentals.

98 China Vanke Co., Ltd. Year ended 31 December 2007

31 CONTINGENT LIABILITIES

As at the balance sheet date, the Group has issued guarantees to banks to secure the mortgage arrangement of property buyers. The outstanding guarantees to the banks amounted to RMB17,293 million (2007: RMB16,958 million), including guarantees of RMB16,744 million (2007: RMB16,297 million) which will be terminated upon the completion of the transfer procedures with the buyers in respect of the legal title of the properties, and guarantees of RMB549 million (2007: RMB661 million) which will be terminated upon full repayment of mortgage loans by buyers to the banks. The directors do not consider it probable that the Group will sustain a loss under these guarantees as the bank has the rights to sell the property and recover the outstanding loan balance from the sale proceeds if the property buyers default payment. The Group has not recognised any deferred income in respect of these guarantees as its fair value is considered to be minimal by the directors.

32 FINANCIAL RISK MANAGEMENT

Risks of interest rate, liquidity, currencies existed during the daily operation of the Group. The following financial management policies and practices have been adopted to control the aforementioned risks.

(a) Interest rate risk Interest rate risk of the Group was mostly associated with loans. Loans made at floating interest rate or fixed interest rate exposed the Company to cash flow-related interest rate risk and market risk in relation to fair value.

Assuming other things remained unchanged, as at 3 June 2008, if interest rate had gone up by 100 basis points, the Group’s profit after taxation would have been decreased by RMB102,077,260.16. (2007: RMB61,886,054.03)

The above-mentioned sensitivity analysis was made based on the assumption that interest rate would have changed on the date of balance sheet and such changes have been reflected in all the borrowings of the Group.

(b) Credit risk Credit risk of the Group came mostly from accounts receivable, other receivables, and other financial assets. The Group has formulated a corresponding credit policy and continued to monitor corresponding credit risk.

Credit risk in relation to accounts receivable is minimal, because the Group usually received full payments from purchasers at the time of transfer of property ownership.

Regarding other receivables, the Group continued to check and review possible recovery of such accounts. The management of the Group has taken into account the losses involving in bad debts and doubtful accounts.

99 China Vanke Co., Ltd. Year ended 31 December 2007

32 FINANCIAL RISK MANAGEMENT(CONTINUED)

(c) Liquidity risk The Group regularly reviewed its current and expected level of liquidity to see if it fulfilled the requirements of borrowing contracts, to ensure the Group had sufficient cash to meet the repayment terms as stipulated in the contracts of long and short term borrowings due to the Group’s major financial institutions.

The following table shows the maturity date of the Group’s non-derivative financial liabilities on the balance sheet date. The calculation was based on cash flow not yet discounted (including the amount of interest determined according to the interest rate stipulated in the contract. If it was a floating interest rate, the amount of interest has been calculated based on the balance sheet) and the Group’s earliest date of repayment.

30 June 2008 Book value Total value Within 1 year 1 to 2 years 2 to 5 years Borrowings 28,661,494,785.19 29,676,641,585.19 15,077,754,488.15 12,593,975,669.86 2,004,911,427.18 Accounts payable 18,983,618,929.24 18,983,618,929.24 17,347,949,637.75 1,320,313,563.92 315,355,727.57 Accounts payable due to associates and jointly 856,176,606.82 856,176,606.82 603,870,302.70 252,306,304.12 - controlled entities Other long-term 14,732,390.88 14,732,390.88 5,089,403.02 - 9,642,987.86 liabilities 31 December 2007 Book value Total value Within 1 year 1 to 2 years 2 to 5 years Borrowings 24,955,606,743.86 26,588,466,696.00 9,145,353,513.00 15,010,449,913.00 2,432,663,270.00 Accounts payable 17,537,125,267.38 17,537,125,267.38 17,182,125,267.38 355,000,000 - Accounts payable due to associates and jointly 365,669,238.00 365,669,238.00 365,669,238.00 - - controlled entities Other long-term 9,913,831.00 9,913,831.00 - - 9,913,831.00 liabilities

(d) Exchange rate risk

The currency exchange rate risk undertaken by the Group was mainly related to the borrowings denominated in Hong Kong dollars and US dollars. Except for the subsidiaries established in Hong Kong Special Administrative Region and other overseas countries whose transactions were made in local currencies, other major business activities of the Group were made in RMB currency.

100 China Vanke Co., Ltd. Year ended 31 December 2007

32 FINANCIAL RISK MANAGEMENT(CONTINUED)

(e) Sensitive analysis

Possible fluctuations in exchange rate will affect the Group’s profit after taxation and other components of the consolidated equity interest, which expose the Group to exchange risk on the balance sheet date. The following table shows the sensitivity analysis based on the consideration of only the balance of the Company’s savings and borrowings, and the assumption that variable factors (especially the interest rate) other than exchange rate remained unchanged. (For deposits and borrowings made in foreign currencies, please refer to Notes 5 and 24)

30 June 2008 31 December 2007

Effect on Effect on equity of equit Effect on operating Effect on equity of equity Percentage change to operating results holders results (after tax) holders RMB exchange rate (after tax)

US Dollars ±10% ∓136,523,622.4 ∓136,720,076.3 ∓144,745,272.0 ∓144,954,486.6 HK Dollars ±10% ∓21,759,658.5 ∓291,025,617.4 ∓35,522,658.2 ∓294,858,091.8

In order to contain the capital risk caused by the fluctuations in the floating exchange rate of the foreign currency-denominated borrowings, the Group had purchased non- deliverable forward (“NDF”) contracts. The above-mentioned sensitivity analysis already took into account the effects of NDF.

(f) Stock price risk Due to the existence of tradable equity investments, the Group was exposed to the risk of possible fluctuations in the stock prices (See Note 16). The Group monitored the operating results of the abovementioned investments on a regular basis.

101