Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

承德南江股份有限公司 CHENGDE NANJIANG CO．， LTD.

ANNUAL REPORT 2012

February 2013

1 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Section I. Important Notice, Contents and Paraphrase

Board of Directors, Supervisory Committee, all directors, supervisors and senior executives of Chengde Nanjiang Co., Ltd. (hereinafter referred to as the Company) hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents.

Li Weimin, Principal of the Company, Zhao Yongshen, person in charger of accounting works and Liu Fengguo, person in charge of accounting organ (accounting principal) hereby confirm that the Financial Report of 2012 Annual Report is authentic, accurate and complete. All directors are attended the Board Meeting for report deliberation. The Company has no plan of cash dividends carried out, bonus issued and capitalizing of common reserves either. Concerning the forward-looking statements with future planning involved in the Report, they do not constitute a substantial commitment for investors. Investors should be cautious with investment risks. Note: The report is prepared in bilingual versions of Chinese and English respectively, in the event of any discrepancy in understanding the two aforementioned versions, the Chinese version shall prevail.

2 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Contents

Annual Report 2012 ...... 1

Section I Important Notice, Contents and Paraphrase ...... 2

Section II Company Profile ...... 5

Section III Accounting data and summary of finnaical indexes ...... 7

Section IV Report of the Board of Directors ...... 10

Section V Important Events ...... 24

Section VI Changes in shares and particular about shareholders...... 29

Section VII Particulars about Directors, Supervisors,Senior Executives and Employees ...... 33

Section VIII Company Governance ...... 41

Section IX Internal Control ...... 46

Section X Financial Report ...... 48

Section XI Documents available for reference ...... 133

3 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Paraphrase

Items Refers to Contents

CSRC, SRC Refers to China Securities Regulatory Commission

SZ Stock Exchange, Exchange Refers to Shenzhen Stock Exchange

Company, The Company or Chengde Nanjiang Refers to Chengde Nanjiang Co., Ltd.

Nanjiang Investment Refers to Chengde Nanjiang Investment Co., Ltd.

RongYiDa Refers to Chengde RongYiDa Real Estate Development Co., Ltd.

Nanjiang Ecological Agriculture Refers to Chengde Nanjiang Ecological Agriculture Co., Ltd.

Company Law Refers to Company Law of the People‟s Republic of China

Securities Law Refers to Securities Law of the People‟s Republic of China

Rules Governing the Listing of Securities Refers to Rules Governing the Listing of Securities on Shenzhen Stock Exchange

The Article of Association approved after deliberation on 4th Article of Association Refers to extraordinary shareholders‟ general meeting of 2012 in August 2012

Yuan, 10 thousand Yuan Refers to RMB, RMB 10 thousand

Runhua RW, Tianjin Runhua RW Refers to Runhua Rural Water (Tianjin) International Trade Co., Ltd.

Material Assets Restructuring, the The Company acquires 30 percent equity of the Runhua Rural Water Refers to Restructuring (Tianjin) International Trade Co., Ltd. in cash

4 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Section II Company profile

I. Company information

Short form of the stock ST Nanjiang-B Stock code 200160

Stock exchange for listing Shenzhen Stock Exchange

Name of the Company (in 承德南江股份有限公司 Chinese)

Short form of the Company ST 南江 B (in Chinese)

Foreign name of the CHENGDE NANJIANG CO.,LTD Company(if applicable)

Short form of foreign name of NANJIANG-B the Company(if applicable)

Legal representative Li Weimin

Registrations add. XiaBanCheng Town, Chengde County, Hebei Province, P.R.C

Code for registrations add 067400

Offices add. XiaBanCheng Town, Chengde County, Hebei Province, P.R.C

Codes for office add. 067400

II. Person/Way to contact

Secretary of the Board Rep. of security affairs

Zhao Yongsheng (act on behalf of Name Secretary of the Board)

XiaBanCheng Town, Chengde County, Contact add. Hebei Province

Tel. 0314-3115048

Fax. 0314-3111475

III. Information disclosure and preparation place

Newspaper appointed for information disclosure In China: Securities Times; overseas: Hong Kong Commercial Daily

Website for annual report publish appointed by Juchao website: http://www.cninfo.com.cn CSRC

Preparation place for annual report Security department of the Company

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IV. Registration changes of the Company

Registration NO. for No. of taxation Date for registration Place for registration enterprise legal Organization code registration license

Hebei Administration for Initial registration 1999-11-03 1300001001372 1/1 130821106576876 106576876 Industry & Commerce

Chengde Registration at end Administration for 2011-08-23 130000400001225 130821106576876 106576876 of report period Industry & Commerce

Changes of main business since listing (if No changes applicable)

On 6 April 2012, the former controlling shareholder and actual controller Mr. Chen Rong entered into the Equity Transfer Agreement with Mr. Wang Dong in Shanghai. Previous changes for controlling Mr. Chen Rong transfers all of the equity held by hand, 29.49 % equity of the shareholders (if applicable) Company, to Mr. Wang Dong. Mr. Wang Dong is the controlling shareholder and actual controller of the Company after transfer.

V. Other relevant information

CPA engaged by the Company

Name of CPA Dahua Certified Public Accountants (Limited Liability Partnership)

Offices add. for CPA No. 689, Tianhe Road (N), Guangzhou

Signing Accountants Fan Rong, Han Junmin Sponsor engaged by the Company for performing continuous supervision duties in reporting period □ Applicable √ Not applicable Financial consultant engaged by the Company for performing continuous supervision duties in reporting period □ Applicable √ Not applicable

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Section III. Accounting data and summary of financial indexes

I. Main accounting data and financial indexes

Whether it has retroactive adjustment or re-statement on previous accounting data for accounting policy changed and accounting error correction or not √ Yes □ No

Changes over 2011 2010 2012 last year (%)

Pre-adjustment Post-adjustment Post-adjustment Pre-adjustment Post-adjustment

Operating income (RMB) 79,512,004.22 515,150.00 515,150.00 15,334.7286% 516,778.00 516,778.00

Net profit attributable to shareholders of the listed 32,894,368.82 3,643,202.46 1,818,785.62 1,708.5897% 1,704,928.05 1,704,928.05 company(RMB) Net profit attributable to shareholders of the listed company after deducting -1,721,230.31 -14,020,621.88 -15,395,047.49 88.8196% -23,152,790.38 -23,152,790.37 non-recurring gains and losses(RMB)

Net cash flow arising from -4,386,658.32 -532,391.56 -5,491,422.69 -20.118% -32,273,821.01 -32,273,821.01 operating activities(RMB)

Basic earnings per share 0.05 0.0052 0.003 1,566.6667% 0.002 0.002 (RMB/Share)

Diluted earnings per share 0.05 0.0052 0.003 1,566.6667% 0.002 0.002 (RMB/Share)

Return on Equity (%) 36.01% 0% 0% 0% 0% 0%

Changes over End of 2011 end of last year End of 2010 End of 2012 (%)

Pre-adjustment Post-adjustment Post-adjustment Pre-adjustment Post-adjustment

Total assets (RMB) 193,617,124.65 219,022,670.81 209,909,350.33 -7.7616% 199,976,147.64 199,976,147.64

Net assets attributable to shareholder of listed company (Owners‟ equity attributable to 114,894,671.61 -23,882,038.57 74,895,938.70 53.4057% -27,525,241.03 -27,525,241.03 shareholder of listed company ) (RMB)

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II. Difference of the accounting data under accounting rules in and out of China

1. Difference of the net profit and net assets disclosed in financial report, under both IAS (International Accounting Standards) and Chinese GAAP (Generally Accepted Accounting Principles)

Unit: RMB

Net profit attributable to shareholders of listed Net assets attributable to shareholders of listed company company

Amount at Amount in this period Amount in last period Amount at period-end period-begin

Chinese GAAP 32,894,368.82 1,818,785.62 114,894,671.61 74,895,938.70

Items and amount adjusted by IAS

2. Difference of the net profit and net assets disclosed in financial report, under both foreign accounting rules and Chinese GAAP (Generally Accepted Accounting Principles)

Unit: RMB

Net profit attributable to shareholders of listed Net assets attributable to shareholders of listed company company

Amount at Amount in this period Amount in last period Amount at period-end period-begin

Chinese GAAP 32,894,368.82 1,818,785.62 114,894,671.61 74,895,938.70

Items and amount adjusted by foreign accounting rules

3. Reasons for the differences of accounting data under accounting rules in and out of China

III. Items and amounts of extraordinary profit (gains)/loss

Unit: RMB

Item Amount in 2012 Amount in 2011 Amount in 2010 Note

Gains/losses from the disposal of non-current asset (including the write-off 49,163,850.01 10,644,730.00 that accrued for impairment of assets)

Governmental subsidy reckoned into current gains/losses (not including the subsidy enjoyed in quota or ration according to 17,900,000.00 19,125,000.00 national standards, which are closely relevant to enterprise‟s business)

Other non-operating income and expenditure -3,009,717.84 280,915.03 except for the aforementioned items

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Impact on income tax 11,538,533.04 -228,722.30 411,676.61

Impact on minority shareholders‟ equity 914,889.19 4,781,250.00 (post-tax)

Total 34,615,599.13 17,213,833.11 24,857,718.42 --

Concerning the extraordinary profit (gain)/loss defined by Q&A Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public --- Extraordinary Profit/loss, and the items defined as recurring profit (gain)/loss according to the lists of extraordinary profit (gain)/loss in Q&A Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the Public --- Extraordinary Profit/loss, explain reasons □ Applicable √ Not applicable

9 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Section IV. Report of the Board of Directors

I. Introduction

Year of 2012 is a fundamental turning-point year. In reporting period, standing in front of complicated operation environment, Board of Directors and executives of the Company are concentrated on the perfection of governance structure, boosted normalized operation and positively coordinated various parties; solving historical left problems and seeking a development chance to resolve de-listing risks; after one year of hard work the operation status and financial structures gains a significant improvement.

Looking back to 2012, main works of the Company are as: 1. Historical left problems solved. The Company has many historical left problems after bankruptcy reorganization which restricts the development of the Company. Development environment gains fundamental changes for further operation along with the reconciliation of two major lawsuits and bankruptcy of related subsidiaries 2. Proactively boosting and developing main business. The Company reorganized material assets in reporting period, being controlling Tianjin Runhua RW, the Company engaged in distribution field of bulk stocks, a field that will bringing continuous operating income and cash flow to the Company. The Company established Chengde Nanjiang Investment Co., Ltd; as a foreign investment platform for the Company, we plans to engaged in the new resources & new material fields by setting up “Chengde Nanjiang New Resources & New Material Industry Park” to lay a foundation for industry transformation. Wholly-owned subsidiary RongYiDa completed its first real estate project QianYuan Community, the pilot p roject for local real estate project in 2012 for realized main business income of RMB 78,707,333.42 and net profit of RMB 46,620,528.35; Chengde Nanjiang Ecological Agriculture Co., Ltd, found by the Company, is plans to create a green food base for top -level crowd from Beijing and Tianjin by making use of native favorable nature condition and regional advantages. 3. General election and talent construction. In reporting period, the term of 4th session of the Board, Supervisory Committee and Executives are expired. Being approved by the first extraordinary shareholders‟ general meeting of 2012, the 5th session of the Board and Supervisory Committee have come out; and new executives have engaged by the Company after deliberation in 5th session of the Board. The general election achieves a successful completion orderly and steadily. At the same time, the Company concentrated on training of inter-disciplinary management talent and professional talents in order to provide solid talent base for the health and continuous development of the Company. II. Main business analysis 1. Introduction 1. Main business scope: Manufacture and processing of knitting collection, woven collection, grade suits, kids collections, package materials, paper, paper-made products, vary yarn and synthetic silks; sales of self-made products, development and sales of real estate, accommodation and catering. Ended as 31 December 2012, the Company realized business income of RMB 79,512,004.22, RMB 32,894,368.82 net profit attributable to owners of parent company, an 802.9% up y-o-y, net assets achieved RMB 114,894,671.61. Sheet of main business analysis:

Item 2012 2011 Changes (+,-) Note

Sales of real estate realized carry Operating revenue 79,512,004.22 515,150.00 15334.73% forward income, the operating revenue gains a major increase

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Cost 58,424,002.63 ------—

Administration 15,939,028.09 12,729,701.92 25.21% — expenses Interest cost paid decrease in this Financial expenses 2,390,155.66 3,487,822.06 -31.47% period Net cash flow arising from operation -4,386,658.32 -5,491,422.69 -20.12% — activities

Reasons for difference of actual operation performance has 20% lower or higher than profit forecast of the Year disclosed □ Applicable √ Not applicable

2. Revenue

Whether income from physical sales larger than income from labors or not √ Yes □ No

Increase/decrease y-o-y Industries Item 2012 2011 (%)

Real estate Sales volume 25,691 0 100%

Reasons for y-o-y relevant data with over 30% changes □ Applicable √ Not applicable Material orders in hands □ Applicable √ Not applicable Material changes or adjustment for products or services of the Company in reporting period □ Applicable √ Not applicable

Major sales of the Company

Total top five clients in sales (RMB) 2,961,543.00

Proportion in total annual sales volume for top five clients 3.76% (%)

Information of top five clients of the Company √Applicable □Not applicable

Serial Name Sales (RMB) Proportion in total annual sales (%)

1 Zhang Jinsong 1,021,600.00 1.3%

2 Li Hui 493,391.00 0.63%

3 Yang Chunlong, Liu Xiuling 482,210.00 0.61%

4 Gao Yujun 482,171.00 0.61%

5 Zhao Guoli, Zhang Caiyun 482,171.00 0.61%

Total —— 2,961,543.00 3.76%

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3. Cost

Industry classification Unit: RMB

2012 2011 Industry Y-o-y changes Item Ratio in operation Ratio in operation classification Amount Amount (%) cost (%) cost (%)

Real estate 58,327,874.54 99.84%

Other business 96,128.09 0.16%

Total 58,424,002.63 100%

Product classification Unit: RMB

2012 2011 Product Y-o-y changes Item Ratio in operation Ratio in operation classification Amount Amount (%) cost (%) cost (%)

Development products—QianY 58,327,874.54 99.84% uan Community

Other 96,128.09 0.16%

Total 58,424,002.63 100%

Note Nil Main suppliers of the Company

Total purchase amount from top five suppliers (RMB) 0.00

Proportion in total annual purchase amount for top five 0% suppliers (%)

Information of top five suppliers of the Company □Applicable √Not applicable

4. Expenses

Financial expense for year of 2012 shows RMB 1,097,666.40 less than that of 2011 for 31% down, mainly because the interest paid in this period decreased.

5. Cash flow

Unit: RMB

Item 2012 2011 Y-o-y changes (%)

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Subtotal of cash in-flow from 123,163,614.04 58,792,001.84 109.490424% operation activity

Subtotal of cash out-flow from 127,550,272.36 64,283,424.53 98.418602% operation activity

Net cash flow from operation -4,386,658.32 -5,491,422.69 -20.117999% activity

Subtotal of cash in-flow from 101,678,178.10 investment activity

Subtotal of cash out-flow from 10,813,769.26 740,848.41 1,359.646685% investment activity

Net cash flow from investment 90,864,408.84 -740,848.41 12,364.912445% activity

Subtotal of cash in-flow from 14,800,000.00 -100% financing activity

Subtotal of cash out-flow from 5,504,358.33 17,717,787.96 -68.933152% financing activity

Net cash flow from financing -5,504,358.33 -2,917,787.96 88.648332% activity

Net increased amount of cash 80,973,391.02 -9,150,285.03 -984.927527% and cash equivalent

Reasons for y-o-y relevant data with over 30% changes √Applicable □Not applicable Cash in-flow from operating activity has 109.49% up y-o-y, mainly because the sales of real estate enlarge in this year Cash out-flow from operating activity has 98.42% up y-o-y, mainly because cost expenses for development of real estate in this year increased Net cash flow from investment activity has 12,364.91% up y-o-y, mainly due to the transfer income for land transfer in this year Cash out-flow from financing activity has -68.93% down y-o-y, mainly due to the loans payment for last year

Reasons of major difference between the cash flow of operation activity in report period and net profit of the Company □Applicable √Not applicable

III. Composition of main business

Unit: RMB

Increase/decrease Increase/decrease Increase/decrease Operating Gross profit ratio of operating Operating cost of operating cost of gross profit revenue (%) revenue y-o-y y-o-y (%) ratio y-o-y (%) (%)

According to industries

Real estate 78,707,333.42 58,327,874.54 25.89271%

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According to products

Development products—QianY 78,707,333.42 58,327,874.54 25.89271% 100% 100% 100% uan Community

According to region

Chengde 78,707,333.42 58,327,874.54 25.89271%

Under circumstances of adjustment in reporting period for statistic scope of main business data, adjusted main business based on latest one year‟s scope of period-end □ Applicable √ Not applicable

IV. Assets and liability analysis

1. Major changes of assets

Unit: RMB

End of 2012 End of 2011 Ratio

Ratio in total Ratio in total changes Notes of major changes Amount Amount assets (%) assets (%) (%)

Sales enlarged and the land acquisition Monetary fund 81,546,046.87 42.117167% 572,655.85 0.272811% 41.8444% from government makes more funds withdrawal

Account 0% receivable

Development product—QianYuan Community, who satisfy revenue Inventory 20,490,734.61 10.583121% 39,698,800.27 18.912354% -8.3292% recognization has carried forward to cost

Investment real 0% estate

Dispute lawsuit between Wang Shuxian and Nanjiang Co., Ltd was Long-term equity 2,215,729.65 1.055565% -1.0556% compromised in this year, Wang investment Shuxian obtained Dahua Paper Investment

Dispute lawsuit between Wang Shuxian, Li Rui and Nanjiang Co., Ltd was compromised in this year, disposal Fix assets 24,742,103.60 12.778882% 60,871,294.69 28.998849% -16.22% of fixed assets for Wang Shuxian and Li Rui are losses in compromise; while removing fixed assets in Xingye Paper Plant, subsidiary of the Company, loss

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of inventory loss from damaged plant

Dispute lawsuit between Wang Shuxian, Li Rui and Nanjiang Co., Ltd was compromised in this year; while Construction in 402,587.43 0.20793% 6,721,818.00 3.202248% -2.9943% removing fixed assets in Xingye Paper progress Plant, subsidiary of the Company, loss of inventory from damaged construction in progress

2. Major changes of liability

Unit: RMB

2012 2011 Ratio

Ratio in total Ratio in total changes Notes of major changes Amount Amount assets (%) assets (%) (%)

Short-term loans 0 0 422,261.91 0.20116% -0.2012% Paid in this period

Long-term loans 0 0 6,801,600.00 3.24026% -3.2403% Paid in this period

V. Investment analysis

1. Main subsidiaries and stock-jointly companies

Particular about main subsidiaries and stock-jointly companies

Main Operating Operating Company Register Total assets Net Assets Net profit Type Industries products or revenue profit name capital (RMB) (RMB) (RMB) service (RMB) (RMB)

Chengde Developme RongYiDa nt and sales RMB 10 221,536,86 112,076,25 79,512,004. 760,964.8 46,620,528.3 Real Estate Subsidiary Real Estate of real million 4.16 5.88 22 1 5 Developme estate nt Co., Ltd

Chengde Nanjiang Industrial RMB 90 86,008,527. 49,994,177. Subsidiary Investment 0 -5,822.22 -5,822.22 Investment investment million 78 78 Co., Ltd

Notes of main subsidiaries and stock-jointly companies

Chengde RongYiDa Real Estate Development Co., Ltd, a wholly-owned subsidiary of the Company, incorporated on 20 February 2009 with register capital of RMB 10 million. Business scope: development of real estate; manufacture of textile and clothing, import & export business of clothing; leasing service. Main project is the Dalu QianYuan Community (commercial residential), completed in end of 2012 for main business income achieved.

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Chengde Nanjiang Investment Co., Ltd, found on 9 October 2012 with register capital of RMB 90 million, is the totally controlling subsidiary of the Company with business scope of: investment of new resources & new material industry, mining and dressing, modern agriculture projects, real estate project and construction projects; investment management and consultant as well as import and export trading; it is the main platform for foreign investment; On 24 January 2013, Nanjiang Investment entered into the cooperation agreement with Ningbo Morsh Technology Co., Ltd., the two parties plans to incorporate Chengde Morsh Technology Co., Ltd. in Changde, Hebei Province with register capital of RMB 50 million. Of which, Nanjiang Investment contribute RMB 45 million in cash, occupied 90% in total investment capital while Ningbo Morsh Technology Co., Ltd. invested RMB 5 million in cash, a 10% in total investment capital. Chengde Nanjiang Ecological Agriculture Co., Ltd. was established on 24 October 2012 by capital from Chengde Nanjiang Investment Co., Ltd with register capital of RMB 5 million; business scope is: herding, aquaculture and processing and sales of special agribusiness.

Particular about subsidiaries obtained or disposed in report period □ Applicable √ Not applicable

VI. Prospect for future development of the Company

1. Development strategy 2013 is the Year for development, the Company will concentrate on field of new resources & new material, ecological agriculture and distribution of bulk stock; striving to re-establish new backbone industry of the Company in three years and laying a stable foundation for long-term and stability development. In aspect of new resources & new material: making use of the capital advantage of the Company and technological advantage of partner, striving to establish a base of new resources & new material in three years, which owes considerable influence in northern In aspect of distribution of bulk stock: after acquisition of Tianjin Runhua RW, the Company turns it into a backbone business of Nanjiang Co., Ltd by providing capital and management support, improving its sales network and sales method and boosting profitability In aspect of ecological agriculture: to create a green food base for top-level crowd from Beijing and Tianjin by making use of native favorable nature condition and regional advantages.

2. Risks that probably arise negative impact on future development 1. Field of new resources & new material has major technical and market risks, and it has a certain uncertainty to be the backbone industry of the Company in future 2. Modern agriculture has a fierce competition in market and has a certain operation risks 3. Bulk stock has a fierce completion in market and shows a weak in profitability

VII. Particular about major accounting errors correction that needs retroactive re -statement in reporting period

Details of accounting policy and changes of accounting estimation as well as major correction on pervious accounting errors: (1) Chengde Dixian Textile Co., Ltd. (now the Nanjiang Co., Ltd.) inability to pay the debts which is overdue, and in November of 2008 entered into bankruptcy reorganized program. Nanjiang Co., Ltd. and vary controlling subsidiaries owes balance of money payable to bankruptcy administrator in book for year-begin of 2012 amounting as RMB24,444,791.49 (including other payable RMB55,080,620.99 and other receivable RMB30,635,829.50 charge). Pursuit to the auditing result of bankruptcy liquidation

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(CXSB[2012] No.3) on former Chengde Dixian Textile Co., Ltd. by Auditing Bureau of Chengde County, bankruptcy administrator paid the land money (Banhe 1st District (CSKGY (2005) Zi No. 063) and Banhe 2nd District (CSKGY (2005) Zi No. 072)) of RMB14, 000,000.00 for Nanjiang Co., Ltd. in 2009. Nanjiang Co., Ltd confirm the abovementioned item in this year and balance payable to bankruptcy administrator in book recognized as RMB38, 444,791.49 ( RMB 24,444,791.49 + RMB 14,000,000.00), of which balance of other payable RMB69,080,620.99 (RMB 55,080,620.99+ RMB 14,000,000.00) and balance of other receivable RMB30,635,829.50 charge. Nanjiang Co., Ltd. offsetting the internal credit in 2012, therefore, other payable decrease RMB26,331,034.30 and RMB26,331,034.30 other receivable decreased; after offsetting, balance of other payable was RMB42,749,586.69 (that is RMB 69,080,620.99 - RMB26,331,034.30), balance of other receivable was RMB 4,304,795.20 (that is RMB 30,635,829.50-RMB26,331,034.30). According to the auditing result (CXSB[2012] No.3) from Auditing Bureau of Chengde County, the balance payable to bankruptcy administrator from Nanjiang Co., Ltd was paid by the auction equipment; based on the inquiry result from bankruptcy administrator at the same time, Nanjiang Co., Ltd has RMB 4,018,900.00 receivable from bankruptcy administrator. In view of the above, balance of other receivable at period-begin should decreasing RMB 285,895.20 (that is RMB 4,304,795.20-RMB 4,018,900.00), other payable decrease RMB 42,749,586.69). Concerning the above previous accounting errors, in 2012, Nanjiang Co., Ltd., reduce the balance of other receivable at period-begin as RMB 285,895.20 by retrospective restatement, balance of other payable at period-begin decrease as RMB 42,749,586.69 and increase retained profit of year-begin as RMB 42,463,691.49 The abovementioned error correction has cumulative amount on net assets as RMB 42,463,691.49, adopting retrospective restatement, RMB42,463,691.49 of equity attributable to shareholders of parent company at year-begin of 2011 increased and equity attributable to minority shareholders at year-begin of 2011 increase RMB 0.00 (2) Former Chengde Dixian Textile Co., Ltd purchased lands: CDXGY (2000) Zi No. 169, CDXGY (2000) Zi No. 152, CDXGY (2001) Zi No. 133 and CDXGY (2000) Zi No. 151 in 2000, and all invested in Chengde Xingye Paper Co., Ltd without hand-over procedures completed; for the above intangible assets, balance at period-begin for Chengde Xingye Paper Co., Ltd was RMB 23,491,766.53. Former Chengde Dixian Textile Co., Ltd mortgages the abovementioned lands to bank for capital requirement, bank loans RMB 37,000,000.00 obtained. Chengde Dixian Textile Co., Ltd. (now the Nanjiang Co., Ltd.) inability to pay the debts which is overdue, and in November of 2008 entered into bankruptcy reorganized program. In 2008 and 2009, former creditor bank and Dixian bankruptcy administrator entered into a debt reorganization agreement, liquidate part of the bank loans with lands consideration of RMB 16,650,000.00, the unpaid part of bank loans are no need to pay off. Xingye Paper is not cleaning the above said intangible assets. Dixian bankruptcy administrator paid RMB 16,650,000.00 for the abovementioned land assets in June 2009, Nanjiang Co., Ltd. reckoned into book-keeping for the above-mentioned lands in beginning of 2010. Concerning the above item, the land book value RMB 23,491,766.53 was diluted by Xingye Paper in 2012, and the assets are accrued for amortization from June 2009 to December 2009; Nanjiang Co., Ltd. kept the above-mentioned lands in book as RMB 16,650,000.00 and for the amortized RMB 812,197.04 from January 2010 to December 2012 which was missing for keeping, retrospectively of accruals. Concerning the above previous accounting errors, Nanjiang Co., Ltd. reduce the balance of intangible assets of 2012 at period-begin as RMB 7,653,963.57 by retrospective restatement, retained profit of 2012 at year-begin decrease RMB 7,653,963.57 and decreasing the retained profit of 2011 at year-begin RMB 7,247,865.05 The abovementioned error correction has cumulative amount on net assets as RMB 7,247,865.05, adopting retrospective restatement, RMB5,435,898.79 of equity attributable to shareholders of parent company at year-begin of 2011 decreased and equity attributable to minority shareholders at year-begin of 2011 decrease RMB 1,811,966.26

(3) Chengde Xingye Paper Co., Ltd.‟s total profit for year of 2009 amounting as RMB275,534,922.32, payable income tax adjusted increase of RMB 127,569,402.70 (including: loss from assets devaluation RMB 95,000,000.00 and extraordinary losses of assets RMB32,569,402.70), the payable income tax after adjustment amounting as RMB 403,104,325.02. On 31 May 2010, according to the reply of “Allow Chengde Xingye Paper Co., Ltd’s assets losses RMB202, 790,077.00 deducted before enterprise income tax”, the Hebei Municipal Office of SAT issued the Reply of Write-off the Assets Losses from Chengde Xingye Paper Co., Ltd ( JGSH[2010] No.170), the payable income tax after deduction of losses of assets amounting as RMB 200,314,248.02

17 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

( RMB403,104,325.02-RMB202,790,077.00), payable enterprise income tax amounting as RMB50,078,562.00; in 2010, Chengde Xingye Paper Co., Ltd confirmed its balance of payable taxes at period-begin amounting as RMB 50,078,562.00. In 2011, inspection bureau of Chengde County Office of SAT carried out the document CXGSJT[2011] No. 001, notify the enterprise to handle payable procedures. On 13 September 2012, the CXGSJT[2012] No. 002 issued by inspection bureau of Chengde County Office of SAT for notify Chengde Xingye Paper Co., Ltd to recall the documents of CXGSJT[2011] No. 001. Meanwhile, the taxable income after deficit covered for year of 2009 amounting as RMB 1,209,295.43, payable income tax amounting as RMB 302,323.86; concerning the previous accounting errors, in 2012, Chengde Xingye Paper Co., Ltd., reduce the payable tax of year-begin of 2012 as RMB 49,776,238.14 by retrospective restatement, retained profit of year-begin of 2012 was adjusted increase as RMB 49,776,238.14 and increase retained profit of year-begin of 2012 as RMB 49,776,238.14 The abovementioned error correction has accumulative amount on net assets as RMB 49,776,238.14, adopting retrospective restatement, RMB 37,332,178.61 of equity attributable to shareholders of p arent company at year-begin of 2011 increased, and equity of minority shareholders of year-begin of 2011 increase RMB 12,444,059.53

(4)Chengde Xingye Paper Co., Ltd. holds 90% equity of Chengde Huaxin Waste Paper Recycling Co., Ltd, cost of long-term equity investment amounting as RMB1, 062,876.20. Because Chengde Huaxing Waste Paper Recycling Co., Ltd didn‟t submit the materials for 2007 industrial and commercial enterprises inspection, its business license was already revoked by Chengde Administration for Industry and Commerce according to No.(2009)73 administrative punishment decision on April 28, 2009. Chengde Huaxing Waste Paper Recycling Co., Ltd, essentially has no operation activities and there are no assets available for sell, the cost of lon g-term equity investment is uncollectible. Concerning the previous accounting errors, in 2012, Chengde Xingye Paper Co., Ltd. reduce the long-term equity investment of year-begin of 2012 as RMB 1,062,876.20 by retrospective restatement, reduce retained profit of year-begin of 2012 as RMB 1,062,876.20 and reduce retained profit of year-begin of 2011 as RMB1,062,876.20.

The abovementioned error correction has accumulative amount on net assets as RMB 1,062,876.20, adopting retrospective restatement, RMB 797,157.15 of equity attributable to shareholders of parent company at year-begin of 2011 decreased, and equity of minority shareholders of year-begin of 2011 reduce RMB 265,719.05. (5) In 2004, former Chengde Dixian Textile Co., Ltd obtained Central pro-environment specific capital allowance RMB 3,000,000.00 by CCJ[2004] No. 134 and the RMB 7,500,000.00 for paper-making water-saving and comprehensive utilization of resources by JCJ[2005] No. 280 in 2005; controlling subsidiary Chengde Xingye Paper Co., Ltd recognized the specific payable in 2004 and 2005 respectively. On 8 December 2008, a Civil Ruling Paper (2008) CMPZi No. 13 from Intermediate People „s Court of Chengde City, Hebei Province was received by Chengde Xingye Paper Co., Ltd, which accept and hear the bankruptcy liquidation application for Chengde Xingye Paper. On 8 May 2009, Chengde Xingye Paper Co., Ltd. reached a settlement agreement with creditors. The RMB 10,500,000.00 received by Chengde Xingye Paper was invested in relevant projects, the Company stop production after insolvency liquidation, construction in progress are damaged and write-off, relevant assets are recognized as losses. Concerning the previous accounting errors, Chengde Xingye Paper Co., Ltd. reduce the specific payable of 2012 at year-begin as RMB 10,500,000.00 by retrospective restatement, increasing retained profit of 2012 at year-begin as RMB 10,500,000.00 and increasing retained profit of 2011 at year-begin as RMB10,500,000.00 The abovementioned error correction has cumulative amount on net assets as RMB 10,500,000.00, adopting retrospective restatement, RMB7,875,000.00 of equity attributable to shareholders of parent company at year-begin of 2011 increased and equity attributable to minority shareholders at year-begin of 2011 increase RMB 2,625,000.00 (6) Balance of other receivable at period-begin of Chengde RongYiDa Real Estate Development Co., Ltd. was RMB 75,546,152.33, of which, RMB 35,474,751.30 receivable from Nanjiang Co., Ltd belongs to the related party in consolidation; except for the RMB 27,490,334.30 contact with bankruptcy administrator, which is unsettle at end of 2011, was no need to withdrawal bad debt provision for account predicted to recover, the package creditor‟s right RMB 1,209,273.00, obtained from auction in 2009, predicted unable to recover and withdrawal bad debt provision. According to the age analysis, the balance at period-begin within one year was RMB 10,890,693.73, RMB544,534.69 was withdrawal base on bad debt provision‟s withdrawal ratio 5%, less provision RMB 390,228.46,

18 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text the above mentioned item totally has additional bad debt provision RMB1,599,501.46 to withdrawal. Concerning the previous accounting errors, Chengde RongYiDa Real Estate Development Co., Ltd reduce original value of other receivable of 2012 at year-begin as RMB 1,599,501.46 by retrospective restatement, increasing assets value impairment of 2011 as RMB 1,599,501.46, reduce retained profit of year-begin 2012 as RMB 1,599,501.46 and decrease retained profit of 2011 at year-begin as RMB 1,599,501.46 The abovementioned error correction has cumulative amount on net assets as RMB 1,599,501.46, adopting retrospective restatement, RMB 1,599,501.46 of equity attributable to shareholders of parent company at year-begin of 2011 decreased and equity attributable to minority shareholders at year-begin of 2011 decrease RMB 0.00 (7) The balance of bad debt provision at period-begin for above-mentioned of Chengde RongYiDa Real Estate Development Co., Ltd adjusted as RMB 1,753,807.69, and RMB 438,451.92 was recognized as deferred income tax assets; retained profit of 2012 at year-begin increase RMB 438,451.92, income tax expenses for year of 2011 increase RMB 402,706.92, RMB438, 451.92 for deferred income tax for year of 2011 increased and retained profit of 2011 at year-begin increase RMB 35,745.00 The abovementioned error correction has cumulative amount on net assets as RMB 35,745.00, adopting retrospective restatement, RMB 35,745.00 of equity attributable to shareholders of parent company at year-begin of 2011 increased and equity attributable to minority shareholders at year-begin of 2011 increase RMB 0.00 (8) Chengde RongYiDa Real Estate Development Co., Ltd obtained real estate and lands by auction in 2009, which is owed by former Chengde Dixian Textile Co., ltd., house tax and land-use tax for the abovementioned real estate and lands are withdrawal since 2009 according to the residual value of property, land areas and corresponding tax rate; the payable tax item till year-begin of 2012 accumulated withdrawal RMB 8,082,716.16. On 23 April 2012, local taxation bureau of Chengde County exercise tax inspection on Chengde RongYiDa Real Estate Development Co., Ltd, except for the house tax and land-use right for 1/F of the Office of Building of Chengde Dixian Textile Co., Ltd and lands of development product QianYuan Community, other idle houses should paid house duty by owners of the property according to the Article II contained in Provisional Regulations of the People’s Republic of China on Real Estate Tax.” Article II. If the property right owes by the whole people, tax should be paid by the units who operated the enterprise. For the property angiographic, tax should paid by Pawnee. If the owner of the property and Pawnee are not in the place where property stands, or with uncertain property right and unsettle rent disputes, tax should be paid by estate agent or person who use the property. The aforesaid owners of property, operation management unit, Pawnee, estate agent or person who use the property are together as taxpayer”. Pursuit to the (GSDZi[1988] No. 015) Article IV of Provisional Regulations and Explanation of Several Specific Questions on Use Tax on Land: “Article IV. Use tax on land should be paid by the person or unit who owes the use-right of the land. If the taxpayer, who owes the use-right of land, are not in the place where property stands, the tax should be paid by agent or actual person who use the land; for the uncertain property right and unsettle ownership dispute, tax should be paid by actual person who use the land; if the land use right are share by commons, the tax should be paid by vary parties”. The p roperty and lands obtained by Chengde RongYiDa Real Estate Development Co., Ltd from auction have been kept in book without ownership transfer completed; the above mentioned lands and property are no actually for use and are not belongs to the taxpayer regulated in Tax Laws, therefore, no need to paid or additional paid the real estate tax and land-use right tax for previous years. Concerning the previous accounting errors, Chengde RongYiDa Real Estate Development Co., Ltd reduce payable tax of 2012 at year-begin as RMB 8,082,716.16 by retrospective restatement, increasing retained profit of 2012 at year-begin as RMB 8,082,716.16

The abovementioned error correction has cumulative amount on net assets as RMB 8,082,716.16, adopting retrospective restatement, RMB 8,082,716.16 of equity attributable to shareholders of parent company at year-begin of 2011 increased and equity attributable to minority shareholders at year-begin of 2011 increase RMB 0.00 (9) The state-owned land-use right CSKGY(2005) Zi No. 063 and CXGY(2001) Zi No. 132 were obtained by Chengde RongYiDa Real Estate Development Co., Ltd in April 2009 from auction, RMB 8,002,660.00 and RMB 7,690,448.19 were kept in book respectively; for the above-mentioned assets, Chengde RongYiDa Real Estate Development Co., Ltd reckoned that into other non-current assets instead of intangible assets due to inability of transfer for the property right. In essence, the lands were obtained and control by Chengde RongYiDa Real Estate Development Co., Ltd; concerning the previous accounting errors, by retrospective

19 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text restatement, Chengde RongYiDa Real Estate Development Co., Ltd reckon the above land in intangible assets in 2012, and withdrawal accumulative amortization of 33 months more based on 50 years of service life; original value of intangible assets of 2012 at period-begin increase RMB10,466,998.78 1, reduce other non-current assets RMB 11,076,189.19, increasing management expenses of 2011 RMB221,523.78, reduce retained profit of 2012 at year-begin as RMB 609,190.41 and retained profit of 2011 at period-begin decrease RMB 387,666.63 The abovementioned error correction has cumulative amount on net assets as RMB 387,666.63, adopting retrospective restatement, RMB 387,666.63 of equity attributable to shareholders of parent company at year-begin of 2011 decreased and equity attributable to minority shareholders at year-begin of 2011 decrease RMB 0.00 (10) On 25 February 2009, the criminal judgment (2008) SXC Zi No. 48 ruling that Chengde Dixian Textile Co., Ltd. (now the Nanjiang Co., Ltd.) was suspected as smuggling import equipments, and all equipments are confiscated. In 2009, controlling subsidiary of Dalu Co., Ltd. (now the Nanjiang Co., ltd)—Chengde Xingye Paper Co., Ltd. transfers the net amount of smuggling equipment RMB 29,162,740.91 to non-operating expenditure. On 21 July 2009, Shijiazhuang Customs entrust Government of Chengde Municipal to take auction for the smuggling import machinery equipment of former Chengde Dixian Textile Co., Ltd. Government of Chengde Municipal entrust government of Chengde County to take the above said auction and Chengde Financial Credit Development Co., Ltd bids for the smuggling equipments. On 3 December 2010, wholly -owned subsidiary of the Company—Chengde RongYiDa Real Estate Development Co., Ltd. entered into equipment transfer agreement with Chengde Financial Credit Development Co., Ltd, and obtained the equipment for RMB 56,329,500,00. Chengde RongYiDa Real Estate Development Co., Ltd entrust Chengde Fengyuan Auction Co., Ltd. to auctioning the equipments for capital of RMB 130,000,000.00 obtained in bidding. Chengde RongYiDa Real Estate Development Co., Ltd entered into equipment transfer agreement with buyer Liu Ai‟hua and Li Rui respectively on 19 December 2010 and on 20 December 2010. The relevant income and cost concerning the equipments from Chengde RongYiDa Real Estate Development Co., Ltd are in the government specific amount for employee‟s claim of enterprise restructuring of Chengde County, and supervised by the government. Chengde RongYiDa Real Estate Development Co., Ltd has no relevant book-keeping for the account. Being verified, the income from auction to government specific amount for employee‟s claim of enterprise restructuring of Chengde County amounting as RMB 130,000,000.00, after paid totally RMB129,518,900.00 in aspect of payables (including: RMB56,329,500,00 paid for equipment money, RMB 11,553,800.00 paid for tax arise from auction, RMB 10,700,000.00 paid to Shijiazhuang Custom for auction, RMB5,200,000.00 paid to ICBC for mortgage, RMB19,500,000.00 paid for the auction of un-confiscate equipments, RMB 17,325,600.00 paid for capital of bankruptcy administer and other expenses RMB 8,910,000.00 ), balance amounting as RMB 481,100.00. Nanjiang Co., Ltd corrected the items by retrospective restatement in 2012, other receivable for year-begin of 2012 increase RMB 481,100.00, retained profit for year-begin of 2012 increase RMB 481,100.00 and retained profit for year-begin of 2011 increase as RMB 481,100.00 The abovementioned error correction has cumulative amount on net assets as RMB 481,100.00, adopting retrospective restatement , RMB 481,100.00 of equity attributable to shareholders of parent company at year-begin of 2011 increased (11) The machinery disposal amount of RMB 6,000,000.00 was received by Chengde RongYida Real Estate Development Co., Ltd. in 2009, but the money was wired to account of Bureau of Finance of Chengde County after received by former Banhe bankruptcy administrator. On 27 September, the Bureau of Finance transfer the money to Chengde RongYida Real Estate Development Co., Ltd. Dixian Work Team Theme Meeting Minutes [2012] No. 1 and documents of Auditing Bureau, Chengde County (Report) CXSB[2012] No.3 confirms that the abovementioned money belongs to the income of Chengde RongYida Real Estate Development Co., Ltd. Concerning the above said money, Chengde RongYida Real Estate Development Co., Ltd. should confirm the transfer income and listed as other payables. Chengde RongYida Real Estate Development Co., Ltd corrected the items by retrospective restatement, other payable for year-begin of 2012 reduce RMB 6,000,000.00, retained profit for year-begin of 2012 increase RMB 6,000,000.00 and retained profit for year-begin of 2011 increase as RMB 6,000,000.00 The abovementioned error correction has cumulative amount on net assets as RMB 6,000,000.00, adopting retrospective restatement, RMB 6,000,000.00 of equity attributable to shareholders of parent company at year-begin of 2011 increased, and equity of minority shareholders of year-begin of 2011 increase RMB 0.00 For the above said accounting errors from (1) to (11), the cumulative effects on net assets of 2011 at year-begin amounting as RMB

20 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

107,041,581.45; adopting retroactive restatement, equity attributable to shareholders of parent company at year-begin of 2011 increase RMB 94,050,207.23 and RMB 12,991,374.22 increased for the minority‟s equity for year-begin of 2011.

The effects of relevant items in consolidation balance sheet dated 31 December 2011 and consolidation profit statement of 2011 from retroactive restatement are as:

(Unit: RMB/Yuan)

Period affected Items Cumulative effects Total assets (10,066,959.54) Total liabilities (117,108,540.99) Retained profit 94,050,207.23 2011-1-1 Owners‟ equity attributable to parent 94,050,207.23 company Minority shareholders‟ equity 12,991,374.22 Total profit 627,622.30 Income tax expenses 402,706.92 2011 Net profit attributable to owners of parent 123,390.75 company Minority shareholders‟ gains/losses 101,524.63 Total assets (9,842,044.16) Total liabilities (117,108,540.99) Retained profit 94,173,597.98 2011-12-31 Owners‟ equity attributable to parent 94,173,597.98 company Minority shareholders‟ equity 13,092,898.85 The above said main accounting errors are approved by the 15th Meeting of 5th Session of the Board via deliberation, the Board considers that: For the retroactive statement on errors of annual report for year of 2011, it‟s exercise pursuit to relevant accounting rules and regulations, comply with the regulations of Accounting Standard for Business Enterprise and Accounting System for Business Enterprise. The accounting calculation are conforms with relevant regulations for the financial quality of the Company improved through appropriate accounting treatment, performing an accuracy status of the actual operation for the Company and shows no influence on the net profit and earnings per shares that listed in consolidation statement of the Period, we all agreed with the accounting errors correction and treatment of retroactive restatement.

VIII. Compare with last year’s financial report; explain changes in consolidation statement’s scope

Subsidiaries out of consolidation statement in this report period: Name Reasons for changes Net assets at Net profit from disposal date period-begin to disposal date Gold Axe Investment Group Unable to contact for suspected of 0.00 0.00 Limited smuggling, lose control Chengde Huaxin Waste Paper Unable to contact, revoke the business 0.00 0.00

21 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Recycling Co., Ltd license and lose control

IX. Profit and dividend distribution

Formulation, execution or adjustment for profit distribution policy in reporting period, cash bonus policy in particular In reporting period, in accordance with the requirement of Notice of Further Implementation of Related Matters on Cash Dividend for Listed Company issued from CSRC, the Company revised relevant bonus policy in original Article of Association which was approved by 3rd extraordinary shareholders general meeting of 2012 through deliberation dated 29 July 2012. At present, the Company‟s profit distribution policy comply with the regulation of Article of Association and deliberation procedures, totally protect the legal interest of medium and small investors; furthermore, it has a clearly defined standards and bonus proportion, the conditions and procedures of adjustment or changes on profit distribution policy is regulated and transparency, meets relevant requirements from supervisory department as well. Profit distribution plan and capitalizing of common reserves plan in reporting period are complying with relevant regulations of Article of Association.

Profit distribution plan and capitalizing of common reserves plan in latest three years (including the reporting period) Ended as 2011, the Company was not restored to production due to transition of reorganization. In 2012, the Company achieved net profit attributable to shareholder of listed company of RMB 32,894,368.82, after making up previous deficit, retained profit of the Company ended as 31 December 2012 amounting as RMB -1,157,581,498.16, therefore, no profit distribute and no capitalizing of common reserves exercised. Cash dividend in latest three years

Unit: RMB

Net profit attributable to Ratio in net profit attributable to Amount for cash bonus (tax shareholders of listed company shareholders of listed company Year for bonus shares included) in consolidation statement for contained in consolidation bonus year statement (%)

2012 0.00 32,894,368.82 0%

2011 0.00 1,818,785.62 0%

2010 0.00 1,704,928.05 0%

The Company gains profits in reporting period and the retained profit of parent company is positive but no plan of cash dividend proposed □ Applicable √ Not applicable

X. In the report period, reception of research, communication and interview Contents discussed and Time Place Way Type Reception material provided

Condition of subsidy of the Security Telephone 2012.01.09 Individual Investor government, no material Department communication required

Security Telephone Condition of the reduction 2012.01.23 Individual Investor Department communication of shares, no material

22 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

required

Current status of the Security Telephone 2012.02.16 Individual Investor Company, no material Department communication required

Suspended condition and Security Telephone 2012.03.30 Individual Investor lawsuit condition, no Department communication material required

Security Telephone The transfer of shares, no 2012.04.09 Individual Investor Department communication material required

Security Telephone The change of the Board, 2012.04.12 Individual Investor Department communication no material required

Process of recover of Security Telephone 2012.05.16 Individual Investor production, no material Department communication required

Current status of the Security Telephone 2012.06.29 Individual Investor Company, no material Department communication required

Security Telephone Events of restructuring, no 2012.07.27 Individual Investor Department communication material required

Events of asset sales of the Security Telephone 2012.08.15 Individual Investor company, no material Department communication required

Security Telephone Operations of the Company, 2012.09.18 Individual Investor Department communication no material required

Progress of major asset Security Telephone 2012.10.24 Individual Investor restructuring, no material Department communication required

Security Telephone Lawsuit of the Company, 2012.11.29 Individual Investor Department communication lawsuit notice required

Current status of the Security Telephone 2012.12.12 Individual Investor Company, no material Department communication required

23 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Section V. Iimportant Events

I. Significant lawsuits and arbitrations of the Company

√Applicable □Inapplicable Money Progress involved Whether Result and of Condition of Condition of lawsuit(or in the form information of Date of lawsuit(or enforcement of Index of disclosure arbitration) case(ten estimated lawsuit(or disclosure arbitration judgments thousand liability arbitration) ) Yuan)

Securities Times, Hong Dispute about creditor‟s Kong Commercial Daily right: creditor‟s right Both sides and Juchao Website disputes between Wang 8,437 no End have come to Done 2012.10.17 http://www.cninfo.com.cn Shuxian and the a compromise. dated on 29 April 2011,17 Company October 2012 and 29 November 2012.

Infringement dispute: dispute between Li Rui, the Company and Securities Times, Hong Chengde RongYiDa Kong Commercial Daily Both sides Real Estate and Juchao Website 2,147.42 no End have come to Done 2012.07.02 Development Co., http://www.cninfo.com.cn a compromise. Ltd.(wholly-owned dated on 20 April 2012 ,15 subsidiary of the June 2012 and 2 July 2012 Company) for the action equipment

Dispute about The Company reputation‟s right: has appealed

In December 2011, Xu to First Xue made up a story on Intermediate Securities Times, Hong purpose and vilify People‟s Court Kong Commercial Daily plaintiff by spreading of Beijing. and Juchao Website false information and The lawsuit http://www.cninfo.com.cn 0 no Judging reporting false has no dated 23 December 2011, information to media, influence on 31 March 2012, 21 June which cause serious company‟s 2012, 30 December 2012 infringement of profit for the and 26 November 2012. reputation of the period or Company, in purpose of profit after the interest protection, the period

24 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Company appeal to People‟s Court of West City District of Beijing.

Questioned from media □ Applicable √ Not applicable No media questioned for the Company in reporting period

II. Significant related transaction

1. Other significant related transactions

On 24 January 2013, wholly-owned subsidiary of the Company—Chengde Nanjiang Investment Co., Ltd (“Nanjiang Investment”) entered into the cooperation agreement with Ningbo Morsh Technology Co., Ltd., the two parties‟ plans to incorporate Chengde Morsh Technology Co., Ltd. in Changde, Hebei Province with register capital of RMB 50 million. Of which, Nanjiang Investment contribute RMB 45 million in cash, occupied 90% in total investment capital while Ningbo Morsh Technology Co., Ltd. invested RMB 5 million in cash, a 10% in total investment capital. According to the regulation of Rules Governing the Listing of Stocks from Shenzhen Stock Exchange, Ningbo Morsh Technology Co., Ltd is the related legal person of the Company, therefore, the investment constituting a related transaction. Inquiry of disclosure website for relevant interim reports of material related transaction

Notice name Dated for disclosed Website for interim report disclosed

Notice of Investment and Related Transactions 2013-01-25 Juchao Website (http://www.cninfo.com.cn)

III. Implementation of commitments

1. Commitments from the Company or shareholders (with over 5% shares held) in or continued to reporting period

Commitment Dated for Commitmen Implementa Commitments Contents party commitment t term tion

Share Merger Reform

Commitments in report of Not to reducing the shares of the listed Controlling In later 12 Implementi acquisition or equity company with equity owned in next 12 2012-04-24 shareholder months ng change months; horizontal competition

25 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

1. Commitments in aspect of independency of listed company: For the equity changes, that is 208,324,800 shares of Chengde Dalu Co., Ltd held by Chen Rong was transfer, Wang Dong guarantee there are no influence on the independent of employee, financial, institution, business and integrity of assets of Chengde Dalu Co., Ltd. After transaction, Chengde Dalu Co., Ltd still has the ability of Duration of Implementi independent operation and owes independent 2012-04-24 the ng legal person, and continues to owes the Company independency of institution, assts, employees, production and financial. 2. Commitments for horizontal competition: after 208,324,800 shares of Chengde Dalu Co., Ltd held by Chen Rong was transfer, Wang Dong guarantee there are no or potential horizontal competition between the Chengde Dalu Co., Ltd and Wang Dong and related parties of Wang Dong

Completed on time or not Yes

Detail reasons for un-complement and Implementing further plan

Whether made a promise to horizontal competition Yes and related transactions that resulted or not

Solution term promised Duration of the Company

Solution way Implementing

Complementation Implementing

IV. Appointment and non-reappointment (dismissal) of CPA

Accounting firm appointed

Name of domestic accounting firm Dahua Certified Public Accountants (Limited Liability Partnership)

Remuneration for domestic accounting firm (10 50 thousand Yuan)

Continuous life of auditing service for domestic 1 accounting firm

26 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Name of domestic CPA Fan Rong, Han Junmin

Name of foreign accounting firm (if applicable) Nil

Continuous life of auditing service for foreign Nil accounting firm (if applicable)

Name of foreign CPA Nil Whether re-appointed accounting firms in this period or not √ Yes □ No Whether re-appointed accounting firms in auditing period or not □ Yes √ No Completed approval procedures while change accounting firms √ Yes □ No Explanation on re-appointment and changes of accounting firms On 16 October 2012, being approved by the 8th Meeting of 5th Session of the Board, former auditing instit ution Crowe Horwath CPA (Limited Liability Partnership) fail to reach an agreement with the Company on clause of auditing contract, the Company appointed Dahua Certified Public Accountants (Limited Liability Partnership) instead as financial auditing institution for year of 2012, which is approved by voting in 5th extraordinary shareholders meeting of the Company dated 4 November 2012.

Appointment of internal control auditing accounting firm, financial consultant or sponsor □ Applicable √ Not applicable

V. Other material events

1. The Suspension Notice of Preparation of Material Assets Restructure (No.: 2012-048) was published on 26 July 2012, the Company plans to acquired 30% equity of Tianjin Runhua RW in cash, and the stock of the Company will be suspended since 26 July 2012. During the suspension period, notice of progress of material assets restructure published once every week. On 9 January 2013, the Acquisition of Material Assets and Related Transactions Report (draft) and relevant proposals are deliberated in 13th meeting of 5th session of the Board, and the aforesaid proposals are approved under circumstances of related directors evaded. On 25 January 2013, relevant proposals concerned with restructure were deliberated and pass on 1st extraordinary shareholders general meeting of 2013. On 20 February 2013, the Notice of Material Rectification for Administrative Application No. 130103 (“Rectification Notice”) was received from CSRC. The Application of Acquisition of Material Assets and Related Transaction under the name of Chengde Nanjiang Co., ltd was reviewed by CSRC that submitted by the Company. After examining, materials should be rectified. CSRC ask the Company submitted rectified materials to administrative department of CSRC within 30 working days since the Rectification Notice deliver. The Company will actively rectify materials according to requirement from Rectification Notice and will submit the materials to administrative department of CSRC on time. The Company will performing announcement obligation in time according to the progress of this material assets reorganization.

VI. Significant events of the subsidiaries

1. On 10 August 2012, wholly-owned subsidiary of the Company- Chengde RongYiDa Real Estate Development Co., Ltd entered into an agreement with Land Reserves Center of Chengde County, Land Reserves Center of Chengde County will paid to recover the state-owned land(locates in east side of Guangming Rd., XianBanCheng, Chengde County) with compensation of RMB 60 million. More details found in Notice of Assets Sold published on Securities Times, Hong Kong Commercial Daily and Juchao Website http://www.cninfo.com.cn dated 11 August 2012.

27 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

2. On 9 October 2012, RongYiDa entered into an agreement with Land and Resources Bureau of Chengde County, Land and Resources Bureau of Chengde County will paid to recover the state-owned land(locates in west side of Guangming Rd.) with compensation of RMB 62.07 million. More details found in Notice of Assets Sell published on Securities Times, Hong Kong Commercial Daily and Juchao Website http://www.cninfo.com.cn dated 11 October 2012. 3. In middle of December 2012, the Civil Ruling Paper (2008) CMP Zi No. 10-4, (2008) CMP Zi No. 11-5, and (2008) CMP Zi No. 12-5 was received by the Company from Intermediate People‟s Court of Chengde City, Hebei Province, the Paper ruling that the Chengde Dixian Fashion Co., Ltd. (controlling subsidiary of the Company), Hebei XiaBanCheng Knitwear Co., Ltd,(wholly -owned subsidiary of the Company) and Chengde Banhe Chemical Fiber Simulation Fabric Co., Ltd. (stock-jointly by controlling subsidiary of the Company) are terminated bankruptcy procedures, the outstanding creditor‟s right will not paid anymore. 4. On 24 January 2013, wholly-owned subsidiary of the Company—Chengde Nanjiang Investment Co., Ltd (“Nanjiang Investment”) entered into the cooperation agreement with Ningbo Morsh Technology Co., Ltd., the two parties‟ plans to incorporate Chengde Morsh Technology Co., Ltd. in Changde, Hebei Province with register capital of RMB 50 million. Of which, Nanjiang Investment contribute RMB 45 million in cash, occupied 90% in total investment capital while Ningbo Morsh Technology Co., Ltd. invested RMB 5 million in cash, a 10% in total investment capital. More details found in Notice of Investment and Related Transaction published on Securities Times, Hong Kong Commercial Daily and Juchao Website http://www.cninfo.com.cn dated 25 January 2013.

28 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Section VI. Changes in Shares and Particulars about Shareholders

I. Changes in Share Capital

Before the Change Increase/Decrease in the Change (+, -) After the Change Capitalizat New Proportion Bonus ion of Proportion Amount shares Others Subtotal Amount (%) issued shares public (%) reserve

244,800,0 244,800,0 I. Unlisted shares 34.66% 34.66% 00 00

244,800,0 244,800,0 1. Sponsor‟s shares 34.66% 34.66% 00 00

Domestic legal person‟s 23,147,30 23,147,30 3.28% 3.28% shares 9 9

221,652,6 221,652,6 Others 31.38% 31.38% 91 91

461,520,0 461,520,0 II. Listed shares 65.34% 65.34% 00 00

2. Domestically listed 461,520,0 461,520,0 65.34% 65.34% foreign shares 00 00

706,320,0 706,320,0 III. Total shares 100% 100% 00 00

Reasons for share changed Approval of share changed □ Applicable √ Not applicable Ownership transfer of share changed Influence on the basic EPS and diluted EPS as well as other financial indexes of net assets per share attributable to common shareholders of Company in latest year and period □ Applicable √ Not applicable Other information necessary to disclose for the Company or need to disclosed under requirement from security regulators Nil

II. Particulars about shareholder and actual controller of the Company 1. Amount of shareholders of the Company and particulars about shares holding

Unit: share

Total shareholders in reporting Total shareholders ended as the 5th trading day before 21,153 20,235 period annual report disclosed

Particulars about shares held above 5% by shareholders

29 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Total Amount sharehol Amount Number of share pledged/frozen Changes of Full name of Nature of Proportion of ders at of listed in report un-liste Shareholders shareholder shares held (%) the end shares period d shares of report held State of share Amount held period

Domestic nature 208,324 208,324 Wang Dong 29.49% 0 0 person ,800 ,800

GUOTAI JUNAN Overseas legal 69,850, 69,850, SECURITIES(H 9.89% 0 person 210 210 ONGKONG) LIMITED

Shanghai Wanguo Overseas legal 26,983, 26,983, 3.82% 0 (H.K) Securities person 735 735

Chengde North Domestic 18,517, 18,517, Industrial non-state owned 2.62% 651 651 Corporation legal person

Domestic 13,327, 13,327, Wang Zhengsong 1.89% 891 891

Domestic 9,785,9 9,785,9 Zou Xiaomin 1.39% 0 00 00

Domestic 8,282,0 8,282,0 Yu Sanxi 1.17% 0 00 00

Domestic 7,258,0 7,258,0 Wang Wensheng 1.03% 0 07 07

CORE PACIFIC-YAMA ICHI Domestic nature 4,101,9 4,101,9 0.58% 0 INTERNATION person 58 58 AL (H.K.) LIMITED

Domestic nature 3,533,3 3,533,3 Liu Tingyu 0.5% 0 person 64 64

Strategy investors or general legal person becomes top 10 shareholders Nil due to rights issued (if applicable)

Explanation on associated The Company is unknown whether there exists associated relationship or belongs to relationship among the aforesaid consistent actor regulated by “management method for acquisition of listed company” among shareholders the above said shareholders.

30 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Particular about top ten shareholders with un-restrict shares held

Type of shares Shareholders‟ name Amount of listed shares held at year-end (Note 4) Type Amount

GUOTAI JUNAN Domestically SECURITIES(HONGKONG) 69,850,210 listed foreign 69,850,210 LIMITED shares

Overseas listed Shanghai Wanguo (H.K) Securities 26,983,735 26,983,735 foreign shares

Domestically Zou Xiaomin 9,785,900 listed foreign 9,785,900 shares

Domestically Yu Sanxi 8,282,000 listed foreign 8,282,000 shares

Domestically Wang Wensheng 7,258,007 listed foreign 7,258,007 shares

CORE PACIFIC-YAMAICHI Domestically INTERNATIONAL (H.K.) 4,101,958 listed foreign 4,101,958 LIMITED shares

Domestically Liu Tingyu 3,533,364 listed foreign 3,533,364 shares

Domestically Peng Wei 2,978,525 listed foreign 2,978,525 shares

Domestically Zhao Ziying 2,853,616 listed foreign 2,853,616 shares

Domestically Li Siquan 1,726,133 listed foreign 1,726,133 shares

Expiation on associated relationship or consistent actors within the top 10 The Company is unknown whether there exists associated relationship or belongs to un-restrict shareholders and between consistent actor regulated by “management method for acquisition of listed company” among top 10 un-restrict shareholders and the above said shareholders. top 10 shareholders

Explanation on shareholders involving margin business (if Nil applicable)

31 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

II. Particulars about controlling shareholder of the Company and actual controller of the Company

Nature person

Controlling shareholder and actual whether enjoy the residence power in the other country Nationality controller‟s name or area

P.R.C Wang Dong No

Successively served as director and GM of China Kejian Co., Ltd from March 2005 to December 2011; served as Chairman of Shenzhen Nanjiang Investment Holding Co., Ltd. since April 2011; successively hold the position of Chairman and Director Occupation or position in latest five years of Guangzhou Lezent Communications Technology Co., ltd. from September 2009 to January 2012; serves as Director of NANJIANG DIAMOND CO., LIMITED since February 2012; serves as Chairman of Ningbo Morsh Technology Co., Ltd. since May 2012 and Director of Chengde Nanjiang Co., Ltd. since July 2012.

Listed companies in and out of China that Nil controlled in last 10 years

Changes of controlling shareholders in reporting period √ Applicable □ Not applicable

In reporting period, controlling shares and actual controller of the Company has changed. On 6 April 2012, the former controlling shareholder and actual controller Mr. Chen Rong entered into the Equity Transfer Agreement with Mr. Wang Dong in Shanghai. Mr. Chen Rong transfers all of the equity held by hand to Mr. Wang Dong. Mr. Wang Dong is the controlling shareholder and actual controller of the Company after transfer. Property right and controlling relationship between the actual controller and the Company is as follow:

Wang Dong

29.49%

CHENGDE NANJIANG CO., LTD.

Actual controller controlling the Company by entrust or other assets management

□Applicable √Not applicable (III) Particulars about other legal person shareholders with over 10% shares held Nil

32 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Section VII. Particulars about Directors, Supervisors and Senior

Executives and Employees

I. Changes of shares held by directors, supervisors and senior executives

Increasing Decreasing Shares Shares shares held shares held Start dated Working End date of held at held at Name Title Sex Age of office office term in this in this status term period-beg period-end period period in (Share) (Share) (Share) (Share)

Chairman M & Leave Lin Lixin Secretary 51 2012-04-27 2012-12-28 office of the Board

Director& M Zhao Currently GM& 36 2012-04-27 Yongsheng in office CFO

Cheng Currently M Director 44 2012-04-27 Ducai in office

Cao Independe Currently M 46 2012-04-27 Guohai nt director in office

Independe Leave M Fan Rong 50 2012-04-27 2012-07-11 nt director office

Chairman of Currently Xie Yu Supervisor M 39 2012-04-27 in office y Committee

Currently Wei Lei Supervisor F 35 2012-04-27 in office

Hao Employee Currently M 37 2012-04-27 5,900 0 0 5,900 Guangxin supervisor in office

Wang Director Currently M 40 2012-07-31 dong in office

Director Currently M Li Weimin 50 2012-07-31 in office

Chen Director Currently M 38 2012-07-31 Weihuan in office

33 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Guo Independe Currently M 42 2012-07-31 Huibin nt director in office

Zhang Independe Currently M 59 2012-07-31 Zhiyong nt director in office

Deputy Currently M Hu Wenxi 58 2012-04-27 GM in office

Shi Deputy Currently M 41 2012-04-27 Bainian GM in office

Wang GM Currently M 56 2012-04-27 Xiashu assistant in office

Yan Leave M Chairman 58 2011-06-30 2012-04-27 Qizhong office

Leave M Chen Jie Director 59 2008-11-03 2012-04-27 office

Wang Director& Leave M 51 2008-11-03 2012-04-27 Ansheng CFO office

Independe Leave M Liu Wei 43 2008-11-03 2012-04-27 nt director office

Independe Leave M Li min 56 2008-11-03 2012-04-27 nt director office

Chairman M of Yuan Leave Supervisor 35 2008-11-03 2012-04-27 Runbing office y Committee

Leave M Wu Yijing Supervisor 34 2008-11-03 2012-04-27 office

Employee Leave M Xu Xue 64 2008-11-03 2012-04-27 supervisor office

Secretary M Han Leave of the 36 2010-07-15 2012-03-05 Zhigang office Board

Wang Leave M CFO 51 2009-04-27 2012-04-27 Ansheng office

Total ------5,900 0 0 5,900

II. Post-holding

Major working experience of directors, supervisors and senior executive at the present in latest five years Li Weimin: male, born in 1963 and has a graduate diploma. He worked in 1st section of Ministry of Metallurgical Industry and

34 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Zhongjian Law Practice Center; he works in China Kejian Co., Ltd. since October 2001; hold secretary of the Board for China Kejian Co., Ltd. since April 2003 and he successively serves as Director, deputy chairman of the Company since July 2012, he is the Chairman of the Company right now. Zhao Yongsheng, male, born in January 1977, he owes a university degree. He served as GM for WholeWise Sci.& Tech. Co., Ltd and Netcom division from 1999 to 2006; and served as GM of Shenzhen XinJinDa Investment Co., Ltd. from 2006 t o 2012. He serves as director, GM and CEO of the Company since 2012. Cheng Ducai, male, born in January 1969, party member of the CPC, an accountant, he owes a university degree. He successively served as office of financial dept., directors and deputy directors of China Resources Recycling Corporation; he also served as CFO of Beijing XinLianXieChuang Real Estate Development Co., Ltd, Chairman of Beijing XinLian JinDa Investment Co., Ltd, and deputy chairman of Tibe Yalong Tibetan Medicine Co., Ltd.; now he is the Director of the Company. Wang Dong, male, born in 1973 and has a graduate diploma. He served as director and GM of China Kejian Co., ltd. from March 2005 to December 2011; successively hold the position of Chairman and Director of Guangzhou Lezent Communications Technology Co., ltd. from September 2009 to January 2012; serves as Chairman of Nanjiang Investment Holding Co., Ltd since Ap ril 2011; the Director of NANJIANG DIAMOND CO., LIMITED since February 2012; and now is the Director of the Company. Chen Weihuan, male, born in December 1975, an accountant with university degree. He successively served as manager of financi al dept. of WholeWise Sci.& Tech. Co., Ltd, as CFO of China Kejian Co., ltd. and deputy GM of Shenzhen Nanjiang Investment Holding Co., ltd. Now he is the Director of the Company. Hu Wenxi, male, 58-year-old, the party member of the CPC, a senior economist, the junior college educational background; he successively worked as workshop director and group leader of Water Pump Plant for Chengde County and Hardware Repair Workshop; he also worked as factory director and secretary of Malleable Iron Plant for Chengde County, Plumbing Plant and Machinery Plant of Light Industry; served as deputy chief of a bureau of Economic and Trade in Chengde County; General engineers of Chengde County Industry Promotion Bureau; in April 2008 he work in second-line and removed posts of administrative; he serves as deputy GM of the Company since November 2008; now he serves as Director of the Company in January 2013. Cao Guohua, male, PhD in Management, professor and tutor of a Ph.D student for School of Economics and Business Administration, Chongqing University. He was selected as the elite talent of new century of Ministry of Education in 2007. He successively served as independent directors of Guizhou Lark Co., ltd. and Balance Auto Insurance Co., Ltd. Now he is the independent director of the Company. Guo Huibin, male, born in September 1971,an accountant, master of economics. He served as financia l analyst of financial dept. of China Railway Signal & Communication Corp. from April 1996 to March 1997; worked in management dept. of branch of Lenovo from March 1997 to February 1999; worked as GM of Kunming Branch from March 1999 to February 2001; from March 2001 to September 2004 he worked as deputy GM of business management dept. of Digital China Integrated System; from June 2005 to September 2007 he served s GM for Beijing XinNuo Zhiye Technology Development Co., Ltd.; he served as GM of Beijing Fangbo Shidai Technology Co., Ltd. from October 2007 to March 2011 and served as Chariman of Tianjin One-Selected Equity Fund Management Co., Ltd. from March 2011 to July 2012 and now he is the independent director of the Company. Zhang Zhiyong, male, born in November 1954 and has a graduate diploma, a chief editor (deputy senior). He dedicated to news for almost thirty years, and he successively served as the director of People‟s Broadcasting Station of Baicheng City, Jilin Province, the director of Baicheng Daily; deputy chief editor of Shenzhen TV News and director and member of editorial board for Shenzhen Financial Post; he serves as director, member of editorial board and deputy President of Securities Times since February 1994; also he took post of independent director of China Kejian Co., ltd. since May 2010, now he is independent director of the Company. Xie Yu, male, born in 1974, graduated from Chongqing University; from September 1998 to May 2000 he served as engineers for Chongqing Branch of China Unicom; from May 2000 to January 2003 he served as Manager of WholeWise Sci.& Tech. Co., Ltd; served as deputy GM of Beijing Times WholeWise Software Tech. Co., Ltd. from January 2003 to September 2004; from September 2004 to September 2007 he served as GM for Beijing Tibet Beidou Star Group Co., Ltd; he successively serves as GM assistant , director and deputy president of Sichuan Direction Photoelectricity Co., Ltd. since September 2007; now he is the chairman of supervisory committee of the Company.

35 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Wei Lei, female, born in 1978, the junior college educational background; from July 1997 to December 2008 she worked as accountant for Xinzhi Technology Co., Ltd. and act as financial manager of Shenzhen Branch of Xinzhi Technology Co., Ltd.; she serves as accountant of Shenzhen Xinjinda Investment Holding Co., Ltd. since January 2009, now she is the supervisor of the Company. Hao Guangxin, male, born in 1976, graduated from technical secondary school; he worked in former Dixian Co., ltd in 1996; and he successively act as director of Making Factory, officer and director of comprehensive business division and office director of Chengde Dalu Co., Ltd.; now he serves as employee supervisor of the Company. Shi Bainian, male, 40-year-old, graduated from university (major in economic management); he worked as director of Making Plant of Dixian Group, director of Dyeing Plant and also served as director and GM of the Company. He serves as deputy GM of the Company since November 2008. Wang Xiashu, male, 56-year-old, graduated from university; he successively served as deputy director of Fuzhou 2nd Printing Factory, deputy GM of branch of Fujian Computer Company, deputy GM of Fujian Union Intelligent Equipment Co., Ltd., director and deputy GM of Beijing Mingda Real Estate Development Co., Ltd, director and deputy GM of Beijing Bihu Entertainment Development Co., Ltd, chairman and GM of Beijing Wanbo Technology Development Co., Ltd, director and deputy GM of Beijing Millenniums Investment Co., Ltd., legal person and GM of Shandong Changle Changyuan Real Estate Co., Ltd. and deputy GM of Fujian Yumin Investment Co., ltd.

Post-holding in shareholder‟s unit □ Applicable √ Not applicable Post-holding in other unit √Applicable □Not applicable

Start dated of End date of Weather receiving Name Name of other units Position office term office term remuneration from other units

Cheng Ducai Beijing XinLian JinDa Investment Co., Ltd GM 2005-04-15 Yes

Wei Lei Shenzhen XinJinDa Investment Co., Ltd Accountant 2009-01-15 Yes

Ningbo Morsh Technology Co., Ltd. Chairman 2012-05-02 No

NANJIANG DIAMOND CO., LIMITED Director 2012-02-23 No Wang Dong Shenzhen Nanjiang Investment Holding Chairman 2011-04-19 No Co., ltd.

Shenzhen Nanjiang Investment Holding Chen Weihuan CFO 2011-04-19 Yes Co., ltd.

Secretary of Li Weimin China Kejian Co., Ltd. 2003-04-10 Yes the Board

III. Remuneration for directors, supervisors and senior executives

Decision-making procedures, recognition basis and payment for directors, supervisors and senior executives Decision-making procedures: remuneration & appraisal committee proposed remuneration plan, and being approved after deliberation by the Board, submitted for approval to shareholders‟ general meeting. Recognition basis: based on the industry and scales of the remuneration standards, formulate remuneration combine with actual

36 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text operation status of the Company. Payment: distribute monthly according to remuneration plan In reporting period, the in-post directors, supervisors and senior executives (not including independent directors) received remuneration from the Company totally approximately as RMB 209,500 Remuneration for directors, supervisors and senior executives in reporting period

Total Total Remuneration remuneration Post-holding remuneration actually Name Title Sex Age obtained from status obtained from obtained at shareholder‟s the Company period-end unit

Chairman& Lin Lixin Secretary of M 51 Leave office 0.00 0.00 0.00 the Board

Zhao Director& Currently in M 36 18,000.00 0.00 18,000.00 Yongsheng GM& CFO office

M Currently in Cheng Ducai Director 44 0.00 0.00 0.00 office

Independent M Currently in Cao Guohai 46 45,000.00 0.00 45,000.00 director office

Independent M Fan Rong 50 Leave office 0.00 0.00 0.00 director

Chairman of M Currently in Xie Yu supervisory 39 0.00 0.00 0.00 office committee

Currently in Wei Lei Supervisor F 35 0.00 0.00 0.00 office

Employee M Currently in Hao Guangxin 37 38,600.00 0.00 38,600.00 supervisor office

Director M Currently in Wang dong 40 0.00 0.00 0.00 office

Director M Currently in Li Weimin 50 0.00 0.00 0.00 office

Chen Director M Currently in 38 0.00 0.00 0.00 Weihuan office

Independent M Currently in Guo Huibin 42 30,000.00 0.00 30,000.00 director office

Independent M Currently in Zhang Zhiyong 59 30,000.00 0.00 30,000.00 director office

M Currently in Hu Wenxi Deputy GM 58 42,900.00 0.00 42,900.00 office

37 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

M Currently in Shi Bainian Deputy GM 41 38,700.00 0.00 38,700.00 office

M Currently in Wang Xiashu GM assistant 56 43,700.00 0.00 43,700.00 office

Yan Qizhong Chairman M 58 Leave office 14,000.00 0.00 14,000.00

Chen Jie Director M 59 Leave office 0.00 0.00 0.00

Wang Ansheng Director& CFO M 51 Leave office 0.00 0.00 0.00

Independent M Liu Wei 43 Leave office 0.00 0.00 0.00 director

Independent M Li min 56 Leave office 0.00 0.00 0.00 director

Chairman of M Yuan Runbing supervisory 35 Leave office 0.00 0.00 0.00 committee

Wu Yijing Supervisor M 34 Leave office 0.00 0.00 0.00

Employee M Xu Xue 64 Leave office 0.00 supervisor

Secretary of M Han Zhigang 36 Leave office 5,600.00 0.00 5,600.00 the Board

Wang Ansheng CFO M 51 Leave office 8,000.00 0.00 8,000.00

Delegated equity incentive for directors, supervisors and senior executives in reporting period □ Applicable √ Not applicable

IV. Post-leaving and dismissals for directors, supervisors and senior executives

Name Title Type Date Reasons

Yuan Qizhong Chairman Demission 2012-04-27 Board succession

Chen Jie Director Demission 2012-04-27 Board succession

Wang Ansheng Director & CFO Demission 2012-04-27 Board succession

Independent Demission Liu Wei 2012-04-27 Board succession director

Independent Demission Li Min 2012-04-27 Board succession director

Chairman of Demission Yuan Runbing supervisory 2012-04-27 Supervisory Committee succession committee

Wu Yijing Supervisor Demission 2012-04-27 Supervisory Committee succession

Xu Xue Employee Demission 2012-04-27 Supervisory Committee succession

38 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

supervisor

Secretary of the Demission Han Zhigang 2012-03-05 Personal reason Board

Independent Demission Fan Rong 2012-07-11 Personal reason director

Chairman& Demission Lin Lixin Secretary of the 2012-12-28 Personal reason Board

V. Changes of core technology team or key technicians in reporting period (not including directors, supervisors and senior executives)

Core technology team has no changed in reporting period

VI. Particulars of workforce

(I) Employees in-post Ended as 31 December 2012, the Company owes 51 employees in-post totally (II) Professional constitution and education background: Classification of Production personnel Sales man Technicians Fianncial Administrative profession personnel personnel People 15 2 6 7 14 Classification of Doctor Master Bachelor degree Junior college High school and education diploma below background Number 1 4 11 12 23

39 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

(III) Ended as 31 December 2012, the Company has no retired employees that need to bear the costs; no changes on core technology team

40 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Section VIII. Administrative Structure

I. Administration of the Company In reporting period, the Company complied to laws and rules such as the Company Law, the Security Law, the Governance Rules of Listed Companies, the Stock Listing Rules for Shenzhen Stock Exchange and the Normalized Operation Norms for Listed Companies as well as requirements of Articles of Association, practically enhanced internal control system of the Company, fully exercised functions of various commissions of the board of directors, constantly improved integrate governance of the Company. In reporting period, the Company formulated the Administration Rules for Insiders of Internal Control, the Accountability System for Major Errors Made in Annual Report Information Disclosure and Internal Control System, thus further enriched internal control system, strictly normalized confidentiality, submission and usage of internal information, substantially boost standardized operation of the Company. 1. Shareholders and the Shareholders‟ General Meeting

The Company set up Rules of Procedure of Shareholders‟ General Meeting and was able to convene and hold the Shareholders‟ General Meeting strictly according to the requirement of normative opinions of the Shareholders‟ General Meeting and the procedure of the meeting was legal. The Company ensures that all shareholders share the actual information of the Company equally and guarantee the legal rights of medium and small shareholders.

2. Relation of the controlling shareholder and the listed company In order to truly safeguard the whole interest of the Company, the Company has set up Behavior Criterion of Controlling Shareholder. The Company is completely independent from the controlling shareholder in terms of personnel, assets, finance, organization and business, owes independent business and ability of self operation. The Board of Directors, the Supervisory Committee and internal organization can operate independently. 3. Directors and the Board of Directors

The Company elected directors strictly according to the procedure stated in the Articles of Association and engaged independent directors according to relevant requirements. All directors can take the responsibilities in a diligent attitude on behalf of the maximum interests of the Company and the shareholders. The Board of Directors established Rules of procedure of the Board of Directors, implemented patiently the regulations of the laws, regulations and the Articles of Association of the Company, treated all shareholders fairly and concentrated on the interest of relevant beneficial parties. Specialized commissions were set up in the board of directors such as audit commission, remuneration and appraisal commission, strategy commission and nomination commission. They respectively take over function of discussion and determination of significant events according to corresponding working details. 4. Supervisors and the Supervisory Committee

The population and constitution of the board of supervisors conform to requirements of the Articles of Association, including 1 staff representative among the 3 members. The supervisors could carefully exert duties, take necessary check and supervision on finance, directors, general managers and other senior managerial personnel, thus maintain lawful interests of the Company. The procedure of assembling and holding of the board of supervisors conform to relevant rules of the Listing Rules, the Articles of Association and the Parliamentary Procedures of the Board of Supervisor. 5. For relevant beneficial parties The Company is able to fully respect and safeguard the legal rights and interests of the bank, other creditors, employees, customers and other parties of related interests. The Company pays special attention to social welfare, environmental protection and commonweal cause in the area, while protecting the Company‟s sustainable development and realizing the maximum of the shareholders‟ interests. 6. Information disclosure and transparency

41 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

The Company authorized the secretary of the Board of Directors to be responsible for information disclosure, reception of the shareholders‟ interviewing and consultation. The Company could disclose relevant information in a true, accurate, complete and timely manner strictly according to provisions of laws, regulations and the Articles of Association so as to ensure equal chances for all shareholders to obtain information. The Board considers that according to the requirement of Governance Standards for Listed Company from CSRC, basically, there are no difference between the actual corporate governance of the Company and relevant normative documents of corporate governance issued from CSRC

Is there any difference between the corporate government, the Company Laws and relevant regulations from CSRC □ Yes √ No

There are no differences between the corporate government, the Company Laws and relevant regulations from CSRC

Specific activity of the corporate governance as well as formulation and implementation of registration mechanism for insiders On 29 March 2012, the Management Mechanism of Insiders (March 2012) was approved by deliberation, relevant detail notice found in Juchao website http://www.cninfo.com.cn. In reporting period, the Company strictly complies with Registration Mechanism for Insiders, no insiders making use of inside information, before material sensitive information that influence a lot in stock price disclosed, for stock trading; and no investigation and rectification from supervision department either. II. In the report period, the Company held annual shareholders’ general meeting and extraordinary shareholders’ general meeting 1. Annual Shareholders’ General Meeting in the report period

Session of meeting Date Name of meeting motion Situation Date of disclosure Index of disclosure

Working Report of the Board for year of 2011, Working Report of the Supervisory Committee for year of 2011, Deliberation Securities Times, of Annual Financial Report Hong Kong for year of 2011, Profit Annual shareholders‟ Commercial Daily Distribution Plan for year general meeting 2012-05-18 All pass 2012-05-21 and Juchao Website of 2011, Deliberation of 2011 http://www.cninfo.co Annual Report and m.cn Summary for year of 2011,

Specific Explanation on Modified Opinion from the Board and Engagement of Auditing Institution for year of 2012

2. Extraordinary shareholders’ general meeting in the report period

Session of meeting Date Name of meeting motion Situation Date of disclosure Index of disclosure

42 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

Proposal of Election for Directors of 5th Session of Securities Times, the Board, Proposal of The first Hong Kong Election for Independent extraordinary Commercial Daily 2012-04-27 Directors of 5th Session of All pass 2012-04-28 shareholders‟ general and Juchao Website the Board and Proposal of meeting 2012 http://www.cninfo.co Election for Supervisory m.cn Committee of the Company

Proposal of Revision of Securities Times, The second Article of Association and Hong Kong extraordinary Remuneration and Commercial Daily 2012-06-08 All pass 2012-06-11 shareholders‟ general Allowance Plan for and Juchao Website meeting 2012 Directors and Supervisors http://www.cninfo.co of 5th Session m.cn

Proposal of Revision of Securities Times, The third Article of Association and Hong Kong extraordinary Proposal of Appointment Commercial Daily 2012-07-29 All pass 2012-07-30 shareholders‟ general for Directors and and Juchao Website meeting 2012 Independent Directors of http://www.cninfo.co the Company m.cn

Proposal of Company Securities Times, The fourth Name Changed, Proposal Hong Kong extraordinary of Revision of Article of Commercial Daily 2012-08-26 All pass 2012-08-27 shareholders‟ general Association and Proposal and Juchao Website meeting 2012 of Assets Sold from http://www.cninfo.co Wholly-owned Subsidiary m.cn

Proposal of Foreign Investment from Wholly-owned Subsidiary, Securities Times, The fifth Proposal of Assets Transfer Hong Kong extraordinary from Wholly-owned Commercial Daily 2012-11-04 All pass 2012-11-05 shareholders‟ general Subsidiary Proposal of and Juchao Website meeting 2012 Lawsuit Reconciliation and http://www.cninfo.co Proposal of Changes for m.cn Annual Financial Auditing Institution for year of 2012 III. Responsibility performance of independent directors in report period 1. The attending of independent directors to Board meetings and shareholders’ general meeting

The attending of independent directors

Name of independent Times of Board Times of Times of Times of Times of Whether absent director meeting Presence attending by entrusted Absence the Meeting for

43 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

supposed to communication presence the second time attend in the in a row or not report period

Cao Guohua 12 1 14 0 0 No

Guo Huibin 8 0 8 0 0 No

Zhang Zhiyong 8 0 7 1 0 No

Explanation of absent the Board Meeting for the second time in a row Inapplicable

2. Objection for relevant events from independent directors

Whether independent directors come up with objection about company‟s relevant matters or not □ Yes √ No

Independent directors has no objections for relevant events in reporting period

3. Other explanation about responsibility performance of independent directors Whether the opinions from independent directors have been adopted or not √Yes □ No Explanation on advice that accepted/not accepted from independent directors According to the requirement of Company Law, Security Laws, Rules for Stock Listing, Article of Association and Working Mechanism for Independent Directors, independent directors of the Company pay attention to operation of the Company, performing vary responsibility of independent directors seriously; furthermore, they proactively investigate and studied operation status, business development and financial status of the Company, strictly supervise standard operation of the Company. Concerning the engagem ent of accounting firm, external guarantee, profit distribution plan and self-evaluation report of internal control, they carry out specific explanation and independent opinions; and fulfill responsibility to propose scientific and reasonable opinions and recommendation for operation and development of the Company base on their own professional knowledge, which protect all interest of the shareholders for the Company. In the report period, independent directors have no objections on relevant issues of the Company.

IV. Responsibility performance of subordinate special committee of the Board in report period 1. Responsibility performance of Auditing Committee In the report period, auditing committee followed related regulation of Annual Report Work Regulations of Audit Committee, seriously fulfilled their duties: examine accounting policy, financial system and financial status of eth Company for year of 2012 as well as the improvement and implementation of internal control; auditing company‟s periodic report and financial report; during the preparation, they cooperated with auditing institution to ensure the reality, accuracy and completeness of periodic report, and summary the annual work of auditing institution 2. Responsibility performance of Nomination Committee In reporting period, the Company has elections at expiration of terms, for purpose of guarantee smoothly works for the Board, pursuit to relevant regulation of Working Rules for Nomination Committee, they examine the profession, education background, title and detail working experience and part-time job for the candidate directors, supervisors and senior executives; and they propose nomination opinions for perfecting corporate governance

3. Responsibility performance of Remuneration and Appraisal Committee

44 Chengde Nanjiang Co., Ltd. Annual Report for 2012-Full Text

In the report period, according to actual condition of the Company, remuneration and appraisal committee make out the remuneration plan for directors and supervisors, and formulated the remuneration plan for senior executives based on year-end appraisal according to their ability, performance and goal accomplishment. 4. Responsibility performance of Strategy Committee In reporting period, strategy committee focus on the development of company and face up to delisting risks; they search out optimized plan for material reorganization of the Company in order to protect interests of the Compay and whole shareholders.

V. Works from Supervisory Committee Whether the Company has risks or not in reporting period that found in supervisory activity from supervisory committee □ Yes √ No

Supervisory committee has no objection about supervision events in reporting period

VI. Independency of the Company relative to controlling shareholders’ in aspect of businesses, personnel, assets, organization and finance The company is completely independent from the controlling shareholder in terms of personnel, assets, finance, organization and business for independent responsibility and risks undertake, owes an independent business and ability of self operation. 1. In aspect of personnel: the labor, personnel and wage management of the Company is completely independent and the manager, deputy manager and other senior executives received salaries in the Company. 2. In aspect of assets: The Company as an independent legal person has full property right of legal person and has independent production system, accessorial production system and auxiliary equipment. Industrial property right, trademark, non-patent technology and other intangible assets all belong to the listed company. The Company has independent purchase and sales system. 3. In aspect of finance: The Company has independent financial department, whole, independent and normatively operated business accounting system and financial administration system and independent bank account. 4. In aspect of organization independence: The Company‟s organizations are wholly independent and the offices of the Company are wholly separated from the controlling shareholder. 5. In aspect of business: The Company is independent from the controlling shareholder in terms of businesses and has independent and whole business and operating ability. VII. Horizontal Competition No horizontal competitions exist in the Company, controlling shareholders and actual controllers

VII. Appraisal and incentive mechanism for senior executives Senior executives‟ annual remuneration is paid monthly. They based on rules of salary management and level standard made by the company. They made the remuneration case for senior manager based on the annual examination of their work ability, performance and accomplishment of duty goals.

45

Section IX. Internal control I. The Construction Situation of Internal Control Based on the reality of its own, the Company had established a set of internal control system which was rather perfect, including Articles of Association, Procedures and Rules of Shareholders‟ General Meeting, Procedures and Rules of Board of Directors, Procedures and Rules of Supervisory Committee, Work Specification for General Manager, Management System of Raised Proceeds, Conduct Code for Controlling Shareholders, Investor Relationship Management System, Financial Management System, Information Disclosure Management System, Internal Report System for Significant Information, Shares Held by the Directors, Supervisors and Senior Management Officers of Listed Companies and the Changes Thereof, Administration System for Insiders of Internal Information, the Accountability System for Major Errors Made in Annual Report Information Disclosure, Internal Audit System, Work Specification for Independent Directors, Implementation Specification for Audit Committee, Work Rules on Annual Report for Audit Committee, Encouragement and Restraint Mechanism Approach for Management Team, Implementation Specification for Strategy Committee of Board of Directors, Implementation Specification for Remuneration and Appraisal Committee of Board of Directors, Implementation Specification for Nomination Committee of Board of Directors and Related Transaction Management System and other regulations and systems. The internal control system basically covered all operational step of the Company.

In reporting period, for reinforced and improved internal control of the Company, and guarantee favorable operation of the Company as well as in line with relevant requirement and supporting guideline of “Notice of Approval from the State Council for Quality Improvement of Listed Company from Security Regulatory Committee(GF[2005] No. 34” and “Basic Norms of Internal Control for Enterprises”; according to the relate requirement of “Notice of Standardize Relevant Works of Internal Control Completely for the Company in Administrative Area” from Hebei Security Regulatory Bureau of CSRC, the Company formulated a working plan of implementation of internal control and promoted the internal control work step by step. The present internal control system of the company was basically completed, which could adapt demand of the Company‟s management and development, and basically reached the whole goal of internal control. The present internal control could provide reasonable guarantee for compiling true and fair financial statement, and provide guarantee for healthy operation of each business, and implementation of relevant laws, regulations of the state and internal bylaws of unit. Each internal control of the Company was persistently, smoothly and strictly implemented in each step of production and operation. The Company thought the internal control was effective.

Accompanied with changes in operational and external environments, there was bound to be some systematical shortcomings or managerial loopholes during the corporate development, and effectiveness of the current internal control might change. The Company would comply with relevant requirements and further optimize internal control to make sure that it would always adapt to the developmental demands of the Company as well as the requirements of related national laws and rules.

II. Statement of the Board of Directors on Responsibility of Internal Control Board of Directors considers that: the Company effectively implemented the internal control by continuous to established, completed and executed vary internal control mechanism as well as perfected the mechanism; internal control mechanism is operating in a favorable condition, no major defects be found in aspect of risk control, business control, financial management, H&R management, information communication and disclosure management; in real implementation, no major errors being found and the operation risks are under an effective

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control. Frame of internal control mechanism of the Company is getting more and more perfection and reasonable, overall, the mechanism is effective that meets the development for enterprise‟ operation.

III. Basis of establishing internal control for financial report The Company complied with laws, regulations and rules of finance department of State Council, formulated and implemented financial management system. The installation and division of accounting posts was clear, separated from each other and restrained each other with post duty system. In aspect of financial report, the Company had built a series of complete financial report system and internal control system of financial report. The production procedure of financial report was scientific and complete. As to the data, the core was controlled, the collection was efficient, and that analysis and handle was conducted. The Company implemented internal audit system. Specialized audit personnel took internal audit supervision on financial income and expenses. The internal audit department was responsible for and reported to audit commission of the board of directors. The Company conducted internal audit system. Specialized audit personnel took internal audit supervision on income and expense activities of the Company. Internal audit department was responsible for and submitted to the board of directors. As for annual report audit, the Company formulated the Annual Report Working Procedure for Audit Commission of the Board of Directors and the Annual Report Working Procedure for Independent Directors. Audit Commission and independent directors practically fulfilled duties with full responsibility diligently. The legal representative, chief accounting charger and charger of accounting institution were responsible for the authenticity and completeness of the Company. All the directors, supervisors and senior managerial personnel took responsibility for authenticity and completeness of the financial report. In rep orting period, there found no major deficit in internal control on financial report.

IV. Self-evaluation report of internal control

Details of major defects in self-evaluation report that found in reporting period

No major defect has been found in the report period

Date of self-evaluation report of 2013-02-28 internal control disclosed

Index of self-evaluation report of Juchao Website: Self-evaluation report of internal control for year of 2012 internal control disclosed

V. Establishment and enforcement of Accountability Mechanism for Major Errors in Annual Report The company formulated “Accountability Mechanism for Major Errors in Disclosure of Annual Report Information”, which defined the situation of major errors for disclosure of annual report information, the type of accountability and its kind. It helps to disclose annual report information. No correction of major accounting errors, supplementation of major omission information and amendment of performance prediction occurred in the report period.

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Section X. Financial Report

I. Audit report Report Of The Auditors DAHUASHENZI [2013] No. 001633 (EN)

To the Shareholders of

CHENGDE NANJIANG CO., LTD. :

We have audited the accompanying statement of (consolidated) financial position of CHENGDE NANJIANG CO., LTD. as at 31 December 2012, and the statement of (consolidated) comprehensive income, statement of (consolidated) cash flows, notes to (consolidated) financial statements for the year ended 31 December 2012.

1．Responsibility of the management

The preparation of the financial statements in accordance with “Accounting Standards for Business Enterprises” and “China Accounting Systems for Business Enterprises”, is the responsibility of the management of the company. The responsibility includes 1) designing, implementing and maintaining the internal controls over financial reporting, in order to avoid material misstatement due to fraud or error; 2) selecting and using appropriate accounting principles; and 3) making logical accounting estimate.

2. Responsibility of CPAs

Our responsibility is to express an opinion on these financial statements based on our audit. We conduct our audit in accordance with Auditing Standards for Chinese Certified Public Accountants. Those standards require that we abide by professional ethics, plan and perform the audit to obtain reasonable assurance on whether the financial statements are free from material misstatement. An audit includes the consideration of internal control over financial reporting as a basis for making risk assessment and designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company‟s internal control over financial reporting. An audit includes selecting and performing appropriate audit procedures based on auditors‟ judgment to gather evidence supporting the amounts and disclosures in the financial statements. An audit also includes an assessment of the accounting principles used and significant estimat es made by management, as well as an evaluation of the overall financial statement presentation. We believe that our audits provide a sufficient and reasonable basis for our opinion.

3. Audit opinions

In our opinion based on our examinations, the (consolidated) financial statements are presented fairly, in all 48

material respects, the (consolidated) financial position of your company as at 31 December 2012 and the results of its (consolidated) operations and (consolidated) cash flows for the year ended, in conformity with the “Accounting Standards for Business Enterprises” and “Accounting Systems for Business Enterprises” promulgated by the State.

Da Hua Certified Public Accountants LLP Certified Public Accountants:

（Beijing） Certified Public Accountants:

Beijing, P.R.China 26 February 2013

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CHENGDE NANJIANG CO., LTD. STATEMENT OF FINANCIAL POSITION STATEMENT OF FINANCIAL POSITION (CONTINUED) As at December 31, 2012 As at December 31, 2012

Monetary unit:RMB ASSETS NOTE Dec 31, 2012 Dec 31, 2011 Current assets： Cash and cash equivalents 777,456.70 4,019.80 Prepayments - 20,084,632.25 Other receivables 1 782,244.99 64,494.32 Total current assets 1,559,701.69 20,153,146.37

Long-term equity investments 2 103,114,299.73 58,925,880.26 Fixed assets 666,168.02 - Intangible assets 16,123,971.52 15,837,802.96 Total non-current assets 119,904,439.27 74,763,683.22

Total assets 121,464,140.96 94,916,829.59

Representative of the legal entity: Person in charge of acounting function:

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CHENGDE NANJIANG CO., LTD. STATEMENT OF FINANCIAL POSITION (CONTINUED) As at December 31, 2012

Monetary unit:RMB LIABILITIES AND OWNER'S NOTE Dec 31, 2012 Dec 31, 2011 EQUITY Current liabilities： Short-term Borrowing - 422,261.91 Payable - 218,802.27 Accrued payroll 189,016.48 489,639.20 Tax payable (52,171.87) 169,855.54 Other payable 99,848,758.92 59,148,355.58 Total current liabilities 99,985,603.53 60,448,914.50

Non-current liabilities Special Payable - 98,000.03 Total non-current liabilities - 98,000.03

Total liabilities 99,985,603.53 60,546,914.53

Owner's equity： Share capital 706,320,000.00 706,320,000.00 Capital reserves 449,365,886.69 449,365,886.69 Surplus reserves 76,791,550.17 76,791,550.17 Retained earnings (1,210,998,899.43) (1,198,107,521.80) Total owner's equity 21,478,537.43 34,369,915.06

Total liabilities and owner's equity 121,464,140.96 94,916,829.59

Representative of the legal entity: Person in charge of acounting function:

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CHENGDE NANJIANG CO., LTD. STATEMENT OF CONSOLIDATED FINANCIAL POSITION As at December 31, 2012 As at December 31, 2012

Monetary unit:RMB ASSETS NOTE Dec 31, 2012 Dec 31, 2011 Current assets： Cash and cash equivalents 1 81,546,046.87 572,655.85 Prepayments 2 308,292.36 21,059,096.25 Other receivables 3 28,169,019.64 38,382,087.66 Inventory 4 20,490,734.61 39,698,800.27 Other current assets 5 9,000,000.00 - Total current assets 139,514,093.48 99,712,640.03

Long-term equity investments 6 - 2,215,729.65 Fixed assets 7 24,742,103.60 60,871,294.69 Construction in progress 8 402,587.43 6,721,818.00 Intangible assets 9 26,705,104.38 39,592,776.04 Long-term deferred expenses 10 734,424.92 356,640.00 Deferred income tax assets 11 1,518,810.84 438,451.92 Total non-current assets 54,103,031.17 110,196,710.30

Total assets 193,617,124.65 209,909,350.33

Representative of the legal entity: Person in charge of acounting function:

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CHENGDE NANJIANG CO., LTD. STATEMENT OF CONSOLIDATED FINANCIAL POSITION (CONTINUED) As at December 31, 2012

Monetary unit:RMB LIABILITIES AND OWNER'S EQUITY NOTE Dec 31, 2012 Dec 31, 2011 Current liabilities： Short-term Borrowing 13 - 422,261.91 Payable 14 2,052,001.91 231,175.82 Receivable in advance 15 7,120,711.50 30,028,613.02 Accrued payroll 16 6,328,453.28 6,707,882.20 Tax payable 17 11,042,907.39 11,729,272.09 Other payable 18 52,178,378.96 67,822,914.44 Total current liabilities 78,722,453.04 116,942,119.48

Non-current liabilities Long-term borrowing 19 - 6,801,600.00 Special Payable 20 - 98,000.03 Total non-current liabilities - 6,899,600.03

Total liabilities 78,722,453.04 123,841,719.51

Owner's equity： Share capital 21 706,320,000.00 706,320,000.00 Capital reserves 22 456,470,250.78 449,365,886.69 Surplus reserves 23 76,791,550.17 76,791,550.17 Retained earnings 24 (1,124,687,129.34) (1,157,581,498.16) Total owner?s equity attributable to parent 25 114,894,671.61 74,895,938.70 company Minority interest - 11,171,692.12 Total owner's equity 114,894,671.61 86,067,630.82

Total liabilities and owner's equity 193,617,124.65 209,909,350.33

Representative of the legal entity: Person in charge of acounting function:

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CHENGDE NANJIANG CO., LTD. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 2012 Monetary unit:RMB

Items Note 2012 2011 I. Total revenues from main operations - - Add: Operationg income - - II. Total costs from main operations 14,221,165.70 2,591,046.15 Less: Cost of main operations - - Business tax and surcharge - - Administrative expenses 4,274,037.12 2,584,818.05 Financial expenses 132.00 5,936.10 Asset impairment loss 9,946,996.58 292.00 Add: Gain from change of fair value - - Return on investment - - III. Profit from main operations (14,221,165.70) (2,591,046.15) Add: Non-operating income 1,396,018.64 17,900,000.00 Less: Non-operating expenses 66,230.57 280,253.70 IV. Total profit (12,891,377.63) 15,028,700.15 Less: Income taxes - - VI. Net profit (12,891,377.63) 15,028,700.15 VII. Earnings per share

Basic earnings per share (0.02) 0.02 Diluted earning per share (0.02) 0.02 VIII. Other comprehensive income - - IX. Total comprehensive income (12,891,377.63) 15,028,700.15

Representative of the legal entity: Person in charge of acounting function:

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CHENGDE NANJIANG CO., LTD. STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME FOR THE YEAR ENDED 2012 Monetary unit:RMB

Items Note 2012 2011 I. Total revenues from main operations 25 79,512,004.22 515,150.00 Add: Operationg income 79,512,004.22 515,150.00 II. Total costs from main operations 86,243,667.29 17,858,842.73 Less: Cost of main operations 25 58,424,002.63 - Business tax and surcharge 26 4,949,457.23 30,199.06 Administrative expenses 27 15,939,028.09 12,729,701.92 Financial expenses 27 2,390,155.66 3,487,822.06 Asset impairment loss 28 4,541,023.68 1,611,119.69 Add: Gain from change of fair value Return on investment 29 15,731.51 - III. Profit from main operations (6,715,931.56) (17,343,692.73) Add: Non-operating income 30 109,415,952.53 18,851,504.06 Less: Non-operating expenses 31 63,261,820.36 987,303.70 IV. Total profit 39,438,200.61 520,507.63 Less: Income taxes 32 6,543,831.79 (383,388.80) VI. Net profit 32,894,368.82 903,896.43 Net profit attributed to parement company 32,894,368.82 1,818,785.62 Net profit attributed to minority - (914,889.19) VII. Earnings per share

Basic earnings per share 0.05 - Diluted earning per share 0.05 - VIII. Other comprehensive income 7,104,364.09 - IX. Total comprehensive income 39,998,732.91 903,896.43 Total comprehensive income attributed to parent company 39,998,732.91 1,818,785.62 Total comprehensive income attributed to minority - (914,889.19)

Representative of the legal entity: Person in charge of acounting function:

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CHENGDE NANJIANG CO., LTD. STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY December 31, 2012 Currency:RMB

Total Share capital Captal reserves Surplus reserves Retained earnings shareholders'equity RMB RMB RMB RMB RMB Balance at December 31, 2011 706,320,000.00 449,365,886.69 76,791,550.17 (1,198,107,521.80) 34,369,915.06 Add: Change of accounting policies - - - - - Prior period error correction - - - - - Balance at January 1, 2012 706,320,000.00 449,365,886.69 76,791,550.17 (1,198,107,521.80) 34,369,915.06 Increase/ Decrease in this year - - - (12,891,377.63) (12,891,377.63) (1) Net profit - - - (12,891,377.63) (12,891,377.63) (2) Other comprehensive income - - - - - Subtotal of (1)and (2) - - - (12,891,377.63) (12,891,377.63) Owners' devoted and decreased capital - - - - - Other ------Balance at December 31, 2012 706,320,000.00 449,365,886.69 76,791,550.17 (1,210,998,899.43) 21,478,537.43

Representative of the legal entity: Person in charge of acounting department:

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CHENGDE NANJIANG CO., LTD. STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY December 31, 2011 Currency:RMB

Total Share capital Captal reserves Surplus reserves Retained earnings shareholders'equity RMB RMB RMB RMB RMB Balance at December 31, 2011 706,320,000.00 449,365,886.69 76,791,550.17 (1,255,599,913.44) (23,122,476.58) Add: Change of accounting policies - - - - - Prior period error correction - - - 42,463,691.49 42,463,691.49 Balance at January 1, 2012 706,320,000.00 449,365,886.69 76,791,550.17 (1,213,136,221.95) 19,341,214.91 Increase/ Decrease in this year 15,028,700.15 15,028,700.15 (1) Net profit - - - 15,028,700.15 15,028,700.15 (2) Other comprehensive income - - - - - Subtotal of (1)and (2) - - - 15,028,700.15 15,028,700.15 Owners' devoted and decreased capital - - - - - Other - - - - -

Balance at December 31, 2012 706,320,000.00 449,365,886.69 76,791,550.17 (1,198,107,521.80) 34,369,915.06

Representative of the legal entity: Person in charge of acounting department:

57

CHENGDE NANJIANG CO., LTD. STATEMENT OF CONSOLIDATED CHANGES IN SHAREHOLDER'S EQUITY December 31, 2012 Currency:RMB

Total Items Note Share capital Captal reserves Surplus reserves Retained earnings Minority interest shareholders'equity 5 RMB RMB RMB RMB RMB RMB Balance at December 31, 2011 706,320,000.00 449,365,886.69 76,791,550.17 (1,157,581,498.16) 11,171,692.12 86,067,630.82 Add: Change of accounting policies ------Prior period error correction ------Balance at January 1, 2012 706,320,000.00 449,365,886.69 - (1,157,581,498.16) 11,171,692.12 86,067,630.82 Increase/ Decrease in this year - 7,104,364.09 32,894,368.82 -11,171,692.12 28,827,040.79 (1) Net profit - - - 32,894,368.82 - 32,894,368.82 (2) Other comprehensive income - 7,104,364.09 - - - 7,104,364.09 Subtotal of (1)and (2) - 7,104,364.09 - 32,894,368.82 - 39,998,732.91 Owners' devoted and decreased capital - - - (11,171,692.12) (11,171,692.12) Other - - - (11,171,692.12) (11,171,692.12)

Balance at December 31, 2012 706,320,000.00 456,470,250.78 - (1,124,687,129.34) - 114,894,671.61

Representative of the legal entity: Person in charge of acounting department:

58

CHENGDE NANJIANG CO., LTD. STATEMENT OF CONSOLIDATED CHANGES IN SHAREHOLDER'S EQUITY December 31, 2012 Currency:RMB

Total Items Note Share capital Captal reserves Surplus reserves Retained earnings Minority interest shareholders'equity 5 RMB RMB RMB RMB RMB RMB Balance at December 31, 2011 706,320,000.00 449,365,886.69 76,791,550.17 (1,253,450,491.01) (904,792.91) (21,877,847.06) Add: Change of accounting policies ------Prior period error correction - - - 94,050,207.23 12,991,374.22 107,041,581.45 Balance at January 1, 2012 706,320,000.00 449,365,886.69 76,791,550.17 (1,159,400,283.78) 12,086,581.31 85,163,734.39 Increase/ Decrease in this year - - - 1,818,785.62 (914,889.19) 903,896.43 (1) Net profit - - - 1,818,785.62 (914,889.19) 903,896.43 (2) Other comprehensive income ------Subtotal of (1)and (2) - - - 1,818,785.62 (914,889.19) 903,896.43 Owners' devoted and decreased capital ------Other ------

Balance at December 31, 2012 706,320,000.00 449,365,886.69 76,791,550.17 (1,157,581,498.16) 11,171,692.12 86,067,630.82

Representative of the legal entity: Person in charge of acounting department:

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CHENGDE NANJIANG CO., LTD. STATEMENT OF CASH FLOWS December 31, 2012 2012 2011 Items Note RMB RMB I. Cash Flows From Operating Activities Cash received from customers - - Cash received from tax refund - - Cash received from other operation related activities 11,745,056.16 541,232.52 Cash Inflows 11,745,056.16 541,232.52 Cash payments for suppliers Cash paid to and on behalf of employees 1,097,122.03 203,230.00 Cash paid to taxes and rates 161,236.10 - Cash paid for other operation related activities 9,036,011.24 370,954.45 Cash Outflows 10,294,369.37 574,184.45 Net Cash Flow From Operating Activities 1,450,686.79 (32,951.93) II. Cash Flows From Investing Activities Proceeds from disposal of fixed assets, intangible assets and - - other long-term assets Cash Inflows - - Purchase of fixed assets, intangible assets and other long-term 677,248.72 - assets Cash paid for investment - - Cash Outflows 677,248.72 - Net Cash Flow From Investing Activities (677,248.72) - III. Cash Flows From Financing Activities Cash received from loans - - Cash Inflows - - Cash paid for settling debts - - Cash paid for dividend and profit distributing or interest paying - - Cash Outflows - - Net Cash Flow From Financing Activities - - IV. Effects Of Foreign Exchange Rate Changes (1.17) (225.97) V. Net increase of cash and cash equivalents 773,436.90 (33,177.90) Add: Opening balance of cash and cash equivalents 4,019.80 37,197.70 VI. Closing balance of cash and cash equivalents 777,456.70 4,019.80

Representative of the legal entity: Person in charge of acounting function:

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CHENGDE NANJIANG CO., LTD. STATEMENT CONSOLIDATED OF CASH FLOWS December 31, 2012 2012 2011 Items Note RMB RMB I. Cash Flows From Operating Activities Cash received from customers 56,604,102.70 30,543,763.02 Cash received from tax refund - - Cash received from other operation related activities 33 66,559,511.34 28,248,238.82 Cash Inflows 123,163,614.04 58,792,001.84 Cash payments for suppliers 33,226,555.77 22,406,638.42 Cash paid to and on behalf of employees 2,357,550.98 737,624.00 Cash paid to taxes and rates 24,864,917.67 9,239,421.97 Cash paid for other operation related activities 33 67,101,247.94 31,899,740.14 Cash Outflows 127,550,272.36 64,283,424.53 Net Cash Flow From Operating Activities (4,386,658.32) -5,491,422.69 II. Cash Flows From Investing Activities Proceeds from disposal of fixed assets, intangible assets and 101,678,178.10 - other long-term assets Cash Inflows 101,678,178.10 - Purchase of fixed assets, intangible assets and other long-term 1,813,769.26 740,848.41 assets Cash paid for investment 9,000,000.00 - Cash Outflows 10,813,769.26 740,848.41 Net Cash Flow From Investing Activities 90,864,408.84 (740,848.41) III. Cash Flows From Financing Activities Cash received from loans - 14,800,000.00 Cash Inflows - 14,800,000.00 Cash paid for settling debts 3,090,000.00 17,445,727.12 Cash paid for dividend and profit distributing or interest paying 2,414,358.33 272,060.84 Cash Outflows 5,504,358.33 17,717,787.96 Net Cash Flow From Financing Activities (5,504,358.33) (2,917,787.96) IV. Effects Of Foreign Exchange Rate Changes (1.17) (225.97) V. Net increase of cash and cash equivalents 80,973,391.02 (9,150,285.03) Add: Opening balance of cash and cash equivalents 572,655.85 9,722,940.88 VI. Closing balance of cash and cash equivalents 81,546,046.87 572,655.85

Representative of the legal entity: Person in charge of acounting function:

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NOTES TO FINANCIAL STATEMENTS 31 DECEMBER 2012 CURRENCY UNIT: RMB I. General Information 1. Background

The predecessor of ChengDe NanJiang Corporation, Ltd. (“the Company”) was ChengDe DiXian Textile Corporation, Ltd (“DiXian”). According to the approval of YiGuBan(1999) No.36 issued by the People‟s Government of HeBei Province, DiXian was established in the People‟s Republic of China (the “PRC”) and obtained the Corporate Business License from HeBei Administration for Industry and Commerce (“CSRC”). The initial registered capital of DiXian was RMB 100,000,000 (divided into 100,000,000 shares, one Yuan per share): ShuXian Wang contributed RMB 85,100,000, accounting for 85.1% of the total; HeBei province ChengDe County North Industrial Company contributed RMB 7,564,400, accounting for 7.56% of the total; ZhengSong Wang contributed RMB 5,444,400, accounting for 5.44% of the total; ChengDe LongFeng Cosmetic Co., Ltd. contributed RMB 945,600, accounting for 0.95% of the total; Chengde County Board Town of Red Star plastic products factory contributed RMB 945,600, accounting for 0.95% of the total.

According to the issue [2000] 121 by the China Securities Regulatory Commission on August 29, 2000, the company issued 100,000,000 foreign capital stocks listed in China (hereinafter referred to as the " B “) on September 19, 2000 on Shenzhen stock exchange; and excised the overallotment option to increase issuing 15,000,000 B shares from September 29 to October 29, 2000. The registered capital of the company after the issuance of B shares was RMB 215,000,000, and was divided into 215,000,000 shares with one Yuan of face value per share.

According to the resolution of the shareholder‟s meeting on March 12, 2002, The Company allotted 43,000,000 bonus shares to all of the shareholders according to the proportion of 2 free shares for every 10 shares, and meanwhile increased 107500000 shares to all of the shareholding by transferring from capital reserve according to 5 shares free for every 10 shares. The registered capital of the company was changed to RMB 365,500,000 after it allotted bonus shares and increased by transferring.

According to the resolution of the shareholder‟s meeting on July 22, 2003, The Company allotted 73,100,000 bonus shares to all of the shareholders according to the proportion of 2 free shares for every 10 shares, and the registered capital of the company was changed to RMB 438,600,000 after such bonus shares were allotted.

On March 11, 2004, approved by the Ministry of Commerce of the People's Republic of China, the company was allowed to be changed to Foreign-Funded Joint Stock Companies Limited.

On July, 2004, the company increased 150,000,000 B shares directionally, during which 91,300,000 shares were subscribed in HK$, and another 58,700,000 shares were subscribed in RMB, upon check by China Securities Regulatory Commission with the issue [2004] No.101.

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According to the resolution of the shareholder‟s meeting on June 8, 2006, The Company allotted 117,720,000 bonus shares to all of the shareholders according to the proportion of 2 free shares for every 10 shares,

On August 4, 2008, according to the judgment ruled by Shenzhen Intermediate People's court, 112,324,800 sponsor shares held by ShuXian Wang was compensated to Rong Chen for RMB 45,491,544 Yuan, and on August 15, 2008, 96,000,000 sponsor shares held by ShuXian Wang was compensated to Rong Chen for RMB 38,880,000 Yuan according to the judgment ruled by Dalian Intermediate People's court.

On November 11, 2009, according to “reply to the approval of capital increase, and change of share as well as name of Chengde DiXian Knitting Co., Ltd” with No.143 [2009] by Bureau of Commerce of Hebei Province, it agreed that the company increased 150,000,000 foreign shares listed in China in 2004 and allotted 2 bonus shares free for every 10 shares in 2006; and it agreed that 208324800 shares of DiXian stock held by ShuXian Wang. DiXian was changed to Rong Chen; as well as the name of the company changed to Chengde DaLu Co., Ltd. The total share capital was 706,320,000 shares and the registered capital of the company was RMB 706,320,000 Yuan after the company increased and allotted, which has been validated by ZhongLei CPA Co., Ltd, who provided the capital verification report with [2010] No. 10009.

On 23 Aug 2011, the company renewed its Corporate Business License that was issued by HeBei Administration for Industry and Commerce. The new registration number was 130000400001225. Both registered capital and paid-in capital are RMB 706,320,000. The company type was a foreign joint stock limited company.

On 6 April 2012, an equity transfer agreement was signed between corporate shareholder Rong Chen and Dong Wang. According to the agreement, Rong Chen transferred 208,324,800 shares, which occupied 29.49% of the total share capital, to Dong Wang. After the transfer of equity, Shareholders proportion of capital contribution was: Dong Wang (RMB 208,324,800, accounted for 29.49%); HeBei province ChengDe County North Industrial Company (RMB 18,517,651, accounted for 2.62%); ChengDe City LongFeng Cosmetic company (RMB 2,314,829, accounted for 0.33%); Chengde County Board Town of Red Star plastic products factory (RMB 2,314,829, accounted for 0.33%), shareholders of domestically listed foreign shares (RMB 461,520,000, accounted for 65.34%).

On 19 September 2012, with the authorization of HeBei Administration for Industry and Commerce, the company name was changed from ChengDe DaLu Corporation, Ltd. to ChengDe NanJiang Corporation, Ltd.

Business scope: Production and processing of series of knitting, woven series, high-grade suits, children series, packing materials, paper and paper products as well as all kinds of paper and synthetic silk, sales of self-made products. The company and its subsidiaries imports knitted fabrics, woven fabrics of various raw materials for the production and the production equipment and accessories for self-use. The company subsidiary, Chengde Rongyida Real Estate Development Co., Ltd. is engaged in real estate development.

2. Nature of Business The company engaged in the knitting industry (all discontinued now); Subsidiaries engage in real estate

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development and ecological agriculture planting and breeding.

3. Business scope Authorized business project is real estate development.

General business projects: production and processing of series of knitting, woven series, high-grade suits, children series, packing materials, paper and paper products as well as all kinds of paper and synthetic silk (all discontinued now); ecological agriculture planting and breeding; the development, production and sales of new energy and new material.

4. Major products and labour service Sales of real estate and sales of products of ecological agriculture planting and breeding

5. Fundamental structure of the company The highest authority is board minutes and the company adopts the managerial responsibility system. According to requirements from the business, the company set up Securities Department, Administrative Department, Human Resource Department, Financial Department, Auditing Department, Sales Department, Research and Development Department.

II. Significant accounting policies, accounting estimates

1. Basis for preparation of financial statements The financial statements of the company have been prepared based on going concern assumption and actual transactions and events occurred. It is prepared in accordance with the requirements of “Accounting Standards for Business Enterprises - Basic Standard” and 38 Specific Standard issued by the Ministry of Finance of 15 February 2006 (revised in 2010), and application guidance, illustrations to the standards and related pronouncements.

2. Statement of Compliance The accounts of the Company have been prepared in accordance with the Chinese Accounting System for Business Enterprises and Chinese Accounting Standard for Business Enterprises.

3. Fiscal Year The Company has adopted the calendar year as its accounting year, i.e. From 1 January to 31 December.

4. Bookkeeping Currency The reporting currency of the Company is Renminbi (RMB).

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5. Accounting treatments for a business combination involving enterprises under and not under common control 5.1 Business combinations involving enterprises under common control Equity method is adopted by the company for the business combination under the same control, and the assets and liabilities of the combined party in a business combination shall be measured on the basis of their carrying amount in the combined party on the combining date, except the necessary adjustment due to different accounting policy. As for the balance between the carrying amount of the consideration paid by it (or the total par value of the shares issued) and the carrying amount of the net assets obtained by the combining party, the additional paid-in capital shall be adjusted. If the additional paid-in capital is not sufficient to be offset, the retained earnings shall be adjusted.

The cost for the business combination of the company as the combining party shall, including the expenses for audit, legal services and assessment, be recorded into the profits and losses at the current period. The bonds issued for a business combination or the handling fees and commissions for assuming other liabilities shall be recorded into the amount of initial measurement of the bonds or other debts. The handling fees and commissions for the issuance of equity securities for the business combination shall be credited against the surplus of equity securities; if the surplus is not sufficient, the retained earnings shall be offset.

5.2 Business combinations involving enterprises not under common control

The purchase method is adopted by the company for the business combination not under the same control. The combination costs shall be the fair values, on the acquisition date, of the assets paid, the liabilities incurred or assumed and the equity securities issued by the acquirer in exchange for the control on the acquiree. The cost for the business combination of the company as the acquirer shall, including the expenses for audit, legal services and assessment as well as other related management expenses be recorded into the profits and losses at the current period. The transaction cost for the issuance of equity securities or debt securities for the consideration shall be recorded into the initial recognition amount of the equity securities or debt securities.

The combination costs determined at the acquisition date shall be the initial investment cost of the long-term equity investment acquired from acquisition of common stock not under the same control, and the identifiable assets and liabilities acquired from the statutory merger not under the same control shall be stated at their fair value on the acquisition date. The positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree shall be stated as business reputation; and the negative difference of the combination costs and the fair value of the identifiable net assets is obtains from the acquire shall be recorded into combined current profit and loss after check.

6. Consolidated financial statements The financial statements are prepared on the basis of control, and the scope of the consolidated financial statements includes the company and all of its subsidiaries.

If the accounting policy or the accounting period is different between the subsidiaries and the company, it is necessary to adjust the financial statements of the subsidiaries according to the accounting policy or accounting period of the company at the preparation of the consolidated financial statements.

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For the subsidiaries acquired from the business combination not under the same control, it shall adjust the individual financial statements based on its fair value of the identifiable net assets at the acquisition date; for the subsidiaries acquired from the business combination under the same control, it shall be regarded as the reporting entity formed after combination and continues to exist integrally from the control by the final controlling party comes into operation, and it shall adjust the beginning amount of the consolidated balance sheet, as well as the related items of the comparative financial statements at the same time.

7. Accounting Principle & Measurement Bases The company has adopted the accrual basis of accounting. Assets are initially recorded at actual costs on acquisition and subsequently adjusted for impairment, if any. The accounting principle and measurement bases for the current fiscal year are consistent with the previous.

8. Cash & Cash Equivalents Cash and cash equivalents included in cash-flow statement are short-term(within three months of maturity since purchase date), highly liquid investments that are readily convertible to known amounts of cash and subject to limited risk on changes in value.

9. Foreign Currency Translation Transactions denominated in foreign currencies are translated into the reporting currency at the spot exchange rates prevailing on the day when the transactions take place.

Monetary assets denominated in foreign currency at the balance sheet date are translated at the spot exchange rate, and the exchange difference arising from the different spot exchange date at the balance sheet date and at the initial recognition or the previous balance sheet date shall be recorded into finance expenses; the non-monetary items denominated in foreign currency stated at its historical cost shall be translated at the spot exchange rate on the day when the transactions take place; and non-monetary item denominated in foreign currency stated at its fair value shall be translated at the spot exchange date on the day when the fair value is determined, and the difference between the amount in reporting currency after translation and the carrying amount in original reporting currency shall be recorded into current profit and loss as income from changes in fair value, and the exchange difference related to non-monetary items in foreign currency available for sale shall be recorded into capital reserves.

10. Translation of financial statements denominated in foreign currencies Translation of items in foreign currency at the balance sheet date: the assets and liabilities in the balance sheet shall be translated at the spot exchange rate at the balance sheet, and the items of owner‟s equity except “undistributed profit” shall be translated at the spot exchange rate on occurrence. The income and expense in the income statement shall be translated at the spot exchange date on the day when the transactions take place. When the consolidated financial statement is prepared, the converted difference in foreign currency statements shall be listed singly as “translation reserve” under the owner‟s equity in the consolidated balance sheet.

11. Financial instruments

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"Financial instruments" refers to the financial assets of the business and constitute the financial liability or equity instruments of other business

(1) Classification of financial instruments The financial assets and financial liabilities of the company are divided into five types at the initial recognition: Financial asset measured by fair value and which change is recorded into current profit and loss, Held-to-maturity investment, accounts receivable, financial assets available for sale and other financial liabilities.

(2) Recognition and Measurement of Financial Instruments The financial assets or financial liabilities are stated at their fair value at initial recognition. For the financial assets and liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period, the transaction expenses thereof shall be directly recorded into the profits and losses of the current period, and the related transaction expenses of other kinds of financial assets or financial liabilities is recorded into its initial recognition amount. ①The financial assets and liabilities measured at their fair values and of which the variation is recorded into the profits and losses of the current period The financial assets or liabilities which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, including transactional financial assets and liabilities and the financial assets and liabilities which are measured at their fair values and of which the variation is included in the current profits and losses; the transactional financial assets refers to the stock, bonds, fund and the derivative instruments not as effective hedging instrument or the assumed financial liabilities to be repurchased in the near future; the financial assets and liabilities which are measured at their fair values and of which the variation is included in the current profits and losses is mainly designated on the basis of risk management and strategic investment. Subsequent measurement shall be carried through for these financial assets or financial liabilities at their fair value. All realized and unrealized profit and loss of these financial assets or financial liabilities shall be recorded into current profit and loss except those as effective hedging instruments. ② Held-to-maturity investment

"Held-to-maturity investment" refers to a non-derivative financial asset with the maturity date being fixed, the repayment being fixed or confirmed and the company has a clear purpose or is capable to hold to maturity. Effective interest method is adapted to measure held-to-maturity investment at the post-amortization cost during the holding period. The gains and loss arising from the impairment, amortization or recognition termination of held-to-maturity investment shall be recorded into current profit and loss. The balance between the price obtained and the carrying amount of the investment shall be recorded into investment income when held-to-maturity investment is disposed.

③ Accounts receivable “Accounts receivable” is the claims of the sale of goods or rendering of service, including accounts receivable, other receivables and long-term receivables.

The accounts receivable shall be recognized initially at the price stipulated in the contract or agreement to be received from the purchaser and it is measured at the post-amortization cost using the effective interest method. The balance between the price obtained and the carrying amount of the accounts receivable shall be recorded into current profit and loss at recovery and disposal. ④ Financial assets available for sale

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Financial assets available for sale refers to the non-derivative financial assets available for sale designated at initial recognition, and the financial assets except those three kinds of financial assets above. Subsequent measurement shall be carried through for such kind of financial assets at their fair value, and the discount and premium shall be amortized using effective interest method and recognized as interest income. The change in the fair value of the financial assets available for sale shall be recognized as the independent part of capital reserve when the said financial assets is stopped from recognition or is impaired with the exception of the impairment loss and the exchange difference arising from the monetary financial assets in foreign currency which shall be recorded into current profit and loss, and the accumulative gains or loss recorded into capital reserve before shall be transferred into current profit and loss. The dividends or interest income related to the financial assets available for sale shall be recorded into current profit and loss.

⑤ Other financial liabilities Other financial liabilities refer to the financial liabilities which isn‟t designated to be measured by fair value and which change is recorded in current profit and loss. Other liabilities are measured at the post-amortization cost or cost. The gains or loss arising from the amortization and the recognition termination of the other liabilities shall be recorded into current profit and loss.

(3) Recognition and measurement for transfer of financial assets

①Where the company has transferred nearly all of the risks and rewards related to the ownership of the financial asset to the transferee; Or it does not transfer or retain nearly all of the risks and rewards related to the ownership of a financial asset but gives up its control over the financial asset, it shall stop recognizing the financial asset.

②If the transfer of an entire financial asset satisfies the conditions for stopping recognition; the difference between the amounts of the following two items shall be recorded in the profits and losses of the current period:

A. The book value of the transferred financial asset B. The sum of consideration received from the transfer and the accumulative amount of the changes of the fair value originally recorded in the owner's equities.

③If the transfer of partial financial asset satisfies the conditions to stop recognition, the entire book value of the transferred financial asset shall, between the portion whose recognition has been stopped and the portion whose recognition has not been stopped, be apportioned according to their respective relative fair value, and the difference between the amounts of the following two items shall be included into the profits and losses of the current period: A. The book value of the portion whose recognition has been stopped;

B. The sum of consideration of the portion whose recognition has been stopped, and the portion of the accumulative amount of the changes in the fair value originally recorded in the owner's equities which is corresponding to the portion whose recognition has been stopped

④ If the transfer of the financial asset doesn‟t satisfy the condition to stop the recognition, it shall continue to recognize the financial asset and shall recognize the consideration it receives as a financial liability. ⑤ If the company is continuously involved in the transferred financial asset, it shall recognize a financial asset according to the extent of its continuous involvement in the transferred financial asset, and recognize a financial liability at the same time.

(4) Recognition for termination of financial liabilities Only when the prevailing obligations of a financial liability are relieved in all or in part may the recognition of the

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financial liability be terminated in all or partly.

(5) Determination method for the fair value of financial assets and financial liabilities ①As for the financial assets or financial liabilities for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof.

②Where there is no active market for a financial instrument; the company shall adopt value appraisal techniques to determine its fair value.

(6) Provision for impairment of financial assets (except accounts receivable) The company shall carry out an inspection, on the balance sheet day, on the carrying amount of the financial assets (except accounts receivable). Where there is any objective evidence proving that such financial asset has been impaired, an impairment provision shall be made. ①Held-to-maturity investment The loss on impairment shall be determined according to the balance of the carrying amount and the present value of the predicted future cash flow. It is accounted for according to the measurement method for loss impairment of accounts receivable. If there is any objective evidence proving that the value of the said financial asset has been restored, and it is objectively related to the events that occur after such loss is recognized, the impairment loss as originally recognized shall be reversed and be recorded into the profits and losses of the current period. However, the reversed carrying amount shall not be any more than the post-amortization costs of the said financial asset on the day of reverse under the assumption that no provision is made for the impairment. ② Financial assets available for sale

If there is any objective evidence proving that the fair value of the financial assets available for sale drops significantly or not contemporarily, it can recognize that such financial assets available for sale has b een impaired, and shall recognize loss on impairment. Where the financial asset available for sale is impaired, the accumulative losses arising from the decrease of the fair value of the owner‟s equity which was directly included shall be transferred out at the same time when the impairment loss is recognized and recorded into the profits and losses of the current period. The said accumulative loss transferred out equals the balance of the initial acquisition cost of the financial asset available for sale deducting the reversed principal, the amortized amount, current fair value and the impairment loss that has been recorded into profit and loss originally.

As for the sellable debt instruments whose impairment losses have been recognized, if, within the accounting period thereafter, the fair value has risen and are objectively related to the subsequent events that occur after the originally impairment losses were recognized, the originally recognized impairment losses shall be reversed and be recorded into the profits and losses of the current period. The impairment losses incurred to a sellable equity instrument investment shall not be reversed through profits and losses.

12. Receivables & Provision for Bad Debts Accounts receivables comprise related-party receivables and receivables from non-related parties (“third-party receivables”). The Company makes specific bad debts provision on an individual basis for third-party receivables. No provision for bad debts is made for related-party receivables.

(1) Individually significant amounts of accounts receivable accrued bad debt provision

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Recognition Criterion for individually significant amounts: The receivables with more than RMB 1 million shall be recognized as the significant receivables;

The accruing method of the receivables with individually significant amounts: The Group should make the impairment test separately or in combination and accrue the bad debt provisions which shall be recorded into current profit or loss at the end of the period. If there is defined evidence for the receivables not to or not likely to be received, which shall be recognized as the loss of bad debt and write off the accrued bad debts provisions after going through the approval procedure of the Group.

(2) Accounts receivable accrued bad debt provision by portfolio

Accounting aging analysis method: Use the accounting aging of the receivables as the credit risk characteristics to classify the portfolio.

Accrue the bad debt provision by accounting aging analysis method

Proportion for Provision for bad debt Proportion for Provision for bad debt Aging （receivable） ( other receivable)

% %

Within 1 year 5 5

1-2 years 20 20

2-3 years 50 50

Over 3 years 100 100

(3) Individually insignificant amount accounts receivable but accrued bad debt provision

Recognition Criterion for individually insignificant amounts: Where there are obvious evidences suggesting impairment: debtor has been log-out, bankruptcy, minus net asset, significant poor cash flow and significant nature disaster leads to discontinue production and the debtors could not pay for the debts within the foreseeable time.

The accruing method of the receivables with individually insignificant amounts: The Group should make the impairment test separately or in combination and accrue the bad debt provisions which shall be recorded into current profit or loss at the end of the period. If there is defined evidence for the receivables not to or not likely to be received, which shall be recognized as the loss of bad debt and write off the accrued bad debts provisions after going through the approval procedure of the Group.

13. Inventories (1) Classification Inventory means the materials, Auxiliary Material, spare parts for repair, revolving materials, merchandise

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inventory, work-in-process under production, finished goods, development cost and products to be developed etc. the development cost includes the land cost, construction cost and other cost related to real estate development under construction; the product to be developed refers to the land purchased and prepared to be developed into real estate development.

(2) Cost of inventories transferred out

Cost of inventories transferred out is calculated using the weighted average method. Development project is adopted specific accounting method.

(3) Basis for determining the net realisable value of inventories and provision methods for decline in value of inventories

Inventories are initially measured at cost. Cost of inventories comp rises all costs of purchase, costs of conversion and other expenditures incurred in bringing the inventories to their present location and condition. In addition to the purchasing cost of raw materials, work in progress and finished goods include direct labour costs and an appropriate allocation of production overheads.

At the balance sheet date, inventories are carried at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to completion and the estimated expenses and related taxes necessary to make the sale. The net realisable value of materials held for use in the production is measured based on the net realisable value of the finished goods in which they will be incorporated. The net realisable value of the quantity of inventory held to satisfy sales or service contracts is measured based on the contract price. If the quantities held by the Group are more than the quantities of inventories specified in sales contracts, the net realisable value of the excess portion of inventories is measured based on general selling prices.

Any excess of the cost over the net realisable value of each category of inventories is recognised as a provision for diminution in the value of inventories, and is recognised in profit and loss.

(4) Inventory system

The Group maintains a perpetual inventory system.

(5) Amortisation methods for consumables including low-value consumables and packaging materials

Consumables including low-value consumables and packaging materials are amortised in full when received for use. The amounts of the amortisations are included in the cost of the related assets or recognised in profit or loss for the current period.

(6) Relocation Housing: temporary houses for relocated residents, amortised averagely over 50 years

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(7) Expense for land development Projects of land development: their expenses shall be recognized as cost of land development. Projects of land development and real estate: their expenses are apportioned to cost of commodity houses according to acreage when cost distribution between land and real estate could be identified clearly.

(8) Expense for public facilities Expenses for public facilities without compensable transfers are apportioned to cost of commodity houses according to the benefits ratio.

For public facilities with compensable transfers: each individual public facility is recognised as one cost accounting unit. Expenses are allocated to each unit separately.

14. Long-term equity investments (1) Recognition of initial investment cost ①Long-term equipment due to business merger under the same control The initial investment cost for long-term equity investment due to business merger under the same control shall be stated at the net attributable carrying value of the merged party after being adjusted according to the accounting policies of the company and obtained at the date of merger.

②Long-term equipment due to business merger not under the same control The initial investment cost for long-term equity investment due to business merger not under the same control shall be stated at the combined cost at the purchasing date. If the business merger which is not under the same control is realized via several transactions in process, the initial investment cost shall be stated at the sum of the carrying value of held equity investment of the purchased party before the purchasing date and the newly-increased investment cost at the purchasing date. ③long-term equity invest obtained by other means

The initial investment cost of a long-term equity investment obtained by making payment in cash shall be the purchase cost which is actually paid. For the long-term equity investment acquired by issuing equity securities, the fair value of equity securities (excluding the declared but not distributed cash dividends and profits obtained from the investee) shall be made as the investment cost. For the long-term equity investment made by the investors, the value specified in the investment contract or agreement shall be made as the investment cost, except that the value specified in the contract or agreement is unfair. Where a non-monetary assets transaction that the transaction is commercial in nature; and the fair value of the assets received or surrendered can be measured reliably, the fair value of the assets surrender shall be regarded as the initial investment cost for the long-term equity investment received in exchange for non-monetary assets., unless there is any exact evidence showing that the fair value of the assets received is more reliable. Where any non-monetary assets transaction does not meet the above conditions, the carrying value and relevant payable taxes of the assets surrendered shall be the initial investment cost of the assets received. The initial cost of a long-term equity investment obtained by recombination of liabilities shall be stated according to the fair value.

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(2) Subsequent measurement and confirmation method for profit and loss Where the company has joint control or significant influence over the investee, and the investment is not quoted in an active market and its fair value can‟t be reliably measured, a long-term equity investment is accounted for using the cost method. Where the company has joint control or significant influence over the investee, a long-term equity investment is accounted for using the equity method when a long-term equity investment is accounted for using Cost method: 1. If the initial investment cost of long-term equity investment is larger than the fair value of identifiable net assets of the investee entitled to from the investment, the initial investment cost of long-term equity investments shall not be adjusted; If the initial investment cost of long-term equity investment is smaller than the fair value of identifiable net assets of the invested entity gained from the investment, the difference between them shall be recognized in the consolidated income statement and cost of long-term equity investments adjusted. After the company obtains a long-term equity investment, it shall, in accordance with the attributable share of the net profits or losses of the investee, recognize the investment profits or losses and adjust the book value of the long-term equity investment. The company shall, on the ground of the fair value of all identifiable assets of the investee when it obtains the investment and offset the shareholding proportion of the unrealized profit and loss from internal transactions between the Company, affiliated enterprises and joint ventures which is attributable to the company through calculation according to the accounting policy and accounting period of the company(it shall recognize entirely if the unrealized internal transaction loss belongs to assets impairment loss), recognize the attributable share of the net profits and losses of the investee after it adjusts the net profits of the investee.

2. The company shall recognize the net losses of the investee until the book value of the long-term equity investment and other long-term rights and interests which substantially form the net investment made to the investee are reduced to zero, unless it has the obligation to undertake extra losses stipulated in the contract or agreement. If the investee realizes any net profits later, the company shall, after the amount of its attributable share of profits offsets against its attributable share of the unrecognized losses, resume recognizing its attributable share of profits. ④The carrying value of long-term equity investment shall be written down against the proportion of profit or cash dividend to be entitled which has been declared to be distributed by the investee. ⑤As for other changes of owner‟s equity except the net profit and loss of the investee, the company shall adjust the carrying value of the long-term equity investment against the attributable share calculated in accordance with shareholding proportion, and increase or decrease capital reserves at the same time.

The company continues using the equity method to account for remaining investment if the investee is sill the affiliated enterprise or joint ventures after the shareholding proportion decreases, and the profit or loss recognized in other integrated income (capital reserves) previously shall be carried forward to current profit and loss according to the proportion of investment disposed. The company continues using the equity method to account for the investment according to new shareholding proportion if the investee is sill the affiliated enterp rise or joint ventures after the shareholding proportion increases. The difference between the newly-increased investment cost and the fair value of net identifiable assets of the investee which is calculated according to newly-increased shareholding proportion shall be disposed in accordance with above principle; the company shall adjust the carrying amount of long-term equity investment and capital reserves against the balance between the original carrying amount of such long-term equity investment on the acquisition of new investment and the fair value of net attributable identifiable assets of the investee which is calculated according to the shareholding proportion after investment increase less the proportion after the shareholding proportion is newly-increased.

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(3) Recognition basis for joint control or significant influence over the investee Joint control means that none of the parties can control the production and operating activities of the joint venture independently and the decision-making for basic operating activities of the joint venture needs unanimous agreement of all the Parties. Significant influence means having the power to participate in the formulation of financial and operating policies of an enterprise, but not the power to control or jointly control the formulation of these policies together with other parties.

15. Investment properties Investment properties are properties held either to earn rental income or for capital appreciation or for both. Cost model: investment properties-leasing properties adopt the identical depreciation accounting policy as fixed assets. Investment properties-leasing rights of land usage adopt the identical amortization accounting policy as intangible assets. If potential impairment of investment property exists, estimation of its net realisable value shall be made. Recognizing impairment loss where net realisable value below its book value. Once an impairment loss is recognised, it is not reversed in a subsequent period.

16. Fixed assets (1) Recognition of fixed assets Fixed assets are the tangible assets with service life of more than one year held for production of goods, rendering of service, lease or operating management. Fixed assets shall be confirmed while following conditions can all be met: ①The economic interest related to the fixed assets will most likely flow into the company ；

②The cost of the fixed assets can be measured reliably.

(2) Three classifications of fixed assets: house and building, transportation equipment and other equipment

(3) Initial cost of fixed assets The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure for bringing the asset to working condition for its intended use.

The book value of the fixed assets acquired as debt assets through the recombination of liabilities shall be accounted on basis of the fair value of the fixed assets.

Under the conditions that the exchange of non-monetary assets is characterized with business essence, and the fair value of the assets received or surrendered can be accounted in a reliable way, the book value of assets received is defined on basis of the fair value of assets surrendered, except there are conclusive evidences for the stronger reliability of the fair value of assets received. For the exchange of those non-monetary assets not meeting the above premises, the book value of assets surrendered and related taxes should be accounted as cost of assets received and the profits and losses shouldn‟t be concluded.

(4) Depreciation of fixed assets

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Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated useful lives. For the fixed assets being provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives.

The estimated useful lives, residual rates and annual depreciation rates are as follows:

Items Useful Lives Residual Rates (%) Annual Depreciation Rates (%)

House and Building 20-28 years 0.00-10.00 3.56-4.50

Machinery equipment 4-5 years 0.00-10.00 18.00-22.04

Transportation equipment 5-20 years 0.00-10.00 6.33-23.75

Other equipment 4.5-5 years 0.00-10.00 18.00-22.04

17. Construction in Progress (1) Type of construction in progress The construction in progress refers all necessary expenditure before the fixed assets under acquisition are ready for their intended use state, including the direct material of project, direct employee compensation, the equipment to be installed, civil and erection cost, project management cost and net profit and loss of trial run expenses and the borrowing cost which can be capitalized etc.

(2) The standard and time point for construction in progress transferred to fixed assets

For construction in progress, the Company shall make all the expenditures for this asset to reach usable condition as the account value of the fixed assets. For the fixed assets reaching usable condition but not preparing the final account for completion, the Company shall, since the date of reaching usable condition, transfer the estimated value into fixed assets according to project budget and cost or actual cost of the project and appropriate the provision for depreciation according to the Company's policy for depreciation of fixed assets; after the procedure for final account for completion has been ended, the Company shall adjust the original temporarily estimated value as per actual cost, but not adjust the original appropriated provision for depreciation.

18. Biological Assets The biological assets in the company are consumptive biological assets. Consumptive biological assets include baby breeding and fat breeding. Biological assets are recognized only when the following criterions are met simultaneously:

(1) The company acquired the biological assets because of past transactions or events. (2) The potential economic benefits generated by the biological assets may flow into the company (3) The cost of biological assets can be calculated reliably

The purchase and disposal of biological assets: the costs of biological assets after the transfer of purpose are same as the book value before the transfer of purpose; When biological assets are sold, destroyed or have inventory loss, the differences between the proceeds of disposal and the book value plus relevant taxes are included in the profit

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and loss of the current period.

19. Intangible Assets (1)Valuation method for intangible assets ① Initial measurement of intangible assets The Company accounts its intangible assets at their real acquisition cost.

Where the payment of purchase price for intangible assets is delayed beyond the normal credit conditions, which is of financing intention, the cost of intangible assets shall be determined on the basis of the current value of the purchase price.

The book value of the intangible assets acquired as debt assets through the recombination of liabilities shall be accounted on basis of the fair value of the intangible assets ；Under the conditions that the exchange of non-monetary assets is characterized with business essence, and the fair value of the assets received or surrendered can be accounted in a reliable way, the book value of assets received is defined on basis of the fair value of assets surrendered, except there are conclusive evidences for the stronger reliability of the fair value of assets received. For the exchange of those non-monetary assets not meeting the above premises, the book value of assets surrendered and related taxes should be accounted as cost of assets received and the profits and losses shouldn‟t be concluded. ② Subsequent measurement of intangible assets For the intangible assets with limited service life, the economic benefits should be amortized with Straight-line method; and the company won‟t adopt amortization upon the intangible assets with indefinite service life. At the end of report period, the Company should recheck the service life and amortization method of the intangible assets and carry through necessary adjustment.

(2) Estimate of service life for the intangible assets with limited life As for the intangible assets with limited life, its service life shall be estimated at the year-end

Item Amortisation periods Basis

Less than the period stated at contracts or Land use rights 50years included in other legal rights

(3) The judgment basis of the intangible assets with indefinite life As for the intangible assets with unlimited life, its service life shall be estimated at the year-end

(4) Criterion for distinguishing cost in research phase and development phase.

Research cost refers to cost arising from inventive activities aimed at obtaining new knowledge. Research cost is recorded to profit or loss when it is incurred.

Development cost refers to cost arising from activities that result in research phase or other knowledge in a certain plan or design, to produce new or substantially improved material, equipment, and products etc. before commercial production or application.

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(5) Recondition criterion for capitalization of cost of R&D (Research and development) An intangible asset arising from the development phase of an internal project shall be recognised if, and only if, the company can demonstrate all of the following:

(a) The technical feasibility of completing the intangible asset so that it will be available for use or sale (b) Its intention to complete the intangible asset and use or sell it

(c) How the intangible asset will generate probable future economic benefits. among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset

(d) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset (e) Its ability to measure reliably the expenditure attributable to the intangible asset during its development. 20. Long Term Deferred Expenses Cost and Amortization Method

For limited benefit periods, long-term deferred expenses are amortised on a straight-line method within the benefit period; for unlimited benefit periods, Long-term deferred expenses are amortised on a straight-line method over five years.

21. Contingent liabilities (1) Recognition of contingent liabilities

The obligation pertinent to a contingency shall be recognized as an estimated debt when the following conditions are satisfied simultaneously: (a) The obligation is a current obligation of the Group; (b) It is likely to cause any economic benefit to flow out of the Group as a result of performance of the obligation; and (c) The amount of the obligation can be measured reliably.

(2) Accounting treatments for contingent liabilities

The estimated debts shall be initially measured in accordance with the best estimate of the necessary expenses for the performance of the current obligation, and the Group shall take into full consideration of the risks, uncertainty, time value of money, and other factors pertinent to the contingencies. If the time value of money is of great significance, the best estimate amounts shall be determined after discounting the relevant future outflow of cash. The Group shall check the book value of the estimated debts on the balance sheet date. If there is any exact evidence indicating that the book value cannot really reflect the current best estimate amounts, the Group shall adjust the book value in accordance with the current best estimate amounts.

22. Share-based payment and equity instruments (1) Classification A share-based payment is a transaction in which the entity receives or acquires goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity. The accounting requirements for the share-based payment depend

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on how the transaction will be settled, that is, by the issuance of equity or cash. (2) Recognition criterion for fair value of equity instruments In principle, transactions in which goods or services are received as consideration for equity instruments of the entity should be measured at the fair value of the goods or services received. Only if the fair value of the goods or services cannot be measured reliably would the fair value of the equity instruments granted be used.

The fair value of equity instruments granted to be based on market prices, if available, and to take into account the terms and conditions upon which those equity instruments were granted. In the absence of market prices, fair value is estimated using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm's length transaction between knowledgeable, willing parties. The standard does not specify which particular model should be used.

23. Impairment of assets other than inventories, financial assets and other long-term equity investments

For other long-term equity investments, the carrying amount is tested for impairment at the balance sheet date. If there is objective evidence that the investment may be impaired, the impairment is assessed on an individual basis. The impairment loss is measured as the amount by which the carrying amount of the investment exceeds the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset and recognised in profit or loss. Such impairment loss is not reversed. The other long-term equity investments are stated at cost less accumulated impairment losses in the balance sheet. The carrying amounts of the following assets are reviewed at each balance sheet date based on the internal and external sources of information to determine whether there is any indication of impairment: fixed assets, construction in progress, intangible assets, investment properties measured using a cost model, long-term equity investments in subsidiaries, associates and jointly controlled enterprises, goodwill etc.

If any indication exists that an asset may be impaired, the recoverable amount of the asset is estimated. In addition, the Group estimates the recoverable amounts of goodwill at each year-end, irrespective of whether there is any indication of impairment. Goodwill is allocated to each asset group or set of asset groups that is expected to benefit from the synergies of the combination for the purpose of impairment testing.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its present value of expected future cash flows.

24. Capitalisation of Borrowing Cost (1) Recognition principles on capitalisation of borrowing cost: The Group should capitalizes the borrowing cost directly attributable to the acquisition, construction or production of a qualifying asset and record borrowing cost into cost of related asset. The Group should recognize the other borrowing cost as the current expense and charged it as profit and loss of current period. A qualifying asset refers to fixed asset, investment property and inventory need be constructed for so long time to its intended use or sale.

(2) Duration of capitalisation of borrowing cost:

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When expenditures and borrowing cost are being incurred, and activities that are necessary to put the asset available for use or sale are in progress, the capitalisation of borrowing costs as part of the cost of a qualifying asset should commence.

(3) Measurement of borrowing cost: As for specifically borrowed loans for the acquisition and construction or production of assets eligible for capitalization, the to-be-capitalized amount of interests shall be determined as the difference of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment. Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the Group shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined at the weighted average interest rate of the general borrowing.

25. Goodwill

The initial cost of goodwill represents the excess of cost of acquisition over the acquirer‟s interest in the fair value of the identifiable net assets of the acquiree under the business combination not involving enterprise under common control. Goodwill is not amortised and is stated in the balance sheet at cost less accumulated impairment losses.

The Group estimates the recoverable amounts of goodwill at each year-end, irrespective of whether there is any indication of impairment. Recognised impairment loss is included in profit or loss and is not reversed.

26. Payroll Payroll refers to remuneration in various forms and other relevant expenses being paid to employees for services they provided during an accounting period. Apart from termination benefits, accrued payroll is recognized as liability and included in the cost of assets or profit and loss in the accounting period that employees provide services for.

27. Revenue Recognition Revenue is the gross inflow of economic benefit arising in the course of the Group‟s ordinary activit ies when the inflows result in increase in shareholder‟s equity, other than increase relating to contributions from shareholders. Revenue is recognised in profit or loss when it is probable that the economic benefits will flow to the Group, the revenue and costs can be measured reliably and the following respective conditions are met simultaneously:

(1) Recognition for sale of goods Revenue from the sale of goods is recognized when significant risks and rewards of ownership of the goods are transferred to the buyer, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and it is probable that the economic benefit associated with the transaction will flow to the Company and the relevant revenue and costs can be measured

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reliably.

(2) Recognition criterions for sale of real estate:

(a) Real state is 100% completed and housing acceptance is obtained. (b) Commercial housing pre-sale permit is obtained from Ministry of Land and Resources of the People‟s Republic of China and Housing Administrative Bureau. (c) Sales contract is signed (d) Sales contract is verified and recognized by the Real Estate Transaction Registration Center

(e) Payment for the real state is received or proof of payment from the buyer (f) Procedure for the transfer of commercial housing is completed

(3) Recognition criterions for property rental income According to the date and amount of payment stated at the contract or protocol signed between the Group and lease, property rental income is recognized when rent is received or proof of payments is obtained from the buyer

(4) Recognition criterions for labour income (a) Labour income can be calculated reliably (b) Inflow of relevant economic benefits to the Group may occur

(c) The progress of completion for the transaction can be identified reliably (d) The cost has been occurred and will be occurred in the future during the transaction can be calculated reliably

(5) Recognition criterions for transfer of asset use right income (a) Transfer income can be calculated reliably

(b) Inflow of relevant economic benefits to the Group may occur

28. Government grants (1) Classification Government subsidy means that the Company shall get monetary assets or non monetary assets from the government without consideration, but the government subsidy shall not include the capital invested by the government as an enterprise owner. It is divided into the one related to assets and the one related to income.

(2) Accounting method (a) Confirmation and measurement of government subsidy The government subsidy meeting attached conditions and actually received by the Company, shall be confirmed as government subsidy. If the government subsidy is a monetary asset, it shall be measured as per the amount received or to be received; if the government subsidy is a non-monetary asset, it shall be measured as per fair value; and if the fair value cannot be obtained reliably, measured as per nominal amount.

(b) Accounting for government subsidy The government subsidy related to assets shall be confirmed as deferred income, and allocated averagely during the service life of the related assets and attributed into the profit and loss of current period. But the government

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subsidy measured in nominal amount shall be directly attributed to profit or loss of current

29. Deferred tax assets and liabilities

Deferred tax assets and deferred tax 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, which include the deductible losses and tax credits carrying forward to subsequent periods. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax is not recognised for the temporary differences arising from the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit nor taxable profit (or tax loss). Deferred tax is not recognised for taxable temporary differences arising from the initial recognition of goodwill.

At the balance sheet date, the amount of deferred tax recognised is measured based on the expected manner of recovery or settlement of the carrying amount of the assets and liabilities, using tax rates that are expected to be applied in the period when the asset is recovered or the liability is settled in accordance with tax laws.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the benefit of the deferred tax asset to be utilised. Such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

30. Income Tax The Company accounts for enterprise and local income taxes using the tax payable method. Tax expense is recognized based on the current period taxable income and tax rates.

31. Operating and finance leases

A lease is classified as either a finance lease or an operating lease. A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of a leased asset to the lessee, irrespective of whether the legal title to the asset is eventually transferred. An operating lease is a lease other than a finance lease.

(1) Operating lease charges

Rental payments under operating leases are recognised as part of the cost of another related asset or as expenses on a straight-line basis over the lease term.

(2) Assets leased out under operating leases

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Income derived from operating leases is recognised in the income statement using the straight-line method over the lease term. If initial direct costs incurred in respect of the assets leased out are material, the costs are initially capitalised and subsequently amortised in profit or loss over the lease term on the same basis as the lease income. Otherwise, the costs are charged to profit or loss immediately.

(3) Assets acquired under finance leases

When the Group acquires an asset under a finance lease, the asset is measured at an amount equal to the lower of its fair values and the present value of the minimum lease payments, each determined at the inception of the lease. At the commencement of the lease term, the minimum lease payments are recorded as long-term payables. The difference between the value of the leased assets and the minimum lease payments is recognised as unrecognised finance charges. Initial direct costs that are attributable to a finance lease incurred by the Group are added to the amounts recognised for the leased asset.

If there is reasonable certainty that the Group will obtain ownership of a leased asset at the end of the lease term, the leased asset is depreciated over its estimated useful life. Otherwise, the leased asset is depreciated over the shorter of the lease term and its estimated useful life.

Unrecognised finance charge under finance lease is amortised using an effective interest method over the lease term.

At the balance sheet date, long-term payables arising from finance leases, net of the unrecognised finance charges, are presented as long-term payables or non-current liabilities due within one year, respectively in the balance sheet.

32. Other comprehensive income Other comprehensive income is the difference between net income as in the income statement (profit or loss account) and comprehensive income, and represents the certain gains and losses of the enterprise not recognized in the profit or loss account.

33. Profit Distribution Cash dividends distribution is recognized as a liability in the period in which the dividends are approved by the Board of Directors.

In accordance with the “Law of the PRC on Foreign-funded enterprise” and the Company‟s Articles of Association, appropriations from net profit should be made to the Reserve Fund, the Staff and Workers‟ Bonus and Welfare Fund, after offsetting accumulated losses from prior years, and before profit distributions to the investors. The percentages to be appropriated to the Reserve Fund should not be lower than 10% of the profits after tax. Further appropriation is optional when the accumulated fund Reserve Fund is 50% or more of registered capital. The percentages to be appropriated to the Reserve Fund and the Staff and Workers‟ Bonus and Welfare Fund are determined by the Board of Directors of the Company.

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34. Changes of significant accounting policies, accounting estimates (1) Changes of significant accounting policies Not Applicable. (2) Changes of significant accounting estimates Not Applicable.

35. Prior period error correction (1) Retrospective Restatement (a) In November 2008, ChengDe DiXian Textile Corporation, Ltd was forced into bankruptcy restructuring procedure because it was unable to refund matured debts. The opening balance of the company and its subsidiaries for bankruptcy administrators were RMB 24,444,791.49 (Including: other payable RMB 55,080,620.99; other receivable RMB 30,635,829.50). According to the result of DiXian‟s bankruptcy liquidation issued by ChengDe Auditing Bureau No.[2012]3, in 2009, the administrators paid RMB 14,000,000.00 for the company. RMB 14,000,000.00 included two lands: BanHe zone one (Cheng Xian GuoYong(2005) Zi No.63); BanHe zone two (Cheng Xian GuoYong(2005) Zi No.72). The company confirmed these events in the current accounting period. After the confirmation of the events, the amount of payable to administrators was RMB 38,444,791.49 (RMB 24,444,791.49+RMB 14,000,000.00). The amount included: balance of other payable RMB 69,080,620.99 (RMB 55,080,620.99+RMB 14,000,000.00); balance of other receivable RMB 30,635,829.50. The company offset internal accounts in 2012, which reduced the other payable by RMB 26,331,034.30 and the other receivable by RMB 26,331,034.30. After the internal offset, the balance of other payable was RMB 42,749,586.69 (RMB 69,080,620.99-RMB 26,331,034.30), balance of other receivable was RMB 4,304,795.20 (RMB 30,635,829.50-RMB 26,331,034.30). According to ChengDe Auditing Bureau No.[2012]3, the amount which the company due to the administrators was paid by the auctioned machinery. In the meantime, the external confirmation of BanHe administrator proved that the amount of RMB 4,018,900.00 was due from BanHe administrator. Therefore, the opening balance for other receivable was reduced by RMB 285,895.20 (=RMB 4,304,795.20-RMB 4,018,900.00); other payable was reduced by RMB 42,749,586.69. According to the above prior period error correction, based on the retrospective restatement, in 2012, the company reduced the opening balance for other receivable by RMB 285,895.20, reduced opening balance for the other payable by RMB 42,749,586.69 and increase the opening balance for undistributed profits by 42,463,691.49.

The prior period error correction mentioned above affected the company‟s equity by the amount of RMB 42,463,691.49. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was increased by RMB 42,463,691.49. The opening balance in 2011 for minority interest was increased by RMB 0.00.

(b) Former ChengDe DiXian Textile Corporation, Ltd (now is the company) purchase lands including Cheng Xian GuoYong(2000) Zi No.169), Cheng Xian GuoYong(2000) Zi No.152), Cheng Xian GuoYong(2001) Zi No.133) and Cheng Xian GuoYong(2000) Zi No.151). These lands were invested to ChengDe XingYe Paper Co., Ltd, but the procedure for transferring the ownership was not completed. XingYe‟s opening balance in 2012 for the above intangible asset was RMB 23,491,766.53. Because of fund requirement, Former ChengDe DiXian Textile Corporation, Ltd borrowed RMB 37,000,000.00 from bank by securing the lands mentioned above. In November 2011, former ChengDe DiXian Textile Corporation, Ltd was forced into bankruptcy restricting procedure as it was unable to refund the matured debts. In 2008 and 2009, according to the debts restricting agreement between the

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bank (creditor) and DiXian administrator, the administrator transferred lands (considered as RMB 16,650,000.00) to the bank as part of the refund. The remaining amount of the borrowing did not need to refund. XingYe had not yet disposed the intangible assets mentioned above. In June 2009, DiXian administrator paid RMB 16,650,000.00 and acquired the above assets. At the beginning of 2010, the company made accounting treatment to the lands mentioned above. According to the events mentioned above, in 2012, XingYe reduced the book value of the above land by RMB 23,491,766.53. From June 2009 to December 2010, these intangible assets were amortized by XingYe. The company recorded these lands with the book value of 16,650,000.00 and accrued the additional amortization (RMB 812,197.04) from January 2010 to December 2012. According to the prior period error correction, based on the retrospective restatement, the company reduced the opening balance in 2012 for intangible assets by RMB 7,653,963.57; reduced the opening balance in 2012 for undistributed profits by RMB 7,653,963.57; reduced the opening balance in 2011 for undistributed profits by RMB 7,653,963.57.

The prior period error correction mentioned in (b) affected the company‟s equity by the amount of RMB 7,247,865.05. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was reduced by RMB 5,435,898.79. The opening balance in 2011 for minority interest was reduced by RMB 5,435,898.79.

(c) In 2009, the total amount of profits for ChengDe XingYe Paper Co., Ltd was RMB 275,534,922.32. The amount of corporate income tax payable was increased by RMB 127,569,402.70, including: asset impairment loss (RMB 95,000,000.00), asset non-recurring loss (RMB 32,569,402.70). After the adjustment, the amount of corporate income tax payable was RMB 403,104,325.02. According to No.[2010]170 issued by HeBei National taxation bureau, asset loss (RMB 202,790,077.00) was approved to be disclosed before corporate income tax. After the deduction of the asset loss, the amount of corporate income tax payable was RMB 200,314,248.02 (RMB 403,104,325.02-RMB 202,790,077.00). XingYe confirmed the opening balance in 2010 for income tax payable was RMB 50,078,562.00. In 2011, document No.[2011]001 issued by HeBei National taxation bureau informed XingYe to pay its duty. On September 13 2012, document No.[2012]002 issued by HeBei National taxation bureau inform XingYe to repeal document No.[2011]001 and confirmed the corporate income tax was RMB 1,209,295.43 after covering the deficit. According to prior period error correction, based on the retrospective restatement, in 2012, XingYe reduced the opening balance in 2012 for tax payable by RMB 49,776,238.14, increased opening balance in 2012 for undistributed profits by RMB 49,776,238.14 and increased opening balance in 2011 for undistributed profits by RMB 49,776,238.14.

The prior period error correction mentioned in (c) affected the company‟s equity by the amount of RMB 49,776,238.14. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was increased by RMB 37,332,178.61. The opening balance in 2011 for minority interest was increased by RMB 12,444,059.53.

(d) ChengDe XingYe Paper Co., Ltd held 90% equity of Chengde HuaXing Waste paper Recycling Co., Ltd. Cost of long-term investment was RMB 1,062,876.20. Because HuaXing did not report enterprise commercial yearly check material in 2007, its business license was revoked by HeBei Administration for Industry and Commerce (document No.[2009]73). As HuaXing did not have any operating activities and realization of assets, the cost of long-term investment was unable to recover. Therefore, according to prior period error correction, based on the retrospective restatement, in 2012, XingYe reduced opening balance for long-term investment by RMB

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1,062,876.20, reduced opening balance in 2012 for undistributed profits by RMB 1,062,876.20 and reduced opening balance in 2011 for undistributed profits by RMB 1,062,876.20.

The prior period error correction mentioned in (d) affected the company‟s equity by the amount of RMB 1,062,876.20. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was reduced by RMB 797,157.15. The opening balance in 2011 for minority interest was reduced by RMB 265,719.05.

(e) In 2004, former ChengDe DiXian Textile Corporation, Ltd (now is the company) acquired the central environmental protection special grant (RMB 3,000,000.00). In 2005, DiXian acquired the project fund (RMB 7,500,000.00) of paper production, water saving and comprehensive utilization of resources. The subsidiary ChengDe XingYe Paper Co., Ltd confirmed the special fund payable respectively in 2004 and 2005. On December 8 2008, HeBei Chengde Intermediate People's Court issued civil award (No.[2008]13) to XingYe and accepted the application for bankruptcy liquidation. On May 8 2009, XingYe and creditors reached a dispute settlement. The amount of RMB 10,500,000.00 received by XingYe was invested to relevant projects. After the bankruptcy liquidation, XingYe discontinued its operating activities. Construction in progress had already been destroyed and only contained scrap value (relevant assets had been confirm as loss). Therefore, according to prior period error correction, based on the retrospective restatement, in 2012, XingYe reduced opening balance in 2012 for special funds payable by RMB 10,500,000.00, increased opening balance in 2012 for undistributed profits by RMB 10,500,000.00 and increased opening balance in 2011 for undistributed profits by RMB 10,500,000.00.

The prior period error correction mentioned in (e) affected the company‟s equity by the amount of RMB 10,500,000.00. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was increased by RMB 7,875,000.00. The opening balance in 2011 for minority interest was increased by RMB 2,625,000.00.

(f) The 2012 opening balance of Chengde Rongyida Real Estate Development Co., Ltd for other receivable was RMB 75,546,152.33: the amount due from the company (RMB 35,474,751.30) was attributed to consolidated related party; Because the amount due from bankruptcy administrators (RMB 27,490,334.30) was unsettled, it was predicted to be fully recovered and no bad debt provision had been accrued; the creditor‟s right, which was acquired by auction in 2009 and worth RMB 1,209,273.00, was confirmed to be irrecoverable and it was accrued full bad debt provision (RMB 1,209,273.00). According to aging analysis (aging within 1 year accrued bad debt provision in the ratio of 5%) and opening balance in 2012 (RMB 10,890,693.73) for bad debt provision (aging within 1 year), RongYiDa should accrued the amount of RMB 544,534.69 but it accrued RMB 390,228.46 less than the amount. According to the above events, RongYiDa needed to accrue total additional bad debt provision RMB by 1,599,501.46. Therefore, according to prior period error correction, based on the retrospective restatement, in 2012, RongYiDa reduced opening balance in 2012 for receivable by RMB 1,599,501.46, increased opening balance in 2011 for assets impairment loss by RMB 1,599,501.46, reduced opening balance in 2012 for undistributed profits by RMB 1,599,501.46 and reduced opening balance in 2011 for undistributed profits by RMB 1,599,501.46.

The prior period error correction mentioned in (f) affected the company‟s equity by the amount of RMB 1,599,501.46. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the

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parent company was decreased by RMB 1,599,501.46. The opening balance in 2011 for minority interest was decreased by RMB 0.00.

(g) The adjustment of opening balance in 2012 (RMB 1,753,807.69) of Chengde Rongyida Real Estate Development Co., Ltd for bad debt provision should recognized deferred income tax assets (RMB 438,451.92) which increased opening balance in 2012 for undistributed profits by RMB 438,451.92, increased income tax expense by RMB 402,706.92 in 2011, increase deferred income tax assets by RMB 438,451.92 in 2011 and increased opening balance in 2011 for undistributed profits by RMB 35,745.00.

The prior period error correction mentioned in (g) affected the company‟s equity by the amount of RMB 35,745.00. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was increased by RMB 35,745.00. The opening balance in 2011 for minority interest was increased by RMB 0.00.

(h) In 2009, Chengde Rongyida Real Estate Development Co., Ltd acquired property and land from former ChengDe DiXian Textile Corporation, Ltd by auction. From 2009, according to the remaining value of property, land acreage and relevant tax rate, RongYiDa accrued housing property tax and land use tax. At the beginning of 2012, the amount of the accumulated tax payable accrued was RMB 8,082,716.16. On April 23 2012, ChengDe Local Taxation Bureau performed tax check on RongYiDa, confirming that, except for the first floor of the building of DiXian and the land used by QianYuan area (the products in progress) needed to pay housing property tax and land use tax respectively, the housing property tax of other idle property, according to the law of housing property tax, should be paid by the owner of the property right. If the property right was owned by the public, the tax was paid by the unit that managed and operated the property. Pawned property right should be paid by the Pawnee. If owner of property right and Pawnee were not in the place where the property was located, or property right was unconfirmed, or disputes relating to rent and pawn were unsettled, housing property tax should be paid by the managing agent of the house or the user of the house. Owner of property right, operating and managing unit, Pawnee, managing agent of the house and the user of the house were called taxpayer. According to national taxation No.[1988]015, the land use tax of the idle land should be paid by the units or individuals that owned the land use right. If taxpayers who owned the land use right but not in the place where the land was located, land use tax need to be paid by managing agent of the land or the user of the land. If land use right was unconfirmed or disputes relating to the land use right was unsettled, the tax was paid by the user of the land. If land use right belonged to the public, according to the law of public land use right, as the procedure for transferring ownership of the housing property and land which were acquired by auction by RongYiDa was unsettled and the property and land were not used (RongYiDa had already recorded the property and land), RongYiDa was not the legal taxpayer and it is not necessary to pay housing property tax or land use tax currently or in the previous year. Therefore, according to prior period error correction, based on the retrospective restatement, in 2012, RongYiDa reduced opening balance in 2012 for tax payable by RMB 8,082,716.16, increased opening balance in 2012 for undistributed profits by RMB 8,082,716.16 and increased opening balance in 2011 for undistributed profits by RMB 8,082,716.16.

The prior period error correction mentioned in (h) affected the company‟s equity by the amount of RMB 8,082,716.16. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was increased by RMB 8,082,716.16. The opening balance in 2011 for minority interest was increased by RMB 0.00.

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(i) In April 2009, RongYiDa acquired Cheng Xian GuoYong(2005) Zi No.63 and Cheng Xian GuoYong(2001) Zi No.132 by auction. The recorded book values were RMB 8,002,660.00 and RMB 7,690,448.19 respectively. As the lands were unable to perform the procedure for the transfer of the property right, RongYiDa recorded these lands to other non-current assets, but not intangible assets. In fact, these lands were acquired and controlled by RongYiDa. Therefore, according to prior period error correction, based on the retrospective restatement, in 2012, RongYiDa transferred these lands from other non-current assets to intangible assets, made additional amortization of 33 months according to a 50 years straight-line basis, increased opening balance in 2012 for intangible assets by RMB 10,466,998.78, reduced opening balance in 2012 for other non-current assets by RMB 11,076,189.19, increased administrative expense in 2011 by RMB 221,523.78, reduced opening balance in 2012 for undistributed profits by RMB 609,190.41 and reduced opening balance in 2011 for undistributed profits by RMB 387,666.63.

The prior period error correction mentioned in (i) affected the company‟s equity by the amount of RMB 387,666.63. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was decreased by RMB 387,666.63. The opening balance in 2011 for minority interest was decreased by RMB 0.00.

(j) As the smuggling of machinery equipment, former ChengDe DiXian Textile Corporation, Ltd (now is the company) received the paper of sentence No.[2008]48 issued ShiJiaZhuang Intermediate People's Court on February 25 2009. The paper of sentence claimed to confiscate the smuggling machinery equipment. In 2009, the subsidiary of ChengDe DaLu Co., Ltd. (now is the company), ChengDe XingYe Paper Co., Ltd, recorded the amount (RMB 29,162,740.91) relating to the smuggling of machinery equipment to non-operating expense. On July 21 2009, the government of ChengDe delegated ShiJiaZhuang customs to auction the machinery equipment involving in smuggling. After the auction, ChengDe Finance Credit Development Co., Ltd acquired the machinery equipment. On December 3 2010, Chengde Rongyida Real Estate Development Co., Ltd signed the agreement of transfer of the machinery equipment at the price of RMB 56,329,500.00 with ChengDe Finance Credit Development Co., Ltd. ChengDe FengYuan auction Co., Ltd delegated RongYiDa to auction this equipment. The amount of RMB 130,000,000.00 was acquired by the auction of the equipment. On December 19 2010 and December 20 2010, RongYiDa signed the agreement of transfer of the machinery equipment with AiHua Liu and Rui Li. The revenue and cost of RongYiDa relating to the equipment were all recorded into ChengDe Enterprise Restructuring Employee Creditor Capital Governmental Managerial Account. The Account was controlled by the government and RongYiDa had relevant accounting treatments on it. The external confirmation proved that: the Account received revenue of RMB 130,000,000.00 by the auction of the equipment; cost of the equipment was RMB 56,329,500.00; other relevant expense and tax expense for the auction of the equipment were RMB 73,189,400.00; the total of cost and expenses were RMB 129,518,900.00; the profit for the auction was RMB 481,100.00. Therefore, according to prior period error correction, based on the retrospective restatement, in 2012, the company increase opening balance in 2012 for other receivable by RMB 481,100.00, increased opening balance in 2012 for undistributed profits by RMB 481,100.00 and increased opening balance in 2011 for undistributed profits by RMB 481,100.00.

The prior period error correction mentioned in (j) affected the company‟s equity by the amount of RMB 481,100.00. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was increased by RMB 481,100.00. The opening balance in 2011 for minority interest was increased by RMB 0.00.

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(k) In 2009, Chengde Rongyida Real Estate Development Co., Ltd received the disposal amount (RMB 6,000,000.00) of machinery equipment from ChengDe Treasury Bureau but the amount was received by BanHe administrator and Banhe administrator transferred back the amount to ChengDe Treasury Bureau. On Sep tember 27 2010, ChengDe Treasury Bureau transferred the amount of RMB 6,000,000.00 to RongYiDa. DiXian Working Group Meeting Minutes No.[2012]1 and ChengDe Auditing Bureau (Report) No.[2012]3 confirmed the disposal amount attributed to the revenue of RongYiDa. However, RongYiDa did not recognize this amount as revenue but recognized as other payable. Therefore, according to prior period error correction, based on the retrospective restatement, in 2012, RongYiDa reduced opening balance in 2012 for other payable by RMB 6,000,000.00, increased opening balance in 2012 for undistributed profits by RMB 6,000,000.00 and increased opening balance in 2011 for undistributed profits by RMB 6,000,000.00.

The prior period error correction mentioned in (k) affected the company‟s equity by the amount of RMB 6,000,000.00. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was increased by RMB 6,000,000.00. The opening balance in 2011 for minority interest was increased by RMB 0.00.

The prior period error correction mentioned from (a)-(k) affected the company‟s equity by the amount of RMB 107,041,581.45. Based on the retrospective restatement, the opening balance in 2011 for the equity attributed to the parent company was increased by RMB 94,050,207.23. The opening balance in 2011 for minority interest was increased by RMB 12,991,374.22.

The prior period error correction mentioned above have been approved by all directors on January 20, 2013

(2) Prospective Application

Not Applicable.

III. Taxation Major category of taxes and tax rates

Tax category Tax basis Tax rate Notes

Business tax Housing prepayment; taxable income 5%

Land value-added tax Land VAT or pre-requisitioned Super rate progressive rate

City maintenance and Transfer tax payable 5% construction tax

Education surcharge Transfer tax payable 3%

Local education surcharge Transfer tax payable 2%

Rental income or original value of Housing property tax 12% or 1.2% real estate

Taxable income; 15% of the taxable Corporate income tax 15% * income

88

The income tax of the subsidiary ChengDe County RongYiDa Real State Development Co., Ltd. is calculated at 15% of the taxable income.

IV. Business combination and consolidated financial statements Currency Unit: RMB 1. Major Subsidiaries (1) Business combinations involving enterprises not under common control Not Applicable.

89

(2) Subsidiaries acquired not through business combinations

Balance of Join the Subsidiary Actual other projects Voting Consolidated Subsidiary Place of Business Registered Shareholding Company Business Scope investment at which forms Rights Financial Company Name Registration Characteristics Capital Ratio (%) Type the year end net investment Ratio Statements or on subsidiaries not Investment of new energy, new material, mining industry, modern ChengDe A wholly ChengDe 50,000,000. agriculture project, Real Estate, 50,000,00 County, NanJiang owned construction project; investment Yes Investment 00 0.00 --- 100% 100% Investment subsidiary HeBei management, investment consultancy, Province CNY trade of import and export CNY Co., Ltd.*1

ChengDe Production of coarse cereals and A wholly ChengDe Ecological NanJiang 5,000,000.0 edible fungus; Planting of fruit、 5,000,000. owned County, Agriculture Ecological 0 00 --- 100% 100% Yes HeBei Planting and vegetable and Chinese medical herbs Agriculture Co., subsidiary Province Breeding CNY CNY Ltd. *2

ChengDe ChengDe Production and marketing of high-grade 75,000,00 A Subsidiary County, Paper 250,000,000 coated paper and kraft liner board paper Yes XingYe Paper of Holding Production 0.00 --- 100% 100% HeBei .00 USD series Co., Ltd. *3 Province USD Investment and export business No Gold Axe A wholly The British Export 1.00 USD 1.00 USD --- 100% 100%

90

owned Investment Virgin Islands subsidiary Group Co., Ltd*4 Hebei XiaBanCheng A wholly ChengDe production and export of all kinds of owned County, Garment 4,000,000.0 4,000,000. No Knitting Production knitted Clothing --- 100% 100% subsidiary HeBei 0 USD 00 USD Garment Co., Province Ltd.*5 Chengde A wholly ChengDe 24,000,000. Production and marketing of high 24,000,00 DiXian owned County, Garment simulation of chemical fiber clothing No Production 00 0.00 --- 100% 100% Fashion Co., subsidiary HeBei and cloth Province USD USD Ltd.*6 Chengde A subsidiary Huaxing ChengDe 1,000,000.0 900,000.0 of the County, Processing and sales recovery of Recycling of No Waste paper 0 0 --- 90% 90% subsidiary of HeBei Waste Paper various waste paper and paper products recycling Co., holdings Province CNY CNY Ltd. *7

(3) Subsidiaries acquired by business combination not under the common control

91

Balance of Join the Subsidiary Actual other projects Voting Consolidated Subsidiary Place of Business Registered Shareholding Company Business Scope investment at which forms Rights Financial Company Name Registration Characteristics Capital Ratio (%) Type the year end net investment Ratio Statements or on subsidiaries not

Chengde ChengDe Rongyida A wholly 10,000,000. Real Estate Development；textile, owned County, Real Estate 1.00 Real Estate 00 clothes manufacture, import & export of --- 100% 100% Yes subsidiary HeBei Development clothes, leasing service CNY Development Province CNY Co., Ltd. *8

92

*1 On October 9 2012, ChengDe NanJiang Investment Co., Ltd. was established and invested by Chengde Rongyida Real Estate Development Co., Ltd. The registered capital was RMB 50,000,000.00 and RongYiDa accounted for 100% of NanJiang Investment‟s equity. On December 21 2012, RongYiDa transfer 100% of NanJiang Investment‟s equity to the company at the price of RMB 50,000,000.00. After the transfer, the company held 100% of NanJiang Investment‟s equity.

*2 On October 24 2012, ChengDe NanJiang Ecological Agriculture Co., Ltd. established and invested by ChengDe NanJiang Investment Co., Ltd. The registered capital was RMB 5,000,000.00 and NanJiang Investment held 100% of Ecological Agriculture‟s equity.

*3 On October 26 2001, Chengde XingYe Paper Limited company was established by the company together with (Hong Kong) Zhanxi International Group Co., Ltd. the registered capital of Chengde XingYe Paper Limited company was 250 million U.S. dollars，the paid-in capital was $100,000,000.00, Shareholders' contribution accounted for 40% of the registered capital, and in which the company invested 75,000,000.00 dollar ( accounting for 75%), (Hong Kong)Zhanxi invested 25,000,000.00 dollar ( proportion 25%).On October 28, 2002, according to the regulation of “ reply to investment increase of joint ventures of Chengde XingYe Paper Limited company” approved by the people's Republic of China Ministry of foreign trade and Economic Cooperation ( the former of the Ministry of Commerce ) with the issuance of No.[2001]969, the registered capital was increased to $ 250 million from $ 10,000 million, The new registered capital had been paid by the two sides in accordance with the contract, articles of agreement within three years from the date of the business license renewal. The registered capital of Chengde XingYe Paper Limited Company was not paid fully within the prescribed period. Chengde XingYe Paper Limited company had been shut down completely suffered from December 2006 serious loss since the original largest shareholder Wang Shuxian and senior executives invo lved in smuggling effect, On December 8, 2008, Hebei province Chengde City Intermediate People's Court issued the No (2008)13 Chengde Civil Award and confirmed the bankruptcy liquidation of the application of Chengde XingYe Paper Limited company. On March 11, 2009, Hebei province Chengde City Intermediate People's Court approved the settlement request of Chengde XingYe Paper Limited Company according to the Civil Award with No. (2008)13. On May 10, 2009, Hebei province Chengde City Intermediate People's Court confirmed the settlement agreement reached on May 8, 2009 between Chengde XingYe Paper Limited Company and the creditors and terminated the reconciliation procedure. On April 23, 2009, the Hebei Provincial Higher People's Court issued No.(2009) 44 Hebei ”criminal Award” and confirmed that Chengde XingYe Paper Limited company was a false foreign investment enterprise which was registered in the name of the Hong Kong ZhanXi by the company's original shareholders of Wang Shuxian. In October 2012, the company received civil conciliation No.[2011]76 from ChengDe Intermediate People's court. The civil conciliation confirmed the dispute settlement between the company and ShuXian Wang: ShuXian Wang was responsible for coordinating minority of ChengDe XingYe Paper Co., Ltd to abandon their equity, assisting the company to complete the liquidation and cancellation of XingYe. After the above works were done, the company agreed to transfer 20% equity of Suning Banhe Chemical Fiber Facsimile Fabric Co., Ltd, land of industrial park (34.03 acre), factory (25596.87 square meter) and land of No.131 (44.4 acre) to ShuXian Wang. *4 Gold Axe Investment Group Limited was established at 3 November 1999, with the registered capital of 1 dollar. The company held 100% equity of Gold Axe Investment Group Limited. At 25 December 2006, because original largest shareholder Wang ShuXian and senior executives involved in the smuggling effect, according to the paper of sentence No.48 (2008) issued by ShiJiaZhuang intermediate People‟s Court and the paper of sentence No.44 (2009) superior, Gold Axe Investment Group Limited is unable to contact due to the smuggling event and it is not existent.

93

*5 On February 8, 2009, Hebei Xiabancheng Knitting Garment Co., Ltd. was declared to bankrupt by Hebei province Chengde City Intermediate People's Court with the issuance of civil award of No. (2008)12-1.

*6 On February 8, 2009,Chengde DiXian Fashion Co., Ltd. was declared to bankrupt by Hebei province Chengde City Intermediate People's Court with the issuance of civil award of No. (2008)11-1;

*7 Because Chengde HuaXing Waste paper recycling Limited company did not submit the materials for 2007 industrial and commercial enterprises inspection, its business license was already revoked by Chengde Administration for Industry and Commerce according to No.(2009)73 administrative punishment decision on April 28, 2009, and it did not handle the liquidation procedures by the end of December 31, 2011. HuaXing was unable to contact and, in fact, it was out of the company‟s control.

*8 On February 20 2009, Chengde Rongyida Real Estate Development Co., Ltd was established with registered capital of RMB 10,000,000.00 (Fei Wang contributed RMB 9,000,000.00, accounted for 90% of the total equity; LiPing Chen contributed RMB 1,000,000.00, accounted for 10% of the total equity). On July 27 2009, Fei Wang and LiPing Chen transfer 90% and 10% of RongYiDa‟s equity to former largest shareholder Rong Chen at the price of RMB 9,000,000.00 and RMB 1,000,000.00 respectively. At the same day, Rong Chen transfer 100% of RongYiDa‟s equity to the company at the price of RMB 1.00. After the transfer, the company held 100% of RongYiDa‟s equity.

2. Special purposes entity or operation entity where controlling right is formed under entrusted operation or leasing Not Applicable.

3. Subsidiaries are in the consolidation scope where the Company only owns 50% or below 50% of their equity and explanation for why they are in the consolidation scope Not Applicable.

4. Subsidiaries are not under control where the Company held above 50% of their equity and explanation for why they are not under control Not Applicable.

5. Explanation for changes in consolidation scope Subsidiaries that are not in consolidation scope during the reporting period are listed below:

Net assets as at Net profit from Subsidiary Company Name Explanation for changes the disposal the year-begin to date the disposal date

Gold Axe Investment Group Smuggling, Unable to contact, loss of 0.00 0.00 Limited control

94

Net assets as at Net profit from Subsidiary Company Name Explanation for changes the disposal the year-begin to date the disposal date

Chengde Huaxing Waste paper Business license was revoked, unable to 0.00 0.00 recycling Co., Ltd. contact, loss of control

6. Business combination under the common control during the reporting period Not Applicable.

7. Business combination not under the common control during the reporting period Not Applicable.

8. Loss of subsidiaries due to disposal of equity interests without controlling rights during the reporting period Not Applicable.

9. Counter purchase occurred during the reporting period Not Applicable.

10. Absorption consolidation occurred during the reporting period Not Applicable.

11. Minority interests of major subsidiaries

Item Closing Balance Opening Balance

Minority interests

(1) ChengDe XingYe Paper Co., Ltd. --- 1,117.17

Total --- 1,117.17

(1) Amount in minority interest available to offset minority gains and losses Not Applicable.

(2) Balance between the owners‟ equity in parent offsetting the current losses attributable to minority shareholders of subsidiaries Not Applicable.

12. Translation exchange rates for items in major statements of overseas operating entities Not Applicable.

95

V. Notes to the financial statements

1. Cash at bank and in hand

31 December 2012 31 December 2011

Items Currency Original Exchange RMB Original Exchange RMB Currency rate Translation Currency rate Translation

Cash

RMB 72,492.38 1.000 72,492.38 103,698.97 1.000 103,698.97

Sub-total 72,492.38 72,492.38 103,698.97 103,698.97

Bank

RMB 81,440,569.01 1.000 81,440,569.01 432,196.74 1.000 432,196.74

JPY ------8,089.80 0.0549 444.13

EUR ------105.82 8.1625 863.76

HKD ------2,862.32 0.8107 2,320.48

USD 5,247.80 6.2855 32,985.48 5,258.26 6.3009 33,131.77

Sub-total --- 81,473,554.49 --- 468,956.88

Other cash and cash equivalents

RMB --- 1.000 ------1.000 0.00

Sub-total ------0.00

Total --- 81,546,046.87 --- 572,655.85

(1) The company did not have any restricted cash at bank and in hand during the reporting period. (2) Compared to the opening balance, the closing balance of cash at bank and in hand increased by RMB 80,973,391.02, with the growth rate of 14,139.97%. The major explanations for the increase were: 1) larger sales scale; 2) the government purchase land from the company

2. Prepayment (1) The aging analysis

Closing Balance Opening Balance Aging Amount Rate in Total (%) Amount Rate in Total (%)

With in 1 year 308,292.36 100.00% 974,464.00 4.63%

1-2 years ------

2-3 years ------

Over 3 years ------20,084,632.25 95%

96

Total 308,292.36 100.00% 21,059,096.25 100.00%

(2) During the reporting period, the company did not have any prepayment with an aging above 1 year (3) During the reporting period, there are no prepayments due from any shareholders held over 5%

(4) The top five prepayment accounts

Debtors Ranking Relationship Amount Aging Rate in Total (%)

ChengDe Water Supply Company Non-Related Party 167,064.00 1-2 years 54.19%

ChengDe Housing Insurance Co., Ltd Non-Related Party 67,000.00 1-2 years 21.73%

ChengDe YongWang construction Non-Related Party 31,954.87 Within 1 year 10.37% project Co., Ltd

ShanDong Province XiaoKang Non-Related Party 19,000.00 Within 1 year 6.16% Machinery Co., Ltd

ChengDe construction bureau- the supervisory station for the safety of the Non-Related Party 10,700.00 1-2 years 3.47% construction projects

Total 295,718.87 95.92%

(5) Compared to the opening balance, the closing balance of prepayment decreased by RMB 20,750,803.89, with the reduction rate of 98.54%. The major explanations for the decrease were: the settlement of the company‟s land purchase from the XiaBanCheng government.

3. Other receivables (1) Disclosure of other receivables by category

Closing Balance Opening Balance

Categories Bad debt Bad debt Amount Rate Amount Rate provision provision

1 Individually significant amounts of accounts 1,209,273.00 3.51% 1,209,273.00 45,406,174.26 53.83% 45,406,174.26 receivable accrued bad debt provision

2 Individually insignificant amounts of accounts 1,504,762.66 4.37% 1,504,762.66 ------receivable accrued bad debt provision

3 Accounts receivable accrued bad debt provision 31,752,727.33 92.12% 3,583,707.69 38,947,905.68 46.17% 565,818.02 by portfolio

Total 34,466,762.99 100.00% 6,297,743.35 84,354,079.94 100.00% 45,971,992.28

97

Explanation for three types of other receivables: (a) The receivables with more than RMB 1 million are recognized as the significant receivables. After the identification of the significant receivables, the creditor‟s right, which was acquired by auction in 2009 and worth RMB 1,209,273.00, was confirmed as individually significant amounts. The creditor‟s right was confirmed to be irrecoverable and it was accrued full bad debt provision.

(b) According to the business characteristic of the company, the irrecoverable risks are high for the other accounts receivable with an aging of over 3 years. Therefore, other accounts receivable which are less than RMB 1 million and with an aging of over 3 years are considered as individually insignificant amounts of accounts receivable accrued bad debt provision

(c) Other accounts receivable which are individually significant and perform impairment test separately at the year-end

Accounts Receivable Book Amount Bad debt provision Rate Reasons for Accrual

Creditor‟s right from auctions 1,209,273.00 1,209,273.00 100% Expect to be irrecoverable

Total 1,209,273.00 1,209,273.00

The amount of other accounts receivable (has been written-off) expected to be irrecoverable and with an aging of over 3 years was RMB 44,196,901.26 during the reporting period.

Company Name Nature Amounts written off Book amount Bad debt provision Reasons for written off

with an aging of over 3 year; DaHua Paper Current 44,196,901.26 44,196,901.26 44,196,901.26 business license is revoked; Co., Ltd. account the entity not exist

Total 44,196,901.26 44,196,901.26

(d) Other accounts receivable accrued bad debt provision by portfolio

Closing Balance Opening Balance

Aging Rate in total Bad debt Rate in total Bad debt Amount (%) provision Amount (%) provision

Within 1 year 26,483,385.17 83.40% 1,324,169.26 7,978,266.80 20.48% 398,913.33

1-2 years 1,250,442.16 3.94% 250,088.43 30,635,829.50 78.66% ---

2-3 years 4,018,900.00 12.66% 2,009,450.00 333,809.38 0.86% 166,904.69

Over 3 years ------

98

Total 31,752,727.33 100.00% 3,583,707.69 38,947,905.68 100.00% 565,818.02

The other accounts receivable (RMB 30,635,829.50) with an aging of 1-2 years were bankruptcy administrator of subsidiaries. The reasons for bad debt not being accrued: a) the current accounts between the company (including subsidiaries) and bankruptcy administrator had not been settled during the company‟s restructuring process; b) by the end of the current reporting period, the amount of other receivables due from the administrators was smaller than that of payables due to the administrators. As the final appeal for the bankruptcy of subsidiaries were completed during the reporting period, the company adjusted the current account between itself and the bankruptcy administrators, and the amount of RMB 26,616,929.50 was liquidated. The remaining amount of RMB 4,018,900.00 was expected to be recovered from ChengDe BanHe administrator.

(2) By the end of the current reporting period, there are no other accounts receivable due from any shareholders held over 5%

(3) The top five other accounts receivable

Rate in Debtors Ranking Relationships Amounts due Aging total

ChengDe Land Reserve Center Non-Related Party 22,070,021.00 Within 1 year 64.03%

ChengDe BanHe Bankruptcy administrator Non-Related Party 4,018,900.00 2-3years 11.66%

Mr. ShuXian Wang Non-Related Party 3,030,000.00 Within 1 year 8.79%

ChengDe Construction Bureau of Housing Non-Related Party 890,000.00 2.58% and Urban Planning 1-2years

ICBC (ChengDe branch) Non-Related Party 500,000.00 Within 1 year 1.45%

The reason for the amount of RMB 22,070,021.00 due from ChengDe Land Reserve Center was the receivable for the transfer of the No. 57 land from the company to the government still not being recovered.

(4) Compared to the opening balance, the closing balance of other accounts receivable decreased by RMB 10,213,068.02, with the reduction rate of 26.61%.

4. Inventories and provision for inventories

Closing Balance Opening Balance Items Book Balance Provision Net Book Balance Book Balance Provision Net Book Balance

Development 9,926,226.12 --- 9,926,226.12 39,698,800.27 --- 39,698,800.27 cost

Products in 10,165,279.49 --- 10,165,279.49 ------progress

99

Finished 200,929.00 goods

Consumptive biological 198,300.00 --- 399,229.00 ------assets

Low-value consumption ------goods

Relocation ------housing

Total 20,490,734.61 --- 20,490,734.61 39,698,800.27 --- 39,698,800.27

The capitalization of borrowing cost (RMB 624,000.00) is charged to cost of inventory (QianYuan area is RMB 624,000.00, the rate of capitalization is 8%). The company did not have any secured inventories during the reporting period.

(1) Development Cost

Estimation of Time for Estimation of total Item time for Closing Balance Opening Balance commencement investment amount completion

QianYuan November 2011 December 2012 88,390,000.00 0.00 28,730,807.42 Area

Products intended to ------9,926,226.12 10,967,992.85 develop

Total 9,926,226.12 39,698,800.27

(2) Products in progress

Time for Opening Increase during the Decrease during the current Item Closing Balance completion Balance current accounting period accounting period

Qian December Yuan --- 69,095,821.91 58,930,542.42 10,165,279.49 2012 Area

Total --- 69,095,821.91 58,930,542.42 10,165,279.49

(3) Finished goods

Item Opening Increase during the current Decrease during the Closing Balance

100

Balance accounting period current accounting period

Finished goods --- 200,929.00 --- 200,929.00

Total --- 200,929.00 --- 200,929.00

(4) Consumptive biological assets

Item Opening Balance Closing Balance

1 ecological agriculture planting --- 198,300.00 and breeding

Baby breeding and --- 198,300.00 fat breeding

Total --- 198,300.00

Baby breeding and fat breeding are used for consumption.

(5) Compared to the opening balance, the closing balance of inventories decreased by RMB 19,208,065.66, with the reduction rate of 48.38%. The major explanations for the decrease were: during the reporting period, the products in progress in the QianYuan area which met the requirements of revenue recognition are charged to relevant cost.

5. Other Current Assets

Items Closing Balance Opening Balance

The ICBC financial product 9,000,000.00 0.00

Total 9,000,000.00 0.00

The characteristics of the ICBC financial product: a) capital guaranteed; b) fix matured day; c) the highest expected annual rate of return is 3.8%.

6. Long-term equity investments

Closing Balance Opening Balance Items Book Balance Provision Book Balance Provision

Long-term equity investments 0.00 0.00 842,508,163.17 842,508,163.17 based on cost accounting

Total 0.00 0.00 842,508,163.17 842,508,163.17

101

(1) Long-term equity investments based on equity accounting Not Applicable.

(2) Long-term equity investments based on cost accounting

Increase/Decrease in Cash bonus Invested Company Investment at cost Opening Balance Closing Balance in this the current period period

Gold Axe Investment Group 8,300,000.00 8,300,000.00 -8,300,000.00 ------Limited

Chengde DiXian Fashion Co., 149,408,230.11 149,408,230.11 -149,408,230.11 ------Ltd.

Hebei XiaBanCheng Knitting 431,604,203.41 431,604,203.41 -431,604,203.41 ------Garment Co., Ltd. Suning Banhe Chemical Fiber 46,980,000.00 46,980,000.00 -46,980,000.00 ------Facsimile Fabric Co., Ltd

ChengDe DaHua Paper Co., 206,215,729.65 206,215,729.65 -206,215,729.65 ------Ltd

Total 842,508,163.17 842,508,163.17 -842,508,163.17 ------

(3) Provision for long-term equity investments

Increase in Decrease in this Invested company Opening Balance Closing Balance Reasons this period period

Gold Axe Investment Group 8,300,000.00 --- 8,300,000.00 --- *1 Limited

Chengde DiXian Fashion Co., 149,408,230.11 --- 149,408,230.11 --- *2 Ltd.

Hebei XiaBanCheng Knitting 431,604,203.41 --- 431,604,203.41 --- *3 Garment Co., Ltd. Suning Banhe Chemical Fiber 46,980,000.00 --- 46,980,000.00 --- *4 Facsimile Fabric Co., Ltd

ChengDe DaHua Paper Co., Ltd 204,000,000.00 --- 204,000,000.00 --- *5

102

Increase in Decrease in this Invested company Opening Balance Closing Balance Reasons this period period

Total 840,292,433.52 --- 840,292,433.52 ---

*1 Gold Axe Investment Group Limited was established at 3 November 1999, with the registered capital of 1 dollar. The company held 100% equity of Gold Axe Investment Group Limited. At 25 December 2006, because original largest shareholder Wang ShuXian and senior executives involved in the smuggling effect, according to the paper of sentence No.48 (2008) issued by ShiJiaZhuang intermediate People‟s Court and the paper of sentence No.44 (2009) superior, Gold Axe Investment Group Limited is unable to contact due to the smuggling event and it is not existent. Gold Axe Investment Group Limited has already not been controlled by the company and has been accrued full provision.

*2 On February 8, 2009,Chengde DiXian Fashion Co., Ltd. was declared to bankrupt by Hebei province Chengde City Intermediate People's Court with the issuance of civil award of No. (2008)11-1; At 6 December 2012, the civil award No.(2008)11-5, which was issued by the ChengDe City intermediate People‟s Court, claimed the completion of the bankruptcy progress.

*3 On February 8, 2009, Hebei Xiabancheng Knitting Garment Co., Ltd. was declared to bankrupt by Hebei province Chengde City Intermediate People's Court with the issuance of civil award of No. (2008)12-1. At 1 December 2012, the civil award No.(2008)12-5, which was issued by the ChengDe City intermediate People‟s Court, claimed the completion of the bankruptcy progress.

*4 In October 2012, the civil award No.(2011)76, which was issued by the ChengDe City intermediate People‟s Court, claimed the dispute settlement between the company and ShuXian Wang. The company authorized transferring 83.79 acres of land and its accessory included in the ChengDe land use right No.(2005)072 (located in the western area of Suning Banhe Chemical Fiber Facsimile Fabric Co., Ltd) to ShuXian Wang. *5 In October 2012, the civil award No.(2011)76, which was issued by the ChengDe City intermediate People‟s Court, claimed the dispute settlement between the company and ShuXian Wang: a) ShuXian Wang purchase the company‟s equity in ChengDe DaHua Paper Co., Ltd at the price of RMB 13,000,000; b) ShuXian Wang abandoned the recourse of RMB 3,000,000 and RMB 6,970,000 which were borrowed by the company from ChengDe DaHua Paper Co., Ltd in the prior period; c) After the deduction of the above amounts, ShuXian Wang owed the company RMB 3,030,000.

7. Fixed assets and depreciation Opening Decrease in this Closing Items Increase in this period Balance period Balance 1 Total original book vale: 123,491,897.18 1,158,557.25 96,730,361.01 27,920,093.42 Including：buildings and constructions 112,075,483.23 204,657.03 85,687,342.94 26,592,797.32 Machinery equipment --- 10,500.00 --- 10,500.00

103

Transportation vehicles 11,133,781.66 922,651.50 10,823,271.25 1,233,161.91

Other equipment 282,632.29 20,748.72 219,746.82 83,634.19

Increase in Accrued in

this period this period 2 Total accumulated depreciation 27,259,039.48 2,713,205.49 2,713,205.49 26,794,255.15 3,177,989.82 Including: buildings and constructions 18,116,900.20 2,599,443.44 2,599,443.44 17,684,765.20 3,031,578.44 Machinery equipment - - - - - Transportation vehicles 9,071,586.74 92,568.81 92,568.81 9,031,028.08 133,127.47

Other equipment 70,552.54 21,193.24 21,193.24 78,461.87 13,283.91

3 Total net book value of fixed assets 96,232,857.70 1,158,557.25 72,649,311.35 24,742,103.60 Including: buildings and constructions 93,958,583.03 204,657.03 70,602,021.18 23,561,218.88 Machinery equipment 10,500.00 10,500.00 Transportation vehicles 2,062,194.92 922,651.50 1,884,811.98 1,100,034.44

Other equipment 212,079.75 20,748.72 162,478.19 70,350.28 — —

4 Total impairment — 35,361,563.01 provision 35,361,563.01 Including: buildings and constructions 33,464,017.14 --- 33,464,017.14 --- Machinery equipment ------Transportation vehicles 1,782,799.83 --- 1,782,799.83 ---

Other equipment 114,746.04 --- 114,746.04 ---

— — 5 Total book value of fixed assets 60,871,294.69 36,520,120.26 72,649,311.35 24,742,103.60 Including: buildings and constructions 60,494,565.89 33,668,674.17 70,602,021.18 23,561,218.88 Machinery equipment 10,500.00 - 10,500.00 Transportation vehicles 279,395.09 2,705,451.33 1,884,811.98 1,100,034.44

Other equipment 97,333.71 135,494.76 162,478.19 70,350.28

The total accumulated depreciation for the current accounting period is RMB 2,713,205.49. The original book value of fixed assets charged from construction in progress is RMB 0.

104

The book value of secured or guaranteed fixed assets is RMB 0. Compared to the opening balance, the closing balance of fixed assets decreased by RMB 36,129,191.09, with the reduction rate of 59.35%. The major explanations for the decrease were: a) The dispute settlement between the company and ShuXian Wang. ShuXian Wang acquired fixed assets disposal loss during the dispute settlement progress. b) The dispute settlement between the company and Rui Li. Rui Li acquired fixed assets disposal loss during the dispute settlement progress. The damage of the factory in ChengDe XingYe Paper Co., Ltd, which was caused by Rui Li when he removed the fixed asset in it, created fixed assets inventory loss.

(2) Temporary idle fixed assets at the year-end

Original book Accumulated Impairment Net book Items Notes value depreciation provision value

Buildings and ChengDe property right 19,955,155.19 2,274,887.24 17,680,267.95 constructions certificate No.196 and 198

(3) Fixed assets with application of certificate for property right still in process

Original Book Reasons for unsettlement of the Estimation of the time for settlement of Items Value certificate for property right certificate for property right

All assets are unsecured; Ownership Buildings and constructions 23,561,218.88 Cannot be predicted transfer progress is not completed

(4) Explanation for fixed assets Fixed assets had been transferred to Chengde Rongyida Real Estate Development Co., Ltd in 2009 during the bankruptcy reorganization. But due to release of pledge is still under progress so that the property transfer cannot be done. Till now, information for the court has been issued by Hebei Chengde intermediate people's court to Chengde housing construction Bureau to ask for the assistance of execute property certificate ChengXian Fang ZI No.000196, 000198 and 000108 to complete the property transfer.

Our company has rented out those temporarily idle houses (certificates for property right: ChengDe No.000198), venues and received the rental fee of RMB 275,870.00. Due to no calculation on the square meter of the rental areas, it is hard to get the rental cost, considering the amount is relatively small, our company decided to transfer those part of amount from fix assets to investment on real estate.

8. Construction in Progress

Project name Opening Balance Increase in this Decrease in this Closing Balance

105

period period

Papering project 4,828,618.00 - 4,828,618.00 -

Boiler 1,893,200.00 - 1,893,200.00 -

Factory - 26,925.00 - 26,925.00

Machinery equipment - 338,927.43 - 338,927.43

Well and its accessory - 15,535.00 - 15,535.00

Wages - 21,200.00 - 21,200.00

Total 6,721,818.00 402,587.43 6,721,818.00 402,587.43

Compared to the opening balance, the closing balance of construction in progress decreased by RMB 6,319,230.57, with the reduction rate of 94.01%. The major explanations for the decrease were: a) The dispute settlement between the company and ShuXian Wang. b) The dispute settlement between the company and Rui Li. c) The damage of the factory in ChengDe XingYe Paper Co., Ltd, which was caused by Rui Li when he removed the fixed asset in it, created fixed assets inventory loss.

9. Intangible assets

Increase in this Decrease in this Items Opening Balance Closing Balance period period

1 Total of original value 43,792,565.20 14,912,279.36 29,728,265.11 28,976,579.45

(1) Land use right 43,792,565.20 14,912,279.36 29,728,265.11 28,976,579.45

2 Total accumulated 4,199,789.16 1,201,305.51 3,129,619.60 2,271,475.07 amortization

(1) Land use right 4,199,789.16 1,201,305.51 3,129,619.60 2,271,475.07

3 Total net book value 39,592,776.04 13,710,973.85 26,598,645.51 26,705,104.38

(1) Land use right 39,592,776.04 13,710,973.85 26,598,645.51 26,705,104.38

4 Total impairment ------

(1) Land use right ------

4 Total of intangible asset book 39,592,776.04 13,710,973.85 26,598,645.51 26,705,104.38 value

(1) Land use right 39,592,776.04 13,710,973.85 26,598,645.51 26,705,104.38

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Notes for intangible assets: (1) Secured intangible assets

Original book Accumulated Net book Items Notes value amortization value

Land use right 4,512,531.18 574,319.48 3,938,211.70 Cheng Xian TuGuo Yong(2005) Zi No.63

Total 4,512,531.18 574,319.48 3,938,211.70

(2) The company has rented out those temporarily idle land (Cheng Xian TuGuo Yong(2005) Zi No.63) and received the rental fee of RMB 528,800.00. Due to no calculation on the square meter of the rental areas, it is hard to get the rental cost, considering the amount is relatively small, our company decided to transfer those part of amount from fix assets to investment on real estate.

(3) Lands (Cheng Xian Guo Yong(2001) Zi No.132; Cheng Xian Guo Yong(2005) Zi No.63) were acquired by RongYiDa by auction from former ChengDe DiXian Textile Corporation. The procedures for transferring ownership (from DiXian to RongYiDa) of these lands were unsettled.

10. Long Term Deferred Expenses Items Opening Balance Increase in this period Decrease in this period Closing Balance

Decoration fee 356,640.00 457,281.61 79,496.69 734,424.92

Total 356,640.00 457,281.61 79,496.69 734,424.92

11. Deferred tax assets and liabilities (1) Deferred tax assets which have been confirmed

Closing balance: deductible Closing Balance: Opening Balance: Deductible Opening Balance: Items temporary differences Deferred tax assets temporary differences Deferred tax assets

Assets impairment 6,075,243.36 1,518,810.84 1,753,807.69 438,451.92

Total 6,075,243.36 1,518,810.84 1,753,807.69 438,451.92

(2) Deferred tax assets which have not been confirmed

Items Closing balance Opening balance 1 Deductible temporary differences ------

107

2 Deductible loss (437,568,415.43) (437,568,415.43)

Total (437,568,415.43) (437,568,415.43)

As whether could acquire sufficient taxable income was uncertain in the future, the above deferred tax assets (generated by deductible loss) of the company and its subsidiaries, such as XingYe, were not confirmed.

(3) Deferred tax assets (generated by deductible loss) were expired in periods shown blow:

Items(year) Closing balance Opening balance Notes

2013 (302,676,170.39) (302,676,170.39)

2014 (114,543,457.05) (114,543,457.05)

2015 2,594,452.65 2,594,452.65

2016 ------

2017 (22,943,240.64) (22,943,240.64)

Total (437,568,415.43) (437,568,415.43)

12. Impairment of assets

Increase in Decrease in this period Items Opening Balance Closing Balance this period Reversal Written off

Bad debt provision 45,971,992.28 4,541,023.68 --- 44,215,272.61 6,297,743.35

Provision for long-term 842,508,163.17 ------842,508,163.17 --- equity

Impairment provision for 35,361,563.01 ------35,361,563.01 --- fixed assets

922,084,998.79 6,297,743.35 Total 923,841,718.46 4,541,023.68 ---

13. Short-term borrowing

Items Closing Balance Opening Balance

Chengde County --- 422,261.91 Treasure Bureau*

Total --- 422,261.91

The Company borrowed several loan from Chengde County Treasure Bureau which was exceeded the time limit for many years. The original principal is the amount of 21,113,095.50, the loan now need to be refunded is the amount of 422,261.91 according to the confirmed ratio of proportion of liquidity of 2% in 2009. The amount has

108

all been refunded in the current accounting period.

14. Payable Closing Balance Opening Balnace Aging Amount Rate in total Amount Rate in total

Within 1 year 2,039,628.36 99.40% 100.00 0.04%

1-2 years 100.00 0.00% ------

2-3 years ------

Over 3 years 12,273.55 0.60% 231,075.82 99.96%

Total 2,052,001.91 100.00% 231,175.82 100.00%

(1) At the year-end of the reporting period, there are no payable due from any shareholders held over 5%. (2) At the year-end of the reporting period, there is no amount due from related party.

15. Receivable in advance

Aging Closing Balance Opening Balance

Within 1 year 7,120,711.50 30,028,613.02

1-2 years ------

2-3 years ------

Over 3years ------

Total 7,120,711.50 30,028,613.02

(1) At the year-end of the reporting period, there are no receivable in advance due from any shareholders held over 5%. (2) At the year-end of the reporting period, there is no related-party receivable in advance (3) Compared to the opening balance, the closing balance of receivable in advance decreased by RMB 22,907,901.52, with the reduction rate of 76.29%. The major explanations for the decrease were: the receivable in advance which did not meet the requirements of revenue recognition in 2011 met the requirements in November 2012. Therefore, these receivables in advance were transferred to revenue.

Details for receivable in advance are disclosed below:

Items Closing Balance Opening Balance Time for Completion Pre-sale ratio

Products in

progress:

DaLu QianYuan 7,120,711.50 30,028,613.02 Completed in Dec 2012 75.30% area

109

Total 7,120,711.50 30,028,613.02

16. Payroll Items Opening Balance Increase in this period Decrease in this period Closing Balance 1 Wage, bonus, allowance and 377,800.00 1,520,644.28 1,718,444.28 180,000.00 subsidy 2 Employees‟ welfare --- 240,031.96 240,031.96 ---

3 Social security 231,185.60 161,886.38 343,105.30 49,966.68

4 Housing provident fund --- 47,095.44 47,095.44 ---

5 Compensation for termination 1,410.00 8,464.00 8,874.00 1,000.00

6 Cost for employees* 6,097,486.60 ------6,097,486.60

Total 6,707,882.20 1,978,122.06 2,357,550.98 6,328,453.28

*The cost for employees is accrued by the subsidiary: ChengDe XingYe Paper Co., Ltd.

17. Tax payable

Items Closing Balance Opening Balance

VAT -50,248.40 151,107.41

Business tax 355,481.28 28,840.94

Urban construction tax -112,371.20 -63,121.82

Land VAT -1,178,375.52 -513,431.23

Corporate income tax 6,197,695.00 4,793,934.43

Land use tax 2,993,193.92 5,303,898.28

Individual income 1,048.30 1,033.30

Education surcharge -67,073.88 -37,873.10

Stamp tax 21,257.53 2,322.67

Housing property tax 2,888,250.17 2,087,809.93

Local education surcharge -5,949.81 -25,248.72

Total 11,042,907.39 11,729,272.09

Compared to the opening balance, the closing balance of tax payable decreased by RMB 686,364.70, with the reduction rate of 6.22%.

18. Other payable Closing Balance Opening Balance

Aging Amount Rate in Total Amount Rate in Total

Within 1 year 4,320,266.25 8.28% 18,060,833.45 26.63%

110

1-2 years 17,199,106.20 32.96% 5,369,436.68 7.92%

2-3 years 2,932,027.94 5.62% 42,764,443.65 63.05%

Over 3 years 27,726,978.57 53.14% 1,628,200.66 2.40%

Total 52,178,378.96 100.00% 67,822,914.44 100.00%

(1) At the year-end of the reporting period, there are no other payable due from any shareholders held over 5%.

(2) At the year-end of the reporting period, the other accounts payable are significant and with an aging of over 1 years

Name Amount Nature or content

Shanghai Mineral Energy Electric Co., Ltd. 12,000,000.00 immature borrowing

Mr. XiaoMing Zhang 6,500,000.00 immature borrowing

Mr. ZhenLin Qian 6,000,000.00 immature borrowing

Mr. LiPing Chen 5,000,000.00 immature borrowing

Miss. Yan Li 3,000,000.00 immature borrowing

(3) At the year-end of the reporting period, the other accounts payable in significant amount

Name Amount Nature or content

Payment for transferring Mr. QuanDa Wei 6,000,000.00 equipment ownership

Shanghai Mineral Energy Electric Co., Ltd. 12,000,000.00 immature borrowing

Mr. XiaoMing Zhang 6,500,000.00 immature borrowing

Mr. ZhenLin Qian 6,000,000.00 immature borrowing

Mr. LiPing Chen 5,000,000.00 immature borrowing

Miss. Yan Li 3,000,000.00 immature borrowing

Miss. HaiHong Zhou 1,800,000.00 immature borrowing

Mr. Liang Tan 1,000,000.00 immature borrowing

19. Long-term loan Categories Closing Balance Opening Balance

Credit loans --- 6,801,600.00

Total --- 6,801,600.00

111

Borrowing on credit

Closing balance Opening balance Termination Loan issuer Starting date Balance in Balance in local date Currency Currency local currency currency

Chengde County Treasure 2005/12/28 2012/8/17 RMB 0.00 RMB 6,801,600.00 Bureau

Total 0.00 6,801,600.00

On 28 Dec. 2005, Chengde Finance Bureau granted the treasury lending money of the Project of paper producing, water saving and resource utilization comprehensively for the XingYe Paper Industrial Co., Ltd at the amount of RMB 5 million according to the document (Ji Cai Jian (2005) No. 258). XingYe did not refund the interest every year due to the operating difficulties. By the end of 31st Dec 2011, the amount of accrued interest is RMB 1,801,600.00 and RMB 6,801,600.00 with principal. By the year-end of the current accounting period, the principal and interest of the loan were fully refunded.

20. Special payables Items Opening Balance Increase in this period Decrease in this period Closing balance

Chengde County 98,000.03 0.00 98,000.03 0.00 Treasure Bureau

Total 98,000.03 0.00 98,000.03 0.00

112

21. Share capital Increase (+) and decrease (-) in this period Items Opening Balance Closing Balance Issue new shares Share bonus Reserves transfer to Other Sub-total shares 1 limited shares

(1)shares held by government ------(2)shares held by State-own Legal-person ------(3)shares held by other domestic ------capital Including: shares held by Legal 23,147,309.00 ------23,147,309.00 person Shares held by natural 221,652,691.00 ------221,652,691.00 person (4)shares held by foreign capital ------Including: shares held by foreign ------Legal person shares held by foreign nature person ------(5) Other ------

Sub-total for limited shares 244,800,000.00 ------244,800,000.00

2．Unlimited shares ---

(1) Ordinary shares in RMB ------

(2) Domestic listed foreign shares 461,520,000.00 ------461,520,000.00

(3) Foreign listed foreign shares ------

(4) Other ------

Sub-total for unlimited shares 461,520,000.00 ------461,520,000.00

Total 706,320,000.00 ------706,320,000.00

113

22. Capital reserves Opening Increase in this Decrease in Items Closing Balance Balance period this period

1 Capital premium (share capital premium) ------

(1) Capital from investors 390,597,031.55 ------390,597,031.55

(2) Effect of business combination under the common control ------

Sub-total 390,597,031.55 ------390,597,031.55

2.Other capital reserve* 58,768,855.14 7,104,364.09 --- 65,873,219.23

Total 449,365,886.69 7,104,364.09 --- 456,470,250.78

Increase in this period is due to the purchase of the difference between cost of minority interest and the net book value of assets.

23. Surplus reserves Items Opening Balance Increase in this period Decrease in this period Closing Balance

Statutory surplus reserves 76,791,550.17 ------76,791,550.17

Total 76,791,550.17 ------76,791,550.17

24. Undistributed profits Withdrawal or Items Closing Balance Opening Balance allocation proportion

Closing Balance (2011) -1,157,581,498.16 -1,253,450,491.01

Add: Change of accounting policy ---

Prior period error correction --- 94,050,207.23 *

Opening Balance (2012) -1,157,581,498.16 -1,159,400,283.78 Add: net profits belong to the parent in this period 32,894,368.82 1,818,785.62

Less: Statutory surplus reserves ------10%

Discretionary surplus reserve ------

Dividends of ordinary shares payable ------Dividends of ordinary shares transferred into share capital ------

Add: Other transfer ------

Less: surplus reserves for recovery of loss ------

Closing Balance -1,124,687,129.34 -1,157,581,498.16

* Prior period error correction increased the undistributed profits by 94,050,207.23. (See notes II.34)

114

25. Operating income and operating cost

Closing Balance Opening Balance Items Income Cost Income Cost

1 Principal business income

Sales of house 78,707,333.42 58,327,874.54 ------

Sub-total 78,707,333.42 58,327,874.54 ------

2.Other business income BanHe land rental 528,800.80 71,470.79 515,150.00 ---

House rent 275,870.00 24,657.30 ------

Sub-total 804,670.80 96,128.09 515,150.00 ---

Total 79,512,004.22 58,424,002.63 515,150.00 ---

(1) Principal business income and cost (by industry)

Closing Balance Opening Balance

Items

Income Cost Income Cost

Real Estate industry 78,707,333.42 58,327,874.54 ------

Total 78,707,333.42 58,327,874.54 ------

(2) Principal business income and cost (by products)

Closing Balance Opening Balance Items Income Cost Income Cost

Products in progress

DaLu QianYuan area 78,707,333.42 58,327,874.54 ------

Total 78,707,333.42 58,327,874.54 ------

(3) Principal business income and cost (by district)

Closing Balance Opening Balance District Income Cost Income Cost

ChengDe District 78,707,333.42 58,327,874.54 ------

Total 78,707,333.42 58,327,874.54 ------

(4) The operating income of the top five customers of the Company

115

Customer name or ranking Principal business income Rate in total

Mr. SongJing Zhang 1,021,600.00 1.30%

Mr. Hui Li 493,391.00 0.63%

Mr. ChunLong Yang; 482,210.00 0.61% Miss. XiuLing Liu

Mr. YuJun Gao 482,171.00 0.61%

Mr. LiGuo Zhao; 482,171.00 0.61% Miss. CaiYun Zhang

Compared to the opening balance, the closing balance of operating income increased by RMB 78,996,854.22, with the growth rate of 153.35%. The major explanations for the increase were: the receivable in advance which did not meet the requirements of revenue recognition in 2011 met the requirements in November 2012. Therefore, these receivable in advance were transferred to revenue, which caused the revenue in the current year increased significantly.

26. Business tax and surcharges

Items Tax rate Closing Balance Opening Balance

Business tax 5% 4,062,139.10 25,757.50

Urban maintenance and 5% construction tax 203,106.96 2,220.72

Education surcharge 3% 121,864.18 1,332.44

Local education surcharge 2% 81,242.78 888.4

Land VAT 481,104.20 ---

Total 4,949,457.23 30,199.06

Compared to the opening balance, the closing balance of business tax and surcharges increased by RMB 4,919,258.17, with the growth rate of 162.89%. The major explanations for the increase were: increase of sales volume.

27. Administrative and financial expenses

(1)Administrative expense

Items Closing Balance Opening Balance

Land use tax 3,492,305.64 3,820,289.50

Accumulated depreciation 3,322,711.25 2,945,531.39

116

Items Closing Balance Opening Balance

Intermediary fees 2,383,227.64 1,472,000.00

Wages 1,802,580.12 968,602.92

Other 917,319.58 312,125.23

Housing property tax 870,046.19 1,095,632.43

Business entertainment 780,240.29 257,155.76

Amortization 586,051.45 1,249,123.78

Travel expense 542,265.86 275,518.01

Office expense 394,117.40 146,847.60

Welfare 239,031.96 3,030.00

Insurance 196,539.38 179,578.00

Transportation 125,927.20 0.00

Long-term deferred expenses 71,992.00 0.00

Stamp tax 71,080.15 313.30

Low-valued consumption goods 54,481.50 0.00

Housing provident fund 47,636.48 0.00

Organization cost 33,010.00 0.00

Union fees 8,464.00 3,954.00

Total 15,939,028.09 12,729,701.92

Compared to the opening balance, the closing balance of administrative expense increased by RMB 3,209,326.17, with the growth rate of 25.21%.

(2) Financial expense

Items Closing Balance Opening Balance

Interest expense 2,403,071.69 3,367,839.39

Less: interest income 101,723.22 3,786.05

Exchange gain or loss 1.17 225.97

117

Bank charges 88,806.02 123,542.75

Total 2,390,155.66 3,487,822.06

Compared to the opening balance, the closing balance of financial expense decreased by RMB 1,097,666.40, with the reduction rate of 31%. Major reasons were: reduction of interest expense.

28. Asset impairment loss Items Closing Balance Opening Balance

Provision for bad debt 4,541,023.68 1,611,119.69

Investment impairment loss ------

Total 4,541,023.68 1,611,119.69

29. Return on investment Items Closing Balance Opening Balance

1.Financial assets (return on investment) 15,731.51 ---

Bank financial products in this period (return on investment) 15,731.51 ---

2.Long-term equity (return on investment) ------

Long-term equity (return on investment based on cost ------accounting)

Total 15,731.51 ---

30. Non-operating income Items Closing Balance Opening Balance

Profit from disposal of fixed assets 779,288.18 ---

Profit from disposal of intangible assets 108,019,933.89 ---

Government grant --- 17,900,000.00

Receive of donation ------

Other 616,730.46 951,504.06

Total 109,415,952.53 18,851,504.06

Compared to the opening balance, the closing balance of non-operating income increased by RMB 90,564,448.47, with the growth rate of 480.41%. The major reasons were: a) The transfer of land (Cheng Xian TuGuo Yong(2012) Zi No.56) from the company to the government, which created revenue of RMB 60,000,000.00. b) The transfer of land (Cheng Xian TuGuo Yong(2012) Zi No.57) from the company to the government, which created revenue of RMB 62,070,021.00. c) The transfer of lands (Cheng Xian TuGuo Yong(2000) Zi No.35; Cheng Xian TuGuo Yong(2001) Zi No.132) and certificate for property right (Cheng Xian Fang Zi No. 000109 ) from the company to the government, which created revenue of RMB 1,678,178.00.

118

d) The costs for all the transfer above are 15,728,265.11.

31. Non-operating expense

Items Closing Balance Opening Balance

Disposal of non-current assets 58,856,083.88 ---

Including: Disposal of fixed assets 52,134,265.88 ---

Disposal of construction in progress 6,721,818.00 ---

Disposal of intangible assets ------

Loss on exchange of non-monetary assets ------

Loss on debt restructuring ------

Donations contributed ------

Including: Public welfare donations contributed ------

Compensation 14,000.00 150,000.00

Tax penalty 4,272,591.24 557,050.00

Other 119,145.24 280,253.70

Total 63,261,820.36 987,303.70

Compared to the opening balance, the closing balance of non-operating expense increased by RMB 62,274,516.66, with the growth rate of 6307.00%. The major reasons were: a) the dispute settlement between the company and ShuXian Wang. ShuXian Wang acquired fixed assets disposal loss (RMB 21,652,699.78) during the dispute settlement progress. b) the dispute settlement between the company and Rui Li. Rui Li acquired fixed assets disposal loss (RMB 8,186,294.48) during the dispute settlement progress. The damage of the factory in ChengDe XingYe Paper Co., Ltd, which was caused by Rui Li when he removed the fixed asset in it, created fixed assets inventory loss (RMB 19,583,153.43) and construction in progress inventory loss (RMB 6,721,818.00). c) Chengde Rongyida Real Estate Development Co., Ltd.: loss on disposal of fixed assets (RMB 2,712,118.19). d) Tax penalty (RMB 4,272,591.24) was paid in arrears during the 2012 tax inspection

32. Income tax expense Items Closing Balance Opening Balance Current income tax calculated based on tax 7,624,190.71 19,318.12 law and relevant rules

Deferred income tax adjustment -1,080,358.92 -402,706.92

119

Total 6,543,831.79 -383,388.80

33. Notes for statement of cash flow (1) Other cash receive from operating activities

Items Closing Balance Opening Balance

Interest income 101,723.22 3,786.05

Current accounts received 66,131,098.75 10,229,258.95

Subsidy income --- 17,900,000.00

Other 326,689.37 115,193.82

Total 66,559,511.34 28,248,238.82

(2) Other cash paid to operating activities Items Closing Balance Opening Balance

Expenditure 17,987,213.59 12,979,381.62

Current accounts paid 48,185,069.01 18,199,322.23

Other 928,965.34 721,036.29

Total 67,101,247.94 31,899,740.14

(3) Supplemental information for statement of cash flow

Supplemental information Closing Balance Opening Balance 1.Adjustments to reconcile net profit to net cash provided by operating activities:

Net profit 32,894,368.82 903,896.43

Add: impairment provision for assets 4,541,023.68 1,611,119.69

Depreciation of fixed assets, consumption & depreciation of fuel and gas, depreciation of productive biological assets 2,713,205.49 2,945,531.39

Amortization for intangible assets 1,201,305.51 1,249,123.78

Amortization for long-term prepayment 79,496.69 --- Loss on disposal of fixed assets, intangible assets and other long-term assets -108,799,222.07 ---

Loss upon rejection of fixed assets ------

Loss on variance of fair value ------

Finance cost 2,313,423.11 3,377,371.98

Loss in investment ------

Decrease of deferred tax assets -1,080,358.92 -438,451.92

120

Supplemental information Closing Balance Opening Balance

Increase of deferred tax liability ------

Decrease of inventories 19,208,065.66 -21,956,718.86

Decrease of operating receivable account items -12,694,833.50 11,232,368.68

Increase of operating payable account items 55,252,598.72 -4,415,663.86

Other ------

Net cash flow from operating activities -4,386,658.32 -5,491,422.69

2 Significant investing and financing activities for non-cash items

Liabilities capitalized ------

Convertible bonds payable mature in one year ------

Financing leased fixed assets ------

3. Net increase (decrease) for cash and cash equivalents

Closing balance for cash 81,546,046.87 572,655.85

Less: opening balance for cash 572,655.85 9,722,940.88

Add: closing balance for cash equivalent ------

less：opening balance for cash equivalent ------

Net increase (decrease) for cash and cash equivalents 80,973,391.02 -9,150,285.03

(4) Details for cash and cash equivalent

Items Closing balance Opening Balance

1 Cash 81,546,046.87 572,655.85

Including: Cash in hand 72,492.38 103,698.97

Cash at bank 81,473,554.49 468,956.88

Other cash and cash equivalents ------

2 Cash equivalent ------

Including: Bond matured within three months ------

3 Closing balance for cash and cash equivalents 81,546,046.87 572,655.85

VI. Related parties and related transactions

1. Related parties

(1) Related parties which control the company

The company has no parent company. The related parties with controlling relationship of the Company refer to Mr. Rong Chen, who held 29.49% equity of the Company.

121

(2) Subsidiaries of the company

Type of Legal Nature of Place of Business Registered Shareholdi Voting Organizati Subsidiaries Name subsidiar representati subsidiary registration nature Capital ng （%） right（%） onal code y ve

Chengde Rongyida Real A wholly HeBei Real Estate Limited YongSheng Estate 10,000,000.00 68434235- owned Province 100 100 Development Co., Liability Zhao developme RMB 0 subsidiary ChengDe city Ltd. nt

A wholly HeBei ChengDe XingYe Limited ShuXian Paper 250,000,000.0 60125211- owned Province 100 100 Paper Co., Ltd. Liability Wang production 0 USD 5 subsidiary ChengDe city

Gold Axe A wholly Limited The British 1 Investment Group owned --- Export 100 100 --- Liability Virgin Islands USD Limited subsidiary

Hebei XiaBanCheng A wholly HeBei Limited ShuXian Garment 4,000,000.00 60126026- Knitting Garment owned Province 100 100 Liability Wang production USD 2 Co., Ltd. subsidiary ChengDe city

A wholly HeBei Chengde DiXian Limited ShuXian Garment 24,000,000.00 60126040- owned Province 100 100 Fashion Co., Ltd. Liability Wang productin USD 6 subsidiary ChengDe city

Chengde Huaxing HeBei Waste Combination Limited 1,000,000.00 74544580- Waste paper Province SuoLian Xu paper 100 90 subsidiary Liability RMB 5 recycling Co., Ltd. ChengDe city recycling

Ecological ChengDe NanJiang A wholly HeBei Agricultur Limited YongSheng 5,000,000.00 05549562- Ecological owned Province e Planting 100 100 Liability Zhao RMB 9 Agriculture Co., Ltd. subsidiary ChengDe city and Breeding

A wholly HeBei ChengDe NanJiang owned Limited YongSheng 50,000,000.00 05545532- Province investment 100 100 Investment Co., Ltd. Liability Zhao RMB 8 subsidiary ChengDe city

(3) Other related parties of the company

Name of other related parties Relationship Organizational Code

DaHua Paper Co., Ltd. Joint venture 76033882-1

Suning Banhe Chemical Fiber Facsimile Fabric Co., Ltd Joint venture ---

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2. Related transactions (1) The related transactions between parent and subsidiaries that are in consolidation scope, among subsidiaries that are in consolidation scope, have been offset in the consolidated financial statement.

(2) Purchase of commodities and receipt of labors

Not Applicable.

(3) Sales of commodities and receipt of labors Not Applicable.

(4) Related custody Not Applicable.

(5) Related contracting

Not Applicable.

(6) Related lease Not Applicable.

(7) Related Guarantee Not Applicable.

(8) Borrowing of related party funds Not Applicable.

(9) Transfer of related party assets and debt reorganization Not Applicable.

(10) Other related transactions

Name Position 2012 2011

LiXin Lin Chairman of the Board (has been transferred) Wage has not been paid -

Director, General Manager, Financial Director, YongSheng Zhao 1.80 - secretary (on behalf)

DuCai Cheng Director Wage has not been paid -

Dong Wang Director Wage has not been paid -

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Name Position 2012 2011

WeiHuan Chen Director Wage has not been paid -

GuoHua Cao Outside Director 4.50 -

ZhiYong Zhang Outside Director 3.00 -

HuiBin Guo Outside Director 3.00 -

Yu Xie Chairman of the board of Supervisory Wage has not been paid -

Lei Wei Supervisor Wage has not been paid -

GuangXin Hao Employee Supervisor 3.86 -

WenXi Hu Vice General Manager 4.29 3.70

XiaShu Wang Assistant of General Manager 4.37 -

BaiNian Shi Vice General Manager 3.87 3.70

Total 28.69 6.14

Notes: a) LiXin Lin (Chairman of the board) resigned at 28th December 2012. The new Chairman of the board is WeiMin Li. b) Wage has been paid to YongSheng Zhao from September 2012 c) Wage has been paid to GuoHua Cao from April 2012 d) Wages have been paid to ZhiYong Zhang and HuiBin Guo from July 2012 e) Wages have been paid to GuangXin Hao, XiaShu Wang ,WenXi Hu and BaiNian Shi from January 2012

(11) Related receivables and payables

Not Applicable.

VII. Contingency Not Applicable.

VIII. Other significant events 1. The dispute settlement between the company and ShuXian Wang (1) On April 26 2011, the company received the notice of lawsuit from ChengDe Intermediate People's court. The notice informed that ShuXian Wang prosecute the company. ShuXian Wang claimed that he formerly held 208,324,800 shares of the company. The shares are used to refund matured debts (RMB 84,371,544.00) after they were auctioned by ChengDe Intermediate People's court. The content of the prosecution: the company liquidated ShuXian Wang‟s shares to refund matured debt after its bankruptcy restructuring was completed.

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(2) In the current accounting period, the company received civil conciliation No.[2011]76 from ChengDe Intermediate People's court. The civil conciliation claimed that the dispute between the company and ShuXian Wang was settled. After the court‟s conciliation, the dispute settlement was shown below: a) ShuXian Wang purchased the company‟s equity in ChengDe DaHua Paper Co., Ltd at the price of RMB 13,000,000. The company refunded the amount of RMB 3,000,000 and RMB 6,970,000 which were borrowed by the company from ChengDe DaHua Paper Co., Ltd in the prior period to DaHua.

b) ShuXian Wang was responsible for coordinating minority of ChengDe XingYe Paper Co., Ltd to abandon their equity, assisting the defendant to complete the liquidation and cancellation of XingYe. After the above works were done, the company agreed to transfer 20% equity of Suning Banhe Chemical Fiber Facsimile Fabric Co., Ltd, land of industrial park (34.03 acre), factory (25596.87 square meter) and land of No.131 (44.4 acre) to ShuXian Wang.

(c) The company agreed to transfer 83.79 acre in land (Cheng Xian GuoYong(2005) Zi No.72, located at the western zone of Suning Banhe Chemical Fiber Facsimile Fabric Co., Ltd) and its accessories to ShuXian Wang.

(d) ShuXian Wang recognized the lands and the buildings on the lands which were acquired by the company and Chengde Rongyida Real Estate Development Co., Ltd. by auction, bankruptcy restructuring and dispute settlements belonging to the company or RongYiDa. If ZhanXi International Group Co., Ltd (HK) or New Century Trade Co. , Ltd. had equity claims, ShuXian Wang had obligation to coordinate them to abandon their claims. If claims from the above entities caused asset loss of the company, ShuXian Wang had obligation to compensate its loss.

Current land acreage No. No. of the lands Location of lands ㎡ acre

Cheng Xian GuoYong(2001) Zi ChengDe county XiaBanCheng 1 No.132 YangShuLin village 187,773.00 281.66

Cheng Xian GuoYong(2005) Zi ChengDe county XiaBanCheng 2 No.75 YangShuLin village DaPingTai village 106,317.26 159.48

Cheng Xian GuoYong(2005) Zi ChengDe county XiaBanCheng 3 No.76 YangShuLin village DaPingTai village 104,157.21 156.24

Cheng Xian GuoYong(2005) Zi 4 ChengDe BanHe eastern zone No.63 36,671.10 55.01

Cheng Xian GuoYong(2000) Zi ChengDe County XiaBanCheng 5 No.33 XiaBan Village (Building of DiXian) 26,078.90 39.12

ChengDe County XiaBanCheng Cheng Xian GuoYong(2000) Zi 6 XiaBan Village East of TongCheng No.173 57,451.40 86.18 Road

ChengDe County XiaBanCheng Cheng Xian GuoYong(2000) Zi 7 XiaBan Village East of TongCheng 205.36 No.174 136,907.21 Road

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Current land acreage No. No. of the lands Location of lands ㎡ acre

Cheng Xian GuoYong(2010) Zi No.147 ChengDe County XiaBanCheng 8 Former Cheng Xian GuoYong(2000) ZhongMo Village 20,496.20 30.74 Zi No.32

Cheng Xian GuoYong(2011) Zi ChengDe County XiaBanCheng 9 No.118 ZhongMo Village 861.20 1.29

Cheng Xian GuoYong(2000) Zi ChengDe county XiaBanCheng 10 No.169 YangShuLin village 50,773.05 76.16

Cheng Xian GuoYong(2000) Zi ChengDe County XiaBanCheng 11 No.152 ZhongMo Village 16,753.34 25.13

Cheng Xian GuoYong(2001) Zi ChengDe County XiaBanCheng 12 No.133 ZhongMo Village 52,387.00 78.58

Cheng Xian GuoYong(2000) Zi ChengDe County XiaBanCheng 13 No.151 ZhongMo Village 59,955.98 89.93

Cheng Xian GuoYong(2000) Zi ChengDe county XiaBanCheng 14 No.410 YangShuLin village 5,492.00 8.24

DiXian Garden Area, residential building, factory of tractor and Former factory of fertilizer, factory of About 15 factory of fertilizer are replaced by fertilizer, factory of tractor, DiXian About 58 38667 four lands (secured by treasury garden area and residential building bureau)

Total 900741.85 1351.11

(e) ShuXian Wang had obligation to assist in completing all the company‟s bankruptcy procedures. After the procedures for bankruptcy were completed, ShuXian Wang had obligation to fulfill the allocation of reverent property according to the civil conciliation. During the allocation procedure, all the expenses occurred (including the expense which should be paid by the company) were charged to ShuXian Wang. Expenses included all the tax and relevant expenses occurred during the property allocation procedure.

(f) After the agreement had been fully implemented, ShuXian Wang was not able to have any equity claims on the company. Otherwise, the company had rights to recover the assets which had already been transferred to ShuXian Wang (the relevant expenses occurred during the recover were charged to ShuXian Wang). In the meantime, ShuXian Wang committed that the company would not be sued by any entities because of the equity issue mentioned above.

In the dispute settlement, the assets which should be transferred to ShuXian Wang had been transferred to him. By December 31 2012, the amount ShuXian Wang due to the company was RMB 3,030,000.00.

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2. The dispute settlement between Rui Li and Chengde Rongyida Real Estate Development Co., Ltd.

On December 14 2010, ChengDe FengYuan Auction Co., Ltd delegated RongYiDa to auction equipment and Rui Li acquired it. On May 23 2001, ChengDe Intermediate People's court accepted the lawsuit from Rui Li. Rui Li claimed that RongYiDa prevent him from dismantling the equipment by the reason of causing economic loss on RongYiDa. He also claimed that RongYiDa should compensate him economic loss of RMB 10,000,000.00. On November 7 2011, Rui Li withdrew the prosecution application. On December 15 2011, Rui Li sued RongYiDa again by the same reason and claimed RongYiDa and the company should compensate him economic loss of RMB 15,000,000.00.

After DiXian Working Group‟s conciliation, RongYiDa and Rui Li reached a dispute settlement: (a) RongYiDa agreed Rui Li to take away all of the removed and not being removed equipment (acquired by auction) in factory of ChengDe XingYe Paper Co., Ltd.

(b) RongYiDa agreed to pay Rui Li RMB 1,100,000.00 for removing two building of XingYe that were destroyed. However, Rui Li need to ensure the reserve of the exterior wall (at least 7 meters) and the completeness of the factory area. (c) All the transformers in former Fiber city belonged to Rui Li, except for the transformer outside the high voltage power s tation. Rui Li could remove and take them away. (d) In principle, after his entrance, Rui Li should transfer the factory area of the fiber city within three days and transfer the former paper production factory area within three months. (e) Based on these treaties, court settlement agreement was established. (f) The party that disobey the treaties above was forced to pay the other party RMB 5,000,000.00 (g) Notarial fees were spread evenly between Rui Li and RongYiDa.

IX. Commitment Not Applicable.

X. Notes to material events of parent company financial statement 3. Other receivable (1) Disclosure of other receivables by category

Closing Balance Opening Balance

Categories Bad debt Bad Debt Amount Ratio provision Amount Ratio provision

1 Individually significant amounts of accounts receivable accrued bad debt provision

2 Individually insignificant amounts of accounts receivable 469,069.25 54.97% 70,000.00 ------accrued bad debt provision

3 Accounts receivable accrued 384,175.74 45.03% 1,000.00 85,777.65 100.00% 21,283.33 bad debt provision by portfolio

Total 853,244.99 100.00% 71,000.00 85,777.65 100.00% 21,283.33

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Explanation for types of other receivables: (a) The receivables with more than RMB 1 million are recognized as the significant receivables.

(b) According to the business characteristic of the company, the irrecoverable risks are high for the other accounts receivable with an aging of over 3 years. Therefore, other accounts receivable which are less than RMB 1 million and with an aging of over 3 years are considered as individually insignificant amounts of accounts receivable accrued bad debt provision

(2) Related other receivable

Company Name Relationship Amount Ratio in

ChengDe XingYe Paper Co., Ltd. Subsidiary 270,021.43 67.66%

ChengDe NanJiang Ecological Subsidiary 129,047.82 Agriculture Co., Ltd. 32.34%

Total 399,069.25 100.00%

(3) Other accounts receivable accrued bad debt provision by portfolio

Closing Balance Opening Balance

Aging Ratio in Bad debt Bad debt Amount Amount Ratio in total total provision provision

Within 1 year 384,175.74 100.00% 1,000.00 67,889.00 79.15% 3,394.68

1-2 years

2-3 years

Over 3 years 17,888.65 20.85% 17,888.65

Total 384,175.74 100.00% 1,000.00 85,777.65 100.00% 21,283.33

(4) By the end of the current reporting period, there are no other accounts receivable due from any shareholders held over 5%

(5) At the year-end of the reporting period, the other accounts receivable in significant amount

Debtor Relationship Amount due from Aging Ratio in total

BeiJing DaCheng Attorney (ShangHai Non-related party 150,000.00 Within 1 year 33.03% Branch)

QiZhong Yan Non-related party 70,000.00 Within 1 year 15.41%

(6) Compared to the opening balance, the closing balance of business tax and surcharges increased by RMB 298,398.09, with the

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growth rate of 347.87%. The major explanations for the increase were: increase of staff reserving fund and increase of attorney fees not being invoiced.

4. Long-term equity investments

Closing Balance Opening Balance Items Book value Provision Book value Provision

Long-term equity investments based on 729,681,627.76 626,567,328.03 1,311,906,733.25 1,252,980,852.99

cost accounting

Total 729,681,627.76 626,567,328.03 1,311,906,733.25 1,252,980,852.99

(1) Long-term equity investments for subsidiaries

Increase in this Decrease in this Subsidiary Name Original value Opening Balance Closing Balance period period

Chengde Rongyida Real

Estate Development Co., 53,114,299.73 53,114,299.73 ------53,114,299.73

Ltd. *8

ChengDe NanJiang 50,000,000.00 --- 50,000,000.00 --- 50,000,000.00 Investment Co., Ltd.

ChengDe XingYe Paper 626,567,328.03 622,500,000.00 4,067,328.03 --- 626,567,328.03 Co., Ltd.

Gold Axe Investment 8,300,000.00 8,300,000.00 --- 8,300,000.00 --- Group Limited

Chengde DiXian Fashion 149,408,230.11 149,408,230.11 --- 149,408,230.11 --- Co., Ltd.

Hebei XiaBanCheng 431,604,203.41 431,604,203.41 --- 431,604,203.41 --- Knitting Garment Co., Ltd.

Total 1,318,994,061.28 1,264,926,733.25 54,067,328.03 589,312,433.52 729,681,627.76

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(2) Long-term equity investments based on cost accounting

Increase or decrease Closing Cash bonus in Invested company Investment at cost Opening balance in this period balance this period

Suning Banhe Chemical Fiber 46,980,000.00 46,980,000.00 -46,980,000.00 ------Facsimile Fabric Co., Ltd

Total 46,980,000.00 46,980,000.00 -46,980,000.00 ------

(3) Provision for long-term equity investments

Increase in this Decrease in this Invested company Opening balance Closing balance Reasons period period

ChengDe XingYe Paper 616,688,419.47 9,878,908.56 --- 626,567,328.03 Ready to liquidation Co., Ltd.

Gold Axe Investment Smuggling event, entity not 8,300,000.00 --- 8,300,000.00 --- Group Limited exists

Chengde DiXian Fashion Completion of bankruptcy 149,408,230.11 --- 149,408,230.11 --- Co., Ltd. procedure

Hebei XiaBanCheng Completion of bankruptcy Knitting Garment Co., 431,604,203.41 --- 431,604,203.41 --- Ltd. procedure

Suning Banhe Chemical Completion of bankruptcy Fiber Facsimile Fabric 46,980,000.00 --- 46,980,000.00 --- Co., Ltd procedure

Total 1,252,980,852.99 9,878,908.56 636,292,433.52 626,567,328.03

5. Supplemental information for statement of cash flow Supplemental information Closing Balance Opening Balance 1.Adjustments to reconcile net profit to net cash provided by

operating activities:

Net profit (12,891,377.63) 15,028,700.15

Add: impairment provision for assets 9,946,996.58 292.00

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Supplemental information Closing Balance Opening Balance Depreciation of fixed assets, consumption & depreciation of fuel 11,080.70 --- and gas, depreciation of productive biological assets

Amortization for intangible assets 407,618.99 406,098.52

Amortization for long-term prepayment Loss on disposal of fixed assets, intangible assets and other

long-term assets Loss upon rejection of fixed assets

Loss on variance of fair value

Finance cost 1.17 225.97

Loss in investment

Decrease of deferred tax assets

Increase of deferred tax liability

Decrease of inventories

Decrease of operating receivable account items (717,750.67) (72,334.30)

Increase of operating payable account items 4,694,117.65 (15,395,934.27)

Other

Net cash flow from operating activities 1,450,686.79 (32,951.93)

2 Significant investing and financing activities for non-cash items ------

Liabilities capitalized ------

Convertible bonds payable mature in one year ------

Financing leased fixed assets ------

3. Net increase (decrease) for cash and cash equivalents ------

Closing balance for cash 777,456.70 4,019.80

Less: opening balance for cash 4,019.80 37,197.70

Add: closing balance for cash equivalent ------

less：opening balance for cash equivalent ------

Net increase (decrease) for cash and cash equivalents 773,436.90 -33,177.90

XI. Supplemental information 1. Non-recurring gains and losses

Items 2012 2011

1 Losses/gains on disposal of non-current assets 49,163,850.01 ---

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Items 2012 2011

2. Government subsidies included in the current profits and losses (government subsidies which are closely related to --- 17,900,000.00 the Company‟s business and received at national statutory standard and amount are excluded)

3. Other non- recurring loss and profits other than the above (3,009,717.84) ---

4. Effect of minority interest on non-recurring losses or gains --- (914,889.19)

5. Effect of income tax on non-recurring losses and gains (11,538,533.04) 228,722.30

Total 34,615,599.13 17,213,833.11

Notes: All non-recurring items are disclosed before taxation.

2. Return on equity and earnings per share

Earning per share Weighted average of Profit in the reporting period Return on equity（%） Basic earnings Diluted earnings per share per share

Net profit attributable to shareholders holding 36.01 0.05 0.05 ordinary shares of the Company

Net profit attributable to shareholders holding ordinary shares of the Company after -1.88 ------deducting non-recurring gains and losses

XII. Approval for issuance of financial statements

These financial statements have been approved by all directors on February 26, 2013.

Chengde NanJiang Co., Ltd

February 26, 2013

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Section XI. Documents available for Reference

1. Accounting statements of Annual Report for year of 2012 carrying with confirmation and seals of Legal Representative of the Company, Person in Charge of the Financial Affairs and Person in Charge of Accounting Institution.

2. Originals of all documents and manuscripts of Public Notices of the Company publicly disclosed on newspapers appointed by CSRC in reporting period

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