China Vanke Co., Ltd

2009 Annual Report Important Notice: The Board of Directors, the Supervisory Committee and the Directors, members of the Supervisory Committee and senior management of the Company warrant that in respect of the information contained in this report, there are no misrepresentations or misleading statements, or material omission, and individually and collectively accept full responsibility for the authenticity, accuracy and completeness of the information contained in this report. Chairman Wang Shi, Director Yu Liang, Director Shirley L. Xiao, Independent Director David Li Ka Fai, Independent Director Judy Tsui Lam Sin Lai, Independent Director Qi Daqing attended the board meeting in person. Deputy Chairman Song Lin, Director Wang Yin, Director Sun Jianyi and Director Jiang Wei were not able to attend the board meeting in person due to their business engagements and had authorised Director Yu Liang to represent them and vote on behalf of them at the board meeting. Independent Director Charles Li was not able to attend the board meeting in person due to his business engagements and had authorised Independent Director Qi Daqing to represent him and vote on behalf of him at the board meeting. Chairman Wang Shi, Director and President Yu Liang, and Executive Vice President and Supervisor of Finance Wang Wenjin, declare that the financial report contained in the annual report is warranted to be true and complete. To Shareholders…………………………………………………………………………….………….…………2 Basic Corporate Information ………………………………………………………………………………………5 Accounts and Financial Highlights…………………………………………………………………………………5 Change in Share Capital and Shareholders…………………………………………………………………….……6 Directors, Members of Supervisory Committee, Senior Management and Employees……………………………11 Corporate Governance Structure…………………………………………………………………………………17 Summary of Shareholders’ Meetings……………………………………………………………….……………18 Directors’ Report…………………………………………………………………………………………………19 Report of Supervisory Committee……………………………………………………………………………….52 Significant Events…………………………………………………………………………………….…………54 Chronology of 2009…………………………………………………………………………………...…………64 Financial Report…………………………………………………………………………………………………65 1 To Shareholders 2009 marked another eventful year for the property industry. From a fleeting boom in 2007 to a market slump in 2008, and the emergence of a silver lining in 2009, the property industry has gone through several cycles of ups and downs within the three years. We are now sailing across the immense expanse of open water of the world property industry. Perhaps because of this, we are steering through unprecedented turbulent seas. Yet, no matter we ride down into the trough or on the crest, we should not forget the mission and charted course of our journey. Below the swell, there lies the deep sea abyss, where the perennial philosophy is found. Logic of recovery The world economy is experiencing the most rigorous challenge since World War II. Under such dramatic tremendous changes, desires for recovery have become a common goal across the world. Many business sectors might only see the sprout of hope in 2009, but the property market in the PRC led the way in showing a V-shaped rebound. How should we interpret such a phenomenon? And what is the outlook for the PRC property market? However, what people concerned and speculated most in the past year were external factors such as revitalisation plan, stimulus policies, monetary policy, liquidity, etc. These were undoubtedly important issues. Some of these factors could produce crucial results at a specific point of time, or even in the short run. As early as the agricultural era, climate changes had significant impact on harvest. Thus, should weather observation be the most important task for an earnest farmer? There is certainly limitation in rationality. In this age of complexity, people apparently do not have the ability to predict future. As an enterprise, our ability to foresee changes in the operation environment is not necessary superior to a farmer’s weather forecast power in ancient time. Focusing on our business is probably the most pragmatic approach. In the 2006 annual report, we had discussed the following issue: the coastal area of China at the junction of three major economic zones witnessed the birth of the world’s largest city cluster in history. Hundreds of millions of individuals or tens of millions of households were moving to this city cluster. When they arrived, their bare hands and wisdom might be their only property, but some day, they would become the masters of the city. There would be almost unlimited opportunities for development for the residential property developers, should they have due respect for these newcomers and attach importance to them and possess the skills to serve them. This is the real secret of the continued prosperity of this industry. We can use this logic to make a simple interpretation of the high volatility experienced by the industry in the past three years. There was still rationality behind the market boom in the first half of 2007, but real purchasing power, to certain extent, fell amid the euphoria in the second of the year. As such, the macro economic adjustment in 2008 was inevitable even if there had not been any change in the external environment. Yet in 2008, the real purchasing power remained solid. Customers held off on their purchases and built their savings when the market remained uncertain. The increased inventory of property developers could be interpreted as accumulation of saleable resources. When the pent-up demand released in 2009, it was met by the accumulated saleable inventory, leading to an upsurge in transaction volume. Part of the transaction volume in 2009 should have been recorded in 2008. As such, the historical high achieved in 2009 was not surprising. If we take the average of the figures of the two years, the transaction volume of new housing in the PRC achieved an annualized growth of approximately 10 per cent from 2007 to 2009, which was close to the average annual growth rate of the economy. Along with this logic, we again see the development of the property market as a miniature of an economy. Based on this logic, we should not be excited about the record high transaction volume in 2009, nor should we worry too much about the potential market contraction in 2010. 2 Regardless of the amount of capital flowing in and out of the residential property market and the proportion of investment buyers in home purchase, the ultimate value and meaning of a property is that people live inside. As such, there are two eternal questions that residential property developers have to deal with. First, explore and satisfy any unfulfilled demand; second, try to use fewer resources to meet repeated demand. Despite the twists and turns in the past few years, China Vanke has been the world’s largest residential property developer for two consecutive years. The Company should not worry about the gains and losses from the market’s ups and downs, nor should it indulge itself in the temporary expansion in operation. Actual demand and real purchasing power are the fundamental drivers of recovery and continual development of an industry. The ability to maximise customers’ satisfaction with the minimal resources is the ultimate key to an enterprise’s competitiveness. There is no exception to the residential property industry nor to any other industry. Dancing pace of a city The PRC is going through the most rapid urbanisation in history as well as the largest scale of migration in the history of humankind, which provides the PRC residential property industry with a rarely seen opportunity. We have mentioned this point repeatedly in our previous reports and, needless to say, it has gained wide social recognition. As an enterprise, it is absolutely not enough to have an overall direction, source of confidence and room for creative thinking. What we need in addition are clearer and detailed analysis and judgment. People converge in a city to pursue a better life. Wealth and happiness are not only derived from the growth in basic material wealth, but also from diverse lifestyle and experiences. However, in view of the economies of scale achieved in production, logistics, channels as well as knowledge and information, the increasingly differentiated and diverse consumer demand, and the more complex and sophisticated division of labour can only be satisfied and achieved by the convergence effects of a densely populated area. On the other hand, when more people gather together, the city becomes more crowed, and the living space gets smaller. The contradiction between economic efficiency and living space is eternal. Therefore, the location and pattern of a population convergence will change under different backgrounds and in different historical periods; meanwhile, the improvement and technical innovation of transportation, logistics and information communication also continue to contribute to the changing urbanisation patterns. Hong Kong offers a thought-provoking case. As the most developed city in the PRC, the middle-class income in Hong Kong is much higher than that of any other city in mainland China, but the average living space per capita of Hong Kong’s middle class may be less than that of any other city in mainland China. This could not be simply explained by population density alone, as the population density in Shenzhen has surpassed that of Hong Kong. Finance and other high-end services industry are the most important sectors of Hong Kong; working

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