深物业Ｂ(200011)2007年年度报告（英文版）

SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LTD. ANNUAL REPORT 2007 April, 2008 Section I. Important Notes and Contents 1/109 Important Notes: Board of Directors, Supervisory Committee, as well as directors, supervisors and senior executives of Shenzhen Properties & Resources Development (Group) Ltd. (hereinafter referred to as the Company) warrant that this report does not contain any false or misleading statements or omit any material facts and hereby accept, individually and collectively, responsibility for the truth, accuracy and completeness of the contents of this report. No director, supervisor or senior management stated that he (she) could not ensure the correctness, accuracy and completeness of the contents of this annual Report or has objection for this report. Mr. Chen Yugang, Chairman of the Board of the Company, Mr. Wang Hangjun, Person in Charge of Accounting Work and Ms. Shen Xueying, Manager of Financial Department, hereby confirm that the Financial Report enclosed in the Annual Report 2007 is true and complete. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese version shall prevail. 2/109 Contents SectionⅠ. Important Notes--------------------------------------------------------------------------- 2 SectionⅡ. Company Profile-------------------------------------------------------------------------- 3 SectionⅢ. Summary of Accounting Highlight and Business Highlight------------------------ 4 SectionⅣ. Changes in Share Capital and Particulars about Shareholders--------------------- 7 SectionⅤ. Particulars about Directors, Supervisors and Senior Executives and Employees 6 SectionⅥ. Corporate Governance-------------------------------------------------------------------9 SectionⅦ. Brief Introduction to the Shareholders’ General Meeting ------------------------ 10 SectionⅧ. Report of the Board of Directors ----------------------------------------------------- 10 SectionⅨ. Report of the Supervisory Committee------------------------------------------------ 14 SectionⅩ . Significant Events----------------------------------------------------------------------- 15 SectionⅪ . Financial Report------------------------------------------------------------------------- 17 SectionⅫ. Documents for Reference-------------------------------------------------------------- 18 3/109 Section II. Company Profile 1. Name of the Company In Chinese: 深圳市物业（发展）集团股份有限公司 Abbr. in Chinese: 物业集团 In English: ShenZhen Properties & Resources Development (Group) Ltd. (PRD) 2. Legal Representative: Chen Yugang 3. Secretary of the Board: Guo Yumei Tel: (86) 755-8221 1020 Fax: (86) 755-8221 0610, 8221 2043 Contact Address: 42nd Floor, International Trade Center, Renmin South Road, Shenzhen E-mail: 000011touzizhe@163.com 4. Registered Address and Office Address: 39th and 42nd Floor, International Trade Center, Renmin South Road, Shenzhen Post Code: 518014 Internet Web Site of the Company: www.szwuye.com.cn 5. Media Designated for Disclosing Information of the Company: A-Share: Securities Times, B-Share: Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Office of Board of Directors, on 42nd Floor, International Trade Center, Renmin South Road, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of Stock and Stock Code: S Shen Wuye A (000011) Shen Wuye B (200011) 7. Registration data: Jan. 17, 1983 Address: Industrial and Commercial Administration Bureau of Shenzhen Municipal Government Registration code of enterprise legal person’s business license: 4403011027229 Registered number of taxation: 440301192174135 Organization code: 19217413-5 Name and address of Certified Public Accountants engaged by the Company: Domestic: Wuhan Zhonghuan Certified Public Accountants Ltd. Address: 16th - 18th Floor, Tower B, Wuhan International Mansion 4/109 Section III. Summary of Accounting Highlights and Business Highlights I. Accounting data as of the year 2007 Unit: RMB Items Amount Operating profit -50,291,856.39 Total profit -29,055,405.80 Net profit attributable to shareholders of the listed companies -27,377,663.77 Net profit after deducting non-current profit and loss attributable -75,169,089.90 to shareholders of the listed companies Net cash flow arising from operating activities -121,568,768.77 Items of non-recurring gains and losses deducted and the relevant amount: Unit: RMB Items of non-recurring gains and losses Amount 1. Gain/loss from disposal of non-current assets 13,782,532.36 2. Gain/loss from accrued liabilities not related with 14,163,977.25 main operation of the Company 3. Net amount of non-operating income and expense 1,882,995.07 except the aforesaid items 4. Other non-recurring gains and losses recognized by 20,567,442.61 CSRC 5. Impact on income tax -2,605,521.16 Total 47,791,426.13 Note: Other non-recurring gains and losses recognized by CSRC refer to change in fair value of tradable financial assets and gain/loss from disposal of tradable financial assets. II Major accounting date and financial indexes over the past three years ended the report period 1. Major accounting data Unit: RMB Yuan Increase/ 2007 2006 decrease than 2005 last year（％） Before After Before After After adjustment adjustment adjustment adjustment adjustment Operating income 332,985,105.29 311,948,669.86 323,027,334.95 3.08% 963,481,024.09 971,340,069.27 Total profit -29,055,405.80 -45,165,869.75 -45,137,369.68 -35.63% 98,831,515.24 96,488,376.00 Net profit attributable to -27,377,663.77 -46,054,221.12 -45,092,615.78 -39.29% 78,419,748.81 76,076,609.57 shareholders of listed company Net profit after deducting non-recurring gain and loss -75,169,089.90 -67,283,745.29 -36,726,896.81 114.97% 51,621,073.23 78,066,435.23 attributable to shareholders of listed company Net cash flow -121,568,768.77 -118,610,560.96 -119,001,313.20 2.16% 220,842,222.05 219,810,590.56 arising from 5/109 operating activities Increase/decrease At the end of At the end of 2006 than the end of At the end of 2005 2007 last year（％ Before After Before After adjustment adjustment After adjustment adjustment adjustment Total assets 1,885,257,743.24 1,643,924,822.20 1,652,218,377.68 14.10% 1,812,640,711.92 1,817,497,319.01 Owners’ equity (shareholders’ 565,896,202.38 583,920,212.60 590,341,298.69 -4.14% 629,910,751.72 636,935,954.74 equity) 2、Relevant financial indexes Unit: RMB Increase/ 2007 2006 decrease than 2005 last year（％） Before After Before After After adjustment adjustment adjustment adjustment adjustment Basic earnings per share -0.0505 -0.0850 -0.0832 -39.29% 0.1447 0.1404 Diluted earnings per share -0.0505 -0.0850 -0.0832 -39.29% 0.1447 0.1404 Basis earnings per share after deducting non-recurring gain -0.1387 -0.1242 -0.0678 114.97% 0.0953 0.1441 and loss Fully diluted return on equity -4.84% -7.89% -7.64% -36.66% 12.45% 11.94% Weighted average return on -4.75% -7.59% -7.34% -35.56% 13.22% 12.67% equity Fully diluted return on equity after deducting non-recurring -13.30% -11.52% -6.22% 124.25% 8.19% 12.26% gain and loss Weighted average return on equity after deducting -13.04% -11.09% -5.98% 128.17% 8.70% 13.00% non-recurring gain and loss Net cash flow per share arising -0.2244 -0.2189 -0.2196 2.16% 0.4076 0.4057 from operating activities At the Increase/decrease end of At the end of 2006 than the end of At the end of 2005 2007 last year（％ Before After Before After After adjustment adjustment adjustment adjustment adjustment Net assets per share attributable to shareholders of 1.0445 1.0777 1.0896 -4.14% 1.1626 1.1756 listed company 6/109 Section IV. Changes in Share Capital and Particulars about the Shareholders (I) Particulars about changes in share capital as of the year 2007 1. Statement of change in shares Unit: Share Prior to the change Increase/decrease (+/-) Subsequent to the change Number of Proportion Other Subtotal Number of Proportion shares Issuance Capitalization shares Bonus of new of public shares shares reserve I. Nontradable shares Naught Naught Naught Naught Naught 1. Sponsors’ shares Including: Shares held by 323,747,713 59.75% 323,747,713 59.75% the State Share held by domestic 65,200,850 12.04% 65,200,850 12.04% legal person Share held by foreign legal person 2. Raised legal person’s shares 3. Inner employees shares 4. Preference shares or others Total nontradable shares 388,948,563 71.79% 388,948,563 71.79% II. Tradable shares Naught Naught Naught Naught 1. RMB ordinary shares 91,364,150 16.863% 1149 91,365,299 16.863% 2. Domestically listed 61,449,412 11.34% 1250 61,450,662 11.341% foreign shares 3. Overseas listed foreign shares 4. Shares held by senior 37,050 0.007% -2399 34,651 0.006% executives frozen Total tradable share 152,850,612 28.21% 152,850,612 28.21% III. Total shares 541,799,175 Naught Naught Naught Naught 541,799,175 Note: Explanation on change in “Other” under “Increase/Decrease in this time” of “II. Tradable shares”: 1. The reasons are as follows why RMB ordinary shares increased by 1149 shares: a. Liu Jiake, a supervisor of the Company, sold 1250 A shares of the Company held by him, please refer to “Statement of Change in Shares Subject to Trading Moratorium” for details; b.101 A shares of the Company held by Guo Lusi, a new supervisor of the Company, were frozen for moratorium. 2. The reasons are as follows why domestically listed foreign shares increased by 1250 shares: a. Liu Jiake, a supervisor of the Company, dealt with B shares of the Company held by him, please refer to the temporary public notice published in Securities Times, Hong Kong Ta Kung Pao and http://www.cninfo.com.cn on 26 May 2007 for details. b. 4900 B shares of the Company held by Guo Lusi, a new supervisor of the Company, were frozen for moratorium. 3. The reasons are as follows why shares held by senior executives decreased by 2399 shares: a. Liu Jiake, a supervisor of the Company, dealt with A shares and B shares of the Company held by him, please refer to the temporary public notice published in Securities Times, Hong Kong Ta Kung Pao and http://www.cninfo.com.cn on 26 May 2007 for 7/109 details. b. A shares and B shares of the Company held by Guo Lusi, a new supervisor of the Company, were frozen for moratorium. Please refer to “Statement of Change in Shares Subject to Trading Moratorium” for details; Statement of change in shares subject to trading moratorium Number of Number of shares subject shares subject Name of Released Increased this Date of to trading to trading Reason shareholder this year year releasing moratorium at moratorium at the year-begin the year-end Shares held by Li Zhen A-share: 4000 0 0 A-share:4000 director Zha Shares held by A-share: 18150 0 0 A-share:18150 Shengming director A-share: 5000 A-share: 3750 Shares held by Liu Jiake 0 0 B-share: 9900 B-share: 3750 supervisor A-share:101 A-share:101 Share held by Guo Lusi 0 B-share: 4900 B-share: 4900 new supervisor A-share: 27150 A-share:101 A-share:26001 Total 0 B-share: 9900 B-share: 4900 B-share: 8650 2. Issuance and listing of shares ① Over the previous three years as at end of the report period, the Company issued neither new shares nor derived securities; and there were changes in neither total shares nor the structure of shares due to bonus shares and rationed shares. ② In the report period, the Share Merger Reform Plan examined and approved by the relevant shareholders’ general meeting failed to implement, therefore, the Company’s share capital remained unchanged. (II) About shareholders 1. Particulars about the numbers of shareholders and shares held by shareholders In accordance with the name list for registration provided by China Securities Depository & Clearing Corporation Limited Shenzhen Branch to the Company, shares held by the top ten shareholders and the top ten tradable shareholders as at 31 Dec. 2007: Unit: share By the end of the report period, the Company has 25,845 Total number of shareholders shareholders in total, including 18,004 ones of A-share, 7,841 ones of B-share Particulars about shares held by the top ten shareholders Total Number of Share Type of Full name of Shareholder Proportion (%) number of non-tradable pledged or shareholders shares held shares held frozen SHENZHEN CONSTRUCTION State-owned 59.75 323747713 323747713 0 INVESTMENT HOLDINGS share CORPORATION SHENZHEN INVESTMENT Directional MANAGEMENT corporate 10.45 56628000 56628000 0 CORPORATION shares CHINA MINSHENG BANKING CORP.,LTD. – ORIENT WELL CHOSEN Tradable A 1.197% 6486643 0 0 MIX OPEN-END shares SECURITIES INVESTMENT FUND ZENG YING B shares 0.6 3248178 0 0 8/109 LABOR UNION OF SHENZHEN Directional INTERNATIONAL TRADE corporate 0.46 2516800 2516800 0 PROPERTY shares MANAGERMENT COMPANY SHENZHEN SPECIAL ZONE Directional DUTY-FREE COMMODITY corporate 0.29 1573000 1573000 0 CO. shares SHANGHAI ZHAODA Directional INVESTMENT corporate 0.19 1010000 1010000 0 CONSULTANT CO., LTD. shares YUNNAN YUNDIAN Tradable A FINANCE FUNDS 0.18 1000000 0 shares MANAGEMENT CO., LTD. CHINA EAGLE SECURITIES 786500 CO., LTD. Directional shares corporate 0.15 786500 786500 were shares frozen judicially XIA QIAN RU B shares 0.1366 740000 0 0 The first and second principal shareholders of the Company are managed by Shenzhen Explanation on associated Investment Holding Co., Ltd., the actual controlling shareholder of the Company. The relationship among the above fifth shareholder is labor union of wholly-owned subsidiary company indirectly shareholders or consistent controlled by the Company. Except for these, the Company is not aware of whether action there exists associated relationship or consistent action among the top ten shareholders holding trade shares or not. Particulars about shares held by the top ten tradable shareholder Name of shareholders Numbers of circulation share held Type of share CHINA MINSHENG BANKING CORP., LTD. – ORIENT WELL CHOSEN MIX 6486643 Tradable A shares OPEN-END SECURITIES INVESTMENT FUND ZENG YING 3248178 B shares YUNNAN YUNDIAN FINANCE FUNDS 1000000 Tradable A shares MANAGEMENT CO., LTD. XIA QIAN RU 740000 B shares YUE ZHI YU 640701 Tradable A shares HUANG SHENG FANG 594889 B shares SHENZHEN HAOWANJIA INDUSTRIAL DEVELOPMENT CO., 570000 Tradable A shares LTD. LU HUI QIAN 550000 Tradable A shares LI HONG JUN 520857 B shares ZHU YONG 503737 B shares Explanation on associated relationship The Company is not aware of whether there exists associated relationship among the above shareholders of or consistent action among the top ten shareholders holding trade shares or circulation share or consistent action not. Note: ① Shenzhen Construction Investment Holdings Corporation still holds 485,899 corporate shares of the Company. ② The shares held by Shenzhen Construction Investment Holdings Corporation was neither pledging or freezing in the report period. 2. About the controlling shareholder of the Company At the end of report period, the controlling shareholder of the Company is still Shenzhen Construction Investment Holdings Corporation (“the holding company”) in register book. In 2004, Shenzhen Municipal Government incorporated Shenzhen Construction Investment Holdings with the other two municipal companies, namely Shenzhen 9/109 Investment Holding Corporation and Shenzhen Trade and Business Corporation, and established Shenzhen Investment Holding Co., Ltd.. Thus, the Company’s actual controlling shareholder is Shenzhen Investment Holding Co., Ltd., a sole state-funded limited company, who was established in Oct. 13, 2004; its legal representative is Mr. Chen Hongbo and the registered capital is RMB 4 billion. Main business scope: providing guarantee to municipal state-owned enterprises, management of state-owned equity, assets reorganization of enterprises, reformation and assets operation, and equity investment and etc.. As a government department, State-owned Assets Supervision and Administration Commission of Shenzhen implemented management for Shenzhen Investment Holding Co., Ltd. on behalf of Shenzhen municipal government. Thus, the final controller of the Company is State-owned Assets Supervision and Administration Commission of Shenzhen with locating at Investment Bldg., Shen Nan Av., Futian District, Shenzhen and postcode of “518026”. 3.The controlling relationship between the Company and the actual controller is as follows: State-owned Assets Supervision and Administration Commission of Shenzhen 100% Shenzhen Investment Holding Co., Ltd. 70.3% The Company 4. The second largest shareholder of the Company is Shenzhen Investment Holding Corporation (holding 10.45% equity of the Company), who was established in Feb. 1988, and its legal representative is Mr. Li Heihu, as well as registered capital of RMB 2 billion. It is an assets management company owned by the whole people. In accordance with the document of SGZW [2004] No. 223 “Decision on Establishing Shenzhen Investment Holding Co., Ltd.”, in 2004, Shenzhen Investment Holding Corporation incorporated with Shenzhen Construction Investment Holdings and Shenzhen Trade and Business Corporation. The corporate shares of the Company held by the aforesaid three companies were held by new company after incorporation — Shenzhen Investment Holdings Co., Ltd.. 10/109 Section V. Particulars about Directors, Supervisors, Senior Executives and Employees (I) About director, supervisor and senior executives 1. Basis information Holding Holding Reason Name Title Sex Age Office term shares at the shares at the +/- s of year-begin year-end change Chen Yu Gang Chairman of the Male 50 Dec 2007 – Dec 2010 0 0 0 Board Director, Male Wei Zhi Standing Deputy 50 Dec 2007 – Dec 2010 0 0 0 General Manger Director, Male Liu Guangxin Chairman of Labor 49 Dec 2007 – Dec 2010 0 0 0 Union Wang Peng Director Male 39 Dec 2007 – Dec 2010 0 0 0 Wen Li Director Female 38 Dec 2007 – Dec 2010 0 0 0 Guo Liwei Director Male 35 Dec 2007 – Dec 2010 0 0 0 Li Xiaofan Independent Director Male 55 Dec 2007 – Dec 2010 0 0 0 Zha Zhenxiang Independent Director Male 52 Dec 2007 – Dec 2010 0 0 0 Dong Zhiguang Independent Director Male 51 Dec 2007 – Dec 2010 0 0 0 Chairman of the Male Cao Ziyang Supervisory 57 Dec 2007 – Dec 2010 0 0 0 Committee Supervisor, Wang Qiping Deputy Manger of Female 38 Dec 2007 – Dec 2010 0 0 0 Management Dept. 101 A shares 101 A shares Guo Lusi Supervisor Female 44 Dec 2007 – Dec 2010 0 4900 B shares 4900 B shares Supervisor, Deputy Male Zhang Gejian Manager of Auditing 32 Dec 2007 – Dec 2010 0 0 0 Department Chen Maxing Supervisor Male 46 Dec 2007 – Dec 2010 0 0 0 Wang Hangjun Deputy GM Male 41 Dec 2007 – Dec 2010 0 0 0 Liu Yinhua Deputy GM Male 47 Dec 2007 – Dec 2010 0 0 0 Li Zipeng Deputy GM Male 41 Dec 2007 – Dec 2010 0 0 0 Luo Rurong General Manager Male 50 2005.4- 0 0 Wei Yuxin CFO Female 48 2005.4- 0 0 Secretary of the Guo Yumei Board, Director of the Female 48 Dec 2007 – Dec 2010 0 0 0 Board Office 2. Working experience of Directors, Supervisors and Senior Executives Members of the Board of Directors Mr. Chen Yugang, was born in September 1957, Postgraduate degree, senior Political Worker. He gains rich experience in government administrative management and enterprise management over 20 years. He held some important posts in many municipal departments. He served as GM and Secretary of the CPC in Shenzhen Shenhua Group Company. Also, he served as GM and Vice Secretary of the CPC in Shenzhen Xianke Enterprise Group, and Deputy General Manager of Shenzhen Investment Holding Co., Ltd.. From May 2006, he has served as Secretary of CPC in the Company. And And in June 2006, he was elevated to be Chairman of the Board of the Company. Now he acts as Secretary of CPC and Chairman of the Board in the Company. Mr. Weizhi, was born in November 1957, Bachelor Degree, and held the title of interpretation. He gains rich experience in enterprise management over 20 years. He ever worked in Shenzhen International Engineering Co., Ltd. as Deputy Manager of Overseas Department, in Shenzhen Zhongshen Overseas Development Company as Manage of Labor Affairs Department and Deputy General Manager, in China Shenzhen International 11/109 Cooperation (Group) Co., Ltd. Hong Kong Liyuan Company as Director and General Manageer, in Shenzhen Construction Investment Holdings Corporation as Deputy Manager of Overseas Department, in Shenzhen Construction Investment Holdings Corporation as Deputy Manager of Contract Department, in Shenzhen Tonge (Group) Co., Ltd as Assistant General Manager and Deputy General Manager, in Tonge Real Estates Development Company as Chairman of the Board and General Manager. Since October 2007, he took the posts of the Vice Secretary of CPC and Standing Deputy General Manager in the Company. Since 20 Dec. 2007, he held the posts of Director of the Company. Now he acts as Vice Secretary of CPC, Director and Standing Deputy General Manger of the Company. Mr. Liu Guangxin, was born in May 1958, Diploma, Economist. He gains experience in enterprise management over 10 years. Since May 1989, he held a job in the Company as Director of the Office in Properties Engineering Development Company, General Manager of International Trade Industrial Development Company, General Manager of International Trade Food Company, Deputy Director and Director of the GM Office of the Company, as well as Manager of Operation and Management Department of the Company. Since October 2007, he took the posts of Vice Secretary of CPC and Secretary of Discipline Inspection Committee in the Company. Since November 2007, he was appointed as Chairman of the Labor Union of the Company. Now he acts as Vice Secretary of CPC, Director, Secretary of Discipline Inspection Committee as well as Chairman of Labor Union in the Company. Mr. Wang Peng, was born in 1969 and he got the master degree. In the past, he held posts in Shenzhen Construction Investment Holdings Corporation as Economist of Investment Department and Manager Assistant of Assets Sales Department. Also, he served as Deputy GM of Enterprise Reform Department in Shenzhen Investment Holding Corporation. From Oct. 2004, he has taken a job in Shenzhen Investment Holding Corporation as Deputy Department Director of Property Right Management Department. Now, he holds posts in Shenzhen Investment Holding Co., Ltd. as Deputy Director of BOD Office and Director of the Company. Ms. Wen Li, was born in December 1969, Postgraduate Degree, Master Degree, Economist as well as Engineer. She gains experience in enterprise management over 10 years. She ever worked in Shenzhen Fantasia Investment Development as Assistant of Standing Deputy General Manger, Manager of Project Department, as well as Manager of Market Planning Department. Now she acts as Deputy Department Director of Investment Department of Shenzhen Investment Holding Co., Ltd., Director of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd., as well as Director of the Company. Mr. Guo Liwei, was born in 1973, Postgraduate Degree, Master of Law. In the past, he successively held the posts in General Department of Ping An Insurance (Group) Company of China as legal consultant, and Shenzhen Investment Management Corporation as Business Manager of Legal Affairs Department. Since October 2004, he worked in Shenzhen Investment Holding Corporation as Deputy GM of Legal Affairs Department. He now acts as Manager of the First Enterprise Management in Shenzhen Investment Holding Corporation and Director of the Company. Members of Independent Directors: Mr. Li Xiaofan, was born in 1953. He got Master-degree of economics with register management consultant and international professional training officer. In the past, he successively held posts in Shenzhen System Restructuring as Vice Section Director of Enterprise Office, Chief Officer of Macro-control Office, Chief Officer of Market System 12/109 Office, and Director of European office of shenzhen Governmentin Nurnberg, inspector of Economic & Trade Bureau. From 2002 to now, he has held posts in Shenzhen Urban Development Research Center (Research Center of Development & Reform Burean) as researcher; China Consultants of Accounting and Financial Management Co. Ltd. as researcher; in China Productive Power Commission as Administrative Syndic and Deputy Secretary-general, also, the Independent Director of the Company. Mr. Zha Zhenxiang, was born in November 1955, Doctor Degree, title of Professor, and enjoys special allowance from Government of the State Council. Mr. Zha has profound theoretical basis in business management. He ever held the posts of Vice Dean in College of Economics and Management of China Agricultural University, Director of Development and Research Center of China Bao’an Group Co., Ltd., Chief Economist of Nanhai Nengxing Development Group Co., Ltd.. Now he took the posts of Dean in College of Economics and Management of Shenzhen Polytechnic and concurrently Director of Social Development Research Center, as well as Supervisor of the Company. Mr. Dong Zhiguang, was born in February 1957, Bachelor Degree, Senior Accountant, CPA. He gains experience in enterprise management over 20 years. He ever took the posts of Deputy Division Chief and Division Chief of China Construction Bank Heilongjiang Branch, General Manager of Planning & Financial Department, Chief Accountant and Director in Southern Securities Co., Ltd., and President of China Antai Group Co., Ltd.. Now he acts as Chairman of the Board in Shenzhen Osgate Trading Co., Ltd., Independent Director of Zhongti Industrial Group Co., Ltd. and of the Company. Members of the Supervisory Committee Mr. Cao Ziyang, was born in Mar. 1951, Diploma, Senior Political Worker. He gains experience in enterprise management over 30 years. He’s experienced in serving in the army. He ever took the posts of Department Director of HR Department in Shenzhen Eastern Development Group Corporation, Secretary of CPC in Government Office, and Chairman of Labor Union in the Group, as well as Director of CPC Office in Shenzhen Construction Investment Holding Corporation. He was transferred to the Company in Apr. 1998 and ever took the posts of Director and Deputy General Manager of the Company. He now acts as Chairman of the Supervisory Committee of the Company. Ms. Wang Qiuping, was born in January 1970, Bachelor Degree, Senior Economist. She worked in the Company since from 1992, and was engaged in integrated operation management and planning management in GM Office, Planning and Financial Department and Operation Management Department. Now she was appointed as Supervisor of the Company and Deputy Manager of Operation Management Department. Ms. Guo Lusi, was born in August 1963, Bachelor Degree, Senior Political Workers. She worked in CPC Office of the Company from 2000 to now, and held the post of Secretary of Youth League Committee and was concurrently engaged in organization work in CPC Office of the Company, commissary of the First Party general branch of Government Office. She now acts as Supervisor of the Company. Mr. Zhang Gejian, was born in September 1975, Bachelor Degree, Accountant, as well as Auditor. He was engaged in internal auditing work in Audit Department of the Company since July 1997. Now he acts as Supervisor of the Company and concurrently Deputy Manager of Audit Department. Mr. Chen Maxing, was born in July 1961, Bachelor Degree. He worked in Shenzhen Investment Management Corporation from July 1998 to September 2004, and ever took the posts of Senior Manager of Discipline Inspection Office and of Supervision Department. Since the year 2004, he worked in Shenzhen Investment Holding Corporation, and ever took the posts of Department Director of Audit & Supervision 13/109 Department and of Director of Financial Supervision Center. Now he acts as Chairman of the Board in Shenzhen Shenlao Human Resource Development Co., Ltd. and Supervisor of the Company. Senior executives Mr. Wang Hangjun, was born in Nov. 1966, Postgraduate Students from Zhongnan University of Economics and Law, Master of Economics and Senior Auditor. He gains experience in enterprise management over 20 years. He ever took the posts of Deputy Section Chief of Audit Bureau of Nanshan District, Shenzhen, Deputy Department Director and Department Director of Audit Department in Shenzhen Investment Holding Corporation; Deputy Department Director and Department Director of Supervision Department in Shenzhen Investment Holding Corporation; as well as Department Director of Audit Supervision Department in Shenzhen Investment Holding Co., Ltd. From October 2007, he was appointed as Deputy General Manager of the Company. Mr. Liu Yinhua, was born in May 1960, Doctor Degree of Tongji University, Senior Engineer. He has experience in technology and administration in the field of construction. He was transferred to the Company in Sep. 1996 and took the posts of Deputy Head of Engineering Dept., General Manager of Property Management Company and Vice-Chief Engineer, as well as Chief Engineer of the Company early and late. From October 2007, he was appointed as Deputy General Manager of the Company. Mr. Li Zipeng, was born in May 1966, Bachelor Degree from Civil Department of Huazhong University of Science and Technology. He successfully held the posts of Section Chief of Engineering, Field Manager of Real Estate Project, Principal of Housing Sale Department, Assistant General Manager, Deputy General Manager as well as General Manager in Shenzhen Huangcheng Properties Co., Ltd. (shareholding subsidiary company of the Company). From October 2007, he was appointed as Deputy General Manager of the Company and concurrently General Manger of Shenzhen Huangcheng Properties Co., Ltd. (shareholding subsidiary company of the Company). Mr. Luo Rurong, was born in Oct. 1956, MBA. Mr. Luo has management experience in real estate industry for many years, has solid qualified experience in enterprise operation and financial management, and is familiar with the development and operation of land project in Hong Kong and Chinese Mainland. Mr. Luo ever took the post in HongKong Land for nearly twenty years. Now he serves in HongKong Kowloon Development Company Limited and acts as of Market and Sale General Manager. In Apr. 2005, he took the post of General Manager of the Company in a period of transition according to the relevant regulations of the Agreement on Shares Transfer of ShenZhen Properties & Resources Development (Group) Ltd. and its attachment signed. Ms. Wei Yuxin, 48 years of age, holds bachelor degree of business awarded by Australian Melbourne Monash University. She is Associate Member of Hong Kong Institute of Certified Public Accountants, Fellow Member of the Association of Chartered Certified Accountants and Associated Member of Australian Society of Certified Practising Accountants. Ms. Wei has rich experience in financial management and company management for many years, and ever took the post in Association of International Accountants for eight years; during eight years, Ms. Wei provided the professional service for many Multi National Corporations and companies listed in Hong Kong. Now, Ms. Wei served in Hong Kong Kowloon Development Company Limited and took the posts of Assistant General Manager, Company Secretary, which is in charge of daily financial management work. In Apr. 2005, she took a post as CFO of the Company in the interim. Ms. Guo Yumei, was born in Oct. 1959, Bachelor degree, and held the title of 14/109 interpretation. She gains experience in enterprise management over 20 years. She ever worked in Shannxi Management Bureau of CAAC; she worked in the Company since 1985 and took the posts of Translator of GM Office, Translator of Overseas Department, Section Chief of Operation in BOD Office, and Deputy Manager of Capital Dept, as well as Deputy Director of BOD Office early and late. From August 2000, she took the posts of Secretary of the Board and Director and concurrently Director of BOD Office in the Company. 3. Particulars about the annual remuneration of the Company’s directors, supervisors and senior executives Particulars about the annual remuneration drawn by the Company’s directors, supervisors and senior executives in the year 2007 are as follows (before tax): No Name Annual remuneration Remark Title (RMB’0000) Chen Yu Gang Drawing remuneration 1 Chairman of the Board from controlling company Director, Drawing salary from the 2 Wei Zhi Standing Deputy General 2.85 Company since Nov. 2007 Manger Director, 3 Liu Guangxin Chairman of Labor 22.53 Union Drawing remuneration 4 Wang Peng Director from controlling company Drawing remuneration 5 Guo Liwei Director from controlling company Drawing remuneration 6 Wen Li Director from controlling company Independent Director Including allowance from 7 Li Xiaofan 5.26 July 2006 to Dec. 2007 Independent Director Taking this position from 20 8 Zha Zhenxiang 0 Dec. 2007 Independent Director Taking this position from 20 9 Dong Zhiguang 0 Dec. 2007 Chairman of the 10 Cao Ziyang 37.68 Supervisory Committee Supervisor, Deputy 11 Wang Qiping Manager of Management 14.55 Department 12 Guo Lusi Supervisor 19.09 Supervisor, Deputy 13 Zhang Gejian Manager of Auditing 11.51 Department Drawing remuneration 14 Chen Maxing Supervisor, from controlling company 15 Luo Rurong General Manager 0 16 Wei Yuxin CFO 0 Drawing remuneration 17 Wang Hangjun Deputy GM from controlling company 18 Liu Yinhua Deputy GM 28.26 Drawing salary from 19 Li Zipeng Deputy GM 33.63 Huangcheng Properties Company from Jan. to Oct. 15/109 2007, while drawing salary from the Group since Nov. 2007. 20 Guo Yumei Secretary of the Board 22.4 Total 197.76 The new Borad of Directors and Supervisors were established on 20,Dec.2007, the aboved remuneration only stands for the new directors, supercisors and senior executives . The remuneration for the other important administrations ,please see the attachments （十 一）3、（2）. The remuneration standard of the Company’s directors, supervisors and senior executives were determined in accordance with the Trial Measure on Wage Reformation of PRD examined and approved by the Shareholders’ General Meeting of the Company. 4. Change in directors, supervisors and senior executives in the reporting period and reason for change ① On 26 Oct. 2007, the Board of Director engaged Wei Zhi, Wang Hangjun, Liu Yinhua and Li Zipeng as Deputy General Manager of the Company respectively, and dismissed Zha Shengming, Yang Shuncheng, Luo Junde from the post of Deputy General Manager of the Company. ② In the reporting period, the 5th Board of Directors has expired. On 20 Dec. 2007, the Company held the 1st Extraordinary Shareholders’ General Manager, at which the 6th Board of Directors was elected. Members of the 6th Board of Directors are as follows: Chen Yugang, Wei Zhi, Liu Guangxin, Wang Peng, Wen Li (female), Guo Liwei, Li Xiaofan (independent director), Zha Zhenxiang (independent director) and Dong Zhiguang (independent director). On 20 Dec. 2007, the 6th Board of Directors held the 1st Session, at which Mr. Chen Yugang was elected as Chairman of the Board of the Company. Due to reelection, Li Zhen, Wang Huimin, Zha Shengming, Yang Shuncheng, Zhang Jianjun and Jiang Changlong no longer took the post of Director or Independent Director of the Company respectively. ③In the reporting period, the 5th Supervisory Committee has expired. On 20 Dec. 2007, the Company held the 1st Extraordinary Shareholders’ General Manager, at which the 6th Supervisory Committee was elected. Members of the 6th Supervisory Committee are as follows: Cao Ziyang, Wang Qiuping (female), Guo Lusi (female), Zhang Gejian and Chen Maxing. On 20 Dec. 2007, the 6th Supervisory Committee held the 1st Session, at which Mr. Cao Ziyang was elected as Chairman of the Supervisory Committee of the Company. Due to reelection, Ma Deqin, Jin Chengui and Liu Jiake no longer took the post of Supervisor of the Company respectively. ④ On 20 Dec. 2007, the 6th Board of Director held the 1st Session to reengage Mr. Wei Zhi as Standing Deputy General Manager of the Company, reengage Mr. Wang Hangjun, Mr. Liu Yinhua and Mr. Li Zipeng as Deputy General Manager of the Company respectively, and reengage Ms. Guo Yumei as Secretary of the Board of the Company. As to change in directors, supervisors and senior executives, please refer to the temporary public notice published in Securities Times, Ta Kung Pao as well as http://www.cninfo.com.cn dated 27 Oct. 2007 and 21 Dec. 2007 respectively for details. (II) About employees The Company has totally 2631 employees in office at present, including 1734 production 16/109 personnel, 137 salespersons, 548 technicians, 78 financial personnel and 134 administrative personnel. 1219 persons graduated from 3-year regular collage or above. Presently, the Company needs to bear the expenses of 125 retirees. 17/109 Section VI. Corporate Governance I. Actual situation of corporate governance In the report period, in accordance with the requirement of the Code of Corporate Governance for Listed Companies, the Company regulated and perfected the legal person administration structure continuously, deepened the normative operation of the Company. In the special campaign of corporate governance in listed companies, the Company received the professional guide from Shenzhen Securities Supervisory Bureau and carried out the special campaign of corporate governance of the Company from Apr. 2007 to Oct. 2007. The Company set down the plan of special campaign of corporate governance, defined the target in all phases, established the special telephone and internet platform, heard the advices and suggestion from the investors and the public, and received the on-site inspection from Shenzhen Securities Supervisory Bureau. What’ more, the Company produced the rectification plan against the non-normative operation found in process of the self-inspection of the Company and on-site inspection from Shenzhen Securities Supervisory Bureau, also appointed the person who was in charge of rectification and limited the rectification time to ensure that the rectification measure can be implemented faithfully. Then the Company disclosed the work plan for special campaign, self-inspection report, rectification plan and implementation of rectification in time and accepted the public comment. Through the special campaign of corporate governance, the Company further strengthened the construction of the rules on corporate governance, perfected the system of the rules on corporate governance, and improved the level of the normative operation of the corporate governance. In the report period, the Company established the Management Rules on Holding, Purchasing and Selling the Shares held by Senior Executives, Working Rules on Reception and Popularization, Working Rules for Strategic Development & Investment Committee of the Board of Directors, Working Rules for Nomination Committee of the Board of Directors, revised the Management Rules on Information Disclosure. Four special committee of the 6th Board of Directors were established, which set down the feasible regulation system of the corporate governance with complete structure and rigorous logic, operated the efficient supervision, control and guides. 1. Shareholders and shareholders’ general meeting The convening, holding and decision-making procedure was in line with the requirement of the Rules on Shareholders’ General Meeting of Listed Companies, Articles of Association, and Rules of Procedure of the Shareholders’ General Meeting. All shareholders of the Company were equal and no difference; furthermore, there were no controlling shareholders who done harm to other small and medium- shareholders. 2. Directors and the Board of Directors The Company held the Board meetings and shaped the resolutions in compliance with the regulation of the Articles of Association, Rules of Procedure of the Board of Directors. The Company allowed enough time for Directors to perform their duty seriously. All Directors attended the meetings earnestly and expressed the clear opinion on matters discussed. In a word, the Directors operated the diligent and honest obligation and 18/109 implemented the resolutions from the shareholders’ general meeting and run their power legally. In Dec. 2007, the Company held the regular election of Directors and elected the member of the 6th Board of Directors. 3. Supervisors and the Supervisory Committee The Supervisory Committee of the Company run the supervisory power in conformity with the Company Law, Articles of Association, Rules of Procedure of the Supervisory Committee, implemented the supervisory duty through the way of holding the meetings of the Supervisory Committee, attending the meetings of the Supervisory Committee, so as to safeguard the right and interest of the small and medium- shareholders 4. Information disclosure and transparency The Company established the Management Rules on Information Disclosure Affairs to strengthen the management work of information disclosure, systemized and regulated the working rules on information disclosure, and safeguarded the function of the investors’ right to know. The information disclosed in time and normatively. Among 92 public notices in 2007, there was no situation occurring that been criticized by the supervisory organization for disclosing non-normative information. The Company established the Working Rules on Reception and Popularization, set up the special telephone line and e-mail to construct the communication platform for the Company and the investors, besides, there were special person responsible for the communication with the investors, and answering the enquiry from the investors, and all above said was helpful to strengthen the transparency of the Company. II. Problems existing in corporate governance and the rectification The problems found through the special campaign of corporate governance as follows, and the relevant rectification: 1. The subordinate committee of the Board of Directors still was established not yet. Rectification: the rectification was finished. There were 4 special committees of the Board of Directors on Dec. 2007 which were the Strategic Development & Investment Committee of the Board of Directors, Audit Committee of the Board of Directors, Domination Committee of the Board of Directors, Remuneration and Examination Committee of the Board of Directors respectively and established the relevant working rules. 2. The Company didn’t offer the treatment for the Secretary of the Board of Directors as Senior Executives Rectification: the rectification was finished. The Company offered the treatment for the Secretary of the Board of Directors as Senior Executive since Nov. 2007. 3. There was situation that Directors, Supervisors got out of line to purchase and sell shares of the Company. 19/109 Some Directors and Supervisors of the Company acquired little knowledge on securities and bad weak regulation consciousness. (1) In 2005, Li Zhen, Director of the Company purchased the 4000 shares of “Shen Wuye A”; the reason was that Li Zhen’s relatives didn’t know the policy that the Director couldn’t purchase the shares of its own company at that time, and purchased 4000 shares of the Company under the Li Zhen’s securities account. These 4000 shares were frozen by Depository Department of China Securities Depository and Cleaning Corporation Limited. Rectification: This matter was published in the regular report; the Board of Directors reiterated the relevant regulations issued by securities supervisory organization, demanded related personnel to abide by it strictly. (2) Liu Jiake, Supervisor of the Company purchased 5000 shares of “Shen Wuye A”, 9900 shares of “Shen Wuye B” accumulatively during 2006 to 2007, then sold “Shen Wuye B” twice in Mar. 2007 and May 2007 amounting to 9900 shares, which draw much attention from Shenzhen Stock Exchange and Shenzhen Securities Supervisory Bureau, who demanded the Company published temporary public notice on this issue and submitted the self-inspection report respectively.. Rectification: The Company circulated an internal notice of criticism on conduct of get out o line to purchase and sell the shares of the Company, took over his benefits arising from disobeying the regulation to transact the shares of the Company. 4. There existed situation that the Company made the short-term investment on non-ledger stock assets The implementation of rules on internal control was not very perfect and there existed situation that the Company mad the short-term investment on non-ledger stock assets for several years. Rectification: The Company accomplished the rectification. The Company engaged the professional organization to take charge the work of clearing the stock assets comprehensively and all short-term stock was measured into the financial accounting statements. 5. There existed the non-normative operation of the corporate governance. In the report period, there still existed the situation that the Company submitted the property report to Shenzhen Investment Holding Co., Ltd which was the actual controlling shareholder of the Company, there were 16 property reports submitted by the Company aperiodically with the Company’s seal and signature of the major leaders, which covered the issues of loans, guarantees, investment, regular election, sale of subordinate units’ equity. The controlling shareholder of the Company operated the shareholders’ right in the decision-making process of the Board meeting and shareholders’ general meeting as the investor. It never happened that the controlling shareholder misapplied the control right, 20/109 divulged the low-down information, transacted the low-down trade. The decision-making of the internal operation was independent from the controlling shareholder. Rectification: The Company perfected the preparation work on low-down information’s insiders and submitted the related insider name list and information content to Shenzhen Securities Supervisory Bureau in fixed periods when approached the non-public information, which was also convenient for supervisory bureau to learn the Company’s situation. Besides, the controlling shareholder signed the Commitment Letter on Strengthen the Management of Non-public Information. 6. Rules on internal control needed to be neatened and revised Rectification: The Company recognized clearly that the sound rules would play key roles to safeguard the Company’s operation. The professional consulting organization was engaged by the Company for providing the full scale enterprise consulting service, which covered the adjusting the operation structure, reasonably deploying the Company’ resource, regulating the work flow etc. Based on the adjustment of operation structure, the Company would establish and perfect a series of internal control system which should be suitable in new rules and new environment. III. Duty performance of Independent Directors In the report period, the Independent Directors performed their obligation seriously and earnestly with honesty and integrity in compliance with the requirement of the Articles of Association, Code of Corporate Governance for Listed Companies, and Guiding Opinions on the Establishment of Independent Directors System in Listed Companies. They attended the Board meeting and shareholders’ general meeting on time and expressed the independent opinions on relevant issues, played efficient and active function against the risks. Attendance of Independent Directors: Times of Times of meetings Times of meetings Times of Objection Name meetings should be attended in be attended by meetings proposed be attended person proxy absent Zhang Jianjun 13 12 1 None Jiang Changlong 13 12 1 None Cha Zhenxiang 1 1 None Dong Zhiguang 1 1 None Li Xiaofan 14 14 None IV. The Company’s five separations from the controlling shareholder The Company was independent from the controlling shareholder in business, personnel, organization and finance to realize that independent personnel, independent finance, complete assets, independent organization and independent business. (I) In aspect of business: The Company was independent from the controlling shareholder with independent and complete business and independent operation capability. There was no business which was same or competitive with the controlling shareholder. (II) In aspect of personnel: The Company was complete independent from the controlling shareholder in terms of labor and personnel, management on remuneration. All Senior 21/109 Executives drew the remuneration from the Company. (III) In aspect of asset: The Company’s assets were complete and independent, the property relationship was clear. (IV) In aspect of organization: The Company’s organization was independent, the shareholders’ general meeting, the Board of Director, the Supervisory Committee operated independently. The controlling shareholder never disturbed the organization’s setting of the Company. (V) In aspect of finance: The Company’s finance was independent with independent finance department. The Company established the independent finance settling system and financial management system, had its own finance account and paid the tax in line with laws, run finance decision-making independently. The controlling shareholder of the Company performed normatively with no conduct that intervened with the operation decision-making and operation activities directly or indirectly over the shareholders’ general meeting, however, the controlling shareholder could influence on the significant decision-making through the shares holding. V. Self-evaluation of internal control 1. Summary In accordance with Company Law, Articles of Association, and other relevant laws and regulations, the requirement of the modern enterprise system, the Company set down a series of management rules on internal control, produced the complete system of internal control. The Company established the audit department which was responsible for supervising the implementation of the rules on internal control, appraising the validity of internal control and took charge of duty to correct the errors and put forwards related suggestions. 2. The key activities of internal control in 2007 ① The Board of Directors established the Strategic Development & Investment Decision-making Committee, Nomination Committee, Audit Committee and Remuneration and Examination Committee, and set up the relevant working rules for these 4 special committees. ② Exerted the function of the internal audit department, carried out all kinds of internal audit work The internal audit department offered the reasonable data for the Company’s profit examination and annual operation plan 2007 through auditing the implementation of 3 subsidiaries companies’ annual financial responsibility agreement; The internal audit department made the exit audit to the person at the wheel of 2 subsidiaries companies, submitted the audit appraisal opinions and put forwards the suggestion; The internal audit department made the special audit to 3 subsidiaries companies in remuneration rules and the “Blue Island Shore” project of Hainan Xinda Co., Ltd., audited and researched the assets appraisal report of Hua Jing Glass Bottle Co., Ltd. 22/109 The internal control system was more perfect, the company established the operating mechanism basically which restrained mutually inside of the Company to realize the institutionalization and standardization. 3. Key control activities (1) Proportion of shares held by the controlling subsidiaries of the Company Proportion of No. Name of the company shares held 1 Shenzhen Huangcheng Real Estate Co., Ltd. 100% 2 Shenzhen Property & Resource Construction and Development Company 100% 3 Shenzhen Guomao Automobile Industry Company 100% 4 Shenzhen Guomao Property Management Co., Ltd. 100% 5 Hainan Xinda Development General Corporation 100% 6 Shenzhen Property Engineering Project Management Co., Ltd. 100% 7 Shenzhen Guomao Catering Co., Ltd. 100% 8 Shanghai Shenzhen Property Development Co., Ltd. 100% 9 Shenzhen Real Estate Exchange 100% 10 Shenye Land Development Co., Ltd. 100% 11 Zhanjiang Shenzhen Property Development Co., Ltd. 100% 12 Shenzhen Guomao Mall Co., Ltd. 100% 13 Shenzhen Speedy Automobile Driver Training Center Co., Ltd. 100% Note: ①Shenzhen Guomao Tian’an Property & Resources Co., Ltd., Shenzhen Guomao Tian’an Building Property Management Co., Ltd and Shenzhen Property Jifa Warehouse Co., Ltd. had no actual control power and didn’t bring into consolidated statement, therefore, all these three companies was not listed in above table. ② Shenzhen Real Estate Exchange was managed by Shenzhen Guomao Property Management Co., Ltd. in trust. (2) Internal control on controlling subsidiaries According to the Articles of Association, the Company appointed and removed the person who was in charge of the wholly-owned subsidiaries, commended the Directors, Supervisors, Financial principal of the controlling subsidiaries. All subsidiaries were relatively independent in organization setting, personnel’s employment, and arranged the annual operation plan in line with the general operating plan of the Company. The internal audit department investigated and audited the subsidiaries of the Company aperiodically, related function department examined the subsidiaries annual performance. (3) Internal control on related transaction In the report period, there was no related transaction between the Company and the shareholders. The Company regulated the related decision-making procedure, disclosing procedure of the related transaction to make illicit related transaction impossible. (4) Internal control on external guarantee 23/109 In the report period, the Company offered the guarantee as follows: ① The Company pledged the its own property and all property of Shenzhen Guomao Tian’an Property & Resources Co., Ltd, joint stock company of the Company to apply the loan amounting to RMB 69.00 million from Shenzhen Branch of Bank of China Limited. This loan was transacted as refunding. ② The Company pledged the all property of Shenzhen Guomao Tian’an Property & Resources Co., Ltd., joint stock company, to apply the loan amounting to RMB 150.0 million from Shenzhen Zhenhua branch of China Construction Bank. ③ The wholly-owned subsidiaries-Shenzhen Huangcheng Real Estate Co., Ltd. applied the loan amounting to RMB 250.0 million for its project of Land B of Huangyu Garden C District in development from Shenzhen Zhenhua branch of China Construction Bank. The Company offered the guarantee for Huangcheng Real Estate Co., Ltd. which pledged the Huangcheng Square with values of RMB 50.00 million. ④ The Company pledged the all property of Shenzhen Guomao Tian’an Property & Resources Co., Ltd, joint stock company, to apply the loan amounting to RMB 15.00 million from Shenzhen Baihua Branch of Guangdong Development Bank. This loan was transacted as refunding. ⑤ The Company pledged the its own property to apply the loan amounting to RMB 100.00 million from China Merchants Bank. This loan was transacted as refunding. All above said guarantee was in conformity with Company Law, Articles of Association, Circular on Regulating the External Guaranties Provided by Listed Companies, strictly abiding by approval and authorization procedure, among which, the guarantee of ②③ was examined and approved by the Board of Directors then carried out after approving by the shareholders’ general meeting. The guarantee of ①④⑤ was refunding and carried out after approving by the Board of Directors. The Company strictly controlled the external guarantee risk and performed the duty of information disclosure. (5) Internal control on use of raised proceeds After the allotment of shares in 1993, the Company didn’t financing through the secondary market till now. In the report period, the Company didn’t disobey the regulation on use of raised proceed of Guidelines on Internal Control issued by Shenzhen Stock Exchange. (6) Internal control on significant investment In the report period, the wholly-owned subsidiaries-Shenzhen Guomao Automobile Industry Company (hereinafter referred as to “Guomao Automobile Company”) planed to participate in the bit of Shenzhen car’s license plate, and the apply this issue and submitted the report for feasibility study to the Company. In view of the strategic target of long-term development, the management of the Company believed that this bit was operable after analyzing the market seriously and calculating the plan in details. Finally, Guomao Automobile Company participated in the bit after approved by the Board of Directors. Guomao Automobile Company won the bid of 100 license plates with RMB 542,500.00 on Oct. 30. The Company disclosed the results of winning the bid on Nov.1, 24/109 2007. In addition, there was no other significant investment. The internal control of the Company on investment was efficient and sufficient and no situation happened to disobey the requirement on significant investment in Guidelines on Internal Control issued by Shenzhen Stock Exchange. (7) Internal control on information disclosure In order to improve the standardization of information disclosure, safeguard the legal right and benefits of the investors, the Company established the Management Rules on Information Disclosure Affairs to strengthen the management of information disclosure, further improve the quality of information disclosure, all information disclosed was true, accurate, complete, timely and fair. 4. Problems existing and rectification plan In the report period, the Company revised and perfected the rules on internal control to realize relatively perfect degree. The Company decided to settle a series of company rules including the rules on internal control from 2008 in line with the market environment and requirement changed constantly of further development of the Company. 5. General appraisal on internal control The Company established the legal person governance structure and internal organization in keeping with the requirement of modern management, the duty of shareholders’ general meeting, the Board of Directors, the Supervisory Committee was clear with normative operation. The rules on internal control covered the all parts and links of the operation of the Company with complete system, prevented the corrected the errors in operation, safeguarded the assets of the Company, ensured all accounting records was true, complete and accurate. The internal control system was more perfect, the company established the operating mechanism basically which restrained mutually inside of the Company to realize the institutionalization and standardization. 6. Opinions on self-evaluation on internal control of the Company expressed by the Independent Directors In the report period, the Company established and revised the all management rules, perfected the procedure of internal management, formed relatively strict rules on internal control of the Company. The present rules on internal control covered all parts and links of the Company in compliance with the national relevant laws, regulation and requirement of the supervisory organization, which controlled efficiently and sufficiently on the subsidiaries, related transaction, external guarantee, significant investment and information disclosure to ensure the normative operation of the Company, which was in line with actual situation with rationality and validity. As the Independent Directors of the Company, we believed that: the self-evaluation on internal control of the Company was in compliance with the actual situation of the 25/109 Company. 7. Opinions on self-evaluation on internal control of the Company expressed by the Supervisory Committee In accordance with the relevant regulation of the Guidelines on Internal Control of Listed Companies and Circular on Fulfilling the Work of Annual Report 2007 of Listed Companies issued by Shenzhen Stock Exchange, the Supervisors of the Company expressed opinions as follows: (1) In accordance with relevant regulation of CSRC and Shenzhen Stock Exchange, abiding by the basic principle of internal control, the Company established the complete internal control in line with its actual situation to ensure the operation activities operated normatively. (2) The completeness of internal control organization ensured the implementation of the key control activities and the sufficient supervision. (3) The internal control in the subsidiaries, related transaction, external guarantee, significant investment and information disclosure was strict, sufficient and efficient. (4) In 2007, there was no situation disobeying the Guidelines on Internal Control of Listed Companies issued by Shenzhen Stock Exchange and Rules on Internal Control. To sum up, the Supervisory Committee believed that: the self-evaluation on internal control reflected the actual situation of the Company completely, truly and accurately. VI. Establishment and implementation of performance appraisement and incentive mechanisms for senior executives In the report period, the annual operating target plan was went forth to the management by the Board of Directors, at the end of the year, the implementation of profit achievement of the management and the plan of bonus distribution for the senior executives was submitted to the Board of Directors for approval after examining by Remuneration and Examination Committee under the Board of Directors, also submitted to shareholders’ general meeting for approval then carried out. 26/109 Section VII. Shareholders’ General Meeting In the report period, the Company held the shareholders’ general meetings twice, which were Shareholders’ General Meeting 2006 and the 1st Temporary Shareholders’ General Meeting 2007. The convening and holding of the meetings was in line with the requirement of Company Law, Articles of Association and relevant laws and regulations. I. Shareholders’ General Meeting 2006 The Shareholders’ General Meeting 2006 was held at 39/F Conference room, Guomao Building at Renmin South Road, Shenzhen on Jun. 29, 2007. The resolutions from the meeting were published in Securities Times, Ta Kung Pao and website appointed for information disclosure: http://cninfo.com.cn on Jun. 30, 2007. II. The 1st Temporary Shareholders’ General Meeting 2007 The 1st Temporary Shareholders’ General Meeting 2007 was held at 39/F Conference room, Guomao Building at Renmin South Road, Shenzhen on Dec. 21, 2007. The resolutions from the meeting were published in Securities Times, Ta Kung Pao and website appointed for information disclosure: http://cninfo.com.cn on Dec. 21, 2007. 27/109 Section VIII. Report of the Board of Directors I. Review of the operation condition in the report period 1. Analysis of market environment Under the influence of America subprime mortgage crisis, the global economic growth rate declined, and some countries even signs of a recession. China, as one part of the global economy, but also be affected to a certain extent. In order to curb inflation, prevent the asset prices to rise rapidly and continuously, the state has adopted a tight monetary policy, and strictly controlled the scale of credit, further strictly controlled particularly Marco-policy in the real estate, which had a negative impact to the real estate development of the Company. In 2007, the property market in Shenzhe, Guangzhou was greatly impacted by the Marco-policy, especially including the Company that the major business centralized in Shenzhen. In the first half of this year, the house price continued to rise, so that the trading volume enlarged correspondingly. From July of this year, a series of national and local measures to control the property issued successively, the housing guarantee policy, the policy to regulate the sale of commercial housing and restraining order was issued in Shenzhen; meanwhile, from second half of this year, the national financial austerity policies speeded up, against investment overheating, excess liquidity of the market, increasing pressure on issues such as inflation, the central bank raised the second homes loan down payment and loan interest ratio measures through increasing interest rate, the introduction of new management measure, to curb real estate investment and speculative demand. What’s more, the cumulative strength from all aspects gradually released to impact and change the market, resulting in evident different operation of the property market in the second half in Shenzhen from that of the first half completely, the general level of prices went down, the trading volume decreased, therefore, the market gradually return to the rationality. The management of the Company believed that: As the steady growth of national economy and the income of residents, the continuing influx of people from outside, the scarcity of land resources in Shenzhen showed obviously, demand in the housing of Shenzhen was strong and person in Shenzhen also had a strong purchasing power. The consumer’s wait-to-see attitude was dominated by policy expected, the optimistic trend of Shenzhen real estate industry was not changed in the long term, but the impact of regulation and control policy would be unavoidable in the short term. In the long run, the adjustment was more beneficial for the whole industry’s development and integration in the future. 2. General operation condition In the report period, the Company’s the realized operation income was RMB 332,985,105.29, increased by 3.08% compared with that of the same period of the last year amounting to RMB 323,027,334.95; the total profit was RMB -29,055,405.80, decreased by RMB 16,081,963.88 compared with the that of the same period of the last year amounting to RMB -45,137,369.68; the net profit was RMB -27,381,215.98, 28/109 decreased loss by RMB 17,712,994.90 compared with that of the same period of the last year. The operating income was almost same with the last year; The increase of the total profit and the net profit was because of discharging from the interests on arrears, decrease of other expense, disposal of minority idle assets which was no business with the owners. 3. Operation condition of major business (1) Operation condition and scope of major business The Company was a professional real estate company with the real estate development as major business, taxi transportations and catering industry as diversifying business. Annual income of major business was RMB 314.00 million; profit of major business was RMB 59.15 million. The components of income of major business and total profit were as below: Classified by industries: Income of real estate development was RMB 102.56 million; total profit of that was RMB -8.92 million. Income of property management and lease industry was RMB 147.08 million; total profit of that was RMB -72.44 million. Income of taxi transportations was RMB 37.62 million; total profit of that was RMB 2.83 million. Income of commercial operation was RMB 20.77 million; total profit of that was RMB 0.12 million. Income of tourism and meal was RMB 14.53 million; total profit of that was RMB-0.30 million. Classified by the area: Income in Shenzhen was RMB 320.00 million. Income in East China was RMB 0.56 million. Income in Hainan was RMB 2.20 million . In view of the business of the Company distributed by the industry and area, the major business of the Company stressed on real estate in Shenzhen, which represented a large proportion to total income of the whole group. (2) The components of major business: The major product represented over 10% of income or profit of major business, and their sale income, sale cost and gross interest rate: (Unit: RMB ’000) Industry Income form main Cost of main operations Gross profit ratio operations Amount Increase/decrease Amount Increase/decrease Profit Increase/decrease compared to last compared to last ratio compared to last year (%) year (%) (%) year (%) Real estate 102,557 -7.76 81,972 5.45 20.07 -10.01 development 29/109 Property 147,080 9.39 126,262 4.73 14.15 3.82 management and lease Taxi passenger 37,621 -6.43 18,947 11.23 49.64 -8.00 transport Commercial 20,775 21.16 19,659 21.49 5.37 -0.26 operation Tourism and 14,535 9.76 6,881 6.65 52.66 1.38 food Explanation on the decrease of profitability of major business in the report period over the corresponding period of last year: The income from the major business of the Company in 2007 was RMB 314,357,056.17, almost no change from that of last year; the profit from major business was RMB 59,146,664.46, almost no change from that of last year. They were mainly because: a. Parts of the projects of real estate in progress were presold, which hadn’t reached the condition for completion settlement, so the total profit was to the bad; b. In 2007, owing to the large amount of buildings in progress of the Company and the considerable financial expenses arising from the special-purpose loan for real estate projects, the management expenses decreased on the year-on-year basis. (3) Particulars about suppliers and customers When the Company engaged in the business of real estate development, the developed real estate projects would be contracted to the bid winning companies be means of bid of projects, of construction materials were purchased by the construction enterprises with responsibility. The objects of the sales of commercial housing of the Company were almost the personal customers to purchase house, generally existing no customers to purchase in batch. The sales amount of the first five customers took up 2% of the total sales amount of the Company. 4. The change compared to the same period of last year formed by the assets of the Company the main reason for the change in the report period (1) Change compared to the same period of last year formed by the assets Item Dec. 31, 2007 Dec. 31, 2006 Increase/decrease Increase/decrease Amount (RMB) Proportion Amount (RMB) Proportion taking of the proportion of the proportion taking up the up the total assets taking up the total taking up the total assets (%) (%) assets (%) total assets (%) Currency capital 242,161,687.34 12.85 98,467,039.17 5.96 6.89 145.93 Accounts 66,415,218.51 3.52 67,280,936.04 4.07 -0.55 -1.29 30/109 receivable Inventory 974,256,614.17 51.68 919,351,851.69 55.64 -3.97 5.97 Investment 174,233,469.26 9.24 169,125,985.20 10.24 -0.99 3.02 properties Long-term equity 72,204,803.43 3.83 71,192,742.37 4.13 -0.48 1.42 investment Fixed assets 112,616,882.32 5.97 138,329,807.28 8.37 -2.40 -18.59 Short-term 286,640,774.90 15.20 409,889,914.94 24.81 -9.60 -30.07 borrowings Accounts payable 78,261,460.46 4.15 188,916,595.28 11.43 -7.28 -58.57 Accounts paid in 135,947,584.01 7.21 11,802,982.03 0.71 6.50 1051.81 advance Long-term 186,803,081.28 9.91 49,723,313.87 3.01 6.90 275.69 borrowings Total assets 1,885,257,743.24 100 1,652,218,377.68 100 -- 14.10 Explanation on the change: ① The currency capital increased by 145.93% compared to the same period of last year, mainly because of the increase of the advance real estate receipts of Shenzhen Huangcheng Estate Co., Ltd, the subsidiary of the Company. ② The inventory increased by 5.97% compared to the same period of last year, mainly because of the increase of the payment of construction for the project in progress in the report period. ③ The investment properties increased by 3.02% compared to the same period of last year, mainly because the fixed assets and land for renting were transferred in within the report period. ④ The fixed assets decreased by 18.59% compared to the same period of last year, mainly because the fixed assets were transferred into investment propertied for measuring in the report period. ⑤ The short-term borrowings decreased by 30.07% compared to the same period of last year, mainly because the borrowings were returned and part of it was transferred into long-term borrowings. ⑥ The accounts payable decreased by 58.57% compared to the same period of last year, mainly because the accounts of Hong Kong Hopewell Company were returned in the report period. ⑦ The accounts paid in advance increased by 1,051.81% compared to the same period of last year, mainly because of the increase of the advance real estate receipts of Shenzhen Huangcheng Estate Co., Ltd, the subsidiary of the Company. 31/109 ⑧ The long-term borrowings increased by 275.69% compared to the same period of last year, mainly because the parent company and its subsidiaries increased projects loan and part of the short-term borrowings was transferred into long-term borrowings. ⑨ Long-term equity investment increased by 1.42% compared to the same period of last year, mainly because the profit of invested companies was increased by equity method and the change in accounts receivable compared to the same period of last year was not so obvious in the report period. ⑩ The total assets increased by 14.10% compared to the same period of last year, mainly because the Company enlarged the size of the project development. Measurement attributes of the main assets of the Company The base of account of the accounting calculation of the Company was accrual basis. The trading financial assets and the financial assets available for sale were measured at fair value, as other assets were measured by employing historical cost. As for those adopted the way of replacement cost, net realizable value, present value and fair value, the measurement should be on the basis of the amount of the accounting element which could be obtained and measured reliably. The trading financial assets (listed circulation shares) and the financial assets available for sale (shares of ST Changcheng Steel) were measured by the market price in Shenzhen Stock Exchange (as the fair value). (2) Changes in operating expenses, management expenses, financial expenses and income tax compared to the same period of last year and the main reason for the changes: Item Jan. – Dec., 2007 (RMB) Jan. – Dec., 2006 (RMB) Increase/decrease compared to the same period (±%) Operating expenses 15,923,457.32 17,104,451.96 -6.90 Management expenses 86,870,710.57 96,913,198.52 -10.36 Financial expenses 26,413,569.23 15,274,086.61 72.93 Income tax expenses -1,674,189.82 -43,158.80 3779.14 Explanation: ① The main reason for the decrease of operating was the Company reduced expenses owing to strengthening the control on expenses in the report period. ② The main reason for the decrease of management was the Company saved expenses owing to intensifying management in the report period. ③ The main reason for the increase of financial expenses was the increase total borrowings in 2007 over the corresponding period of last year and the increase interest 32/109 rate of bank loan in 2007. ④ The main reason for the decrease of income tax expenses was the decrease of deferred income tax expenses and the increase of the deferred income tax income of the Company in the report period. 5. Changes in main items of cash flow statement compared to the same period of last year and its reasons in the report period Item 2007 (RMB) 2006 (RMB) Increase/decrease (%) I. Cash flows arising from operating activities Subtotal of cash inflows 514,025,886.91 324,545,188.39 58.38 Subtotal of cash outflows 635,594,655.68 443,546,501.59 43.30 Net cash flows arising -121,568,768.77 -119,001,313.20 2.16 from operating activities II. Cash flows arising from investing activities Subtotal of cash inflows 55,375,875.61 1,479,263.53 3643.48 Subtotal of cash outflows 8,078,776.56 1,072,028.65 653.60 Net cash flows arising 47,297,099.05 407,234.88 11514.21 from investing activities III. Cash flows arising from financing activities Subtotal of cash inflows 725,912,364.56 244,747,228.00 196.60 Subtotal of cash outflows 507,789,522.99 274,655,965.22 84.88 Net cash flows arising 218,122,841.57 -29,908,737.22 -829.29 from financing activities Explanation: ① The decrease of the net cash flows arising from operating activities on the year-on-year basis was mainly because the payment for project development of the Company was increased compared to the same period of last year in the report period. ② The increase of the net cash flows arising from investing activities on the year-on-year basis was mainly because the cash flow from selling shares held by the Company was increased compared to the same period of last year in the report period. ③ The increase of the net cash flows arising from financing activities on the year-on-year basis was mainly because the project development loan of the Company was increased compared to the same period of last year in the report period. In the report period, the net cash flows arising from operating activities of the Company were RMB -121,568,768.77, existing greater difference with net profit as of report period 33/109 amounting to RMB -27,381,215.98, the reasons were as follows: ① Amount of “Cash paid due to purchasing commodities and receiving labor service” in cash flow statement of the Company was more than amount of “Cost of main operations” (after deducting labor cost) in income statement, the reason was to pay the payment of construction, but the construction project hadn’t not reached the settlement condition. ② “Depreciation allotted” in income statement amounting to RMB 23.74 million did not pay on cash. ③ “Interests expense deducted” amounting to RMB 26.78 million and “ investment income” of RMB 33.47 million in income statement were not belong to cash flows arising from operating activities. ④ “Assets depreciation reserve” in income statement amounting to RMB 5.05 million did not brought cash disbursement. 6. Changes in sales of products and major technicians and the information about business of the Company. In the report period, no significant changes in major sales and technicians of the Company occurred. 7. About operation status of main subsidiary companies and share-holding company and analysis on achievement outstanding Unit: RMB’ 000 Company Main Registered Total assets Net assets Total assets Net assets name products capital Amount Increase/ Amount Increase/ Amount Increase/ Amount Increase/ decrease decrease decrease decrease compared compared compared compare to last year to last to last year d to last (%) year (%) (%) year (%) Shenzhen Development, 30000 856891 16.11 462017 1.98 -4980 -152.23 8813 - Huangcheng construction, Real Estate operation, Co., Ltd and management of supporting commercial service facilities at Huanggang Port Shenzhen Automobile 29850 230914 84.60 37447 7.72 3065 -30.68 2683 -25.19 34/109 Guomao transportation Automobile of Industry passengers, Company and lease of automobiles 8. Special purpose entity controlled by the Company The Company didn’t exist the special purpose entity controlled by the Company. II. Prospect of the future development of the Company 1. Risk and countermeasure the Company faced (1) Political risk In 2007, the control policy and measure on the nationwide and parochial real estate were introduced so frequently that the efficiency of the accumulated control strength appeared, which controlled the investment of real estate and the speculation demand in a certain extent. The wait-and-see atmosphere of the consumers in Shenzhen would still last for some time owing to the influence of the early control policy, which would brought some pressure for the sales work of the Company. On the basis of the full investigation on the real estate market in Shenzhen and the study on market segmentation, the Company made and implement the strategic target of “developing masterpieces and creating brand”, making good use of the existed land resource by capitalizing on its potential to realize the maximum value of the existed resource, which could reduce the adverse impact on control policy to minimum in a certain extent (2) Financial risk In 2008, with the all-round start of part of the real estate projects, the Company would face biggish fund pressure. The tight monetary policy made it difficult for the real estate enterprises to make use of capital, also the higher loan interest rate increased the financial expenses of the Company. The Company would lighten the fund pressure of the Company and reduce the financial risk by strengthening the sales of real estate, stimulating deposit assets and increasing capital inflows through heighten the rental income of the profitability property. (3) Operation risk ① The inflation influence was relatively great, especially the price of construction material. In the report period, with the influence of inflation influence, such cost as labor, capital, construction material and selling expenses maintained growing, which made the difficulty of cost control on real estate projects of the Company enlarge and the profit space of the Company would face some challenge. In 2008, the continuous growth of the price of the construction material would directly affect the profit of the Company. 35/109 The Company would mitigate the adverse impact on the profit of the Company brought by the growing price of construction material by improving management level on projects, cutting expenditure, reinforcing cost control. ② Sales risk. As the large investment demand stimulated the real estate price grew, all the asset price besides real estate were up with the background of appreciation of RMB and the enlargement of monetary liquidity. In the latter half of 2007, the contraction in bank housing loans and the market trade volume of the second-hand commercial housing in Shenzhen started to drop, therefore, the trade volume of new houses also began to appear setback, making the market turn quiet and the wait-and-see atmosphere more serious. The drop in the real estate market would directly influence the sales price and sales progress of the products of the Company, as well as the increase income of the Company. The Company would promote the sales by means of strengthening management integration and innovative sales way. 2. The competitive strengths and potential of the Company The real estate industry possessed obvious territorial restriction, so the actual competition would be played within a certain limit, which existed kinds of segment markets. Because of the emergence of the competition between cities and the one between neighboring buildings, the location became the crucial factor. So far, the land reserve of the Company mainly located in Huanggang and Caitian, Futian District of Shenzhen, Longhua, Baoan District of Shenzhen, where the traffic was convenient, the set facilities in the field of commerce and education were perfect, and the value and the gold-content of the projects were rather high, being the advantage on the operation and development of the Company. 3. The plan in 2008 The Company expected the income from main business will be RMB 640 million, with expenses and cost of RMB 540 million. The continuous change in the sales of real estate projects of the Company may probably cause the change in the related plan data. The Company will make and implement the strategic plan suitable for the development of the Company and consolidate the operating pattern which focuses on the real estate development in close conjunction with the theme of “development and reform”. Furthermore, the Company will seize the opportunity to develop real estate, standardize and reinforce the internal management to quicken the real estate development progress, strengthen marketing and withdraw fund with a quick pace by enhancing the product quality and economic benefit. The projects in progress and the new-built ones were Huangyuyuan·Yu Garden, Shengang No.1, Langqiao Residence, Fengherili Tianhuoyuan, Caitianyise, with areas available for sale of more than 0.2 million sq.m.. New project were all in construction, 36/109 demanding a large amount of capital. In order to guarantee the schedule of every project, the Company took the following measure: (1) Concern to the changes in state macro-control policy, research countermeasure positively to meet changes. (2) Ensure the constructing schedule important real estates, strictly supervise the cost of the projects, ensure the profit growth of the group's main real estate development business, and grasp the profit-pursuing life line of the real estate development companies. (3) Strengthen marketing, stimulate deposit assets. (4) Seek land recourse, reserves, and establish the foundation of the group's sustainable development. (5) Create masterpiece, arise brand awareness, reinforce internal management of the Company. 2008 is a year full of challenge for the Company, so we will go all out, face with matchless courage, work with joint efforts, overcome difficulty, as to realize the target of the Company to make up the deficits and maintain the business good momentums for growth. 4. Demand for capital, usage plan and capital resource. The Company will enter the phase of developing and constructing on a large scale. As a result, the Company will demand a large amount of capital in 2008, anticipating the total investment for the started projects of over RMB 2 billion, and the capital used in 2008 of over RMB 0.6 billion. To ensure the supply of capital and meet the demand for the business development of the Company, the Company will solve the problems on funds by such means as bank increased loan and sales circle-fund from projects. III. Investment in the report period 1. There were no raised proceeds of the Company in the report period, neither was the continuous usage of the early raised proceeds. 2. Significant investment projects from funds from non-financial activities, and their progress and benefit. Unit: RMB’ 000 Project Investment in 2007 Proportion of Project progress Profit-making investment status increase/decrease compared to last year (%) A section in C block of 141,235 366.44 Topped off, started -- 37/109 Huangyuyuan to presell (Huangyuyuan Project) B section in C block of 68,754 2785.11 Completion of pile -- Huangyuyuan foundation (Huangyuyuan Project) C section in C block of 57,436 705.62 Construction of pile -- Huangyuyuan foundation (Huangyuyuan Project) Fengherili 22,945 -5.29 Construction of -- Tiankuoyuan (B team basement of Fengherili) Total 290,370 -- -- -- 3. During the report period, the State put out lots of IV The accounting policies and changes in accounting estimates of the Company made by the Board of Directors, or the reason for the correction of the significant accounting errors and the analysis of its influence 1. Changes in accounting policies In the report period, the Company executed new accounting standard system for the first time. According to Accounting Standard for Business Enterprises No.38 – First time adoption of Accounting Standard for Business Enterprises, Questions and Answers on the Standards for Information Disclosure by Companies That Offer Securities the Public No. 7 - Preparation and Disclosure of Financial and Accounting Information for Comparison During the Period of Transition from the Old Accounting Standards the New Accounting Standards (ZJKJ Zi [2007] No.10), Interpretation No.1 to Accounting Standard for Business Enterprises (CK [2007] No.14) and , Expert View on Implementation Issues of New CACs, the periodic beginning in balance sheet and income statements, the comparable data in the same period in cash flow statement were made retroactive restatement, and the regarded the balance sheet, income statement and cash flow statement after adjustment as the financial statements in the comparable period to be represented. The events which were made retroactive modulation were stated as follows: (1) Trading financial assets According to the regulation of Accounting Standard for Business Enterprises No. 22 – Transfer of financial assets, in 2007, the Company changed the way of measuring trading financial assets from according to the lower of cost and market price to the fair value. The changes in accounting policies were adopted retrospective adjustment method, and the comparative financial statements in 2007 were restated again. The accumulated affected amount of the changes in accounting policies measured retrospectively by employing new accounting policies was RMB 5,923,150.98, increasing retained earnings at the beginning of 2006 of RMB 0. The owners’ net profit in 2006 attributed to the parent company was increased by RMB 5,923,150.98 as the retained earnings at the beginning of 2007 were increased by RMB 5,923,150.98, of which the retained profit was increased by RMB 38/109 5,923,150.98. The influence on the profits and losses in the Annual Report of 2007 was to reduce the net profit by RMB 6,302,833.24 owing to the changes in accounting policies, of which the owners’ net profit attributed to the parent company was reduced by RMB 6,302,833.24. (2) Deferred income tax assets and deferred income tax liabilities Accounting to Accounting Standard for Business Enterprises No. 18 – Income Tax, the Company changed the way of accounting treatment for income tax from taxes payable method to balance sheet liability method in 2007. The changes in accounting policies were adopted retrospective adjustment method, and the comparative financial statements in 2007 were restated again. The accumulated affected amount of the changes in accounting policies measured retrospectively by employing new accounting policies was RMB 7,835,781.02, increasing retained earnings at the beginning of 2006 of RMB 6,904,270.85. The owners’ net profit in 2006 attributed to the parent company was increased by RMB 931,510.17 as the retained earnings at the beginning of 2007 were increased by RMB 7,835,781.02, of which the retained profit was increased by RMB 7,835,781.02. The influence on the profits and losses in the Annual Report of 2007 was to reduce the net profit by RMB 2,608,356.05 owing to the changes in accounting policies, of which the owners’ net profit attributed to the parent company was reduced by RMB 2,608,356.05. (3) Long-term equity investment According to new accounting standard and the related complementary regulation, the joint venture measured by equity method correspondingly adjusted the book value of long-term equity investment by employing retrospective adjustment method when executing new accounting standard, restating the comparative financial statements in 2007 again. The accumulated affected amount of the changes in accounting policies measured retrospectively by employing new accounting policies was RMB 647,927.35, increasing retained earnings at the beginning of 2006 of RMB 804,195.41. The owners’ net profit in 2006 attributed to the parent company was increased by RMB 156,268.06 as the retained earnings at the beginning of 2007 were increased by RMB 647,927.35, of which the retained profit was increased by RMB 647,927.35. (4) Changes in consolidated financial statements scope According to new accounting standard and the related complementary regulation, Shenzhen Real Estate Exchange, Shenye Estate Development Co., Ltd and such subsidiaries as Zhanjiang Shenzhen Property & Resources Development Co., Ltd, Shenzhen Guomao Mall Co., Ltd and Shenzhen Speedy Automobile Driver Training Center Co., Ltd were added into the consolidated financial statement scope by the Company. The changes in accounting policies were adopted retrospective adjustment method, and the comparative financial statements in 2007 were restated again. The accumulated affected amount of the changes in accounting policies measured retrospectively by employing new accounting policies was RMB -7,125,009.29, reducing retained earnings at the beginning of 2006 of RMB 2,359,206.53. The converted 39/109 difference in foreign currency of 2006 at the period-begin was adjusted to increase by RMB 1,675,943.29, so was the minority interest of 2006 ate the period-begin by RMB 862,359.07. However, the owners’ net profit in 2006 attributed to the parent company and the profits and losses of minority shareholders in 2006 were respectively adjusted to reduce by RMB 5,736,787.75 and RMB 1,595.10, so was the retained earnings of 2007 at the period-begin by RMB 8,095,994.28, of which the retained profit was reduced by RMB 8,095,994.28. Meanwhile, the converted difference in foreign currency of 2007 at the period-begin was adjusted to increase by RMB 110,221.02, so was the minority interest of 2007 at the period-begin by RMB 860,763.97. The influence on the profits and losses in the Annual Report of 2007 was to reduce the net profit by RMB 1,081,482.32 owing to the changes in accounting policies, of which the owners’ net profit attributed to the parent company was reduced by RMB 1,077,930.11. 2. In the report period, there were no corrections of accounting estimates occurring in the Company. 3. In the report period, there were no corrections of significant accounting errors occurring in the Company. V. Routine work of the Board of Directors (I) Particulars about the meetings of the Board in the report period In the report period, the Board of Directors held 14 meetings in total. (1). The meeting of the Board of Directors of the Company was held on Mar. 12, 2007, at which the Proposal on Solving Problems of Investment on Stock Left over by History was examined and approved. (2) The meeting of the Board of Directors of the Company was held on Apr. 25, 2007, and the public notices about the resolution of this meeting of the Board were published in Securities Times, Ta Kung Pao and the designated website for information disclosure (http://cninfo.com.cn) on Apr. 28, 2007. (3) The meeting of the Board of Directors of the Company was held on Apr. 26, 2007, at which the 1st Quarterly Report of the Company 2007 was examined and approved. (4) The meeting of the Board of Directors of the Company was held on Jun. 8, 2007, and the public notices about the resolution of this meeting of the Board were published in Securities Times, Ta Kung Pao and the designated website for information disclosure (http://cninfo.com.cn) on Jun. 9, 2007. (5) The meeting of the Board of Directors of the Company was held on Aug. 13, 2007. The Semi-annual Report of the Company 2007 was examined and approved, which was published in Securities Times, Ta Kung Pao and the designated website for information disclosure (http://cninfo.com.cn) on Aug.14,2007. 40/109 (6) The meeting of the Board of Directors of the Company was held on Aug. 15, 2007, at which the Proposal on Solving Problems of Haidian Island Item. (7) The meeting of the Board of Directors of the Company was held on Aug. 29, 2007, and the public notices about the resolution of this meeting of the Board were published in Securities Times, Ta Kung Pao and the designated website for information disclosure (http://cninfo.com.cn) on Aug. 30, 2007. (8) The meeting of the Board of Directors of the Company was held on Oct. 17, 2007, at which the such three proposals were examined and approved as Proposal on Business Plan in 2007, Proposal on Treatment Measure for Land of Sihui and Proposal on Treatment Measure for Land of Sihui. (9) The meeting of the Board of Directors of the Company was held on Oct. 26, 2007, and the public notices about the resolution of this meeting of the Board were published in Securities Times, Ta Kung Pao and the designated website for information disclosure (http://cninfo.com.cn) on Oct. 27, 2007. (10) The meeting of the Board of Directors of the Company was held on Oct. 29, 2007, and the public notices about the resolution of this meeting of the Board were published in Securities Times, Ta Kung Pao and the designated website for information disclosure (http://cninfo.com.cn) on Oct. 31, 2007. (11) The meeting of the Board of Directors of the Company was held on Oct. 30, 2007, at which the Proposal on Participating the Bid for Taxi License was examined and approved. (12) The meeting of the Board of Directors of the Company was held on Nov. 30, 2007, and such three proposals were examined and approved as Proposal on Transferring the Equity of the Holding Enterprise Fulin Co., Ltd, Proposal on Transferring the Equity of the Holding Enterprise Hua Jing Glass Bottle Co., Ltd and Proposal on Enterprise Annuities Scheme of the Company. (13) The meeting of the Board of Directors of the Company was held on Dec.3, 2007, and the public notices about the resolution of this meeting of the Board were published in Securities Times, Ta Kung Pao and the designated website for information disclosure (http://cninfo.com.cn) on Dec. 5, 2007. (14) The meeting of the Board of Directors of the Company was held on Dec. 12, 2007, and the public notices about the resolution of this meeting of the Board were published in Securities Times, Ta Kung Pao and the designated website for information disclosure (http://cninfo.com.cn) on Dec. 21, 2007. (II) Particular about the execution by the Board of Directors for the resolution at 41/109 Shareholders’ General Meeting. Within the report period, the resolutions at Shareholders’ General Meeting were executed effectively. (1) The Annual Shareholders’ General Meeting 2006 examined and approved the following proposals: Work Report of the Board of Directors in 2006, Work Report of the Supervisory Committee in 2006, Financial Final Accounts Report in 2006, Annual Report in 2006, Proposal on Profit Distribution in 2006, Proposal on the Loan of RMB 150 Million, Proposal on Loan Guarantee of 250 Million, Proposal on Engagement of Accountant Firm in 2007. The related events of the above proposals were well carried out. (2) The 1st meeting of Extraordinary Shareholders’ General Meeting 2007 examined and approved the following proposals: Proposal on Amending the Article of Association of the Company, Proposal on Electing Members of the 6th Board of Directors, Proposal on Electing Members of the 6th Supervisory Committee, and Proposal on Selling Shares of *ST Changcheng Steel. The Board of Directors finished such tasks as amending the Article of Association, completing election at expiration of office term for the Board of Directors, selling 1,302,839 shares of *ST Changcheng Steel, which affected the profit of the Company in the report period increased by RMB 8,593,054.09. So the resolutions at the Shareholders’ General Meeting could be executed preferably. (III) Summary for the performance of the Audit Committee of the Board of Directors The Audit Committee of the Board of Directors of the Company was set up on Dec. 20, 2007, according to the requirement of CSRC and Shenzhen Stock Exchange and the Work Rules for the Audit Committee of the Board of Directors of the Company, the Audit Committee had fulfilled the following duties with diligence and responsibility. 1. Before the accountant firm’ formal entry, the Audit Committee consulted and decided the work plan for auditing financial report in 2007 with the accountant firm and supervised the accountant firm submitted the auditors’ report on schedule by cooperating with the Company. 2. The Audit Committee come up with the first opinion after reviewing the financial statements complied by the Company: the Financial Statements of the Company in 2007 had been complied on the basis of the regulation of Accounting Standard for Business Enterprises and Accounting System for Business Enterprises, reflecting the actual operating situation and financial status of the Company. It was expected that the managements of the Company could cooperate with Wuhan Zhonghuan Certified Public Accountants to carry out the auditing work for the financial statements in 2007. 3. After the CPAs for yearly audit entered, the Audit Committee of the Board of Directors 42/109 communicated with the CPAs for yearly audit of the Company on the problems discovered in the auditing process. The Audit Committee of the Board of Directors come up with the second opinion after reviewing the Financial Statements of the Company as soon as the accountant firm issued the preliminary audit opinion: the Financial Statements of the Company in 2007 was complied by strictly following the regulation of Accounting Standard for Business Enterprises and Accounting System for Business Enterprises, complying with Questions and Answers on the Standards for Information Disclosure by Companies That Offer Securities the Public No. 7 - Preparation and Disclosure of Financial and Accounting Information for Comparison During the Period of Transition from the Old Accounting Standards the New Accounting Standards (ZJKJ Zi [2007] No.10) issued by CSRC and the provision in the related documents published by the Ministry of Finance after the implementation of new accounting standard. The annotation to the financial statements was complied in line with the Standards for Information Disclosure by Companies That Offer Securities the Public No 15 – General Rules for Financial Report and the related regulations published by CSRC. The financial statements and the annotation to financial statements objectively and fairly reflected the financial status, operating results and cash flow of the Company on Dec. 31, 2007. It was required that the accountant firm completed the auditing work as soon as possible based on the plan in order to ensure the Company could disclose the Annual Report 2007. 4. In the opinion of the Audit Committee, the Financial Report in 2007 was allowed to be submitted to the Board of Directors for auditing because the first draft of the Auditors’ Report of 2007 was complied according to the requirement of new accounting standard and the actual situation of the Company. The Audit Committee approved the summary of the auditing work in 2007 done by Wuhan Zhonghuan Certified Public Accountants, as well as issuing opinion on whether to engage Wuhan Zhonghuan Certified Public Accountants as the audit institution of the Company in 2008. The Audit Committee of the Board of Directors performed well with great responsibility at the Financial Report of the Company in 2007, playing a role as supervisor to maintain the audit independence. (IV) Summary for the performance of the Remuneration and Appraisal Committee of the Board of Directors The Remuneration and Appraisal Committee of the Board of Directors was set up on Dec. 20, 2007, the Remuneration and Approval Committee fulfilled duties with diligence and responsibility in accordance with Code of Corporate Governance for Listed Companies and Work Rule for Remuneration and Appraisal Committee. After the report period, Special Meeting was held by Remuneration and Appraisal Committee, at which the Remuneration and Appraisal Committee deeply knew the remuneration system of the Company, the establishment of the annual business objective for management by the Board of Directors, and the salary standard of the directors and the senior management staffs. In light with the plan scheme of the annual business objective made by the Board of Directors for the managements at the year-begin, the Remuneration and Appraisal 43/109 Committee conducted audit for the completion of the major business index and operating profits in 2007 of the managements and premium distribution scheme for the senior management staffs, and came up with audit opinion which was submitted to the Board of Directors for examination and approval. VI. Draft proposal on profit distribution of the Company for 2007 Audited by Wuhan Zhonghuan Certified Public Accountants Co., Ltd, the consolidated net profit of the Company attributed to shareholders of the parent company was RMB -27,377,663.77 in 2007, the consolidated retained profit at the beginning of 2007 of the Company was RMB -39,820,155.96. The cumulative consolidated retained profit of the Company by the end of 31 Dec. 2007 was RMB -67,197,819.73; the net profit of parent company was RMB -27,611,609.45 in 2007, and the retained profit of parent company at the beginning of 2007 was RMB -373,961,267.95. The cumulated retained profit of parent company by the end of 31 Dec. 2007 was RMB -401,572,877.40. The Company executed New Accounting Standards for Enterprise since 1 Jan. 2007. In accordance with the new accounting standards, adopted method of cost check-up on investment of subsidiary company, the profit of subsidiary company undeclared dividend would not calculated into the profit of parent company, therefore, there are obvious difference in profit statement of parent company and consolidated profit statement. But in accordance with provisions stipulated in the Company Law, profit distribution and withdrawal of public reserve fund were subjected to parent company. In view of the above situation, the Company would not distribute profit or withdraw capital reserves as share capital in 2007. The profit distribution preplan needed to be submitted to Shareholders’ General Meeting. In view of the above situation, the Company didn’t distribute profit or withdraw capital reserves as share capital in 2007. VII. Other report events In the report period, the Company designated Securities Times and Ta Kung Pao as the newspapers for information disclosure, there are no changes. 44/109 Section IX Report of the Supervisory Committee I. Work of the Supervisory Committee In 2007, the Supervisory Committee held 9 meetings in total: (I) The first meeting was held on 25 Apr. 2007, at which examined the Report of the Supervisory Committee 2006, Annual Report 2006 and the Summary, examined issues which caused qualified opinion and emphasized issues in audit report, examined explanation on correction, retrospection and adjustment of significant accounting error, unanimously approved the meeting proposals, and disclosed information in relevant media. (II) The second meeting was held on 26 Apr. 2007, at which examined the First Quarterly Report 2007, and the Supervisory Committee expressed the opinions. (III) The third meeting was held on 29 Apr. 2007, at which examined remaining historical securities investment issue. (IV) The fourth meeting was held on 29 May 2007, at which discussed behavior of illegal trading shares of the Company made by the supervisor. (V) The fifth meeting was held on 13 Aug. 2007, at which examined the Semi-annual Report 2007 and the Summary. (VI) The sixth meeting was held on 29 Aug. 2007, at which examined each content in Self-inspection Report on Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Company and Self-inspection Report and Rectification Plan on Corporate Governance. (VII) The seventh meeting was held on 29 Oct. 2007, at which examined the Third Quarterly Report 2007 and Supervision Opinion on Carrying out Corporate Governance and Report on Rectification Measures. (VIII) The eighth meeting was held on 4 Dec. 2007, at which examined recommendation of supervisors of the 6th Supervisory Committee. (IX)The ninth meeting was held on 20 Dec. 2007, at which elected the Chairman of the 6th Supervisory Committee, which all supervisors unanimously elected Mr. Cao Ziyang as the Chairman of the 6th Supervisory Committee. All supervisors attended each meeting of the Board as non-voting delegate. In accordance with Company Law, Administrative Rules for Listed Companies and the Articles of Association of the Company, the members of the Supervisory Committee conducted supervision over the Board’s and the management team’s operation in line with the laws, reviewed information concerning the Company’s important economic activities and dutifully fulfilled their supervision duties. II. Independent opinions given by the Supervisory Committee on relevant issues of the Company Independent opinions given by the Supervisory Committee on relevant issues of the Company are as follows: 1. Operation: According to the Company’s various works in 2007, the operation of both the Board and the management team was in conformity with the Company Law, the Administrative Rules for Listed Companies and the Articles of Association, and the resolutions of the Shareholders’ General Meeting was executed effectively. While performing their duties, neither the Board nor the senior managements had committed and behavior that went against any law, regulation or the Articles of Association. And no power abuse or harm done to the Company’s interests had been detected. 45/109 2. Financial status: After checking up the Company’s financial accounting information and relevant rules, the accounting calculation for this year was in compliance with the financial system of listed companies; various reserves had been withdrawn strictly according to the inner control system of the Company, and necessary application procedures had been conducted. As audited by the Certified Public Accountants, the Financial Report of the Company had faithfully, objectively and accurately reflected the financial status and operating achievements of the Company. 3. In course of the activities of assets integration and sales, no transactions unfair, inner transactions or other behavior that had done harm to the interests of part of the shareholders or led to assets loss of the Company had been detected. 46/109 Section X. Significant Events I. The significant lawsuits or arbitrations 1. During the reporting period, there was no new significant lawsuit or arbitration. 2. During the reporting period, progress of the significant lawsuits or arbitrations disclosed over the previous years: (1) About the “Haiyi Company” case disclosed in the Annual Report 2006 and Semi-annual Report 2007, the Company submitted petition for retrial to the Supreme Court and the case is still in the trial process. (2) About the “Jiyong Company” case disclosed in the Annual Report during 2000 and 2006 and Semi-annual Report 2007, the other sealed real estate of Jiabing Mansion the Company applied for sealing up in this case was released automatically. The Company has applied for resumption of execution. At present, the case is under pending review from the Court. (3) About the case of the Company sued Guomao Jewelry Co., Ltd. located in Shengfeng Road, Shenzhen, which was disclosed in the Annual Report 2005 and 2006 and Semi-annual Report 2007, Shenzhen Intermediate People’s Court has made the trial of first instance in Sep. 2007, which Guomao Jewelry Co., Ltd. would bear debts of RMB 32,524,650.45, and Liu Ruohua, legal representative of Guomao Jewelry Co., Ltd., would undertake joint discharge responsibility within the scope of RMB 10,053,000. The progress of the said case was disclosed by the Company through the temporary public notice on 13 Sep. 2007. At present, the said case has become effective, but Guomao Jewelry and Lin Ruohua did not execute the judgment. (4) About the contract dispute on “Duokuai Elevator” disclosed in Annual Report 2006 and Semi-annual Report 2007, Shenzhen Intermediate People’s Court made the civil judgment with (2006) SZFMWC Zi No. 116, however, Huangcheng Real Estate appealed for revision, People’s Procuratorate of Shenzhen issued Prosecutorial Advisory Letter with SJMXJ (2007) No. 5, which it advised Shenzhen Intermediate People’s Court to make retrial on the said case because it believed that the facts verified in the original judgment are unclear. (5) About “Meisi Company Lawsuit” disclosed by the Company in Annual Report 2004, Temporary Public Notice on Apr.15, 2006, Temporary Public Notice on Aug. 5, 2006, Temporary Public Notice on Apr.11, 2007, the Annual Report 2006, Temporary Public Notice on May 19, 2007 and Semi-annual Report 2007, the Administrative Office for Reconsideration of Shenzhen Municipal People’s Government issued an Administrative Decisions for Reconsideration (SFFJ [2007] No. 255) in Sep. 2007, which made administrative decision for reconsideration on Reconsideration Application that the Company appealed for abolishing the administrative behavior made by Shenzhen Property Right Registration Center in the Decision on Abolishing Property Right Certificate of SFD Zi No. 3000119899 and No. 3000320987 with [2007] No. 27, and sustained the aforesaid special administrative behavior from Shenzhen Property Right Registration Center. The property right of Meiling workshop and comprehensive building and use right of land-occupying of 11500 sq.m. were still owned by the Company. The progress of the said case was disclosed by the Company via the temporary public notice 47/109 on 13 Sep. 2007. Meisi Company sued Shenzhen Municipal Bureau of Land Resources and Housing Management to the People’s Court of Futian District of Shenzhen on 26 Nov. 2007. Then the People’s Court of Futian District of Shenzhen opened court sessions to hear the said case on 8 Jan. 2008 without judgment. On 26 Feb. 2008, Meisi Company sued Shenzhen Municipal Bureau of Land Resources and Housing Management again, and the People’s Court of Futian District of Shenzhen accepted and heard the said lawsuit and decided to open court sessions to hear on 20 Mar. 2008. The progress of the said case was disclosed by the Company via the temporary public notice on 28 Feb. 2008. (6) About case of “Guarantee for Gintian”, in accordance with the Agreement on Mutual Guarantee, the Company refunded debts of RMB 48 million to Cinda Assets Company Changchun Office instead of Gintian Industrial (Group) Co., Ltd. (hereinafter referred to as “Gintian Company”). The Company appealed a Payment Order to Shenzhen Court of Luohu District, which the Company asked Gintian Company to repay RMB 48 million, the Court of Luohu District serviced of Payment Order with (2005) SLFLD Zi No. 8 in line with laws. The said Payment Order has become effective. At present, the said case is under execution. In accordance with the Agreement on Mutual Guarantee, the Company refunded debts of RMB 6 million and relevant expenses to Agricultural Bank of China Shenzhen Branch instead of Gintian Company, the Company would recourse against Gintian Company in line with laws. II. Equity of other listed companies held and traded by the Company 1. Securities investment Proportion Initial Number of total Type of Securiti Short form of Book value in Gains/losses in the investment of shares securities in securities es code securities period-end report period amount (Yuan) held period-end (%) China Overseas HK Stock 688 Land & 58.94% 1,099,536.10 Investment Ltd. 656,088.66 202,500 3,060,482.94 Shenzhen SZ A Stock 000001 27.26% 836,992.35 Development A 793,620.71 36,300 1,415,700.00 HK Stock 144 China Merchant 62,926.08 4,000 182,036.16 3.51% 64,832.74 China State Construction HK Stock 3311 2.68% 96,860.89 International Holdings Limited 36,332.32 12,000 139,336.32 HK Stock 014 HYSAN DEV 107,873.28 6,000 125,290.32 2.41% 11,355.44 48/109 HK Stock 415 COVEC 0808 0.00 16,875 67,315.46 1.30% 69,770.41 SZ A Stock 000030 ST Sunrise 268,735.50 20,000 58,400.00 1.12% -400.00 SZ A Stock 031003 SFC2 0.00 1,650 44,632.50 0.86% 44,632.50 Yunnan HK Stock 455 Enterprises 13,577.80 50,000 39,328.80 0.76% 16,499.35 Holdings Limited HKR HK Stock 480 International 15,450.60 4,400 30,736.39 0.59% 15,715.15 Limited Other securities investments held at the 23,819.55 7,100 29,431.63 0.57% 5,884.15 period-end gain/loss from securities investment sold out — — — — 18,271,005.58 in the period Total 1,978,424.50 — 5,192,690.52 100.00% 20,532,684.65 2. Equity of other listed companies held by the Company Equity Change in the Initial proportion Book value Profit and loss Subject for Stock Short form of owners’ Source of investment in that of at the in the report accounting code stock equity in the shares amount this period-end period calculation report period company *ST Purchasing Available-for-sale legal person 000569 Changcheng 3,116,559.55 0.13% 9,200,018.40 8,593,054.09 4,946,544.56 financial assets shares Special Steel directionally Purchasing Long-term legal person 000509 S*ST T.H. 2,962,500.00 0.33% 802,199.55 0.00 0.00 equity shares investment directionally Total 6,079,059.55 - 10,002,217.95 8,593,054.09 4,946,544.56 Equity of other listed companies bought and sold by the Company Number of Number of Number of shares shares at Amount of Investment Items Name of stock shares at the bought and the funds used income period-begin sole in the period-end report period Buy-in China Overseas Land & 180,000 22,500 202,500 94,810.50 Investment Ltd 49/109 China State Construction International Holdings 10,000 2,000 12,000 18,728.00 Limited Shenzhen Development A 30,000 6,300 36,300 144,607.65 Shenzhen Development 1,650 1,650 0.00 SFC2 CHINA SHIPPING 1,000 1,000 6,620.00 CONTAINER LINES Shenzhen Development 3,300 0.00 SFC1 PETROCHINA 2,000 33,400.00 ETERNAL ASIA 500 12,445.00 GRANDBUY, Guangzhou 500 5,840.00 CHINA RAILWAY 3,000 14,400.00 Sell-out Meida Stock 74,515 74,515 0 184,387.41 Shaoneng Stock 82,425 82,425 0 269,479.47 GREATWALL 13,937 13,937 0 102,553.71 INFORMATION Shen HuafaB 21,178 21,178 0 -16,060.50 Tellus B 26,400 26,400 0 -6,784.75 Shen Shenfang B 9,600 9,600 0 59.05 ST Sunrise B 26,400 26,400 0 -62,029.07 Shen Development SFC1 3,300 0 81,906.00 PETROCHINA 2,000 0 55,148.08 ETERNAL ASIA 500 0 15,152.38 GRANDBUY, Guangzhou 500 0 13,299.15 CHINA RAILWAY 3,000 0 17,132.59 Min Tsann Kuen B 60,128 60,128 0 62,966.85 ST Sunrise B 26,400 26,400 0 -44,207.97 China Merchants B 17,424 17,424 0 294,330.74 Shen Shenbao B 39,600 39,600 0 102,651.58 Shen Chiwan B 37,180 37,180 0 468,404.72 Shen ShenfangB 60,000 60,000 0 73,971.23 Shen Vanke B 255,879 383,818 0 7,321,058.10 Shen Gintian B 7,105 7,105 0 -37,919.24 Hua Xia Bank 4,680 4,680 0 28,548.45 S Southern Airlines 4,000 4,000 0 14,041.24 Changjiu Biochemical 2,160 2,160 0 5,940.88 50/109 Huafang Textile 1,330 1,330 0 1,374.40 Huafa Gufen 1,690 1,690 0 24,156.37 Guanhao Hi-tech 1,320 1,320 0 4,426.71 Huaguang Gufen 2,048 2,048 0 23,337.24 Sinochem International 3,966 3,966 0 41,224.60 ST Fangda 1,000 2,210 0 6,717.33 Xin Sai Gufen 1,584 1,584 0 4,019.93 China Satcom Guomai 29,700 29,700 0 83,936.12 Shanghai Petrochemical 50,000 50,000 0 31,588.96 Yangtze Power 4,669 4,669 0 38,003.55 Xidan Market 68,445 68,445 0 203,486.89 North China Pharmaceutical 100,510 100,510 0 207,013.34 Orient Group 141,570 141,570 0 1,325,269.85 Yangtze Power CWB1 700 700 0 5,105.14 Fund Hongfei 52,748 52,748 0 -277,706.84 Tong Jun Ge 25,186 38,953 0 310,446.47 Daxian Gufen 151,231 151,231 0 963,190.67 Nanjing Port 2,080 2,080 0 9,430.89 Cangzhou Chemical 80,400 80,400 0 11,046.80 Industrial Shen Changcheng 41,872 41,872 0 388,130.42 Wuhan Department Store A 166,443 166,443 0 819,419.77 BIRD Gufen 11,040 11,040 0 43,441.12 仕奇实业(Huaye Realestate) 2,300 2,300 0 24,146.97 ORIENT INTERNATIONAL 2,700 2,700 0 29,894.73 ENTERPRISE Xin Sai Gufen 1,584 1,584 0 7,952.26 GUANGJU ENERGY 4,352 4,352 0 26,573.21 麦 科 特(Yihua Real 1,800 1,800 0 9,171.30 Estate) Sichuan Chemical 1,320 1,320 0 7,651.59 INTERNATIONAL 2,936 2,936 0 14,409.12 INDUSTRY YONGAN FORESTRY 74,880 74,880 0 522,525.74 Xin CHALKIS 1,330 1,330 0 27,580.06 Foshan Plastics Gufen 2,055 2,055 0 8,287.22 KOYO Group 1,750 1,750 0 440.85 Shen Development A 83,710 92,081 0 3,399,377.05 51/109 Shen Development A 13,812 0 331,210.05 allotment of share warrant Dalian Market 87,945 87,945 0 4,292,713.73 Fangda Ａ 46,070 50,677 0 -131,647.01 *ST Petrochemical 20,000 20,000 0 -234,229.41 ST Wohuan 19,000 19,000 0 -221,992.40 Fund Yuze 300,000 300,000 0 241,543.88 Fund Puhua 100,000 240,833 0 -57,923.95 Fund Rongxin 187,500 187,500 0 -358,810.85 Su ChangchaiＡ 51,480 51,480 0 135,719.16 Weifu High-technology 158,184 158,184 0 1,328,906.24 China United 19,200 19,200 0 166,989.80 Telecommunications Hua Xia Bank 3,120 3,120 0 45,948.88 Sanyuan Gufen 1,420 1,420 0 8,122.49 Changli Gufen 3,510 3,510 0 25,312.69 SHANGHAI ELECTRIC 1,320 1,320 0 6,478.96 POWER CHUTIAN EXPRESSWAY 1,000 1,215 0 7,721.94 KAILUAN Gufen 1,530 1,530 0 55,064.68 MODERN 3,750 3,750 0 38,897.67 PHARMACEUTICAL Zhongyuan 3,924 4,591 0 20,439.41 Expressway Guoyang New Energy 1,300 1,300 0 56,215.00 XWTEC 2,340 2,340 0 18,473.30 Sanyuan Gufen 1,420 1,420 0 5,819.47 Ji En Nickel Industry 1,524 1,524 0 138,863.85 SHANGHAI AIRLINES 1,950 1,950 0 21,521.11 Longxi Gufen 1,300 1,300 0 16,570.26 BRIGHT DAIRY & FOOD 1,600 1,792 0 11,774.38 FORTUNE NG FUNG 1,430 1,430 0 6,082.87 Hangmin Gufen 1,480 1,480 0 3,401.24 III. Important purchases, sales of assets, or mergers of the Company in the report period During the reporting period, there was no significant purchase and sale of assets, or restructuring in the Company. IV. Equity incentive plan During the reporting period, the Company failed to implemented equity incentive plan. 52/109 V. Significant related transactions 1. There was no significant related transaction occurred in the Company in the reporting period. 2. Credits or debts between the Company and related parties and guarantee As to the current of credits or debts between the Company and related parties by the end of report period, please refer to “3 (3) Balance of accounts receivable from and payable to related parties” under Note XI to Financial Report. As to Guarantee, please refer to 3 (1) under Note XI to Financial Report. The aforesaid funds were used based on normal demands for production and operation, which formed in historical time. VI. Significant contract and the fulfillment (I) Significant transaction, trust, contract or lease of assets 1. During the reporting period, the Company did not hold in trust, contract or lease any significant assets from other companies, nor did it put in trust, contract or lease its significant assets to other companies. 2. Fulfillment on significant contract Huangcheng Properties Company (Part A), the subsidiary company of the Company, signed the Agreement on Releasing Agreement on Cooperatively Establishing and Developing and Operating Shenzhen Huanggang Port-of-Entry Service District and several supplementary provisions with Hong Kong Hehe Huanggang Development Co., Ltd. and Guangdong Railways Construction (the both parties hereinafter referred to as “Part B”), in which the both parties decided to release the said cooperation. The said agreement took effect after official reply with SWJMZF [2002] No. 2027 document from Bureau of Foreign Trade Economic Cooperation of Shenzhen. In accordance with the said agreement and its supplementary provisions, Huangcheng Properties Company should return the investment principal and the relevant interest amounting to RMB 433,880,000 to Hehe Company within 48 months since the agreement came into effect. Meanwhile, the payment amount, payment term, and the calculation method for interest overdue payment term were also stipulated in the said agreement. After paying by installments, Huangcheng Properties Company basically discharged the overdue arrears. By the end of reporting period, only the overdue arrears of RMB 18,022.07 failed to be discharged. Through amicable negotiations by both Part A and Part B, the both parties reached an agreement on 15 Jan. 2008, and signed the Memorandum. In accordance with the stipulation in the Memorandum, Part A shall pay RMB 5 million (after tax) to Part B on 18 Jan. 2008 for settling overdue penalty interest, while Part B shall agree that it will not recover other losses (including other penalty interest) on accounts under the Releasing Agreement overdue paid by Part A from Part A. On 18 Jan. 2008, Shenzhen Huangcheng Properties Development Company (Part A) paid the rest arrears and penalty interests totaling to RMB 5,018,022.07 (after tax) to Part B. Up to now, the Agreement on Releasing Agreement on Cooperatively Establishing and Developing and Operating Shenzhen Huanggang Port-of-Entry Service District and several supplementary provisions singed by both parties had been completed fully. The said event was disclosed by the Company through the temporary public notice published in Securities Times and 53/109 Ta Kung Pao and http://www.cninfo.com.cn on 28 Mar. 2008. (II) Significant guarantee 1. Guarantee for Gintian Company In the reporting period, the Company provided a guarantee for loan of RMB 2.6 million of Gintian Industrial (Group) Co., Ltd. (hereinafter referred to as “Gintian Company”) from China Construction Bank Shenzhen Branch. In Dec. 1998, China Construction Bank Shenzhen Branch (hereinafter referred to as “CCB”) signed a Contract on Loan with Gintian Company, which promised that Gintian Company borrowed RMB 2.6 million from CCB, and the Company undertook the joint guarantee responsibility for it. Afterward, Gintian Company did not refund such loan to CCB in line with the Contract, and the Company did not perform guarantee responsibility yet. Therefor, CCB filed lawsuit with the Court of Luohu District to appeal Gintian Company to repay the principal and relevant interests, meanwhile, the Company undertook the joint guarantee liability. In May 2001, the Court judged Gintian Company to repay the principal and interests to CCB, and the Company born the joint guarantee responsibility. The Company has withdrawn relevant loss of RMB 2.6 million over the past years. In Jun. 2004, CCB has transferred all creditor’s right and other rights of the above loan to China Cinda Assets Management Co., Ltd. Shenzhen Office. In 2006, China Cinda Assets Management Co., Ltd. Shenzhen Office has applied for resumption of execution of the Civil Judgment with (2001) SLFJEC Zi No. 441, which asked the Company to repay the loan principal of RMB 2.6 million and relevant interests, as well as litigation fees. China Cinda Assets Management Co., Ltd. Shenzhen Office gave Shangzi Industrial (Shenzhen) Co., Ltd. a free hand to handle the matter. On 6 Jul. 2007, the Company and Shangzi Industrial (Shenzhen) Co., Ltd. reached the agreement for repaying, which the Company paid compensation of RMB 2.6 million for guarantee on 15 Jul. 2007. In 2007, the Company’s accounts receivable from Gintian increased by RMB 2.6 million, and the Company withdrew reserve for impairment in full. By the end of report period, the Company has withdrawn reserve for bad debts for losses of RMB 56.6 million for loan guarantee to Gintian Company, and is actively looking for executable property from Gintian Company. 2. Guarantee with the Group A. Shenzhen Investment Holding Co., Ltd. and the subsidiary company --- Shenzhen Huangcheng Properties Development Co., Ltd. jointly provided the joint guarantee responsibility for long-term loan of RMB 150 million of the Company from China Construction Bank Shenzhen Branch. The balance as at the period-end of the said was RMB 149.45 million. B. Shenzhen Properties Engineering Development Company provided the guarantee with its plot A824-0097 of Fenghe Rili Project as mortgage for long-term loan of the Company from China Construction Bank Zhenhua Sub-branch. The line of credit of the said loan was RMB 100 million, as well as the balance as at the period-end of RMB 80 million. 54/109 C. The Company provided the guarantee for long-term loan of Shenzhen Huangcheng Properties Development Co., Ltd. from Agricultural Bank of China Dongbu Sub-branch. The line of credit of the said loan was RMB 160 million, as well as the balance as at the period-end of RMB 159,992,300. 3. Guarantee for The Company and its inferior subsidiary provided credited loan guarantee from bank for commercial residential building buyer. Ended 31 Dec. 2007, there was non-settlement guarantee amount amounting to RMB 78.77 million in total. It was a common phenomenon in industry that developer of real estate provided guarantee for commercial residential building purchased by small tenement. (III) Cash assets management the Company trusted other parties There were no events of trusteeship of cash assets management in the reporting period. VII. Commitment made by the Company or shareholders holding over 5% of shares of the Company In the reporting period, the Company received the Commitment on Strengthening Non-public Information Management from Shenzhen Investment Holding Co., Ltd. (the actual controller), in which it expressed that it would establish and perfect the internal control for non-public information of listed company that it has gained, supervise insider not to buy and sell securities of the Company with non-public information, and it would not advise other persons to buy and sell securities of the Company, and did not betray non-public information; it would offer name list of insiders timely, truly, exactly and completely, which was submitted by the Company to Shenzhen Securities Regulatory Bureau and Shenzhen Stock Exchange for recordation. Please refer to the temporary public notice published in Securities Times, Hong Kong Ta Kung Pao and http://www.cninfo.com.cn on 18 Dec. 2007 for details. In the reporting period, none of situations that actual controller or insiders of information buy and sell stocks of the Company with non-public information occurred. The Company submitted non-public information to Shenzhen Securities Regulatory Bureau as the documents for reference by month. VIII. Engagement and dismission of Certified Public Accountants In the reporting period, the Company still engaged Wuhan Zhonghuan Certified Public Accountants Ltd to do the auditing work for the year 2007. Since the first agreement signed on the auditing work, Wuhan Zhonghuan Certified Public Accountants has providing auditing service for 6 report years for the Company in succession. The annual auditing fees for 2007 totaled RMB 480,000 (including business trip expenses). IX. Punishment to the Company, its Directors, Supervisors and Senior Management and rectification in the reporting period During the Reporting Period, none of the Company, its Directors, Supervisors, Senior Management, shareholders or actual controllers was subject to investigation by competent 55/109 authorities, enforcement measures by judicial and regulatory authorities, transfer to judicial departments or prosecution for criminal liability, inspection or administrative punishment by CSRC, non-admission to securities market, or punishment by other administrative departments or public condemnation by the Shenzhen Stock Exchange as a result of being identified as an inappropriate candidate. X. In the reporting period, significant events listed in Article 67 of Securities Law and Article 17 in Detailed Rules for Implementation of Information Disclosure by Companies Publicly Issuing Stock 1. On 25 Apr. 2007, the Company published the temporary public notice with the Notification on Ending Equity Transfer of Shen Wuye with STK [2007] No. 181 from Shenzhen Investment Holding Co, Ltd. (the actual controller). Relevant public notice was published in Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn. 2. On 19 Jun. 2007, the Company published the temporary public notice with Arbitration Proposed by the Company on Transferring Equity of Shen Wuye. Relevant public notice was published in Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn. 3. On 25 Aug. 2007, the Company published the temporary public notice with the Cooperation Agreement between Bank and Enterprise signed between the Company and China Construction Bank Shenzhen Branch. Relevant public notice was published in Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn. 4. On 26 Oct. 2007, the Company held the Board meeting, passed the Proposal on Reviewing Engagement and Dismission of Deputy General Manager. The Company made disclosure by the temporary public notice on 27 Oct. 2007, which was published in Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn. 5. On 31 Oct. 2007, the Company published the temporary public notice with the Arbitration Result on Equity Transfer. Relevant public notice was published in Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn. 6. On 1 Nov. 2007, the Company published the temporary public notice with the subsidiary company of the Company wining a bid on Taxi Operation Licenses. Relevant public notice was published in Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn. 7. On 21 Dec. 2007, the company published the temporary public notice on Resolution of the Reelection of the Board of Directors and the Supervisory Committee made at the Shareholders’ General Meeting. Relevant public notice was published in Securities Times and Ta Kung Pao, as well as http://www.cninfo.com.cn. XI. Other significant event 56/109 Liu Jiake, the supervisor of the 5th Supervisory Committee, get out o line to deal with stocks of the Company, which was paid more attention from securities supervision and regulatory institutions. The Company disclosed the temporary public notice on the said issue on 26 May 2007, and took over his benefits arising from disobeying the regulation to deal with the shares of the Company. In the reporting period, Liu Jiake failed to pay his benefits, however, Liu Jiake, under the supervision of the Company, has paid RMB 28,013 (based on exchange rate of HKD to RMB on 10 Mar. 2008) to the Company on 10 Mar. 2008. XII. Interviews and visits in the reporting period 1. In the reporting period, the Company did not receive any institution investor. 2. In the reporting period, the Company received individual investors by telephone, facsimile and e-mail. The Company cannot enumerate one by one due to numerous telephones, facsimiles and e-mails from investors. The general problems paid attention by investors focused on the following aspects: (1) To know course of share merger reform, and inquire when will the Company implement the share merger reform; (2) To know progress of equity transfer and arbitration; (3) To know land reserve of the Company, pay attention that whether the production and operation is normal or not; (4) To know progress of Yu Garden project and particulars about sales of properties of Yu Garden; (5) To inquire whether International Trade Mall is under business or not, and influence on operation performance of the Company due to shutout of the Mall; (6) To suggest the Company to restructure through input assets; (7) To know judgment on case of “Guomao Jewelry” and execution; (8) To pay attention to realizable profits from “ST Changcheng Special Steel” held by the Company, and suggest the Company realized profit from the stock as soon as possible to put into main operation; (9) To inquire development plan on real estate projects. While receiving the telephone consultation, the Company abided by the requirement of Guidelines on Fair Information Disclosure of Listed Companies, strictly adhered to the principle of fair information disclosure, protected the investors’ rights to acquire the information fairly, and did not treat the investors differently or disclose the non-public information. 57/109 X. Financial Report (attached) XI. Documents for Reference 1. Accounting Statements with the signatures and seals of the Legal Representative and the Manager of the Finance Department. 2. Originals of the Auditors’ Reports with the seals of the auditing agencies, and the signatures and seals of the CPAs. 3. Texts and originals of the public notices disclosed in the certain media within the report period. Board of Directors of Shenzhen Properties & Resources Development (Group) Ltd Apr. 15, 2008 58/109 ZHONG HUAN Wuhan Office: 16/F, Wuhan International Building, Dandong RD, Wuhan China , CERTIFIED PUBLIC ACCOUNTANTS zipcoad430022 Tel(86)(27)85826771 Fax(86)(27) 85424329 Auditor's Report ZHSZ(2008)325 TO THE SHAREHOLDERS OF SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LTD.： We have audited the accompanying financial statements of Shenzhen Properties & Resources Development (Group) Ltd. (hereinafter referred to as “the Company”), which comprise the balance sheet and the consolidated balance sheet as at December 31 2007, the income statement and the consolidated income statement, the statement of change in equity and the consolidated statement of change in equity, the cash flow statement and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management's responsibility for the financial statements Preparing financial statements in compliance with Chinese Accounting Standards (2006) is the responsibility of the Company’s management. This responsibility includes (1) designing, implementing and maintaining internal controls pertaining to the preparation of these financial statements to prevent these financial statements from material misstatement arising from frauds and errors; (2) selecting and applying proper accounting policies; and (3) making reasonable accounting estimates. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with China’s Independent Auditing Standards. Those Standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The audit procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are 59/109 appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidences we have obtained are sufficient and effective, providing a reasonable basis for our opinion. Opinion In our opinion, the financial statements comply with Chinese Accounting Standards (2006), and present fairly the financial position of the Company as of December 31 2007 and the results of its operations and its cash flows for the year then ended. BDO Wuhan Zhonghuan CPAs Co., Ltd CPA CPA Wuhan, China April 14, 2008 60/109 NOTES TO THE FINANCIAL STATEMENTS As of December 31, 2007 Note I Corporate information Shenzhen Properties & Resources Development (Group) Ltd. (herein after referred to as “the Company”) was incorporated based on the reconstruction of Shenzhen Properties & Resources Development Co., Ltd. after obtaining approval of ZFBF [1991] No. 831from People’s Government of Shenzhen Municipality. The registration number of Business License for Enterprises as Legal Person is ZQFZ No. 00166. 1、 Registered capital of the Company The registered capital of the Company is RMB541,799,175 after bonus issue of shares on the basis of one share for every existing 10 shares based on existing paid-in capital of the Company in 1996. 2、 Registered office, organization form and headquarter address of the Company Registered office: Shenzhen Municipal, Guangdong Province, PRC Organization form: joint-stock company with limited liability Headquarter address: 39th and 42nd Floor, International Trade Center, Renmin South Road, Shenzhen. 3、 Nature of the business and main business scope of the Company The business scope of the Company and its subsidiaries includes development and sale of property, construction and management of buildings, lease of properties, supervision of construction, domestic trading and materials supply and marketing (excluding exclusive dealing and monopoly sold products and commodities under special control to purchase) 4、 About the controlling shareholder of the Company and the Group At the end of report period, the controlling shareholder of the Company is still Shenzhen Construction Investment Holdings in register book. In 2004, People’s Government of Shenzhen Municipality incorporated Shenzhen Construction Investment Holdings with the other two municipal asset management companies, namely Shenzhen Investment Holding Corporation and Shenzhen Trade and Business Corporation, and established Shenzhen Investment Holdings Corporation. Thus, the Company’s actual controlling shareholder is Shenzhen Investment Holdings Corporation, a sole state-funded limited company, who was established in Oct. 13, 2004; its legal representative is Mr. Chen Hongbo and the registered capital is RMB 4 billion. Its main business scope is providing guarantee to municipal state-owned enterprises, management of state-owned equity, assets 15/109 reorganization, reformation, capital operation, and equity investment of enterprises and etc. As a government department, Shenzhen State-owned Assets Supervision and Administration Commission manage Shenzhen Investment Holdings Corporation on behalf of People’s Government of Shenzhen Municipality. Thus, the final controller of the Company is Shenzhen State-owned Assets Supervision and Administration Commission. 5、 Authorization and date of issuing the financial statements The financial statements were approved and authorised for issue by the second session of the 6th conference of the Company’s board of directors on 14 April 2008. Note II Basis of preparation of the financial statements The company recognizes and measures transactions occurred according to Chinese Accounting Standards (2006) – Basic standard and other related accounting standards, prepares the financial statements based on accrual accounting and the underlying assumption of going concern. According to the provisions in Document No.10 [2007], CSRC Accounting “Circular on Issuing the No.7 Questions and Responses of Information Disclosure Standards of Public Companies -- Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standards”, Article No. 5 to No. 19 of “Chinese Accounting Standards (2006) No. 38 -- First time adoption of Chinese Accounting Standards (2006) ” and the related documents promulgated by Ministry of Finance after new Chinese Accounting Standards (2006) are adopted, the Company retrospectively restates comparative figures of balance sheet, income statement and cash flow statement and discloses those comparative figures in the financial statements. Note III The financial statements in accordance with Chinese Accounting Standards (2006) reflect truly and completely the financial position, the results of operations and cash flows of the Company. Note IV Significant accounting policies and accounting estimates of the Company 1. Fiscal year 16/109 The Company adopts the Gregorian calendar for its accounting period, starting on January 1 and ending on December 31 of the year. 2. Functional currency The financial statements are presented in Renminbi Yuan, which is the Company’s functional currency. 3. Basis and principle of accounting policy The measurement basis used in the preparation of the financial statements is the historical cost basis, except for accounting elements measured using replacement cost, net realisable value, present value or fair value, which are measured on the basis that those accounting elements can be reliably measured. 4. Cash equivalent Cash equivalent is defined as the short-term, highly liquid investment that is readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. 5. Foreign currency translation The Company accounts for foreign currency transactions using the exchange rate which is determined in a systematic and reasonable way and is approximate to the spot exchange rate ruling at the transaction date (opening exchange rate). (1) Foreign exchange difference On balance sheet date, the Company accounts for monetary and non-monetary items denominated in foreign currencies as follows: a) monetary items denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Foreign exchange gains and losses arising from the difference between the balance sheet date exchange rate and the exchange rate ruling at the time of initial recognition or the exchange rate ruling at the last balance sheet date are recognised in income statement; b) Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary items denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined, the difference between the amount of functional 17/109 currency after translation and the original amount of functional currency is treated as part of change in fair value and recognised in income statement. During the capitalization period, exchange differences arising from foreign currency borrowings are capitalized as part of the cost of the capitalized assets. (2) Translation of foreign currency financial statements The Company translates the financial statements of its foreign operation in accordance with the following provisions: a) the asset and liability items in the balance sheets shall be translated at a spot exchange rate ruling at the balance sheet date. Among the owner's equity items, except the ones as "retained earnings", others shall be translated at the spot exchange rate ruling at the time when they occurred; b) The income and expense items in the income statements shall be translated at a spot exchange rate which is determined in a systematic and reasonable way and is approximate to the spot exchange rate ruling at the transaction date. The foreign exchange difference arisen from the translation of foreign currency financial statements shall be presented separately under the owner's equity in the balance sheet. The translation of comparative financial statements shall be subject to the aforesaid provisions. 6. Recognition and measurement of financial instruments (1) Recognition of financial instruments When the Company becomes a party to a financial instrument contract, it shall recognize a financial asset or financial liability. (2) Classification and measurement of financial assets 1) The Company classifies the financial assets hold into the following four categories: a) the financial assets at fair value through profit or loss; b) investment held to maturity; c) loans and receivables and d) available-for-sale financial assets. 2) Upon initial recognition, financial assets are measured at fair value. For the financial assets at fair value through profit or loss, the transaction expenses thereof shall be directly recognized in profit or loss; for other categories of financial assets, the transaction expenses thereof shall be included in the initially recognized amount. 18/109 3) Subsequent Measurement of Financial Assets A. Financial assets at fair value through profit or loss, including trading financial assets and the financial asset that upon initial recognition are designated by the Company as at fair value through profit or loss, are measured at fair value after initial recognition. Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss, including held for trading financial assets are recognized in profit or loss during current period. B. Held to maturity investment are measured at amortised cost using the effective interest method after initial recognition, gains or losses arising from derecognition, impairment and amortisation are recognized in profit or loss during current period. C. Loans and receivables are measured at amortised cost using the effective interest method after initial recognition, gains or losses arising from derecognition, impairment and amortisation are recognized in profit or loss during current period. D. Available-for-sale financial assets are measured at fair value after initial recognition. A gain or loss on an available-for-sale financial asset shall be recognised directly in Capital surplus until the financial asset is impaired or derecognized, at which time the cumulative gain or loss previously recognised in equity shall be recognised in profit or loss. However, interest calculated using the effective interest method is recognised in profit or loss. Dividends on an available-for-sale equity instrument are recognised in profit or loss when the entity's right to receive payment is established. 4) Impairment of financial assets A. The Company assesses the carrying amount of the financial assets except the financial asset at fair value through profit or loss at each balance sheet date, if there is any objective evidence that a financial asset or group of financial assets is impaired, the Company shall recognize impairment loss. B. Objective evidence that a financial asset or group of assets is impaired includes the following event: a) significant financial difficulty of the issuer or obligor; b) a breach of contract, such as a default or delinquency in interest or principal payments; c) the lender, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; 19/109 d) it becoming probable that the borrower will enter bankruptcy or other financial reorganization; e) the disappearance of an active market for that financial asset because of financial difficulties of issuer; f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including: (i) adverse changes in the payment status of borrowers in the group or (ii) an increase in the unemployment rate in the geographical area of the borrowers, a decrease in property prices for mortgages in the relevant area, or adverse changes in industry conditions that affect the borrowers. g) significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the borrower operates, and indicates that the cost of the investment in the equity instrument may not be recovered; h) a significant or non-temporary decrease in fair value of equity instrument investment; i) Other objective evidences showing the impairment of the financial assets. C. Measurement of impairment loss of financial assets a) investment held to maturity and loans and receivables If there is objective evidence that an impairment loss on loans and receivables or investment held to maturity carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the financial asset's carrying amount and the present value of estimated future cash flows. The amount of the loss shall be recognised in profit or loss. The Company assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. For financial assets that are not individually significant, they shall be individually assessed or be included in a group of financial assets with similar credit risk characteristics for impairment assessment. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. The Company assesses receivables for impairment and provides bad debt provisions at the balance 20/109 sheet date. The Company assesses whether objective evidence of impairment exists individually for receivables that are individually significant, or for receivables that are not individually significant. If there is objective evidence showing that the receivable is impaired, an impairment loss measured as the difference between the financial asset's carrying amount and the present value of estimated future cash flows shall be recognized and a bad debt provision shall be provided. If, in a subsequent period, the amount of the impairment loss of financial assets carried at amortised cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss shall be reversed. The amount of the reversal shall be recognised in profit or loss. b) available-for-sale financial assets When a non-temporary decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity shall be removed from equity and recognised in profit or loss even though the financial asset has not been derecognized. Where an available-for-sale equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or a derivative financial asset which is connected with the equity instrument and which must be settled by delivering the equity instrument, suffers from any impairment, the difference between the carrying amount of the equity instrument investment or the derivative financial asset and the present value of estimated future cash flow discounted at the current market rate of return for a similar financial asset shall be recognized as impairment loss, with the amount of the impairment loss recognised in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale shall not be reversed through profit or loss. However, impairment loss of an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or impairment loss of a derivative financial asset which is connected with the said equity instrument and which shall be settled by delivering the said equity instrument, cannot 21/109 be reversed. (3) Classification and measure of financial liabilities 1) The Company classifies financial liabilities hold as financial liabilities at fair value through profit or loss and other financial liabilities. 2) Upon initial recognition, financial liabilities are measured at fair value. For the financial liabilities at fair value through profit or loss, the transaction expenses thereof shall be directly recognized in profit or loss; for other financial liabilities, the transaction expenses thereof shall be included in the initially recognized amount. 3) Subsequent measurement of financial liabilities A. Financial liabilities at fair value through profit or loss, including held for trading financial liabilities and the financial liabilities that upon initial recognition are designated by the Company as at fair value through profit or loss, are measured at fair value after initial recognition. Gains or losses arising from changes in the fair value of financial liabilities are recognized in profit or loss. B. Other financial liabilities are measured at amortised cost using the effective interest method after initial recognition. (4) Fair Value Measurement Considerations 1) Where an active market for a financial instrument exists, the published price quotation in the active market is the fair value of said financial instrument. 2) Where an active market for a financial instrument does not exist, the Company establishes fair value by using a valuation technique. 7. Recognition and measurement of financial assets transfer (1) The Company derecognizes financial assets when the Company transfers substantially all the risks and rewards of ownership of the financial assets. If the transfer of a financial asset in its entirety qualifies for derecognition, the follows is recognized in profit or loss during the current period: 1) the carrying amount of the financial asset transferred and 22/109 2) the sum of (a) the consideration received and (b) any cumulative gain or loss that had been recognised directly in owner’s equity (in the event that the financial asset involved in the transfer is available for sale financial asset). If the transferred asset is part of a larger financial asset and the part transferred qualifies for derecognition in its entirety, the previous carrying amount of the larger financial asset shall be allocated between the part that continues to be recognised and the part that is derecognized, based on the relative fair values of those parts on the date of the transfer. the follows is recognized in profit or loss during the current period: (a) the carrying amount allocated to the part derecognized and (b) the sum of (i) the consideration received for the part derecognized and (ii) any cumulative gain or loss allocated to it that had been recognised directly in equity (in the event that the financial asset involved in the transfer is available for sale financial asset). A cumulative gain or loss that had been recognised in equity is allocated between the part that continues to be recognised and the part that is derecognized, based on the relative fair values of those parts. (2) If a transfer does not qualify for derecognition, the Company shall continue to recognize the transferred asset in its entirety and shall recognize a financial liability for the consideration received. When the Company continues to recognize a financial asset to the extent of its continuing involvement, the entity also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. 8. Classification and measurement of inventories (1) Inventories of the Company include raw materials, finished goods, low-value consumption goods, land use right held for property development, properties under development, completed properties for sale, properties for rent and owner-occupied properties. (2) Recognition of inventories: The Company recognizes inventories when the following conditions are satisfied: 1) it is probable that future economic benefits associated with the inventories will flow to the 23/109 Company entity; and 2) the cost of the inventories can be measured reliably. (3) Measurement of inventories: property inventories are measured at actual cost incurred, comprising the borrowing cost designated for property development before completion of developing properties. Completed saleable property inventories are measured using specific identification method. Other kinds of inventories are measured at actual cost incurred, in determining the cost of inventories transferred out or issued for use, the costs are determined by weighted average cost method. (4) The Company adopts equal-split amortization method for low-value consumption goods. (5) Inventories shall be measured at the lower of cost and net realisable value at the balance sheet date. Where the net realizable value is lower than the cost, the difference shall be recognized as provision for impairment of inventories and charged to profit or loss. 1) Estimation of net realizable value Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made, of the amount the inventories are expected to realize. These estimates take into consideration the purpose for which the inventory is held and the influence of post balance sheet events. Materials and other supplies held for use in the production are measured at cost if the net realizable value of the finished goods in which they will be incorporated is higher than their cost. However, when a decline in the price of materials indicates that the cost of the finished products will exceed their net realisable value, the materials are measured at net realisable value. The net realisable value of inventories held to satisfy sales or service contracts is generally based on the contract price. If the quantity specified in sales contracts is less than the inventory quantities held by the Company, the net realisable value of the excess shall be based on general selling prices. 2) Provision for impairment of inventories shall be determined on an item-by-item basis. For large quantity and low value items of inventories, provision may be made based on classes of inventories. (6) The Company adopts perpetual inventory system for its inventory taking. 9. Long-term equity investment 24/109 (1) Initial measurement The Company initially measures long-term equity investments under two conditions: 1) For long-term equity investment arising from business combination under the common control, the cost is recognised under the following principles. A. If the business combination is under the common control and the acquirer obtains long-term equity investment in the consideration of cash, non-monetary asset exchange and bearing acquiree’s liabilities, the initial cost is the proportion of the acquiree’s net asset at the acquisition date. The difference between the consideration and the cost should be adjusted by capital reserve. If the capital reserve is not sufficient for adjustment, retained earning is adjusted respectively. The Company recognizes the business combination costs directly attributable to the combination, such as professional fees paid to accountants, legal advisers, valuers and so on in profit or loss of the current period when it occurred. If the acquirer issuing equity shares as consideration, the initial cost is the proportion of carrying amount of the acquiree’s net asset at the acquisition date. Amount of share capital equal to the par value of the issued shares. The difference between consideration and par value of issued shares is adjusted to capital reserve. If the capital reserve is not sufficient for adjustment, retained earning is adjusted respectively. The costs occurred in business combination such as charges of security issuing, commissions are deducted from premium of equity instruments. If the premium is not sufficient for adjustment, retained earning is adjusted respectively. B. If the business combination is not under the common control, the acquirer recognizes the initial cost of combination under the following principles. a) When business combination is achieved through a single exchange transaction, the cost of a business combination is the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree; b) For the business combination involved more than one exchange transaction, the cost of the combination is the aggregate cost of the individual transactions; c) The costs directly attributed to business combination are included in the cost of combination; d) When a business combination agreement provides for an adjustment to the cost of the 25/109 combination contingent on future events, the Company includes the amount of that adjustment in the cost of the combination at the acquisition date if the adjustment is probable and can be measured reliably. 2) For the long-term investment obtained in any method other than business combination, the initial cost is recognised as below. A. If the long-term equity investment is obtained in cash consideration, the initial cost is the actual purchase payment which includes directly related expenses, tax and other necessary expense. B. If the long-term investment is obtained by issuing equity instruments, the initial cost is the fair value of the issued equity shares. However, cash dividends declared but unpaid or profits are not included in the cost. Direct costs attributed to issue equity instrument such as handling charges and commissions are deducted from premium of equity instruments. If the premium is not sufficient for adjustment, reserved fund and retained earnings is adjusted respectively. C. For the long-term investment invested by investors, the initial cost is the agreed value of the investment agreement or contract unless the agreed value is not fair. D. For the long-term investment obtained by non-monetary asset exchange, the initial cost is recognised according to “Chinese Accounting Standards (2006) No. 7: Non-monetary asset exchange”. E. For the long-term investment obtained by restructuring, the initial cost is recognised according to “Chinese Accounting Standards (2006) No. 12: Debt restructuring”. 3) For the price paid including cash dividends or profits declared but unpaid, it is recognised as receivables separately rather than as initial cost of long-term equity instruments no matter which method it is obtained. (2) Subsequent measurement The Company adopts either cost method or equity method for the long-term equity investment according to the extent of influence, existence of active market and availability of fair value. The equity method is used when the Company has joint control or significant influence over the investee enterprise. The cost method is used when the Company has the control or does not have joint control or 26/109 significant influence over the investee enterprise and there is no quote price in active market or there is no reliable fair value. 1) For the long-term investment under cost method, declared cash dividends or profits are recognised as investment income for the current period when it incurred. The amount of investment income recognised by the Company is limited to the amount distributed out of the accumulated net profits of the investee enterprise that arose after the investment was made. The amount of profits or declared cash dividends by the investee enterprise in excess of the above threshold is treated as return of investment cost. 2) For long-term equity investment under equity method, the Company adjusts carrying amount of the long-term equity investment and recognizes investment income according to the proportion of net profit or loss after acquisition. The Company reduces carrying amount of the long-term investment regarding to declared cash dividend or profit distribution. For long-term equity investment under equity method, the Company recognizes net losses incurred by the investee enterprise to the extent that the carrying amount and the substantial net investment of the long-term equity investment is reduced to zero except there is further obligation of the excess losses. If the investee enterprise realizes net profits in subsequent periods, the Company increase the carrying amount of the investment above zero at the amount at which its share of profits exceeds its share of previously unrecognized losses. 3) The Company adopts the same manner of financial instrument for the impairment of long-term equity investment which is measured under cost method and there is no quote price in active market or there is no reliable fair value. Impairment of long-term equity investments other than above refers to accounting policy “Impairment of assets” of the Company. 4) On disposal of an equity investment, the difference between the carrying amount of the investment and the sale proceeds actually received is recognised as an investment gain or loss for the current period. When the equity method is adopted, change in equity other than profit or loss is recorded in equity. On disposal of the equity investment, amount of change which is recorded in equity previously is transferred to profit or loss for the current period regarding to the proportion of disposal. 27/109 10. Recognition and measurement of investment properties (1) Investment properties of the Company are properties held to earn rentals or for capital appreciation or both, mainly comprising: 1) land use right which has already been rented; 2) land use right which is held for transfer out after appreciation; and 3) property which has already been rented. (2) Investment property shall be recognised as an asset when the following conditions are satisfied: 1) it is probable that the future economic benefits that are associated with the investment property will flow to the Company; and 2) the cost of the investment property can be measured reliably. (3) Initial measurement An investment property is measured initially at its cost. 1) The cost of a purchased investment property comprises its purchase price, related tax expenses and any directly attributable expenditure. 2) The cost of a self-constructed investment property comprises all necessary construction expenditures incurred before the property is ready for its intended use. 3) The cost of a property acquired by other means shall be recognized according to relevant accounting standards. (4) Subsequent measurement After initial recognition, the Company adopts the cost model to measure its investment properties. The Company amortizes or depreciates its investment properties measured using cost model in the same way as fixed assets and intangible assets. The Company values the investment property measured using cost model at the lower of its cost and its recoverable amount at the end of the period. Where the cost exceeds the recoverable amount, the difference shall be recognized as impairment loss. Once a provision for impairment loss is made, it cannot be reversed. 11. Recognition and measurement of fixed assets Fixed assets are assets that: 1) are held for use in the production or supply of goods or services, for 28/109 rental to others, or for administrative purposes; and 2) have useful life more than one year. (1) A fixed asset shall be initially recognized at cost when the following condition are satisfied: 1) it is probable that future economic benefits associated with the assets will flow to the Company; and 2) the cost of the assets can be measured reliably. (2) Depreciation Subsequent expenditure relating to a fixed asset shall be added to the carrying amount of the asset when the expenditure qualifies for capitalization. Subsequent expenditure that does not qualify for capitalization shall be recognized as an expense for the current period. The depreciation method adopted by the Company is straight-line method. The estimated useful lives, residual value and annual depreciation rate of fixed assets are shown as follows: Estimated Useful Residual value Annual Depreciation The categories Lives (years) (%) Rate (%) Property and buildings 20-25 5-10 3.8-4.5 Machineries 10 5 9.5 Vehicles 5 5 19 Electronic and other equipments 5 5 19 Decoration 5 20 The Company reviews the useful life, estimated residual value and depreciation method of a fixed asset at the end of each financial year. If expectations are significantly different from previous estimates, the useful life shall be revised accordingly. If expectations are significantly different from previous estimates, the estimated residual value also shall be revised accordingly. If there has been a significant change in the expected realization pattern of economic benefits from those assets, the depreciation method shall be changed accordingly. The changes in useful life, estimated residual value and depreciation method shall be treated as change in accounting estimates. (3) Fixed assets acquired under finance lease The Company identifies a lease of asset as finance lease when substantially all the risks and rewards incidental to legal ownership of the asset are transferred. A fixed asset acquired under finance lease shall be valued at the lower of the fair value of the leased 29/109 asset and the present value of the minimum lease payments at the inception of lease. The depreciation method of fixed assets acquired under finance lease is consistent with that for depreciable assets owned by the Company. If the Company can reasonably confirm that it will obtain the ownership of leased asset at the end of lease term, the leased asset shall be depreciated during the useful life of the leased asset. If the Company cannot reasonably confirm that it will obtain the ownership of leased asset at the end of lease term, the leased asset shall be depreciated during shorter of the useful life of the leased asset and the lease term. (4) Impairment of fixed asset refers to accounting policy “Impairment of assets” of the Company. 12. Recognition and measurement of intangible assets Intangible assets are identifiable non-monetary asset that are owned or controlled by the Company and are without physical substance. (1) Recognition of intangible assets The Company recognizes an intangible asset when that intangible asset fulfills both of the following conditions: 1) it is probable that the economic benefits associated with that asset will flow to the Company; and 2) the cost of that asset can be measured reliably. Expenditures incurred during the research phase of an internal project shall be recognised as expenses in the period in which they are incurred. Expenditures incurred during the development phase of an internal project shall be recognized as an intangible asset if, and only if, the Company can demonstrate all of the following: 1) the technical feasibility of completing the intangible asset so that it will be available for use or sale; 2) its intention to complete the intangible asset and use or sell it; 3) the method that the intangible asset will generate probable future economic benefits. Among other things, the Company 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; 4) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and 5) its ability to measure reliably the expenditure attributable to the intangible asset during its 30/109 development (2) Measurement of intangible assets 1) An intangible asset is measured initially at its cost. 2) Subsequent measurement of intangible assets A. For an intangible asset with finite useful life, the Company estimates its useful life at the time of acquisition and amortizes it during its useful life in a reasonable and systematic way. The amount of amortization is allocated to relevant costs and expenses according to the nature of beneficial items. The Company does not amortize intangible asset with infinite useful life. B. Impairment of intangible assets refers to accounting policy “Impairment of assets” of the Company. 13. Impairment of assets In assessing whether there is any indication that an asset may be impaired, the Company shall consider, as a minimum, the following indications: (1) during the period, an asset's market value has declined significantly more than it would be expected as a result of the passage of time or normal use; (2) significant changes with an adverse effect on the Company have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the Company operates or in the market to which an asset is dedicated; (3) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset's value in use and decrease the asset's recoverable amount materially; (4) evidence is available of obsolescence or physical damage of an asset; (5) the asset becomes idle, or the Company plans to discontinue or to dispose of an asset before the previously expected date; (6) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected, for example, the net cash flow generated from assets or the operating profit (or loss) realized by assets is lower (higher) than the excepted amount, etc.; and (7) Other evidence indicates that assets may be impaired. The Company assesses long-term equity investment, fixed assets, construction materials, constructions 31/109 in progress and intangible assets (except for those with uncertain useful life) that apply Chinese Accounting Standard (2006) No. 8 - Impairment of assets at the balance sheet date. If there is any indication that an asset may be impaired, the Company shall assess the asset for impairment and estimate the recoverable amount of the impaired asset. Recoverable amount is measured as the higher of an asset's fair value less costs to sell and the present value of estimated future cash flows from continuing use of the asset. If carrying amount of an asset is higher than its recoverable amount, the carrying amount of this asset shall be written down to its recoverable amount with the difference recognized as impairment loss and charged to profit or loss accordingly. Simultaneously a provision for impairment loss shall be made. There is any indication that an asset may be impaired, the Company usually estimates its recoverable amount on an individual item basis. However if it’s not possible to estimate recoverable amount of the individual asset, the Company shall determine the recoverable amount of the cash-generating unit to which the asset belongs. An asset's cash-generating unit is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Identification of cash-generating unit is based on whether the cash inflows generated by the cash-generating unit are largely independent of the cash inflows from other assets or groups of assets. The Company assesses goodwill acquired in a business combination and intangible assets with uncertain useful life for impairment each year no matter whether indication that an asset may be impaired exists or not. Impairment assessment of goodwill is carried together with the impairment assessment of related cash-generating unit or group of cash-generating units. Once impairment loss is recognized, it cannot be reversed in subsequent financial period. 14. Recognition and measurement of borrowing cost (1) Capitalization and capitalization period of borrowing costs The costs of borrowings designated for acquisition or construction of qualifying assets shall be capitalized as part of the cost of the assets. Capitalization of borrowing costs shall start when a) the capital expenditures have incurred, b) the borrowing costs have incurred and c) the acquisition and construction activities that are necessary to bring the asset to its expected usable condition have commenced. Other borrowing costs that do not qualify for capitalization shall be expensed off during 32/109 current period. Capitalization of borrowing costs shall be suspended during periods in which the acquisition or construction is interrupted abnormally, and the interruption period is three months or longer. These borrowing costs shall be recognized directly in profit or loss during the current period. However, capitalization of borrowing costs during the suspended periods shall continue when the interruption is a necessary part of the process of bringing the asset to working condition for its intended use. Capitalization of borrowing costs ceases when the qualifying asset being acquired or constructed is substantially ready for its intended use. Subsequent borrowing costs shall be expensed off during the period in which they are incurred. (2) Calculation method of capitalization for borrowing costs To the extent that funds are borrowed specifically for the purpose of acquiring or constructing a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset is determined as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of the borrowing. To the extent that funds are borrowed generally and used for the purpose of acquiring or constructing a qualifying asset, the amount of borrowing costs eligible for capitalization shall be determined by applying a capitalization rate to the weighted average of excess of accumulated expenditures on qualifying asset over that on specific purpose borrowing. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of acquiring or constructing a qualifying asset. 15. Share-based payment Recognition and measurement of share-based payment are based on true, complete and valid share-based payment agreement. Share-based payment transaction comprises equity-settled share-based payment transactions and cash-settled share-based payment transactions. (1) equity-settled share-based payment transactions Equity-settled share-based payment transactions in which the Company receives employee’s services as consideration for equity instruments of the Company are measured as fair value of the equity instrument granted to the employees. As to an equity-settled share-based payment in return for services 33/109 of employees, if the right may be exercised immediately after the grant, the fair value of the equity instruments shall, on the date of the grant, be included in the relevant cost or expense and the capital surplus shall be increased accordingly. As to a equity-settled share-based payment in return for employee services, if the right cannot be exercised until the vesting period comes to an end or until the prescribed performance conditions are met, then on each balance sheet date within the vesting period, the services obtained during the current period shall, based on the best estimate of the number of vested equity instruments, be included in the relevant costs or expenses and capital surplus at the fair value of the equity instruments on the date of the grant. (2) cash-settled share-based payment transactions Cash-settled share-based payment is measured in accordance with the fair value of liability undertaken by the Company that is calculated based on the shares or other equity instruments. As to a cash-settled share-based payment, if the right may be exercised immediately after the grant, the fair value of the liability undertaken by the Company, on the date of the grant, is included in the relevant costs or expenses, and the liabilities shall be increased accordingly. As to a cash-settled share-based payment, if the right may not be exercised until the vesting period comes to an end or until the specified performance conditions are met, on each balance sheet date within the vesting period, the services obtained during the current period shall, based on the best estimate of the information about the exercisable right, be included in the relevant costs or expenses and the corresponding liabilities at the fair value of the liability undertaken by the enterprise. 16. Revenue recognition (1) Revenue from the sale of goods is recognized when all of the following conditions have been satisfied: 1) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods; 2) The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; 3) The economic benefits associated with the transaction will flow to the Company; and 4) The relevant amount of revenue and costs can be measured reliably. (2) Revenue from the sale of properties is recognized upon a) final acceptance of the construction of 34/109 property is completed and the property is transferred to buyer, b) buyer receives and accepts the settlement billing and c) the Company receives all considerations of sale of property (down payment and mortgage received from bank for property purchasing by installments) and the conditions for obtaining certificate of title to house property are satisfied. (3) Revenue from leasing of property is recognized when a) the economic benefits associated with leasing of property will flow to the Company and b) the amount of revenue can be measured reliably. (4) Revenue from rendering of services (excluding long-term contract) is by reference to the percentage of completion of the service at closing date when the outcome of transaction can be reliably estimated. The outcome of transaction can be reliably estimated when a) the total revenue and cost can be reliably measured, b) the percentage of completion can be determined reliably and c) the economic benefit pertaining to the service will flow to the Company. If the outcome of transaction cannot be reliably estimated, the Company shall recognize revenue to the extent of costs incurred that are expected to be recoverable and charge an equivalent amount of cost to profit or loss. (5) Revenue arising from the Company’s assets used by others is recognised when (a) it is probable that the economic benefits associated with the transaction will flow to the Company and (b) the amount of the revenue can be measured reliably. Interest revenue should be measured based on the length of time for which the Company's cash is used by others and the applicable interest rate. Royalty revenue should be measured in accordance with the period and method of charging as stipulated in the relevant contract or agreement. (6) Recognition of construction contract revenue 1) When the outcome of a construction contract can be reliably estimated, construction contract revenue is recognized by reference to the percentage of completion of the contract activity at closing date. The outcome of a construction contract can be reliably estimated when a) total contract revenue and contract costs incurred can be measured reliably, b) both the contract costs to complete the contract and the percentage of completion can be measured reliably and c) it is probable that the economic benefits associated with the contract will flow to the Company. The percentage of completion of a contract is determined as the proportion that actual contract costs incurred to date bears to the estimated total contract costs. 2) When the outcome of a construction contract cannot be estimated reliably, contract revenue should be recognised to the extent of contract costs that can be recovered and contract costs should be 35/109 recognized as expense in the period in which they are incurred. 3) If total estimated contract costs will exceed total contract revenue, the estimated loss should be recognised immediately as an expense during the current period. 17. Income tax The Company adopts the balance sheet liability method for income tax expenses. (1) Deferred tax asset 1) Where there are deductible temporary differences between the carrying amount of assets or liabilities in the balance sheet and their tax bases, a deferred tax asset shall be recognised for all those deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax assets should be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. 2) At the balance sheet date, where there is strong evidence showing that sufficient taxable profit will be available against which the deductible temporary difference can be utilized, the deferred tax asset unrecognized in prior period shall be recognized. 3) The Company assesses the carrying amount of deferred tax asset at the balance sheet date. If it’s probable that sufficient taxable profit will not be available against which the deductible temporary difference can be utilized, the Company shall write down the carrying amount of deferred tax asset, or reverse the amount written down later when it’s probable that sufficient taxable profit will be available. (2) Deferred tax liability A deferred tax liability shall be recognized for all taxable temporary differences, which are differences between the carrying amount of an asset or liability in the balance sheet and its tax base, and measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. 18. Basis of consolidation (1) Scope of consolidation The scope of consolidated financial statements of the Company is identified based on the concept of 36/109 control. When the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of investee company, the investee company is regarding as subsidiary and included consolidated financial statements. If the parent owns half or less of the voting power of an entity when there is any following condition incurred, the investee company is regarding as subsidiary and included consolidated financial statements. 1) power over more than half of the voting rights by virtue of an agreement with other investors; 2) power to govern the financial and operating policies of the entity under a statute or an agreement; 3) power to appoint or remove the majority of the members of the board of directors or equivalent governing body; 4) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body. If there is evidence suggesting that no control of Investee Company exists, the investee company does not be included in the consolidated financial statements. (2) Principle of consolidation The consolidated financial statements are based on the financial statements of individual subsidiaries which are included in the consolidation scope and prepared after adjustment of long-term equity investment under equity method and elimination effect of intragroup transaction. (3) Minority interests Minority interest in the consolidated balance sheet is that portion of the net asset of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent. Minority interest in the consolidated income statement is that portion of the profit or loss of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent. (4) Excess losses The amount which losses of subsidiaries during the period exceeds the proportion of minority’s obligation is offset minority interest as agreed in the subsidiaries’ association or agreement and minorities have ability to bear the excess losses. Otherwise, the excess losses are offset equity of the parent company. Profits made afterward by subsidiaries are attributable to equity of the parent company before recovery of excess losses. 37/109 (5) Increase or decrease of the subsidiaries For any subsidiary acquired by the Company through business combination under the common control, when the consolidated balance sheet for the current period are being prepared, the amount at the beginning of the period in the consolidated balance sheet is made corresponding modification. For addition business combination not under common control during the reporting period, the Company makes no adjustment for the amount at the beginning of the period in the consolidated balance sheet. When disposing subsidiary during the reporting period, the Company makes no adjustment for the amount at the beginning of the period in the consolidated balance sheet. For any subsidiary acquired by the Company through business combination under the common control, when the consolidated income statement for the current period are being prepared, revenue, expense and profit for the period from the beginning of the consolidated period to the year end of the reporting period are included in the consolidated income statement. For addition business combination not under common control during the reporting period, revenue, expense and profit for the period from acquisition date to the year end of the reporting period is included in the consolidated income statement. When disposing subsidiary during the reporting period, revenue, expense and profit for the period from the beginning to the disposal date are included in the consolidated income statement. For any subsidiary acquired by the Company through business combination under the common control, when the consolidated cash flow statement for the current period are being prepared, cash flow for the period from the beginning of the consolidated period to the year end of the reporting period is included in the consolidated cash flow statement. For addition business combination not under common control during the reporting period, cashflow for the period from acquisition date to the year end of the reporting period is included in the consolidated cashflow statement. When disposing subsidiary during the reporting period, cash flow for the period from the beginning to the disposal date is included in the consolidated cashflow statement. 19. Content and significant change of the annuity plan of the Company The Company hands in its annuity to Shenzhen Security Insurance Bureau Pension Management Center. The Company will reach an agreement with Ping An Insurance (Group) Company of China, Ltd. in 2008 and engage it to manage annuity fund for the Company. This intended agreement has been authorized by Congress of Workers and Staff. 38/109 Note V Changes in accounting policies and estimates, and correction of errors 1. Changes in accounting policies It is the first time for the Company to adopt the new accounting standards system during current financial reporting period, the Company has retrospectively restates comparative figures of balance sheet, income statement and cash flow statement and discloses those comparative figures in the financial statements according to “Chinese Accounting Standards (2006) No. 38 -- First time adoption of Chinese Accounting Standards (2006) ”, Document No.10 [2007], CSRC Accounting “Circular on Issuing the No.7 Questions and Responses of Information Disclosure Standards of Public Companies -- Compilation and Disclosure of the Comparative Financial Accounting Information during the Transition Period between the New and Old Accounting Standards”, CaiKuai [2007] No. 14 “Interpretation No.1 to the Chinese Accounting Standards (2006) ” and “Suggestion from Accountant Expert Team on Implementation of Chinese Accounting Standards (2006) ”. The retrospectively restated items are as follows: (1) Trading financial asset According to “Chinese Accounting Standard (2006) No. 22 - Recognition and measurement of financial instruments”, the Company measures its trading financial assets at fair value instead of at lower of cost and market price in 2007. Retrospective restatement method has been adopted for this change in accounting policy; comparative figures in the financial statements for the financial year 2007 have been restated. The accumulative effect of the change in accounting policy on financial statements after retrospective restatement using new accounting standards is RMB5,923,150.98. As a result of retrospective restatement, the opening retained earning of the financial year 2006 is not changed; net profit attributable to equity holders of the parent company for the financial year 2006 is increased by RMB5,923,150.98; the opening retained earning of the financial year 2007 is increased by RMB5,923,150.98, including an increase amounting to RMB5,923,150.98 in retained earnings. As a result of the change in accounting policy, net profit for the financial year 2007 is decreased by RMB6,302,833.24, including a decrease amounting to RMB6,302,833.24 in net profit attributable to equity holders of the parent company. (2) Deferred tax asset and liability According to “Chinese Accounting Standard (2006) No. 18 – Income Tax”, the Company adopts 39/109 balance sheet liability method instead of tax payable method for income tax expense. Retrospective restatement method has been adopted for this change in accounting policy; comparative figures in the financial statements for the financial year 2007 have been restated. The accumulative effect of the change in accounting policy on financial statements after retrospective restatement using new accounting standards is RMB7,835,781.02. As a result of retrospective restatement, the opening retained earning of the financial year 2006 is increased by RMB6,904,270.85; net profit attributable to equity holders of the parent company for the financial year 2006 is increased by RMB931,510.17; the opening retained earning of the financial year 2007 is increased by RMB7,835,781.02, including an increase amounting to RMB7,835,781.02 in retained earnings. As a result of the change in accounting policy, net profit for the financial year 2007 is increased by RMB2,608,356.05, including an increase amounting to RMB2,608,356.05 in net profit attributable to equity holders of the parent company. (3) Long-term equity investment According to new accounting standards and relevant supplementary regulations, the Company shall adjust the carrying amount of long-term equity investment when accounting for joint venture measured using equity method. Retrospective restatement method has been adopted for this change in accounting policy; comparative figures in the financial statements for the financial year 2007 have been restated. The accumulative effect of the change in accounting policy on financial statements after retrospective restatement using new accounting standards is RMB647,927.35. As a result of retrospective restatement, the opening retained earning of the financial year 2006 is increased by RMB804,195.41; net profit attributable to equity holders of the parent company for the financial year 2006 is decreased by RMB156,268.06; the opening retained earning of the financial year 2007 is increased by RMB647,927.35, including an increase amounting to RMB647,927.35 in retained earnings. (4) Change in scope of consolidation According to new accounting standards and relevant supplementary regulations, Shenzhen Real Estate Exchange, Shenye Land Development Co., Ltd and its subsidiary, Zhanjiang Shenzhen Properties Development Co., Ltd, Shenzhen International Trade Shopping Mall Co., Ltd and Shenzhen Tesu Motor Vehicle Driver Training Center Co., Ltd are included in consolidation scope during the financial year 2007. Retrospective restatement method has been adopted for this change in accounting policy; comparative figures in the financial statements for the financial year 2007 have been restated. The accumulative effect of the change in accounting policy on financial statements after retrospective 40/109 restatement using new accounting standards is RMB7,125,009.29 in negative. As a result of retrospective restatement, the opening retained earning of the financial year 2006 is decreased by RMB2,359,206.53; the opening foreign exchange difference from translation of foreign currency financial statement of the financial year 2006 is increased by RMB1,675,943.29; the opening minority interest of the financial year 2006 is increased by RMB862,359.07; net profit attributable to equity holders of the parent company for the financial year 2006 is decreased by RMB5,736,787.75; net profit attributable to minority interest for the financial year 2006 is decreased by RMB1,595.10; the opening retained earning of the financial year 2007 is decreased by RMB8,095,994.28, including an decrease amounting to RMB8,095,994.28 in retained earnings; the opening foreign exchange difference from translation of foreign currency financial statement of the financial year 2007 is increased by RMB110,221.02; the opening minority interest of the financial year 2007 is increased by RMB860,763.97. As a result of the change in accounting policy, net profit for the financial year 2007 is decreased by RMB1,081,482.32, including a decrease amounting to RMB1,077,930.11 in net profit attributable to equity holders of the parent company. 2. There is no change in accounting estimate during the financial period. 3. There is no event which requires errors correction during the fiscal year. Note VI Taxation 1. Value Added Tax rate is 13% or 17%, paid by deducting value added input tax. 2. The business tax rate is 3% or 5% of operating revenue. 3. Urban maintenance and construction tax is 1% or 7% of turnover tax payable. 4. Education surtax is 3% of turnover tax payable. 5. The income tax expense rate is 15% or 33%. 6. Land value appreciation tax is levied in four progressive levels with the tax rate ranging from 30% to 60%. Note VII Business combination and consolidated financial statements 1. Subsidiaries 41/109 Details of subsidiaries directly or indirectly controlled by the Company as at December 31, 2007 is shown as below: Registered Business Subsidiaries capital Principal activities nature (0’000) (1)subsidiaries acquired through business combination A. Business combination under common control None B. Business combination without common control None (2)subsidiaries acquired through other methods other than business combination Hainan Xinda Development Co., Ltd Property 2,000 Property development, decoration development engineering,; planting; import-export practice Shenzhen ITC Restaurant Limited Restaurant 200 Retail sales of Chinese meal, western-style operation and food and wine wine merchandise Shenzhen Property and Construction Property 3,095 Land development, property operation; Development Company development construction supervision; property management Shanghai Shenzhen Properties Property 5,000 Property management; construction Development Company Limited development material; property development Shenzhen ITC Property Management Property 2,000 Property rent and management Company management Shenzhen ITC Vehicles Services Transportation 2,985 Motor transport and motor rent Company and vehicles rental service Shenzhen Huangcheng Real Estate Property 3,000 Development, construction, operation and Company Limited development management of commercial service facilities relevant to Huanggang port Sichuan Tianhe Industry Co., Ltd Trading 800 Wholesale in domestic market Shanghai Shenzhen Properties Property 30 Property management and consultant Management Company management Shenzhen ITC Property Management Service 120 Domestic commerce; material supply; Engineering Equipment Company maintenance of electric equipment Limited Shenzhen Tianque Elevator Service 500 Maintenance of elevator and air condition Technology Company Limited Chongqing Shenzhen ITC Property Property 500 Property management and agency Management Company Limited management Chongqing Ao’bo Elevator Company Service 200 Installing, restricting and repairing the Limited elevator; sales of elevator and accessories 42/109 Registered Business Subsidiaries capital Principal activities nature (0’000) Shenzhen ITC Petroleum Company Trading 850 Sales of gasoline, diesel oil, lube and coal Limited oil Shenzhen ITC Vehicle Industry Service 150 Motor maintenance; sales of motor and Company Garage auto cycle fittings Shenzhen Tesu Vehicle Driver Service 200 Driver training Training Center Limited Shenzhen Huangcheng Real Estate Property 500 Property management; court virescence Management Company Limited management and cleansing services Zhanjiang Shenzhen Estate Property 253 Property development and sales Development Company Limited development Shenzhen Property Construction Construction 300 Supervision of general industrial and civil Supervision Company Limited Supervision construction engineering Shenzhen International Trade Plaza Trading 1,200 Investing in commercial, material and supplying company Shenzhen Real Estate Exchange Service 138 Providing property information, property agency and evaluation Shum Yip Properties Development Property Property agency and investment Limited development HKD2,000 Wayhang Development Limited Property Property development development HKD0.0002 Chief Link Properties Limited Property Property agency and investment development HKD0.01 Syndis Investment Company Limited Property Property investment development HKD0.0004 Subsidiaries Contribution Shareholding Consolidated (0’000) Direct Indirect (Y/N) Hainan Xinda Development Headquarter Company 2,000 100% Y Shenzhen ITC Restaurant Limited 200 80% 20% Y Shenzhen Property and Construction Development 3,095 100% Y Company Shanghai Shenzhen Properties Development Company 5,000 90% 10% Y Limited Shenzhen ITC Property Management Company 2,000 95% 5% Y Shenzhen ITC Vehicles Services Company 2,985 90% 10% Y Shenzhen Huangcheng Real Estate Company Limited 3,000 95% 5% Y Sichuan Tianhe Industry Co., Ltd 800 100% Y 43/109 Subsidiaries Contribution Shareholding Consolidated (0’000) Direct Indirect (Y/N) Shanghai Shenzhen Properties Management Company 30 100% Y Shenzhen ITC Property Management Engineering 120 100% Y Equipment Company Limited Shenzhen Tianque Elevator Technology Company Limited 500 100% Y Chongqing Ao’bo Elevator Company Limited 200 100% Y Shenzhen ITC Petroleum Company Limited 850 100% Y Shenzhen ITC Vehicle Industry Company Garage 150 100% Y Shenzhen Huangcheng Real Estate Management Company 500 100% Y Limited Shenzhen Property Construction Supervision Company 300 93% 7% Y Limited Shenzhen Tesu Vehicle Driver Training Center Limited 200 100% Y Zhanjiang Shenzhen Estate Development Company Limited 253 100% Y Shenzhen International Trade Plaza 1,200 95% 5% Y Shenzhen Real Estate Exchange 138 100% Y Shum Yip Properties Development Limited HKD2,000 100% Y Wayhang Development Limited HKD0.0002 100% Y Chief Link Properties Limited HKD0.01 70% Y Syndis Investment Company Limited(*) HKD0.0004 100% Y * Syndis Investment Company Limited is the wholly-owned subsidiary of Chief Link Properties Limited 2. Changing of Consolidation Scope Subsidiary newly consolidated in the reporting period: Name Reason of Date of Net profit for the Net assets at the end of changing changing period period Chongqing Ao’bo Elevator Newly March 29, 0.00 2,000,000.00 Company Limited established 2007 3. Information of Minority Interest (MI) of subsidiaries 44/109 Amount of minority Balance after deduction of losses interest in income of subsidiaries during the period Name MI statement deducted exceeding the proportion of from minority interest minority shareholders from equity of parent company Chief Link Properties 857,211.76 Limited Note VIII Joint ventures, associates and other invested companies Up to December 31 2007, the main joint ventures, associates and other invested companies the Company directly or indirectly invested are listed as follows: Name Business Registered Business scope nature capital (0’000) Shenzhen ITC Tian’an Properties Hotel USD888 Constructing and operating the Tian’an Co., Ltd services International Building Shenzhen ITC Tian’an Property Property 300 Property management Management Co., Ltd management Shenzhen Jifa Warehouse Company Services 5,415 Warehousing; developing sea-front industry; Limited road freight; sales of motor fittings Shenzhen ITC Industrial Services HKD3,280 Biquan Restaurant; snooker, bowling, karaoke; Development Co., Ltd cleaning Anhui Nanpeng Papermaking Co., Industry USD800 Production and sales of copperplate paper, Ltd culture paper, and wrapping paper Shenzhen Wufang Pottery & Industry USD12,500 Production and export of top grade construction Porcelain Industrial Co., Ltd tile Shenzhen Huajing Glass Bottle Industry 4,800 Producing kinds of glass bottles used in the Company Limited wrapping the medicine, beer, food and drinks or other special glass bottles; providing economic information and technical consulting services Shenzhen Fulin Industrial Co., Ltd. Services 19,429.92 Touring, hotel, restaurant, wholesales and retails; property construction development and operation under approval; passenger transport Guangzhou Lishifeng Motor Services 2,000 Taxi transportation; domestic commerce and Company Limited materials supply (besides the goods that the government controlled) Name Contribution Shareholdings (0’000) Direct Indirect Shenzhen ITC Tian’an Properties Co., Ltd 2,318.61 50% Shenzhen ITC Tian’an Property Management Co., Ltd 150 50% 45/109 Name Contribution Shareholdings (0’000) Direct Indirect Shenzhen Jifa Warehouse Company Limited 3,064.51 50% Shenzhen ITC Industrial Development Co., Ltd 2,015.48 38.33% Anhui Nanpeng Papermaking Co., Ltd 1,382.40 30% Shenzhen Wufang Pottery & Porcelain Industrial Co., Ltd 1,898.36 26% Shenzhen Huajing Glass Bottle Company Limited 760 15.83% Shenzhen Fulin Industrial Co., Ltd. 2,118.10 10.59% Guangzhou Lishifeng Motor Company Limited 600 30% Note IX Notes to the main subjects in consolidated financial statements (Unless otherwise stated, the closing balance and the opening balance refer to the balance at December 31, 2007 and December 31, 2006 respectively. All amounts are presented in RMB.) 1. Cash and cash equivalents Item Closing balance Opening balance Cash on hand 275,617.49 444,708.58 Bank deposit 227,564,009.28 78,992,190.79 Other cash and cash equivalents 14,322,060.57 19,030,139.80 Total 242,161,687.34 98,467,039.17 Closing balance Item Currency Original currency Exchange rate RMB Cash on hand RMB 252,522.75 1.0000 252,522.75 USD 863.58 7.3046 6,308.11 HKD 17,926.56 0.9364 16,786.43 Sub-Total — — 275,617.29 Bank deposit RMB 225,510,890.57 1.0000 225,510,890.57 USD 1,514.31 7.3046 11,061.43 HKD 2,180,753.18 0.9364 2,042,057.28 Sub-Total — — 227,564,009.28 Other cash and cash RMB 14,251,382.67 1.0000 14,251,382.65 equivalents USD — 7.3046 — HKD 75,478.34 0.9364 70,677.92 Sub-Total — — 14,322,060.57 Total 242,161,687.34 46/109 Opening balance Item Currency Original currency Exchange rate RMB Cash on hand RMB 356,783.46 1.0000 356,783.46 USD 863.58 7.8087 6,743.44 HKD 14,271.89 1.0047 14,338.97 Sub-Total — — 444,708.58 Bank deposit RMB 76,690,736.78 1.0000 76,690,736.78 USD 1,525.11 7.8087 11,909.13 HKD 2,278,834.43 1.0047 2,289,544.88 Sub-Total — — 78,992,190.79 Other cash and cash RMB 16,530,364.77 1.0000 16,530,364.77 equivalents USD — 7.8087 — HKD 2,488,081.05 1.0047 2,499,775.03 Sub-Total — — 19,030,139.80 Total 98,467,039.17 Note：The closing balance was increased by 145.93% comparing to the opening balance, which was due to the increase in advance from customers of housing payment of Shenzhen Huangcheng Real Estate Company Limited that is subsidiary of the Company. 2. Trading financial assets Item Fair value at the end of Fair value at the beginning the financial year of the financial year Held-for-trading equity instrument 5,192,690.52 21,111,831.04 Total 5,192,690.52 21,111,831.04 Note：The market price at the end of the financial year was determined at the closing price at December 31, 2007 declared by Stock Exchange. There is no significant restriction on realization of trading financial assets. 3. Accounts receivables (1) Aging analysis of accounts receivables is as follows Aging Closing balance 47/109 Amount Proportion Bad debt provision Within 1 year(including 1 year) 10,516,741.85 7.94% 199,986.92 1-2 years(including 2 years) 30,047.21 0.02% 69,599.13 2-3 years(including 3 years) 40,733.00 0.03% 35,099.82 Over 3 years 121,945,331.26 92.01% 65,812,948.94 Total 132,532,853.32 100.00% 66,117,634.81 Aging Opening balance Amount Proportion Bad debt provision Within 1 year(including 1 year) 10,978,040.85 8.22% 407,458.48 1-2 years(including 2 years) 91,187.04 0.07% 7,400.00 2-3 years(including 3 years) 113,858.12 0.09% 90,357.03 Over 3 years 122,293,506.37 91.62% 65,690,440.83 Total 133,476,592.38 100.00% 66,195,656.34 (2) Accounts receivables by Categories are as follows： Closing balance Categories Bad debt Amount Proportion provision Individually significant receivables 120,240,552.39 90.73% 64,240,552.39 Individually insignificant receivables with high credit risk in group assessment Other insignificant amount 12,292,300.93 9.27% 1,877,082.42 Total 132,532,853.32 100.00% 66,117,634.81 Opening balance Categories Bad debt Amount Proportion provision Individually significant receivables 120,240,552.39 90.08% 64,240,552.39 Individually insignificant receivables with high credit risk in group assessment Other insignificant amount 13,236,039.99 9.92% 1,955,103.95 Total 133,476,592.38 100.00% 66,195,656.34 48/109 Individually significant receivable is regarded as risky receivable, of which the collectability is uncertain and of which the recoverable amount can only be determined after effective assessment. Individually insignificant receivable with high credit risk in group assessment is regarded as receivable, of which the collectability may be certain for single item, but the collectability of group of the receivables with same credit risk characteristic is uncertain and the recoverable amount of the group of receivables can only be determined after effective assessment. (3) Details of individually significant accounts receivable Name of company Closing balance Bad debt Aging Reason for provision provision Shenzhen Jiyong Properties & 98,611,328.05 42,611,328.05 Over 3 years Involved in lawsuit, refer to Resources Development Company Note XII.1.(2) and Note XV.2 HongKong Lianfahang International 15,663,680.00 15,663,680.00 Over 3 years Uncollectible for a long Development Co.,Ltd. period Shenzhen Tewei Industry Co.,Ltd. 2,836,561.00 2,836,561.00 Over 3 years Uncollectible for a long period Shenzhen Lunan Industry 2,818,284.84 2,818,284.84 Over 3 years Poor operational status Development Co.,Ltd. Total 119,929,853.89 63,929,853.89 (4) There was no accounts receivable due from shareholders with more than 5% (including 5%) of the voting shares of the Company. (5) There was no accounts receivable due from related parties. (6) The details of significant accounts receivable are as follows： Name of company Amount Proportion to total Occurrence accounts receivables period Shenzhen Jiyong Properties & Resources 98,611,328.05 74.41% Over 3 years Development Company HongKong Lianfahang International 15,663,680.00 11.82% Over 3 years Development Co.,Ltd. Shenzhen Tewei Industry Co.,Ltd. 2,836,561.00 2.14% Over 3 years Shenzhen Lunan Industry Development 2,818,284.84 2.13% Over 3 years Co.,Ltd. Total 119,929,853.89 90.50% (7) The total amount of top 5 accounts receivables is RMB121,937,311.99, accounting for 92.01% of 49/109 the closing balance. 4. Other receivables (1) Aging analysis of other receivables is as follows: Aging Closing balance Amount Proportion Bad debt provision Within 1 year(including 1 year) 6,399,091.66 3.53% 2,808,590.24 1-2 years(including 2 years) 12,281,340.72 6.77% 681,749.90 2-3 years(including 3 years) 17,106,515.75 9.43% 12,552,917.40 Over 3 years 145,682,848.33 80.27% 89,462,013.78 Total 181,469,796.46 100.00% 105,505,271.32 Aging Opening balance Amount Proportion Bad debt provision Within 1 year(including 1 year) 13,037,187.62 7.26% 791,204.15 1-2 years(including 2 years) 19,228,060.50 10.71% 12,553,129.53 2-3 years(including 3 years) 50,123,296.49 27.91% 48,152,654.42 Over 3 years 97,225,915.91 54.12% 41,398,763.63 Total 179,614,460.52 100.00% 102,895,751.73 (2) Other receivables by Categories are as follows： Closing balance Categories Amount Proportion Bad debt provision Individually significant receivables 119,989,970.57 66.12% 104,596,220.99 Individually insignificant receivables with high credit risk in group assessment Other insignificant amount 61,479,825.89 33.88% 909,050.33 Total 181,469,796.46 100.00% 105,505,271.32 Aging Opening balance Amount Proportion Bad debt provision 50/109 Individually significant receivables 117,574,689.75 64.87% 102,081,330.32 Individually insignificant receivables with high credit risk in group assessment Other insignificant amount 62,039,470.77 35.13% 814,421.41 Total 179,614,160.52 100.00% 102,895,751.73 Individually significant receivable is regarded as risky receivable, of which the collectability is uncertain and of which the recoverable amount can only be determined after effective assessment. Individually insignificant receivable with high credit risk in group assessment is regarded as receivable, of which the collectability may be certain for single item, but the collectability of group of the receivables with same credit risk characteristic is uncertain and the recoverable amount of the group of receivables can only be determined after effective assessment. (3) Details of individually significant other receivables: Name of company Closing balance Bad debt Age Reason for provision provision Gintian Industry (Group) Co.,Ltd. 56,600,000.00 56,600,000.00 Within 1 year to Payment for discharging over 3 years of guaranty responsibility that was difficult to be recollected Anhui Nanpeng Papermaking Co., Ltd 10,572,704.00 10,572,704.00 Over 3 years Uncollectible for a long period Shenzhen Shengfenglu ITC Jewel & 10,199,186.28 6,532,519.60 2－3 years There is no asset to Gold Co., Ltd execute the verdict, thus lead to uncollectibility, refer to Note XII.1.(3) for details Shanghai Yutong Property 5,676,000.00 5,676,000.00 Over 3 years Uncollectibility for the Development Co., Ltd reason of verdict Wuliangye Restaurant 5,523,057.70 5,523,057.70 Over 3 years Has been liquidated HongKong Yueheng Development Co., 3,271,931.42 3,271,931.42 Over 3 years Has been liquidated Ltd Elevated Train Project 2,542,332.43 2,542,332.43 Over 3 years Suspended project Dameisha Tourism Center 2,576,445.69 2,576,445.69 Over 3 years Suspended project Shenzhen ITC Food Enterprise Co.,Ltd. 2,431,652.48 2,431,652.48 Over 3 years Insolvency Shenzhen Wufang Pottery & Porcelain 1,747,264.25 1,747,264.25 Over 3 years Poor operation status Industrial Co., Ltd Duokuai Elevator (Far East) Co., Ltd. 11,726,693.00 2-3 years No provision provided, refer to Note XII.1.(4) for details Total 112,867,267.25 97,473,907.57 (4) There was no other receivable due from shareholders with more than 5% (including 5%) of the voting shares of the Company. (5) Details of top 5 other receivables are as follows: 51/109 Name of company Amount Proportion to total Occurrence period other receivables Gintian Industry (Group) Co.,Ltd. 56,600,000.00 31.29% Within 1 year to over 3 years Shenzhen ITC Tian’an Properties 29,705,931.45 16.42% Over 3 years Co., Ltd Shenzhen Municipal Planning and 12,024,387.70 6.65% Over 3 years Land Resource Bureau Longgang Breach Duokuai Elevator (Far East) Co., Ltd. 11,726,693.00 6.48% Over 3 years Anhui Nanpeng Papermaking Co., Ltd 10,572,704.00 5.84% Over 3 years Total 120,629,716.15 66.68% (6) Amount due from related parties in other receivables is RMB44,457,552.18, accounting for 24.57% of the closing balance. 5. Prepayment (1) The aging analysis of prepayment is as follows: Closing balance Opening balance Aging Amount Proportion Amount Proportion Within 1 year(including 1 year) 68,099,090.89 99.72% 3,846,762.43 90.11% 1-2 years(including 2 years) 65,736.33 0.10% 278,223.00 6.52% 2-3 years(including 3 years) 105,590.00 0.15% 33,123.00 0.78% Over 3 years 17,856.80 0.03% 110,916.80 2.59% Total 68,288,274.02 100.00% 4,269,025.23 100.00% (2) Notes to prepayment 1） Prepayments with aging over 1 year are mainly construction payments to be settled. 2） There was no amount due from shareholders with more than 5% (including 5%) of the voting shares of the Company in prepayment. 6. Inventories (1) The details of inventory are as follows: 52/109 The proportion of reversal of Including： provision for Categories Opening balance Increase Decrease Closing balance Capitalized impairment borrowing cost of inventories to closing balance Raw materials 2,049,170.69 4,753,235.78 4,517,234.53 2,285,171.94 Finished products 1,079,934.34 20,089,850.84 20,110,803.67 1,058,981.51 low-value consumption 275,716.70 615,022.31 591,060.95 299,678.06 goods land use right held for 437,016,767.54 3,379,975.97 187,528,624.22 252,868,119.29 0.82% property development properties under 217,474,006.31 320,548,150.06 538,022,156.37 31,140,651.58 development completed properties 389,247,725.61 81,637,165.00 307,610,560.61 0.53% for sale properties for leasing 3,221,508.64 3,221,508.64 owner-occupied 11,341,815.59 300,992.62 11,040,822.97 properties Total 1,061,706,645.42 349,386,234.96 297,907,389.63 1,113,185,490.75 31,140,651.58 1.35% (2) Provision for impairment of inventories: Categories Opening Increase Decrease Closing balance balance Reversal Written off Raw materials 1,069,438.04 33,097.46 1,036,340.58 land use right 107,419,175.81 5,769,577.11 2,326,120.69 2,309,000.00 108,553,632.23 held for property development properties under 220,006.96 220,006.96 development completed 33,646,172.92 1,640,691.00 2,886,585.11 29,118,896.81 properties for sale Total 142,354,793.73 5,769,577.11 3,966,811.69 5,228,682.57 138,928,876.58 Note A：The reason for providing provision for impairment of inventories on land use right held for property development during the current period is provided regarding the use right of the Land Fuchang Second Term on the ground that the Land Fuchang Second Term stand idle over a long period of time and the Company did not complete the related land use procedure according to the reply from Branch of Bureau of Land Resources and Housing Management of Shenzhen Municipality. Hence 100% provision for impairment on it was provided. Note B: The reversal of provision for impairment of inventories on land use right held for property development during the current period arose from the translation of foreign currency financial statement of the Company’s foreign subsidiary, Shum Yip Properties Development Limited. 53/109 Note C：The reason for writing off of provision for impairment of inventories on land use right held for property development during the current period is that the former subsidiary of the Company, Shenzhen ITC Industrial Development Co., Ltd, transferred the use right of a land in Huiyang Qiuchang Town to the Company during the course of liquidation on May 1999. The Company has not finished related land use procedure because the lack of materials. The Company cancelled the above mentioned land use right transferring contract with the liquidating group and wrote off related provision for impairment of inventories. Note D：The reversal of provision for impairment of inventories on completed properties for sale during the current period was due to the increase in the net realizable value of Rihao Garden. Note E：The writing off of provision for impairment of inventories on completed properties for sale during the current period was because that the third floor of Hainan Xinda Commercial Building has been sold and the related provision was written off. (3) The details are as follows： 1) land use right held for property development Closing balance Opening balance Item Amount provision for Amount provision for impairment of impairment of inventories inventories Huanggang Port Land 69,801,944.96 226,681,968.99 Pinghu Land 40,642,168.99 38,242,168.99 40,642,168.99 38,242,168.99 Hainan Qiongshan Land 6,648,404.13 6,648,404.13 6,648,404.13 6,648,404.13 Huiyang Qiuchang Town Land 2,309,000.00 2,309,000.00 Shenhui Garden 33,082,128.89 26,002,128.89 33,082,128.89 26,002,128.89 Haidian Island Land 0 18,293,552.53 0 Donggua Ridge Land 43,495,342.10 0 43,264,393.10 0 Sihui Land 3,000,000.00 Fuchang Second Term Land 5,769,577.11 5,769,577.11 5,769,577.11 Hong Kong Tingjiu Land 53,428,553.11 31,891,353.11 57,325,573.80 34,217,473.80 Total 252,868,119.29 108,553,632.23 437,016,767.54 107,419,175.81 2) Properties under development Project name Starting Expected Expected total Closing Opening 54/109 time completion investment balance balance time Imperial Garden (original HuangYu 2005.4 2008.10 311,000,000.00 217,479,111.09 76,244,916.63 Garden District C-A) Shenwuye – Shengang No.1 (original 2006.7 2009.12 388,000,000.00 72,887,915.79 4,133,817.71 HuangYu Garden District C-B) HuangYu Garden-Langqiao Residence 2005.12 2009.12 420,000,000.00 70,796,828.80 13,360,804.71 (original HuangYu Garden District D) Shenwuye – FHRL (original FHRL 2005.9 2009.10 422,280,000.00 144,148,924.86 121,203,964.98 Group B) Haikou Landao Shore 2007.6 2008.7 60,000,000.00 29,655,289.05 Sundry project 3,054,086.78 2,530,502.28 Total 538,022,156.37 217,474,006.31 3) Completed properties for sale Item Completion time Opening Increase Decrease Closing provision for balance balance impairment of inventories ITC Plaza 1995.12 83,505,415.48 83,505,415.48 Huangyu Garden 2001.06 1,413,751.45 -1,954,967.11 3,368,718.56 District A Huangyu Garden 2003.12 37,433,451.11 20,773,845.10 16,659,606.01 District B Huangcheng Plaza 1997.05 240,903,032.84 57,126,289.67 183,776,743.17 29,118,896.81 Xinda Building 2001.10 7,929,205.28 4,784,163.11 3,145,042.17 Fenrun Garden 1998.02 339,542.36 339,542.36 0 Property Times New 1997.12 1,853,924.88 1,853,924.88 0 Residence Rihao Garden 4,654,651.00 0 4,654,651.00 Meisi Workshop 3,885,469.40 3,885,469.40 Fuming Building 2001.10 553,526.23 553,526.23 0 Garden City No. 5 2004.7 354,308.00 354,308.00 Fuchang 6,421,447.63 0 6,421,447.63 0 Comprehensive Building Total 389,247,725.66 81,637,165.00 307,610,560.66 29,118,896.81 7. Available-for-sale financial assets： Item Fair value at the end of Fair value at the beginning of the year the year Available-for-sale equity instruments 9,200,018.40 7,342,950.20 Total 9,200,018.40 7,342,950.20 55/109 Note：The Available-for-sale equity instruments at the beginning of the financial year is 2,302,839 conditional tradable shares of Pangang Group Sichuan Changcheng Special Steel Co., Ltd held by the Company, at the end of the financial year is 1,000,002 shares (that have been circulated in the market) of Pangang Group Sichuan Changcheng Special Steel Co., Ltd held by the Company. 8. Investment held to maturity： Item Closing balance Opening balance Investments on bond 3,000.00 3,000.00 Total 3,000.00 3,000.00 9. Long-term equity investment Categories Closing balance Opening balance Long-term equity investment accounted using equity method 63,490,577.32 62,478,516.26 Long-term equity investment accounted using cost method 92,751,755.80 93,109,470.52 Sub-Total 156,242,333.12 155,587,986.78 Less：Provision for impairment of long-term equity investment 84,037,529.69 84,395,244.41 Total 72,204,803.43 71,192,742.37 (1) The details of significant joint ventures and associates refer to Note VIII. (2) Long-term equity investment accounted using equity method Investment Amount of Opening Increase Decrease Closing Cash initial balance balance dividends investment received during the current period Shenzhen ITC Tian’an 23,186,124.00 35,667,579.01 26,251.16 35,693,830.17 Properties Co., Ltd Shenzhen Jifa 30,645,056.04 25,044,945.88 953,768.17 25,998,714.05 Warehouse Company Limited Shenzhen Tian’an 1,999,892.79 1,765,991.37 32,041.73 1,798,033.10 International Building Property Management Co., Ltd Total 55,831,072.83 62,478,516.26 1,012,061.06 63,490,577.32 (3) Long-term equity investment accounted using cost method Investment Opening Increase Decrease Closing balance balance 56/109 Investment Opening Increase Decrease Closing balance balance Shenzhen ITC Industrial Development Co., 3,682,972.55 3,682,972.55 Ltd Shenzhen Fulin Industrial Co., Ltd. 21,181,023.36 21,181,023.36 Anhui Nanpeng Papermaking Co., Ltd 13,824,000.00 13,824,000.00 Shenzhen Wufang Pottery & Porcelain 18,983,614.14 18,983,614.14 Industrial Co., Ltd Shenzhen Huajing Glass Bottle Company 7,600,000.00 7,600,000.00 Limited Shensan Co.,Ltd. 17,695.09 17,695.09 China T.H. Co.,Ltd. 2,962,500.00 2,962,500.00 North Machinery (Group) Co.,Ltd. 3,465,000.00 3,465,000.00 Guangdong Huayue Real Estate Co.,Ltd. 8,780,645.20 8,780,645.20 Guangzhou Shilifeng Automobile Co.,Ltd. 6,000,000.00 6,000,000.00 Sanya East Travel Co.,Ltd. Legal persons 1,350,000.00 1,350,000.00 shares Macao Huashen Enterprise Co.,Ltd. 97,543.69 6,631.07 90,912.62 Saipan Project 2,204,648.37 149,873.08 2,054,775.29 Chongqing Guangfa Property Development 2,959,828.12 201,210.57 2,758,617.55 Co.,Ltd. Total 93,109,470.52 357,714.72 92,751,755.80 (4) Provision for impairment of long-term equity investment Investment Opening Increase Decrease Closing balance balance Shenzhen ITC Industrial Development Co., 3,682,972.55 3,682,972.55 Ltd Shenzhen Fulin Industrial Co., Ltd. 21,041,503.00 21,041,503.00 Anhui Nanpeng Papermaking Co., Ltd 13,824,000.00 13,824,000.00 Shenzhen Wufang Pottery & Porcelain 18,983,614.14 18,983,614.14 Industrial Co., Ltd Shenzhen Huajing Glass Bottle Company 6,608,139.00 6,608,139.00 Limited Shensan Co.,Ltd. 17,695.09 17,695.09 China T.H. Co.,Ltd. 2,160,300.45 2,160,300.45 North Machinery (Group) Co.,Ltd. 3,465,000.00 3,465,000.00 Guangdong Huayue Real Estate Co.,Ltd. 8,000,000.00 8,000,000.00 Sanya East Travel Co.,Ltd. Legal persons 1,350,000.00 1,350,000.00 shares 57/109 Investment Opening Increase Decrease Closing balance balance Macao Huashen Enterprise Co.,Ltd. 97,543.69 6,631.07 90,912.62 Saipan Project 2,204,648.37 149,873.08 2,054,775.29 Chongqing Guangfa Property Development 2,959,828.12 201,210.57 2,758,617.55 Co.,Ltd. Total 84,395,244.41 357,714.72 84,037,529.69 Note：The decrease of Provision for impairment of long-term equity investment during the current financial period is due to the translation of the foreign currency financial statement of the Company’s subsidiaries, Shum Yip Properties Development Limited. 10. Investment property (1) The details of investment properties are as follows: Item Opening balance Increase Decrease Closing balance Cost 222,398,016.67 17,331,823.47 625,261.98 239,104,578.16 Including：Property and building 222,398,016.67 14,331,823.47 625,261.98 236,104,578.16 Land use right 3,000,000.00 3,000,000.00 Accumulated depreciation and 53,272,031.47 11,734,034.03 134,956.60 64,871,108.90 amortisation Including：Property and building 53,272,031.47 11,682,010.91 134,956.60 64,819,085.78 Land use right 52,023.12 52,023.12 Impairment loss Including：Property and building Land use right Carrying amount 169,125,985.20 5,597,789.44 490,305.38 174,233,469.26 Including：Property and building 169,125,985.20 2,649,812.56 490,305.38 171,285,492.38 Land use right 2,947,976.88 2,947,976.88 (2) The increase of property and building during the current period was due to the investment property transferred from fixed assets under leasing. (3) The increase of land use right during the current period was due to the use right of Land Sikuai transferred that are held by the Company’s subsidiary, Shenzhen Huangcheng Real Estate Company 58/109 Limited, with a purposes of capital appreciation. (4) The decrease of property and building during the current period was due to the transferring of property and building that is not held for leasing to fixed assets and the translation of foreign currency financial statement of the Company’s foreign operation. 11. Fixed assets (1) The details of fixed assets is as follows： Categories Opening balance Increase Decrease Closing balance Cost 255,011,584.00 2,065,849.74 19,672,496.37 237,404,937.37 Including: Property and 193,769,862.21 249,985.96 16,226,498.24 177,793,349.93 buildings Machineries 2,990.00 2,990.00 Vehicles 43,199,702.93 522,891.00 1,734,490.00 41,988,103.93 Electronic and other 13,781,618.27 1,292,972.78 1,711,508.13 13,363,082.92 equipment Decoration 4,257,410.59 4,257,410.59 Depreciation 116,606,059.56 14,941,784.56 6,864,952.87 124,682,891.25 Including: Property and 79,031,298.13 6,922,915.70 3,614,955.31 82,339,258.52 buildings Machineries 2,838.00 2,838.00 Vehicles 24,472,307.62 6,284,552.34 1,628,835.36 29,128,024.60 Electronic and other 10,770,920.59 1,115,108.08 1,429,077.03 10,456,951.64 equipment Decoration 2,328,695.22 619,208.44 192,085.17 2,755,818.49 Impairment loss 75,717.16 29,446.64 105,163.80 Including: Property and buildings Machineries Vehicles Electronic and other 75,717.16 29,446.64 105,163.80 equipment Decoration Carrying amount 138,329,807.28 -12,905,381.46 12,807,543.50 112,616,882.32 Including: Property and 114,738,564.08 -6,672,929.74 12,611,542.93 95,454,091.41 buildings Machineries 152.00 152.00 Vehicles 18,727,395.31 -5,761,661.34 105,654.64 12,860,079.33 59/109 Categories Opening balance Increase Decrease Closing balance Electronic and other 2,934,980.52 148,418.06 282,431.10 2,800,967.48 equipment Decoration 1,928,715.37 -619,208.44 -192,085.17 1,501,592.10 (2) The details of temporarily idle fixed assets are as follows: Categories Cost Accumulated Impairment Carrying Expected date for depreciation loss amount put into usage Property and 74,812,261.65 36,408,557.76 38,403,703.89 building Total 74,812,261.65 36,408,557.76 38,403,703.89 Note：The temporarily idle property and buildings are properties that are neither leased out nor used for self-occupation. No provision for impairment was made because its market price was in excess of its cost. 12. Intangible assets The details of intangible assets are as follows: Categories Opening Increase Decrease Closing balance balance Cost 90,559,036.18 6,333,644.13 96,892,680.31 -Land use right 4,084,485.00 4,084,485.00 -Operating license plate 84,631,143.70 5,970,000.00 90,601,143.70 -Repurchased operating right of taxi’s operating license plate 1,667,447.48 279,906.13 1,947,353.61 -Golden Butterfly Finance System Software 175,960.00 83,738.00 259,698.00 Accumulated amortization 20,538,791.18 2,287,472.07 22,826,263.25 -Land use right 1,542,932.65 136,140.00 1,679,072.65 -Operating license plate 18,825,401.67 1,795,570.20 20,620,971.87 -Repurchased operating right of taxi’s operating license plate 170,456.86 96,063.87 266,520.73 -Golden Butterfly Finance System Software 259,698.00 259,698.00 Impairment loss -Land use right -Operating license plate 60/109 Categories Opening Increase Decrease Closing balance balance -Repurchased operating right of taxi’s operating license plate -Golden Butterfly Finance System Software Carrying amount 70,020,245.00 4,046,172.06 74,066,417.06 -Land use right 2,541,552.35 -136,140.00 2,405,412.35 -Operating license plate 65,805,742.03 4,174,429.80 69,980,171.83 -Repurchased operating right of taxi’s operating license plate 1,496,990.62 183,842.26 1,680,832.88 -Golden Butterfly Finance System Software 175,960.00 -175,960.00 13. Deferred tax assets and liabilities (1) Assets and liabilities giving rise to temporary difference Item Temporary difference Closing balance Opening balance Deductible temporary difference giving rise to deferred tax assets 1.Carrying amount of inventories less than its tax 29,118,896.81 29,118,896.81 base 2.Carrying amount of accounts payable greater than 5,395,722.66 19,541,677.87 its tax base 3.Unused tax losses 21,810,112.03 9,501,116.47 Total 56,324,731.50 58,161,691.15 Taxable temporary difference giving rise to deferred tax liabilities 1.Carrying amount of trading financial assets greater 672,121.83 5,923,151.00 than its tax base 2.Carrying amount of available-for-sale financial 6,036,569.89 assets greater than its tax base Total 6,708,691.72 5,923,151.00 (2) Recognized deferred tax assets and liabilities Item Closing Opening balance balance Deferred tax assets 61/109 1.Carrying amount of inventories less than its tax base 5,241,401.43 4,367,834.52 2.Carrying amount of accounts payable greater than its tax base 971,230.08 2,931,251.68 3.Unused tax losses 4,231,505.56 1,425,167.47 Total 10,444,137.07 8,724,253.67 Deferred tax liabilities 1.Carrying amount of trading financial assets greater than its tax 120,981.92 888,472.65 base 2.Carrying amount of available-for-sale financial assets greater 1,090,025.33 than its tax base Total 1,211,007.25 888,472.65 14. Impairment loss Categories Opening Increase Decrease Closing balance balance Reversal Written off Provision for bad debt 169,091,408.07 2,531,498.06 171,622,906.13 Including：Accounts receivables 66,195,656.34 -78,021.53 66,117,634.81 Other receivables 102,895,751.73 2,609,519.59 105,505,271.32 Provision for impairment of 142,354,793.73 5,769,577.11 3,966,811.69 5,228,682.57 138,928,876.58 inventories Impairment loss of long-term 84,395,244.41 -357,714.72 84,037,529.69 equity investment Total 395,841,446.21 7,943,360.45 3,966,811.69 5,228,682.57 394,589,312.40 Note A：The reason for providing provision for bad debt on other receivables during the current financial period is that the Company paid guaranty compensation amounting to RMB2,600,000 for Gintian Industry (Group) Co.,Ltd. and accordingly a 100% provision for bad debt on that payment was made. The details refer to Note XII.3. (1). Note B：The details of reversal and written off of Provision for impairment of inventories refers to Note IX.6. (2). Note C：The details of reversal and written off of provision for impairment of long-term equity investment refers to Note IX. 9. (4). 15. Assets with restriction on ownership (1) The reason for restriction on ownership 1) The subsidiary of the Company, Shenzhen ITC Vehicles Services Company, mortgaged its office 62/109 on level 27th of Huangcheng Plaza for a short-term bank loan amounting to RMB4,000,000, the closing balance of said short-term bank loan at the end of the financial year was RMB4,000,000. The subsidiary pledged 112 certificates of title of operating license plate for a short-term bank loan amounting to RMB43,000,000, and the closing balance of said short-term bank loan at the end of the financial year was RMB41,600,000. The subsidiary pledged 99 certificates of title of operating license plate for a long-term bank loan amounting to RMB41,150,000.00, and the closing balance of said long-term bank loan at the end of the financial year was RMB37,353,081.28. 2) The Company mortgaged Land No. A824-0097(Land FHRL Group B)for a long-term bank loan, and the closing balance of said long-term bank loan at the end of the financial year was RMB80,000,000. The Company jointly mortgaged Room 101, 102, 103, 104, -1-01 and -1-02 in ITC District A, 1st floor, Room 1-02, 1-03, 1-06, 1-07, 2-14, 2-21 and 4-19 in District B, Room 2-13, 4-05 and 49th floor in ITC District B, Heping Shop No. 101 and Heping Single Building Floor 3 to 7 for a long-term bank loan amounting to RMB150,000,000.00, and the closing balance of said long-term bank loan at the end of the financial year was RMB149,450,000.00. The Company jointly mortgaged Room 302A, 323, 401A, 401B, 403A, 403B, 407 and 408 in ITC Plaza (second phase), 2nd Floor of ITC Center Plaza District A (that is a fixed asset of the Company) and 80 premises in ITC Commercial Building (that are fixed assets of the Company) for a short-term bank loan amounting to RMB130,000,000.00, and the closing balance of said short-term bank loan at the end of the financial year was RMB100,000,000.00. The Company jointly mortgaged Room 302, 501, 502, 602 and 603 in Tian’an Plaza owned by its joint venture, Shenzhen ITC Tian’an Properties Co., Ltd, for a short-term bank loan amounting to RMB15,000,000.00, and the closing balance of said bank loan at the end of the financial year was RMB15,000,000.00. The Company jointly mortgaged Room B2-07, 16, 20, Floor A5 in ITC, A1901-08 in Tian’an Building, 39th, 42nd, 48th floor and Room 2-19, 3-05 in ITC Building District B, some premises in ITC Commercial Building and Shop No. 401 in Tian’an International Building District A owned by joint 63/109 venture of the Company, Shenzhen ITC Tian’an Properties Co., Ltd, for a short-term bank loan amounting to RMB69,000,000.00, and the closing balance of said bank loan at the end of the financial year was RMB49,000,000.00. 3) The subsidiary of the Company, Shenzhen Huangcheng Real Estate Company Limited, mortgaged Room 4-01 on 3rd floor of ITC Building District A for a short-term bank loan amounting to RMB63,000,000, and the closing balance of said bank loan at the end of the financial year was RMB63,000,000. (2) Details of the assets with restriction on ownership are as follows: Categories Opening Increase Decrease Closing balance balance Assets used as mortgage in guarantee 216,418,747.43 9,371,796.60 207,046,950.83 Including : Fixed asset - property and 141,513,953.53 8,203,352.44 133,310,601.09 building Inventories - land use right 30,114,434.00 30,114,434.00 Intangible asset - operating 44,790,359.90 1,168,444.16 43,621,915.74 license plate Total 216,418,747.43 9,371,796.60 207,046,950.83 16. Short-term borrowings The details of Short-term borrowings are as follows: Categories Closing balance Opening balance Credit loan 14,040,774.90 13,220,446.21 Secured loan 14,000,000.00 Mortgaged loan 231,000,000.00 373,889,468.73 Pledged loan 41,600,000.00 8,780,000.00 Total 286,640,774.90 409,889,914.94 17. Trade payable Item Closing balance Opening balance Amount 78,261,460.46 188,916,595.28 Note：There was no amount due to shareholders with more than 5% (including 5%) of the voting 64/109 shares of the Company in trade payables. 18. Advance from customers Item Closing balance Opening balance Amount 135,947,584.01 11,802,982.03 Note A：The closing balance was increased by 1,051.81% comparing to the opening balance, which was due to the increase in advance from customers of housing payment of the company’s subsidiary company, Shenzhen Huangcheng Real Estate Company Limited. Note B：The details of advance from customers on main projects of properties for sale are as follows: Item Aging Closing balance Opening balance Estimated date of completion Imperial Garden Within 1 year 115,919,352.19 3,163,681.41 October 2008 Huangcheng Plaza Within 1 year 6,228,220.09 4,636,288.85 completed Hainan Xinda Building Over 3 years 10,000.00 1,107,578.00 completed Fengrun Garden 1-2 years 128,254.00 128,254.00 completed Fuming Building 0 239,599.00 completed Garden City Within 1 year 11,121,808.84 540,617.70 completed Total 133,407,635.12 9,816,018.96 Note C：There was no amount due to shareholders with more than 5% (including 5%) of the voting shares of the Company in advance from customers. 19. Payroll payable The details of payroll payable are as follows： Categories Opening Increase Decrease Closing balance balance Salary, bonus, allowance, 14,326,807.49 126,428,383.85 114,096,369.38 26,658,821.96 subsidy Employee welfare 13,364,823.21 6,251,314.50 19,477,780.66 138,357.05 Social insurance 24,019,444.02 24,014,147.67 5,296.35 Including： 6,253,118.09 6,253,118.09 1. Medical insurance 2. Basic retirement insurance 13,570,850.48 13,570,850.48 3. Annuity fee 2,867,841.00 2,867,841.00 65/109 Categories Opening Increase Decrease Closing balance balance 4. Unemployment insurance 195,716.82 195,716.82 5. Injury insurance 631,563.31 631,563.31 6. Pregnancy insurance 274,956.60 276,996.87 -2,040.27 7. Labor cooperation medical 142,259.60 142,259.60 care 8. Other social insurance 83,138.12 75,801.50 7,336.62 Public housing fund 73,754.34 113,888.00 113,888.00 73,754.34 Labour union fee and employee 2,186,333.83 3,697,521.01 2,968,156.28 2,915,698.56 education fee Redemption for termination of 1,924,594.00 10,000.00 1,914,594.00 labor contract Total 29,951,718.87 162,435,145.38 160,680,341.99 31,706,522.26 20. Taxes payable Categories Closing balance Opening balance 1. VAT -52,984.38 46,434.01 2. Business tax 5,034,260.02 1,786,334.59 3. Others 838.53 1,608,456.13 4. Income tax expense 169,875.08 1,281,832.34 5. Stamp tax 21,905.78 6. Education surtax 151,471.46 54,158.07 7. Land value appreciation tax 31,050,220.22 29,502,228.27 8. Urban maintenance and construction tax 65,121.69 28,931.79 9. Property tax 721,262.62 8,598.56 10. Land use tax 43,525.56 21,762.78 11. individual income tax 1,754,126.47 5,289,419.52 Total 38,959,623.05 39,628,156.06 21. Other payables Item Closing balance Opening balance Other payables 153,712,806.26 124,981,185.14 Note A：The details of significant other payables are as follows： 66/109 Item Amount Nature Accrued Land value appreciation tax 56,303,627.40 Accrued Land value appreciation tax Rent deposit 14,155,179.81 Deposit Shenzhen Fulin Industrial Co., Ltd. 9,528,506.00 Current account Total 79,987,313.21 Note B：There was no amount due to shareholders with more than 5% (including 5%) of the voting shares of the Company in other payables. 22. Non-current liabilities due within 1 year (1) Details Item Closing balance Opening balance Long-term borrowings 239,992,263.87 Total 239,992,263.87 (2) Long-term borrowings due within 1 year Item Closing balance Opening balance Credit borrowings Guarantee borrowings 159,992,263.87 Mortgage borrowings 80,000,000.00 Pledge borrowings Total 239,992,263.87 23. Long-term borrowings Borrowing terms Closing balance Opening balance Mortgage borrowings 149,450,000.00 20,000,000.00 Pledge borrowings 37,353,081.28 14,656,085.87 Guarantee borrowings 15,067,228.00 Total 186,803,081.28 49,723,313.87 24. Provision for contingent liabilities Item Opening Increase Decrease Closing balance balance Pending action of Haiyi case 41,772,906.07 41,772,906.07 67/109 Item Opening Increase Decrease Closing balance balance Undertaking the guarantee for Jintian 2,600,000.00 2,600,000.00 Company Contingent penalty payable to 19,541,677.84 19,541,677.84 Hongkong Hehe Company Total 63,914,583.91 22,141,677.84 41,772,906.07 Note A: Pending litigation “Haiyi” Guangdong Higher Court overruled the application from the Company of retrial of litigation on Real Estate Purchasing and Sale Contract against such eight owners as Haiyi Industrial (Shenzhen) Co., Ltd. and etc. The Company has estimated relevant losses amounting to RMB41,772,906.07 in the financial year 2003 according to the carrying amount of the property drawn and the Court Judgement YGFMZZ (1998). No. 284-317. Details of this litigation refer to Note XII. 1(1). Note B: Providing guarantee to Gintian Industry (Group) Co.,Ltd Since Gintian Industry (Group) Co., Ltd (hereinafter referred to as Gintian Company) did not repay the bank loan amounting to RMB2,600,000 to China Construction Bank Shenzhen Branch on schedule (hereinafter referred to as Construction Bank), the Court adjudged that Gintian Company should repay the principal and interest to Construction Bank and the Company should take joint discharge liability. Construction Bank has applied for execution, the Company had made a provision amounting to RMB2,600,000 on this contingent liability in the financial year 2004. On July 6, 2007, the Company paid the guarantee compensation amounting to RMB2,600,000. Details refer to Note XII. 4(1). Note C: The subsidiary of the Company, Shenzhen Huangcheng Real Estate Company Limited (hereinafter referred to as Real Estate Company) did not repay HongKong Hehe Huanggang Development Co., Ltd. and Guangdong Railways Construction (the two parties hereinafter referred to as “Hehe Company”) on schedule and should take responsibility for breach of contract. Till December 31, 2006, the Company prospected to pay the penalty interest amounting to RMB 19,541,677.84 to Hehe Company. On January 15, 2008, On January 15 2008, Real Estate Company and the Hehe Company signed an agreement that Real Estate Company should pay RMB5 million (net of income tax, amounted to RMB5.3957 million before income tax) on January 18 2008 as the settlement of penalty overdue. The Hehe Company agreed not to pursue to Real Estate Company for other losses (including other penalty). On January 18, 2008, Real Estate Company paid to the Hehe Company the overdue 68/109 penalty amounting to RMB5.3957 million. Based on aforesaid agreement, the Company reversed contingent liability recognized at the beginning of the financial period and recognized the penalty interest payable in trade payable. Details of this transaction refer to Note XII.2. 25. Other non-current liabilities Item Closing balance Opening balance 1.Utility specific fund 21,825,468.62 51,430,252.51 2.Housing principle fund 9,889,289.85 9,336,968.75 3.House warming deposit 8,390,572.82 8,259,328.06 4.Electric Equipment Maintenance fund 4,019,415.44 4,019,415.44 5.Deputed Maintenance fund 25,951,984.15 26,348,603.06 6.Taxi Deposit 28,569,625.00 20,003,862.30 7.Lease income of taxi license to be written off 19,345,899.01 20,962,962.32 8.Others 4,917,000.00 Total 122,909,254.89 140,361,392.44 Note: “Others” is borrowing of Shenzhen ITC Automobile Industry Co., Ltd due to the drivers. 26. Paid-in capital Before Increase/Decrease (+/-) After Item Quantity Proportion Issuing Quantity Proportion Issuing Quantity new new (0’000) (%) shares (0’000) (%) shares (0’000) A. Unlisted shares 1. Sponsors' shares 38,894.86 71.79 38,894.86 71.79 Including: State owned shares 32,374.77 59.76 32,374.77 59.76 Shares held by domestic legal persons 6,520.09 12.03 6,520.09 12.03 Shares held by overseas legal persons Others 2. Raised shares held by legal persons 3. Shares held by employees 69/109 Before Increase/Decrease (+/-) After Item Quantity Proportion Issuing Quantity Proportion Issuing Quantity new new (0’000) (%) shares (0’000) (%) shares (0’000) 4. Preference shares and others Including: Transferred allotted shares Subtotal 38,894.86 71.79 38,894.86 71.79 B. Listed shares 1.RMB-denominated 9,139.13 16.87 9,139.13 16.87 ordinary shares 2. Domestically 6,145.93 11.34 6,145.93 11.34 listed foreign shares 3. Overseas listed foreign shares 4.Others Subtotal 15,285.06 28.21 15,285.06 28.21 Total 54,179.92 100.00 54,179.92 100.00 27. Capital surplus Item Opening Increase Decrease Closing balance balance Share premium Others 25,332,931.52 4,946,544.56 30,279,476.08 Including:①Effects on changes in other 25,332,931.52 2,422,343.41 27,755,274.93 shareholders' equity of invested companies under equity method ② changes in fair value of 2,524,201.15 2,524,201.15 financial assets available for sale Total 25,332,931.52 4,946,544.56 30,279,476.08 28. Reserved fund Item Opening balance Increase Decrease Closing balance Legal reserve 62,919,127.11 62,919,127.11 Total 62,919,127.11 62,919,127.11 29. Retained earnings 70/109 Item Amounts Retained earnings at the beginning of the year before adjustment -46,131,021.03 Adjustment on retained earnings at the beginning of the year 6,310,865.07 Retained earnings at the beginning of the year after adjustment -39,820,155.96 Plus: Net profit for the year -27,377,663.77 Retained earnings at the end of the year -67,197,819.73 30. Revenue and Cost of Sales (1) Revenue Item 2007 2006 1．Sales 314,357,056.17 312,375,549.25 2．Other operating income 18,628,049.12 10,651,785.70 Total 332,985,105.29 323,027,334.95 (2) Cost of sales Item 2007 2006 1．Cost of sales 255,210,411.71 232,496,521.16 2．Other operating cost 5,986,208.43 6,355,169.49 Total 261,196,620.14 238,851,690.65 (3) Listed by the categories of production or business: Categories Revenue Cost of sales Margin profit Hotel and restaurant 14,534,763.61 6,880,534.87 7,654,228.74 operations Sale of properties 102,556,628.00 81,972,088.53 20,584,539.47 Transportation services 37,621,434.85 18,947,354.98 18,674,079.87 Sale of goods 20,774,546.64 19,659,497.46 1,115,049.18 Property rental and management services 147,079,632.43 126,261,622.44 20,818,009.99 income Others 15,426,152.25 5,810,921.87 9,615,230.38 Elimination -23,636,101.61 -4,321,608.44 -19,314,493.17 Total 314,357,056.17 255,210,411.71 59,146,644.46 (4) Details of revenue 71/109 Business segment 2007 2006 Hotel and restaurant operations 14,534,763.61 13,241,870.20 Sale of properties 102,556,628.00 111,182,569.95 Transportation services 37,621,434.85 40,208,163.62 Sale of goods 20,774,546.64 17,146,798.36 Property rental and management services income 147,079,632.43 134,449,638.84 Others 15,426,152.25 8,878,796.92 Subtotal 337,993,157.78 325,107,837.89 Elimination -23,636,101.61 -12,732,288.64 Total 314,357,056.17 312,375,549.25 (5) Details of cost of sales Business segment 2007 2006 Hotel and restaurant operations 6,880,534.87 6,451,232.04 Sale of properties 81,972,088.53 77,732,496.15 Transportation services 18,947,354.98 17,033,891.58 Sale of goods 19,659,497.46 16,182,381.40 Property rental and management services income 126,261,622.44 120,555,373.76 Others 5,810,921.87 5,793,138.39 Subtotal 259,532,020.15 243,748,513.32 Elimination -4,321,608.44 -11,251,992.16 Total 255,210,411.71 232,496,521.16 31. Business taxes and surcharges Item 2007 2006 Base of payment Business tax 16,004,066.86 15,464,686.82 3% or 5% of taxable income Urban maintenance and 265,261.48 278,922.39 1% or 7% of VAT and Business construction tax tax Additional education Fees 496,739.91 524,944.93 3% of VAT and Business tax Land appreciation tax 2,222,360.58 5,164,588.90 30% － 60% four level progressive rates Others 13,938.07 Total 18,988,428.83 21,447,081.11 32. Financial costs 72/109 Item 2007 2006 Interest expense 27,390,481.68 16,110,849.04 Less: Interest income 1,060,270.20 1,315,782.97 Exchange loss 129,941.08 731,088.65 Less: Exchange gain 738,753.87 700,889.68 Others 692,170.54 448,821.57 Total 26,413,569.23 15,274,086.61 Note: Financial costs in 2007 increased by 72.93% than that in 2006, mainly due to the increase of the amount of loan and the bank loan interest rate. 33. Impairment loss Item 2007 2006 Bad debt -68,501.94 -1,822,394.00 Depreciation of inventory 4,095,788.65 -23,570,826.63 Depreciation of long-term equity investment 0 -5,480,891.94 Depreciation of fixed assets 29,446.64 Total 4,056,733.35 -30,874,112.57 34. Gain/loss on change in fair value Source 2007 2006 Trading financial assets -2,921,691.70 13,172,444.57 Total -2,921,691.70 13,172,444.57 35. Gain/loss on investment (1) The source of gain/loss on investment Source 2007 2006 1.Gain on investment under equity method 1,012,061.06 882,710.01 2. Gain on investment from disposal of trading financial assets 23,489,134.31 1,536,475.41 3. Gain on investment from disposal of available-for-sale financial 8,593,054.09 assets Total 33,094,249.46 2,419,185.42 Note A. Gain/loss on investment in 2007 increased by 1402.32% than that in 2006, mainly due to the 73/109 disposal of trading financial assets and available-for-sale financial assets. Note B. There is not significant restriction on the remittance of gain on investment. 36. Non-operating income Item 2007 2006 1．Income from disposal of non-current assets 5,224,333.58 18,006.00 Including: Disposal of fixed assets 5,224,333.58 18,006.00 2．Government subsidy 1,402,244.27 473,571.96 3．Others 1,445,882.91 399,014.42 Including: Debts unable to pay 1,045,063.98 Penalty of House rental deposit 9,671.95 169,256.00 Forfeit 110,000.00 Total 8,072,460.76 890,592.38 37. Non-operating expense Item 2007 2006 1. Expense from disposal of non-current assets 34,855.31 14,259.33 Including: Disposal of fixed assets 34,855.31 14,259.33 Disposal of intangible assets 2.Litigation indemnity 3,947,838.75 3.Tax late fee and forfeit 760,018.76 2,179,357.95 4.Compensation 209,100.66 5.Contingent liability -14,163,977.25 19,541,677.84 6.Others 205,113.35 38,296.09 Total -13,163,989.83 25,930,530.62 38. Income tax expense Item 2007 2006 Income tax for the current period 813,184.31 888,351.37 Plus: Deferred tax expense 120,981.92 888,472.65 Less: Deferred tax income 2,608,356.05 1,819,982.82 Income tax expense -1,674,189.82 -43,158.80 39. Non-recurring profit and loss (“-” for loss) 74/109 Item 2007 Gain/loss on disposal of non-current assets 13,782,532.36 Gain/loss on contingent liabilities irrelevant with the sales 14,163,977.25 Non-operation income/expense, net (except for the above issues) 1,882,995.07 Other non-recurring profit/loss recognized by the China Securities Regulatory Commission 20,567,442.61 The effect on income tax after deduction of non-recurring profit/loss -2,605,521.16 Total 47,791,426.13 Note: “Other non-recurring profit/loss recognized by the China Securities Regulatory Commission” means the change in fair value of and the disposal of trading financial assets. 40. Relevant information about cash flow statement (1) Other cash received from operating activities Item 2007 2006 Other cash received from operating activities 41,121,875.28 17,001,543.29 Including: Receiving significant fund flow 36,122,899.00 9,528,506.00 Housing maintenance fund 3,769,861.29 (2) Other cash paid relating to operating activities Item 2007 2006 Other cash paid relating to operating activities 50,562,079.15 34,409,089.16 Including: Administrative expenses 6,911,490.35 16,819,087.81 Distribution expenses 6,252,293.58 11,290,274.87 Payment of late fee and forfeit 2,179,357.95 Payment of housing utility specific fund 26,248,597.32 (3) Supplementary information of cash flow statement Supplementary information 2007 2006 1. Adjustment from net profit to cash flows from operating activities Net profit -27,381,215.98 -45,094,210.88 Plus: Provision for impairment of assets 4,056,733.35 -30,652,188.09 Depreciation of fixed assets, Oil-gas assets and Productive 23,744,263.33 23,397,564.27 biological assets Amortization of intangible assets 2,287,472.07 1,947,302.88 Amortization of long-term deferred expense 69,996.00 118,945.76 Loss on disposal of fixed assets, intangible assets and other -5,189,478.27 -3,746.67 75/109 Supplementary information 2007 2006 non-current assets(“-” for gain) Loss on fixed assets retirement (“-” for gain) 0 0.00 Loss on change in fair value(“-” for gain) 3,305,940.85 -13,267,114.57 Financial costs(“-” for gain) 26,781,668.89 16,110,849.04 Loss on investment(“-” for gain) -33,478,498.61 -2,324,515.42 Decrease of deferred tax assets(“-” for increase) -1,719,883.40 -1,819,982.82 Increase of deferred tax liabilities(“-” for decrease) -767,490.73 888,472.65 Decrease of inventory(“-” for increase) -47,715,838.17 20,843,403.69 Decrease in operating receivables(“-” for increase) -68,108,886.73 30,841,602.38 Increase in operating payables(“-” for decrease) 2,546,448.63 -119,987,695.42 Others 0.00 Net cash flow from operating activities -121,568,768.77 -119,001,313.2 2.Significant investment and financing activities irrelevant to cash flow Debt transferred to capital Changeable corporation bond due within 1 year Fixed assets acquired under finance leases 3.Changing in cash and cash equivalents Cash at the end of the period 242,161,687.34 98,467,039.17 Less: Cash at the beginning of the period 98,467,039.17 247,068,969.91 Plus: Cash equivalents at the end of the period Less: Cash equivalents at the beginning of the period Increase in cash and cash equivalents 143,694,648.17 -148,601,930.74 (4) Cash and cash equivalents Item 2007 2006 Cash 242,161,687.34 98,467,039.17 Including: Cash on hand 275,617.49 444,708.58 Bank deposit on demand 227,564,009.28 78,992,190.79 Other monetary assets on demand 14,322,060.57 19,030,139.80 Cash and cash equivalents at the end of the period 242,161,687.34 98,467,039.17 Including: Restricted Cash and cash equivalents held by parent company or subsidiaries 76/109 41. Segment report Item Sale of properties Property rental and management Transportation services 2007 2006 2007 2006 2007 I. Revenue 102,556,628.00 108,791,586.66 147,079,632.43 141,549,041.64 37,621,434.85 38 Including: external 102,556,628.00 108,791,586.66 131,830,226.91 125,413,626.15 37,621,434.85 38 revenue Revenue from segment 15,249,405.52 16,135,415.49 II. Cost 111,480,724.78 117,315,220.21 219,516,978.67 201,747,411.04 34,792,126.40 34 III. Operating profit -8,924,096.78 -8,523,633.55 -72,437,346.24 -60,198,369.40 2,829,308.45 4 (“-”for loss) IV. Total assets 1,378,862,455.89 1,247,800,322.75 426,357,000.13 401,734,007.53 209,676,023.15 112 V. Total liabilities 923,627,428.01 810,607,662.44 172,161,730.35 171,851,660.43 193,312,024.67 89 VI. Supplementary information 1．Depreciation and 882,356.67 1,062,920.51 15,239,263.83 12,612,320.13 8,437,730.77 8 amortization 2．Capital expenditure 3．Non-cash expense except for depreciation and amortization 77/109 Item Hotel and restaurant operations Others Elimination 2007 2006 2007 2006 2007 2006 I. Revenue 14,534,763.61 13,241,870.20 34,054,201.37 25,412,218.46 -23,636,101.61 -21,965,23 Including: external 13,533,555.61 12,323,942.20 26,668,713.28 20,500,327.30 revenue Revenue from 1,001,208.00 917,928.00 7,385,488.09 4,911,891.16 -23,636,101.61 -21,965,23 segment II. Cost 14,838,082.93 15,059,985.75 27,804,703.52 23,890,074.07 -19,690,101.61 -19,990,91 III. Operating -303,319.32 -1,818,115.55 6,249,497.85 1,522,144.39 -3,946,000.00 -1,974,32 profit (“-”for loss) IV. Total assets 2,439,882.75 2,491,754.02 630,355,570.98 535,023,323.64 -783,018,378.29 -654,347,76 V. Total liabilities 3,288,029.48 4,050,513.83 705,671,658.06 587,673,441.64 -679,522,130.35 -603,315,06 VI. Supplementary information 1．Depreciation and 552,954.58 552,963.04 740,293.33 205,170.18 amortization 2．Capital expenditure 3．Non-cash expense except for depreciation and amortization 78/109 Note X Notes to the financial statements of the Company 1. Accounts receivables (1) Aging analysis of accounts receivables is as follows： Aging Closing balance Amount Proportion Bad debt provision Over 3 years 117,192,064.40 100% 61,165,949.40 Total 117,192,064.40 100% 61,165,949.40 Aging Opening balance Amount Proportion Bad debt provision Over 3 years 117,192,064.40 100% 61,165,949.40 Total 117,192,064.40 100% 61,165,949.40 (2) Accounts receivables by Categories are as follows： Closing balance Categories Bad debt Amount Proportion provision Individually significant receivables 117,165,949.40 100.00% 61,165,949.40 Other insignificant amount 26,115.00 0.00% Total 117,192,064.40 100.00% 61,165,949.40 Opening balance Categories Bad debt Amount Proportion provision Individually significant receivables 117,165,949.40 100.00% 61,165,949.40 Other insignificant amount 26,115.00 0.00% Total 117,192,064.40 100.00% 61,165,949.40 (3) Notes to individually significant accounts receivables： 79 Name of company Closing balance Bad debt Age Reason for provision provision Shenzhen Jiyong Property 98,611,328.05 42,611,328.05 Over 3 Involved in lawsuit, refer to Note Development Co., Ltd years XII.1.(2) and Note XV.2 HongKong Lianfahang 15,663,680.00 15,663,680.00 Over 3 Uncollectible for a long International Development years period Co.,Ltd. Shenzhen Tewei Industry 2,836,561.00 2,836,561.00 Over 3 Uncollectible for a long Co.,Ltd. years period Total 117,111,569.05 61,111,569.05 (4) The details of significant accounts receivables are as follows： Name of company Amount Proportion to total Occurrence period accounts receivables Shenzhen Jiyong Property Development 98,611,328.05 84.15% Over 3 years Co., Ltd HongKong Lianfahang International 15,663,680.00 13.37% Over 3 years Development Co.,Ltd. Shenzhen Tewei Industry Co.,Ltd. 2,836,561.00 2.42% Over 3 years Total 117,111,569.05 99.94% 2. Other receivables (1) Aging analysis of other receivables is as follows: Aging Closing balance Amount Proportion Bad debt provision Within 1 year(including 1 year) 217,382,823.63 36.49% 2,600,000.00 1-2 years(including 2 years) 778,274.84 0.13% 601,762.21 2-3 years(including 3 years) 17,588,103.50 2.95% 12,532,519.60 Over 3 years 359,993,302.12 60.43% 187,453,670.00 Total 595,742,504.09 100.00% 203,187,951.81 80 Aging Opening balance Amount Proportion Bad debt provision Within 1 year(including 1 year) 2,479,425.04 0.51% 601,762.21 1-2 years(including 2 years) 69,528,043.91 14.44% 12,532,519.60 2-3 years(including 3 years) 111,901,514.05 23.24% 48,000,000.00 Over 3 years 297,568,962.05 61.81% 152,653,909.41 Total 481,477,945.05 100.00% 213,788,191.22 (2) Other receivables by Categories are as follows： Aging Closing balance Amount Proportion Bad debt provision Individually significant receivables 274,671,751.60 46.11% 203,187,951.81 Other insignificant amount 321,070,752.49 53.89% Total 595,742,504.09 100.00% 203,187,951.81 Aging Opening balance Amount Proportion Bad debt provision Individually significant receivables 286,153,227.11 59.43% 213,788,191.22 Other insignificant amount 195,324,717.94 40.57% Total 481,477,945.05 100.00% 213,788,191.22 (3) Notes to individually significant other receivables： Name of company Closing Bad debt Age Reason for provision balance provision Shum Yip Properties Development 117,575,038.40 75,375,946.59 Over 3 years Uncollectible for a long Limited period Gintian Industry (Group) Co.,Ltd. 56,600,000.00 56,600,000.00 Within 1 year to over Payment for discharging of 3 years guaranty responsibility that was difficult to be recollected Hainan Xinda Development 66,542,434.54 Within 1 year to over Uncollectible for a long Headquarter Company 39,364,470.07 3 years period Anhui Nanpeng Papermaking Co., 10,572,704.00 10,572,704.00 Over 3 years Uncollectible for a long Ltd period Shenzhen Shengfenglu ITC Jewel 10,199,186.28 6,532,519.60 2－3 years There is no asset to execute & Gold Co., Ltd the verdict, thus lead to uncollectibility, refer to Note XII.1.(3) for details 81 Name of company Closing Bad debt Age Reason for provision balance provision HongKong Yueheng Development 3,271,931.42 3,271,931.42 Over 3 years Has been liquidated Co., Ltd Elevated Train Project 2,542,332.43 2,542,332.43 Over 3 years Suspended Dameisha Tourism Center 2,576,445.69 2,576,445.69 Over 3 years Suspended Shenzhen ITC Food Enterprise 2,431,652.48 2,431,652.48 Over 3 years Insolvency Co.,Ltd. Shenzhen Wufang Pottery & 1,747,264.25 1,747,264.25 Over 3 years Poor operation status Porcelain Industrial Co., Ltd Total 274,058,989.49 201,015,266.53 (4) The details of significant other receivables are as follows： Name of company Amount Proportion to total other Occurrence period receivables Shum Yip Properties Development Limited 117,575,038.40 19.75% Over 3 years Hainan Xinda Development Headquarter Within 1 year to Company 66,542,434.54 11.18% over 3 years Within 1 year to Gintian Industry (Group) Co.,Ltd. 56,600,000.00 9.51% over 3 years Shenzhen ITC Tian’an Property Co., Ltd 29,705,931.45 4.99% Over 3 years Shenzhen Municipal Planning and Land Resource Bureau Longgang Breach 12,024,387.70 2.02% Over 3 years Anhui Nanpeng Papermaking Co., Ltd 10,572,704.00 1.78% Over 3 years Total 293,020,496.09 49.23% 3. Long-term equity investment Categories Closing balance Opening balance Long-term equity investment accounted using equity method 63,490,577.32 62,478,516.26 Long-term equity investment accounted using cost method 296,141,450.34 295,141,450.34 Sub-Total 359,632,027.66 357,619,966.60 Less：Provision for impairment of long-term equity investment 126,291,591.60 126,291,591.60 Total 233,340,436.06 231,328,375.00 (1) Long-term equity investment accounted using equity method Investment Amount of Opening Increase Decrease Closing Cash dividends initial balance balance received during investment the current period Shenzhen ITC 23,186,124.00 35,667,579.01 26,251.16 35,693,830.17 Tian’an Property Co., Ltd 82 Investment Amount of Opening Increase Decrease Closing Cash dividends initial balance balance received during investment the current period Shenzhen Jifa 30,645,056.04 25,044,945.88 953,768.17 25,998,714.05 Warehouse Company Limited Shenzhen ITC 1,500,000.00 1,765,991.37 32,041.73 1,798,033.10 Tian’an Properties Management Co., Ltd Total 55,331,180.04 62,478,516.26 1,012,061.06 63,490,577.32 (2) Long-term equity investment accounted using cost method Investment Initial Opening balance Increase Decrease Closing balance investment Shenzhen ITC Vehicles Services 29,850,000.00 29,850,000.00 29,850,000.00 Company Hainan Xinda Development 20,000,000.00 20,000,000.00 20,000,000.00 Headquarter Company Shenzhen Property and 30,950,000.00 30,950,000.00 30,950,000.00 Construction Development Company Shanghai Shenzhen Properties 50,000,000.00 50,000,000.00 50,000,000.00 Development Company Limited Shenzhen Huangcheng Real Estate 28,500,000.00 28,500,000.00 28,500,000.00 Company Limited Shenzhen ITC Property 20,000,000.00 20,000,000.00 20,000,000.00 Management Company Shenzhen ITC Food Co.,Ltd. 1,600,000.00 1,600,000.00 1,600,000.00 Shenzhen Property Construction 2,000,000.00 2,000,000.00 1,000,000.00 3,000,000.00 Supervision Company Limited Shenzhen International Trade Plaza 12,000,000.00 12,000,000.00 12,000,000.00 Shenzhen Real Estate Exchange 1,380,000.00 1,380,000.00 1,380,000.00 Shensan Co.,Ltd. 17,695.09 17,695.09 17,695.09 Hong Kong Shum Yip Properties 15,834,000.00 15,834,000.00 15,834,000.00 Development Limited Zhanjiang Shenzhen Estate 2,530,000.00 2,530,000.00 2,530,000.00 Development Company Limited China T.H. Co.,Ltd. 2,962,500.00 2,962,500.00 2,962,500.00 North Machinery (Group) Co.,Ltd. 3,465,000.00 3,465,000.00 3,465,000.00 Guangdong Huayue Real Estate 8,780,645.20 8,780,645.20 8,780,645.20 Co.,Ltd. Shenzhen Huajing Glass Bottle 7,600,000.00 7,600,000.00 7,600,000.00 Company Limited Shenzhen Fulin Industrial Co., Ltd. 21,181,023.36 21,181,023.36 21,181,023.36 Anhui Nanpeng Papermaking Co., 13,824,000.00 13,824,000.00 13,824,000.00 83 Investment Initial Opening balance Increase Decrease Closing balance investment Ltd Shenzhen Wufang Pottery & 18,983,614.14 18,983,614.14 18,983,614.14 Porcelain Industrial Co., Ltd Shenzhen ITC Industrial 20,154,840.79 3,682,972.55 3,682,972.55 Development Co., Ltd Total 311,613,318.58 295,141,450.34 1,000,000.00 296,141,450.34 (3) Provision for impairment of long-term equity investment Item Opening balance Increase Decrease Closing balance Anhui Nanpeng Papermaking Co., Ltd 13,824,000.00 13,824,000.00 Shenzhen Wufang Pottery & Porcelain Industrial Co., Ltd 18,983,614.14 18,983,614.14 Shenzhen Huajing Glass Bottle Company Limited 6,608,139.00 6,608,139.00 Shenzhen ITC Industrial Development Co., Ltd 3,682,972.55 3,682,972.55 Guangdong Huayue Real Estate Co.,Ltd. 8,000,000.00 8,000,000.00 Shenzhen Fulin Industrial Co., Ltd. 21,041,503.00 21,041,503.00 North Machinery (Group) Co.,Ltd. 3,465,000.00 3,465,000.00 China T.H. Co.,Ltd. 2,160,300.45 2,160,300.45 Shensan Co.,Ltd. 17,695.09 17,695.09 Shenzhen ITC Food Co.,Ltd. 1,600,000.00 1,600,000.00 Hainan Xinda Development Headquarter Company 20,000,000.00 20,000,000.00 Zhanjiang Shenzhen Estate Development Company Limited 2,530,000.00 2,530,000.00 Hong Kong Shum Yip Properties Development Limited 15,834,000.00 15,834,000.00 Shenzhen International Trade Plaza 8,544,367.37 8,544,367.37 Total 126,291,591.60 126,291,591.60 4. Revenue and cost of sales (1) Details: Item 2007 2006 1．Sales 20,822,123.59 20,878,827.32 2．Other operating income Total 20,822,123.59 20,878,827.32 Item 2007 2006 1．Cost of sales 7,826,270.43 10,502,189.30 2．Other operating cost 84 Total 7,826,270.43 10,502,189.30 (2) Listed by the categories of production or business: Categories Revenue Cost of sales Margin profit Sale of properties 789,674.00 553,526.23 236,147.77 Property rental and management services income 20,032,449.59 7,272,744.20 12,759,705.39 Total 20,822,123.59 7,826,270.43 12,995,853.16 5. Gain/loss on investment The source of gain/loss on investment： Source 2007 2006 1. Gain on investment under equity method 1,012,061.06 882,710.01 2.Gain on investment from disposal of trading financial assets 22,800,132.83 274,205.92 3.Gain on investment from disposal of available-for-sale financial assets 8,593,054.09 Total 32,405,247.98 1,156,915.93 Note XI Related party relationship and transactions 1. Identification of related party of the Company According to Chinese Accounting Standards (2006) and the related regulations of China Securities Regulatory Commission, the related party is defined as “when a party controls, jointly controls or exercises significant influence over another party, or when two or more parties are under the common control, joint control or significant influence of the same party, the related party relationships are constituted.” 2. Related party relationship (1) Related party with control relationship 1) Information of parent company Registered Relation Legal Name Business scope Nature address ship person Shenzhen Shenzhen, Providing guarantee for city state-owned Parent Limited Chen Investment China enterprises; Managing the state-owned company liability Hongbo Holdings shareholdings except for which is company Corporation monitored directly by State-owned (state-owned) 85 Assets Supervision and Administration Commission of Shenzhen Municiple Government; Managing the reconstruction, system renovation and capital operation over the affiliates; investing; other business authorized by State-owned Assets Supervision and Administration Commission of Shenzhen Municiple Government. The registered controlling shareholders of the Company for the moment is Shenzhen Construction Investment Holdings, the details refer to Note I.4. 2) Subsidiaries with control relationship Information about subsidiaries of the Company refers to Note VII.1. (2) The registered capital and changes of related party with control relationship 1) The registered capital and changes of shareholder with control relationship (Unit: RMB0’000) Name Opening balance Increase Decrease Closing balance Shenzhen Investment Holdings Corporation 400,000.00 400,000.00 2) The registered capital of subsidiaries with control relationship refers to Note VII.1. (3) The shareholdings held by the related party with control relationship and the changes in shareholdings (All amounts are presented in RMB, unless otherwise stated.) Name Opening balance Increase/Decrease Closing balance Amount % Amount % Amount % Shenzhen Investment Holdings 323,747,713.00 59.75 323,747,713.00 59.75 Corporation Hainan Xinda Development Headquarter 20,000,000.00 100 20,000,000.00 100 Company Shenzhen ITC Restaurant Limited 2,000,000.00 100 2,000,000.00 100 Shenzhen Property and Construction 30,950,000.00 100 30,950,000.00 100 Development Company Shanghai Shenzhen Properties 50,000,000.00 100 50,000,000.00 100 Development Company Limited Shenzhen ITC Property Management 20,000,000.00 100 20,000,000.00 100 Company 86 Name Opening balance Increase/Decrease Closing balance Amount % Amount % Amount % Shenzhen ITC Vehicles Services 29,850,000.00 100 29,850,000.00 100 Company Shenzhen Huangcheng Real Estate 30,000,000.00 100 30,000,000.00 100 Company Limited Sichuan Tianhe Industry Co., Ltd 8,000,000.00 100 8,000,000.00 100 Shanghai Shenzhen Properties 300,000.00 100 300,000.00 100 Management Company Shenzhen ITC Property Management 1,200,000.00 100 1,200,000.00 100 Engineering Equipment Company Limited Shenzhen Tianque Elevator Technology 5,000,000.00 100 5,000,000.00 100 Company Limited Chongqing Shenzhen ITC Property 5,000,000.00 100 5,000,000.00 100 Management Company Limited Chongqing Ao’bo Elevator Company 2,000,000.00 100 2,000,000.00 100 Limited Shenzhen ITC Petroleum Company 8,500,000.00 100 8,500,000.00 100 Limited Shenzhen ITC Vehicle Industry 1,500,000.00 100 1,500,000.00 100 Company Garage Shenzhen Tesu Vehicle Driver Training 2,000,000.00 100 2,000,000.00 100 Center Limited Shenzhen Huangcheng Real Estate 5,000,000.00 100 5,000,000.00 100 Management Company Limited Zhanjiang Shenzhen Estate 2,530,000.00 100 2,530,000.00 100 Development Company Limited Shenzhen Property Construction 2,000,000.00 100 1,000,000.00 100 3,000,000.00 100 Supervision Company Limited Shenzhen International Trade Plaza 12,000,000.00 100 12,000,000.00 100 Shenzhen Real Estate Exchange 1,380,000.00 100 1,380,000.00 100 Shum Yip Properties Development HKD20,000,000.00 100 HKD20,000,000.00 100 Limited Wayhang Development Limited HKD2.00 100 HKD2.00 100 Chief Link Properties Limited HKD100.00 70 HKD100.00 70 Syndis Investment Company Limited HKD4.00 100 HKD4.00 100 (4) Other related parties Name Relationship Shenzhen Jifa Warehouse Company Limited Joint venture Shenzhen ITC Tian’an Property Co., Ltd Joint venture Anhui Nanpeng Papermaking Co., Ltd 30% shareholdings held by the Company 87 Shenzhen Fulin Industrial Co., Ltd. 10.59% shareholdings held by the Company Shenzhen Wufang Pottery & Porcelain Industrial Co., Ltd 26% shareholdings held by the Company Shenzhen ITC Industrial Development Co., Ltd 38.33% shareholdings held by the Company 3. Related Party Transactions (1) Receiving guarantee 1) Shenzhen ITC Tian’an Property Co., Ltd provides guarantee for the Company’s short-term borrowings amounting to RMB15 million from Guangdong Development Bank Co., Ltd Shenzhen Baihua Garden Branch with the mortgage of the stores No. 302, No.501, No. 502, No.602, and No.603 of Tian’an Plaza. The closing balance of the loan at the end of the period is RMB15 million. 2) Shenzhen ITC Tian’an Property Co., Ltd provides guarantee for the Company’s short-term borrowings amounting to RMB69 million from China Bank Shenzhen Branch with the mortgage of the store No. 401 of Tian’an Plaza. The guarantee amount is RMB21 million. The closing balance of the loan at the end of the period is RMB49 million. 3) Shenzhen Huangcheng Real Estate Company Limited and Shenzhen Investment Holdings Corporation provide joint liability guarantee for the Company’s long-term loan amounting to RMB150 million from China Construction Bank Shenzhen Branch. The closing balance of the loan at the end of the period is RMB149.45 million. (2) Remuneration of key management In 2007 the Company paid RMB3.1618 million (including IIT) to key management, including the remuneration for last year amounting to RMB1.0806 million (including IIT) and total remuneration of key management in charge till December 31, 2007 amounting to RMB1.6416 million (including IIT). In 2006 the Company paid RMB8.2446 million (including IIT) to key management. (3) Amount due to/from related parties Name Balances % 2007-12-31 2006-12-31 2007-12-31 2006-12-31 Other receivables: Shenzhen ITC Tian’an Property Co., 29,705,931.45 29,705,931.45 5.24 9.69 Ltd 88 Name Balances % 2007-12-31 2006-12-31 2007-12-31 2006-12-31 Anhui Nanpeng Papermaking Co., 10,572,704.00 10,572,704.00 1.87 3.45 Ltd Shenzhen ITC Industrial 2,431,652.48 2,431,652.48 0.43 0.79 Development Co., Ltd Shenzhen Wufang Pottery & 1,747,264.25 1,747,264.25 0.31 0.57 Porcelain Industrial Co., Ltd Short-term borrowings: Shenzhen Investment Holdings 14,040,774.90 13,220,446.21 7.89 3.23 Corporation Other payables: Shenzhen Fulin Industrial Co., Ltd. 9,528,506.00 9,528,506.00 3.16 16.09 Shenzhen Jifa Warehouse Company 1,558,256.00 1,825,428.00 0.52 3.08 Limited Note XII Contingencies 1. Pending litigations (1) In Dec. 1997, such eight owners as Haiyi Industrial (Shenzhen) Co., Ltd. and etc. prosecuted the Company and Shenzhen International Trade Plaza Property Development Co., Ltd, a subsidiary of the Company, to Shenzhen Intermediate People’s Court (hereinafter referred to as Shenzhen Intermediate Court) due to the Company’s overdue transfer of property, requested to cancel the Property Purchasing and Sale Contract and asked for returning the consideration for house purchasing and together with a penalty totally amounting to RMB 0.3 billion. The Company took the counterclaim due to the prosecutor’s unpaid fees of property, Shenzhen Intermediate Court judged that the Company won the lawsuit. The prosecutor did not accept and proceeded with an appeal to Guangdong Higher People’s Court (hereinafter referred to as Guangdong Higher Court). Guangdong Higher Court made the final judgment in April 1999 and judged that the Contract on Purchasing and Sale of Real Estate of Shenzhen City signed between the both parties was effective, the opposing party has paid off all considerations of property, and the Company should pay penalty, compensation and legal fare totally amounting to HKD79.16 million to the opposing party. The said eight companies applied to Shenzhen Intermediate Court for the execution in June 1999. Because the judgment of second instance unclearly cognized truth and improperly applied for laws, Guangdong Higher 89 Court decided to retry the case in Aug. 1999 under the Company’s application. According to the decision of the retrial, Shenzhen Intermediate Court ended the execution of the case after the Company provided possession’s drawing. At the end of 2003, Guangdong Higher Court overruled the application of the Company after check. The Company has estimated relevant losses amounting to RMB41,772,906.07 according to the carrying amount of the property drawn. (2) In 1993, the Company signed Right of Development Transfer Contract of Jiabin Building (name of Jiabin Building has been changed to Jinlihua Building) with Shenzhen Haibin Property Development Co., Ltd. (name of which has been changed to Shenzhen Jiyong Property Development Co., Ltd., hereinafter referred to as Jiyong Company). In January 1999, Jiyong Company prosecuted the company to Guangdong Higher People’s Court on the ground that the area of premises was in discrepancy with the contract, asked to terminate the transfer contract and get back the transfer consideration paid and construction payment made. With respect to this, the company counterclaimed the opposing party to pay back the rest transfer consideration and applied for sealing up the property with an area of 28,000 sq. m. On July 29, 2001, Guangdong Higher People’s Court issued Civil Court Judgement YGFM (1999) No. 3 (hereinafter referred to as Judgement No. 3) to judge that the Company should transfer the title of land use right specified in the transfer contract to Jiyong Company within 30 days from the date the judgement taking into effect and Jiyong Company should pay off the transfer consideration amounting to RMB143,860,000 within 60 days from the date the Company transferred the title of land use right. On Nov. 27, 2001, the Company applied to Guangdong Higher People’s Court for forcible execution, however since Industrial & Commercial Bank of China Zhejiang Branch had objected on the sealing of the properties, Guangdong Higher People’s Court judged to release the Company’s sealing of property of Jiyong Company with an area of approximately 10,000 sq. m. In January 2006, Guangdong Higher People’s Court issued Civil Court Judgement YGFZ (2002) No. 1 to judge that since the Company has not yet transferred the title of land use right specified in the transfer contract to Jiyong Company and Jiyong Company cannot provide other properties to execute the judgement and the Company also cannot provide the property under the judgement, judge no. 2 of Judgement No. 3 “Jiyong Company should pay off the transfer consideration amounting to RMB143,860,000 within 60 days 90 from the date the Company transferred the title of land use right” is canceled. When the reasons of canceling the judge no. 2 are eliminated, the judge no. 2 still should be executed. In March 2006, according to the ordain of Guangdong Higher People’s Court, the properties in Jiabin Building that have been sealed up in this case have been leased automatically. Till the end of the period, the Company has applied to the Court for re-executing the judgement, at present the Company is waiting the Court for investigation. (3) On December 5, 2005, the Company prosecuted Jinhang Company to Shenzhen Intermediate People’s Court for overdue rent, management fee and power charge amounting to RMB34,357,599.60 for a period from February 2004 to September 2005 together with a joint liability amounting to RMB10,053,000.00 from legal representative of Jinhang Company, Linruohua, for the overdue payment of Jinhang Company according to the contract signed by both parties. On Oct 2007, Shenzhen Intermediate People’s Court made a first-instance judgement that Jinhang Company should pay RMB32,524,650.45 to the Company and legal representative of Jinhang Company, Linruohua, should take joint discharge liability within the bound amounting to RMB10,053,000.00. This judgement has taken into effect. Since Jinhang Company and Linruohua did not execute the judgement, and Jinhang Company cannot provide properties that can be used to execute the judgement, the Company made a bad debt provision on receivables amounting to RMB6,532,519.60 from Jinhang Company that is recognized by deducting the deposit received from management fee receivables and advance money for Jinhang Company. (4) Duokuai Elevator Case 1) On July 11, 2002, Shenzhen Huangcheng Real Estate Co., Ltd., a subsidiary of the Company, (hereinafter referred to as Real Estate Company) and Duokuai Elevator (Far East) Co., Ltd. (Hereinafter referred to as Duokuai Company) signed Elevator Equipment Contract and House Mortgage and Purchasing Contract to purchase the elevators for Huang Yu Yuan District B from Duokuai Company, Taoboming agreed to provide guaranty with a mortgage of his own properties to Real Estate Company to ensure that Duokuai Company would supply the elevators on time. On December 6, 2004, Real Estate Company applied to Shenzhen Arbitration Committee for arbitration to cancel the contract on the ground 91 that Duokuai Company did not supply the elevators, and demanded from the Elevator Company a double repayment of the deposit paid amounting to RMB7,539,000.00, the consideration paid amounting to RMB15,904,000.00 and a compensation amounting to RMB277,268.51. On November 24, 2005, Shenzhen Arbitration Committee made an arbitration that Duokuai Company should make a double repayment of the deposit paid by Real Estate Company amounting to RMB7,539,000.00 together with a repayment of the consideration paid by Real Estate Company amounting to RMB15,904,000.00 and Taoboming should take joint discharge liability within the bound of the value of the properties mortgaged. Duokuai Company and Taoboming refused to accept the arbitration and applied to Shenzhen Intermediate People’s Court for revoking the arbitration on December 7, 2005. In 2006, Shenzhen Intermediate People’s Court issued Civil Ruling Paper SZFMSCZ (2006) No. 18 and 19 to adjudge that the application of revoking the Arbitration SZCZ (2005) No. 1227 made by Shenzhen Arbitration Committee from Shenzhen Arbitration Committee was overruled. On November 11, 2006, Real Estate Company reported the condition of execution to Shenzhen Intermediate People’s Court and applied to it for an auction of the properties mortgaged. Since Duokuai Company has provided the properties of Taoboming (including premises located at Shenzhen Huangchen Plaza and Shimao Plaza with total areas of 957.31 sq. m and a premise located in Hong Kong) as mortgage; Real Estate Company has received part of the equipments and at the end of the period the Company did not pay off the payables to Duokuai Company, its related party and its warrantor, the Company estimated that this contingency would not incur a heavy loss to the Company and a provision for bad debt on receivable from Duokuai Company was not made by the Company. 2) On August 3, 2006, Hainan Duokuai Elevator Maintenance (Far East) Co., Ltd. Shenzhen Branch (hereinafter referred to as Duokuai Shenzhen Company) prosecuted Shenzhen Huangcheng Real Estate Management Co., Ltd, a subsidiary of the Company, (hereinafter referred to as Huangcheng Management Company) to Shenzhen Futian People’s Court and asked Huangcheng Management Company to pay off the unpaid maintenance expenses. In the process of investigation, Duokuai Shenzhen Company applied for adding Real Estate Company as joint defendant and asked Real Estate Company to take joint discharge liability for aforesaid instance. On January 26, 2007, Shenzhen Futian People’s Court issued the Judgement SFFMECZ (2006) No. 1977 to adjudge that Real Estate Company and Huangcheng Management Company 92 should pay the maintenance expenses amounting to RMB925,500.00 and RMB1,105,130.00 respectively together with a compensation on related interest loss to Duokuai Shenzhen Company. Real Estate Company and Huangcheng Management Company appealed on the ground of non liquet and violation of legal procedure. On January 28, 2008, Shenzhen Intermediate People’s Court issued Civil Court Judgement SZFMEZZ (2007) No. 827 to adjudge that Real Estate Company and Huangcheng Management Company should pay the maintenance expenses amounting to RMB893,100.00 and RMB1,102,730.00 respectively together with a compensation on related interest loss to Duokuai Shenzhen Company. Real Estate Company and Huangcheng Management Company have recognized relevant expenses in the financial statements. 3) In July 2002 and January 2003, Real Estate Company signed Shenzhen Real Estates Purchasing and Sale Contracts with Taoboming to sell District A 4-2901 and 6-901 to him respectively. Taoboming applied a mortgage from Industrial and Commercial Bank of China Futian Breach after paying down payment. Since Taoboming’s prosecuting Real Estate Company for handling the Property Ownership Certificates of 8 premises (including aforesaid 2 premises) is overruled by the Court, Taoboming appealed to the Court on the ground that he cannot exercise the right pertaining to aforesaid premises and asked for termination of the Shenzhen Real Estates Purchasing and Sale Contracts signed with Real Estate Company and the Individual House Mortgage Contract signed with Industrial and Commercial Bank of China Futian Breach and a repayment of all considerations he paid, interest, insurance and survey fee from Real Estate Company. On November 11,2007, Shenzhen Intermediate People’s Court issued the Judgements SZFMWCZ (2007) No. 79 and SFFMSCZ (2007) No.1022 to adjudge that a) the Shenzhen Real Estates Purchasing and Sale Contracts signed by Real Estate Company and Taoboming should be overruled; b) Real Estate Company should repay the consideration for purchasing the premises amounting to RMB3,549,323.00 together with interest paid to the bank amounting to RMB158,066.98 to Taoboming; c) Real Estate Company should compensate Taoboming insurance and survey fee amounting to RMB19,872.00; d) Individual House Mortgage Contract is overruled; e) Taoboming should pay off the principal and interest amounting to RMB811,521.42 to Industrial and Commercial Bank of China Futian Branch, Real Estate Company should take joint discharge liability for this payment; f) Industrial and Commercial Bank of China Futian Breach should have priority of claim for the premises involved; g) Real Estate Company should pay litigation fee 93 amounting to RMB35,367.76 and RMB14,002.20 for Taoboming and Industrial and Commercial Bank of China Futian Branch respectively. Real Estate Company has reversed the relevant revenue, cost of sale and taxes recognized in aforesaid transaction during the current financial year according to the Judgements and recognized losses accordingly. 4) Part of the elevators and accessories purchased by Real Estate Company from Duokuai Company are supplied by Duokuai (Jiangyin) Elevator Manufacturing Co., Ltd Shenzhen Branch (hereinafter referred to as Duokuai Jiangyin Company). Duokuai Jiangyin Company prosecuted Real Estate Company to Shenzhen Intermediate People’s Court for its overdue payment and asked for a payment for elevator accessories amounting to RMB8,159,880 and an overdue penalty amounting to RMB205,971.69 from Real Estate Company. On June 28, 2007, Shenzhen Intermediate People’s Court issued Civil Court Judgement SZFMSCZ (2007) No. 22 to overrule Duokuai Jiangyin Company’s prosecution. Duokuai Jiangyin Company refused to accept the Judgement and appealed to Guangdong Higher Court. On January 30, 2008, Guangdong Higher Court issued Civil Court Judgement YGFMSZZ (2007) No. 18 to reject the appeal and sustain the original judgement. 5) In June 2004, Shenzhen Meisi Industrial Co., Ltd. (hereinafter referred to as Meisi Company) prosecuted Shenzhen Luohu Economic Development Co., Ltd and the Company to Shenzhen Intermediate People’s Court for illegal use of land that is owned by it and asked to cease the infringing act and to receive a compensation amounting to RMB8 million. In March 2005, Shenzhen Intermediate People’s Court issued Civil Court Judgement SZFMCZ (2004) No. 108 to adjudge that the Company should return the land with an area of 4,782 sq. m to Meisi Company within 3 months and other claim of Meisi Company is overruled. The Company refused to accept the Judgement and appealed to Guangdong Higher Court. On November 25, 2005, Guangdong Higher Court adjudged that the Civil Court Judgement SZFMCZ (2004) No. 108 issued by Shenzhen Intermediate People’s Court should be cancelled and the prosecution of Meisi Company should be overruled. During the process of trial of second instance, Meisi Company applied to Registration Center for Property of Real Estate of Shenzhen Municipality for revoking Property Ownership Certificates SFDZ No. 3000320987 and No. 300119899 owned by the Company. On July 7, 2005, Registration Center for 94 Property of Real Estate of Shenzhen Municipality issued the reply of SFDH (2005) No. 84 to Meisi Company and judged that aforesaid certificates are legal and effective and should not be revoked. Meisi Company disagreed with this judgement and instituted the administrative reconsideration to the People's Government of Shenzhen Municipality. On October 8, 2005, the People's Government of Shenzhen Municipality issued Decision on Administrative Reconsideration SFFJ (2005) No. 294 and judged that aforesaid 2 certificates were registered illegally and should be revoked, reply of SFDH (2005) No. 84 was canceled accordingly. The Company refused to accept Decision on Administrative Reconsideration SFFJ (2005) No. 294 and instituted an administrative litigation to Shenzhen Intermediate People’s Court on October 20, 2005. Shenzhen Intermediate People’s Court issued Administrative Judgement SZFXCZ (2005) No. 23 to adjudge that Decision on Administrative Reconsideration SFFJ (2005) No. 294 is sustained. The Company disagreed with this administrative judgement and appealed to Guangdong Higher Court on August 2, 2006. Guangdong Higher Court issued Administrative Judgement YGFXZZ (2006) No. 154 to reject the appeal and sustain Administrative Judgement SZFXCZ (2005) No. 23. According to this Judgement, Shenzhen Municipal Bureau of Land Resources and Housing Management would reconsider the requirement of Meisi Company to revoke the Property Ownership Certificate SFDZ No. 3000320987 and No. 3000119899 of the Company. On May 15,2007, Registration Center for Property of Real Estate of Shenzhen Municipality issued Decision on Revoking the Property Ownership Certificate SFDZ No. 3000119899 and No. 3000320987 (SFZ (2007) No. 27). Registration Center for Property of Real Estate of Shenzhen Municipality decided to revoke property ownership certificate SFDZ No. 3000119899 and No. 3000320987 owned by the Company that indicating the ownership and use right of Meilin Workshop, Comprehensive Building and the land occupied with an area of 11,500 sq. m and restore the registration of Meilin Workshop, Comprehensive Building and use right of land occupied to property ownership certificate of SFDZ No. 0103142 and No. 0103139. The Company had ownership of the use right of Meilin Workshop, Comprehensive Building and the land occupied with an area of 11,500 sq. m according to original property ownership certificate. On July 9,2007, the Company instituted the administrative reconsideration to the Administrative Reconsideration Office of the People's Government of Shenzhen Municipality, which considered that those 95 action that Registration Center for Property and Real Estate of Shenzhen Municipality revoked property ownership certificate SFDZ No. 3000119899 and No. 3000320987 owned by the Company and restore the registration of Meilin Workshop, Comprehensive Building and use right of land occupied to property ownership certificate SFDZ No. 0103142 and No. 0103139 went against the provisions of the Decision on Strengthening Land Market Management and further Enlivening and Standardizing Real Estate Market (SF (2001) No. 94) promulgated by People’s Government of Shenzhen Municipality, and requested People’s Government of Shenzhen Municipality to rescind the Decision on Revoking the Property Ownership Certificate SFDZ No. 3000119899 and No. 3000320987 (SFZ (2007) No. 27). On September 6, 2007, the People's Government of Shenzhen Municipality issued Decision on Administrative Reconsideration SFFJ (2007) No. 255 to sustain the administrative decision of Shenzhen Municipal Bureau of Land Resources and Housing Management. In November 2007, Shenzhen Municipal Bureau of Land Resources and Housing Management rejected again the application of Meisi Company for revoking Property Ownership Certificate SFDZ No. 0103142 and No. 0103139. Meisi Company instituted an administrative litigation to Shenzhen Futian People’s Court to ask for revoking said administrative decision of Shenzhen Municipal Bureau of Land Resources and Housing Management. The Company intervened as third party. Court session started on January 8, 2008, no verdict has been issued. The Company believed the rights of land and buildings listed on the Property Ownership Certificates were valid and the Company would protect the legal rights of its own through laws. 2. Significant agreement breached From 2000 to 2002, the subsidiary of the Company, Shenzhen Huangcheng Real Estate Company Limited (hereinafter as “Real Estate Company”), signed the Agreement of Relieving the Agreement of Jointly Developing and Operating the Shenzhen Huanggang Port Service District and several supplementary agreements with Hong Kong Hehe Huanggang Development Company Limited and Guangdong Provincial Road Construction Company (hereinafter the two companies combined as the “Hehe Company”), terminating the partner relationship. The agreement took effective under the approval of Shenzhen Foreign Trade and Economic Cooperation Bureau with document SWJMZF [2002] No.2027. According to the agreement and supplementary agreements, Real Estate Company should pay back the principle and interests amounting to RMB433,880,000 to the Hehe Company within 48 months after the agreement taking effective. And the amount of repayments in different phases, the time limit and the penalty calculation method were confirmed in the agreement. Real Estate Company failed to pay the arrearage 96 according to the agreement, and recognized Contingent Liabilities amounting to RMB19.5417 million at the end of 2006 based on the penalty of interest at the moment. Up to December 31 2007, Real Estate Company had paid back total principle and interests. On January 15 2008, Real Estate Company and the Hehe Company signed an agreement that Real Estate Company should pay RMB5 million (net of income tax, amounted to RMB5.3957 million before income tax) on January 18 2008 as the settlement of penalty of interest overdue. The Hehe Company agreed not to pursue to Real Estate Company for other losses (including other penalty of interest). On January 18 2008 Real Estate Company paid to the Hehe Company the overdue penalty of interest amounting to RMB5.3957 million. 3. Guarantee (1) Guarantee for Jintian Company At the beginning of the report period, the Company provided security to Jintian Industry (Group) Co., Ltd (hereinafter as “Jintian Company”) for its bank loans amounting to RMB2,600,000.00 from China Construction Bank Shenzhen Branch (hereinafter as the “Construction Bank”). On December 1998 the Construction Bank signed a loan contract with Jintian Company for the bank loan amounting to RMB2.6 million, and the Company was commanded to undertake joint liability for the loan. Since Jintian Company did not pay back the loan and the Company did not undertake the joint liability either, the Construction Bank appealed to Luohu Court, applying for Jintian Company paying back the principle and interests, and asking for the Company undertaking joint liability. On May 2001, the court adjudicated Jintian Company paying back the principle and interests, and the Company undertaking joint liability. The Company made a contingent loss amounting to RMB2.6 million in the prior years. On June 2004 the Construction Bank transferred the debt rights and other relevant rights to China Xinda Asset Management Corporation Shenzhen Branch (hereinafter as the “China Xinda”). In 2006 the China Xinda applied for resuming the execution of the Civil Judgement (2001) SLFJECZ No.441, requiring the Company paying the principal amounting to RMB2.6 million and relevant interests and legal costs. The China Xinda consigned the above debt right entirely to Shangzi Industry (Shenzhen) Company Limited. On July 6 2007, the Company reached an agreement with Shangzi Industry (Shenzhen) Company Limited, and paid the guarantee compensation amounting to RMB2.6 million on July 15 2007. This year the Company increased the receivables amounting to RMB2.6 million due from Jintian Company, and made the entire provision of bad debt. 97 Up to the end of this period, the Company had undertaken the guarantee losses amounting to RMB56.6 million and made the entire provision of bad debt. The Company was seeking for the executable property of Jintian Company. (2) Internal Guarantee 1) Shenzhen Huangcheng Real Estate Company Limited provided joint liability security to Shenzhen ITC Vehicles Services Company for a short-term borrowings amounting to RMB15 million from China Construction Bank Shenzhen Zhenghua Branch and another short-term borrowings amounting to RMB28 million from Huaxia Bank Shenzhen Nanyuan Branch. The balance of the above loans at the period end amounting to RMB13.6 million and RMB28 million respectively. 2) Shenzhen Huangcheng Real Estate Company Limited and Shenzhen Investment Holdings Corporation provided joint liability security to the Company for the long-term loan amounting to RMB150 million from China Construction Bank Shenzhen Branch. The balance of the above loan at the period end amounted to RMB149.45 million. 3) Shenzhen Property Construction Development Company provided security and guarantee for the Company’s long-term loan from China Construction Bank Shenzhen Zhenghua Branch with the mortgage of the unit land A824-0097 in Project FHRL. The credit limit of the loan was RMB100 million and the closing balance was RMB80 million. 4) The Company provided security to its subsidiary Shenzhen Huangcheng Real Estate Company Limited for its long-term loan from China Agriculture Bank East Bank. The credit limit of the loan was RMB160 million and the closing balance was RMB159.9923 million. 5) The Company pledged the shop 4-01 at the 3rd floor, District A, International Trade Center for its subsidiary Shenzhen Huangcheng Real Estate Company Limited for the short-term borrowings amounting to RMB63 million. The closing balance of the loan was RMB63 million. 98 (3) Guarantee for the proprietors The Company and its subsidiaries provided housing credited loan guarantee for the commodity houses purchasers. Up to December 31 2007, the guarantee amount unsettled was RMB 78.77 million. That the real estate developer provides guarantee to petty proprietor for the purchasing of commodity houses of the developer is a common phenomenon in this business of line. 4. Contingent assets (1) Hubei Foreign Trade and Economic Cooperation Bureau Shenzhen Office (hereinafter as the “Office”) appealed to Shenzhen Intermediate People’s Court on July 2000 due to the Company’s overdue transfer of building, to cancel the Agreement signed by the Office and the Company for purchasing houses of 4000 sq. m. used as office in Jiabing Building (now as Jinlihua Building), and require the Company return the fee for house purchasing amounting to RMB10.8 million and compensate for its losses amounting to RMB18.6756 million. As stated in the judgment of (2002) YGFMYZZ No. 90 document, Guangdong Higher People’s Court (hereinafter as the “Higher Court”) judged the Company to return construction fee amounting to RMB 10.8 million and corresponding bank interest to the Office. The Office has applied for execution to Guangdong Higher People’s Court. On January 2005 Guangdong Railage Intermediate Court (hereinafter as the “Railage Court”) was appointed by the Higher Court to execute the case. The Railage Court delivered the seal-up order to the liquidation team of Luohu Hotel, sealing up the debt right amounting to RMB 23 million allocated to the Company. The Company rejected the judgment and applied for retrial to the Supreme Court of the P.R.C. On August 2005, the Supreme Court issued the (2004) MEJZ No.146-1 Civil Judgment and ruled that the Higher Court should give the case second instance and the execution should be suspended during the second instance. On May 12 2006 the Higher Court made the judgment that the original judgment should be sustained and the execution be resumed. The Office applied to the Railage Court for the payment and bank interest in the second trial period, while the Company applied for the suspension of execution. On 30 June 2006, the (2004) GTZFZZ No. 225-4 Civil Judgment was issued by the Railage Court, which ruled that: (i) Being lack of facts and legal basic, the Company’s applying for the suspension of execution should be denied; (ii) It was legal for the Office applying for the payment and the Railage Court decided to transfer the above RMB 23 million after deduction of execution fees to the Office; (iii) The Office’s applying for the bank 99 interest in the second trial period should be denied; (iv) The repayment liability of the Company ruled by the Judgement No.90 should be legally executed; (v) the execution of Judgement No.90 was terminated. The Company recognized losses based on the above judgements, and increased the receivables due from Jiyong Company and made provision for bad debts accordingly. The Company considered that there is error existing in cognizance of fact and application of the law when second trial judgement was made and appealed to the Supreme People's Court. The Supreme People's Court issued the Civil Ruling Paper MEJZ (2004) No. 146-3 to rule that this litigation would be retried by the Supreme People's Court. Up to the end of this period, the property rights of the Jiabing Building in this case had not been approved by related government department or authorities. (2) On May 25 2006, the People's Government of Shenzhen Municipality announced the Notice on Transferrable Plan of Shenzhen Community Facilities and Public Services Houses (SFB [2006] No.79), which stipulated that the scope of the transfer covers (i) the buildings built for resident committees and junior and senior schools (excluding that the land contract clearly indicates the property right belongs to land development entity), since the scheme of payment-transfer of land use right has been executed on January 3 1998, and (ii) public services building such as kindergarten that should been transferred to the government according to the land contract or other agreements but not, since the scheme of payment-transfer of land use right has been executed on January 3 1998. If the buildings built for resident committees and junior and senior schools were not definite in the contracts that whether the property rights belonged to the government or whether these buildings were transferred government at cost price, the government would take the buildings back at cost price. The cost price should be based on information price and costing index publicized in the construction costing management station at the completion year. The auditing department should perform review on the pricing scheme. Base on the statistics, the Company and its subsidiaries have transferred to related government department the community facilities and public services houses of the building area 29,609.17 ㎡, which complied with the above scheme, and would be able to receive the compensation at the cost price. However, in these community facilities, part of the buildings have not been mapped, so the building area finally recognized by the government would be different from the figure above. According to the accounting standards, the cost of these community facilities have been charged into the development products, and been carried forward into profit and loss account along with the sales of the development products. Therefore, the compensation 100 at cost price will increase the Company’s net asset. At the moment the Company has already worked on the application of the compensation from government. But the timing of obtaining approval from the Government and recovering the cost is uncertain, and the Company also cannot measure the amount that can be recovered reliably, thus the Company did not recognize the above contingent assets in the financial statements. Note XIII Events after balance sheet date 1. On January 29 2008, the Company’s subsidiary Shenzhen ITC Vehicles Services Company (hereinafter as the “Vehicles Company”) signed a gas station lease contract with Shenzhen Guanghong Investment Company Limited. The Vehicles Company rented a gas station, which was located in east of Agriculture Technology Centre, Beihuan Road, FuTian District, Shenzhen, and the related right of operation and management, to Shenzhen Guanghong Investment Company Limited, with the lease period of 15 years and the rentals amounting to RMB21 million in total. 2. On January 16, 2008, the Company processed “Borrowing the New and Paying the Former” procedure at business department of China Merchants Bank head office regarding its short-term borrowing in CMB. The amount repaid is RMB100,000,000.00 and the amount borrowed (in term of short-term borrowing) is RMB100,000,000.00. The maturity date of this short-term borrowing is January 16, 2009. 3. On February 14, 2008, the Company processed “Borrowing the New and Paying the Former” procedure at Bank of China Shenzhen Branch regarding its short-term borrowing in Bank of China. The amount repaid during January and February 2008 is RMB49,000,000.00 and the amount borrowed (in term of short-term borrowing) is RMB30,000,000.00. The maturity date of this short-term borrowing is February 14, 2009. Note XIV Measures to improve going concern and operation management ability Due to the continued losses in year 2006 and 2007, the Company’s stock has the risk of suspending the listing in stock market. The losses of the Company was mainly caused by that: The profit in real-estate part reduced because the sales was mainly from on the remaining houses built and unsold in prior years; The gross margin rate was lower than the average level in the market; and the gross margin was not enough to 101 compensate the Company’s operation expenses and financial expenses, etc. However, the Company does not find any significant issues on financial position, operation and other aspects that might lead to questioning on the Company’s going concern ability. The strategy of the Company is that the Company will continue to operate focusing on property development and in property leasing and jitney motor car operation industry as supplement to improve the profitability ability and the profit level for the purpose of stable and sustainable development of the Company. The Company will adopt the following measures to improve the operation in 2008: 1. Keeping the building construction process on schedule to ensure the Huangyu Garden“Imperial Garden” project (land unit A of C zone in Huangyu Garden) able to complete construction at end of the year, meanwhile setting up good distribution channel, and reaching the sales target; 2. Strengthening the efforts to recruit the investment to ensure the grand opening of International Trade Plaza before the 30th anniversary celebration of Reform and Open-Door Policy in Shenzhen. 3. Through the scale operation, ensuring the increasing taxi transport capacity becoming the new profit growing point. Note XV Other significant events 1. On April 1 2005, the top 2 controlling shareholders Shenzhen Construction Investment Holdings Company and Shenzhen Investment Management Company (hereinafter combined the two companies as the “Investment Holdings”) signed a Shareholdings Transfer Agreement with Zhuojian Investment Company Limited (hereinafter as “Zhuojian Investment”), transferring 70.3% of shareholdings of the Company to Zhuojian Investment. On April 2006, Zhuojian Investment received the feedback of ZJGSZ [2006] No. 97 from China Securities Regulatory Commission (CSRC), in which the CSRC refused the application of exemption from performing the tender offer obligation due to holding the shares of the Company. Zhuojian Investment was required to make a general tender offer within 15 days after receiving the feedback. On May 2006, Zhuojian Investment received the notice of ZJGSZ [2006] No. 97 from CSRC, which stated that according to the opinion of national state-owned assets administration authorities, due to some issues needed to be confirmed concerning the takeover of the Company's legal shares for Zhuojian 102 Investment, the takeover issue was suspended to be reviewed. On April 23, 2007, the Investment Holdings delivered a Notice (STK [2007] No.181) of Terminating the Transfer Shareholdings of Shenzhen Properties & Recourses Development (Group) Ltd, deciding to unilaterally terminate the transfer of shareholdings and collateral agreement. On April 25, 2007, Zhuojian Investment responded to the Company with the Response to the Investment Holdings’ Unilateral Termination the Transfer of Shareholdings of Shenzhen Properties & Recourses Development (Group) Ltd, disagree with the Investment Holdings. Both two parties applied to China International Economic and Trade Arbitration Commission (the CIETAC) for arbitration. The CIETAC made the award on October 25, 2007 that the Shareholdings Transfer Agreement signed on April 1, 2005 was legal and effective, should be continued. Zhuojian Investment should perform the tender offer obligation before June 30, 2008. If the tender offer is not performed till expiration, the agreement would be terminated immediately. Up to the reporting date, the above shareholdings are still registered under the title of the Investment Holdings. Owing to the above situation, the non-tradable shares reform of the Company has not been executed up to the reporting date. 2. The Company accrued land appreciation fees concerning to Jinlihua Building amounting to RMB56,303,627.4 in prior years. It is regulated by the document SGT［2001］No. 314 that the land appreciation fees not paid or owned could be exempted. Owing to the land use right is not transferred, the Company will actively working on the related procedures of exemption of land appreciation fees amounting to RMB56,303,627.40. After obtaining the related approval, the Company will write off the accrued land appreciation fees amounting to RMB56,303,627.40. The Company made bad debt provision amounting to RMB44.0143 million over the accounts receivable amounting to RMB100.0143 million due from Shenzhen Jiyong Property Development Company Limited concerning Jinlihua Building. The net amount of the accounts receivable was RMB56 million. According to the regulation of Shenzhen government about the treatment of 52 “Questioned Buildings”, up to September 30 2006, if the projects were still not handled with the reconstruction registration on time, the government would legally take back the land use right and the ground building of Jinlihua Building. 103 3. In 2006 the Company checked trading securities (equaling to “trading financial assets” under new accounting standard) and made retrospective restatement as previous accounting errors. Due to the lacking of relevant documents, the auditor issued a qualified opinion in 2006. On July 12 2007, Wuhan Zhonghuan Certified Public Accountants issued a Specific Review Report on Trading Securities out of Book of Shenzhen Properties & Recourses Development (Group) Ltd (hereinafter as the “Report”). On April 14 2008 the board meeting was called and made the following resolution: Based on the present information, the Company believed that the Report is objective and decided to carry through the accounting treatment in compliance with the Report. As for RMB5,279,032.80 of the securities deposit transferred in and RMB5,651,120.00 of the securities deposit transferred out which are lack of original vouchers, the Company decided to treated it as Other Payables amounting to RMB5,279,032.80 and Other Receivables amounting to RMB5,651,120.00 respectively and planned to deal with it after acquiring further information. 4. On October 30, 2007, Shenzhen ITC Vehicles Services Company won a bid of 100 “red taxi” operating licenses with a consideration amounting to RMB542,500. Till the reporting date, the transfer of title of these operating licenses is still in process. Note XVI Supplementary information 1. According to “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 9: Calculation and disclosure of ROE and EPS (2007 revised)” issued by the CSRC, ROE and EPS are calculated as follows: ROE EPS 2007 Weighted Diluted Fully diluted average Basic EPS EPS Net profit attributable to ordinary shareholders -4.84% -4.75% -0.05 -0.05 Net profit attributable to ordinary shareholders -13.30% -13.04% -0.14 -0.14 after deducting extraordinary gain or loss 2006 ROE EPS 104 Weighted Diluted Fully diluted average Basic EPS EPS Net profit attributable to ordinary shareholders -7.64% -7.34% -0.08 -0.08 Net profit attributable to ordinary shareholders -6.22% -5.98% -0.07 -0.07 after deducting extraordinary gain or loss Calculation process: Item 2007 2006 Net profit attributable to ordinary shareholders -27,377,663.77 -45,092,615.78 Extraordinary gain or loss (Gain: negative) -47,791,426.13 8,365,718.97 Net profit attributable to ordinary shareholders after deducting -75,169,089.90 -36,726,896.81 extraordinary gain or loss Opening balance of net asset attributable to ordinary 590,341,298.69 636,935,954.74 shareholders Net profit attributable to ordinary shareholders -27,377,663.77 -45,092,615.78 Increase of capital surplus (negative: decrease) 4,946,544.56 63,682.00 Increase of reserved fund (negative: decrease) Increase/(decrease) in foreign exchange difference arisen from the translation of foreign currency financial statements -2,013,977.10 -1,565,722.27 Closing balance of net assets attributable to ordinary 565,896,202.38 590,341,298.69 shareholders Opening balance of paid-in capital 541,799,175.00 541,799,175.00 Closing balance of paid-in capital 541,799,175.00 541,799,175.00 Weighted average paid-in capital 541,799,175.00 541,799,175.00 2. Comparative financial information between the previous and new accounting standards (1) Restated items in comparative income statement (income statement for the financial year 2006) are as follows: Item Before restatement After restatement Revenue 311,948,669.86 323,027,334.95 105 Item Before restatement After restatement Cost of sales 235,266,935.67 238,851,690.65 Business taxes and surcharges 21,063,433.72 21,447,081.11 Other operation profit 4,296,616.21 Distribution expenses 17,104,451.96 17,104,451.96 Administrative expenses 56,395,204.55 96,913,198.52 Financial costs 15,268,770.72 15,274,086.61 Impairment loss -35,863,981.77 Net gain from change in fair value 13,172,444.57 Gain on investments 8,727,579.14 -2,570,683.78 Non-operating income 890,592.28 890,592.28 Non-operating expense 25,930,530.62 25,930,530.62 Income tax expense 888,351.37 -43,158.80 Net profit -46,054,221.12 -45,094,210.88 (2) Reconciliation of net profit for the financial year 2006 is as follows: Item Amount Net profit for the financial year 2006 (under the previous accounting standard) -46,054,221.12 Accumulative effect of retrospectively restated items 960,010.24 Including: Revenue 11,078,665.09 Cost of sales 3,584,754.98 Business taxes and surcharges 383,647.39 Other operation profit -4,296,616.21 Administrative expenses 40,517,993.97 Financial costs 5,315.89 Impairment loss -35,863,981.77 Net gain from change in fair value 13,172,444.57 Gain on investments -11,298,262.92 Income tax expense -931,510.17 Net profit for the financial year 2006 under new accounting standards -45,094,210.88 106 Reference information assuming fully adoption of new accounting standards Accumulative effect of other items Including: Borrowing costs -6,056,032.09 Welfare fund payable -1,836,614.96 Reversal of impairment loss on long-term equity investment (excluding write off) -2,480,891.94 Effect of aforesaid restatements on income tax expense 908,404.81 Simulative net profit for the financial year 2006 -54,559,345.06 Nature and amount of retrospective restatements of the net profit for the financial year 2006 refer to Note V.1 (3) Restatement of the shareholders’ equity under previous accounting standards in accordance with Chinese Accounting Standards (2006) a) Restatements of shareholders’ equity as at January 1, 2006 Item Before After restatement restatement Paid-in capital 541,799,175.00 541,799,175.00 Capital surplus 25,269,249.52 25,269,249.52 Reserved fund 62,919,127.11 62,919,127.11 Retained earnings -76,799.91 5,272,459.82 foreign exchange difference arisen from the translation of foreign 1,675,943.29 currency financial statements Minority interests 862,359.07 Total shareholders’ equity 629,910,751.72 637,798,313.81 Reasons of restatements: (decrease is shown as negative figure) Adjusting events Amount Restated items Shareholders’ equity as at January 1, 2006 (under previous 629,910,751.72 Refer to Note V.1 accounting standard) Income tax expense 6,904,270.85 Others 983,291.24 107 Shareholders’ equity as at January 1, 2006 (under Chinese 637,798,313.81 Accounting Standards (2006) ) b) Restatements of shareholders’ equity as at December 31, 2006 Before Item restatement After restatement Paid-in capital 541,799,175.00 541,799,175.00 Capital surplus 25,332,931.52 25,332,931.52 Reserved fund 62,919,127.11 62,919,127.11 Retained earnings -46,131,021.03 -39,820,155.96 foreign exchange difference arisen from the translation of foreign currency financial statements 110,221.02 Minority interests 860,763.97 Total shareholders’ equity 583,920,212.60 591,202,062.66 Reasons of restatements: (decrease is shown as negative figure) Adjusting events Amount Restated items Shareholders’ equity as at December 31, 2006 (under previous 583,920,212.60 Refer to Note accounting standard) V.1 Financial asset at fair value through profit or loss and 5,923,150.98 available-for-sale financial asset Income tax expense 7,835,781.02 Others -6,477,081.94 Shareholders’ equity as at December 31, 2006 (under Chinese 591,202,062.66 Accounting Standards (2006) ) (4) Comparison of shareholders’ equity under previous and new accounting standards No. Item Amount in Amount in Difference Explanation financial financial statement of statement of 2007 2006 without restatement Shareholders’ equity as at 583,920,212.60 583,920,212.60 December 31, 2006 (under 108 No. Item Amount in Amount in Difference Explanation financial financial statement of statement of 2007 2006 without restatement previous accounting standard) 1 Financial asset at fair value 5,923,150.98 5,923,150.98 through profit or loss and available-for-sale financial asset 2 Income tax expense 7,835,781.02 8,724,253.67 -888,472.65 Note A 3 Others -6,477,081.94 -7,125,009.29 647,927.35 Note B Shareholders’ equity as at 591,202,062.66 591,442,607.96 -240,545.30 January 1, 2007 (under Chinese Accounting Standards (2006) ) Note A: a deferred tax liability amounting to RMB888,472.65 has been recognized for the excess of carrying amount of trading financial asset of the Company over its tax base. Note B: the carrying amount of long-term equity investment was increased by RMB647,927.35 because equity method is used in accounting for joint venture in accordance with Chinese Accounting Standards (2006) . Legal representative: Senior accountant Chief financial officer: 109 Consolidated Balance Sheet (Assets) Shenzhen Properties & Resourses Development (Group) Ltd Assets Note December 31 2007 Current Assets: Cash and cash equivalents IX.1 242,161,687.3 Settlement fund Outgoing call loan Trading finanical assets IX.2 5,192,690.5 Notes receivable Accounts receivable IX.3 66,415,218.5 Prepayment IX.5 68,288,274.0 Insurance receivables Reinsurance Receivable Provision of reinsurance contract reserve receivable Interests receivable Other receivables IX.4 75,964,525.1 Financial assets purchased under agreement to resell Inventories IX.6 974,256,614.1 Non-current assets due within 1 year Other current assets Total current assets 1,432,279,009.7 Non-current assets： Loan and payment on other's behalf disbursed 110 Available-for-sale financial assets IX.7 9,200,018.4 Investment held to maturity IX.8 3,000.0 Long-term receivables Long-term equity investment IX.9 72,204,803.4 Investment property IX.10 174,233,469.2 Fixed assets IX.11 112,616,882.3 Construction in progess Engieering materials Disposal of fixed assets Production biological assets Oil-gas assets Intangible assets IX.12 74,066,417.0 R&D expenses Goodwill Long-term deferred expenses 210,006.0 Deferred tax assets IX.13 10,444,137.0 Other non-current assets Total non-current assets 452,978,733.5 Total assets 1,885,257,743.2 Delegate in Law: Chief accountant: official: 111 Consolidated Balance Sheet（Liabilities and Equities) Shenzhen Properties & Resourses Development (Group) Ltd Liabilities and Shareholders' Equity Note December 31 2007 Current Liabilities: Short-term borrowings IX.16 286,640,774.9 Borrowings from Central Bank Deposits and due to bank and other financial institutions Dismantle fund Financial liabilities held for trading Notes payable Trade payable IX.17 78,261,460.4 Advance from customers IX.18 135,947,584.0 Financial assets sold under agreements to repurchase Service charge and commission payables Payroll payable IX.19 31,706,522.2 Taxes payable IX.20 38,959,623.0 Interests payable 587,044.8 Other payables IX.21 153,712,806.2 Amount due to reinsurance Insurance contract reserve Customer deposits Underwriting proceeds payables Non-current liabilities due within 1 year IX.22 239,992,263.8 Other current liabilities 112 Total Current Liabilities 965,808,079.6 Non-current Liabilities: Long-term borrowings IX.23 186,803,081.2 Bonds payable Long-term payables Specific purpose account payables Provision for contingent liabilities IX.24 41,772,906.0 Deferred tax liabilities IX.13 1,211,007.2 Other non-current liabilities IX.25 122,909,254.8 Total Non-current Liabilities 352,696,249.4 TOTAL LIABILITIES 1,318,504,329.1 Shareholders’Equity: Paid-in capital IX.26 541,799,175.0 Capital surplus IX.27 30,279,476.0 Less: Treasury stock Reserved fund IX.28 62,919,127.1 General risk provision Retained earnings IX.29 -67,197,819.7 Foreign exchange difference -1,903,756.0 Total shareholders' equity attributable to holding company 565,896,202.3 Minority interest 857,211.7 TOTAL SHAREHOLDERS’ EQUITY 566,753,414.1 TOTAL LIABILITIES & SHAREHOLDERS’EQUITY 1,885,257,743.2 Delegate in Law: Chief accountant: official: 113 Consolidated Income Statement Shenzhen Properties & Resourses Development (Group) Ltd Item N I. Total renenue Including: renenue IX Interests income Insurance fee income Fee and commission income II. Total cost of sales Including: Cost of sales IX Interests expenses Service charge and commission income Insurance discharge payment Claim expenses-net Provision for insurance contract reserve-net Insurance policy dividend paid Reinsurance expense Business taxes and surcharges IX Distribution expenses Administrative expenses 114 Financial costs IX Impairment loss IX Plus: gain/loss on change in fair value (“-”for loss) IX gain/loss on investment(“-”for loss) IX Including: income from investment on associates and jointly ventures Gain or loss on foreign exchange difference (“-”for loss) III. Operating profit(“-”for loss) Plus: non-operating income IX Less: non-operating expense IX Including: loss from disposal of non-current asset IV. Total profit(“-”for loss) Less: income tax expense IX V. Net profit(“-”for loss) Including:Attributable to equity holders of the parent company Minority interest VI. Earnings per share (I) basic earnings per share (II) diluted earnings per share Delegate in Law: Chief accountant: official: 115 Consoliated Cashflow Statemen Shenzhen Properties & Resourses Development (Group) Ltd Item 1. Cash flows from operating activities Cash received from sales of goods or rending of services Net increase of deposits received and held for others Net increase of loans from central bank Net increase of inter-bank loans from other financial assets Cash received against original insurance contract Net Cash received from reinsurance Net increase of client deposit and investment Cash received from disposal of held-for-trading financial assets Cash received as Interests, fees and commissions received Net increase of inter-bank fund received Cash received under repurchasing, net Tax returned Other cash received from operating activities Sub-total of cash inflow from operating activities Cash paid for goods and services Net increase of loans and advances Net increase of deposit in central bank,banks and other financial institutions Cash paid for original contract claim Cash paid for interests, fees and commission Cash paid for policy dividend Cash paid to and for employees Cash paid for all types of taxes Other cash paid relating to operating activities Sub-total of cash outflows Net cash outflow in operating activities 2. Cash Flows from Investing Activities Cash received from return of investments Cash received from investment income Net cash received from disposal of fixed assets, intangible assets and other long-term assets 116 Net cash received from disposal of subsidiaries and other operating units Other cash received relating to investing activities Sub-total of cash inflows of investing activities Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for acquisition of investments Net increase of pledge loans Net cash paid for acquisition of subsidiaries and other operating units Other cash paid relating to investing activities Sub-total of cash outflows of investing activities Net cash inflow from investing activities 3. Cash Flows from Financing Activities: Cash received from investment Including: Cash received from minority shareholders of subsidiaries Cash received from borrowings Cash received from bonds issuing Cash received relating to financing activities Sub-total of cash inflows of financing activities Cash paid for repayments of borrowings Cash paid for dividends, profit distribution or interest Including: dividends or profits paid to minority shareholders by subsidiaries Other cash paid relating to financing activities Sub-total of cash outflows of financing activities Net cash inflow from financing activities 4. Effect of foreign exchange rate changes 5. Net decrease in cash and cash equivalents Add : Cash and cash equivalents at the beginning of the year 6. Cash and cash equivalents at the end of the year Delegate in Law: Chief accountant: official: 117 Conso Shenzhen Properties & Resourses Development (Group) Ltd Item Share capital Capital I. Balance at 31 December, 2006 541,799,175.00 2 Plus: change in accounting policies Correction of errors in previous period II. Balance at 1 January, 2007 541,799,175.00 2 III. Increase/ decrease during the financial year (“-”for loss) (I) Net profit (II) Gain and loss recognised directly in equity 1. Net changes in fair value of available-for-sale financial assets 2. Effects on changes in equity of invested companies under equity method 3. Deffered tax effect 4. Others Subtotal of (I)and (II) (III) Contributions and decrease of capital 1. Contributions by shareholders 2. Equity settled share-based payment 3. Others (IV) Profit distribution 1. Surplus reserve accrued 2. General risk provision accrued 3. Distribution to shareholders 4. Others (V) Transfer within shareholders' equity 118 1. Captial reserve transferred to capital (share capital) 2. Surplus reserve transferred to capital (share capital) 3. Surplus reserve offsetting losses 4. Others IV. Balance at 31 December, 2007 541,799,175.00 3 * "Others" are "Foreign exchange difference". Delegate in law: Chief accountant: - - Conso Preparer：Shenzhen Properties & Resourses Development (Group) Ltd Item Paid-in capital Capital I. Balance at 31 December, 2005 541,799,175.00 2 Plus: change in accounting policies Correction of errors in previous period II. Balance at 1 January, 2006 541,799,175.00 2 III. Increase/ decrease during the financial year (“-”for loss) (I) Net profit (II) Gain and loss recognised directly in equity 1. Net changes in fair value of available-for-sale financial assets 2. Effects on changes in equity of invested companies under equity method 3. Deffered tax effect 4. Others 119 Subtotal of (I)and (II) (III) Contributions and decrease of capital 1. Contributions by shareholders 2. Equity settled share-based payment 3. Others (IV) Profit distribution 1. Surplus reserve accrued 2. General risk provision accrued 3. Distribution to shareholders 4. Others (V) Transfer within shareholders' equity 1. Captial reserve transferred to capital (share capital) 2. Surplus reserve transferred to capital (share capital) 3. Surplus reserve offsetting losses 4. Others IV. Balance at 31 December, 2006 541,799,175.00 2 * "Others" are "Foreign exchange difference". Delegate in law: Chief accountant: 120 Balance Sheet (Assets) Shenzhen Properties & Resourses Development (Group) Ltd Assets Note Decem Current assets Cash and cash equivalents Trading finanical assets Notes receivable Accounts receivable X.1 Prepayment Interest receivables Dividend receivables Other receivables X.2 Inventories Non-current assets due within 1-year Other current assets Total current assets Non-current assets： Available-for-sale financial assets Investment held to maturity Long-term receivables 121 Long-term equity investment X.3 Investment property Fixed assets Construction in progess Engieering materials Disposal of fixed assets Production biological assets Oil-gas assets Intangible assets R&D expenses Goodwill Long-term deferred expenses Deferred tax Other non-current assets Total non-current assets Total assets 1 Delegate in Law: Chief accountant: official: Balance Sheet（Liabilities and Equities) Shenzhen Properties & Resourses Development (Group) Ltd 122 Liabilities and Shareholders' Equity Note Decem Current liabilities： Short-term loan Trading financial liabilities Notes payable Accounts payable Advance from customers Payroll payable Taxes payable Interests payable Dividend payables Other payables Non-current liabilities due within 1-year Other current liabilities Total current liabilities： Non-current liabilities： Long-term loans Bonds payable Long-term payables Specific payables Provision for liabilities Deferred taxes liabilities Other non-current liabilities 123 Total non-current liabilities： Total liabilities Shareholders' Equity： Share capital Capital surplus Less：Treasury Stock Surplus reserve Retained earning Total shareholders' equity: Total liabilities and shareholders' equity: 1 Delegate in Law: Chief accountant: official: 124